EUR 850.00 For Business Accounts Only

Morningstar | Manulife Gets Favorable Court Ruling in Mosten Case; Shares Remain Fairly Valued

Manulife announced earlier this week that it received a favorable court ruling in the case Mosten Investment LP had filed against it in 2016. Mosten had argued that a loophole in legacy policies allows it to park unlimited funds with the insurer at guaranteed rates materially higher than the market rate. The potential flaw related to side accounts that were originally built for policyholders to pre-pay premiums. Mosten appeared to have a low likelihood of success with the lawsuit given recent regulatory changes in the province of Saskatchewan that were implemented as a direct response to the claims. Still, rulings are often difficult to predict, and a negative decision could’ve materially affected our valuation estimates for Manulife and its primary competitors Sun Life and Great-West because of nearly limitless exposure. The Court ruled that the policy was limited to “funds paid or investment to pay current and future costs of insurance,” which aligns with Manulife’s position that Mosten’s use case for the accounts violated their stated purpose. There’s no indication that Mosten will appeal the decision, but we don’t foresee any changes to the outcome if it attempts to keep the case open in the court system. Though the market appeared to be discounting shares following the lawsuit being disclosed by a short seller in October, we were not incorporating a negative outcome in our valuation of the insurer, and we’re maintaining our fair value estimate of CAD 23.