What will Manulife Financial Corp. do with the U.S. long-term care insurance (LTCI) operations of its John Hancock unit?

Colin Devine, a securities analyst at Citi, New York, talks about the LTCI business in a new commentary.

Executives at Manulife, Toronto (TSX:MFC), recently emphasized during the company’s third-quarter earnings call that they view the LTCI business at John Hancock, Boston, as a business that is “not targeted for growth.”

The company has shifted to a new family of retail LTCI products, and it reported that third-quarter retail LTCI sales were down 73% from the total recorded in the third quarter of 2010.

Manulife has focused on LTCI sales and variable annuities (VAs) in the United States, and many securities analysts now view both of those product lines as relatively high-risk products, in part because of the low rates of returns insurers can earn on their own investments in high-quality bonds in the current low-interest-rate environment.

Devine says he believes that Manulife’s Canadian and Australian businesses have been doing reasonably well, given how volatile the financial markets have been.

“By contrast, the U.S. John Hancock operations absent a respectable showing from investment management, remain a depressant on both overall results and capital,” Devine writes in the commentary. “In our view, MFC’s management is still coming to grips with the magnitude of the issues facing Hancock. The company has significantly downsized its U.S. VA business, and we would not be surprised if it formally exited both the VA and LTC markets during 2012 and downsized its presence in the jumbo individual life sector.”

Manulife could have to strengthen reserves in the LTC and individual life insurance lines if long-term interest rates remain low, Devine says.

A Manulife representative asked to respond to the commentary said the company has a longstanding policy of not commenting on analyst reports.