Canada insurer shares drop as weak markets hit prospects

Thu Sep 22, 2011 2:00pm EDT
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By Cameron French

TORONTO (Reuters) - Manulife Financial (MFC.TO: Quote) shares fell 5 percent and touched a 2-1/2 year low on Thursday as plunging stock markets and the U.S. Federal Reserve's debt purchase plan raised expectations that Canada's biggest insurer could post a heavy third-quarter loss.

Rival Sun Life Financial's (SLF.TO: Quote) shares fell roughly in line with the loss on the Toronto Stock Exchange's main index, but the company's chief financial officer suggested Sun Life's third-quarter results could also take a markets-related hit.

With Toronto's TSX index down 3.1 percent and U.S. bond yields falling hard, investors feared Manulife will have to set aside heavy reserves to guarantee it can pay future obligations to clients.

"(In) the third quarter, there will be a sizable loss," said National Bank of Canada analyst Peter Routledge. "If the quarter ended today, it would be a lot bigger than our estimates."

Canadian insurers hold stocks and bonds to guarantee they'll be able to pay future investment and insurance policy obligations. When the values of their portfolios fall on a quarterly basis, they use profits to bulk up reserves.

Such charges have wrought havoc with Canadian insurers' results over the past two years, with Manulife suffering the most because of its greater exposure to markets.

Global stocks were hit on Thursday after the U.S. Federal Reserve shook market confidence with a bleak economic outlook the day before.

Bond yields were pummeled by the Fed's planned $400 billion "Operation Twist" bond purchase, designed to bring down bond yields and stimulate the U.S. economy.   Continued...