May 3, 2012 / 6:18 PM / 6 years ago

Manulife, Great-West profits rise, but disappoint

TORONTO (Reuters) - Canada’s top two life insurers - Manulife Financial Corp (MFC.TO) and Great-West Lifeco Inc (GWO.TO) - reported stronger first-quarter results on Thursday, but analysts and investors weren’t impressed as they looked ahead to what could be a gloomy second quarter.

Shares of Manulife, the country’s biggest insurer, initially rose 1 percent after the company reported a bigger than expected 22 percent rise in quarterly net profit.

But the enthusiasm quickly evaporated as a second look revealed that the company’s core results - taking out the impact of strong markets and other one-time items - were much weaker than the headline numbers. Analysts also noted that recent declines in stock prices and bond yields look set to weigh on the insurers’ second quarter results.

“As you parse through the data, the earnings were nowhere near as strong as the reported results would have you believe,” said John Aiken, an analyst at Barclays Capital in Toronto.

Manulife earned C$1.2 billion ($1.21 billion), or 66 Canadian cents a share, in the first quarter, a reversal from losses in the second half of 2011, and up from the company’s 2011 first-quarter profit of C$985 million, or 54 Canadian cents a share.

Just after midday, the company’s shares were down 4.4 percent at C$12.75.

Shares of No. 2 insurer Great-West were down a more modest 1.6 percent at C$24.42 after the 9 percent rise in profit that it reported fell short of estimates.

Winnipeg, Manitoba-based Great-West, which is 72 percent-owned by Canadian holding company Power Financial Corp (PWF.TO), earned C$451 million, or 47.5 Canadian cents a share, in the first quarter. Analysts had expected a profit of 51 Canadian cents a share, according to Thomson Reuters I/B/E/S.


Manulife’s profit was well ahead of consensus estimates of 36 Canadian cents a share, but was considerably lower when taking out the impact of the non-core items.

Aiken estimated the core result at 29 Canadian cents a share.

Volatile stock and bond markets have led to wild swings in Canadian insurers’ results over the past three years as they must make regular reserve adjustments to reflect the impact of market activity on the portfolios they have set up to cover future policy obligations.

Manulife has hedged much of its market exposure and exited higher-risk businesses over the past two years.

The company said the direct impact of equity and bond-market movements during the quarter was a gain of C$75 million, rising to C$541 million when factoring in the impact of markets on Manulife’s own investments and on its variable annuity hedges.

Stock markets have sold off since the end of February, however, while bond yields have declined, which could pressure second-quarter results.

“In the first quarter the markets were largely in the insurers’ favor, whereas now we’ve got Q1 reported, and you start looking forward,” Aiken said.

Manulife also it could take a charge of C$700 million-C$800 million in the second quarter to reflect the impact of lower bond yields on the company’s long-term investment expectations, a higher charge than some had expected.

“We were at C$550 million heading into the quarter, so they’re going to take a bigger charge than we thought,” said Peter Routledge, an analyst at National Bank Financial.

The company’s insurance sales rose 35 percent year-over-year, improving in its Canadian and Asian divisions, but falling slightly at Manulife’s U.S. John Hancock unit.

Manulife also said it had hired former AIA Group executive Steve Roder as chief financial officer, replacing Michael Bell, who said in February he would step down once the company hired a replacement.

Roder has spent much of the past two decades working in Asia, on which Manulife has focused its growth aspirations.

Speaking at the company’s annual general meeting in Toronto on Thursday, Chief Executive Donald Guloien said he expected Asia’s contribution to Manulife’s bottom line to continue to grow.

He also reiterated the company’s goal of reaching C$4 billion in overall profit by 2015, an objective that was put in place in 2010, but has appeared to be increasingly unlikely as global markets have continued to struggle.


Great-West’s profit gain was in comparison with a year-before quarter in which it took a C$75 million catastrophe provision for the earthquakes in Japan and New Zealand.

Total premiums and deposits fell 17 percent to C$14.5 billion during this year’s quarter.

Great-West operates under the Canada Life, London Life and Putnam Investments banners. Its parent, Power Financial, is a subsidiary of Power Corp (POW.TO), which is controlled by Montreal’s Desmarais family.

($1=$0.99 Canadian)

Reporting By Cameron French; Editing by Peter Galloway

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