TORONTO (Reuters) - Weaker insurance sales and a big writedown at its U.S. operation dropped Manulife Financial (MFC.TO) to a loss, and rival Great-West Lifeco (GWO.TO) posted a sharp jump in profit as Canadian insurers began reporting quarterly financial results on Thursday.
Manulife, Canada’s top insurer, also said its 2015 C$4 billion profit objective was at risk, and announced that its chief financial officer, Michael Bell, would step down once it could find his replacement.
The company lost C$69 million ($69 million), or 5 Canadian cents a share in the fourth quarter ended December 31, compared with a year-earlier profit of C$1.8 billion, or C$1.00.
Analysts had expected a loss of 11 Canadian cents a share.
Peter Routledge, an analyst at National Bank Financial, called it an “in line” result, but said core insurance earnings were actually a bit on the low side.
“They had some investment-related gains related to non-fixed income investments and oil and gas properties, so that bolstered earnings,” he said.
The company took a C$665 million noncash writedown on its U.S.-based John Hancock insurance unit to reflect the current and expected low interest rate environment.
Insurance sales fell to C$640 million from C$702 million, reflecting a sharp drop in sales of products the company is winding down. Sales of wealth products fell to C$8.2 billion from C$9.2 billion.
Manulife, whose earnings have suffered over the past three years because of declining interest rates and volatile equity markets, has been hedging its market exposure and exiting business lines that include interest rate and equity guarantees.
“The sensitivity to adverse movements in bond and stock markets has been substantially reduced,” said Gavin Graham, president of Graham Investment Strategy in Toronto, who was generally favorable on the company’s results.
Falling bond yields and lower stock markets force insurers to bulk up reserves to ensure they can pay future policy obligations.
While yields have begun to rise slightly in the new year, a substantial rise will be needed to prevent more quarterly charges, the company said.
Speaking on a conference call, Bell said the company may have to take a C$500 million charge related to long-term reserves in 2012 if the interest rate picture doesn’t improve.
He said the company’s objective of annual profit of C$4 billion by 2015 still stood, but that any margin for error had disappeared.
The company’s full-year profit for 2011 was C$129 million due to market-related losses, but earnings topped C$4.2 billion in 2007, before the financial crisis threw its business into turmoil.
“As a result of the deterioration in the economic conditions and global instability, our 2015 objectives not longer include a cushion for further unfavorable conditions,” said Bell, who became Manulife’s CFO in 2009.
Bell said the company is ahead of its timetable on hedging, and had finished repositioning its product mix.
Barclays Capital analyst John Aiken said the company is steering its operations in the right direction, but added that Bell, who has shepherded Manulife through a tricky repositioning of its business, would be hard to replace.
“We would not be surprised to see Manulife underperform in the near term given the less than stellar ‘core’ earnings coupled with the announcement of the CFO’s departure,” Aiken said in a note.
The company’s shares ended the session down 1.9 percent at C$11.88, the weakest TSX-listed financial stock on Thursday.
Winnipeg, Manitoba-based Great-West, Canada’s No. 2 insurer, said its profit jumped 34 percent in the fourth quarter, boosted by funds that were freed up from a reserve that had been set aside for litigation.
Great-West took a C$225 million litigation provision in 2010 when it was embroiled in a lawsuit surrounding the financing of its 1997 takeover of London Insurance Group. The company said on Thursday it re-evaluated and reduced that provision.
Great-West, 72 percent-owned by Power Financial Corp (PWF.TO), earned C$624 million. or 65 Canadian cents a share, in the three months ended December 31. That compared with a year-before profit of C$465 million, or 49 Canadian cents a share.
Analysts had expected a profit of 49 Canadian cents a share, according to Thomson Reuters I/B/E/S. the company’s shares ended the session flat at C$22.65.
Great-West, which operates under the Canada Life, London Life and Putnam Investments banners, is the only Canadian insurer expected to turn a profit this quarter, as competitors yet to report - Sun Life Financial (SLF.TO) and Industrial Alliance (IAG.TO) are likely to be hit by one-time charges and the impact of weak markets.
Reporting By Cameron French; Editing by Frank McGurty