February 9, 2012 / 11:23 AM / 6 years ago

UPDATE 4-Weak sales, writedown knock Manulife to loss

* Q4 adj EPS loss C$0.05 vs est loss C$0.11

* CFO Michael Bell to step down

* Writedown at John Hancock business results in loss

* Shares down 1.7 pct (Adds comments, details; in U.S. dollars unless noted)

By Cameron French

Feb 9 (Reuters) - Weaker insurance sales and a big writedown at it U.S. operation dropped Manulife Financial to a quarterly loss, Canada’s biggest life insurer said on Thursday.

The company, the first Canadian life insurer to report year-end results, also said that its chief financial officer, Michael Bell, would step down once a replacement can be found.

Manulife lost C$69 million ($69 million), or 5 Canadian cents a share in the fourth quarter, ended Dec. 31, compared with a year-earlier profit of C$1.8 billion, or C$1.00 a share.

Analysts, on average, had expected a loss of 11 Canadian cents a share, according to Thomson Reuters I/B/E/S.

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.


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.

Indeed, thanks to its hedging efforts, the company recorded a C$153 million gain from the direct impact of equity markets and interest rates during the quarter, despite a decline in long-term bond yields.

Manulife said it was ahead of its timetable on hedging, and had finished repositioning its product mix.

“We have already achieved our year-end 2012 equity markets hedging goal and 93 percent of our 2014 goal. We have also achieved our 2014 interest rate hedging goal,” Bell said in a statement.

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.

Bell, who became Manulife’s CFO in 2009, will remain with the company as it hunts for and transitions to a successor.

“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.

About one hour into trading, Manulife shares were down 1.7 percent, or 21 Canadian cents, at C$11.90, the weakest issue in the TSX financials index.

The stock has ridden a rallying market up 12 percent so far in 2012, but is down more than 70 percent from its pre-crisis high in 2007.


Insurance sales during the quarter fell to C$640 million from C$702 million, with the decline due to a sharp drop in sales of products the company is winding down, Manulife said. Sales of wealth products fell to C$8.2 billion from C$9.2 billion.

Manulife’s Canadian division earned C$241 million in the quarter, down from C$495 million a year ago, while Asian earnings fell to $279 million from $407 million.

U.S. insurance earnings rose to $424 million from $404 million, while income from U.S. wealth management fell to $74 milion from $675 million, due to strong market-related income a year earlier.

Manulife CEO Don Guiloien has said he wants to boost annual net profits to C$4 billion by 2015.

The company’s minimum continuing capital and surplus requirements ratio, which is considered the key industry measure of capital, was 216 percent during the quarter, compared with 219 percent in the third quarter.

Manulife reports under the Canadian version of International Financial Reporting Standards (IFRS). Under U.S. GAAP, which allows insurers to smooth out the impact of financial markets, the insurer would have earned C$370 million in the quarter.

Great-West Lifeco, Canada’s No. 2 insurer, will report later on Thursday.

($1=$1 Canadian)

Reporting By Cameron French; editing by Rob Wilson

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