(Adds adjusted closing price in last paragraph)
By Lynne Olver
TORONTO, Oct 14 (Reuters) - Concerns about the capital position at Manulife Financial Corp (MFC.TO)(MFC.N) are overblown and Canada’s largest insurer is not looking at issuing common shares or cutting its dividend, its chief executive told a conference call on Tuesday.
“We think that Manulife was sideswiped by the meltdown in the markets in a way that grossly exaggerates any impact that they’re going to have on us,” CEO Dominic D’Alessandro told analysts before markets opened.
His assurances, after the company issued a detailed press release on Monday, sent Manulife’s stock price soaring as much as 27 percent on the Toronto Stock Exchange early on Tuesday, although that gain was nearly halved by the close.
Canadian markets were closed for a Canadian holiday on Monday, when the insurer said it would take a third-quarter charge of about C$250 million on credit investments and gave an update on its capital position.
“We remain very well capitalized and we have no intention to issue equity capital, contrary to speculation that came to our attention,” D’Alessandro said on the call.
The company, North America’s largest life insurer by market value, also has no plan to cut its dividend, he said.
If necessary, Manulife would consider obtaining reinsurance or hedging its exposure to deteriorating equity markets, or possibly issuing preferred shares or debentures, D’Alessandro said.
“The capital resources for the company under almost any reasonable expectation of what’s going to happen are more than adequate today,” he said on the call. “If markets do deteriorate, we’re a big strong company and we’ll go and do something else to re-establish our capital levels at an acceptable threshold.”
But analysts said that Manulife’s excess capital — or capital not needed to meet regulatory requirements — has dwindled with the decline in stock markets.
BMO Capital Markets analyst John Reucassel said in a brief research note that its excess capital is probably C$1 billion or less, down from C$3 billion-C$4 billion at the end of the second quarter.
If equity markets do not recover significantly, Manulife may have to allocate more capital to cover variable annuities, Genuity Capital analyst Mario Mendonca said.
The company has options to bolster capital, including reinsuring blocks of business, selling non-core businesses, or issuing preferred or common shares, but any of those steps would affect earnings, Mendonca wrote in a research note.
He cut his 2008 and 2009 earnings estimates, and downgraded the stock to “hold” from “buy.” Mendonca said Manulife is vulnerable to further stock-market weakness and may no longer be “head and shoulders above its U.S. peers” in competing for acquisitions.
In the Manulife operating unit most affected by equity market swings, required capital increased to about C$9.3 billion at the end of the third quarter, from C$7.8 billion at the end of the second quarter, because sliding equity markets affected segregated fund guarantees, Simon Curtis, the company’s chief actuary, said on the call.
Further equity market declines in the fourth quarter would put downward pressure on capital ratios, Curtis said, but he stressed that the company was well-positioned to cover existing exposures, even if poor market conditions persist.
In its press release on Monday, the company said it expected third-quarter charges of C$250 million from investment losses — primarily holdings of Lehman Brothers LEHMQ.PK and a few other “troubled credits.” The C$250 million figure includes about C$50 million for strengthening reserves after downgrades of some of its investments.
The stock on Tuesday rose 14.5 percent to close at C$30.50. The broader S&P/TSX composite index rose 9.8 percent. ($1=$1.16 Canadian) (Reporting by Lynne Olver; Editing by Peter Galloway)