November 3, 2011 / 12:34 PM / 7 years ago

UPDATE 4-Manulife shares rise despite steep loss

* Results hit by weak markets, actuarial review

* More risks attached to 2015 C$4 bln profit goal

* CEO would like to “unlock” John Hancock value

* Stock rises 4.5 percent (Adds details, analyst and CEO comment)

By Cameron French

TORONTO, Nov 3 (Reuters) - Manulife Financial (MFC.TO) turned in a steeper than expected quarterly loss on Thursday and said its 2015 C$4 billion profit goal may be at risk, but its shares rose as the insurer’s results looked good when compared with its peers.

Speaking on a conference call, Chief Executive Donald Guloien also said he would welcome an opportunity to “unlock shareholder value” in Manulife’s U.S. John Hancock division, but did not elaborate on what measures he would consider.

Shares of Canada’s largest insurer rose 4.5 percent as its miss of consensus estimates looked good compared to gloomier results from rivals Sun Life Financial (SLF.TO) and Industrial Alliance (IAG.TO).

“I was more concerned with what the underlying performance was going to look like, and I think Manulife was the winner this quarter,” said Edward Jones analyst Craig Fehr, citing strength in its core insurance and wealth management business.

“That to me is a more important indicator of where these stocks will go long term.”

As has been the case in several recent quarters, a sharp drop in equity markets and low bond yields forced the insurer to raise its reserves to guarantee future liabilities, thus stripping more than C$1 billion ($992 million) from its bottom line. Other charges added to the loss.

The Toronto Stock Exchange’s benchmark S&P/TSX composite index .GSPTSE fell 12.6 percent in the third quarter, while bond yields retreated due to economic uncertainty in Europe and the U.S. Federal Reserve’s purchases of long-term bonds.


Canada’s largest insurer lost C$1.28 billion, or 73 Canadian cents a share, in the quarter ended Sept. 30. Analysts had expected a shortfall of 53 Canadian cents a share.

“It was a big loss (but) we were expecting that,” said Peter Routledge, an analyst at National Bank Financial.

The loss actually shrank from a year-earlier shortfall of C$2.25 billion, or C$1.28 a share, when the company was hit by writedowns and even larger reserve charges.

Since then, Manulife has embarked on an aggressive hedging program to reduce its sensitivity to markets.

The company said it is already ahead of its 2014 goal for hedging interest rate sensitivity and is at 88 percent of its 2014 goal for hedging equity markets.

However, the weak markets and capital-raising measures that are still underway raise the risk that Manulife may not meet its goal of C$4 billion in annual profit by 2015, which it put in place last year.

“At this point we haven’t thrown in the towel on the C$4 billion, Chief Financial Officer Michael Bell said on a conference call.

“But we acknowledge that there are now a lot more headwinds and risk factors than there were earlier.”

Manulife’s minimum continuing capital and surplus requirements (MCCSR) ratio - considered the key measure of capital - was 219 percent during the quarter, ahead of many analysts’ estimates, but down from 241 percent in the second-quarter.


On a U.S. accounting basis, which doesn’t require insurers to update reserves quarterly to account for market movements, Manulife earned C$2.2 billion during the quarter, it said.

Guloien said that Canadian accounting rules put companies at a disadvantage compared with U.S. rivals, a discrepancy that particularly affect John Hancock, which operates in the United States but is subject to Canadian accounting rules.

Asked about what measures he might consider to unlock value from John Hancock, Guloien wouldn’t be specific.

“We’d look at a range of alternatives that would be shareholder-friendly, that would reflect the situation. We’re not sentimental about things,” he told Reuters in an interview.

Manulife’s shares finished the session up 56 Canadian cents, or 4.5 percent, at C$13.11.

Weak markets drove rival Sun Life Financial (SLF.TO) to a C$621 million loss during the quarter, it said on Wednesday, and ate into profit at smaller player Industrial Alliance (IAG.TO).

$1=$1.01 Canadian Reporting by Cameron French; editing by Rob Wilson

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