Bloomberg News

Manulife’s Third-Quarter Loss Misses Analysts’ Estimates

November 07, 2011

Nov. 3 (Bloomberg) -- Manulife Financial Corp., Canada’s largest insurer, posted a wider quarterly loss than analysts estimated after declines linked to stock prices and interest rates.

The third-quarter net loss narrowed to C$1.3 billion ($1.29 billion), or 73 cents a share, from a loss of C$2.27 billion, or C$1.28, a year earlier, the Toronto-based insurer said today in a statement. Analysts surveyed by Bloomberg estimated earnings per share of 59 cents, or 22 cents before one-time items.

“Highly volatile markets,” such as stock declines, had a C$4.8 billion earnings impact in the quarter, of which about 70 percent was hedged, Manulife said. Insurers are hurt by falling equities because they reduce investment income while increasing costs from obligations to clients who bought guaranteed investment products.

“While we are disappointed with the reported loss for the quarter, we are pleased that our hedging programs worked,” Chief Executive Officer Donald Guloien said in the statement.

Manulife has vowed to hedge 75 percent of its equity risk by the end of 2014 and will consider hedging beyond that date, the company reiterated today. Hedging reduced the company’s interest rate sensitivity by C$1 billion in the quarter.

Manulife is the third of Canada’s four main insurers to report quarterly results. Industrial Alliance Insurance and Financial Services Inc. said net income fell 28 percent to C$45.7 million, or 52 cents a share. Sun Life Financial Inc. reported a third-quarter loss of C$621 million, or C$1.07 a share, compared with a year-earlier profit.

Stark Contrast

Manulife had lower interest-rate fluctuations compared with the second quarter, which was in “stark contrast” to Sun Life’s loss, said John Aiken, an analyst at Barclays Capital in Toronto.

“While it’s possible we are simply becoming numb to billion dollar losses from Manulife, we view its earnings release more positively than Sun’s and believe that it should outperform in the near future,” Aiken wrote in a note after results were released.

Manulife recorded a C$965 million loss from its U.S. money- management business and a C$59 million loss in its U.S. insurance unit. The Canadian operations had a loss of C$96 million, and the Asia division recorded a C$712 million loss. Each business had a profit in the year-earlier period.

Manulife told investors on a conference call today that under U.S. accounting for International Financial Standards, earnings would have been C$3.4 billion higher. The standards can make Canadian companies look weaker and it’s important for Canadian regulators to get the standards “right,” the company said.

“You would think that the regulators would be paying attention to this matter, because it puts Canadian companies at a disadvantage operating in other jurisdictions,” Guloien said today in a telephone interview. “You’d think that the regulator would care about the vitality of the industry.”

Separately, Manulife named former Canadian Auditor General Sheila Fraser to its board of directors.

Great-West Lifeco Inc., the country’s second-biggest insurer, is scheduled to report results Nov. 10.

Manulife rose 4.5 percent to C$13.11 in Toronto trading. Sun Life fell 4.8 percent to C$22.85.

--Editors: David Scanlan, David Scheer

To contact the reporter on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Dan Kraut at dkraut2@bloomberg.net.


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