Manulife Financial Corp.’s (MFC) first-quarter earnings of 41 cents per share topped the Zacks Consensus Estimate of 36 cents. Quarterly results reflected the benefits achieved from the rebound in the equity market.
 
Manulife experienced the favorable impact of the increase in the U.S. equity markets on the change in variable annuity guarantee reserves as well as improved investment results.
 
The company also continued to improve its equity risk profile by hedging an additional $15.2 billion of in-force variable annuity guarantee value. As a result, the percentage of guarantee value hedged or reinsured increased to 51% as of Mar 31, 2010, compared with 35% at the end of the prior quarter and 23% at the end of the prior-year quarter.
 
On a GAAP basis, the company reported a net income of $1.08 billion, compared with a net loss of $863 million in the year-ago quarter. In Canadian currency, Manulife reported a net income of C$1.14 billion or 64 cents a share, compared with a net loss of C$1.07 billion or 67 cents in the prior-year period.
 
Manulife’s insurance business reported premiums and deposits of C$5.2 billion, up 7% from the prior year period on a constant currency basis. The growth reflects an increase in in-force business.
 
Insurance product sales increased 20% year over year on a constant currency basis, primarily driven by strong performances in Asia. Additionally, with an improvement in economic conditions across geographic markets, sales growth was fuelled across all of its divisions.
 
Excluding the variable annuities business, the company reported 13% increase (on a constant currency basis) in premiums and deposits to C$9.7 billion in the wealth businesses. While the equity market appreciation led to a growth in mutual fund deposits, it was partially offset by lower fixed product sales in both the U.S. and Canada.
 
Excluding variable annuities, wealth product sales were up 21% over the prior-year period on a constant currency basis. This was driven by solid mutual fund and retirement sales in Canada and the U.S.
 
First quarter variable annuity sales were down 39% from the prior-year period on a constant currency basis, driven by a decline in sales in the U.S. and Canada, partially offset by an increase in sales in Japan. Premiums and deposits for variable annuity products were C$2.2 billion, a decrease of 40% year over year on a constant currency basis, as a result of the decline in sales.
 
Total funds under management as on Mar 31, 2010 were C$446 billion, an increase of C$7 billion over December 31, 2009 and C$41 billion over Mar 31, 2009. Results reflect strong policyholder cash flows, the acquisition of AIC Limited’s retail investment fund business and 49% of ABN AMRO TEDA Fund Management Co. Ltd.’s (Manulife TEDA) assets under management.
 
The company also reported a Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio of 250% as of Mar 31, 2010, up from 240% as of Dec 31, 2009. The improvement reflects the solid performance of the company in the quarter and a reduction in required capital to support variable annuity guarantees due to the equity market appreciation.
 
As a result of the severe downturn in the equity market during the financial crisis, the balance sheets of insurance and wealth management companies have been challenged. Like Manulife, other companies such as Principal Financial Group (PFG), Lincoln Financial Group (LNC) and Hartford Financial Services Group Inc. (HIG) have felt the brunt. The variable annuity businesses of these companies have been the worst hit. However, the rebound in the equity market inspires our confidence as we see these companies benefiting from the equity market appreciation.
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Read the full analyst report on “LNC”
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