Manulife Financial Corp.’s (MFC) second-quarter earnings of C$1.09 per share, or 93 cents per share on a constant currency basis, were well ahead of the Zacks Consensus Estimate of 63 cents per share. The improvement in the equity market resulted in the release of a significant amount of segregated fund guarantee reserves.
 
However, the reduced corporate bond rates and the persistent pressure on credit resulted in substantial charges in the quarter. Net income available to common shareholders were $1.5 billion, compared to $1.0 billion in the year-ago period.
 
In order to preserve capital, Manulife has also halved its dividend payment to $0.13 per share, effective Sept 21, 2009.
 
Premiums and deposits were C$19.2 billion ($16.4 billion), up 3% year over year but down 7% on a constant currency basis. Manulife experienced increased premiums from in-force insurance business growth and increased sales of fixed return wealth products. However, the variable annuity and segregated fund deposits were significantly down from the prior year period.
 
Insurance sales were up 2% year over year but down 8% on a constant currency basis, as strong sales in Japan were offset by declines in the U.S. and Canada. Wealth sales were down 11% year over year or 19% on a constant currency basis. Though the company reported solid sales in fixed products in the U.S. and Canada, it was more than offset by the decrease in variable product sales across Manulife’s footprints.
 
Total funds under management were up 5% year over year but down 5% on a constant currency basis. While the company experienced positive policyholder cash flows, results were impacted by the negative impact of market value declines.
 
Manulife has estimated its normalized earnings in the range of C$750 million (around $643 million) and C$850 million (around $728 million) per quarter in the remaining months of 2009 and 2010. This would imply a return on equity of approximately 12%, down from the previous target of 16%.
 
Manulife has been having unpalatable experiences in areas of policyholder behavior and other actuarial assumptions. Currently, the company is reviewing its policyholder experience, investment and economic assumptions. The review is expected to be complete in the third quarter and get recorded in earnings in the same quarter. As of now, the company expects an additional reserve strengthening of up to C$500 million after-tax. 
 
The company reported a minimum continuing capital and surplus requirements (MCCSR) ratio of 242% as of June 30, 2009, up 42 points from 200% in the corresponding period a year ago. Results reflected capital infusions, which more than offset the negative impact of segregated fund guarantees on both earnings and capital.
 
Companies such as Manulife Financial, Principal Financial Group (PFG) and Lincoln Financial Group (LNC) have been adversely impacted by the severe equity market downturn. Particularly, the variable annuity business of these companies has been worst hit.
 
Though Manulife has reported favorably given the current economic climate, the company’s stock may be increasingly subject to stock price and trading volume volatility.
Read the full analyst report on “MFC”
Read the full analyst report on “PFG”
Read the full analyst report on “LNC”
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