Manulife Financial Corporation (MFC) reported its fourth-quarter 2010 adjusted operating earnings of 59 cents per share, lower than 47 cents reported in the prior-year quarter. Adjusted operating earnings were $680 (C$692) million, compared with $734 (C$781) million in fourth-quarter 2009.
Manulife incurred a net loss of $1.00 per share in the reported quarter compared with 51 cents per share in fourth-quarter 2009. Net income reported in the quarter was $1.76 (C$1.78) billion compared with $816 (C$868) million in the prior-year quarter.
The quarter under review was impacted by several one-time items: net gains of $846 (C$861) million related to equity markets and interest rates and other items totaling $237 (C$241) million.
Full year 2010 adjusted operating earnings were $2.79 (C$2.9) billion. The company reported net loss per share of 27 cents compared with earnings of 82 cents in 2009. Net loss totaled $379 (C$391) million compared with profit of $1.2 (C$1.4) billion in 2009. The loss was due to a charge of over $3 billion reported in the third quarter for goodwill impairment and changes in actuarial methods and assumptions.
Manulife continued to improve its equity risk profile by hedging in-force variable annuity guarantee value. The percentage of guarantee value hedged or reinsured increased to 55% as of December 31, 2010, from 35% as of December 31, 2009.
Insurance sales in the quarter totaled $592 (C$600) million, up 34% year over year, on a constant currency basis.
Wealth sales were $7.6 (C$7.7) billion, up 28% year over year, on a constant currency basis.
Insurance premiums and deposits in the quarter were $16.5 (C$16.7) billion, up 12% year over year. For 2010 insurance premiums and deposits totaled $63.2 (C$65.1) billion, up down 9% from 2009.
Wealth businesses, premiums and deposits were $9.37 (C$9.5) billion, up 23% on a constant currency basis from prior year quarter. The increase was largely driven by strong mutual fund sales, partially offset by lower fixed product sales in both the U.S. and Canada. For 2010, wealth businesses, premiums and deposits were $36.7 billion, up 13% year over year on a constant currency basis.
Total funds under management as of December 31, 2010, were $475 (C$475.2) billion, an increase of $34 (C$35.6) billion over December 31, 2009, and $1.26 (C$1.3) billion over September 30, 2010.
The year-over-year increase was driven by positive policyholder cash flows, positive investment returns and capital issuances. However, the stronger Canadian dollar, higher expenses, commissions and taxes and credit facility repayment were partial offsets.
The Manufacturers Life Insurance Company’s consolidated regulatory capital ratio, Minimum Continuing Capital and Surplus Requirements was 249% as of December 31, 2010, an increase of 15 percentage points from 234% as of September 30, 2010. The increase is primarily due to strong earnings in the fourth quarter.
Dividend Update
The board of directors of the company authorized a quarterly dividend of 13 cents per share payable on March 21, 2011, to shareholders of record at the close of business on February 23, 2011.
Peer Comparison
MetLife Inc. (MET), which competes with Manulife Financial, reported fourth quarter operating earnings of $1.16 billion or $1.14 per share, well ahead of $793 million or 96 cents per share in the year-ago quarter, and the Zacks Consensus Estimate of $1.10 per share.
The upside was primarily due to strong growth in the International business segment, strong underwriting results as well as higher variable annuity deposits and net investment income. This was partially offset by underperformance at its banking and the U.S. segments, higher expenses and higher-than-expected derivative losses.
Our Take
Manulife’s strong franchise in Asian markets, solid wealth management, pension, and other products offered in the United States and Canada and repositioning of business will help the company to post better results in the upcoming quarters.
The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
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