Major insurer’s profits slide 43%

Canada’s largest insurer hit hard by declines in oil and gas investments

By Katia Dmitrieva

(Bloomberg) -- Manulife Financial Corp. posted a 43 percent decline in third-quarter profit as Canada’s largest insurer said its oil and gas investments hurt results.

Net income was C$622 million ($470 million), or 30 cents a share, down from C$1.1 billion, or 57 cents, a year earlier, the Toronto-based firm said Thursday in a statement. Profit excluding some items was 43 cents a share, missing the 45-cent average estimate of 14 analysts surveyed by Bloomberg.

“We delivered strong operating results in the third quarter,” Chief Executive Officer Donald Guloien, 58, said in the statement. “Net income was negatively impacted by investment experience, principally oil and gas valuation changes, as well as the charges associated with our annual actuarial review.”

The insurer took a C$220 million charge in the quarter for its oil and gas investments as prices slid, compared with gains of C$370 million a year earlier. Earnings from insurance and wealth management rose 12 percent and 82 percent respectively over the prior year, helped by record insurance sales in Asia and several acquisitions, including Standard Chartered Plc’s Hong Kong pension business.

The company has lost C$626 million this year on energy assets, offset by C$457 million in gains from other assets. Manulife has C$13.4 billion in energy debt securities and private placement debt, up 15 percent from C$11.7 billion last year.

"Despite weak oil and gas performance throughout 2015, we remain committed to this sector and it is our view that oil prices are currently below the economic level required to meet demand on a long-term basis," said Chief Investment Officer Warren Thomson. He said it’s likely that the company will post a C$400 million charge annually from maintaining those energy investments.

Wealth management profit rose 31 percent to C$169 million boosted by the 60 percent growth at the Canadian unit, with increased group retirement demand and mutual fund sales. Insurance earnings rallied 20 percent to C$590 million as sales in Asia rose 19 percent to a record $379 million. CEO Guloien said in an interview last month the insurer will rely more on Asia growth than Canada in the near future.

Core earnings, which strips out the impact of interest rates and investments, was up 15 percent to C$870 million from last year as the company added several deals, increased sales in Asia, and benefited from the strength of the U.S. dollar over the Canadian currency. Assets the company oversees jumped 19 percent to C$888 billion, reflecting acquisitions and sales to third party-clients including pension funds.

Manulife shares were little changed at C$22.16 in Toronto Wednesday. They have gained 3.5 percent in the last 12 months, outperforming the Standard & Poor’s/TSX financial companies index, which has dipped 3 percent.

The company’s review of its actuarial assumptions resulted in a C$285 million charge, below the C$400 million cited in a preliminary forecast last quarter. The annual review determines whether Manulife had losses or gains from the investing assumptions it made at the start of the year.