Manulife Financial Corp. MFC-T has reported fourth-quarter profits of $868-million, reversing a year ago loss of $1.87-billion.
The profit amounted to 51 cents per share, compared to the $1.24 per share loss that the life insurer posted for the final three months of 2008. It was roughly in line with the consensus earnings forecast from analysts, who expected the company to earn about 47 cents per share.
The S&P 500 rose 5 per cent during the quarter while the TSX increased 3 per cent, resulting in stock market gains of about $435-million for Manulife. But lower-than-expected values on some of the company's real estate, timber and agricultural assets cost $171-million, and charges relating to new tax laws in Ontario and changes to actuarial assumptions also bit into earnings.
They key measure of Manulife's capital levels, called the Minimum Continuing Capital and Surplus Requirements, or MCCSR ratio, stood at 240 per cent at the end of 2009, up from 229 per cent in the prior quarter, after the company raised $2.5-billion in common equity.
Manulife was walloped during the credit crisis by the massive portfolio of stocks it had built up as a result of its variable annuity business. (Variable annuities are similar to pension plans for individual consumers. Manulife invests money on their behalf, and promises to make certain payments to them in the future). The company has been working to reduce its exposure to stock markets, and said Thursday that between the end of December, 2008, and the end of December, 2009, its sensitivity to a 10-per-cent drop in the stock market has been cut in half.
Many insurers hold sizable stock portfolios, but they often hedge them or buy reinsurance that protects against falling stock markets, precautions that Manulife didn't take until it was too late. Slightly more than one-third of the stock portfolio backing Manulife's variable annuity business is now protected by hedging or reinsurance.
“We have improved margins, balanced our product portfolio, announced three attractive acquisitions and continued to demonstrate good investment results in the face of challenging market conditions,” chief executive officer Donald Guloien stated in a press release. “We have a strong capital base and our equity exposure has reduced through additional hedging, product mix adjustments and with the benefit of equity market increases. We intend to continue to reduce our equity exposure, subject to market conditions.”
