Manulife sped up its efforts to reduce its sensitivity to stock markets and interest rates, taking moves that will decrease its long-term risks but eat into its profits in the short run.
The insurer announced Wednesday morning that, between October 1 and the end of December, it shorted about $5-billion of equity futures contracts and sold $200-million of public equities. It was able to pick up the pace of its risk-reduction plan because of favourable interest rate and equity market trends during the quarter, it said.
The net result will not be known until the company releases its fourth-quarter financial results on Feb. 10. But Canaccord Genuity analyst Mario Mendonca estimates that as a result of the recent actions a 10 per cent drop in stock markets might only result in a $800- or $900-million hit to the company. The same drop in stock markets would have had an impact of about $1.3-billion in the prior quarter.
Mr. Mendonca's overall take on Manulife's update Thursday was that "the market has to like this," though he added that "futures are looking soft this morning - could limit some of the near term lift in the stock."
RBC Capital Markets analyst Andre-Philippe Hardy said that Manulife's actions will reduce the volatility of its profits in coming years, which will lead its stock to trade at a higher multiple.
However, he estimates that it would have cost the company about $300-million to short the $5-billion of futures contracts, which could reduce profits in the short term.