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Manulife Financial CEO Donald GuloienADRIEN VECZAN/Reuters

It was once hard to believe Manulife Financial Corp. would ever escape the capital troubles that haunted it through the financial crisis.

But when Canada's largest insurer reported its fourth-quarter results on Thursday, it seemed a pivotal moment for the company: more attention was being paid to sales growth than capital concerns.

Manulife's capital issues have long been worrisome to analysts and investors. Fluctuating market conditions and declining bond yields meant the insurer spent years trying to reassure onlookers that its capital levels were healthy, or at least under control.

Now, after more than four years of hedging and slashing sales of products such as variable annuities, which promised to pay customers a minimum payment but were tied to a stock portfolio that plunged, the company's chief executive officer said Thursday he believes the worst is over, and that the marketplace is finally giving the firm a fresh look.

"It takes a while for people to understand that a company or a person has changed, but the market is now catching up to that and realizing that we're now managing quite a different company," said Donald Guloien. Manulife's shares climbed by 7 per cent through January, and added another 3 per cent since fourth quarter earnings were announced Thursday morning.

But getting there wasn't easy. In 2008, the company was hit hard by slumping equity markets and had to turn to investors to raise billions to boost its balance sheet. Manulife halved its dividend to protect that money, and took steps to hedge its stock market exposure. The huge decline in interest rates sucked more and more out of the company's capital pool.

Different ideas about what the company could do to increase its capital levels were batted around. One idea was to spin off its U.S. operations, John Hancock Financial Services Inc. That unit brought in double-digit insurance sales growth this quarter. Another idea was selling its Canadian bank.

But while anxieties over capital levels continued to move the stock –sometimes more than quarterly earnings or losses – Manulife was making changes.

When the financial crisis hit, Manulife had done virtually no hedging of the portfolio of assets that backed its variable annuities. It began to put hedging measures in place, and has now met all its targets. Manulife's product mix is less exposed to market variation these days.

After all that, the company's CEO now believes that earnings, not its capital levels, are driving Manulife's stock price again.

"I think what you observe is that there's far less volatility in Manulife's stock price relative to market movement, because there's growing recognition of the amount that we've hedged and the change in the product mix that we have effected over the last three years," Mr. Guloien said.

And so far, analysts seem to agree.

"Capital is no longer a key issue for this company," Robert Sedran, an analyst at CIBC World Markets, said in a note Thursday. He said this was partly due to a more stable global macroeconomic outlook, "but more importantly, the ongoing de-risking activities that the company continues to pursue," he said.

Maulife still needs interest rates and equity market movement in its favour, but analysts have boosted their price targets. After a profitable fourth quarter, with earnings of $1.1-billion and reassuring growth in Asia, there's a lot more optimism around the insurer.

(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)

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