President and Chief Executive Officer of Manulife Financial Corporation Donald Guloien speaks to shareholders at the company's Annual General Meeting in Toronto May 1, 2014.Fred Thornhill/Reuters
Oil prices may have plummeted, but Manulife Financial Corp. isn't taking a step back from investing in the energy sector. Not even close.
Manulife reported an investment-related experience loss of $353-million in its fourth quarter results on Thursday , which was driven by the slip in oil prices. At the same time, the insurer revealed that its oil and gas assets increased to a book value of $2.2-billion from $1.8-million, after acquiring properties in the quarter. Manulife's investments in oil and gas are dominated by NAL Resources Management Ltd., its energy production subsidiary. NAL extracts oil and natural gas from sites in Alberta and Saskatchewan.
But does all that exposure make sense? That's the question asked by Mario Mendonca, analyst at TD Securities, on the company's quarterly analyst call Thursday. He noted that insurers are typically sought by investors for their stability.
"Yes, it is the most volatile asset class. But it also has been our strongest long-term," said Warren Thomson, chief investment officer of Manulife. "We've been in the business for 25 years, so this isn't a flavour-of-the-month thing."
Oil and gas are part of the alternative portfolio of assets that Manulife invests in to support the long-term liabilities of insurance policies. The company also invests in agriculture and timber, and is working to grow its business line managing these assets for third-party investors. Donald Guloien, chief executive of Manulife, said the company has recent evidence of the benefits of its bolder investments. Its diversification helped cushion Manulife in the financial crisis, he said.
Mr. Guloien acknowledged that the trajectories of these alternative investment strategies are not always smooth. "So occasionally you get some bumps, but this is not an unrecoverable bump," he said of oil's decline.
Not only is Manulife not walking away from its crude oil, it has an appetite for more. "I want to be really open with people: we are trying to back up the truck to buy more oil and gas," Mr. Guloien said.
"We've been trying to buy it; the price was way too expensive when it was a $120 spot price. This might provide the opportunity, and we're already executing on that plan."