Interest rates weigh down Manulife’s net income

Manulife Financial Corp., Canada’s largest insurer, posted earnings that met analysts’ expectations as gains in insurance and asset management were tempered by rising interest rates.

On Thursday, the Toronto-based company said second-quarter net income declined 36 per cent to $600 million, or 29 cents a share. Profit excluding some items was 44 cents a share, matching the average estimate of 13 analysts surveyed by Bloomberg.

“We continued to deliver robust growth in wealth management and life insurance,” chief executive officer Donald Guloien said in the statement. “Net income, as a result of changes in interest rates, was lower than expected.”

Net income slipped as the company took a $362-million hit as its accounting assumptions were hit by a steepening yield curve, mainly in the U.S. The value of instruments in Manulife’s interest-rate swap program changes with swings in interest rates, according to CFO Steve Roder. Higher interest rates tend to benefit insurers over time as they push up bond returns and the assets used to meet policy guarantees, while lower rates squeeze those returns.

Core earnings, which strips out the impact of interest rates, rallied 29 per cent to $902 million.

Insurance products jumped 27 per cent to $771 million with Asia, U.S. and Canada reporting sales increases. In Asia, benefits coverage sales rose 23 per cent over the prior year to $374 million with Japan sales contributing a record $169 million. Canadian sales rose 28 per cent to $166 million and the U.S. was up 2 per cent to $118 million. Wealth and asset management flows, which include mutual fund sales, rose in each region. Assets flowing into the Asian unit more than doubled to $5.2 billion as Manulife started new fund products and benefited from “strong market sentiment.” They rose by $3.9 billion, or 64 per cent, in Canada and rallied 11 per cent, or $11.1 billion, in the U.S.