Manulife Financial misses profit forecast

Canada’s largest life insurer hampered by hedging costs and low investment gains

Manulife Financial Corp., Canada’s largest life insurer, reported secondquarter earnings that missed analysts’ estimates as hedging costs and lower investment gains hampered growth.

Second-quarter profit excluding some items was 40 cents a share, according to a statement Thursday.

The amount was below the 45-cent average estimate of 13 analysts surveyed by Bloomberg.

Net income increased 17 per cent from the prior-year period to $704 million, or 34 cents a share.

Manulife also said it could take a charge of as much as $500 million, based on preliminary indications from a review of its actuarial assumptions, such as policyholders’ lifespans.

Sales in the company’s wealth operations also slowed amid lower transactions in Asia, where volatile equity markets have hurt Manulife’s investments in recent years.

“While both core earnings and net income this quarter were disappointing, having been impacted by the sharp decline in interest rates and heightened market volatility,

“I am pleased with how resilient our underlying businesses remained," Manulife’s chief executive officer, Donald Guloien, 59, said in the statement.

The Toronto-based firm kept its dividend at 18.5 cents a share, while Bloomberg analysts had forecast an increase to 19.5 cents.

The firm said it had zero core investment gains in the quarter.

It plummeted from gains of $51million in the prior year.

Manulife’s investments have been buffeted for several years by volatile markets, low interest rates globally and the slump in oil prices. Manulife also took an extra $32 million to increase hedging positions.

Higher interest expenses on debt and costs for strategic plans, combined with a strengthening U.S. dollar, led to an additional $51-million drop in core profit.

Profit from sales of insurance products increased 10 per cent from the prior-year period to $557 million.

The profit was led by a 30-per-cent advance in Asia and 23 per cent in Canada.

U.S. insurance profit declined19 per cent.

Double-digit core profit growth in Asia and Canada was offset by higher claims costs.

Profit from sales of insurance products increased 10 per cent from the prior-year period to $557 million

Asset management earnings slid 5 per cent to $152 million, led by a 14-per-cent profit drop in Asia following lower mutual-fund sales in Hong Kong and mainland China.

The company’s net flows in the region were halved to $1.3 billion (U.S.) from the prior year.

Earnings from wealth management were down 8 per cent in the U.S. amid heightened competition and "challenging market conditions." Canadian wealth-management profit increased 28 per cent to $46 million amid increased fee income.

The company is reviewing its actuarial assumptions, or estimates of policyholder lifespans and other factors used to calculate premiums or benefits, for its long-term care and U.S. variable annuity units.