UPDATE 3-Manulife takes loss, to revisit profit target

Thu Aug 9, 2012 5:44pm EDT

* Earnings-per-share loss C$0.18 vs estimate C$0.48

* Insurer takes C$677 mln market-related charge

* Backs off from 2015 profit goal, new numbers this fall

* Warns of Q3 charge of as much as C$1 bln

By Cameron French

TORONTO, Aug 9 (Reuters) - The deepening slide of stock markets and bond yields sent Manulife Financial Corp to a loss in the second quarter and forced the company to back off on its much-vaunted 2015 profit target of C$4 billion.

The loss - Manulife's third in the past four quarters - actually beat analysts' expectations, but the insurer also warned it could take a hit of as much as C$1 billion ($1.01 billion) in the third quarter as part of its annual review of actuarial assumptions.

"They continue to be swamped by the macroeconomic environment," said Barclays Capital analyst John Aiken, who said the third-quarter charge that the company warned of was more than he had expected.

Manulife, Canada's No. 2 insurer by market value and owner of U.S. insurer John Hancock, lost C$300 million, or 18 Canadian cents a share, as profit was wiped out by a C$677 million charge to revalue long-term investment assumptions.

That was the latest in a long line of market-related charges Manulife has absorbed since the 2008 financial crisis.

The loss compared with a with a year-before profit of C$490 million, or 26 Canadian cents a share, but was ahead of the shortfall of 48 Canadian cents a share expected by analysts.

Although the loss was less than expected, investors were ambivalent on the stock, which crept up 6 Canadian cents to C$10.89. The shares are down 75 percent from their record high, hit back in 2007.

WEAK MARKETS

Volatile markets in the wake of the 2008 financial crisis have wrought havoc with Canadian life insurers' results.

Under Canadian accounting rules, the companies must regularly adjust expectations to adjust to the ability of their investment portfolios to pay off future policy obligations. If the portfolios fall short, the insurers must make up the difference by taking reserves.

Manulife has responded by realigning its business lines and adding hedges to reduce market sensitivity, and in late 2010, sensing the worst of the crisis was past, set a 2015 profit goal of C$4 billion.

Instead, factors such as the European debt crisis have hurt equities and have sent bond yields lower, putting more pressure on Manulife's bottom line.

The insurer said in a statement that the goal was now a stretch, while Chief Executive Donald Guloien all but conceded in an interview that the target would be reduced when the company holds an investor day in the fall.

"We'll come out with new numbers in the fall, what we think the target should be after we go through our planning process," he told Reuters. "I think Street expectations for 2015 are something like C$3 billion in earnings. We'll have to determine where we want to put the peg."

Looking past the market impact and other charges, Manulife's quarterly profit was C$551 million, driven by gains in its Canadian and Asian divisions, while its U.S. division was down slightly.

Overall insurance sales jumped 61 percent to C$1 billion, while insurance premiums and deposits climbed 16 percent to C$6.3 billion.

Wealth management results were weaker as sales fell 5 percent to C$8.5 billion.

Weak markets also stung Manulife's rivals this quarter. Sun Life Financial Inc said late on Wednesday its second-quarter profit fell by 87.5 percent due to weak markets.

It also forecast it would take future losses amounting to C$600 million between now and 2015 if bond yields do not rebound from current levels.

ACQUISITIONS?

Manulife recently became the first foreign insurer with an office in Cambodia, and the company has reportedly bid on some of ING Groep's Asian insurance and wealth management assets, which are being auctioned off.

On a conference call, Chief Financial Officer Steve Roder said the company didn't need to make acquisitions, and would only do so if the transaction was positive for shareholders.

"Any transaction would have to be highly strategic, it must contribute to stabilizing our core earnings and capital, provide diversification benefits, not add any significant risk exposures, be easily financed, and not be inappropriately dilutive," he said.

National Bank Financial analysts Peter Routledge said he didn't think Roder's remarks suggested the company was not interested in assets currently being sold off.

"The only thing they said was 'we're not going to overpay for this', which is exactly the negotiating strategy you'd want to have," he said.

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