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Manulife Financial's long road back to profit

Manulife Financial headquarters in Toronto. The company reported a profitable fourth quarter on Thursday, ending a punishing stretch.

KEVIN FRAYER/Canadian Press

After years of feeling through the darkness, Canada's largest insurer by assets appears to have reached the end of a long tunnel.

Manulife Financial Corp. reported a profitable fourth quarter on Thursday, ending a punishing stretch that saw two straight quarters of losses and investors raising questions over its ability to regain its post-recession strength.

A profit of $1.1-billion was propelled by strong investment gains and solid growth in its Asian division, the company said. The positive news comes after years of racing to diversify its portfolio from products that were tied to equities, which made the company vulnerable when the market went south in 2008-2009.

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The company has spent the three years since hedging and slashing back sales of those variable annuities products, which promise to pay customers a minimum payment.

Manulife beat analysts' quarterly expectations of a profit of 32 cents per share, reporting fully diluted earnings per share of 56 cents. In the fourth quarter of last year, Manulife's loss amounted to 5 cents per share. The improved results are a sign that investors are pleased with the direction of the company, said Donald Guloien, the company's chief executive officer. "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."

The harshest headwinds are now past and the economic environment this year more forgiving, he continued. "We have fortified Manulife for these low interest rates, and from here on in we're generating very nice margins," he said.

The company, which now has a record $532-billion in assets under management, also put even further hedging measures in place to reduce equity market sensitivities during the fourth quarter.

Investors and analysts were looking for strong results from the company's Asian division, and large sales gains in both the Asian and U.S. arms of the business exceeded expectations. The company's business in 10 countries throughout Asia set new records in the sales of insurance and wealth products in the region on the back of growth in Indonesia, Japan and Hong Kong.

"Our fourth-quarter wealth sales were over $2-billion, a new record, and evidence that our product diversification strategy is succeeding," Robert Cook, senior executive vice-president and general manager of Manulife's Asia division, said in a release.

Manulife was the first of Canada's Big Three life insurance companies to posts its annual results. Along with Great-West Lifeco Inc. and Sun Life Financial Inc., Manulife benefited from a rising share price last year. Together, the companies' shares posted gains of 28 per cent through 2012.

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This outstripped the Big Five banks' average increase of 11.1 per cent. Manulife's stock rose nearly 7 per cent in January and close to another 1 per cent on Thursday.

Manulife posted a profit in the first quarter of 2012, but losses in the second and third quarters. In the third quarter of 2012 the Toronto-based insurer lost $227-million and absorbed more than $1.2-billion in actuarial and goodwill charges stemming from changes to customer behaviour.

In the third quarter, the company pushed its growth target of $4-billion in "core" earnings out by a year to 2016. While the "core" earnings figure reported by Manulife missed expectations and fell below net income for the quarter, the insurer said Thursday that it is on track to meet its targets.

John Aiken, analyst at Barclays Capital, said he thinks the results will be well-received overall, but he remains focused on the future. "The outlook for the insurers will continue to hinge on interest rates and equity markets," he said. "Even with our optimism toward fourth-quarter results, valuation for Manulife and its peers will likely be constrained going forward unless government yields and equity markets continue their ascent."

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About the Author
Financial Services Reporter

Jacqueline Nelson is a financial services reporter at the Report on Business. Prior to that she was a staff writer at Canadian Business magazine, covering news and writing features on a wide variety of subjects. More

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