Manulife Financial Corporation (MFC) reported its first-quarter 2011 earnings of 54 cents per share, lower than 68 cents reported in the prior-year quarter. Earnings were $998 (C$985) million, compared with $1,241 (C$1,224) million in first-quarter 2010.
The quarter under review included $113 (C$111) million related to the direct impact of equity markets and interest rates, and a charge of $153 (C$151) million related to the earthquake in northeastern Japan.
The results were also impacted by several one-time items: net gains of $101 (C$100) million of expected macro hedge costs in addition to higher costs due to the strong North American equity markets, $257 (C$254) million of gains from actions to reduce interest rate exposure and $172 (C$170) million of gains primarily from fair value increases in oil & gas and real estate investments as well as from fixed income trading activities and favorable credit experience.
Manulife continued to improve its equity risk profile by hedging in-force variable annuity guarantee value. The percentage of guarantee value hedged or reinsured increased to 63% as of March, 2011, from 55% as of December 31, 2010.
Insurance sales in the quarter totaled $546 (C$539) million, up 15% year over year. The increase was largely driven by strong growth in Asia, record first quarter individual insurance sales in Canada and success in the U.S. targeted products.
Wealth sales were $8.4 (C$8.3) billion, up 22% year over year.
Insurance premiums and deposits in the quarter were $17.9 (C$17.7) billion, up 3% year over year.
Wealth businesses, premiums and deposits were $11 (C$10.9) billion, up 15% on a constant currency basis from the prior-year quarter. The increase was largely driven by strong mutual fund sales and broad based growth in Asian wealth businesses, partially offset by lower fixed product sales in both the U.S. and Canada.
Total funds under management as of March 31, 2011, were $488 (C$478) billion, an increase of $31 (C$30) billion over March 31, 2010. The year-over-year increase was driven by positive policyholder cash flows, positive investment returns and capital issuances. However, the stronger Canadian dollar and higher expenses, commissions and taxes were partial offsets.
The Manufacturers Life Insurance Company’s Minimum Continuing Capital and Surplus Requirements ratio was 243% as of December 31, 2010, down from 249% as of December 31, 2010. The decrease resulted from maturity of debt, partially offset by issuance of preferred shares; changes to the balance sheet as a result of the adoption of IFRS and increased capital requirements on a related party reinsurance agreement.
Dividend Update
The board of directors of the company has authorized a quarterly dividend of 13 cents per share payable on June, 2011, to shareholders of record at the close of business on May 17, 2011.
Peer Comparison
MetLife Inc. (MET), which competes with Manulife Financial, reported first quarter operating earnings per share of $1.33, exceeding the Zacks Consensus Estimates of $1.26 per share and $1.04 per share in the year-ago quarter.
The upside was primarily due to strong growth in the International business segment, strong underwriting results as well as higher variable annuity deposits and net investment income. This was partially offset by underperformance at its banking and the U.S. segments, higher expenses and higher-than-expected derivative losses.
We retain our Neutral recommendation on Manulife Financial Corporation. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
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