May 7 (Bloomberg) -- Manulife Financial Corp., Canada’s biggest insurer, plans to scale back on equity-linked insurance products that led to first-quarter costs of C$1.15 billion ($981 million), Chief Executive Officer Donald Guloien said.

“I would like to see a little more balance in our product mix,” Guloien said in a telephone interview. “We’ve become a little too heavily oriented toward these variable annuity products. And while they’re good products and make sense for consumers, you want to balance the risk.”

Guloien, who took over the CEO post today from Dominic D’Alessandro, said the company will focus on banking, insurance and investment advice at the expense of variable annuities. Writedowns tied to annuities contributed to a first-quarter loss of C$1.07 billion, or 67 cents a share, the Toronto-based insurer said. These products also contributed to a C$1.87 billion loss in the previous quarter.

“Where we do something well in one jurisdiction, I’d like to see us transfer those ideas to other jurisdictions, with a view to balancing our overall product offerings,” Guloien said before results were released. “That’s one thing that will be different going forward.”

Sales of segregated funds and variable annuities, contracts that provide guaranteed payments upon retirement, represented about a quarter of Manulife’s premiums and deposits over the past two years.

Quarterly Losses

Guloien, 52, replaces D’Alessandro, 62, whose 15-year term included the $13.9 billion purchase of Boston-based John Hancock Financial Services. D’Alessandro ended his tenure with two straight quarterly losses, the first in Manulife’s history as a publicly traded company. The stock plunged 42 percent over the past 12 months.

Manulife didn’t hedge most of its variable annuity and segregated fund investments against market fluctuations until this year, meaning the insurer had to boost reserves to cover shortfalls as stock prices plunged.

“They’ve had to build up reserves because these products have a guarantee,” said Darko Mihelic, an analyst at CIBC World Markets in Toronto. “And the markets have fallen so far, that they’ve pushed the guarantee ‘in the money.’”

D’Alessandro told investors today that “in hindsight, we should have hedged more quickly” to protect against market declines. He said the reserves may be reversed as stock prices rebound. Canada’s benchmark Standard & Poor’s/TSX index has risen 12 percent this year.

Korean Targets

Manulife will consider buying businesses in North America and Asia, said Guloien, whose promotion was announced in September. He declined to elaborate on potential targets. The company may also expand in India, Korea and Europe “in the longer-term,” he said.

“Korea is a very interesting market for us; India is reasonably well-served in the life space, but there may be other opportunities for us,” he said. “It’s inevitable we’ll operate in those jurisdictions,” he said.

Manulife may also raise more capital to protect against further declines in equity markets, said Guloien, who has been with Manulife for about 28 years. He was most recently chief investment officer, and led the mergers unit from 1994 to 2001.

“My goal would be to build our capital base considerably to ensure that we could withstand the most odious circumstances in either equity markets or the general economy,” Guloien said. “We don’t know how long the general economic malaise will continue.”

To contact the reporter on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net.

Last Updated: May 7, 2009 15:03 EDT