Manulife Has `Safety on Safety' Against Market Drops, Chief Guloien Says

Manulife Financial Corp. has “safety on safety” after raising capital last year to protect against stock market drops such as yesterday’s tumble, Chief Executive Officer Donald Guloien said.

“When we raised equity, it was very painful,” Guloien said yesterday in a telephone interview from Toronto. “We have an obligation to consider economic scenarios that are far more adverse than what we think is likely to happen.”

Canada’s largest insurer told investors it could sustain a 30 percent drop in equity markets because of steps it has taken such as hedging new business, selling C$2.5 billion ($2.37 billion) in stock in November and cutting the dividend in half in August.

“We can sustain a 30 percent drop in the market and still sustain an MCCSR ratio of 200 percent,” said Guloien, referring to a ratio of minimum continuing capital. “We have basically safety on safety, if you will.”

Guloien said taking pre-emptive measures gave Manulife comfort yesterday as U.S. stocks tumbled the most in a year, while the Dow Jones Industrial average had the biggest intraday loss since 1987 before paring the decline.

“The right approach is to prepare for what you think is a reasonable worst case, and hope for the best, and that’s what we’re doing,” said Guloien, 53.

A one-time 10 percent decrease in equity markets would reduce reported earnings by about C$1.1 billion after tax, Manulife told investors while discussing first-quarter results. The Toronto-based insurer reported net income of C$1.14 billion, or 64 cents a share, compared with a year-earlier net loss of C$1.07 billion, or 67 cents.

Fortress Capital

“Manulife has definitely been building that fortress capital,” said David Graham, who manages the C$6.4 billion CIBC Monthly Income Fund, which includes Manulife shares. “They’ve been really improving their balance sheet, they’ve been increasing the reserves, they’ve been reducing their sensitivity to all these exposures.”

The owner of Boston-based John Hancock Financial rose 58 cents, or 3.3 percent, to C$18.25 in trading yesterday on the Toronto Stock Exchange, the biggest-one day gain in six months.

To contact the reporter on this story: Sean B. Pasternak in Toronto at

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