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Manulife Profit Misses Analysts’ Estimates as Rates Rise

Aug. 8 (Bloomberg) -- Manulife Financial Corp., Canada’s largest insurer, posted second-quarter profit that missed analysts’ estimates as increasing interest rates on bond funds pushed up liabilities.

Net income was C$259 million ($249 million), or 12 cents a share, compared with a restated loss of C$281 million, or 17 cents, a year earlier, the Toronto-based firm said today in a statement. Profit excluding some items was 31 cents a share, compared with the 32-cent average estimate of 13 analysts surveyed by Bloomberg.

The company took a C$242 million charge as rates rose, increasing its unhedged policy liabilities. About C$180 million of these charges may reverse in future quarters, the company said. The charge also included C$50 million in hedging costs related to volatility in the Japanese stock market.

Net income “was not what the market expected and occurs as a result of a number of items that are unusual in nature and say very little about our earnings capability going forward,” Chief Executive Officer Donald Guloien, 56, said in a conference call after results were released. “The volatility in our earnings is being constrained.”

Guloien reaffirmed Manulife’s objective of reaching so-called core earnings of C$4 billion by 2016. Profit on that basis for the quarter was C$609 million, a 1.7 percent rise over last year, according to the statement.

‘A Breather’

Revenue from wealth management advanced 60 percent from the same period last year to C$13.7 billion, a record, as the company’s Asia unit doubled its sales. Manulife relies on Asia for about 33 percent of its profit.

Mutual-fund sales in the U.S. also doubled from a year earlier. Total insurance revenue declined 3 percent as the Asian division adapted to higher product prices and a tax change in April 2012 caused a surge in sales last year.

While Manulife’s adjusted earnings were solid, “we would not be surprised to see its valuation take a bit of a breather based on the modestly disappointing second-quarter earnings,” John Aiken, an analyst at Barclays Plc in Toronto, said in a note to clients.

Sun Life, Canada’s third-largest insurer, said yesterday that net income from continuing operations climbed 60 percent to C$391 million as wealth-management and insurance sales increased. Operating profit, which excludes some items, was 71 cents a share, beating by six cents the average estimate of 13 analysts surveyed by Bloomberg.

Sun Life

“We have a lot of paths for organic growth,” Sun Life CEO Dean Connor, 56, said in a phone interview today. Possibilities include enhanced distribution channels, new products and expansion in markets including Malaysia and Vietnam, he said.

“We continue to look at acquisitions and to be in the deal flow,” Connor said. Sun Life may also redeem additional debt, retain more risk and invest in higher-yielding assets, he said.

Manulife fell 1.4 percent to C$17.79 at 4 p.m. in Toronto. The shares have gained 32 percent this year, outpacing the 6.4 percent advance of the 45-company Standard & Poor’s/TSX Financials Index. Sun Life rose 2.5 percent to C$33.80, the most since April 23.

To contact the reporter on this story: Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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