Manulife Slumps as Profit Declines 62% on Energy Investments

  • Insurer takes C$250 million charge on oil investments
  • Raises dividend 9% to 18.5 cents a share despite volatility

Manulife Financial Corp. tumbled the most in more than five years after fourth-quarter profit slid and Canada’s largest life insurer said it may not meet its 2016 core profit goal amid oil and gas investment losses.

Net income fell 62 percent to C$246 million ($176 million), or 11 cents a share, from C$640 million, or 33 cents, a year earlier, the company reported in a statement Thursday. Profit excluding some items was 42 cents a share, missing the 45-cent average estimate of 15 analysts surveyed by Bloomberg.

The company’s shares dropped 12 percent at 11:52 p.m. in Toronto, the most since Aug. 5, 2010. The stock is down 30 percent in the past 12 months, below the 21 percent decline in the Standard & Poor’s/TSX Composite Index.

"This was a disappointing year in terms of net income, largely due to sharp mark-to-market declines in oil and gas prices, diminishing an otherwise great year," Chief Executive Officer Donald Guloien, 58, said in the statement. "Looking ahead, we expect that some macroeconomic headwinds and energy price volatility will persist, and that unless energy prices strengthen, it will be difficult for us to achieve the $4 billion core earnings objective we have set for 2016." Profit based on that measure rose 19 percent to C$3.4 billion in 2015 from the prior year.

Dividend Increase

Weak stock markets, the slide in oil, and low long-term bond yields dragged on Manulife’s investment book and the returns it depends on to match policy liabilities. Its shares fell earlier this month amid concern China’s currency regulator would place restrictions on the buying of overseas insurance. Manulife receives about a third of its profit from the Asia region, including Shanghai, Hong Kong, and Beijing.

A fall in the insurer’s energy investments contributed to a C$250 million charge in the fourth quarter, and a total C$876 million for the year. Manulife took a net writedown of C$613 million in the quarter, as a result of energy and other investments, integration costs, the impact of interest rates, and changes to actuarial models.

Despite the losses and uncertainty on oil prices, Manulife raised its dividend 9 percent to 18.5 cents a share -- the third increase in seven quarters amid gains in the company’s core products. Insurance sales gained 14 percent to $416 million in Asia as Hong Kong sales reached a record on gains from the Manulife move program, which tracks and rewards clients for being healthy. Insurance sales rallied 76 percent in Canada to C$303 million, while U.S. sales dipped 18 percent to $127 million.

‘Backing Away’

Strengths that contributed to the company raising its dividend, including strong wealth management operations and gains from its acquisition of Standard Life Plc, don’t “make up for weaknesses that feed into market fears regarding this name," Meny Grauman, analyst at Cormark Securities Inc. said in a note to clients. "At the top of the list is the firm backing away from," its earnings target because of energy.

Its asset management flows jumped in the two largest regions for its money managing product: Canada and the U.S. Flows increased 45 percent to C$3.9 billion in Canada and 50 percent to $13.3 billion in the U.S. Asia flows rose 2 percent to $2.5 billion as volatile markets in countries including Japan dampened demand for the product. The company now manages C$859 billion in assets.

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