Manulife Financial Corporation reports third quarter results and $3 billion loan financing
TSX/NYSE/PSE: MFC; SEHK: 0945
TORONTO, Nov. 6 /CNW/ - Manulife Financial Corporation ("MFC") today
reported quarterly shareholders' net income of $510 million and fully diluted
earnings per share of $0.33, compared to net income of $1,070 million and
fully diluted earnings per share of $0.70 for the same period last year. The
sharp declines in global equity markets reduced reported earnings in the
quarter by $574 million and credit losses related to previously disclosed
exposures and to credit downgrades totaled $253 million. Return on common
shareholders' equity(1) was 8.2 per cent in the third quarter of 2008,
compared to 18.9 per cent in 2007.
"There was a significant decline in global equity markets in the third
quarter and not surprisingly, our financial results have been adversely
affected by the volatility," said Dominic D'Alessandro, President and Chief
Executive Officer. "We have a very strong balance sheet with a portfolio of
leading diversified businesses that continue to perform strongly. Given the
market conditions, our sales and new business embedded value growth were quite
favourable."
MFC today also announced that it has executed a binding credit agreement
with the six largest Canadian banks to provide a 5-year term loan of $3
billion. The loan will be fully drawn down by November 20, 2008, and will be
deployed, as necessary, to provide additional regulatory capital for its
operating subsidiaries.
"We are very pleased to have concluded such an important transaction
which will serve to enhance our overall capital position," added Dominic
D'Alessandro. "Even with the decline in global equity markets since September
30th, our capital position is a very comfortable one. We look forward to
carefully evaluating any strategic opportunities that may present themselves
as a result of the prevailing unsettled market conditions."
The pro forma MCCSR after reflecting the new financing, the latest
capital requirements for segregated fund guarantees, and market movements
since September 30th is estimated at a very robust 225 per cent, which is well
above the Company's target range of 180 to 200 per cent.
THIRD QUARTER FINANCIAL HIGHLIGHTS
Premiums and deposits amounted to $16.4 billion in the third quarter of
2008, compared to $16.8 billion for the same period last year. Excluding
currency movements and a large group insurance sale in the prior year,
Insurance sales were up 16 per cent while Wealth Management sales were down
six per cent reflecting very unsettled markets. Despite the challenging
environment, new business embedded value generated in the quarter amounted to
$540 million, compared to $514 million for the same period last year.
"This quarter's results reflect accruals for equity related charges that
will only become payable over long term periods. Should markets improve we
would report gains in respect of our equity related businesses. Our credit
charges, while elevated, follow a substantial period of excellent credit
experience," noted Peter Rubenovitch, Senior Executive Vice President and
Chief Financial Officer.
Total funds under management as at September 30, 2008 were $385.3
billion, $14.1 billion lower than last year. Net policyholder cash flows of
$17 billion and favourable currency movements of $19 billion were overshadowed
by an approximate $52 billion decrease due to market value declines.
OPERATING HIGHLIGHTS
United States
- John Hancock Life ranked No. 1 in U.S. individual insurance sales for
the fourth consecutive quarter(2). Sales in the third quarter were up
seven per cent over the prior year, with significant increases in
Universal Life and Term products. The business continued to refresh
its product portfolio, adding new protection products with innovative
features.
- John Hancock Variable Annuities sales were down 30 per cent over the
prior year, in line with industry declines, due to economic
uncertainty and volatile markets. Despite the decline, sales through
Edward Jones continue to be strong, up 15 per cent over the prior
quarter.
- John Hancock Long Term Care reported a sales increase of nine
per cent over the prior year, driven by very strong Group sales
resulting from additions of new groups as well as higher penetration
in existing groups. Leading Edge contributed 21 per cent of total
Retail sales, up from 12 per cent in the prior year, reflecting
continued success of the simpler, more economically priced product.
- John Hancock Retirement Plan Services remains the No. 1 seller of
small case plans in the 'under 500 lives' segment(2). Sales in the
third quarter were up 16 per cent over the same quarter of last year,
driven by strong transfer volume growth, despite year-over-year
equity market declines.
- John Hancock Mutual Funds experienced another strong quarter of
sales, up 13 per cent over the third quarter of 2007. The addition of
mutual fund products to several investment platforms, new business
partners and a more tenured sales force continued to drive the
momentum in sales.
- John Hancock Fixed Products sales for the third quarter were up
80 per cent over the prior year, as equity market volatility and an
upward sloping yield curve drove an increase in sales in both Fixed
Deferred Annuities and Payout Annuities.
Canada
- Individual Insurance ranked No. 2 in life sales in Canada(2) for the
first six months of 2008 with 20 per cent market share, up from
17.5 per cent in 2007. Sales momentum continued in the third quarter,
with a ten per cent increase over the prior year, driven by sales
growth in Universal Life and Term products.
- Individual Wealth Management's strong sales momentum continued, with
segregated fund sales of $1 billion in the quarter, up 32 per cent
from a year ago. Growth was driven by GIF Select/IncomePlus, where
deposits to date have surpassed $6 billion, less than 2 years from
the product's introduction.
- Manulife Bank had another record lending quarter with new loan
volumes exceeding $1.3 billion, up 39 per cent from a year ago,
driven by continued success of ManulifeOne. The credit quality of
this portfolio continues to be excellent.
- Individual Wealth Management launched its online Retirement Solutions
Centre, which provides tools to help financial advisors learn more
about how product allocation can help their clients better plan and
protect their retirement income. Advisors will gain access to timely
information and training materials to help their clients prepare for
retirement, as well as Canada's first retirement income analysis tool
based on Product Allocation for Retirement Income (PrARI(TM))
algorithmic methods, developed in partnership with Dr. Moshe Milevsky
and QWeMA Group.
- Group Benefits signed an agreement with Investors Group Insurance
Services Inc. giving their sales force of more than 4,200 advisors
access to sell Manulife group products for small to mid-sized
businesses effective November 1st, expanding and diversifying the
business' market presence across Canada.
Asia and Japan
- Japan reported very strong insurance sales growth, with third quarter
sales up 160 per cent over the same quarter of the prior year.
Insurance sales continue to be driven by the recently launched
corporate owned medical and life insurance product, term insurance,
and continued traction gained in the newly established MGA channel.
- Hong Kong individual insurance sales for the quarter were up
10 per cent, driven by the launch of new products earlier in the year
and by the distribution networks focus on insurance versus wealth
products. The business continued to innovate, launching a new medical
insurance solution in the quarter.
- Other Asia Territories insurance sales for the quarter were up three
per cent over the third quarter of 2007, driven by strong
bancassurance and agency sales in Singapore and a growing
distribution base in China.
- Taiwan announced the acquisition of Fuhwa Securities Investment
Trust. The acquisition significantly strengthens Manulife's wealth
platform in Taiwan by adding several new retail funds, diversifying
product distribution through 20 new bank and security firms, and
increasing assets under management.
- Manulife Financial continued to expand its operations in China and in
the third quarter received four new licenses, bringing the total
number of licenses to 35, the most of any foreign life insurance
company in China.
Corporate
- In a separate news release, the Company also announced today that the
Board of Directors approved a quarterly shareholders' dividend of
$0.26 per share on the common shares of the Company, payable on and
after December 19, 2008 to shareholders of record at the close of
business on November 18, 2008.
- Gail Cook-Bennett assumed the role of Chair of Manulife's Board of
Directors effective October 2, 2008 and Arthur Sawchuk, outgoing
Chair, retired.
Awards & Recognition
Manulife Financial received recognition from several organizations in the
quarter, including the following:
- John Hancock Funds was awarded "Best Overall Communications" in the
large company category from the Mutual Fund Education Alliance
(MFEA). This marks the third year in a row that John Hancock has won
MFEA's top award, and the second consecutive year the business has
won eight awards in total. These awards are accolades for outstanding
investor communications, education and support.
- Canadian Individual Wealth Management was awarded the Silver Quality
Award from the National Quality Institute. The award recognizes
excellence in multiple categories including leadership, planning,
process, and customer service.
- Hong Kong was awarded three accolades: Next Magazine's Top Service
Award, the prestigious Yahoo! Emotive Brand Award, and the Capital
Weekly Service Award. All awards recognized a commitment to providing
high quality service.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Highlights
(unaudited)
Quarterly Results
3Q08 2Q08 3Q07
------------------------
Shareholders' Net Income (C$ millions) 510 1,008 1,070
Diluted Earnings per Common Share (C$) 0.33 0.66 0.70
Return on Common Shareholders' Equity
(%, annualized) 8.2 17.0 18.9
Premiums & Deposits (C$ millions) 16,444 17,262 16,797
Funds under Management (C$ billions) 385.3 400.3 399.4
Capital (C$ billions) 29.0 28.3 27.3
Net Income
----------
Shareholders' net income for the third quarter of 2008 was $510 million,
down $560 million from the $1,070 million reported a year earlier. Market
turmoil including unprecedented equity market volatility and financial sector
credit related defaults reduced earnings, compared to a year ago, by
approximately $872 million. Partially offsetting these investment losses were
investment related gains in the current quarter arising from supporting our
long-term insurance obligations with more non fixed income assets, adding
longer duration fixed income assets and the favourable impact of widening
spreads and steepening interest rates. These investment gains exceeded prior
year gains that were related to private equity and real estate investments.
Net changes in actuarial assumptions decreased earnings in the current quarter
by $7 million pre tax or $27 million post tax compared to a decrease of $36
million, post tax, a year ago. In light of the increased equity market
volatility, the Company increased the provision for adverse deviations
(provisions in excess of the best estimate actuarial liability) on segregated
fund guarantee reserves to the high end of the range permitted by professional
actuarial standards, resulting in a post tax strengthening of policy
liabilities of $641 million. As well, the provision for adverse deviation for
interest rate risk was reduced by $578 million, post tax, reflecting lower net
re-investment margins required in the current interest environment. Other
smaller basis changes in the quarter netted to a $36 million post tax
reduction in policy liabilities. Year-to-date shareholders' net income was
$2,387 million compared to $3,158 million in 2007.
The $872 million year over year market related decrease includes current
quarter equity market related charges of $574 million and credit losses of
$253 million versus net gains of $45 million in the prior year. Equity market
charges relate to segregated fund and variable annuity guarantees and fee
income ($318 million), equity investments supporting our non-experience
adjusted policy liabilities ($154 million), reduced capitalized future fee
income on equity-linked and variable universal life products ($86 million) and
impairments on our equity positions in the Corporate and Other segment ($16
million). These losses are mostly non cash charges on long dated obligations.
Credit losses, reported in the Shareholders' account, for the quarter include
losses with respect to Lehman Brothers ($156 million), AIG ($32 million),
Washington Mutual ($4 million) and reserve strengthening on credit downgrades
($44 million). Partially offsetting the non fixed income charges above, the
Company recognized gains of $318 million related to other non fixed income
investments. These gains include the impact on actuarial liabilities of
supporting the long duration portion of long-term obligation with additional
non fixed income investments.
Diluted Earnings per Share and Return on Common Shareholders' Equity
--------------------------------------------------------------------
Third quarter diluted earnings per common share was $0.33, down 53 per
cent from $0.70 in 2007. Return on common shareholders' equity was 8.2 per
cent for the three months ended September 30, 2008, a decrease of 1,070 basis
points from 18.9 per cent for the three months ended September 30, 2007.
Return on common shareholders' equity is calculated excluding Accumulated
Other Comprehensive Income on available-for-sale securities and cash flow
hedges. (See page 11 for discussion of non-GAAP measures).
Premiums and Deposits
---------------------
On a constant currency basis, premiums and deposits decreased by two per
cent due to lower deposits in the John Hancock Variable Annuity, Japan
Variable Annuity, Hong Kong Wealth Management and Indonesia Mutual Funds
businesses as customers shied away from volatile equity markets. These
declines were partially offset by higher sales across our insurance
businesses, Canadian Individual Wealth Management and John Hancock Fixed
Products. Premiums and deposits as reported in Canadian dollars for the
quarter were $16.4 billion, a decrease of two per cent from $16.8 billion
reported a year earlier.
Funds under Management
----------------------
On a constant currency basis, funds under management declined by eight per
cent from last year, as business growth was more than offset by the effects of
declining equity markets and scheduled maturities of John Hancock Fixed
institutional products. At current exchange rates, funds under management were
$385.3 billion as at September 30, 2008, $14.1 billion or four per cent lower
than 2007.
Capital
-------
Total capital was $29.0 billion as at September 30, 2008, $1.7 billion
higher than $27.3 billion as at September 30, 2007. Increases in capital from
12 months of earnings, the weakened Canadian dollar and amendments to the
terms of a $550 million senior note were partially offset by unrealized losses
on available-for-sale assets, $530 million of share buy backs and
$1,497 million of dividends over the last 12 months.
The Company monitors and manages its consolidated capital in compliance
with the Office of the Superintendent of Financial Institutions ("OSFI")
Guideline A2 - Capital Regime for Regulated Insurance Holding Companies and
Non-Operating Life Companies, issued July 5, 2005. Consolidated available
capital is measured against the risk capital metric contained in the guideline
and against internally established risk capital metrics which are generally
more stringent than OSFI requirements. Regulatory capital adequacy is
primarily managed at the insurance operating company level, rather than at the
level of the ultimate holding company.
Our principal Canadian operating company, The Manufacturers Life
Insurance Company ("MLI"), is regulated by OSFI and is subject to OSFI's
Minimum Continuing Capital and Surplus Requirements ("MCCSR"). MLI's MCCSR
ratio as at September 30, 2008 remains strong at 193 per cent, a decrease of
seven points from the 200 per cent as at June 30, 2008. The decrease is due to
the impact of the market declines on required capital levels for segregated
fund and variable annuity guarantees. The Company took actions to increase the
regulatory capital position of MLI by internally redeploying excess capital
resources and this included making changes to the terms of the $550 million
senior note payable to Manulife Finance (Delaware) LLC due December 15, 2016.
Under the new terms, the senior note became a subordinated note and the
interest rate on the note was increased to 90-day Bankers Acceptance plus
0.552%.
On October 28, 2008, OSFI announced revisions to the MCCSR guidelines
pertaining to the calculation of required capital on segregated fund
guarantees. The previous capital rules were based on a single confidence
level, regardless of the date on which an insurer was expected to make
payments. The revised capital rules, effective October 1, 2008, increase
capital required for short-term obligations and reduce capital required to
support distant payment obligations.
The $3 billion five-year term loan bears interest at floating rates and
is repayable by MFC at any time without penalty or make whole provisions. The
credit agreement includes financial covenants and other positive and negative
covenants which are usual for a transaction of this nature.
MLI's pro forma MCCSR after reflecting the new financing, the latest
capital requirements for segregated fund guarantees, and market movements
since September 30th is estimated at a very robust 225 per cent, which is well
above our target range of 180 to 200 per cent.
On December 1, 2008, U.S. $500 million of 5.625% senior notes will
mature. These senior notes represent less than two per cent of total debt and
equity as at September 30, 2008 and do not qualify as regulatory capital.
PERFORMANCE BY DIVISION
Effective January 1, 2008 we changed our approach for allocating
investment gains and losses to be more aligned with how we manage the assets
and related risk positions. Investment gains and losses are now accumulated in
two pools - insurance and wealth management, and then allocated to the
business units based on their respective policy liabilities. Prior to 2008,
gains and losses were reported in the business units where the specific assets
giving rise to the gains and losses were located, and credit gains and losses
were reported in the Corporate and Other segment. Investment gains and losses
related to product features, such as segregated fund guarantees and future
fees assumed in variable universal life and equity-linked policy liabilities,
as well as investment gains and losses on full pass through products, such as
par insurance, are not included in the pools. Prior periods have been restated
to conform to this new presentation.
U.S. Insurance
Quarterly Results
Canadian dollars 3Q08 2Q08 3Q07
------------------------
Shareholders' Net Income (millions) 311 223 209
Premiums & Deposits (millions) 1,842 1,647 1,605
Funds under Management (billions) 59.9 58.5 56.3
------------------------
Quarterly Results
U.S. dollars 3Q08 2Q08 3Q07
------------------------
Shareholders' Net Income (millions) 298 221 200
Premiums & Deposits (millions) 1,769 1,630 1,536
Funds under Management (billions) 56.5 57.4 56.5
------------------------
Earnings for the third quarter of 2008 were U.S. $298 million, up 49 per
cent from U.S. $200 million reported a year earlier. The increase arose from
solid in-force business growth, improved claims experience and favourable
pooled investment results, partially offset by the impact of lower equity
markets on assumed future universal life fees and by higher new business
strain. On a Canadian dollar basis, earnings for the third quarter were $311
million, up $102 million from $209 million reported a year earlier.
Year-to-date earnings were $743 million compared to $587 million in 2007.
Premiums and deposits for the quarter were U.S. $1.8 billion, up 15 per
cent from U.S. $1.5 billion reported in the same quarter of 2007. The increase
was driven by strong sales in John Hancock Life and in-force business growth
and the transfer in of a large group case in John Hancock Long Term Care. On a
Canadian dollar basis, premiums and deposits for the quarter were $1.8
billion, up 15 per cent from $1.6 billion reported in the third quarter of
2007.
On a U.S. dollar basis, funds under management for the quarter were $56.5
billion, unchanged from the third quarter of 2007. Business growth in both
Life and Long Term Care was offset by the effect of unfavourable equity market
performance over the last twelve months on Life's segregated funds. Funds
under management on a Canadian dollar basis increased by six per cent, or $3.6
billion, to $59.9 billion as at September 30, 2008 reflecting the favourable
impact of the currency fluctuations.
U.S. Wealth Management
Quarterly Results
Canadian dollars 3Q08 2Q08 3Q07
------------------------
Shareholders' Net Income (millions) 13 271 281
Premiums & Deposits (millions) 8,367 8,648 8,494
Funds under Management (billions) 164.1 172.7 181.3
------------------------
Quarterly Results
U.S. dollars 3Q08 2Q08 3Q07
------------------------
Shareholders' Net Income (millions) 13 268 270
Premiums & Deposits (millions) 8,037 8,561 8,125
Funds under Management (billions) 154.9 169.5 181.9
------------------------
Earnings for the third quarter of 2008 were U.S. $13 million, down $257
million from U.S. $270 million reported a year earlier. Earnings decreased due
to the impact of lower equity markets on segregated fund guarantee reserves
and fee income as well as unfavourable pooled investment results. Tax benefits
of U.S. $31 million were recognized in the quarter as a result of the
successful outcome of certain tax appeals. On a Canadian dollar basis,
earnings for the third quarter were $13 million, down $268 million from $281
million reported a year earlier. Year-to-date earnings were $433 million
compared to $873 million in 2007.
Premiums and deposits for the quarter were U.S. $8.0 billion, down one
per cent from U.S. $8.1 billion reported in the third quarter of 2007. Lower
sales in John Hancock Variable Annuities due to volatile equity markets was
mostly offset by strong sales of fixed deferred and payout annuities in John
Hancock Fixed Products, growth in transfer volumes and higher recurring
deposits from an increasing participant base in John Hancock Retirement Plan
Services and 13 per cent sales growth in John Hancock Mutual Funds due to
expanded distribution. On a Canadian dollar basis, premiums and deposits for
the quarter were $8.4 billion, down one per cent from $8.5 billion reported in
the third quarter of 2007.
On a U.S. dollar basis, funds under management decreased by 15 per cent,
or U.S. $27.0 billion, to U.S. $154.9 billion as at September 30, 2008. The
decline was due to both the cumulative effect of unfavourable equity markets
on segregated and mutual fund assets and scheduled maturities in Fixed
Products over the last twelve months, partially offset by business growth.
Funds under management on a Canadian dollar basis decreased by nine per cent,
or $17.2 billion, to $164.1 billion as at September 30, 2008.
Canadian Division
Quarterly Results
Canadian dollars 3Q08 2Q08 3Q07
------------------------
Shareholders' Net Income (millions) 113 302 288
Premiums & Deposits (millions) 3,794 4,090 3,347
Funds under Management (billions) 84.2 87.6 83.6
------------------------
Canadian Division's shareholders' net income for the third quarter of
2008 was $113 million, $175 million less than the $288 million reported a year
earlier, reflecting the impact of equity market declines on actuarial
liabilities held for segregated fund guarantees and less favourable pooled
investment results. Year-to-date shareholders' net income was $669 million
compared to $823 million in 2007.
Premiums and deposits for the quarter of $3.8 billion increased 13 per
cent from the same quarter in 2007. Segregated fund deposits rose 27 per cent
led by the continued sales success of our guaranteed withdrawal benefit
product, IncomePlus. General fund premiums increased by 10 per cent due to
strong growth in insurance sales and Individual Wealth Management's fixed rate
products.
Funds under management of $84.2 billion as at September 30, 2008 were one
per cent higher than a year ago. Manulife Bank's funds under management
increased by over $2 billion or 26 per cent, reflecting continued growth in
Manulife One mortgage lending assets. This growth was partially offset by
segregated funds, where significant deterioration in equity markets outweighed
the increase from positive net sales.
Asia and Japan Division
Quarterly Results
Canadian dollars 3Q08 2Q08 3Q07
------------------------
Shareholders' Net Income (millions) 216 215 227
Premiums & Deposits (millions) 2,169 2,590 3,102
Funds under Management (billions) 42.6 43.7 41.6
------------------------
Quarterly Results
U.S. dollars 3Q08 2Q08 3Q07
------------------------
Shareholders' Net Income (millions) 208 212 216
Premiums & Deposits (millions) 2,084 2,565 2,965
Funds under Management (billions) 40.2 42.9 41.7
------------------------
Asia and Japan Division's shareholders' net income for the third quarter
of 2008 was U.S. $208 million, down U.S. $8 million from U.S. $216 million
reported a year earlier. The increase in earnings from in-force business
growth and increased insurance sales was more than offset by lower fee income
and higher segregated fund guarantee costs due to the sharp decline in the
equity markets. On a Canadian dollar basis, net income for the third quarter
was $216 million, down $11 million from $227 million reported a year earlier.
Year-to-date shareholders' net income was $617 million compared to $646
million in 2007.
Premiums and deposits for the quarter were U.S. $2.1 billion, down 30 per
cent from U.S. $3.0 billion reported in the third quarter of 2007. The 15 per
cent growth in insurance premiums generated by in-force business growth and
new product launches was more than offset by the decline in wealth management
deposits due to volatile equity markets. On a Canadian dollar basis, premiums
and deposits for the quarter were $2.2 billion, down 30 per cent from $3.1
billion reported in the third quarter of 2007.
On a U.S. dollar basis, funds under management declined by four per cent,
or U.S. $1.5 billion, to U.S. $40.2 billion as at September 30, 2008. Net
policyholder cash inflows of U.S. $6.2 billion were more than offset by the
negative impact of declining equity markets in the past twelve months. Funds
under management on a Canadian dollar basis increased by three per cent, or
$1.0 billion, to $42.6 billion as at September 30, 2008.
Reinsurance Division
Quarterly Results
Canadian dollars 3Q08 2Q08 3Q07
------------------------
Shareholders' Net Income (millions) 49 46 44
Premiums (millions) 272 287 249
------------------------
Quarterly Results
U.S. dollars 3Q08 2Q08 3Q07
------------------------
Shareholders' Net Income (millions) 47 45 42
Premiums (millions) 261 284 238
------------------------
Earnings for the third quarter of 2008 were U.S. $47 million, up U.S. $5
million from U.S. $42 million reported a year earlier. The increase arose from
favourable pooled investment experience and lower Property and Casualty claims
costs partially offset by higher Life Reinsurance claims costs and segregated
fund guarantee charges. On a Canadian dollar basis, earnings for the third
quarter were $49 million, up $5 million from $44 million reported a year
earlier. Year-to-date earnings were $168 million compared to $181 million in
2007.
Premiums for the quarter were U.S. $261 million, up ten per cent from
U.S. $238 million reported in the same quarter last year mainly due to growth
in Life Reinsurance premiums resulting from aging of the block and smaller
experience refunds in 2008. On a Canadian dollar basis, premiums for the
quarter were $272 million, up nine per cent from $249 million reported in the
third quarter of 2007.
Corporate and Other
Quarterly Results
Canadian dollars 3Q08 2Q08 3Q07
------------------------
Shareholders' Net Income (Loss) (millions) (192) (49) 21
Funds under Management (billions) 31.8 35.3 34.0
------------------------
Corporate and Other comprises the Investment Division's external asset
management business, earnings on residual capital (assets backing capital, net
of amount allocated to operating divisions), changes in actuarial methods and
assumptions, the variable annuity hedging program, the John Hancock Accident
and Health operation, which consists primarily of contracts in dispute, and
other non operating events.
Corporate and Other recorded a loss of $192 million for the third quarter
of 2008 compared to income of $21 million reported a year earlier.
Approximately half of the $213 million decline is due to securities classified
as available-for-sale, where realized gains and credit experience increased
earnings by $64 million in 2007 compared to a loss of $38 million this year.
The other half is due to unrealized losses on a fixed income asset classified
as trading, costs of the variable annuity hedging program and claims gains
reported in 2007 on the John Hancock Accident and Health operations that did
not recur this quarter. Partially offsetting these declines was $20 million
recognized in the quarter as a result of the successful outcome of certain
U.S. tax appeals. The year-to-date result is a loss of $243 million compared
to net income of $48 million in 2007.
Funds under management, which include externally managed assets and
assets backing the Company's capital, declined by seven per cent, or $2.2
billion, to $31.8 billion at September 30, 2008. The $1.3 billion of net new
deposits in the Investment Division's externally managed funds and a weaker
Canadian dollar was more than offset by the impact of equity market declines
and higher credit spreads.
Contingencies
-------------
Certain elements of the Company's tax positions are contingent upon the
final resolution of tax authority audits or on the substantial enactment of
tax regulations which have currently only been issued in draft. There are
three significant tax related contingencies as at September 30, 2008.
The Canadian tax authorities have released draft tax regulations changing
the treatment of unrealized gains and losses and the deductibility of certain
actuarial reserves. If the changes are enacted as announced, the Company will
record an increase to net income of an estimated $169 million.
In the United States, audits concluded by the tax authorities are at
various stages of the appeals process. During the quarter, one of the major
items under appeal was successfully concluded and a benefit of U.S.$52 million
was recorded. Should the Company be successful in the remaining proceedings,
further benefits of an estimated U.S.$55 million will accrue.
The Company is an investor in leveraged leases and in prior years
established provisions in the amount of U.S.$178 million after tax for
possible disallowance of the tax treatment and for interest on past due taxes.
In the second quarter, we increased this provision by U.S.$33 million after
tax. We continue to believe that deductions originally claimed in relation to
these arrangements are appropriate. Although not expected to occur, should the
tax attributes of our leveraged leases be fully denied, the maximum after tax
exposure including interest would be an additional estimated U.S.$387 million
as at September 30, 2008.
Performance and Non-GAAP Measures
---------------------------------
We use a number of non-GAAP financial measures to measure overall
performance and to assess each of our businesses. Non-GAAP measures include
return on common shareholders' equity, premiums and deposits, funds under
management, constant currency and new business embedded value. Non-GAAP
financial measures are not defined terms under GAAP and, therefore, are
unlikely to be comparable to similar terms used by other issuers.
Return on equity is a profitability measure that presents the net income
available to common shareholders as a percentage of the capital deployed to
earn the income. The 2007 implementation of Canadian Institute of Chartered
Accountants ("CICA") Handbook Section 3855 resulted in certain unrealized
gains and losses, which do not have an impact on reported income for the
period, being reflected in a new component of shareholders' equity called
Accumulated Other Comprehensive Income. Accordingly, the Company calculates
return on equity using average common shareholders' equity excluding
Accumulated Other Comprehensive Income on available-for-sale securities and
cash flow hedges.
About Manulife Financial
------------------------
Manulife Financial is a leading Canadian-based financial services group
serving millions of customers in 19 countries and territories worldwide.
Operating as Manulife Financial in Canada and Asia, and primarily through John
Hancock in the United States, the Company offers clients a diverse range of
financial protection products and wealth management services through its
extensive network of employees, agents and distribution partners. Funds under
management by Manulife Financial and its subsidiaries were Cdn $385.3 billion
(U.S. $363.5 billion) as at September 30, 2008. Manulife Financial Corporation
trades as 'MFC' on the TSX, NYSE and PSE, and under '0945' on the SEHK.
Manulife Financial can be found on the Internet at www.manulife.com.
Attachments: Financial Highlights, Consolidated Statements of Operations,
Consolidated Balance Sheets, Divisional Information.
Notes:
Manulife Financial Corporation will host a Third Quarter Earnings Results
Conference Call at 2:00 p.m. ET on November 6, 2008. For local and
international locations, please call (416) 340-2216 and toll free in North
America please call (866) 898-9626. Please call in ten minutes before the call
starts. You will be required to provide your name and organization to the
operator. A playback of this call will be available by 6:00 p.m. ET on
November 6, 2008 until November 13, 2008 by calling (416) 695-5800 or (800)
408-3053 (passcode 3269316 followed by the number sign).
The conference call will also be webcast through Manulife Financial's
website at 2:00 p.m. ET on November 6, 2008. You may access the webcast at:
www.manulife.com/quarterlyreports. An archived version of the webcast will be
available at 4:00 p.m. ET on the website at the same URL as above.
The Third Quarter 2008 Financial Statements and Statistical Information
Package are also available on the Manulife website at:
www.manulife.com/quarterlyreports. Each of these documents may be downloaded
before the webcast begins.
Caution Regarding Forward-Looking Statements
--------------------------------------------
This document contains forward-looking statements within the meaning of
the "safe harbour" provisions of Canadian provincial securities laws and the
U.S. Private Securities Litigation Reform Act of 1995. These forward-looking
statements relate to, among other things, our objectives, goals, strategies,
intentions, plans, beliefs, expectations and estimates, and can generally be
identified by the use of words such as "may", "will", "could", "should",
"would", "suspect", "outlook", "expect", "intend", "estimate", "anticipate",
"believe", "plan", "forecast", "objective" and "continue" (or the negative
thereof) and words and expressions of similar import, and include statements
concerning possible or assumed future results. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, such
statements involve risks and uncertainties, and undue reliance should not be
placed on such statements. Certain material factors or assumptions are applied
in making forward-looking statements, and actual results may differ materially
from those expressed or implied in such statements. Important factors that
could cause actual results to differ materially from expectations include but
are not limited to: general business and economic conditions (including but
not limited to performance of equity markets, interest rate fluctuations,
investment losses and defaults, movements in credit spreads, market liquidity
and creditworthiness of guarantors and counterparties), level of competition
and consolidation, changes in laws and regulations, currency rates and Company
liquidity, accuracy of information received from counterparties and the
ability of counterparties to meet their obligations, accuracy of accounting
policies and actuarial methods used by the Company, ability to maintain the
Company's reputation, legal and regulatory proceedings, the disruption of or
changes to key elements of the Company's or to public infrastructure systems,
the ability to attract and retain key executives, environmental concerns, the
ability to complete acquisitions and execute strategic plans, and the ability
to adapt products and services to the changing market. Additional information
about material factors that could cause actual result to differ materially
from expectations and about material factors or assumptions applied in making
forward-looking statements may be found in the body of this document as well
as under "Risk Factors" in our most recent Annual Information Form, under
"Risk Management" and "Critical Accounting and Actuarial Policies" in the
Management's Discussion and Analysis in our most recent Annual Report, and
elsewhere in our filings with Canadian and U.S. securities regulators. We do
not undertake to update any forward-looking statements.
------------------------
(1) Return on common shareholders' equity is calculated excluding
Accumulated Other Comprehensive Income on available-for-sale
securities and cash flow hedges.
(2) Based on the most recently available industry data per LIMRA
International's sales survey results for respective categories.
Financial Highlights
(Canadian $ in millions unless otherwise stated and per share
information, unaudited)
As at and for the three months ended
September 30
2008 2007 % Change
-------------------------------------------------------------------------
Net income $ 507 $ 1,069 (53)
Loss attributed to participating
policyholders 3 1 -
-------------------------------------------------------------------------
Net income attributed to shareholders $ 510 $ 1,070 (52)
Preferred share dividends (7) (7) -
-------------------------------------------------------------------------
Net income available to common
shareholders $ 503 $ 1,063 (53)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Premiums and deposits:
Life and health insurance premiums $ 4,017 $ 3,637 10
Annuity and pension premiums 1,841 1,245 48
Segregated fund deposits 7,689 8,888 (13)
Mutual fund deposits 2,173 2,304 (6)
ASO premium equivalents 601 582 3
Other fund deposits 123 141 (13)
-------------------------------------------------------------------------
Total premiums and deposits $ 16,444 $ 16,797 (2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Funds under management:
General fund $ 165,163 $ 159,170 4
Segregated funds 165,488 174,489 (5)
Mutual funds 28,213 36,185 (22)
Other funds 26,416 29,506 (10)
-------------------------------------------------------------------------
Total funds under management $ 385,280 $ 399,350 (4)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital
Liabilities for preferred shares and
capital instruments $ 3,578 $ 3,014 19
Non-controlling interest in
subsidiaries 167 202 (17)
Equity
Participating policyholders' equity 61 152 (60)
Shareholders' equity
Preferred shares 638 638 -
Common shares 13,943 14,004 -
Contributed surplus 156 133 17
Retained earnings 15,345 13,710 12
Accumulated other comprehensive loss
on AFS securities and translation
of net foreign operations (4,868) (4,595) 6
-------------------------------------------------------------------------
Total capital $ 29,020 $ 27,258 6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Selected key performance measures:
Basic earnings per common share $ 0.34 $ 0.70
Diluted earnings per common share $ 0.33 $ 0.70
Return on common shareholders' equity
(annualized)(1) 8.2% 18.9%
Book value per common share $ 16.41 $ 15.48
Common shares outstanding (in millions)
End of period 1,492 1,502
Weighted average - basic 1,492 1,511
Weighted average - diluted 1,503 1,525
(1) Return on common shareholders' equity is net income available to
common shareholders divided by average common shareholders' equity
excluding accumulated other comprehensive income on AFS securities
and cash flow hedges.
Summary Consolidated Financial Statements
Consolidated Statements of Operations
(Canadian $ in millions except per share data,
unaudited) For the three
months ended
September 30
2008 2007
-------------------------------------------------------------------------
Revenue
Premium income $ 5,858 $ 4,882
Investment income
Investment income 1,750 2,283
Realized/unrealized (losses) gains on assets
supporting policy liabilities and consumer notes (3,150) 834
Other revenue 1,369 1,371
-------------------------------------------------------------------------
Total revenue $ 5,827 $ 9,370
-------------------------------------------------------------------------
Policy benefits and expenses
To policyholders and beneficiaries
Death, disability and other claims $ 1,653 $ 1,430
Maturity and surrender benefits 1,841 2,083
Annuity payments 744 741
Policyholder dividends and experience
rating refunds 392 408
Net transfers to segregated funds 377 227
Change in actuarial liabilities(1) (2,303) 565
General expenses 899 835
Investment expenses 231 237
Commissions 1,008 1,021
Interest expense 237 292
Premium taxes 68 58
Non-controlling interest in subsidiaries 3 7
-------------------------------------------------------------------------
Total policy benefits and expenses $ 5,150 $ 7,904
-------------------------------------------------------------------------
Income before income taxes $ 677 $ 1,466
Income taxes (170) (397)
-------------------------------------------------------------------------
Net income $ 507 $ 1,069
Loss attributed to participating policyholders 3 1
-------------------------------------------------------------------------
Net income attributed to shareholders $ 510 $ 1,070
Preferred share dividends (7) (7)
-------------------------------------------------------------------------
Net income available to common shareholders $ 503 $ 1,063
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings per common share $ 0.34 $ 0.70
Diluted earnings per common share $ 0.33 $ 0.70
(1) Includes impact of net redemptions in John Hancock Fixed Products
institutional products of $0.6 billion in Q3 2008 and $0.7 billion in
Q3 2007.
Consolidated Balance Sheets
(Canadian $ in millions, unaudited)
As at September 30
Assets 2008 2007
-------------------------------------------------------------------------
Invested assets
Cash and short-term securities $ 11,626 $ 9,917
Securities
Bonds 72,101 73,008
Stocks 9,526 11,812
Loans
Mortgages 28,948 25,589
Private placements 23,489 21,877
Policy loans 6,408 5,770
Bank loans 2,285 2,160
Real estate 6,427 5,660
Other investments 4,353 3,377
-------------------------------------------------------------------------
Total invested assets $ 165,163 $ 159,170
-------------------------------------------------------------------------
Other assets
Accrued investment income $ 1,590 $ 1,567
Outstanding premiums 763 608
Goodwill 7,078 6,769
Intangible assets 1,645 1,602
Derivatives 2,379 2,038
Miscellaneous 3,296 3,478
-------------------------------------------------------------------------
Total other assets $ 16,751 $ 16,062
-------------------------------------------------------------------------
Total assets $ 181,914 $ 175,232
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segregated funds net assets $ 166,098 $ 175,094
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and equity
-------------------------------------------------------------------------
Policy liabilities $ 126,471 $ 123,856
Deferred realized net gains 106 110
Bank deposits 11,030 8,901
Consumer notes 1,690 2,209
Long-term debt 2,247 1,829
Future income tax liability, net 3,085 2,806
Derivatives 2,264 1,728
Other liabilities 6,091 6,525
-------------------------------------------------------------------------
$ 152,984 $ 147,964
Liabilities for preferred shares and capital
instruments 3,578 3,014
Non-controlling interest in subsidiaries 167 202
Equity
Participating policyholders' equity 61 152
Shareholders' equity
Preferred shares 638 638
Common shares 13,943 14,004
Contributed surplus 156 133
Retained earnings 15,345 13,710
Accumulated other comprehensive loss (4,958) (4,585)
-------------------------------------------------------------------------
Total equity $ 25,185 $ 24,052
-------------------------------------------------------------------------
Total liabilities and equity $ 181,914 $ 175,232
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segregated funds net liabilities $ 166,098 $ 175,094
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Notes to Summary Consolidated Financial Statements
(Canadian $ in millions, unaudited)
Note 1: Divisional Information
For the quarter ended September 30, 2008
--------------------------------------------
U.S.
U.S. Wealth Asia
Premiums and deposits Insurance Management Canadian and Japan
-------------------------------------------------------------------------
General fund premiums $ 1,479 $ 1,595 $ 1,669 $ 843
Segregated fund deposits 363 4,607 1,420 1,299
Mutual fund deposits - 2,042 104 27
ASO premium equivalents - - 601 -
Other fund deposits - 123 - -
-------------------------------------------------------------------------
Total $ 1,842 $ 8,367 $ 3,794 $ 2,169
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss) $ 311 $ 13 $ 112 $ 214
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Funds under management As at September 30, 2008
-------------------------------------------------------------------------
General fund $ 49,462 $ 35,196 $ 51,563 $ 17,469
Segregated funds 10,439 101,301 29,851 21,260
Mutual funds - 24,152 2,786 1,275
Other funds - 3,482 - 2,630
-------------------------------------------------------------------------
Total $ 59,901 $ 164,131 $ 84,200 $ 42,634
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the quarter ended
September 30, 2008
-----------------------------------
Corporate
Premiums and deposits Reinsurance and Other Total
--------------------------------------------------------------
General fund premiums $ 272 $ - $ 5,858
Segregated fund deposits - - 7,689
Mutual fund deposits - - 2,173
ASO premium equivalents - - 601
Other fund deposits - - 123
--------------------------------------------------------------
Total $ 272 $ - $ 16,444
--------------------------------------------------------------
--------------------------------------------------------------
Net income (loss) $ 49 $ (192) $ 507
--------------------------------------------------------------
--------------------------------------------------------------
Funds under management As at September 30, 2008
--------------------------------------------------------------
General fund $ 2,623 $ 8,850 $ 165,163
Segregated funds - 2,637 165,488
Mutual funds - - 28,213
Other funds - 20,304 26,416
--------------------------------------------------------------
Total $ 2,623 $ 31,791 $ 385,280
--------------------------------------------------------------
--------------------------------------------------------------
For the quarter ended September 30, 2007
--------------------------------------------
U.S.
U.S. Wealth Asia
Premiums and deposits Insurance Management Canadian and Japan
-------------------------------------------------------------------------
General fund premiums $ 1,294 $ 1,076 $ 1,522 $ 741
Segregated fund deposits 311 5,488 1,121 1,968
Mutual fund deposits - 1,789 122 393
ASO premium equivalents - - 582 -
Other fund deposits - 141 - -
-------------------------------------------------------------------------
Total $ 1,605 $ 8,494 $ 3,347 $ 3,102
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income $ 209 $ 281 $ 287 $ 227
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Funds under management As at September 30, 2007
-------------------------------------------------------------------------
General fund $ 44,657 $ 36,545 $ 49,335 $ 16,362
Segregated funds 11,656 110,120 30,829 19,498
Mutual funds - 30,857 3,386 1,942
Other funds - 3,736 - 3,791
-------------------------------------------------------------------------
Total $ 56,313 $ 181,258 $ 83,550 $ 41,593
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the quarter ended
September 30, 2007
-----------------------------------
Corporate
Premiums and deposits Reinsurance and Other Total
--------------------------------------------------------------
General fund premiums $ 249 $ - $ 4,882
Segregated fund deposits - - 8,888
Mutual fund deposits - - 2,304
ASO premium equivalents - - 582
Other fund deposits - - 141
--------------------------------------------------------------
Total $ 249 $ - $ 16,797
--------------------------------------------------------------
--------------------------------------------------------------
Net income $ 44 $ 21 $ 1,069
--------------------------------------------------------------
--------------------------------------------------------------
Funds under management As at September 30, 2007
--------------------------------------------------------------
General fund $ 2,604 $ 9,667 $ 159,170
Segregated funds - 2,386 174,489
Mutual funds - - 36,185
Other funds - 21,979 29,506
--------------------------------------------------------------
Total $ 2,604 $ 34,032 $ 399,350
--------------------------------------------------------------
--------------------------------------------------------------
Note 2: Comparatives
Certain comparative amounts have been reclassified to conform with the
current period's presentation.
For further information: Media inquiries: Laurie Lupton, (416) 852-7792,
Laurie_Lupton@manulife.com; Investor Relations: Amir Gorgi, 1-800-795-9767,
investor_relations@manulife.com
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