TORONTO – Energy exposure hit the conclusion of Manulife Financial Corp. inside the fourth quarter, inducing the shares to slide up to 12 percent in Thursday trading despite a nine percent hike inside the dividend.
Quarterly net earnings missed analyst estimates and included a $361 million charge on “investment-related experience” – while using majority of that due to coal and oil holdings.
“For the 3rd over time 2015, Manulife incurred significant investment losses related to its energy investments,” Barclays Capital analyst John Aiken wrote within the note to clients.
“The ongoing uncertainty in oil as well as the broader macro outlook has management concerned,” he wrote, adding that leader Don Guloien as well as the management team are “backing away” from the $4 billion core earnings target for 2016.
Guloien told analysts on the business call that “it was a disappointing year when it comes to net gain, mainly because of sharp mark-to-market declines in coal and oil prices, diminishing a normally great year.”
However, he established that confidence within the insurance giant’s capital levels and earnings growth momentum, besides the investment-related issues, caused Manulife to boost its quarterly dividend to 18.5 cents from 17 cents.
Guloien noted that insurance sales were up 24 percent in fiscal 2015, with Asia adding to a level larger increase in home based business value.
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The insurance giant reported core earnings of 42 cents a participate the 4th quarter, below analyst estimates of 45 cents. Net gain for the similar period, including unusual items like the write-downs around the energy portfolio, fell by 62 percent around earlier to $246 million (11 cents a share).
Core earnings for the twelve month reached $3.4 billion in 2015, in contrast to $2.9 billion a year ago.
But Guloien stated it might be hard to hit the earlier core earnings target of $4 billion in 2016, which assumed a $400-million contribution from investment gains.
“We’re certainly not so fixated with this number that we are prone to do anything whatsoever stupid to acquire there,” he told analysts.
As for your steep decline inside the price of oil, it’s not prompted Manulife to jettison existing investments subjected to the coal and oil sector.
“On the contrary, it is now time to perhaps bunch your truck,” Guloien told analysts.
Dean Connor, the primary executive of rival insurer Sun Life Financial, said his firm began “de-risking” connection with energy-related investments in regards to a a year ago.
“Our exposure is leaner when compared with the majority of our Usa peers,” he was quoted saying within an interview, adding that Sun Life’s exposed through bonds, most which are investment grade, and property in Alberta.
Both Connor and Guloien said they expect merely a small impact on their businesses in the regulatory alternation in China this month affecting the sale of insurance in Hong Kong.
Manulife’s energy-related investment issues appear to have spooked investors, who drove the shares down $1.47, or 8.5 percent, having a 52-week low of $15.84.
Still, the issue isn’t much like a crisis inside the firm previously involving market hedging, said David Beattie, a senior vice-president at Moody’s Investors Service.
“Both produce earnings volatility and for that reason uncertainty around future net gain,” he was quoted saying. However, the fair value losses on coal and oil holdings could ultimately reverse themselves after a while.
The requirement to “absorb the losses today” arises from the accounting rules that govern living insurer, Beattie said.
Financial Post
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