NU Online News Service, October 28–John Hancock Financial Services, Boston, says that it expects net income for third quarter 2002 to be $158.1 million compared with net income in third quarter 2001 of $165.2 million. The anticipated net income recognizes investment losses of $23.7 million as well as a restructuring charge of $4 million. It would result in net operating earnings of 64 cents a share compared with a consensus of 71 cents a share. The company plans to announce results on Oct. 31.
The company adds that net operating income for the quarter should total $185.8 million compared with a total of $201.5 million in the year-ago period.
The expected decline, according to the company, is related to deferred acquisition costs that have been accelerated due to a downturn in equity markets. Another factor, it says, is a decision to revise to 8% from 9% the long-term total return assumption for its variable annuity and variable life insurance contracts. The DAC costs are associated with its variable annuity and variable life insurance contracts, John Hancock says.
When assets decline due to a factor such as equity market dips, repayment of costs associated with those assets are amortized more quickly in order to match assets with liabilities.
As a result of the anticipated results, John Hancock says that full-year growth is anticipated to be 5-9% over the $2.62 per share earned in 2001 instead of a previously projected 8-11% growth.
John Hancock could face additional quarterly DAC charges, although a 10% increase in the Standard & Poor’s 500 Index since the beginning of 4th quarter 2002 would favor the company, according to a report issued by Andrew Kligerman, an analyst with Bear Stearns, New York.
However, the report notes that net realized investment losses are significantly less than an anticipated $56 million. It continues that while near-term return on equity is expected to be lower due to credit losses, over the long term, ROEs are expected to be in the 14-15% range.