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LTCI sales rise at John Hancock

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John Hancock Long-Term Care operations did well in the fourth quarter, despite the effects of a paper investment loss that reduced revenue.

The business, an arm of Manulife Financial Corp. (TSX:MFC), is reporting $138 million in net income for the quarter on $282 million in total revenue, compared with $148 million in net income on $769 million in revenue for the fourth quarter of 2012.

The Hancock unit reports results in U.S. dollars.

Premium revenue held steady, at $465 million.

Net investment income increased to $327 million, from $296 million, and premiums from new sales increased to $13 million, from $10 million.

Canada requires companies to use “mark to market” International Financial Reporting Standards (IFRS) accounting rules and put the results of changes in the value of investment portfolios and insurance obligations in their financialstatements.

Manulife posted a $519 million mark-to-market paper loss related to net realized investment experience at the John Hancock Long-Term Care unit in the quarter, up from $353 million in the comparable quarter in 2012.

If the unit had not subtracted $519 million from the subtotal for other forms of revenue, it could have reported $667 million in net income for the quarter.

But company representatives say that, in the real world, that, if the interest shifts that drove the mark-to-market loss did not exist, and the $519 million negative figure disappeared from the financial statements, the mark-to-market value of insurance liability reserves would increase.

In that scenario, an increase in total expenses would likely offset much of the increase in revenue, and net income would be comparable to the figure that was just reported, company representatives say.

Although the paper value of LTC unit assets fell, the paper value of the insurance obligations fell more, and portfolio performance was such that the unit’s ability to meet obligations improved, company representatives say.

Clarification: An earlier version of this story gave an incomplete description of the mark-to-market investment experience item in the LTC unit’s financial statement. The item has an inverse relationship with an expense item that usually offsets most or all of its impact on earnings.

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