Manulife Financial Corp., Canada’s largest life insurer, reported second-quarter earnings that missed analysts’ estimates as hedging costs and lower investment gains hampered growth.
Second-quarter profit excluding some items was 40 cents a share, according to a statement Thursday, below the 45-cent average estimate of 13 analysts surveyed by Bloomberg. Net income increased 17 percent from the prior-year period to C$704 million ($538 million), or 34 cents a share.
Manulife also said it could take a charge of as much as C$500 million, based on preliminary indications from a review of its actuarial assumptions, such as policyholders’ lifespans. Sales in the company’s wealth operations also slowed amid lower transactions in Asia, where volatile equity markets have hurt Manulife’s investments in recent years.
“While both core earnings and net income this quarter were disappointing, having been impacted by the sharp decline in interest rates and heightened market volatility, I am pleased with how resilient our underlying businesses remained,” Chief Executive Officer Donald Guloien, 59, said in the statement.
The Toronto-based firm kept its dividend at 18.5 cents a share, while Bloomberg analysts had forecast an increase to 19.5 cents.
The shares fell 5 percent at 9:53 a.m. in Toronto trading after falling as much as 5.4 percent, the most since June 24. The drop brings Manulife’s decline to 18 percent this year, underperforming peers in the Standard & Poor’s/TSX Financials Index, which has gained 5 percent.
The firm said it had zero core investment gains in the quarter, plummeting from gains of C$51 million in the prior year. Manulife’s investments have been buffeted for several years by volatile markets, low interest rates globally, and the slump in oil prices.
Manulife also took an extra C$32 million to increase hedging positions, while higher interest expenses on debt and costs for strategic plans, combined with a strengthening U.S. dollar led to an additional C$51 million drop in core profit.
Profit from sales of insurance products increased 10 percent from the prior year period to C$557 million, led by a 30 percent advance in Asia and 23 percent in Canada. U.S. insurance profit declined 19 percent. Double-digit core profit growth in Asia and Canada was offset by higher claims costs.
Asset management earnings slid 5 percent to C$152 million, led by a 14 percent profit drop in Asia following lower mutual-fund sales in Hong Kong and mainland China, and as its net flows in the region were halved to $1.3 billion from the prior year. Earnings from wealth management were down 8 percent in the U.S. amid heightened competition and “challenging market conditions.” Canadian wealth-management profit increased 28 percent to C$46 million amid increased fee income.
The company is reviewing its actuarial assumptions, or estimates of policyholder lifespans and other factors used to calculate premiums or benefits, for its long-term care and U.S. variable annuity units.