TORONTO – Energy exposure hit the conclusion of Manulife Financial Corp. in the fourth quarter, resulting in the shares to slide by as much as 12 percent in Thursday trading despite a nine percent hike within the dividend.
Quarterly net earnings missed analyst estimates and included a $361 million charge on “investment-related experience” – with the bulk of that because of oil and gas holdings.
“For the 3rd time in 2015, Manulife incurred significant investment losses related to its energy investments,” Barclays Capital analyst John Aiken wrote inside a note to clients.
“The ongoing uncertainty in oil and the broader macro outlook has management concerned,” he wrote, adding that leader Don Guloien and the management team are “backing away” from a $4 billion core earnings target for 2016.
Guloien told analysts on the conference call that “it was a disappointing year when it comes to net gain, largely due to sharp mark-to-market declines in gas and oil prices, diminishing a normally great year.”
However, he indicated that confidence in the insurance giant’s capital levels and earnings growth momentum, besides the investment-related issues, caused Manulife to raise 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 rise in start up business value.
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The insurance giant reported core earnings of 42 cents a share in the fourth quarter, below analyst estimates of 45 cents. Net gain for the similar period, including unusual items such as the write-downs around the energy portfolio, fell by 62 percent from the year earlier to $246 million (11 cents a share).
Core earnings for that twelve month reached $3.4 billion in 2015, in contrast to $2.9 billion a year earlier.
But Guloien said hello could be difficult to hit the sooner core earnings target of $4 billion in 2016, which assumed a $400-million contribution from investment gains.
“We’re not going to be so fixated with that number that we’re likely to do anything stupid to get there,” he told analysts.
As for that steep decline within the price of oil, it’s not prompted Manulife to jettison existing investments subjected to the oil and gas sector.
“On the contrary, it is now time to perhaps bunch the truck,” Guloien told analysts.
Dean Connor, the chief executive of rival insurer Sun Life Financial, said his firm began “de-risking” exposure to energy-related investments in regards to a year ago.
“Our exposure is gloomier than most of our United states peers,” he said within an interview, adding that Sun Every day life is exposed through bonds, most that are investment grade, and real estate in Alberta.
Both Connor and Guloien said they expect merely a small effect on their businesses from the regulatory change 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 per cent, to a 52-week low of $15.84.
Still, the situation isn’t similar to a crisis in the firm in the past involving market hedging, said David Beattie, a senior vice-president at Moody’s Investors Service.
“Both produce earnings volatility and therefore uncertainty around future net gain,” he explained. However, the fair value losses on oil and gas holdings could ultimately reverse themselves over time.
The requirement to “absorb the losses today” comes from the accounting rules that govern the life span insurer, Beattie said.