Manulife Profit May Rise on Equity Market Rebound (Update2)

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Manulife Financial Corp., North America’s largest insurer by market value, may post a gain in second-quarter earnings after equity markets rebounded.

Canada’s three main life insurers may report an average increase in second quarter earnings of 12 percent tomorrow, according to Mario Mendonca, an analyst at Genuity Capital Markets. In the first quarter, Manulife and Sun Life Financial Inc. each posted net losses.

Insurers had to write down the value of assets and boost reserves in previous quarters as stock markets declined globally. For the three-month period ended June 30, the benchmark Standard & Poor’s 500 Index gained 15 percent and Canada’s S&P/TSX Composite Index advanced 19 percent.

“We’re going to see more evidence to indicate that the worst is probably behind us,” said Garey Aitken, chief investment officer of Bissett Investment Management in Calgary, which manages about C$11.4 billion ($10.6 billion) in assets, including Manulife and Sun Life shares. “There’s some clear indications that things are stabilizing.”

Manulife may report that profit jumped 57 percent to C$1.07 a share, Genuity’s Mendonca said. The benefit from equity markets could add about C$3.56 billion to results at the owner of Boston-based John Hancock Financial, said the analyst, who rates the shares “hold.” Manulife, Sun Life and Great-West Lifeco Inc. are scheduled to report results tomorrow.

Conservative Approach

Chief Executive Officer Donald Guloien, who took over Manulife’s top job in May, told investors July 8 he expects equity-market gains in the quarter will be largely offset by reserves.

“That’s something that we’ll see out of these companies in the second quarter and longer term,” said Bissett’s Aitken. “We’re going to move towards a more conservative approach to capital.”

Guloien declined to answer an investor’s question about whether Manulife’s dividend will be cut, leading to speculation by analysts that the payout could be reduced to preserve capital as its looks for acquisition opportunities. Insurers including Newark, New Jersey-based Prudential Financial Inc. have slashed their dividend over the last year.

If Manulife “hoards capital for the next couple of years and nothing materializes, the worst that could happen is that the capital comes back to the shareholders,” CIBC World Markets analyst Darko Mihelic wrote in a July 9 note to investors. “The best that could happen is significant acquisitions and/or organic builds.”

Sun Life Financial

Before one-time items, Toronto-based Manulife is expected to have profit of 71 cents a share, the mean estimate of 11 analysts surveyed by Bloomberg News.

Sun Life, Canada’s third-largest insurer, may report net income of 98 cents a share, an 8 percent increase from the year- earlier period, according to Mendonca. The owner of MFS Investment Management stands to rebound from a year-earlier loss in annuities in the U.S., the analyst said.

“Management changes in the U.S. division, as well as the potential for acquisitions of assets from distressed sellers, gives us hope that performance in the U.S. division, as well as the firm’s competitive position, might improve,” said RBC Capital Markets analyst Andre-Philippe Hardy.

Before one-time items, Toronto-based Sun Life is expected to have profit of 89 cents, the mean estimate of 8 analysts surveyed by Bloomberg. That compares with 91 cents last year.

Great-West Lifeco

No. 2 Great-West Lifeco, controlled by Montreal’s billionaire Desmarais family, may post profit of 45 cents a share, a 29 percent decline from the year-earlier period, Mendonca said. That includes impairment charges and other costs of C$100 million, the analyst said.

Before one-time items, Winnipeg, Manitoba-based Great-West is expected to report profit of 49 cents a share, according to the mean estimate of 8 analysts surveyed by Bloomberg. The insurer earned 63 cents on that basis in last year’s second quarter.

Manulife rose 12 cents to C$26.25 at 5 p.m. trading on the Toronto Stock Exchange. Great-West rose 16 cents to C$26.90. Sun Life rose 12 cents to C$37.62.