Manulife Financial 3q09 press release

• Charges due to lower corporate bond yields and changes in actuarial assumptions offset strong
operational results and gains due to equity market increases, resulting in a modest net loss for the quarter
• Margins improved through increased pricing, adjustments to sales compensation and more favourable reinsurance terms
• Strong sales growth across most products other than variable annuities generated a more balanced business mix
• Equity risk profile improved through hedging, pricing, product and asset mix changes
• Excellent credit experience given challenging markets – asset quality remains a competitive strength
• Two attractive acquisitions – AIC mutual funds and Pottruff & Smith travel insurance
• Equity markets, interest rates and credit will continue to impact the Company’s balance sheet and earnings
• Focused on building to fortress capital levels over time – expect benefits from merging U.S. operating subsidiaries at the end of 2009

=> 3q09 results is lower than Bilibala's expectation

TORONTO – Manulife Financial Corporation (“MFC”) today reported a net loss attributed to shareholders of $172 million for the third quarter ended September 30, 2009, compared to net income of $510 million in the third quarter of 2008. The loss per share was $0.12 compared to fully diluted earnings per share of $0.33 in 2008. Current quarter results reflect equity market increases offset by lower corporate bond rates and changes in actuarial assumptions. The Manufacturers Life Insurance Company (“MLI”) reported a Minimum Continuing Capital and Surplus Requirements (“MCCSR”) ratio of 229 per cent as at September 30, 2009, up from 193 per cent last year.

In its second quarter earnings release, the Company included a forward-looking statement that estimated normalized earnings to be between $750 million and $850 million per quarter for the remainder of 2009 and 2010. The third quarter’s adjusted earnings from operations1 under this definition was approximately $803 million.

Chief Executive Officer Donald A. Guloien said, “Underlying earnings and performance were solid this quarter, but our results were negatively impacted by lower corporate bond rates and strengthening of reserves for changes in actuarial assumptions. We took actions to improve margins, increased our sales of products other than variable annuities, further improved our equity risk profile and continued to build toward fortress capital levels. We announced two attractive acquisitions and see numerous opportunities for strategic growth across a variety of markets. We remain highly disciplined and will continue to build upon Manulife’s scale and key strengths including our superior asset quality, well recognized brands, leading products and distribution, excellence in investment management, and strong positioning in key growth markets.”

FINANCIAL RESULTS

Chief Financial Officer Michael W. Bell said, “Continued declines in corporate bond rates required a further strengthening of actuarial reserves this quarter. We also increased reserves for changes in actuarial assumptions including those related to policyholder behaviour for variable annuity products. As a result of the decline in interest rates and changes in lapse assumptions, our interest rate sensitivity has increased.

Nevertheless, Manulife’s underlying business growth remains strong, and the quality of our investment portfolio remains a competitive strength. MLI’s MCCSR remains strong at 229 per cent, and we continue to take focused action to improve our risk profile and strengthen our capital flexibility as we grow our Company.

We anticipate that, at year end and subject to regulatory approvals, we will complete a reorganization of our U.S. subsidiaries which will deliver capital and operating efficiencies.”
Increases in equity markets in North America, where the S&P 500 increased 15 per cent and the TSX increased 10 per cent in the quarter, generated non cash gains of $1.2 billion. Of this, $1.0 billion related to segregated fund guarantees and the remainder was attributable to future fees assumed on variable universal life products and gains on equities supporting policy liabilities.
The Company reported a non cash charge of $1.2 billion resulting from the decrease in interest rates and corporate spreads during the quarter. Changes in interest rates impact the actuarial valuation of in-force policies by changing the assumption for future returns on the investment of net future cash flows. The decline in interest rates also impacted the investment returns assumed for new business written in the quarter, particularly in U.S. Insurance.

As indicated in the prior quarter, the Company completed its annual review of all actuarial assumptions in the third quarter. This resulted in a charge to earnings of $783 million, including $469 million due to changes in assumptions of policyholder behaviour for segregated fund guarantee products (a charge that was within the Company’s previously communicated expectations of less than $500 million). The remainder of the charge included assumption changes related to morbidity and other policyholder behaviour, partially offset by assumption changes related to mortality, expenses and investment related items.

The Company’s investment portfolio continued to perform well relative to overall market conditions, with $111 million of impairments in the quarter. The third quarter results included charges of $30 million for credit losses, $6 million for credit downgrades, $32 million in other than temporary impairments (“OTTI”) on equity positions in the Corporate and Other Segment, as well as $43 million on private equity investments.

MLI reported a MCCSR ratio of 229 per cent as at September 30, 2009, up from 193 per cent last year. Significant progress has also been made in the reorganization of the Company’s U.S. subsidiaries, with a planned merger of the main U.S. operating companies, under MLI, on track to be completed effective as of year end. The merger will result in a more efficient capital structure and provide improved operating efficiencies. Post reorganization, MLI expects to benefit from more stable capital ratios and a more diversified risk profile. While MLI’s MCCSR ratio is expected to decline as a result of the re-organization, the Company’s cushion for equity market declines over minimum regulatory requirements is expected to remain approximately unchanged because of the reduced equity sensitivity.

Bilibala's adjusted earning:
Bilibala's adjusted earning included all the market volatile items, because the nature of insurance business is market driven, there is no point to exclude them.
* Bilibala will exclude impairment because that is controled by management business decision.

GAAP EPS ($0.12)

add back:
Impact of annual basis changes $0.55
Impairment $0.08
Others $0.02

Bilibala's adjusted EPS $0.53
Bilibala's estimated EPS $0.64

Earning still look solid, as yield curve start heading up and US dollar get stablized, I think 4q09 results should look significantly better than 3q09.