Thursday, February 09, 2006

Manulife Likely to Add $2 Billion to its Existing $3 Billion Excess Capital

Canadian Press, Gary Norris, 9 February 2006

Manulife Financial Corp. is making more money than it knows what to do with but the insurer's chief executive said Thursday he is not looking for any major new acquisitions.

After a 20-per-cent rise in fourth-quarter earnings despite increased claims, the global insurance company is sitting on about $3 billion in excess capital, with a likelihood of adding $2 billion more this year. "It's a terrible problem to have," CEO Dominic D'Alessandro said with a chuckle during a conference call with analysts.

"We've carried excess capital from the day we became a public company," he commented, noting that Manulife has also steadily increased its dividend and bought back shares since demutualization in 1999.

"I think having the flexibility that we've maintained has served us well and served our shareholders well," he added.

"We've been able to undertake things in the manner that we've undertaken them because of our comfortable capital position, and I don't see that we should change that."

Nonetheless, "clearly you can't continue accumulating $2-3 billion of additional excess capital every year and be indifferent to it," he said.

"We have no interest in keeping capital here at substandard returns, and if there is no other use for it we will return it to our shareholders."

The company, which established a dividend reinvestment plan in December, raised its quarterly dividend again on Thursday, by five cents to 35 cents per share. That represents a yield of about two per cent at the current share price.

Manulife acquired Boston-based John Hancock Financial for $13.9 billion US in 2004 but "our preferred method of growth is to grow organically," D'Alessandro told analysts.

"We're demonstrating that we can do that an accelerated pace. ... I'm not in any eager mood to consummate another large transaction."

Manulife reported earnings attributable to common shareholders of $908 million, $1.13 per share, for the three months ended Dec. 31. This compared with a year-earlier profit of $756 million, 92 cents per share.

Return on equity was 15.5 per cent, up from 13 per cent.

The company, which has been expanding in Asia, said quarterly revenue was $8.2 billion, up from $7.9 billion a year earlier.

The profit increase was driven by 19 per cent growth in segregated fund assets thanks to strong sales of variable annuities in the U.S. and Japan, along with wider profit margins in long-term-care insurance and in Hong Kong.

There also were gains of $52 million on a release in reserves after a move to less risky assets in Japan, and $49 million from changes in actuarial methods.

On the downside came property and casualty reinsurance losses of $83 million, primarily from hurricane Wilma, and a $42-million hit from the stronger Canadian dollar.

Full-year net income was $3.29 billion, up 29 per cent from $2.55 billion in 2004, as premiums and deposits increased 22 per cent to $61.5 billion.