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Finextra: Morningstar integrates equity research into real-time data feeds
www.finextra.com | Nov 4, 2009
Finextra: Morningstar integrates equity research into real-time data feeds - company announcement from Morningstar
Morningstar Leads the Way with Pricing Discounts, and You Can Try It Here for Free!
www.libraryjournal.com | Oct 2, 2009
Morningstar Investment Research Center is an investment research database that provides data and analysis on nearly 10,700 stocks, 24,000 mutual funds, and 840 ETFs (Exchange Traded Funds), along with Morningstar analyst commentary on over 4,000 securities.
http://www.libraryjournal.com/blog/1100000310/post/180049418.html
Manulife Financial Corporation Reports Third Quarter Results
www.prnewswire.com
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.
Morningstar (MORN): Healthcare Bill Will Be Law By End Of Year (Wall Street Transcript)
finance.yahoo.com | 5 hours 40 minutes ago
67 WALL STREET, New York - November 9, 2009 - The Wall Street Transcript has just published its Pharmaceuticals Report offering a timely review of
http://finance.yahoo.com/news/Morningstar-MORN-Healthcare-twst-3397995593.html?x=0&.v=1
News from Zibb.com
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Westwood to Lower Expense Ratio on Institutional Shares of WHG Income Opportunity and WHG Balanced
DALLAS, Nov 05, 2009 (BUSINESS WIRE) --
Westwood Holdings Group, Inc. (NYSE: WHG) today announced that they have lowered the expense ratio on the WHG Income Opportunity and WHG Balanced Funds. The WHG Income Opportunity Fund's cap on its net operating expense ratio for Institutional Shares (WHGIX) has been reduced to 0.90% from 1.00% and the expense cap for A Shares (WWIAX) of the fund was lowered to 1.15% from 1.25%. The expense cap for Institutional Shares of the WHG Balanced Fund (WHGBX) was reduced to 0.90% from 1.00%. The new expense caps were effective as of November 1, 2009.
The WHG Funds consist of WHG LargeCap Value (WHGLX & WWLAX), WHG SMidCap (WHGMX), WHG SmallCap Value (WHGSX), WHG Income Opportunity (WHGIX & WWIAX) and WHG Balanced (WHGBX). WHG SMidCap is currently rated as 5-stars and WHG LargeCap Value, WHG Income Opportunity and WHG Balanced are currently rated as 4-stars by Morningstar, Inc. WHG SmallCap Value will be rated by Morningstar after it completes its three year track record in the first quarter 2010.
About Westwood
Westwood Holdings Group, Inc. manages investment assets and provides services for its clients through two subsidiaries, Westwood Management Corp. and Westwood Trust. Westwood Management Corp. is a registered investment advisor and provides investment advisory services to corporate and public retirement plans, endowments, foundations, the WHG Funds, other mutual funds and clients of Westwood Trust. Westwood Trust provides trust services and participation in common trust funds that it sponsors to institutions and high net worth individuals. Westwood Holdings Group, Inc. trades on the New York Stock Exchange under the symbol "WHG."
For more information regarding Westwood, please visit the company's website at www.westwoodgroup.com.
For more information regarding the WHG Funds, please call 1-877-FUND-WHG or visit the Funds' website at www.whgfunds.com.
Mutual fund investing involves risk including loss of principal. In addition to the normal risks associated with investing, investments in smaller companies typically exhibit higher volatility.
To determine if a Fund is an appropriate investment for you, carefully consider the Fund's investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Fund's prospectus, which may be obtained by calling 1-877-FUND-WHG (877-386-3944). Read it carefully before investing.
The WHG Funds are distributed by SEI Investments Distribution Co., which is not affiliated with Westwood Management Corp. or any other affiliate.
(C) 2009 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. For each fund with at least a three year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly performance (including the effects of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five- and ten-year Morningstar Ratings metric. As of 9/30/2009, WHGMX was rated among 387 Mid Cap Blend funds in the last three years and received an overall Morningstar Rating of 5 stars; WHGLX was rated among 1133 Large Cap Value funds in the last three years and received an overall Morningstar Rating of 4 stars; WHGIX was rated among 499 Conservative Allocation funds in the last three years and received an overall Morningstar Rating of 4 stars; and WHGBX was rated among 956 Moderate Allocation funds in the last three years and received an overall Morningstar Rating of 4 stars.
(WHG-G)
SOURCE: Westwood Holdings Group, Inc.
Hewes Communications, Inc. Tucker Hewes, 212-207-9451 tucker@hewescomm.com
Tags: advisor corporate investment mutual funds nyse sales track
Companies: Westwood Holdings Group, Inc. (WHG)
Morningstar Up 6.7% Since SmarTrend's Buy Recommendation - Zibb.com
Nov 05, 2009 (SmarTrend(R) Spotlight via COMTEX) --
SmarTrend, our proprietary pattern recognition system, called an Uptrend for Morningstar (NASDAQ:MORN) on September 29, 2009 at $47.36.
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Tags: market nasdaq profit securities trial
Companies: Morningstar Inc (MORN)
GAMCO Reports 3rd Quarter 2009 Fully Diluted Earnings Per Share of $0.53 - Zibb.com
RYE, N.Y., Nov 06, 2009 (BUSINESS WIRE) --
GAMCO Investors, Inc. (GAMCO) (NYSE: GBL) announced third quarter 2009 earnings of $0.53 per fully diluted share versus $0.43 per fully diluted share in the third quarter 2008. Net income was $14.7 million in the third quarter 2009 compared to $12.0 million in the third quarter 2008. On a sequential basis, Assets Under Management (AUM) were $24.5 billion as of September 30, 2009, 14.5% higher than June 30, 2009 AUM of $21.4 billion. Importantly, Institutional and Private Wealth Management AUM increased 17.0% to $10.3 billion at September 30, 2009 from $8.8 billion at June 30, 2009.
For the nine months ended September 30, 2009, earnings were $1.32 per fully diluted share equal to the $1.32 per fully diluted share in 2008. Net income was $36.2 million for the nine months ended September 30, 2009 compared to $36.9 million in the prior year's period.
The Company had adjusted cash and investments, net of debt, noncontrolling interest and mandatorily redeemable shares of $496.4 million or $17.97 per share at September 30, 2009. Book value was $482.0 million or $17.44 per share at September 30, 2009 which excludes noncontrolling interests of $3.9 million.
Investment Performance
Relative long-term investment performance remains strong. At least 68% of all our mutual funds performed in the top half of their Lipper categories on a one, three, five and ten-year total return basis as of September 30, 2009. See Lipper chart on page 16. The following funds that we distribute have a 4 or 5-star three year Morningstar Rating(TM). See Morningstar chart that follows.
-- The Gabelli ABC Fund -- The GAMCO Westwood Mighty Mites(SM) Fund -- " Asset Fund -- " Global Telecommunications Fund -- " Blue Chip Value Fund -- " Mathers Fund -- " Equity Income Fund -- " Westwood Balanced Fund -- " Small Cap Growth Fund -- " Westwood Equity Fund -- " Utilities Fund -- " Enterprise Mergers and Acquisitions Fund -- " Woodland Small Cap Value Fund
Gabelli Funds Morningstar Ratings Based on Risk Adjusted returns
as of September 30, 2009 for funds that we distribute
Overall Rating 3 Year Rating 5 Year Rating 10 Year Rating
FUND Morningstar Stars # of Funds Stars # of Funds Stars # of Funds Stars # of Funds
Category
Gabelli ABC AAA Mid-Cap Blend Five Stars 387 Five Stars 387 Five Stars 306 Four Stars 146
Gabelli Asset AAA Mid-Cap Blend Four Stars 387 Four Stars 387 Four Stars 306 Three Stars 146
Gabelli Blue Chip Value AAA Large Value Three Stars 1133 Four Stars 1133 Four Stars 933 Two Stars 453
Gabelli Equity Income AAA Large Value Five Stars 1133 Five Stars 1133 Five Stars 933 Five Stars 453
Gabelli Small Cap Growth AAA Small Blend Five Stars 560 Five Stars 560 Five Stars 452 Four Stars 234
Gabelli SRI Green AAA Mid-Cap Blend n/a n/a n/a n/a n/a n/a n/a n/a
Gabelli Utilities AAA Specialty - Utilities Five Stars 95 Four Stars 95 Four Stars 80 Five Stars 52
Gabelli Value A Mid-Cap Blend Two Stars 387 Two Stars 387 Two Stars 306 Two Stars 146
Gabelli Woodland Small Cap Value AAA Small Blend Three Stars 560 Four Stars 560 Three Stars 452 n/a 234
GAMCO Global Convertible Secs AAA Convertibles One Star 66 One Star 66 One Star 61 One Star 44
GAMCO Global Growth AAA World Stock Two Stars 536 Three Stars 536 Three Stars 440 One Star 253
GAMCO Global Opportunity AAA World Stock Three Stars 536 Three Stars 536 Three Stars 440 Three Stars 253
GAMCO Global Telecommunications AAA Specialty - Communications Four Stars 33 Four Stars 33 Four Stars 32 Three Stars 13
GAMCO Gold AAA Specialty - Precious Metals Three Stars 61 Three Stars 61 Three Stars 61 Three Stars 36
GAMCO Growth AAA Large Growth Three Stars 1515 Three Stars 1515 Three Stars 1255 Two Stars 653
GAMCO International Growth AAA Foreign Large Growth Three Stars 202 Three Stars 202 Three Stars 153 Three Stars 81
GAMCO Mathers Conservative Allocation Two Stars 499 Four Stars 499 Two Stars 332 One Star 139
GAMCO Westwood Balanced AAA(a) Moderate Allocation Four Stars 956 Four Stars 956 Four Stars 795 Four Stars 455
GAMCO Westwood Equity AAA(a) Large Value Four Stars 1133 Four Stars 1133 Four Stars 933 Four Stars 453
GAMCO Westwood Income AAA(a) Moderate Allocation Two Stars 956 One Star 956 Two Stars 795 Five Stars 455
GAMCO Westwood Intermediate AAA(a) Intermediate-Term Bond ThreeStars 954 ThreeStars 954 ThreeStars 836 ThreeStars 480
GAMCO Westwood Mighty Mites AAA(a) Small Blend Five Stars 560 Five Stars 560 Five Stars 452 Five Stars 234
GAMCO Westwood SmallCap Equity AAA(a) Small Blend Two Stars 560 Three Stars 560 Four Stars 452 One Star 234
Gabelli Enterprise Mergers & Acquisitions Y Mid-Cap Blend Four Stars 387 Four Stars 387 Four Stars 306 n/a 146
Comstock Capital Value AAA Bear Market n/a n/a n/a n/a n/a n/a n/a n/a
Percent of Rated funds rated 4 or 5 43.48% 56.52% 52.17% 38.10%
stars
The Overall Morningstar Rating(TM) is derived from a weighted average of the performance figures associated with its three, five and ten year (if applicable) Morningstar Rating metrics. Data presented reflects past performance, which is no guarantee of future results. Ratings are for Class AAA, A or Y shares only, other classes may have different performance characteristics. For each fund with at least a three year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of the funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) Strong relative performance is not indicative of positive fund returns. 2008 absolute performance for most funds was negative. (C) 2009 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Investors should consider the investment objectives, risks, sales charges and expenses of the fund carefully before investing. The prospectus contains more information about this and other matters. The prospectus should be read carefully before investing. Distributed by Gabelli & Company, One Corporate Center, Rye, NY 10580 Call 1-800-GABELLI (422-3554) for a prospectus.
The inception date for the Gabelli SRI Green Fund was June 1, 2007. The inception date for the Gabelli Woodland Small Cap Value Fund was December 31, 2002. The inception date for the Gabelli Enterprise Mergers & Acquisitions Fund was February 28, 2001. The inception date for the Comstock Capital Value Fund was October 10, 1985.
(a) Managed by Teton Advisors, Inc. not Gabelli Funds, LLC.
Assets Under Management -- Up 14.5% from June 30, 2009
Assets Under Management (AUM) were $24.5 billion as of September 30, 2009, 14.5% higher than June 30, 2009 AUM of $21.4 billion but 2.8% below September 30, 2008 AUM of $25.2 billion. Equity AUM were $22.8 billion on September 30, 2009, 16.3% above the June 30, 2009 equity AUM of $19.6 billion and 5.8% below the $24.2 billion on September 30, 2008. Highlights are as follows:
-- Our institutional and private wealth management business ended the quarter with $10.3 billion in separately managed accounts, up 17.0% from the June 30, 2009 level of $8.8 billion but 5.5% lower than the $10.9 billion on September 30, 2008.
-- Our closed-end funds had AUM of $4.4 billion on September 30, 2009, rising 15.8% from the $3.8 billion on June 30, 2009 but 10.2% below the $4.9 billion on September 30, 2008.
-- Our open-end equity funds AUM were $7.9 billion on September 30, 2009, 17.9% more than the $6.7 billion on June 30, 2009 nearly matching the $8.0 billion on September 30, 2008.
-- AUM in The Gabelli U.S. Treasury Money Market Fund, our 100% U.S. Treasury money market fund, ranked #2 for the first nine months of 2009 and #2 for the last twelve months ended September 30, 2009 by Lipper based on total return among 74 U.S. Treasury Money Market Funds, was down slightly to $1.6 billion at September 30, 2009 from $1.8 billion on June 30, 2009 and was 60.0% higher than the September 30, 2008 AUM of $1.0 billion.
-- Our investment partnerships AUM were $291 million on September 30, 2009 versus $266 million on June 30, 2009 and $340 million on September 30, 2008.
-- We have the opportunity to earn base fees and incentive fees for certain institutional client assets, assets attributable to preferred issues for our closed-end funds, our Gabelli Global Deal Fund (NYSE: GDL) and investment partnership assets. As of September 30, 2009, assets with incentive based fees were $2.7 billion, in line with the $2.7 billion on June 30, 2009 and 12.9% below the $3.1 billion on September 30, 2008.
The Gabelli U.S. Treasury Money Market Fund ranked #2 out of 74 funds for the third quarter of 2009, #2 out of 74 funds for the one-year period, #2 out of 65 funds for the five-year period and #2 out of 44 funds for the ten-year period. The rankings are based on total return over the length of the period. Past performance is not indicative of future results. Investment returns and yield will fluctuate. Income will be subject to federal income tax. An investment in the Fund is not guaranteed nor insured by the Federal Deposit Insurance Corporation or any government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. During the respective periods, the Adviser has waived certain fees and reimbursed expenses. Without such reimbursements or waivers return and rankings would have been lower.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. The prospectus, which contains more complete information about this and other matters, should be read carefully before investing. You can obtain a prospectus by calling Gabelli & Company, Inc. at 1-800-GABELLI (1-800-422-3554), or by visiting http://www.gabelli.com. Distributed by Gabelli & Company, Inc. One Corporate Center, Rye, NY 10580
Revenues
For the Quarter
Investment advisory fees for the third quarter 2009 were $41.0 million, a decline of 21.6% from $52.3 million in the 2008 third quarter (However, third quarter 2009 revenues were 13.9% higher than second quarter 2009):
-- Open-end fund revenues were $19.1 million versus $23.3 million in third quarter 2008, a drop of 18.0% primarily due to lower average AUM.
-- Our closed-end fund revenues fell 27.6% to $7.6 million in the third quarter 2009 from $10.5 million in 2008 on lower AUM.
-- Institutional and high net worth separate account revenues, which are based primarily upon prior quarter-end AUM, decreased 23.0% to $13.7 million from $17.8 million in third quarter 2008.
-- Investment partnership revenues were $0.5 million, a decrease of $0.2 million or 28.6% from $0.7 million in 2008.
Our institutional research services subsidiary achieved revenues of $4.6 million in the third quarter 2009, up 12.2% from the third quarter 2008 amount of $4.1 million.
Open-end fund distribution fees and other income were $6.0 million for the third quarter 2009, a decrease of $0.6 million, or 9.1% from the prior year quarter of $6.6 million. The main driver of this decrease was reduced quarterly average assets in our open-end equity funds that generate distribution fees.
For the Nine Months
Investment advisory fees for the nine months ended September 30, 2009 were $112.1 million, a decline of 31.8% from $164.3 million in the 2008 period:
-- Open-end fund revenues were $51.7 million versus $71.8 million for the nine months ended September 30, 2008, a drop of 28.0% primarily due to lower average AUM.
-- Our closed-end fund revenues fell 41.0% to $20.0 million for the nine months ended September 30, 2009 from $33.9 million in 2008 on lower AUM.
-- Institutional and high net worth separate account revenues, which are based primarily upon prior quarter-end AUM, decreased 31.0% to $38.9 million from $56.4 million for the nine months ended September 30, 2008.
-- Investment partnership revenues were $1.5 million, a decrease of $0.7 million or 31.8% from $2.2 million in 2008.
Our institutional research services subsidiary achieved revenues of $12.2 million for the nine months ended September 30, 2009, up 10.9% from the nine months ended September 30, 2008 amount of $11.0 million reflecting an expanded client base attributable to increased sales and trade execution as well as the success of our research product offerings.
Open-end fund distribution fees and other income were $15.8 million for the nine months ended September 30, 2009, a decrease of $3.9 million, or 19.8% from the prior year nine month period of $19.7 million. The main driver of this decrease was lower average assets in our open-end equity funds that generate distribution fees.
Operating Income and Margin
Operating income before management fee was $19.5 million in the third quarter 2009, 15.2% lower than the $23.0 million in the third quarter 2008. For the third quarter 2009, the operating margin before management fee increased to 37.8%, versus 36.5% in the third quarter of 2008 and 33.1% in the second quarter of 2009. Attention to administrative expenses contributed to the improved margin.
Operating income before management fee was $47.3 million for the nine months ended September 30, 2009, 34.3% lower than the $72.0 million in the comparable 2008 period. For the nine months ended September 30, 2009, the operating margin before management fee was 33.8%, versus 37.0% for the nine months ended September 30, 2008.
At September 30, 2009, we had unearned incentive fee revenues of $16.7 million on the assets with incentive based fees representing $0.20 per diluted share after direct expenses (compensation) and taxes. These fees, which vary with the market value of the related AUM, are not recorded as revenues until the contract period has ended, which for the majority of these arrangements is December 31, 2009.
Other Income / (Expense)
Other income/(expense) (net of interest expense) was income of $7.0 million in the third quarter 2009 versus expense of $5.5 million in the prior year's third quarter on improved investment income.
Other income/(expense) (net of interest expense) was income of $15.7 million in the first nine months of 2009 versus expense of $9.2 million in the prior year's period on improved investment income.
Income Taxes
The effective tax rate for the third quarter 2009 was 37.4%, compared to the 2008 quarter's effective rate of 24.4%. The prior quarter's reduced rate was due to a reduction of income tax reserves.
The effective tax rate for the nine months ended September 30, 2009 was 35.3%, compared with the effective rate for the 2008 comparable period of 35.1%.
Investment Highlights
-- The Gabelli ABC Fund Class AAA shares (GABCX) and the Gabelli Enterprise Mergers and Acquisitions Fund Class A shares (EMAAX) were named in a BusinessWeek article on July 30, 2009 highlighting that an investment strategy focused on deal making is coming back.
-- The Gabelli & Company "Focus Five", a selection of five equity securities every quarter for clients, including portfolio managers at hedge funds and institutional investment firms, was the focus of a BusinessWeek article on August 11, 2009. The article highlights how savvy stock picking through research analysis still works.
-- Howard Ward, team leader of the GAMCO Growth strategy and the portfolio manager of The GAMCO Growth Fund (GABGX) since 1994, was highlighted in several magazines noting his experience in providing alpha in up markets.
-- Morningstar rated 43% of the Class AAA share open-end funds that we distribute five or four stars overall as of September 30, 2009.
-- On August 21, 2009, a Wall Street Journal SmartMoney Fund Screen report titled 13 Small-Cap Funds on a Tear featured The Gabelli Small Cap Growth Fund Class AAA shares (GABSX) among thirteen small-cap equity funds using the following criteria: the funds must first be beating the 2009 return of the S&P 500... performance track records during the trailing three and five year periods that put each fund in the top 10% of their respective categories...do not charge a sales load... a minimum investment under $5,000... open to new money... charge less than a 1.5% expense ratio. Through September 30, 2009 the 1, 5 and 10 year total return for The Gabelli Small Cap Growth Fund Class AAA shares was -1.70%, 6.25% and 9.08%, respectively. The current expense ratio for The Gabelli Small Cap Growth Fund is 1.45% for the Class AAA shares.
Past performance is no guarantee of future results. The average annual returns and total returns shown above are historical and reflect changes in share price, reinvested dividends and capital gains and are net of expenses. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. As a non-diversified fund, the Gabelli ABC Fund may have a larger portion of its assets in a single issuer than a more diversified fund. Because the fund invests in announced mergers and acquisitions, the Fund is subject to the risk that the announced merger or acquisition may not be completed, may be negotiated at a less attractive price, or may not close on the expected date. Securities of smaller companies present greater risk than securities of larger, more established companies. The stocks of smaller companies may trade less frequently and experience more abrupt price movements than stocks of larger companies. Stocks are subject to market, economic and business risks that cause their prices to fluctuate. Call 1-800-GABELLI for performance as of the most recent month-end. Investors should consider the investment objectives, risks, sales charges and expense of the fund carefully before investing. The prospectus contains more complete information about this and other matters. The prospectus should be read carefully before investing. Distributed by Gabelli & Company, Inc. The performance results are for the Class AAA shares, other share classes have different performance characteristics. The S&P 500 is an unmanaged index of stock market performance. Although the Funds noted had strong relative performance, many of the funds had negative absolute performance over the past twelve months.
Business Highlights
-- In September, the Company announced that Kevin V. Dreyer has been named Associate Portfolio Manager to The Gabelli Asset Fund, the first open-end fund organized by Gabelli Funds, LLC in March 1986. Mr. Dreyer joins Mario J. Gabelli, who has been the Fund's sole portfolio manager since the inception of the Fund, to manage a portion of the assets of the Fund.
-- In September, Gabelli & Company, Inc. held its 15th Annual Aircraft Supplier Conference featuring management presentations from several leading aerospace and defense companies, with an emphasis on industry dynamics, new technologies, and company fundamentals.
-- GAMCO, under the aegis of Bruce C. Greenwald, the Heilbrunn Professor of Finance and Asset Management at Columbia Gradudate School of Business, along with the Heilbrunn Center for Graham and Dodd Investing at Columbia University, hosted the 19th Annual Graham and Dodd Investing Seminar on October 7, 2009 in New York which was telecast to London and Hong Kong and staffed by our Gabelli international offices.
Other Financial Highlights
Statement of Financial Condition -- Liquidity and Flexibility
Our liquid balance sheet provides access to financial markets and the flexibility to opportunistically add operating resources to our firm, repurchase our stock and consider strategic initiatives, including acquisitions and lift-outs.
The Company's shelf registration provides GAMCO with the flexibility of issuing any combination of senior and subordinate debt securities, convertible debt securities and equity securities (including common and preferred securities) up to a total amount of $400 million.
We ended the quarter with approximately $702.2 million in cash and investments versus $677.9 million at June 30, 2009. This included approximately $80.8 million of our investments in The Gabelli Dividend & Income Trust, The Gabelli Global Deal Fund and Westwood Holdings Group, as well as other investments of $10.7 million, all classified as available for sale securities.
Our debt at September 30, 2009 consisted of $99 million of 5.5% senior notes due May 2013, a $40 million 6% convertible note due August 2011 and a $60 million 6.5% convertible note due October 2018. We had adjusted cash and investments in securities, net of debt, noncontrolling interest and mandatorily redeemable shares, of $17.97 per share on September 30, 2009 compared with $17.03 per share on June 30, 2009. We caution that this metric, while correct from a mathematical point of view, is not always the same as investors would view cash-on-hand.
Book value was $482.0 million or $17.44 per share on September 30, 2009 compared to $471.1 million or $16.98 per share on June 30, 2009.
Shareholder Compensation
Dividends
On August 4, 2009, our Board of Directors declared a quarterly dividend of $.03 per share to all of its Class A and Class B shareholders, payable on September 29, 2009 to shareholders of record on September 15, 2009. We returned $0.8 million and $28.7 million in dividends during the third quarter of 2009 and 2008, respectively, and $2.8 million and $30.4 million in dividends during the first nine months of 2009 and 2008, respectively.
GAMCO announced that on November 6, 2009 its Board of Directors declared a quarterly dividend of $.03 per share to all of its Class A and Class B shareholders, payable on December 29, 2009 to shareholders of record on December 15, 2009.
Stockholders' Equity and Stock Repurchase
In the third quarter of 2009, the Company repurchased 115,900 of the Company's shares at an average price of $45.14. During the first nine months of 2009, the Company has repurchased $5.4 million, representing 119,400 shares, at an average price of $45.24 per share.
Since our IPO of six million shares at a price of $17.50 per share in 1999, the Company has repurchased 6,171,983 shares at an average price of $39.88 per share for an investment of $246 million and has paid cumulative dividends of $148.2 million.
Shares outstanding on September 30, 2009 were 27.6 million, slightly lower than the June 30, 2009 shares of 27.7 million and 0.3 million shares, or 1.1%, below the 27.9 million shares outstanding on September 30, 2008. The decline in the outstanding shares from September 2008 to September 2009 primarily reflects open market repurchases of 316,500 shares. Fully diluted shares outstanding for the third quarter of 2009 were 27.5 million, largely unchanged from the second quarter 2009's level of 27.5 million and third quarter 2008's level of 27.6 million.
NOTES ON NON-GAAP FINANCIAL MEASURES
A.
9/30/09 12/31/08 9/30/08
Cash and cash equivalents 463.4 $ 338.3 $ 165.1
Investments (trading) 135.3 209.5 328.8
Total cash and investments (trading) 598.7 547.8 493.9
Net amounts receivable from/(payable to) brokers 12.0 14.6 35.4
Adjusted cash and investments (trading) 610.7 562.4 529.3
Investments (available for sale) 91.5 76.1 116.9
Total adjusted cash and investments $ 702.2 $ 638.5 $ 646.2
We believe adjusted cash and investments is a more useful measure of the company's liquidity for analytical purposes.
Net amounts receivable from/(payable to) brokers reflect cash and cash equivalents held with brokers and cash payable for securities purchased and recorded on a trade date basis for which settlement occurs subsequent to period-end.
B. Operating income before management fee expense is used by management
for purposes of evaluating its business operations. We believe this
measure is useful in illustrating the operating results of GAMCO
Investors, Inc. (the "Company") as management fee expense is based
on pre-tax income before management fee expense, which includes
non-operating items including investment gains and losses from the
Company's proprietary investment portfolio and interest expense. The
reconciliation of operating income before management fee expense to
operating income is provided in Table VI.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Our disclosure and analysis in this press release contain some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results. Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. Some of the factors that could cause our actual results to differ from our expectations or beliefs include, without limitation: the adverse effect from a decline in the securities markets; a decline in the performance of our products; a general downturn in the economy; changes in government policy or regulation; changes in our ability to attract or retain key employees; and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations. We also direct your attention to any more specific discussions of risk contained in our Form 10-K and other public filings. We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any additional information relating to the subject matters of our forward-looking statements.
The Company reported Assets Under Management as follows (millions):
Table I: Fund Flows - 3rd Quarter 2009
(millions)
June 30, 2009 Closed-end Fund Net Cash Market Appreciation September 30, 2009
distributions, Flows (a)
net of reinvestments
Equities:
Open-end Funds $ 6,684 $ - $ 188 $ 1,034 $ 7,906
Closed-end Funds 3,822 (70 ) 66 551 4,369
Institutional & PWM - direct 7,332 - (107 ) 1,266 8,491
Institutional & PWM - sub-advisory 1,476 - (7 ) 308 1,777
Investment Partnerships 266 - 13 12 291
Total Equities 19,580 (70 ) 153 3,171 22,834
Fixed Income:
Money-Market Fund 1,765 - (150 ) 1 1,616
Institutional & PWM 21 - 5 - 26
Total Fixed Income 1,786 - (145 ) 1 1,642
Total Assets Under Management $ 21,366 $ (70 ) $ 8 $ 3,172 $ 24,476
(a) Includes $66 million of shares issued for closed-end funds.
Table II:
September 30, September 30, %
Equities: 2008 2009 Inc.(Dec.)
Open-end Funds $8,015 $7,906 (1.4 %)
Closed-end Funds 4,869 4,369 (10.3 )
Institutional & PWM - direct 8,964 8,491 (5.3 )
Institutional & PWM - sub-advisory 1,964 1,777 (9.5 )
Investment Partnerships 340 291 (14.4 )
Total Equities 24,152 22,834 (5.5 )
Fixed Income:
Money-Market Fund 1,003 1,616 61.1
Institutional & PWM 19 26 36.8
Total Fixed Income 1,022 1,642 60.7
Total Assets Under Management $ 25,174 $ 24,476 (2.8 %)
Note: Teton's AUM at September 30, 2008 were $418 million and have been excluded from Table II.
Table III: Assets Under Management By Quarter (millions)
% Increase/
(decrease) from
Equities: 9/08 12/08 3/09 6/09 9/09 9/08 6/09
Open-end Funds $ 8,015 $ 6,139 $ 5,627 $ 6,684 $ 7,906 (1.4 %) 18.3 %
Closed-end Funds 4,869 3,792 3,359 3,822 4,369 (10.3 ) 14.3
Institutional & PWM - direct 8,964 6,861 6,227 7,332 8,491 (5.3 ) 15.8
Institutional & PWM - sub-advisory 1,964 1,585 1,202 1,476 1,777 (9.5 ) 20.4
Investment Partnerships 340 295 265 266 291 (14.4 ) 9.4
Total Equities 24,152 18,672 16,680 19,580 22,834 (5.5 ) 16.6
Fixed Income:
Money-Market Fund 1,003 1,507 1,794 1,765 1,616 61.1 (8.4 )
Institutional & PWM 19 22 21 21 26 36.8 23.8
Total Fixed Income 1,022 1,529 1,815 1,786 1,642 60.7 (8.1 )
Total Assets Under Management $ 25,174 $ 20,201 $ 18,495 $ 21,366 $ 24,476 (2.8 %) 14.6 %
Note: Teton's AUM at September 30, 2008 and December 31, 2008 were $418 million and $450 million, respectively, and have been excluded from Table III.
Table IV
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
For the Three Months Ended September 30,
2009 2008 % Inc. (Dec.)
Investment advisory and incentive fees $ 40,957 $ 52,297 (21.7 %)
Institutional research services 4,588 4,098 12.0
Distribution fees and other income 6,037 6,585 (8.3 )
Total revenues 51,582 62,980 (18.1 )
Compensation costs 21,590 26,233 (17.7 )
Distribution costs 6,089 6,658 (8.5 )
Other operating expenses 4,405 7,076 (37.7 )
Total expenses 32,084 39,967 (19.7 )
Operating income before management fee 19,498 23,013 (15.3 )
Investment income 10,257 (3,446 ) n/m
Interest expense (3,296 ) (2,091 ) 57.6
Other income / (expense), net 6,961 (5,537 ) n/m
Income before management fee and income taxes 26,459 17,476 51.4
Management fee expense 2,638 1,740 51.6
Income before income taxes 23,821 15,736 51.4
Income taxes expense 8,913 3,837 132.3
Net income 14,908 11,899 25.3
Net income / (loss) attributable to the noncontrolling interests 257 (86 ) n/m
Net income attributable to GAMCO Investors, Inc. $ 14,651 $ 11,985 22.2
Net income attributable to GAMCO Investors, Inc. per share:
Basic $ 0.54 $ 0.43 25.6
Diluted $ 0.53 $ 0.43 23.3
Weighted average shares outstanding:
Basic 27,366 (a) 27,602 (0.9 )
Diluted 27,505 27,647 (0.5 %)
Notes:
(a) Shares outstanding at September 30, 2009 were 27,630,264,
including 361,600 RSAs.
See GAAP to Non-GAAP reconciliation at page 14.
Table V
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
For the Nine Months Ended September 30,
2009 2008 % Inc. (Dec.)
Investment advisory and incentive fees $ 112,145 $ 164,269 (31.7 %)
Institutional research services 12,187 11,018 10.6
Distribution fees and other income 15,780 19,665 (19.8 )
Total revenues 140,112 194,952 (28.1 )
Compensation costs 62,056 83,013 (25.2 )
Distribution costs 17,094 19,691 (13.2 )
Other operating expenses 13,648 20,204 (32.4 )
Total expenses 92,798 122,908 (24.5 )
Operating income before management fee 47,314 72,044 (34.3 )
Investment income / (loss) 25,658 (2,855 ) n/m
Interest expense (9,965 ) (6,295 ) 58.3
Other income / (expense), net 15,693 (9,150 ) n/m
Income before management fee and income taxes 63,007 62,894 0.2
Management fee expense 6,291 6,307 (0.3 )
Income before income taxes 56,716 56,587 0.2
Income taxes expense 20,034 19,882 0.8
Net income 36,682 36,705 (0.1 )
Net income / (loss) attributable to the noncontrolling interests 503 (225 ) n/m
Net income attributable to GAMCO Investors, Inc. $ 36,179 $ 36,930 (2.0 )
Net income attributable to GAMCO Investors, Inc. per share:
Basic $ 1.32 $ 1.32 -
Diluted $ 1.32 $ 1.32 -
Weighted average shares outstanding:
Basic 27,376 (a) 27,930 (2.0 )
Diluted 27,464 27,973 (1.8 %)
Notes:
(a) Shares outstanding at September 30, 2009 were 27,630,264,
including 361,600 RSAs.
See GAAP to Non-GAAP reconciliation at page 14.
Table VI
GAMCO INVESTORS, INC.
UNAUDITED QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
2009 2008
1st 2nd 3rd YTD 1st 2nd 3rd YTD 4th Full-Year
Quarter Quarter Quarter 2009 Quarter Quarter Quarter 2008 Quarter
Income Statement Data:
Revenues $ 43,359 $ 45,171 $ 51,582 $ 140,112 $ 66,548 $ 65,424 $ 62,980 $ 194,952 $ 50,060 $245,012
Expenses 30,508 30,206 32,084 92,798 41,310 41,631 39,967 122,908 33,001 155,909
Operating income before management fee 12,851 14,965 19,498 47,314 25,238 23,793 23,013 72,044 17,059 89,103
Investment income / (loss) 3,870 11,531 10,257 25,658 (3,615 ) 4,206 (3,446 ) (2,855 ) (36,308 ) (39,163)
Interest expense (3,234 ) (3,435 ) (3,296 ) (9,965 ) (2,017 ) (2,187 ) (2,091 ) (6,295 ) (3,146 ) (9,441)
Other income / (expense), net 636 8,096 6,961 15,693 (5,632 ) 2,019 (5,537 ) (9,150 ) (39,454 ) (48,604)
Income/(loss) before manage- 13,487 23,061 26,459 63,007 19,606 25,812 17,476 62,894 (22,395 ) 40,499
ment fee and income taxes
Management fee 1,349 2,304 2,638 6,291 1,981 2,586 1,740 6,307 (2,221 ) 4,086
expense/(income)
Income/(loss) before income 12,138 20,757 23,821 56,716 17,625 23,226 15,736 56,587 (20,174 ) 36,413
taxes
Income tax expense/(benefit) 3,988 7,133 8,913 20,034 7,326 8,719 3,837 19,882 (7,559 ) 12,323
Net income/(loss) 8,150 13,624 14,908 36,682 10,299 14,507 11,899 36,705 (12,615 ) 24,090
Net income/(loss) attributable
to the noncontrolling interests (62 ) 308 257 503 (187 ) 48 (86 ) (225 ) (551 ) (776)
Net income/(loss) attributable to GAMCO Investors, Inc. $ 8,212 $ 13,316 $ 14,651 $ 36,179 $ 10,486 $ 14,459 $ 11,985 $ 36,930 $ (12,064 ) $ 24,866
Net income/(loss) attributable to
GAMCO Investors, Inc. per share:
Basic $ 0.30 $ 0.49 $ 0.54 $ 1.32 $ 0.37 $ 0.52 $ 0.43 $ 1.32 $ (0.44 ) $ 0.89
Diluted $ 0.30 $ 0.48 $ 0.53 $ 1.32 $ 0.37 $ 0.51 $ 0.43 $ 1.32 $ (0.44 ) $ 0.89
Weighted average shares outstanding:
Basic 27,379 27,384 27,366 27,376 28,175 27,948 27,602 27,930 27,472 27,805
Diluted 27,386 27,508 27,505 27,464 28,277 28,743 27,647 27,973 27,482 27,841
Table VI continued
GAMCO INVESTORS, INC.
UNAUDITED QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
2009 2008
1st 2nd 3rd YTD 1st 2nd 3rd YTD 4th Full-Year
Quarter Quarter Quarter 2009 Quarter Quarter Quarter 2008 Quarter
Reconciliation of Non-GAAP
Financial measures to GAAP:
Operating income before management fee 12,851 14,965 19,498 47,314 25,238 23,793 23,013 72,044 17,059 89,103
Deduct: management fee expense/(income) 1,349 2,304 2,638 6,291 1,981 2,586 1,740 6,307 (2,221 ) 4,086
Operating income 11,502 12,661 16,860 41,023 23,257 21,207 21,273 65,737 19,280 85,017
Operating margin before management fee 29.6 % 33.1 % 37.8 % 33.8 % 37.9 % 36.4 % 36.5 % 37.0 % 34.1 % 36.4 %
Operating margin after management fee 26.5 % 28.0 % 32.7 % 29.3 % 34.9 % 32.4 % 33.8 % 33.7 % 38.5 % 34.7 %
Table VII
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share data)
September 30, December 31, September 30,
2009 2008 2008
ASSETS
Cash and cash equivalents (a) $ 463,361 $ 338,330 $ 165,098
Investments (a) 236,567 287,201 452,306
Receivable from brokers 21,991 16,460 37,929
Other receivables 17,775 16,233 21,611
Income tax receivable and deferred tax assets 4,538 23,952 4,388
Other assets 14,219 15,458 17,867
Total assets $ 758,451 $ 697,634 $ 699,199
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to brokers $ 10,006 $ 1,857 $ 2,492
Compensation payable 20,974 15,862 28,253
Securities sold short, not yet purchased 9,738 1,677 6,620
Accrued expenses and other liabilities 31,534 30,330 30,885
Sub-total 72,252 49,726 68,250
5.5% Senior notes (due May 15, 2013) 99,000 99,000 100,000
6.5% Convertible note (due October 2, 2018) 60,000 60,000 -
6% Convertible note (due August 14, 2011) 39,829 39,766 39,746
Total debt 198,829 198,766 139,746
Total liabilities 271,081 248,492 207,996
Redeemable noncontrolling interest 1,424 4,201 4,333
GAMCO Investors, Inc.'s stockholders' equity 481,998 440,153 481,728
Noncontrolling interest 3,948 4,788 5,142
Total stockholders' equity 485,946 444,941 486,870
Total liabilities and stockholders' equity $ 758,451 $ 697,634 $ 699,199
(a) At September 30, 2009 and December 31, 2008, $62.2 million and $0
million and $2.1 million and $59.9 million are held in escrow for
the Cascade Note and classified as Cash and cash equivalents and
Investments, respectively.
GABELLI/GAMCO FUNDS Gabelli Funds Lipper Rankings as of September 30, 2009
1 Yr - 09/30/08-09/30/09 3 Yrs - 09/30/06-09/30/09 5 Yrs - 09/30/04-09/30/09 10 Yrs - 09/30/99-09/30/09
Fund Name Lipper Category Percentile Rank / Percentile Rank / Percentile Rank / Percentile Rank /
Rank Total Funds Rank Total Funds Rank Total Funds Rank Total Funds
Gabelli Asset; AAA Multi-Cap Core Funds 47 366/785 12 76/641 9 42/489 21 41/197
Gabelli Value Fund; A Multi-Cap Core Funds 41 315/785 65 412/641 62 303/489 44 87/197
Gabelli SRI; AAA Multi-Cap Core Funds 2 12/785 - - - - - -
Gabelli Eq:Eq Inc; AAA Equity Income Funds 18 52/303 17 39/233 13 24/184 11 11/104
GAMCO Ww:Income; AAA Equity Income Funds 61 183/303 66 153/233 - - - -
GAMCO Growth; AAA Large-Cap Growth Funds 31 254/830 41 293/717 32 190/598 71 217/307
GAMCO Ww:SmCp Eq; AAA Small-Cap Core Funds 28 207/742 22 134/614 16 79/496 99 254/256
Gabelli Eq:SC Gro; AAA Small-Cap Core Funds 25 180/742 9 51/614 10 49/496 21 53/256
GAMCO Ww:Mhty M; AAA Small-Cap Core Funds 11 75/742 2 12/614 2 9/496 19 48/256
Gabelli Eq:Wd SCV; AAA Small-Cap Core Funds 59 438/742 18 107/614 41 203/496 - -
GAMCO Gl:Oppty; AAA Global Multi-Cap Growth 9 8/95 26 17/65 37 19/51 31 11/35
GAMCO Gl:Growth; AAA Global Large-Cap Core 32 30/95 11 7/65 27 14/51 84 30/35
GAMCO Gold; AAA Gold Oriented Funds 39 27/69 38 20/53 36 18/50 24 7/29
GAMCO Intl Gro; AAA International Large-Cap Growth 14 22/160 50 64/127 78 70/89 48 25/52
GAMCO Ww:Eqty; AAA Large-Cap Value Funds 97 524/542 22 101/472 10 36/388 25 45/185
Gabelli Bl Chp Val; AAA Large-Cap Core Funds 16 145/907 33 245/761 21 126/628 8 26/368
Gabelli Inv:ABC; AAA Specialty Diversified Equity Funds 40 16/40 16 5/32 14 2/14 30 3/9
GAMCO Mathers; AAA Specialty Diversified Equity Funds 52 21/40 40 13/32 40 6/14 50 5/9
Comstock Cap Val; A Specialty Diversified Equity Funds 57 23/40 19 6/32 80 12/14 70 7/9
GAMCO Gl:Telecom; AAA Telecommunications Funds 59 23/38 20 6/29 22 6/27 20 2/9
GAMCO Gl:Convert; AAA Convertible Securities Funds 90 63/69 95 56/58 93 52/55 98 41/41
Gabelli Utilities; AAA Utility Funds 20 19/98 12 10/85 53 37/70 11 5/45
GAMCO Ww:Bal - AAA Mixed-Asset Target Alloc. Moderate Funds 96 487/511 49 191/396 19 58/305 20 29/147
787:Gabelli Merg&Acq Y Mid-Cap Core Funds 18 69/386 18 53/307 39 97/249 - -
Gabelli Capital Asset Fund Distributed through Insurance Channel 44 155/354 41 117/289 28 60/216 15 12/80
% of funds in top half 68.0% 87.5% 78.3% 76.2%
Data presented reflects past performance, which is no guarantee of future results. Strong rankings are not indicative of positive fund performance. Absolute performance for some funds was negative.
Lipper, a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested and do not include the effect of loads. If an expense waiver was in effect, it may have had a material effect on the total return or yield for the period.
Relative long-term investment performance remained strong with approximately 68%, 88%, 78% and 76% of firmwide mutual funds in the top half of their Lipper categories on a one-, three-, five-, and ten-year total-return basis, respectively, as of September 30, 2009.
Investors should consider carefully the investment objective, risks, charges and expenses of a fund before investing. The Prospectus which contains more information about this and other matters, should be read carefully before investing. You can obtain a prospectus by calling 1-800 GABELLI. Distributed by Gabelli & Company. Other share classes are available that have different performance characteristics.
The inception date for the Gabelli SRI Green Fund was June 1, 2007. The inception date for the Gabelli Woodland Small Cap Value Fund was December 31, 2002. The inception date for the Gabelli Enterprise Mergers & Acquisitions Fund was February 28, 2001.
SOURCE: GAMCO Investors, Inc.
GAMCO Investors, Inc. Jeffrey M. Farber, 914-921-5147 Executive Vice-President and Chief Financial Officer www.gabelli.com
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Companies: Gabelli Asset Management, Inc. (GBL)
Manulife Financial Corporation Reports Third Quarter Results - Zibb.com
TORONTO, Nov 05, 2009 /PRNewswire-FirstCall via COMTEX/ --
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 operations(1) 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."
--------------------------------------
(1) Referred to in the second quarter report as normalized earnings. See
"Normalized Earnings and Adjusted Earnings from Operations -
Reconciliation with GAAP Measure" and "Performance and Non-GAAP
Measures" below.
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.
SALES AND BUSINESS GROWTH
Chief Operating Officer John D. DesPrez III said, "This quarter we improved our margins through price increases, adjustments to compensation and more favourable reinsurance terms. We also reduced our variable annuity risk profile through pricing adjustments, changes to our product and asset mix and hedging of an additional $3.8 billion of our in-force business. Our Asian business delivered strong results with further expansion in China and notable insurance market share gains in Japan and Indonesia. Canada's group businesses and fixed wealth products recorded particularly strong sales increases and our two acquisitions in Canada will further strengthen our market position in mutual funds and travel insurance. In the U.S., we strengthened key distribution relationships, increased sales of targeted products over the previous quarter and we demonstrated our leadership in wealth management with three new Five Star Morningstar Ratings(2) for our mutual funds and continued high rankings for our John Hancock Lifestyle funds."
Insurance new business embedded value ("NBEV") was 17 per cent higher than prior year levels driven by growth across all geographies, while wealth NBEV was down 48 per cent, reflecting lower variable annuity sales, hedging costs and other product mix changes.
Insurance sales experienced sequential increases over the prior two quarters across most business segments. Total insurance sales increased by two per cent, on a constant currency basis, over the prior year as strong advances in Asia and Canada were partially offset by a decline in the U.S.
Total wealth sales excluding variable annuity products also experienced sequential increases over the prior two quarters. Sales excluding variable annuity products increased by four per cent over the prior year, on a constant currency basis, as fixed return wealth product sales in both the U.S. and Canada continued to outpace prior year levels, resulting from consumers seeking stable investment returns.
Premiums and deposits, excluding variable annuity products, were $14.3 billion for the quarter, a decrease of two per cent over the prior year on a constant currency basis. Growth of in-force insurance business and higher sales of fixed return wealth products were offset by lower new mandates in the Institutional Advisory business.
Variable annuity and segregated fund deposits of $1.9 billion declined by $2.1 billion from the prior year as a result of the Company's on-going risk management initiatives across all geographies and, to a lesser extent, the general economic conditions.
Total funds under management as at September 30, 2009 were $437 billion, a 13 per cent increase over the prior year as a result of net positive policyholder cash flows of $20 billion and favourable currency movements. Over the last four quarters, investment returns have contributed approximately $19 billion to the increase.
Capitalizing on strategic opportunities, Canadian Division announced two acquisitions since the end of the second quarter. Manulife Mutual Funds announced the acquisition of AIC Limited's Canadian retail investment fund business, which added approximately $3.8 billion of assets under management, increasing the Canadian Division's mutual fund platform by approximately 40 per cent. This adds significant scale and bolsters the Canadian Division's presence in the Canadian retail investment fund market. Affinity Markets also announced the acquisition of Pottruff & Smith Travel Insurance Brokers Inc., one of the largest travel insurance brokers and third-party administrators in Canada. This acquisition solidifies Manulife's position as one of Canada's largest providers of travel insurance services, with a stronger platform for long-term growth as a travel insurer.
The Company continued to rebalance the risk profile of its product mix by reviewing its variable annuity product portfolio and implementing changes to its product features and pricing. With the equity market rally in the quarter, the Company also opportunistically hedged an additional $3.8 billion of in-force variable annuity business. Substantially all new variable annuity business in the U.S. and Canada continues to be hedged on an on-going basis. By quarter end, $19.5 billion of Guaranteed Value was hedged, up from $14.5 billion at the end of the second quarter and $5.7 billion at December 31, 2008. At September 30th, approximately 30 per cent of the gross Guaranteed Value was reinsured or hedged, up from 20 per cent at the prior year end.
--------------------------------------
(2) For each fund with at least a 3-year history, Morningstar calculates
a Morningstar Rating based on a Morningstar Risk-Adjusted Return that
accounts for variation in a fund's monthly performance (including
effects of sales charges, loads and redemption fees), placing more
emphasis on downward variations and rewarding consistent performance.
The top 10% of funds in each category, the next 22.5%, 35%, 22.5% and
bottom 10% receive 5, 4, 3, 2 or 1 star respectively. The Overall
Morningstar Rating for a fund is derived from a weighted average of
the performance associated with its 3-, 5- and 10-year (if
applicable) Morningstar Rating metrics. Past performance is no
guarantee of future results. The overall rating includes the effects
of sales charges, loads and redemption fees, while the load-waived
does not. Load-waived rating for Class A shares should only be
considered by investors who are not subject to a front-end sales
charge.
OPERATING HIGHLIGHTS
Insurance
- Insurance sales experienced sequential increases over the prior two
quarters across most business segments. Total insurance sales
increased by two per cent over the prior year, on a constant currency
basis, as strong advances in Asia and Canada were partially offset by
a decline in the U.S.
- In the U.S., overall insurance sales improved by 18 per cent from the
prior quarter, but were down six per cent from prior year levels,
with both Life and Long-Term Care experiencing significant
improvements over the prior two quarters, but falling short of prior
year levels by four and 13 per cent, respectively. Despite general
economic trends, Life sales topped US$200 million in the quarter and
Long-Term Care sales were robust compared to strong prior year
comparables. Since the end of the first quarter, Life has introduced
higher prices on its Term and Universal Life offerings while Long-
Term Care has introduced new features and increased pricing on its
group segment.
- In Canada, overall insurance sales increased by six per cent over
prior year levels, with Group Benefits sales up 12 per cent,
partially offset by a four per cent decline in Individual Insurance
sales. Subsequent to the quarter, Affinity Markets announced the
acquisition of Pottruff & Smith Travel Insurance Brokers Inc., one of
the largest travel insurance brokers and third-party administrators
in Canada. This acquisition solidifies Manulife's position as one of
Canada's largest providers of travel insurance services, with a
stronger platform for long-term growth as a travel insurer.
- In Asia, record insurance sales levels were achieved in the quarter,
with overall sales exceeding the prior year by 16 per cent on a
constant currency basis. Japan sales were up seven per cent over the
prior year while Hong Kong sales increased by 29 per cent, with
strong sales momentum bolstered by new product offerings and
distribution initiatives. Japan and Indonesia reported significant
market share gains in 2009 reflecting consumer flight to quality.
China sales also continued to grow, up 18 per cent in the quarter,
reflecting contributions from new offices opened in the prior year
and recent marketing initiatives. During the quarter, Manulife
continued to expand its operations in China receiving an additional
license in the Province of Tianjin. This brought the total number of
licenses to 38, among the most of any foreign life insurance company
in China.
Wealth Management
- Wealth sales, excluding variable annuity products, increased by four
per cent over prior year levels on a constant currency basis, driven
by fixed return product sales in the U.S. and Canada. Fixed return
product sales continued to outpace prior year levels as consumers
sought more stable investment returns.
- Variable annuity sales were less than half of prior year levels
following from the Company's on-going risk management initiatives
across all geographies and, to a lesser extent, general economic
conditions.
- In the U.S., wealth sales excluding variable annuity products
improved by 21 per cent over the prior quarter, and were in line with
prior year levels. All product segments other than variable annuity
products experienced double digit growth over prior quarter levels,
with fixed return product sales up 16 per cent, retirement plan sales
up 30 per cent and mutual fund sales up 18 over the second quarter of
2009. Compared to prior year, fixed return product sales were up 37
per cent, retirement plan sales were flat, and mutual and other fund
sales were down 12 per cent. During the quarter, John Hancock
expanded its growing relationship with Edward Jones, announcing a
distribution agreement whereby financial advisors will have access to
the John Hancock 401(k) retirement plan platform. This has further
leveraged the strong relationship that has been built with Edward
Jones by the John Hancock Long-Term Care and Variable Annuity
businesses.
- John Hancock Lifestyle Portfolios offered through mutual fund,
variable annuity and 401(k) wealth management product lines have
continued to produce very strong returns through September 30, 2009.
The Lifestyle Portfolios that underlie the mutual fund and 401(k)
products rank in the 8th, 11th, 13th, 14th and 29th percentiles of
their Morningstar peer groups year-to-date for Balanced, Aggressive,
Growth, Moderate and Conservative, respectively(3). John Hancock is
ranked as the third largest provider of lifestyle/lifecycle asset
allocation solutions in the industry as of September 30, 2009,
according to data from Strategic Insight, with over $55 billion in
assets under management.
- In Canada, wealth sales excluding variable annuity products increased
by five per cent over the prior year. Strong increases in fixed
products and group retirement sales more than offset declines in
Manulife Bank loan volumes. Fixed products sales increased by 57 per
cent while group retirement sales more than quadrupled prior year
levels, driven by record sales of group annuities. Year-to-date,
group retirement sales exceeded $1 billion reflecting strong results
in the defined contribution market.
- During the quarter, Manulife Mutual Funds announced the acquisition
of AIC Limited's Canadian retail investment fund business. This
acquisition added $3.8 billion of assets under management, an
increase of approximately 40 per cent to the Canadian Division's
mutual fund platform, increasing scale and bolstering the division's
presence in the Canadian retail investment fund market.
- In Asia, wealth sales excluding variable annuity products increased
by 59 per cent over the prior year, driven by strong growth in
Indonesia. Indonesia fund sales more than tripled, benefiting from
the equity market recovery.
--------------------------------------
(3) The Morningstar percentile ranking compares a Fund's Morningstar risk
and return scores with all the Funds in the same Category, where
1= Best and 100= Worst. The rankings above are
based on the period from 1/1/09 to 9/30/09 for John Hancock Lifestyle
Portfolios, Class A. Lifestyle Aggressive was ranked 208 out of
2,028 funds in the Large Cap Blend category, Lifestyle Growth was
ranked 251 out of 2,028 funds in the Large Cap Blend category,
Lifestyle Balanced was ranked 97 out of 1,218 funds in the Moderate
Allocation category, Lifestyle Moderate was ranked 91 out of 647
funds in the Conservative Allocation category, and Lifestyle
Conservative was ranked 189 out of 647 funds in the Conservative
Allocation category.
Corporate
- During the quarter, the Company raised $1 billion through the
issuance of Innovative Tier 1 Notes. The notes pay 7.405 per cent per
annum until December 30, 2019, with 5 year resets thereafter equal to
5-year Government of Canada bonds plus 5 per cent. The notes may be
redeemed in whole or in part on or after December 31, 2014, with
regulatory (OSFI) approval.
- In a separate news release, the Company also announced today that the
Board of Directors approved a quarterly shareholders' dividend of
$0.13 per share on the common shares of the Company, payable on and
after December 21, 2009 to shareholders of record at the close of
business on November 17, 2009.
- The Company is proud to have recently appointed two highly qualified
and distinguished Directors to its Board:
- Linda Bammann was appointed to the Board of Directors of Manulife
Financial Corporation and The Manufacturers Life Insurance Company
effective August 5, 2009. Ms. Bammann joins Manulife's Board
possessing strong risk management expertise and first hand management
experience from her senior executive risk management positions with
several large U.S. banks, including JPMorgan Chase and Bank One.
- John Palmer was appointed to the Board of Directors of Manulife
Financial Corporation and The Manufacturers Life Insurance Company
effective November 4, 2009. Mr. Palmer brings extensive financial
institution experience to Manulife's Board, including seven years as
Superintendent of Financial Institutions of Canada. Mr. Palmer was
the Deputy Managing Director of the Monetary Authority of Singapore
and has advised other regulators including the Australian Prudential
Regulation Authority. He is a chartered accountant and previously was
Canadian Managing Partner and Deputy Chairman of KPMG LLP (Canada).
Awards & Recognition
Manulife Financial received recognition from several organizations in the quarter, including the following:
- In Canada, Individual Wealth Management operations received Level
Four certification and the prestigious gold award for outstanding
achievement in quality from the National Quality Institute ("NQI").
This is the highest level of achievement under NQI's Progressive
Excellence program which measures excellence in multiple categories,
including Customer, People, Process management, Partnerships,
Responsibility to society, and Owner/shareholder.
- In the U.S., John Hancock Long-Term Care was voted # 1 in all 11
categories of Agent's Sales Journal magazine's 2009 LTCI Carrier
Report Card. Categories included products and features, marketing and
sales materials, product and sales training, and meeting the overall
needs of the market segment.
- In Indonesia, Manulife was awarded "Best Life Insurance Company 2009"
by Bisnis Indonesia Daily, the first national business newspaper of
Indonesia. The awards theme for judging the 129 entrants this year
was "Survival and Profitability." Despite the global financial
crisis, Manulife Indonesia experienced strong growth and was
acknowledged with this prestigious award as the best company in the
life insurance category. This is the first time Manulife has been
awarded this honour.
- MFC Global Investment Management ("GIM") earned new Five Star
Morningstar Ratings for three of its managed John Hancock funds
including the Large Cap Equity, Global Opportunities and Strategic
Income funds in Morningstar's September 2009 U.S. mutual fund
rankings. Morningstar's Five Star Rating is the highest rating
achievable, and awarded to the top 10 per cent of funds in a given
category, based on past returns and volatility.
Notes:
Manulife Financial Corporation will host a Third Quarter Earnings Results Conference Call at 2:00 p.m. ET on November 5, 2009. For local and international locations, please call (416) 340-2216 and toll free in North America please call (866) 898-9626. Please call in ten minutes before the call starts. You will be required to provide your name and organization to the operator. A playback of this call will be available by 6:00 p.m. ET on November 5, 2009 until November 19, 2009 by calling (416) 695-5800 or (800) 408-3053 (passcode 3274828 followed by the number sign).
The conference call will also be webcast through Manulife Financial's website at 2:00 p.m. ET on November 5, 2009. You may access the webcast at: www.manulife.com/quarterlyreports. An archived version of the webcast will be available at 4:30 p.m. ET on the website at the same URL as above.
The Third Quarter 2009 Financial Statements and Statistical Information Package are also available on the Manulife website at: www.manulife.com/quarterlyreports. Each of these documents may be downloaded before the webcast begins.
MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")
FINANCIAL HIGHLIGHTS
(unaudited)
Quarterly Results
3Q09 2Q09 3Q08
-------------------------------------------------------------------------
Net Income (Loss) Attributed to Shareholders
(C$ millions) (172) 1,774 510
Net Income (Loss) Available to Common
Shareholders (C$ millions) (193) 1,758 503
Diluted Earnings (Loss) per Common Share (C$) (0.12) 1.09 0.33
Return on Common Shareholders' Equity(1)
(%, annualized) (3.0) 26.9 8.2
Premiums & Deposits(1) (C$ millions) 16,238 19,196 18,090
Funds under Management(1) (C$ billions) 436.5 420.9 385.3
Capital(1) (C$ billions) 30.7 31.1 28.3
-------------------------------------------------------------------------
(1) This item is a non-GAAP financial measure. For a discussion of our
use of non-GAAP financial measures, see "Performance and Non-GAAP
Measures" below.
Net Income (Loss)
The Company's net loss attributed to shareholders for the third quarter was $172 million, compared to net income attributed to shareholders of $510 million reported a year ago. Earnings in both periods were affected by the capital markets and this quarter's results also included a charge of $783 million related to changes in actuarial methods and assumptions. These items are expanded on below.
During the quarter, North American equity markets increased (the S&P 500 increased 15 per cent and the TSX was up 10 per cent), and the Japanese TOPIX index was down two per cent. The overall positive market performance generated non cash gains of $1.2 billion, consisting of $1.0 billion related to segregated fund guarantees and the remainder split between capitalized variable universal life product fee income and gains on equities supporting policy liabilities. These equity related gains were offset by the impact of a decline in interest rates in the quarter.
During the quarter, interest rates on corporate bonds declined by approximately 15 to 35 basis points in Canada and by approximately 55 to 85 basis points in the U.S. As a result of the interest rate declines in the quarter, particularly for corporate bonds, we reported a non cash charge of $1.2 billion. Changes in interest rates impact the actuarial valuation of in-force policies by changing the future returns assumed on the investment of net future cash flows. The decline in interest rates similarly impacted the investment returns assumed for new business written in the quarter, particularly in U.S. Insurance.
Impairments recorded in the quarter reduced earnings by $111 million and consisted of $30 million related to credit losses, $6 million related to downgrades, $32 million of other than temporary impairments ("OTTI") on equity positions in the Corporate and Other Segment and $43 million of OTTI on private equity investments.
Market conditions also reduced the value of real estate appraisals and reduced private equity returns. These charges were mostly offset by the favourable impact of tax items and gains related to the recapture of reinsurance treaties.
The post tax charge of $783 million from the review of actuarial methods and assumptions included increases in policy liabilities related to changes in future morbidity assumptions and policyholder behaviour assumptions, partially offset by decreases in policy liabilities for changes in mortality, expenses and investment related assumptions. These items are expanded upon in the section below titled "Impact of Q3 Changes in Assumptions and Methodology". The charge included $469 million due to changes in assumptions on policyholder behaviour for segregated fund guarantee products, which was within the Company's previously communicated expectations of less than $500 million, after tax, provided with the second quarter results.
In addition to the tax items referred to above, a portion of the equity related gains as well as some interest related gains were subject to lower tax rates than were the other interest and investment related losses. The effective tax rate, in the quarter, adjusted for these tax items was similar to that in the prior year.
In the third quarter of 2008, market turmoil including unprecedented equity market volatility and financial sector credit related defaults reduced earnings by approximately $827 million; comprised of equity market related charges of $556 million, credit losses of $254 million and an OTTI charge of $17 million. Partially offsetting these investment losses were investment related gains of $318 million from supporting our long-term insurance obligations with more non fixed income assets, adding longer duration fixed income assets and the favourable impact of widening spreads and steepening interest rates. Also in the third quarter of 2008, net changes in actuarial methods and assumptions decreased earnings by $7 million pre tax or $27 million post tax. The changes included a $641 million, post tax, increase in segregated fund guarantee reserves to the high end of the range permitted by professional actuarial standards and a $578 million, post tax, reduction in the provision for adverse deviation for interest rate risk as well as other smaller basis changes in the quarter which netted to a $36 million post tax reduction in policy liabilities.
Year-to-date net income attributed to shareholders was $534 million compared to $2,387 million in 2008.
Normalized Earnings and Adjusted Earnings from Operations
In our second quarter report in the section entitled "Normalized Earnings", we provided forward-looking information for "normalized earnings", which is a non-GAAP measure. In this report we have compared our estimate at June 30, 2009 of normalized earnings with the adjusted earnings from operations for the third quarter which exclude the items that we excluded in arriving at our estimate of normalized earnings at June 30, 2009. For clarity, in this and future reports, we will refer to estimated adjusted earnings from operations, which is a non-GAAP measure. However, we have calculated adjusted earnings from operations and estimated future adjusted earnings from operations in this report on the same basis as we estimated normalized earnings in our second quarter report.
Comparison with Third Quarter Actual Adjusted Earnings from Operations
Our estimate of adjusted earnings from operations for the financial quarter ended September 30, 2009 excluded equity related gains and losses (to the extent actual gains and losses are different from those assumed in our estimates as described in footnote 1 to the "Reconciliation with GAAP Measure" table below and other than realized gains on our available-for-sale ("AFS") equity portfolio); interest and other investment related gains and losses; credit, OTTI and downgrades; policyholder experience gains and losses; tax related provisions on leveraged lease investments; other tax items such as the outcomes of tax appeals; and changes in actuarial methods and assumptions; the net effect of which we are unable to reliably estimate. Adjusted earnings from operations for the third quarter was $803 million, which is within our estimate of between $750 million and $850 million for the quarter.
Reconciliation with GAAP Measure
The following table reconciles adjusted earnings from operations to our reported net loss for the third quarter:
-------------------------------------------------------------------------
C$ millions
-------------------------------------------------------------------------
Adjusted earnings from operations 803
-------------------------------------------------------------------------
Adjusting items:
-------------------------------------------------------------------------
Equity market gains(1) 1,201
-------------------------------------------------------------------------
Interest rate charges(2) (1,222)
-------------------------------------------------------------------------
Credit and other impairments (111)
-------------------------------------------------------------------------
Changes in actuarial methods and assumptions (783)
-------------------------------------------------------------------------
Currency rates(3) (27)
-------------------------------------------------------------------------
Other items(4) (33)
-------------------------------------------------------------------------
Net Loss reported (172)
-------------------------------------------------------------------------
(1) Adjusted earnings from operations excludes equity market changes that
differ from our best estimate assumptions of 7.25% per annum in
Canada, 8.0% per annum in the U.S., 5.0% per annum in Japan and 9.5%
per annum in Hong Kong and excluding realized gains on our AFS
portfolio. For actuarial valuation purposes, these returns are
reduced by margins for adverse deviation to determine net yields used
in valuation.
(2) Changes in interest rates impact the actuarial valuation of in-force
policies by changing the future returns assumed on the investment of
net future cash flows. This impact is excluded when calculating
adjusted earnings from operations.
(3) Adjusted earnings from operations excludes the impact of changes in
currency exchange rates from those in effect at June 30, 2009 when we
originally provided our estimate of this amount. Since that time, the
Canadian dollar has strengthened and the Canadian dollar equivalent
of one U.S. dollar has declined from $1.1625 as at June 30, 2009 to
$1.0722 as at September 30, 2009. The average daily exchange rate for
the quarter was $1.098. This decline has reduced net income by $27
million during the quarter but did not reduce adjusted earnings from
operations.
(4) Adjusted earnings from operations excludes certain other items: the
impact of the reduced value of real estate appraisals and reduced
private equity returns partially offset by the favourable impact of
closing uncertain tax positions, changes in tax methodology related
to certain permanent differences, gains related to the recapture of
reinsurance treaties and a small amount of policyholder experience
gains.
Included in the adjusted earnings from operations for the third quarter of $803 million are $52 million of realized gains on our AFS equity portfolio which were largely offset by the negative impact of lower interest rates on new business written in the quarter.
Estimated Adjusted Earnings from Operations for remainder of 2009 and 2010
Given the current economic conditions including the volatility of equity markets, interest rates, the impact of current economic conditions on credit and other factors, we are providing forward-looking information for financial periods for the fourth quarter of 2009 and for all quarters in 2010 for what we refer to as adjusted earnings from operations. The information in this section is forward-looking information and should be read in conjunction with the section below entitled "Caution Regarding Forward-Looking Statements". This discussion should not be considered earnings guidance, particularly as it is not possible to predict near term market conditions and because adjusted earnings from operations excludes items that are included in GAAP net income or loss. Estimated adjusted earnings from operations are based on assumptions that include our book of business, equity market growth as described in footnote 1 to the "Reconciliation with GAAP Measure" table above, foreign currency rates that are consistent with levels as at June 30, 2009, and other investment returns and policyholder experience consistent with our current best estimate actuarial assumptions. As a result, it would exclude items such as: investment related gains and losses (equity, interest rate, credit and other non fixed income) where the returns differ from our best estimate policy liability assumptions (the assumptions for equity and interest rates are described in footnotes (1) and (2) to the "Reconciliation with GAAP Measure" table above); credit and OTTI losses on assets in the Corporate and Other segment; policyholder experience gains and losses; tax related provisions on leveraged lease investments; resolution of uncertain tax positions as a result of settlements or closing of tax years; changes to tax rates; changes in accounting policies; and changes in actuarial methods and assumptions. It would, however, include gains, but not losses or other impairments, realized on AFS assets. We adjust for these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. We are unable to reliably estimate the net effect of these items and adjusting for these items does not imply they are non-recurring.
We estimate adjusted earnings from operations to be between $750 million and $850 million per quarter for the remainder of 2009 and 2010. Estimated adjusted earnings from operations would imply a return on common shareholders' equity of approximately 12 per cent. Actual reported quarterly results will differ from estimated adjusted earnings from operations as a result of any changes in the factors outlined above. See also "Risk Factors" in our most recent Annual Information Form, "Risk Management" and "Critical Accounting and Actuarial Policies" in the Management's Discussion and Analysis in our most recent annual and interim reports, and the "Risk Management" note to the consolidated financial statements in our most recent annual and interim reports for other factors that could impact adjusted earnings from operations and actual reported results.
Loss per Share and Return on Common Shareholders' Equity
Third quarter loss per common share was $0.12, compared to earnings per share of $0.33 in 2008 on a fully diluted basis. Return on common shareholders' equity was minus 3.0 per cent for the three months ended September 30, 2009 (plus 8.2 per cent for the three months ended September 30, 2008). Return on common shareholders' equity, a non-GAAP financial measure, is calculated excluding Accumulated Other Comprehensive Income (Loss) on AFS securities and cash flow hedges. See "Performance and Non-GAAP Measures" below.
Premiums and Deposits(4)
Premiums and deposits excluding variable annuities amounted to $14.3 billion in the third quarter of 2009, compared to $14.1 billion for the same period last year.
Premiums and premium equivalents(4) related to the insurance businesses were $5.1 billion, an increase over the prior year of seven per cent on a constant currency basis. The Company's Consolidated Statements of Operations show a decline in premiums as a result of an external reinsurance agreement related to Canada Group Benefits. As the agreement provides that the Company retains certain upside benefits and certain risks, we continue to include the associated direct premiums as part of the premiums and deposits metric. Driven by growth in the in-force business, insurance premiums and premium equivalents increased 10 per cent in the U.S., five per cent in Canada and 14 per cent in Asia and Japan.
Annuity and pension premiums excluding variable annuities were $1.8 billion compared to $1.2 billion in the prior year, fueled by the increased demand for fixed return wealth products and group annuity sales in Canada.
Deposits excluding variable annuities were $7.5 billion in the quarter, a decline of $0.8 billion from the prior year. The decline results from a decrease in Institutional Advisory Account deposits, where the deposit recognition is based on winning new mandates.
Variable annuity and segregated fund deposits of $1.9 billion declined by $2.1 billion, or more than half of the prior year's deposits, as a result of the Company's on-going risk management initiatives across all geographies and, to a lesser extent, general economic conditions.
Funds under Management(4)
Total funds under management as at September 30, 2009 were $436.5 billion, up from $385.3 billion at September 30 last year. The increase was a result of positive policyholder cash flows of $20 billion, an increase in capital of $2.4 billion as described in the section below, and the cumulative positive impact over the last four quarters of investment returns. The growth in funds under management also includes the acquisition of AIC Limited's retail investment fund business which closed in September 2009 and added $3.8 billion to mutual fund assets under management.
Capital(4)
Total capital was $30.7 billion as at September 30, 2009, $2.4 billion higher than $28.3 billion as at September 30, 2008. Capital increased by $2,275 million from the issuance of common shares in the fourth quarter of 2008, $800 million from the issuance of preference shares in the first half of 2009, $1,000 million from the issuance of Innovative Tier 1 notes in the third quarter of 2009, $565 million of net unrealized gains on AFS assets and $353 million from a weakening Canadian dollar. These increases were partially offset by the cumulative effect over the last twelve months of $1,294 million of net losses and $1,370 million of shareholder dividends paid in cash.
Regulatory capital adequacy is primarily managed at the operating insurance company level (MLI and John Hancock Life Insurance Company ("JHLICO")). MLI's Minimum Continuing Capital and Surplus Requirements ("MCCSR") ratio of 229 per cent as at September 30, 2009 has increased by 36 points from 193 per cent as at September 30, 2008. The increase in the ratio resulting from capital injections from Manulife Financial Corporation ("MFC")'s capital raising activities more than offset the aggregate impact of net losses and dividends paid.
--------------------------------------
(4) Premiums and deposits, premiums and premium equivalents, funds under
management and capital are all non-GAAP measures. See "Performance
and Non-GAAP Measures" below.
PERFORMANCE BY DIVISION
U.S. Insurance
Quarterly Results
Canadian dollars 3Q09 2Q09 3Q08
------------------------
Net Income (Loss) Attributed to Shareholders
(millions) (601) (631) 311
Premiums & Deposits (millions) 2,020 1,962 1,842
Funds under Management (billions) 66.3 67.7 59.9
------------------------
Quarterly Results
U.S. dollars 3Q09 2Q09 3Q08
------------------------
Net Income (Loss) Attributed to Shareholders
(millions) (547) (541) 298
Premiums & Deposits (millions) 1,838 1,682 1,769
Funds under Management (billions) 61.8 58.2 56.5
------------------------
U.S. Insurance recorded a net loss attributed to shareholders of US$547 million for the third quarter of 2009, compared with net income of US$298 million reported a year earlier. The results in the third quarter of 2009 were driven by investment related losses on in-force business. Other earnings components were also affected by the financial markets - the decline in interest rates also adversely impacted investment returns assumed for new business written in the quarter and was partially offset by the favourable impact on actuarial liabilities of the increase in equity markets on variable universal life products. Adverse long-term care claims experience also contributed to the loss in the third quarter of 2009. The results in the third quarter of 2008 included favourable investment related results. On a Canadian dollar basis, the net loss attributed to shareholders for the third quarter was $601 million, compared to net earnings of $311 million reported a year earlier. The year-to-date net loss attributed to shareholders was US$1,162 million compared to net earnings of US$727 million in 2008.
Premiums and deposits for the quarter were US$1.8 billion, up four per cent from the third quarter of 2008 primarily due to higher universal life premiums, dampened by lower variable life deposits.
Funds under management were US$61.8 billion, up nine per cent from September 30, 2008 due to business growth and an increase in the market value of funds under management.
U.S. Wealth Management
Quarterly Results
Canadian dollars 3Q09 2Q09 3Q08
------------------------
Net Income (Loss) Attributed to Shareholders
(millions) 593 1,551 (27)
Premiums & Deposits (millions) 7,169 7,956 8,367
Funds under Management (billions) 176.5 170.6 164.1
------------------------
Quarterly Results
U.S. dollars 3Q09 2Q09 3Q08
------------------------
Net Income (Loss) Attributed to Shareholders
(millions) 541 1,329 (25)
Premiums & Deposits (millions) 6,531 6,817 8,037
Funds under Management (billions) 164.6 146.7 154.8
------------------------
U.S. Wealth Management's net income attributed to shareholders for the third quarter of 2009 was US$541 million, compared with a net loss of US$25 million reported a year earlier. Earnings in the third quarter of 2009 benefited from the impact of the favourable equity market performance on segregated fund guarantee reserves, partially offset by unfavourable movement in interest rates and other investment related results. A loss was reported in the third quarter of 2008 as a result of the decline in equity markets and unfavourable investment related results, partially offset by the successful outcome of certain tax appeals. On a Canadian dollar basis, net income attributed to shareholders for the third quarter was $593 million compared with a net loss of $27 million in 2008. Year-to-date net income attributed to shareholders was US$1,365 million compared with US$391 million in 2008.
Premiums and deposits, excluding variable annuities, for the quarter were US$5.7 billion, down three per cent from US$5.9 billion for the third quarter of 2008 as a result of the impact of equity market volatility and the economic downturn on premiums and deposits in John Hancock Wealth Asset Management, partially offset by an increase in John Hancock Fixed Products sales. Premiums and deposits of variable annuities were US$0.8 billion compared to US$2.1 billion in the third quarter of 2008 as a result of ongoing risk management initiatives and, to a lesser extent, general economic conditions.
Funds under management were US$164.6 billion, up US$9.8 billion or six per cent from September 30, 2008. The increase was net of US$3.5 billion of scheduled maturities in Fixed Products over the last twelve months and driven by a combination of strong net policyholder cash flows, the cumulative four quarter impact of investment returns, and the additional assets to support the JH Variable Annuities segregated fund guarantee policy liabilities.
Canadian Division
Quarterly Results
Canadian dollars 3Q09 2Q09 3Q08
------------------------
Net Income Attributed to Shareholders (millions) 113 336 113
Premiums & Deposits (millions) 4,075 4,316 3,794
Funds under Management (billions) 101.1 91.2 84.2
------------------------
Canadian Division's net income attributed to shareholders for the third quarter of 2009 was $113 million, consistent with that reported a year ago. Earnings reflected good operational results, including favourable claims experience, focused expense management and business growth partially offset by adverse lapse experience on individual insurance. The increase due to the impact of improved market performance on segregated fund guarantee reserves was offset by net investment related losses in the quarter and lower allocated interest on surplus. Also included in the current quarter's income were gains related to the recapture of reinsurance agreements in accordance with treaty provisions. The division had a net tax recovery in the quarter, as a portion of the investment related gains was subject to lower tax rates than were the investment related losses. Year-to-date net income attributed to shareholders was $361 million compared to $669 million in 2008.
Premiums and deposits, excluding variable annuities, for the quarter were $3.3 billion, up 18 per cent from $2.8 billion in the third quarter of 2008. The growth was driven by an 18 per cent rise in premiums and premium equivalents to $2.7 billion, reflecting record sales of fixed annuities in Group Savings & Retirement Solutions ("GSRS") and higher volumes of retail fixed rate products as consumers' investment conservatism continued. Strong growth in retirement plan deposits from new sales and recurring deposit activity from a growing block of in-force participants also contributed to the increase. Premiums and deposits of variable annuity products were $0.8 billion compared to $1.0 billion a year ago.
Funds under management grew by 20 per cent, or $16.9 billion, to $101.1 billion as at September 30, 2009. Positive net sales of retail segregated funds and fixed rate products, combined with modestly favourable market growth, and strong sales momentum in GSRS were key contributors to the year-over-year increase. Continued growth in Manulife One drove a 38 per cent rise in Manulife Bank invested assets. In addition, the acquisition of the retail investment fund business of AIC Limited, which closed on September 25, added $3.8 billion to mutual fund assets under management.
Asia and Japan Division
Quarterly Results
Canadian dollars 3Q09 2Q09 3Q08
------------------------
Net Income Attributed to Shareholders (millions) 417 885 216
Premiums & Deposits (millions) 1,949 2,477 2,169
Funds under Management (billions) 58.4 56.5 42.6
------------------------
Quarterly Results
U.S. dollars 3Q09 2Q09 3Q08
------------------------
Net Income Attributed to Shareholders (millions) 380 758 208
Premiums & Deposits (millions) 1,775 2,122 2,084
Funds under Management (billions) 54.5 48.6 40.2
------------------------
Asia and Japan Division's net income attributed to shareholders for the third quarter of 2009 was US$380 million, up US$172 million from US$208 million a year earlier. Gains recorded on the variable annuity business in Japan as a result of improved equity market performance were partially offset by unfavourable investment related losses. On a Canadian dollar basis, net income attributed to shareholders was $417 million, up $201 million from a year ago. Year-to-date net income attributed to shareholders was US$1,256 million compared to US$606 million in 2008.
Premiums and deposits excluding variable annuity products for the quarter were US$1.5 billion, up 20 per cent from US$1.3 billion for the third quarter of 2008. Driving the result was the 13 per cent insurance premium growth from in-force business in Japan and Hong Kong coupled with higher mutual fund sales in Indonesia as a result of the market recovery. Premiums and deposits of variable annuity products were US$0.3 billion compared to US$0.8 billion a year ago.
Funds under management were US$54.5 billion, up 35 per cent from September 30, 2008. Growth was driven by net policyholder cash inflows of US$3.9 billion together with the positive impact of improving equity market performance, mainly in Hong Kong and Other Asia territories, in the past twelve months.
Reinsurance Division
Quarterly Results
Canadian dollars 3Q09 2Q09 3Q08
------------------------
Net Income Attributed to Shareholders (millions) 65 45 49
Premiums (millions) 267 292 272
------------------------
Quarterly Results
U.S. dollars 3Q09 2Q09 3Q08
------------------------
Net Income Attributed to Shareholders (millions) 59 38 47
Premiums (millions) 243 250 261
------------------------
Reinsurance Division's net income attributed to shareholders for the third quarter of 2009 was US$59 million, compared to US$47 million reported a year earlier. During the third quarter of 2009, favourable claims experience in Life Reinsurance and the favourable impact of the increase in the U.S. equity markets on segregated fund guarantee reserves were largely offset by investment related losses. In the third quarter of 2008, the losses related to segregated fund guarantees were offset by investment related gains. On a Canadian dollar basis, net income attributed to shareholders for the third quarter was $65 million, up $16 million from $49 million reported a year earlier. Year-to-date net income attributed to shareholders was US$145 million, compared to US$165 million in 2008.
Premiums for the quarter were US$243 million, down US$18 million or seven per cent from US$261 million for the third quarter of 2008. The decline was due to lower Life Reinsurance premiums as a result of higher experience refunds and reduced International Group Program premiums due to the impact of the weakened Euro against the U.S. dollar. Partly offsetting these declines were higher Property and Casualty premiums largely due to increased volumes. On a Canadian dollar basis, premiums for the quarter were $267 million, down two per cent from $272 million reported in the third quarter of 2008.
Corporate and Other
Quarterly Results
Canadian dollars 3Q09 2Q09 3Q08
------------------------
Net Loss Attributed to Shareholders (millions) (759) (412) (152)
Funds under Management (billions) 31.5 32.2 31.8
------------------------
Corporate and Other is comprised of the earnings on excess residual capital (assets backing capital, net of amounts allocated to operating divisions), changes in actuarial methods and assumptions, Investment Division's external asset management business and the John Hancock Accident and Health operation, which consists primarily of contracts in dispute, and other non-operating items.
Corporate and Other recorded a net loss attributed to shareholders of $759 million in the third quarter of 2009, compared to a net loss of $152 million a year earlier. The current quarter included a charge for changes in actuarial methods and assumptions of $783 million compared to a charge of $27 million a year earlier. Excluding the changes in actuarial methods and assumptions, earnings were $24 million in the third quarter of 2009 and a loss of $125 million the prior year. The increase of $149 million is primarily due to current period tax related benefits of $71 million and $52 million of realized gains on our available-for-sale equity portfolio. The year-to-date net loss attributed to shareholders was $1,635 million compared to a net loss of $203 million in 2008.
Funds under management were $31.5 billion, down one per cent from September 30, 2008. This decrease is primarily due to higher assets allocated to the operating divisions, partially offset by funds received from debt and share capital issuances in the past twelve months.
RISK MANAGEMENT
The significant disruption of financial markets and severe deterioration of the economy during 2008 and early 2009 presented extraordinary challenges for the risk management function at the Company. The Company's balance sheet and earnings are sensitive to equity market performance, as well as changes in interest rates and credit deterioration. As a result of the deterioration of the economy, these three factors have an increased impact, heightening the importance of managing risk and capital.
Under our equity and interest rate risk policies, we previously delegated authority to management to operate within enterprise-wide economic capital and earnings-at-risk limits related to equity and interest rate risks and required management to report to and seek authority from the Audit and Risk Management Committee of the Board of Directors when the exposure exceeded those limits. During the fiscal quarter ended September 30, 2009, we established new policies requiring management to develop plans to reduce publicly-traded equity risk and interest rate risk exposures to within specified economic capital, MCCSR and earnings-at-risk targets, but only when it is economical to do so. These plans would involve limiting risk exposure arising from new sales and hedging a portion of the risks arising from our existing business. In particular, the plan would include re-balancing our variable annuity sales relative to other lines of business, hedging the equity and interest rate risks arising from the vast majority of new variable annuity sales according to the hedging approach described in "Variable Annuity and Segregated Fund Investment Related Guarantees" below, as well as continued re-design and re-pricing of new products to reduce risk, improve margins and increase their expected hedge effectiveness. The plan would also include hedging a material portion of our unhedged variable annuity guarantees only when it is economic to do so and hedging a portion of the interest rate risk arising from the uncertainty of returns achievable on future long-term insurance and long-term care recurring premiums only when it is economic to do so.
There can be no assurance that the Company's exposure to publicly-traded equity performance and movements in interest rates will be reduced to within established targets. Depending on market conditions, including a sustained increase in equity market volatility or decline in interest rates, the costs of hedging the benefit guarantees provided in variable annuities may increase or become uneconomic, in which case we may reduce or discontinue sales of certain of these products. In addition, there can be no assurance that the Company's capital market hedging strategy will fully reduce the risks related to the guaranteed products being hedged. Please see "Variable Annuity and Segregated Fund Investment Related Guarantees" below.
For further information relating to our risk management practices and risk factors affecting the Company, see "Risk Factors" in our most recent Annual Information Form, "Risk Management" and "Critical Accounting and Actuarial Policies" in Management's Discussion and Analysis in our most recent annual and interim reports and the "Risk Management" note to consolidated financial statements in our most recent annual and interim reports.
Market Price and Interest Rate Risk
Due to the nature of the insurance business, invested assets and insurance liabilities as well as revenues and expenses are impacted by movements in capital markets and interest rates. Accordingly, the Company considers these risks together to ensure that the risks in its asset and liability positions are properly managed. These risks are referred to collectively as market price and interest rate risk - the risk of loss resulting from adverse movements in market price, risk-free interest rates and credit spreads.
Interest rate risk arises within the Company's general fund primarily due to the uncertainty of future returns on investments to be made as recurring premiums are received and as assets mature and must be reinvested to support longer dated liabilities. Changes in interest rates impact cash flows over a very long period of time, and it is only over the lifetime of the Company's liabilities that the ultimate profit or loss related to changes in interest rates will be known. In the interim, changes in interest rates impact the value of the Company's assets and liabilities. Market price risk arises within our general fund as a result of investing in public equities, private equities, real estate, timber and agriculture, oil and gas and other assets.
Market price risk arises from the Company's off-balance sheet products due mainly to the guarantees provided on variable annuity and insurance products, as well as the uncertainty of future levels of asset-based fees. Guarantees include minimum levels of death, maturity, income and withdrawal benefits on variable products. The Company mitigates its market price and interest rate risk arising from off-balance sheet products through benefit guarantee design, limitations on fund offerings and the use of capital market hedging strategies for new business, and, for a portion of our in-force business, reinsurance and capital market hedging strategies.
The impact on shareholders' economic value and on net income attributed to shareholders for interest rate and market prices are based on a starting point and business and asset mix in place at that date, and assume that all other variables stay constant. Actual results can differ materially from these estimates for a variety of reasons including differences in the interaction between these factors, changes in actuarial assumptions, changes in business mix, effective tax rates, and other market variables.
Impact on Shareholders' Economic Value Arising from General Fund Interest Rate Risk
In order to manage the exposure to market price and interest rate risk, the Company monitors invested assets and the liabilities which they support under three broad categories: liabilities supported with matching mandates, liabilities supported with target return mandates, and exposures arising from variable products and other managed assets. Liabilities supported with matching mandates generally include insurance and wealth guaranteed benefit obligations falling within the terms for which fixed income assets are generally available in the market, and are supported by fixed income assets with generally matching term profiles. Liabilities supported with target return mandates include guaranteed benefit obligations falling beyond the term for which fixed income assets are generally available in the market, as well as obligations related to products that generally pass through investment returns to policyholders. Assets supporting the shareholders' equity account are generally managed under a target return mandate.
The impact on shareholders' economic value arising from general fund interest rate risk is calculated as the change in the net present value of future cash flows related to existing assets, policy premiums, benefits and expenses, all discounted at market yields and adjusted for tax. The table below shows the potential impact on shareholders' economic value of an immediate change of one per cent in government, swap and corporate rates for all maturities across all markets.
As at As at
1% change in interest September 30, 2009 December 31, 2008
rates ---------------------- ---------------------
(Canadian $ in millions) Increase Decrease Increase Decrease
-------------------------------------------------------------------------
Matching mandates
Insurance $ 200 $ (290) $ 30 $ (90)
Wealth Management - 10 (10) 10
-------------------------------------------------------------------------
Total matching mandates $ 200 $ (280) $ 20 $ (80)
-------------------------------------------------------------------------
Target return mandates
Insurance $ 1,060 $ (1,700) $ 730 $ (1,130)
Wealth Management 110 (240) 10 (110)
Shareholders' equity
account (290) 390 (370) 470
-------------------------------------------------------------------------
Total target return
mandates $ 880 $ (1,550) $ 370 $ (770)
-------------------------------------------------------------------------
Guarantees
Variable annuity and
segregated fund
guarantees $ 120 $ (170) $ 210 $ (250)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total $ 1,200 $ (2,000) $ 600 $ (1,100)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Variable Annuity and Segregated Fund Investment Related Guarantees
The table below shows selected information regarding the Company's variable annuity and segregated fund investment related guarantees:
As at September 30, 2009 December 31, 2008
-------------------------------------------------------
Amount Amount
(Canadian $ Guarantee Fund at Guarantee Fund at
in millions) value value risk(4) value value risk(4)
-------------------------------------------------------------------------
Gross living
benefits(1) $ 92,789 $ 83,014 $ 14,112 $ 95,297 $ 71,391 $ 25,086
Gross death
benefits(2) 19,317 13,526 5,100 22,937 14,099 8,975
-------------------------------------------------------------------------
Total gross of
reinsurance &
hedging $112,106 $ 96,540 $ 19,212 $118,234 $ 85,490 $ 34,061
-------------------------------------------------------------------------
Living benefits
reinsured $ 8,326 $ 5,878 $ 2,454 $ 10,049 $ 5,934 $ 4,115
Death benefits
reinsured 6,321 4,767 1,796 7,960 5,134 3,137
-------------------------------------------------------------------------
Total reinsured $ 14,647 $ 10,645 $ 4,250 $ 18,009 $ 11,068 $ 7,252
-------------------------------------------------------------------------
Total, net of
reinsurance $ 97,459 $ 85,895 $ 14,962 $100,225 $ 74,422 $ 26,809
-------------------------------------------------------------------------
Living benefits
hedged(3) $ 19,492 $ 19,474 $ 1,626 $ 5,731 $ 4,237 $ 1,494
-------------------------------------------------------------------------
Living benefits
retained $ 64,971 $ 57,662 $ 10,032 $ 79,517 $ 61,220 $ 19,477
Death benefits
retained 12,996 8,759 3,304 14,977 8,965 5,838
-------------------------------------------------------------------------
Total, net of
reinsurance and
hedging $ 77,967 $ 66,421 $ 13,336 $ 94,494 $ 70,185 $ 25,315
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Living benefits include maturity/income/withdrawal/long-term care
("LTC") benefits.
(2) Death benefits include stand-alone guarantees and guarantees in
excess of maturity/income/withdrawal/LTC guarantees where both death
and living benefits are provided on a policy.
(3) Gains on hedge instruments may not fully offset cost of guarantees on
business hedged, as a result of (i) a small portion of fund value not
being hedged and (ii) differences in performance of hedge instruments
and underlying funds being hedged.
(4) Amount at risk is the excess of guaranteed values over fund values on
all policies where the guaranteed value exceeds the fund value. This
amount is not currently payable.
The Company expanded its capital market hedging strategies program during 2009. The total amount of guarantee value hedged has increased to $19,492 million at September 30, 2009 from $5,731 million as at December 31, 2008. The Company shorts exchange traded equity index and government bond futures and executes lengthening interest rate swaps to hedge sensitivity of Canadian GAAP liabilities to fund performance and interest rate risk arising from the variable annuities, and dynamically rebalances these hedge instruments as market conditions change in order to maintain the hedged position within internally established limits. The profit (loss) on the hedge instruments will not fully offset the gains or losses related to the guarantee liabilities hedged because the performance of the underlying funds hedged may differ from the performance of the corresponding hedge instruments, hedges are not executed on a small portion of the underlying funds for which no effective exchange traded hedge instrument is available, not all risks are hedged and Canadian GAAP liabilities embed some provisions for adverse deviation which are not hedged. The risks related to the hedging program are expanded on below.
Since Canadian GAAP guarantee liabilities are determined using long-term forward looking estimates of volatility and not current implied market volatility, Canadian GAAP guarantee liabilities, and consequently MCCSR Available Capital, have no sensitivity to changes in implied market volatility. Long-term forward-looking volatilities assumed for Canadian GAAP are approved by the Office of the Superintendant of Financial Institutions ("OSFI") and meet the Canadian Institute of Actuaries calibration standards. To the extent that realized volatility exceeds the assumed long-term volatilities in any one period, there is a risk that rebalancing will be greater and more frequent, resulting in higher hedging costs in that period.
The level of guarantee claims ultimately paid will be impacted by policyholder longevity and policyholder activity including the timing and amount of withdrawals, lapses and fund transfers. The Company's hedging program, utilizing capital markets hedge instruments, assumes long-term assumptions for longevity and policyholder behaviour. The risk related to longevity and policyholder behaviour cannot be hedged using capital markets instruments and therefore is not hedged. The Company's capital market hedging strategies are not intended to completely or fully eliminate the risks associated with the guarantees embedded in these products and the strategies expose the Company to additional risks. The program relies on the execution of derivative transactions in a timely manner and therefore hedging costs and the effectiveness of the program may be negatively impacted if markets for these instruments become illiquid. The Company is also subject to counterparty risks arising from the derivative instruments and to the risk of increased funding and collateral demands which may become material as markets and rates move. The hedging program is also highly dependant on complex systems and mathematical models that are subject to error, which rely on assumptions that may prove inaccurate, and which rely on sophisticated infrastructure and personnel which may fail or be unavailable at critical times.
Impact on Shareholders' Economic Value from Variable Products and Other Managed Assets
Shareholders' economic value arising from variable products, mutual funds and institutional asset management operations is calculated as the present value of expected after-tax cash flows related to managing these assets and/or providing guarantees, discounted at market yields. The present value of expected after-tax cash flows related to guarantees is the average, across all investment return scenarios, of the present value of projected future guaranteed benefit payments, net of reinsurance and fee income allocated to support the guarantees. The table below shows the potential impact on shareholders' economic value of an immediate ten per cent decline in the market value of equity funds.
10% decrease in market As at As at
value of equity funds September 30, 2009 December 31, 2008
-------------------------------------------
Market-based fees $ (450) $ (380)
Variable product guarantees (410) (710)
-------------------------------------------------------------------------
Total $ (860) $ (1,090)
-------------------------------------------------------------------------
Net Income Sensitivity to Interest Rate and Market Price Risk
The potential impact on net income attributed to shareholders as a result of a change in policy liabilities for a one per cent increase in government, swap and corporate rates at all maturities across all markets was estimated to be a gain of approximately $1,600 million as at September 30, 2009 (December 31, 2008 - approximately $1,100 million) and for a one per cent decrease in government, swap and corporate rates at all maturities across all markets was estimated to be a charge of approximately $2,000 million as at September 30, 2009 (December 31, 2008 -approximately $1,300 million).
The net income sensitivity is based on a change to the current market interest rates, but assumes that long-term fixed income interest rates for new investments made or assets sold 20 or more years into the future assumed in the calculation of policy liabilities are unchanged. For the first 20 years re-investment rates grade between current market rates and the rates assumed after 20 years. It also assumes no gain or loss is realized on the fixed income investments that are designated as AFS in the Corporate and Other segment.
The potential annual impact on net income attributed to shareholders arising from variable products and general fund assets supporting policy liabilities, including the impact on segregated fund fee income, of an immediate ten per cent decline in equity market values followed by a return to normal market growth was a decrease of approximately $1,300 million at September 30, 2009 (December 31, 2008 - approximately $1,600 million). The sensitivity assumes no gain or loss is realized on the equity investments that are designated as AFS in the Corporate and Other segment, nor does it include any changes in market-based fees on non-insurance businesses, such as mutual funds and institutional asset management. Changes in equity markets also impact our available and required components of the MCCSR calculation. The potential impact to MLI's MCCSR ratio of an immediate ten per cent decline in equity market values is estimated to be a decrease of 15 points.
Variable annuity and segregated fund investment-related guarantees are contingent and only payable upon death, maturity, withdrawal or annuitization, if fund values remain below guaranteed values. If markets do not recover, liabilities on current in-force business would be due primarily in the period from 2015 to 2038. The policy liability established for these benefits was $2,786 million at September 30, 2009 (December 31, 2008 - $5,783 million).
Letters of Credit
In the normal course of business, third party relationship banks issue letters of credit on our behalf. Our businesses utilize letters of credit for which third parties are the beneficiaries, as well as for affiliate reinsurance transactions between subsidiaries of MFC. Letters of credit must be renewed periodically with renewal periods ranging from one year to 20 years. At time of renewal, the Company is exposed to repricing risk and under adverse conditions increases in costs will be realized. In the most extreme scenarios, letters of credit capacity could become constrained due to non-renewals. The Company did not experience any material change in capacity during the financial crisis of the past two years. There were no assets pledged against these outstanding letters of credit as at September 30, 2009.
Ratings
The Company has received security ratings from approved rating organizations on its outstanding medium-term notes, outstanding Tier 1 hybrid capital and its outstanding series of preferred shares. In addition, the Company and its primary insurance operating subsidiaries have received financial strength/claims paying ratings. The issuance of additional debt, hybrid or preferred share financing could put pressure on these ratings. If, in the view of the rating organizations, there is deterioration in capital flexibility, operating performance, or the risk profile of the Company, this could also put pressure on these ratings.
Capital
MFC is a holding company with no significant operations and its principal asset is the shares of its regulated insurance subsidiaries. These subsidiaries are subject to a wide variety of insurance and other laws and regulations intended to protect policyholders and beneficiaries rather than investors, including regulatory restrictions which may limit their ability to pay dividends or make distributions to MFC. As a result of the global financial crisis, there is increasing co-operation between international financial authorities and regulators in many countries are reviewing their requirements and considering potential changes. While the impact of these changes is uncertain, the Company anticipates that regulators, rating agencies and investors will expect higher levels of capital going forward. These changes could further limit the ability of the insurance subsidiaries to pay dividends or make distributions and have a material adverse effect on MFC's liquidity, including its ability to pay dividends to shareholders and service its debt.
In Canada, OSFI has announced that it (i) will be proposing a method for evaluating stand-alone capital adequacy for operating life insurance companies, such as MLI, (ii) is considering updating its regulatory guidance for non-operating insurance companies acting as holding companies, such as MFC, and (iii) is reviewing the use of internally-modeled capital requirements for segregated fund guarantees. The outcome of these initiatives is uncertain and could have a material adverse impact on the Company or on its position relative to that of other Canadian and international financial institutions with which it competes for business and capital.
Currency Translation Risk
A substantial portion of our business is transacted in currencies other than Canadian dollars, mainly U.S. dollars, Hong Kong dollars and Japanese yen. We also invest a substantial portion of our shareholders' equity in non-Canadian dollar denominated assets. Our financial results are reported in Canadian dollars. In the recent quarter, the Canadian dollar has continued to strengthen relative to these non-Canadian currencies, particularly the U.S. dollar, causing the translated value of reported earnings from these non-Canadian dollar denominated businesses to decrease and the translated value of our reported shareholders' equity to decline. To the extent these exchange rates persist or the Canadian dollar continues to strengthen, there would be downward pressure on the translated value of reported earnings from those non-Canadian dollar denominated businesses. Exchange rate fluctuations are beyond our control and can be significant.
CRITICAL ACCOUNTING AND ACTUARIAL POLICIES
Accounting Policies
Our significant accounting policies are described in note 1 of the annual consolidated financial statements on pages 58 to 61 of our 2008 Annual Report. Certain of these policies are recognized as critical as they determine the accounting in core areas of the business, require the use of estimates and assumptions about matters that are inherently uncertain and because actual results could differ from those estimates. Significant estimation processes relate to the determination of policy liabilities, evaluation of invested asset impairment, assessment of variable interest entities ("VIEs"), determination of pension and other post-employment obligations and expenses, income taxes and impairment testing of goodwill and intangible assets as described in pages 37 to 43 of our 2008 Annual Report. In addition, in the determination of the fair values of financial instruments, where observable market data is not available, management applies judgment in the selection of valuation models. Updates to the determination of sensitivity of policy liabilities to changes in asset related assumptions and the results of the 2009 changes in actuarial policy liabilities are discussed below.
Sensitivity of Policy Liabilities to Changes in Assumptions
When the assumptions underlying our determination of policy liabilities are updated to reflect recent and emerging experience or change in outlook, the result is a change in the value of policy liabilities which in turn affects income. The sensitivity of after tax income to changes in asset return assumptions underlying policy liabilities is shown below, assuming that there is a simultaneous change in the assumption across all business units. For changes in asset related assumptions, the sensitivity is shown net of the corresponding impact on income of the change in the value of the assets supporting liabilities. Sensitivity of after tax income to changes in other policy liability assumptions has not changed materially from previous disclosure.
The impact on net income attributed to shareholders for these sensitivities is based on a starting point and business mix in place at that date, and assume that all other variables stay constant. Actual results can differ materially from these estimates for a variety of reasons including differences in the interaction between these factors, changes in actuarial assumptions, changes in business mix, effective tax rates, currency and other market variables.
Sensitivity of Policy Liabilities to Changes in Asset Related Assumptions
-------------------------------------------------------------------------
Increase (Decrease) in After-Tax Income
-------------------------------------------------------------------------
2009 2008
---- ----
September 30 December 31
------------ -----------
(Canadian $ in millions) increase decrease increase decrease
-------------------------------------------
Asset Related Assumptions
Updated Quarterly
-------------------------------------------
100 basis point parallel
change in market interest
rates(2) 1,600 (2,000) 1,100 (1,300)
-------------------------------------------
10% change in public equity
market values (1) (1,300) (1) (1,500)
-------------------------------------------
10% change in other non fixed
income market values (1) (700) (1) (600)
-------------------------------------------
-------------------------------------------
Asset Related Assumptions
Updated Periodically in
Valuation Basis Changes
-------------------------------------------
100 basis point change in
ultimate fixed income
re-investment rates(3) 1,200 (1,700) 1,000 (1,300)
-------------------------------------------
100 basis point change in
future annual returns for
equities(4) 800 (900) 1,100 (1,200)
-------------------------------------------
100 basis point change in
future annual returns for
other non fixed income
assets(5) 2,700 (2,900) 2,100 (2,300)
-------------------------------------------
100 basis point change in
equity volatility assumption
for stochastic segregated
fund modeling(6) (300) (1) (1) (1)
-------------------------------------------------------------------------
(1) Sensitivities not provided.
(2) Changes in market interest rates reflect a change to the current
market interest rates, but assume that ultimate long-term fixed
income re-investment rates ("URRs") for new investments are
unchanged. All interest rates are assumed to move in parallel (i.e.,
government bond rates, swap rates, corporate bond rates and other
debt rates).
(3) The long-term URRs are assumed to be changed, however starting
interest rates are assumed to be current. Current URRs for risk free
bonds in Canada are 2.4% per annum and 4.0% per annum for short and
long-term bonds respectively, and in the U.S. are 2.2% per annum and
4.2% per annum for short and long-tem bonds respectively.
(4) Expected long-term annual market growth assumptions for public
equities pre-dividends for key markets are based on long-term
historic observed experience and are 7.25% per annum in Canada, 8.0%
per annum in the U.S., 5.0% per annum in Japan and 9.5% per annum in
Hong Kong. These returns are then reduced by margins for adverse
deviation to determine net yields used in the valuation.
(5) Other non fixed income assets include commercial real estate, timber
and agricultural real estate, oil and gas, and private equities.
(6) Volatility assumptions for public equities are based on long-term
historic observed experience and are 16.55% per annum in Canada,
15.55% per annum in the U.S., 18.35% per annum in Japan and 34.3% per
annum in Hong Kong.
The increase in the sensitivity to changes in market interest rates is primarily due to the impact of the current lower market interest rates on liabilities with minimum interest guarantees and changes in lapse assumptions. Under Canadian GAAP, we must test a number of prescribed interest scenarios. The interest scenario we have adopted uses the structure of the prescribed scenario that currently produces the highest policy liability, which is a gradual decline in market interest rates from current market levels to lower assumed ultimate re-investment rates over 20 years, with additional prudence introduced through use of lower ultimate re-investment rates than the maximum levels permitted. The decrease in sensitivity to public equity market values reflects the impact of significantly improved equity markets in 2009, which has both reduced the liability for existing segregated fund guarantees and reduced the sensitivity of this liability to changes in equity market levels. Additional sensitivity reduction resulted from the increase in the amount of business that is hedged. Sensitivity to other non fixed income assets has increased from 2008 due to additional acquisitions of non fixed income assets in 2009 in support of the Company's long-term investment strategy and the inclusion of the impact of future income taxes.
Review of Actuarial Methods and Assumptions
The comprehensive 2009 review of valuation methods and assumptions was completed in the third quarter of 2009. In previous years, the review was completed in the fourth quarter.
The 2009 review of the actuarial methods and assumptions underlying policy liabilities produced a net increase in the policy liabilities of $1,064 million in the third quarter. Net of the impacts on participating surplus and minority interests, this resulted in a decrease in net income attributed to shareholders of $783 million after tax. Year-to-date, the net increase in policy liabilities from valuation method and assumptions reviews is $1,562 million, with an after tax decrease of $1,139 million in net income attributed to shareholders.
Impact of 2009 Q3 Changes in Assumptions and Methodology (by category)
(Canadian $ in millions)
-------------------------------------------------------------------------
Assumption Post-tax Description
Policy Shareholders' (pre-tax reserve impact)
Liabilities Income
Increase Increase
(Decrease) (Decrease)
-------------------------------------------------------------------------
Mortality / $392 $(260) Driven by increases due to
morbidity impact from higher projected
net long-term care claims
costs. Partially offsetting
these increases were
reductions from mortality
releases in Japan and the
Reinsurance Division.
-------------------------------------------------------------------------
Lapses and 1,245 (829) Pre-tax $624 (post tax $469)
other policy- of the increase is attributed
holder to the lapse modeling for
behaviour variable annuities in the
U.S. and Japan to better
reflect emerging recent
surrender experience on
policies that are in-the-
money. The balance is due to
strengthening of policy
liabilities for lowering of
expected termination rates
for a number of long duration
protection businesses, most
notably life insurance in
Japan, U.S. and Canada, and
U.S. Group Long-Term Care.
-------------------------------------------------------------------------
Expense (119) 87 This is attributed to
reductions in investment
related expenses across most
business units, partially
offset by a net increase in
projected business maint-
enance expenses primarily in
U.S. Fixed Annuities.
-------------------------------------------------------------------------
Investment (314) 126 There was a material release
returns from the refinement to the
modeling of future investment
and re-investment strategies
in a number of businesses,
most materially Long-Term
Care. Offsetting these
releases were increases in
policy liabilities to reflect
a net reduction in ultimate
re-investment rates for
shorter term investments and
updating equity assumptions
in the stochastic parameters
for variable annuity
business.
-------------------------------------------------------------------------
Other valuation (140) 93 A number of business specific
model method- modeling refinements were
ology and model made to improve the pro-
refinements jection of future cash flows
on in-force business,
resulting in a net decrease
in policy liabilities. These
were partially offset by a
net increase from harmonizing
the modeling of certain asset
related items across
businesses.
-------------------------------------------------------------------------
Total $1,064 $(783)
-------------------------------------------------------------------------
Impact of 2009 Q1 and Q2 Changes in Assumptions and Methodology (by
category)
(Canadian $ in millions)
-------------------------------------------------------------------------
Assumption Post-tax Description
Policy Shareholders' (pre-tax reserve impact)
Liabilities Income
Increase Increase
(Decrease) (Decrease)
-------------------------------------------------------------------------
Mortality / $80 $(52) Increase related to impact
morbidity of assumed future Long-Term
Care experience.
-------------------------------------------------------------------------
Lapses and 178 (178) Pre-tax $182 increase from
other policy- updates to Japan variable
holder annuity partial withdrawal
behaviour assumption.
-------------------------------------------------------------------------
Expense (19) 13
-------------------------------------------------------------------------
Investment
returns (12) 9
-------------------------------------------------------------------------
Other valuation 271 (148) Pre-tax $221 increase from
model method- refinements to segregated
ology and model fund guarantee reserve
refinements methodology.
-------------------------------------------------------------------------
Total $498 $(356)
-------------------------------------------------------------------------
Goodwill
Goodwill is tested at least annually for impairment. Goodwill impairment testing will reflect the plans related to the repositioning of our variable annuity business. Any potential impairment of goodwill, which could be material, is identified by comparing the estimated fair value of a reporting unit to its carrying value.
Accounting Adjustment
During the first quarter of 2009, the Company identified errors originating primarily from periods prior to our purchase of John Hancock. The result of these errors included an understatement of policy liabilities of $182 million, approximately half of which should have been recorded at the April 2004 purchase date and the other half should have been recorded subsequently. In addition, there was a net understatement of future income tax liabilities of $47 million, which includes amounts relating mostly to periods prior to acquisition, partially offset by the future taxes related to the amounts described above. Because these errors are not material to the financial statements for prior years, but correcting them in the first quarter would have materially distorted that quarter's results, the Company has corrected the errors by reducing opening retained earnings as at January 1, 2007 by $229 million.
Accounting Changes
There have not been any significant changes to our accounting policies in 2009.
Future Changes in Accounting Policy
Transition to International Financial Reporting Standards ("IFRS")
Publicly accountable enterprises in Canada are required to adopt IFRS for periods beginning on or after January 1, 2011. The Company will adopt IFRS in its quarterly and annual reports starting with the first quarter of 2011 and will provide corresponding comparative financial information for 2010.
The Company is currently assessing the first time adoption and transitional options under IFRS. No IFRS accounting policy decisions or elections have been finalized to date and, until this process is complete, the impact of adopting IFRS on the Company's future financial position and future results cannot be reasonably determined.
The international financial reporting standard that addresses the measurement of insurance contracts is currently being developed and is not expected to be in place by January 1, 2011. Therefore, upon initial adoption of IFRS the Company will continue to measure insurance liabilities using the Canadian Asset Liability Method ("CALM"). Under CALM, the measurement of actuarial liabilities is based on the carrying value of assets required to support those liabilities. Consistent with the results of the adoption of CICA Handbook Section 3855, when IFRS is adopted any change in the carrying value of the invested assets that support insurance liabilities will be offset by a corresponding change in reserves and therefore is not expected to have a material impact on net income.
Our transition status is currently on-track in accordance with our overall implementation plan.
Based on the analysis performed to date, we do not expect significant impacts to the financial statements upon adoption of IFRS in 2011. Some presentation differences will arise as we expect additional assets and liabilities from off-balance sheet investments to be consolidated and reinsurance balances will be presented on a gross basis. Minor measurement differences are expected to arise for: products that do not meet the definition of insurance; certain invested assets including real estate, agricultural assets and leveraged leases; and for certain hedge relationships. In addition, certain changes to tax accounting, including the tax effects of the above noted changes, are expected to arise. We are currently evaluating the potential financial statement impact of these and other accounting differences.
As mentioned above, the IFRS standard for insurance contracts is currently being developed. We do not expect that it will become effective, and therefore adopted, until at least 2013. Depending on the requirements of the final standard, its adoption could have a material adverse effect on the Company's reported financial results or on its position relative to that of other Canadian and international financial institutions with which it competes for business and capital.
Disclosure about Financial Instruments
In June 2009, the CICA adopted the amendments to IFRS 7 "Financial Instruments: Disclosures", issued in March 2009. The amendments were incorporated into Section 3862 "Financial Instruments - Disclosures", and introduce a three-level fair value disclosure hierarchy that distinguishes fair value measurements by the significance of the inputs used for valuation. In addition, the amendments enhance disclosure requirements on the nature and extent of liquidity risk arising from financial instruments to which an entity is exposed. The amendments will be effective for the Company's December 31, 2009 financial statements.
Impairment and Classification of Financial Assets
In August 2009, the CICA issued amended Section 3855 "Financial Instruments - Recognition and Measurement" and Section 3025 "Impaired Loans" to reduce differences with IFRS. The amendments remove the distinction between debt securities and other debt instruments for purposes of categorization, allowing debt securities not quoted in an active market to be categorized as loans and receivables and measured at amortized cost. Loans and receivables expected to be sold immediately or in the near term will be classified as trading, and loans and receivables for which the Company may not recover substantially all of its initial investment, other than because of credit deterioration, must be classified as AFS. Impairments for debt securities classified as loans will be assessed and recorded using the incurred credit loss model of Section 3025. The amendments require reversal of impairment losses on debt instruments classified as AFS when the fair value subsequently increases and the increase can be objectively related to an event occurring after the impairment loss was recognized. These amendments will be effective for the Company's December 31, 2009 financial statements and will require retroactive application to January 1, 2009. The impact of adopting these amendments is being assessed.
Transactions with Related Parties
In its capacities as an investor and as an investment manager, the Company has relationships with various types of entities, some of which are VIEs. Note 18 of the annual consolidated financial statements on pages 89 to 91 of our 2008 Annual Report describes the entities with which the Company has significant relationships. There were no significant changes to these relationships during the nine months ended September 30, 2009.
COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is regularly involved in legal actions, both as a defendant and as a plaintiff. The legal actions naming the Company as a defendant ordinarily involve its activities as a provider of insurance protection and wealth management products, as well as an investment adviser, employer and taxpayer. In addition, government and regulatory bodies in Canada, the United States and Asia regularly make inquiries and, from time to time, require the production of information or conduct examinations concerning the Company's compliance with, among other things, insurance laws, securities laws, and laws governing the activities of broker-dealers.
The Company announced on June 19, 2009 that it had received an enforcement notice from staff of the Ontario Securities Commission ("OSC") relating to its disclosure before March 2009 of risks related to its variable annuity guarantee and segregated funds business. The notice indicates that it is the preliminary conclusion of OSC staff that the Company failed to meet its continuous disclosure obligations related to its exposure to market price risk in its segregated funds and variable annuity guaranteed products. The Company has the opportunity to respond to the notice before OSC staff makes a decision whether to commence proceedings. The Company has responded to the notice and is cooperating with OSC staff in responding to further inquiries. The process is ongoing.
The Company may become subject to regulatory or other action by regulatory authorities in other jurisdictions based on similar allegations. The Company is not currently aware that any other regulatory body is considering commencing proceedings based on the Company's disclosure obligations. However, there can be no assurance that additional regulatory proceedings will not be commenced in the future.
Proposed class action law suits against the Company have been filed in Canada and the United States, on behalf of investors in those jurisdictions, based on similar allegations. The Company may become subject to other similar law suits by investors.
The Company believes that its disclosure satisfied applicable disclosure requirements and intends to vigorously defend itself against any claims based on these allegations.
Plaintiffs in class action and other lawsuits against the Company may seek very large or indeterminate amounts, including punitive and treble damages, and the damages claimed and the amount of any probable and estimable liability, if any, may remain unknown for substantial periods of time. A substantial legal liability or a significant regulatory action could have a material adverse effect on the Company's business, results of operations, financial condition and capital position and adversely affect its reputation. Even if the Company ultimately prevails in the litigation, regulatory action or investigation, it could suffer reputational harm, which could have an adverse effect on its business, results of operations, financial condition and capital position, including its ability to attract new customers, retain current customers and recruit and retain employees.
Tax Related Contingency
The Company is an investor in leveraged leases and has established provisions for possible disallowance of the tax treatment and for interest on past due taxes. During the nine months ended September 30, 2009, we recorded additional charges of US$170 million after tax related to these investments. We continue to believe that deductions originally claimed in relation to these arrangements are appropriate. Although not expected to occur, should the tax attributes of our leveraged leases be fully denied, the maximum after tax exposure including interest would be an additional estimated US$276 million as at September 30, 2009.
Changes in Internal Control over Financial Reporting
During the nine months ended September 30, 2009, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Quarterly Financial Information (unaudited)
The following table provides summary information related to our eight most recently completed quarters:
As at and for the
three months ended
(Canadian $ in
millions, except Sept 30, June 30, Mar. 31, Dec. 31, Sept 30,
per share amounts) 2009 2009 2009 2008 2008
-------------------------------------------------------------------------
Revenue
Premium income
Life and health insurance(1) $3,601 $3,591 $4,278 $4,460 $4,017
Annuities and pensions 1,922 2,129 2,694 2,562 1,841
-------------------------------------------------------------------------
Total premium income $5,523 $5,720 $6,972 $7,022 $5,858
Investment income 2,082 2,061 1,837 1,786 1,750
Realized and unrealized
(losses) gains on assets
supporting policy liabilities
and consumer notes(2) 4,661 2,145 (2,103) 1,519 (3,150)
Other revenue 1,486 1,459 1,293 1,323 1,369
-------------------------------------------------------------------------
Total revenue $13,752 $11,385 $7,999 $11,650 $5,827
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income (loss) before income
taxes $(701) $1,695 $(2,127) $(2,596) $677
Income tax recovery (expense) 563 89 1,056 727 (170)
-------------------------------------------------------------------------
Net income (loss) $(138) $1,784 $(1,071) $(1,869) $507
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss) available
to shareholders $(172) $1,774 $(1,068) $(1,870) $510
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings (loss) per
common share $(0.12) $1.09 $(0.67) $(1.24) $0.34
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings (loss) per
common share $(0.12) $1.09 $(0.67) $(1.24) $0.33
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segregated funds deposits $6,091 $7,391 $8,259 $8,847 $7,689
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets - general fund $208,075 $207,768 $214,055 $211,025 $181,914
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segregated funds net assets $188,148 $178,161 $164,464 $165,380 $166,098
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average common
shares (in millions) 1,615 1,611 1,610 1,519 1,492
-------------------------------------------------------------------------
Diluted weighted average
common shares (in millions) 1,615 1,616 1,610 1,519 1,503
-------------------------------------------------------------------------
Dividends per common share $0.13 $0.26 $0.26 $0.26 $0.26
-------------------------------------------------------------------------
CDN$ to $1US - Balance Sheet 1.0722 1.1625 1.2602 1.2246 1.0599
-------------------------------------------------------------------------
CDN$ to $1US - Statement of
Operations 1.0979 1.1668 1.2456 1.2118 1.0411
-------------------------------------------------------------------------
June 30, Mar. 31, Dec. 31,
2008 2008 2007
-------------------------------------------------------
Revenue
Premium income
Life and health insurance(1) $3,865 $3,679 $3,795
Annuities and pensions 1,507 1,321 1,504
-------------------------------------------------------
Total premium income $5,372 $5,000 $5,299
Investment income 2,230 2,328 2,412
Realized and unrealized
(losses) gains on assets
supporting policy liabilities
and consumer notes(2) (1,462) (703) 1,163
Other revenue 1,418 1,343 1,404
-------------------------------------------------------
Total revenue $7,558 $7,968 $10,278
-------------------------------------------------------
-------------------------------------------------------
Income (loss) before income
taxes $1,345 $1,151 $1,358
Income tax recovery (expense) (347) (290) (284)
-------------------------------------------------------
Net income (loss) $998 $861 $1,074
-------------------------------------------------------
-------------------------------------------------------
Net income (loss) available
to shareholders $1,008 $869 $1,144
-------------------------------------------------------
-------------------------------------------------------
Basic earnings (loss) per
common share $0.67 $0.57 $0.76
-------------------------------------------------------
-------------------------------------------------------
Diluted earnings (loss) per
common share $0.66 $0.57 $0.75
-------------------------------------------------------
-------------------------------------------------------
Segregated funds deposits $8,472 $9,197 $9,043
-------------------------------------------------------
-------------------------------------------------------
Total assets - general fund $180,071 $182,153 $176,458
-------------------------------------------------------
-------------------------------------------------------
Segregated funds net assets $176,395 $175,248 $175,544
-------------------------------------------------------
-------------------------------------------------------
Weighted average common
shares (in millions) 1,497 1,498 1,502
-------------------------------------------------------
Diluted weighted average
common shares (in millions) 1,508 1,509 1,515
-------------------------------------------------------
Dividends per common share $0.24 $0.24 $0.24
-------------------------------------------------------
CDN$ to $1US - Balance Sheet 1.0186 1.0279 0.9881
-------------------------------------------------------
CDN$ to $1US - Statement of
Operations 1.0101 1.0042 0.9810
-------------------------------------------------------
(1) At the end of the first quarter of 2009, Canadian Group Benefits
entered into an external reinsurance agreement which resulted in a
substantial reduction in net premium revenue reported on the income
statement.
(2) For fixed income assets supporting policy liabilities, equities
supporting pass through products and derivatives related to variable
annuity hedging programs, the impact of realized and unrealized
(losses) gains on the assets is largely offset in the change in
actuarial liabilities.
Quarterly Dividend
Our Board of Directors approved a quarterly shareholders' dividend of $0.13 per share on the common shares of MFC, payable on or after December 21, 2009 to shareholders of record at the close of business on November 17, 2009.
The Board also declared dividends on the following non-cumulative preferred shares, payable on or after December 19, 2009 to shareholders of record at the close of business on November 17, 2009.
- Class A Shares Series 1 - $0.25625 per share
- Class A Shares Series 2 - $0.29063 per share
- Class A Shares Series 3 - $0.28125 per share
- Class A Shares Series 4 - $0.4125 per share
- Class 1 Shares Series 1 - $0.35 per share
Performance and Non-GAAP Measures
We use a number of non-GAAP financial measures to measure overall performance and to assess each of our businesses. Non-GAAP measures include: Normalized Earnings, Adjusted Earnings from Operations, Return on Common Shareholders' Equity; Premiums and Deposits; Premiums and Premium Equivalents; Funds under Management; Capital and Sales. Non-GAAP financial measures are not defined terms under GAAP and, therefore, are unlikely to be comparable to similar terms used by other issuers. Therefore, they should not be considered in isolation or as a substitute for any other financial information prepared in accordance with GAAP.
In our second quarter report in the section entitled "Normalized Earnings", the Company estimated Normalized Earnings for the third and fourth quarters in 2009 and all quarters in 2010, which constitutes forward-looking information, in accordance with the methods outlined under "Financial Highlights - Normalized Earnings and Adjusted Earnings from Operations" above. In this report, we have compared our estimate of normalized earnings with the adjusted earnings from operations for the third quarter excluding specified items that were excluded in arriving at our estimate of normalized earnings. The Company believes these measures are useful to investors given the current economic conditions including the volatility of equity markets, interest rates and other factors.
Return on common shareholders' equity is a profitability measure that presents the net income available to common shareholders as a percentage of the capital deployed to earn the income. The Company calculates return on common shareholders' equity using average common shareholders' equity excluding Accumulated Other Comprehensive Income (Loss) on available-for-sale securities and cash flow hedges.
Premiums and deposits is a measure of top line growth. The Company calculates premiums and deposits as the aggregate of (i) premiums and premium equivalents (see below), (ii) segregated fund deposits, excluding seed money, (iii) mutual fund deposits, (iv) deposits into institutional advisory accounts, and (v) other deposits in other managed funds.
Premiums and premium equivalents are part of premiums and deposits. The Company calculates premiums and premium equivalents as the aggregate of (i) general fund premiums net of reinsurance, reported as premiums on the Statement of Operations, (ii) premium equivalents for administration only group benefit contracts and (iii) premiums in the Canadian Group Benefit's reinsurance ceded agreement.
Funds under management is a measure of the size of the Company. It represents the total of the invested asset base that the Company and its customers invest in.
The definition we use for capital serves as a foundation of our capital management activities at the MFC level. For regulatory reporting purposes, the numbers are further adjusted for various additions or deductions to capital as mandated by the guidelines used by OSFI. Capital is calculated as the sum of: total equity excluding Accumulated Other Comprehensive Income (Loss) on cash flow hedges; non-controlling interest in subsidiaries; and liabilities for preferred shares and capital instruments excluding $550 million of subordinated debentures issued to Manulife Finance (Delaware) LLC.
Sales are measured according to product type.
(i) For total individual insurance, sales include 100 per cent of new annualized premiums and 10 percent of both excess and single premiums. For individual insurance, new annualized premiums reflect the annualized premium expected in the first year of a policy that requires premium payments for more than one year. Sales are reported gross before the impact of reinsurance. Single premium is the lump sum premium from the sale of a single premium product, e.g. travel insurance.
(ii) For group insurance, sales include new annualized premiums and administrative services only premium equivalents on new cases, as well as the addition of new coverages and amendments to contracts, excluding rate increases.
(iii) For individual wealth management contracts, all new deposits are reported as sales. This includes individual annuities, both fixed and variable; segregated fund products; mutual funds; college savings 529 plans; and authorized bank loans and mortgages.
(iv) For group pensions/retirement savings, sales of new regular premiums and deposits reflect an estimate of expected deposits in the first year of the plan with the Company. Single premium sales reflect the assets transferred from the previous plan provider. Sales include the impact of the addition of a new division or of a new product to an existing client. Total sales include both new regular and single premiums and deposits.
The Company also uses financial performance measures that are prepared on a constant currency basis, which exclude the impact of currency fluctuations. Quarterly amounts stated on a constant currency basis in this report are calculated, as appropriate, using the income statement and balance sheet exchange rates effective for the third quarter of 2008.
Caution Regarding Forward-Looking Statements
This document contains forward-looking statements within the meaning of the "safe harbour" provisions of Canadian provincial securities laws and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements with respect of our estimated adjusted earnings from operations referred to above under "Financial Highlights - Normalized Earnings and Adjusted Earnings from Operations". The forward-looking statements in this document also relate to, among other things, our objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as "may", "will", "could", "should", "would", "likely", "suspect", "outlook", "expect", "intend", "estimate", "anticipate", "believe", "plan", "forecast", "objective", "continue", "embark" and "endeavour" (or the negative thereof) and words and expressions of similar import, and include statements concerning possible or assumed future results. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements and they should not be interpreted as confirming market or analysts' expectations in any way. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from expectations include but are not limited to: general business and economic conditions (including but not limited to performance of equity markets, interest rate fluctuations and movements in credit spreads, currency rates, investment losses and defaults, market liquidity and creditworthiness of guarantors, reinsurers and counterparties); Company liquidity, including the availability of financing to satisfy existing financial liabilities on their expected maturity dates when required; changes in laws and regulations; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; accuracy of estimates used in applying accounting policies and actuarial methods used by the Company; the ability to implement effective hedging strategies; the ability to maintain the Company's reputation; legal and regulatory proceedings; level of competition and consolidation; the ability to adapt products and services to the changing market; the ability to attract and retain key executives; acquisitions and the ability to complete acquisitions including the availability of equity and debt financing for this purpose; the ability to execute strategic plans and changes to strategic plans; the disruption of or changes to key elements of the Company's or public infrastructure systems; and environmental concerns. Additional information about material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the body of this document as well as under "Risk Factors" in our most recent Annual Information Form, under "Risk Management" and "Critical Accounting and Actuarial Policies" in the Management's Discussion and Analysis in our most recent annual and interim reports, in the "Risk Management" note to consolidated financial statements in our most recent annual and interim reports and elsewhere in our filings with Canadian and U.S. securities regulators. We do not undertake to update any forward-looking statements except as required by law.
About Manulife Financial
Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners. Funds under management by Manulife Financial and its subsidiaries were Cdn$436.5 billion (US$407.1 billion) as at September 30, 2009. Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and under '945' on the SEHK. Manulife Financial can be found on the Internet at www.manulife.com.
Attachments: Financial Highlights, Consolidated Statements of Operations, Consolidated Balance Sheets, Divisional Information.
Financial Highlights
(Canadian $ in millions unless otherwise stated and per share
information, unaudited)
As at and for the three months ended
September 30
2009 2008 % Change
-------------------------------------------------------------------------
Net income (loss) $ (138) $ 507 -
Net income (loss) attributed to
participating policyholders 34 (3) -
-------------------------------------------------------------------------
Net income (loss) attributed to
shareholders $ (172) $ 510 -
Preferred share dividends (21) (7) 200
-------------------------------------------------------------------------
Net income (loss) available to common
shareholders $ (193) $ 503 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Premiums and deposits:
Life and health insurance premiums(1) $ 3,601 $ 4,017 (10)
Annuity and pension premiums excluding
variable annuities 1,758 1,157 52
Segregated fund deposits excluding
variable annuities 4,370 4,367 -
Mutual fund deposits 2,118 2,173 (3)
Institutional advisory account
deposits 758 1,646 (54)
ASO premium equivalents 635 601 6
Group Benefits ceded(1) 909 - -
Other fund deposits 204 123 66
-------------------------------------------------------------------------
Premiums and deposits excluding
variable annuities $ 14,353 $ 14,084 2
-------------------------------------------------------------------------
Variable annuities premium and deposits 1,885 4,006 (53)
-------------------------------------------------------------------------
Total premiums and deposits $ 16,238 $ 18,090 (10)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Funds under management:
General fund $188,465 $165,163 14
Segregated funds 187,582 165,488 13
Mutual funds 32,310 28,213 15
Institutional advisory accounts 21,235 20,304 5
Other funds 6,952 6,112 14
-------------------------------------------------------------------------
Total funds under management $436,544 $385,280 13
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital
Liabilities for preferred shares and
qualifying capital instruments $ 4,043 $ 3,043 33
Non-controlling interest in
subsidiaries 216 167 29
Equity
Participating policyholders' equity 103 61 69
Shareholders' equity
Preferred shares 1,419 638 122
Common shares 16,444 13,943 18
Contributed surplus 176 156 13
Retained earnings(2) 12,289 15,116 (19)
Accumulated other comprehensive
income (loss) on AFS securities
and translation of net foreign
operations (3,950) (4,868) (19)
-------------------------------------------------------------------------
Total capital $ 30,740 $ 28,256 9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Selected key performance measures:
Basic earnings (loss) per common share $ (0.12) $ 0.34
Diluted earnings (loss) per common
share $ (0.12) $ 0.33
Return on common shareholders' equity
(annualized)(3) (3.0)% 8.2%
Book value per common share $ 15.30 $ 16.26
Common shares outstanding (in millions)
End of period 1,623 1,492
Weighted average - basic 1,615 1,492
Weighted average - diluted 1,615 1,503
(1) At the end of the first quarter of 2009, Canadian Group Benefits
entered into an external reinsurance agreement which resulted in a
substantial reduction in net premium revenue reported in the income
statement. The Company continues to retain certain benefits and
certain risks on this business and the associated direct premiums
continue to be included in the overall premiums and deposits metric
as "Group Benefits ceded".
(2) Opening retained earnings at January 1, 2008 have been reduced by
$229 relating to an understatement of policy liabilities and an
understatement of future income tax liabilities relating primarily to
periods prior to the merger with John Hancock Financial Services,
Inc. in April 2004.
(3) Return on common shareholders' equity is net income (loss) available
to common shareholders divided by average common shareholders' equity
excluding accumulated other comprehensive income (loss) on AFS
securities and cash flow hedges.
Summary Consolidated Financial Statements
Consolidated Statements of Operations
(Canadian $ in millions except per share information, unaudited)
For the three
months ended
September 30
2009 2008
-------------------------------------------------------------------------
Revenue
Premium income(1) $ 5,523 $ 5,858
Investment income
Investment income 2,082 1,750
Realized/ unrealized gain (losses) on assets
supporting policy liabilities and consumer
notes 4,661 (3,150)
Other revenue 1,486 1,369
-------------------------------------------------------------------------
Total revenue $ 13,752 $ 5,827
-------------------------------------------------------------------------
Policy benefits and expenses
To policyholders and beneficiaries
Death, disability and other claims(1) $ 1,026 $ 1,653
Maturity and surrender benefits 1,339 1,841
Annuity payments 749 744
Policyholder dividends and experience rating
refunds 344 392
Net transfers to segregated funds 449 377
Change in actuarial liabilities(2) 8,094 (2,303)
General expenses 883 899
Investment expenses 236 231
Commissions 999 1,008
Interest expense 279 237
Premium taxes 71 68
Non-controlling interest in subsidiaries (16) 3
-------------------------------------------------------------------------
Total policy benefits and expenses $ 14,453 $ 5,150
-------------------------------------------------------------------------
Income (loss) before income taxes $ (701) $ 677
Income tax recovery (expense) 563 (170)
-------------------------------------------------------------------------
Net income (loss) $ (138) $ 507
Net income (loss) attributed to participating
policyholders 34 (3)
-------------------------------------------------------------------------
Net income (loss) attributed to shareholders $ (172) $ 510
Preferred share dividends (21) (7)
-------------------------------------------------------------------------
Net income (loss) available to common shareholders $ (193) $ 503
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings (loss) per common share $ (0.12) $ 0.34
Diluted earnings (loss) per common share $ (0.12) $ 0.33
(1) At the end of the first quarter of 2009, Canadian Group Benefits
entered into an external reinsurance agreement which resulted in a
substantial reduction in net premium revenue reported in the income
statement. The Company continues to retain certain benefits and
certain risks on this business.
(2) Includes impact of scheduled maturities in John Hancock Fixed
Products institutional annuity contracts of $0.2 billion in Q3 2009
and $0.6 billion in Q3 2008.
Consolidated Balance Sheets
(Canadian $ in millions, unaudited)
As at September 30
Assets 2009(1) 2008(1)
-------------------------------------------------------------------------
Invested assets
Cash and short-term securities $ 19,462 $ 11,626
Securities
Bonds 84,053 72,101
Stocks 10,437 9,431
Loans
Mortgages 30,718 28,948
Private placements 23,149 23,489
Policy loans 6,666 6,408
Bank loans 2,470 2,285
Real estate 5,989 5,628
Other investments 5,521 5,247
-------------------------------------------------------------------------
Total invested assets $188,465 $165,163
-------------------------------------------------------------------------
Other assets
Accrued investment income $ 1,628 $ 1,590
Outstanding premiums 753 763
Goodwill 7,252 7,078
Intangible assets 2,036 1,869
Derivatives 4,388 2,379
Miscellaneous 3,553 3,072
-------------------------------------------------------------------------
Total other assets $ 19,610 $ 16,751
-------------------------------------------------------------------------
Total assets $208,075 $181,914
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segregated funds net assets $188,148 $166,098
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and equity
-------------------------------------------------------------------------
Policy liabilities $144,201 $126,653
Deferred realized net gains 108 106
Bank deposits 15,295 11,030
Consumer notes 1,345 1,690
Long-term debt 4,303 2,247
Future income tax liability 989 2,527
Derivatives 3,274 2,264
Other liabilities 7,396 6,696
-------------------------------------------------------------------------
$176,911 $153,213
Liabilities for preferred shares and capital
instruments 4,593 3,578
Non-controlling interest in subsidiaries 216 167
Equity
Participating policyholders' equity 103 61
Shareholders' equity
Preferred shares 1,419 638
Common shares 16,444 13,943
Contributed surplus 176 156
Retained earnings 12,289 15,116
Accumulated other comprehensive loss (4,076) (4,958)
-------------------------------------------------------------------------
Total equity $ 26,355 $ 24,956
-------------------------------------------------------------------------
Total liabilities and equity $208,075 $181,914
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segregated funds net liabilities $188,148 $166,098
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Opening retained earnings at January 1, 2008 have been reduced by
$229 relating to an understatement of policy liabilities and an
understatement of future income tax liabilities relating primarily to
periods prior to the merger with John Hancock Financial Services,
Inc. in April 2004.
Notes to Summary Consolidated Financial Statements
(Canadian $ in millions, unaudited)
Note 1: Divisional Information
For the quarter ended September 30, 2009
---------------------------------------------
U.S.
U.S. Wealth Asia and
Premiums and deposits Insurance Management Canadian Japan
-------------------------------------------------------------------------
General fund premiums
excluding variable
annuities(1) $ 1,722 $ 1,200 $ 1,135 $ 1,035
Segregated fund deposits
excluding variable
annuities 298 3,111 515 446
Mutual fund deposits - 1,807 114 197
Institutional advisory account
deposits - - - -
ASO premium equivalents - - 635 -
Group Benefits ceded(1) - - 909 -
Other fund deposits - 204 - -
Variable annuities premiums
and deposits - 847 767 271
-------------------------------------------------------------------------
Total $ 2,020 $ 7,169 $ 4,075 $ 1,949
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss) $ (601) $ 593 $ 141 $ 423
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Funds under management As at September 30, 2009
-------------------------------------------------------------------------
General fund $ 55,748 $ 36,844 $ 59,639 $ 25,775
Segregated funds 10,548 112,213 34,869 27,409
Mutual funds - 24,028 6,571 1,711
Institutional advisory
accounts - - - -
Other funds - 3,447 - 3,505
-------------------------------------------------------------------------
Total $ 66,296 $176,532 $101,079 $ 58,400
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the quarter ended September 30, 2009
---------------------------------------------
Corporate
and
Premiums and deposits Reinsurance Other Total
--------------------------------------------------------------
General fund premiums
excluding variable
annuities(1) $ 267 $ - $ 5,359
Segregated fund deposits
excluding variable
annuities - - 4,370
Mutual fund deposits - - 2,118
Institutional advisory account
deposits - 758 758
ASO premium equivalents - - 635
Group Benefits ceded(1) - - 909
Other fund deposits - - 204
Variable annuities premiums
and deposits - - 1,885
--------------------------------------------------------------
Total $ 267 $ 758 $ 16,238
--------------------------------------------------------------
--------------------------------------------------------------
Net income (loss) $ 65 $ (759) $ (138)
--------------------------------------------------------------
--------------------------------------------------------------
Funds under management As at September 30, 2009
--------------------------------------------------------------
General fund $ 2,745 $ 7,714 $ 188,465
Segregated funds - 2,543 187,582
Mutual funds - - 32,310
Institutional advisory
accounts - 21,235 21,235
Other funds - - 6,952
--------------------------------------------------------------
Total $ 2,745 $ 31,492 $ 436,544
--------------------------------------------------------------
--------------------------------------------------------------
For the quarter ended September 30, 2008
---------------------------------------------
U.S.
U.S. Wealth Asia and
Premiums and deposits Insurance Management Canadian Japan
-------------------------------------------------------------------------
General fund premiums
excluding variable annuities $ 1,479 $ 911 $ 1,669 $ 843
Segregated fund deposits
excluding variable annuities 363 3,117 432 455
Mutual fund deposits - 2,042 104 27
Institutional advisory account
deposits - - - -
ASO premium equivalents - - 601 -
Other fund deposits - 123 - -
Variable annuities premiums
and deposits - 2,174 988 844
-------------------------------------------------------------------------
Total $ 1,842 $ 8,367 $ 3,794 $ 2,169
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss) $ 311 $ (27) $ 112 $ 214
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Funds under management As at September 30, 2008
-------------------------------------------------------------------------
General fund $ 49,462 $ 35,156 $ 51,563 $ 17,469
Segregated funds 10,439 101,301 29,851 21,260
Institutional advisory accounts - - - -
Mutual funds - 24,152 2,786 1,275
Other funds - 3,482 - 2,630
-------------------------------------------------------------------------
Total $ 59,901 $164,091 $ 84,200 $ 42,634
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the quarter ended September 30, 2008
---------------------------------------------
Corporate
and
Premiums and deposits Reinsurance Other Total
--------------------------------------------------------------
General fund premiums
excluding variable annuities $ 272 $ - $ 5,174
Segregated fund deposits
excluding variable annuities - - 4,367
Mutual fund deposits - - 2,173
Institutional advisory account
deposits - 1,646 1,646
ASO premium equivalents - - 601
Other fund deposits - - 123
Variable annuities premiums
and deposits - - 4,006
--------------------------------------------------------------
Total $ 272 $ 1,646 $ 18,090
--------------------------------------------------------------
--------------------------------------------------------------
Net income (loss) $ 49 $ (152) $ 507
--------------------------------------------------------------
--------------------------------------------------------------
Funds under management As at September 30, 2008
--------------------------------------------------------------
General fund $ 2,623 $ 8,890 $165,163
Segregated funds - 2,637 165,488
Institutional advisory account - 20,304 20,304
Mutual funds - - 28,213
Other funds - - 6,112
--------------------------------------------------------------
Total $ 2,623 $ 31,831 $385,280
--------------------------------------------------------------
--------------------------------------------------------------
(1) At the end of the first quarter of 2009, Canadian Group Benefits
entered into an external reinsurance agreement which resulted in a
substantial reduction in net premium revenue reported in the income
statement. The Company continues to retain certain benefits and
certain risks on this business and the associated direct premiums
continue to be included in the overall premiums and deposits metric
as "Group Benefits ceded".
Note 2: Comparatives
Certain comparative amounts have been reclassified to conform with the
current period's presentation.
SOURCE Manulife Financial
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Companies: Manulife Financial Corp. (MFC), Manulife Financial Corp. (MFC)
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