PrefBlog

Manulife Financial has released its 1Q09 results, so we can take a quick look at their exposures.

Earnings suffered with the markets:

The quarter’s net loss was primarily driven by continued declines across all equity markets, particularly in the U.S. Reserve strengthening for segregated fund guarantees resulted in an accounting charge of $1,146 million and credit impairments were $121 million. Also affecting earnings this quarter were fair value adjustments of $277 million primarily for declines in commercial real estate values, $255 million of equity related charges and $72 million related to credit downgrades. Earnings for the quarter, excluding these items, totaled $803 million and cash provided by operating activities of $2.5 billion reflected the non-cash nature of these charges.
…
In light of continued equity market volatility and sensitivity, the Company conducted a strategic review of its segregated fund product portfolio and started implementing changes to its product offerings in the quarter. In the U.S., fees were increased, deferral bonuses were reduced, additional features were withdrawn, and equity exposure was reduced in several key funds. In Canada, the hedging program for new segregated fund business was successfully implemented at the end of March, and $1.5 billion of inforce business was hedged. New business in North America is now hedged on an ongoing basis.

Does a phrase involving barn doors and stolen horses come to anybody else’s mind, or is it just me?

Exposures:

Despite including this post in the “Regulatory Capital” category of PrefBlog, I will not discuss MCCSR. This figure is useless for analytical purposes, since:

• Corresponding US calculations are not disclosed
• As preferred share investors we are interested in the publicly issued preferred shares, at the holdco level

As noted by DBRS:

The incurrence of debt at the holding company to provide equity capital to operating subsidiaries constitutes double leverage, the use of which should be conservative. The analysis of double leverage requires a review of the unconsolidated financial statements of the holding company, which are generally not in the public domain.

HSBC Bank of Canada has released its 1Q09 Results but full details are not yet available.

I will update when possible.

Sunlife has released its 1Q09 results, so we can take a quick look at their exposures.

Earnings suffered with the markets:

Sun Life Financial Inc.2 reported a net loss attributable to common shareholders of $213 million for the quarter ended March 31, 2009, compared with net income of $533 million in the first quarter of 2008. The Company incurred operating losses of $186 million for the first quarter of 2009 compared with operating earnings of $533 million in the first quarter of 2008. First quarter 2009 earnings were unfavourably impacted by $65 million from changes in the value of the Canadian dollar. Results in the first quarter of 2008 include earnings of $43 million or $0.08 per share from the Company’s 37% ownership interest in CI Financial, which the Company sold in the fourth quarter of 2008. The operating loss for the first quarter of 2009 does not include after-tax charges of $27 million for restructuring costs taken as part of the Company’s efforts to reduce expense levels and improve operational efficiency.

Net losses in the first quarter of 2009 were driven primarily by reserve strengthening, net of hedging, of $325 million related to equity market declines, reserve increases of $167 million for downgrades on the Company’s investment portfolio, equity impairments of $42 million and net credit impairments of $34 million. The Company’s equity hedging program operated as planned, offsetting some of the impact of reserve strengthening related to segregated fund and variable annuity guarantees as a result of volatility in capital markets during the quarter. First quarter results were also unfavourably impacted by increases in actuarial reserves related to the very low interest rate environment reflecting current and prior period experience.

Exposures:

This bit from the Shareholders’ Report is rather interesting:

The estimated impact from these obligations of an immediate parallel increase of 1% in interest rates as at March 31, 2009, across the yield curve in all markets, would be an increase in net income in the range of $125 million to $175 million. Conversely, an immediate 1% parallel decrease in interest rates would result in an estimated decrease in net income in the range of $250 million to $325 million. Interest rate sensitivities increased from prior quarter levels as a result of a number of factors, including increases in actuarial reserves, reflecting current and prior period experience, related to the very low interest rate environment as well as changes in market levels and interest rate hedging during the quarter.

In the first place, the effect is in the opposite direction from that expected, implying that the duration of their assets is less than the duration of their offsetting liabilities. In the second place, figures for 4Q08 were +100 to +150 and -150 to -200, respectively, implying they have increased their mismatch.

Despite including this post in the “Regulatory Capital” category of PrefBlog, I will not discuss MCCSR. This figure is useless for analytical purposes, since:

• Corresponding US calculations are not disclosed
• As preferred share investors we are interested in the publicly issued preferred shares, at the holdco level

As noted by DBRS:

The incurrence of debt at the holding company to provide equity capital to operating subsidiaries constitutes double leverage, the use of which should be conservative. The analysis of double leverage requires a review of the unconsolidated financial statements of the holding company, which are generally not in the public domain.