Some Company Updates
Manulife Financial (MFC) reported a net loss per share of ($0.55), above the consensus of ($0.73). Adjusting for market movements and other abnormal items (largely pre-announced), core EPS was $0.43. In aggregate, the adjusted operating earnings of $760 million fell within the upper-end of management’s guidance range of $700-800M, reflecting the benefit of the higher equity markets and more favorable claims experiences in its US businesses.
Solid capital improvements: The MCCSR (minimum contingency capital solvency ratio) ratio increased 13 points to 234%, reflecting the $2 billion of debt raised in the quarter and the benefit of higher equity markets, which more than offset reserve strengthening related to assumption changes.
Reduced market sensitivity: The company made further progress on reducing its sensitivity to equity and credit markets, hedging an additional $3.3 billion of its in-force variable annuity business, bringing the aggregate amount hedged to 54%, up from 35% at the beginning of the year. In addition, it lengthened the duration of its fixed income investments, reducing its earnings sensitivity to interest rates by 19%, while also raising prices on its UL business to help maintain spreads.
Solid capital improvements: The MCCSR (minimum contingency capital solvency ratio) ratio increased 13 points to 234%, reflecting the $2 billion of debt raised in the quarter and the benefit of higher equity markets, which more than offset reserve strengthening related to assumption changes.
Reduced market sensitivity: The company made further progress on reducing its sensitivity to equity and credit markets, hedging an additional $3.3 billion of its in-force variable annuity business, bringing the aggregate amount hedged to 54%, up from 35% at the beginning of the year. In addition, it lengthened the duration of its fixed income investments, reducing its earnings sensitivity to interest rates by 19%, while also raising prices on its UL business to help maintain spreads.
The Hartford Financial Services Group, Inc. (HIG) reported third quarter 2010 net income of $666 million. HIG's "core" EPS of $1.43 beat consensus of $0.85. The underlying EPS was $0.92, after excluding the $0.34 DAC(deferred acquisition cost) benefit, $0.19 of P&C reserve releases, and $0.02 of net negative items. The Hartford’s new 2010 EPS guidance range is $2.60 to $2.70 up from $2.10 to $2.30. This suggests 4Q’10 EPS of $0.80 to $0.90 vs. the previous guidance of $0.85 to $0.95. The 4Q decline reflects about $0.04 of higher than normal catastrophe losses, driven by severe weather in October.
P&C Commercial net premiums written (NPW) of $1.4 billion increased by 2% from a year ago (ex-a 3Q’09 reinsurance adjustment). Growth was in line with peers. The underlying combined ratio was 92.2% vs. 93.6% in 2Q’10; Price increases continued across all lines. Retention was steady in P&C Commercial, and declined as expected in Consumer Markets.
Life sales increased by 14% from a year ago, driven by universal life. Retirement Plans net flows were $508 million vs. $239 million in 2Q’10 driven by strong deposits and low surrenders. Funds flows in The Hartford's $50 billion-in-assets retirement business were solidly positive.
US statutory surplus grew by $700 million in the quarter to $15.2 billion. This was driven largely by $400 million of variable annuity reserve releases and $300 million of P&C operating earnings. The subsidiaries did pay a $200 million dividend to the holding company. Life statutory earnings (excluding VA) were negative $100 million, driven mainly by an increase in market value adjusted fixed annuity reserves due to the decline in interest rates. The company had a net unrealized gain of $1.2 billion in 3Q’10 vs. a net unrealized loss of $1.5 billion in 2Q’10. Pre-tax net impairment losses were $122 million in 3Q'10, down from $148 million in 2Q'10. The majority of the impairment was from CMBS and CRE CDOs. Total Book Value rose 10.3% to $45.80, and the statutory surplus increased to $15.2 billion.
P&C Commercial net premiums written (NPW) of $1.4 billion increased by 2% from a year ago (ex-a 3Q’09 reinsurance adjustment). Growth was in line with peers. The underlying combined ratio was 92.2% vs. 93.6% in 2Q’10; Price increases continued across all lines. Retention was steady in P&C Commercial, and declined as expected in Consumer Markets.
Life sales increased by 14% from a year ago, driven by universal life. Retirement Plans net flows were $508 million vs. $239 million in 2Q’10 driven by strong deposits and low surrenders. Funds flows in The Hartford's $50 billion-in-assets retirement business were solidly positive.
US statutory surplus grew by $700 million in the quarter to $15.2 billion. This was driven largely by $400 million of variable annuity reserve releases and $300 million of P&C operating earnings. The subsidiaries did pay a $200 million dividend to the holding company. Life statutory earnings (excluding VA) were negative $100 million, driven mainly by an increase in market value adjusted fixed annuity reserves due to the decline in interest rates. The company had a net unrealized gain of $1.2 billion in 3Q’10 vs. a net unrealized loss of $1.5 billion in 2Q’10. Pre-tax net impairment losses were $122 million in 3Q'10, down from $148 million in 2Q'10. The majority of the impairment was from CMBS and CRE CDOs. Total Book Value rose 10.3% to $45.80, and the statutory surplus increased to $15.2 billion.
Aviva trading statement plus strategy update overall positive. In the life business sales up 5% inline with consensus with strength in the UK offset by weakness in Delta-Lloyd and the US. The P&C results look generally better with the overall combined ratio at 97% for the 9M vs 99% in 1H. The UK was a major contributor to the improvement falling to 96%. Capital and cash generation continue to be the focus and the GBP1.5bn target for 2010 remains on track and growing into 2011. On the cost front they announced further savings of GBP200m p.a. plus another 200m of efficiency benefits.
BNP Paribas - reported net income €1905mn 10% above consensus €1743mn (3Q10 EPS reached €1.53 after €1.71 in 2Q) with divisional beats at the PBT line at Personal Financial Services, Belgium & Banc West. While total revenues were 3% better than market expectations (difference mainly coming from the Corporate Center), the cost of risk was slightly above estimates at €1.22 bn (72 bp over loans), 6% higher than expectations. Corporate Investment Banking PBT beat consensus 5% with revenues 4% ahead driven by Equity/Advisory up 95% qoq (equities -3.7%). BNPP estimates the Basel 3 impact on RWA at €70bn, or 11% of current Risk weighted asset versus consensus expectation of a 16% uplift & versus 39% at SocGen. This leaves Basle 3 Common Tier 1 at 9% at end 2012 versus SocGen at 7.5%. Return on tangible equity, adjusted for the Mark to Market of own debt reached 14.5% in 3Q and we expect will reach 15-16% next year.
