Source: The Canadian Press

Shares in Canada’s largest life insurance provider jumped 10% Thursday as investors looked past Manulife Financial Corp.’s large but less severe than expected third-quarter loss and focused on optimism over its reduction to risk exposure.

“We made considerable headway executing our business plan, both in terms of repositioning our business and reducing our equity and interest rate sensitivities,” said president and chief executive Donald Guloien.

Manulife (TSX:MFC) booked a third-quarter loss of $947 million — which amounted to 55 cents per common share. That was actually better than the loss of 73 cents per share analysts had expected.

The insurer’s stock rose $1.23, or 9.5%, to $14.13 in heavy afternoon trading that saw 14.9 shares change hands Thursday on the Toronto Stock Exchange. That’s the highest it has been since the company reported dismal second-quarter results in August.

Manulife’s second-quarter loss of $2.4 billion, or $1.36 per share, resulted in a swift reaction from investors who pummelled its stock down to the lowest level in more than a year. The company took a big hit in the second quarter from the mark-to-market impact of lower equity markets and historically low interest rates that resulted in non-cash charges against the company’s reserve requirements.

Manulife pledged to improve its hedging and reinsurance strategies to offset risks from its heavy exposure to volatile equity markets and lower interest rates that have squeezed its bond investments.

The company reported significant strides during the third quarter to its hedging program and says it is about 54% hedged or reinsured, up from 51% in the last quarter.

Manulife said it reduced its exposure to interest rate sensitivity by 19% during the third quarter. It also put aside $3.3 billion for hedging in its variable annuity business and lowered its equity holdings by $450 million.

Guloien added that the company contributed another $800 million to its hedging program on Thursday.

“Our goal is to execute additional hedges so that approximately 60% of our underlying earnings sensitivity to equity market movements is hedged by the end of 2012,” he said.

Manulife booked a $2-billion charge resulting from an annual review of all actuarial methods and assumptions, which the company uses to estimate its future liabilities and another $1-billion goodwill charge that reflects the impaired value of Manulife’s U.S. insurance business, due to the weak economic outlook and a reposition of that business.

Insurers usually update their assumptions on how changes in things like interest rates, equity returns and mortality rates affect their ability to meet policyholder obligations during the third quarter.

By contrast, rival Sun Life Financial reported that it added about $49 million to its balance sheet from assumption changes made during the quarter.

Sun Life earned $453 million, or 79 cents per share, in the three months ended Sept. 30. That compared with a loss of $140 million, or 25 cents per share, in the same period last year.

Meanwhile, the money Manulife spent on revising assumptions, repositioning its business and updating hedging programs more than offset $1.04 billion in gains from investment activities, including a $569-million gain from the sale of bonds.

Manulife’s total revenue declined to $13.1 billion from $13.7 billion.

Premium income fell to $4.65 billion from $5.52 billion, investment income rose to $3.08 billion from $2.08 billion, gains on assets were $3.87 billion down from $4.66 billion and other revenue was $1.54 billion, up from $1.49 billion.

Manulife’s stock has fallen steadily since the recession hit in 2008 and now sits at about half of where it was in October of that year.

In November 2009, the stock was pummelled by investors reacting to Manulife’s move to raise $2.5 billion in a major stock issue, which the company admitted would be dilutive to shares, but said was necessary to help buffer itself against “more conservative economic scenarios.”

Manulife, with nearly 24,000 employees at the end of 2009, has operations in 22 countries in Canada, the United States, Europe and Asia, where it is rapidly growing its business, especially in China.