Source: The Canadian Press

Insurance giant Manulife Financial Corp. (TSX:MFC) booked a huge, “disappointing” $2.4-billion loss in the second quarter as it took a big hit from the mark-to-market impact of lower equity markets and lower interest rates.

The Toronto-based financial services company said it took non-cash charges for a decline in stock markets adding up to $1.7 billion and similar charges related for lower interest rates — particularly among the corporate and treasury bonds in which Manulife invests — of $1.5 billion during the period.

Nevertheless, the company said its “underlying business performed well,” with higher insurance sales in Asia, Canada and the United States and it vowed to “set out in the next few months our plans to further reduce risk and improve earnings.”

The loss — which amounted to $1.36 per share — contrasted sharply with year-earlier earnings of $1.8 billion or $1.09 per share.

“Our results for the second quarter were disappointing. Lower equity markets and historically low interest rates resulted, on a Canadian GAAP basis, in large non-cash charges in the form of mark-to-market increases to our reserves for policyholder liabilities,” chief executive Donald Guloien said in a statement.

“We would expect to see most of these charges reverse into earnings in the future if interest rates rise and if equity markets grow faster than the long-term growth rates used in the valuation of policy liabilities. In fact, the turnaround in equity markets in July alone, if sustained, should reverse a substantial portion of these losses.”

Chief financial officer Michael Bell added that the company took measures with its capital during the past year that allowed it to withstand the shock of the one-time charges.

“Although persistent low interest rates are a concern across our industry, in accordance with Canadian accounting and actuarial standards, our balance sheet and capital position already reflect most of the potential long-term impact of current interest rates on our in-force business,” Bell said.

Adjusted earnings from operations, an internal measure of business performance, were $658 million, Manulife said.

The company’s shares dropped sharply in early trading on the Toronto Stock Exchange, falling $1.14 or 7% to $14.86.