Toronto-based Manulife Financial Corp. reported net income of $1.8 billion for the second quarter ended June 30, an increase of 76% compared with net income of $1 billion in Q2 2008.

“We are pleased with the strong earnings, business growth and capital levels reflected in this quarter’s results,” said Donald A. Guloien, president and CEO. “We reported solid performance in almost every area of our business, made progress in rebalancing our product mix, maintained strong asset quality and executed a number of very successful capital raises during and after the close of the quarter.”

Guloien added that although Manulife’s “capital position at the quarter’s end is at satisfactory levels, our capital planning must anticipate more conservative economic scenarios than we are currently experiencing and also provide more flexibility to respond to both risks and opportunities from a continued position of strength. We therefore remain focused on achieving fortress levels of capital in all of our operating businesses, as well as at the consolidated company.”

Manulife’s board of directors also announced its decision to reduce the firm’s quarterly common dividend by 50% to $0.13 per share, effective Sept. 21. Guloien stated that “while we recognize the importance of the cash dividend to many of our common shareholders, we believe that retaining more of our earnings is the most effective means of building capital, while still providing an attractive yield for our shareholders who will benefit as we deploy our capital for growth. We believe that companies that build fortress levels of capital will benefit their policyholders and shareholders and be recognized favourably by regulators and ratings agencies.”

Manulife’s Q2 earnings were primarily driven by the significant increase in global equity markets, which resulted in non-cash gains of $2.6 billion, of which $2.4 billion was related to segregated fund guarantees. Partially offsetting these gains were the impact of lower corporate bond rates and, to a lesser extent, the continued pressure on credit. The decline in interest rates and other fixed income related items resulted in non-cash charges of $1.1 billion, primarily as a result of the lower investment returns assumed in the valuation of policy liabilities.

In addition, credit impairments totaled $109 million, other than temporary impairments on equity investments were $53 million and actuarial related charges for downgrades amounted to $106 million. During the quarter, the company increased its tax-related provisions on leveraged lease investments by $139 million and reported net charges for changes in actuarial methods and assumptions of $87 million. Excluding the aforementioned items, earnings for the quarter totaled $776 million compared with $745 million a year ago.

“While the increase in equity markets in the quarter resulted in a release of a large amount of seg fund guarantee reserves, lower corporate bond rates had a significant adverse impact on the quarter’s results. Canadian actuarial practices require us to reflect the current investment returns on future cash flows in the valuation of our policy liabilities,” noted Michael W. Bell, senior executive vice president and chief financial officer. “In addition, we continue to see emerging unfavourable experience for policyholder behaviour and other actuarial assumptions. During Q2, we strengthened reserves for updated policyholder behaviour assumptions related to partial withdrawals in the Japan variable annuity business.”

Chief operating officer John D. DesPrez III said: “We were pleased with our business growth this quarter. In addition to rebalancing and further de-risking our product mix, we reported strong performance in virtually all non-variable annuity lines of business including insurance, fixed products, banking products, mutual funds, institutional asset management and our group businesses. Total Company sales and new business embedded value showed improvement over the first quarter as market sentiment improved and hedging costs declined. Although the current environment still has its challenges, it also presents significant opportunities for growth, and we remain focused on capitalizing on these opportunities.”

Premiums and deposits were $19.2 billion in the quarter, an increase of 3% from the prior year. Variable annuity and seg fund deposits declined by $1.4 billion from the prior year. This decline was offset by increased premiums from a growth of in-force insurance business and higher sales of fixed return wealth products.

Total funds under management as of June 30 were $420.9 billion, an increase of 5% over the prior year, as net policyholder cash flows of $19.5 billion and favourable currency movements more than offset the market value declines over the past 12 months.