Manulife Financial Corporation Q3 2009 Earnings Call Transcript

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Question-and-Answer Session

Operator

(Operator instructions) First question is from Tom MacKinnon of Scotia Capital. Please go ahead.

Tom MacKinnon – Scotia Capital

Yes, thanks very much; couple questions. First, with respect to the interest rate hits that we’ve seen, is the fact that some of these loan yields sort of picked up right now that interest rates sort of picked up a little bit since the end of the quarter. Could we actually say that maybe we’re at the end of the road in terms of interest rate hits going forward in terms of reserve development there?

And then I have a question with respect to the hedging. The CAD3.8 billion that was hedged in the quarter, what was the cost of that, if that can be disclosed and what was sort of the cost in terms of actually all the hedging that you have done so far this year? Thanks.

Mike Bell

Great. Hi, Tom, It's Mike. I will start with the first question. Your question on interest rates, obviously, it's useful to have interest rates rise. We're obviously pleased that the long bond rates have increased since September 30. Whether this is the end of the road of drops in interest rates and compression on spreads, I think is anybody's guess. But, certainly that movement since September 30^th is useful and would certainly help us in the future. But, again, one month not necessarily a future make, but certainly a positive trend.

Tom MacKinnon – Scotia Capital

Now when you set the reserves do you use the rates that were in effect at the valuation date? Is that correct or what kind of leeway do you have?

Mike Bell

Tom, that is correct that we use the rates as of the valuation date. Now again there's based on the Canadian actuarial practices, we also over time use an ultimate reinvestment rate. But the major driver is the rates and spreads as of September 30^th for the valuation.

Tom MacKinnon – Scotia Capital

Okay. And then with respect to hedging?

Donald Guloien

Bev Margolian to answer that, Tom.

Bev Margolian

Thanks. When we hedged the business we’re hedging it using a dynamic hedging strategy, so we don't know the locked in cost upfront. It's important to know that. So when we estimate based on what we assume to be realized volatility going forward that we will be able to have hedged this business to maintain a healthy profit margin after the cost of hedging and –.

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