The black box

The third quarter numbers came out this morning and they ain’t pretty. Manulife lost $172 million in the three months ended Sept. 30 despite increased sales, two excellent acquisitions and improved stock markets.

How can you lose money when things are going so well? The answer lies in the first sentence of the news release: actuarial assumptions. Actuaries run a black box operation at all insurance companies figuring out such mysteries as mortality rates so life insurance policies can be priced properly.

Actuaries, it has been said, are accountants without a sense of humour. As such they’re deeply involved in financial results and have tremendous latitude. In this case, if the actuaries so chose, they could have taken the same circumstances and declared Manulife profitable.

But they didn’t because they’re taking the view that all problems should be blamed on the ancien regime led by Dominic D’Alessandro. The new CEO Donald Guloien, argue the actuaries, should have a few “bad” quarters, then they’ll declare he’s achieved a turnaround and start posting positive results.

Hang in investors, better days are ahead. As soon as the actuaries say so.