Manulife Financial is a large Canadian- based insurance and financial services company, with operations in Canada, United States, and Asia. Like most such companies, Manulife€™s profits are suffering from low interest rates and poor stock market returns following the 2007€“ 2008 market meltdowns. These returns are less than the rates of return assumed by Manulife when setting pre- meltdown premiums for its insurance and other products. Much of the risk of a decline in interest rates and stock returns had not been hedged by Manulife. Subsequently, Manulife is increasing its hedging activity. In its third quarter, 2012, Manulife reported a net loss under IFRS accounting standards of $ 227 million. The company also reported an alternate earnings number, which we interpret as persistent earnings, of $ 556 million for the quarter. Persistent earnings are calculated as follows:

Required
a. Manulife management claims that their persistent earnings calculation gives a better picture of longer- term earnings. Do you agree? Explain.
b. Which earnings measure€” IFRS or persistent earnings€” best helps investors to predict Manulife€™s future earnings performance? Explain.
c. The Conceptual Framework includes reporting on manager stewardship as a goal of financial reporting. Which measure best reports on manager stewardship? Explain.
d. On November 8, 2012, the day of Manulife€™s earnings release, the company€™s share price fell 18 cents to $ 11.82,On the same day, the S& P/ TSX Composite Index fell to 12,197.05, from its open at 12,227.85. Manulife€™s beta, per Reuters Finance at the time, was 1.48. Assume that the daily risk- free interest rate was effectively zero. Assume securities markets efficiency. Also assume that no other significant firm-specific information about Manulife became available on November 8. As evidenced by its share price performance, did the market approve or disapprove of Manulife€™s calculation of persistent earnings? Explain, and showcalculations.

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$(227) Net income per IASB standards Add back eNet fair value losses on unhedged items and $88 longer-term assets and liabilities Actuarial adjustment to increase policy liability reserve due to low interest rates and reduced policy cancellations and lapses 1,006 e limpairment of puchased goodwill due to 200 low interest rates . Gains on hedged items and investments Persistent earnings 783 556