The Ontario Securities Commission is investigating Manulife Financial Corp. over what Canada's largest insurance company told investors about the risks of its guaranteed fund business.

Manulife says it received an enforcement notice from staff of the provincial regulator this week in connection with its disclosure before March of the risks in its variable annuity guarantee and segregated funds business.

"The OSC notice indicates that it is the preliminary conclusion of OSC staff that the company failed to meet its continuous disclosure obligations related to its exposure to market price risk in its segregated funds and variable annuity guaranteed products," the company said.

Manulife has an opportunity to respond to the notice before the regulator makes a decision on whether to commence proceedings.

"The company believes that its disclosure satisfied applicable disclosure requirements," Manulife said.

Like most financial companies, Manulife was hit hard by the slump in global stock markets, which eroded the value of the company's investments, forcing it to cover shortfalls caused by the guarantees it made on some financial products.

Reserves increased

The carnage on the stock-market carnage has forced Manulife to increase its reserves to pay long-term segregated fund guarantees.

Segregated funds are popular investment vehicles that are similar to mutual funds but contain insurance contracts that limit risk for investors and preserve capital.

Shares in Manulife traded as low as $9.02 earlier this year when the Toronto Stock Exchange hit its low on March 9. Since then, as equity markets have staged a spring rally, Manulife shares have more than doubled.

Shares in the company were up 20 cents at $23.25 on the Toronto Stock Exchange on Friday.

Manulife has reported back-to-back losses of more than $1 billion in its past two quarters.

The company lost $1.07 billion or 67 cents per share in the first three months of 2009, down from a year-ago profit of $869 million or 57 cents per share.

Reserve strengthening to cover long-term segregated fund and annuity guarantees led to a charge of $1.15 billion.

The first-quarter loss followed a fourth-quarter loss of $1.87 billion, driven down by similar financial-market factors.

In a separate statement Friday, Manulife announced it has hired Cigna executive Michael Bell as chief financial officer.

Bell, CFO for the past six years at Cigna, a U.S. health care and benefits company, will join Manulife on Monday.

He replaces Peter Rubenovitch, who is retiring. Manulife also said its minimum continuing capital and surplus requirements are near their highest levels if it were reporting its quarter Friday.

"Manulife has enjoyed great benefit from strengthening equity markets but, at this time, expects a significant portion of this could be offset by actuarial reserve increases reflecting lower corporate bond rates, a more conservative assessment of policyholder behaviour, lower investment returns and other factors," the company said.