A.M. Best Affirms Ratings of Manulife Financial Corporation and Its Subsidiaries
December 18, 2014 by Best's News Service
Oldwick – A.M. Best has affirmed the financial strength ratings (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of the life insurance subsidiaries of Manulife Financial Corporation (MFC) (Toronto, Canada) [NYSE: MFC]. Concurrently, A.M. Best has affirmed the ICR of “a-” as well as all existing debt ratings of MFC. The outlook for all ratings is stable. (See link below for a detailed listing of the companies and ratings.)
The rating affirmations reflect MFC’s favorable earnings in the first three quarters of 2014 due to solid equity market returns and favorable underwriting results, solid risk-adjusted capitalization and strong market position in its core business lines in North America and Asia. The company’s ongoing de-risking initiatives have led to an increased focus on less capital intensive lines of business and resulted in lower volatility in reported earnings. MFC continues to maintain significant scale in its core business lines and has seen growth in assets under management. The rating also reflects The Manufacturers Life Insurance Company’s (MLI) recently announced acquisition of the Canadian-based operations of Standard Life plc. A.M. Best believes the transaction will help to support MLI’s strong market position in Canada, specifically in the Quebec market, while providing an opportunity to further grow its wealth management business globally. The transaction, which is expected to close during the first quarter of 2015, will add scale to MLI’s core business lines in Canada, including group retirement, mutual funds and group benefits.
Offsetting rating factors include MFC’s significant in-force exposure to equity market and interest rate risk, particularly within its insurance segments. Despite the recent de-risking strategies, A.M. Best believes that MFC will continue to face challenges in managing its large book of in-force business given the continued historically low interest rate environment, equity market volatility and insurance regulatory uncertainty in Canada. A.M. Best also remains concerned over MFC’s long-term care book of business, currently written through John Hancock Life Insurance Company (U.S.A.), but notes that the company is currently only selling de-risked and repriced retail long-term care products at significantly reduced levels. MFC also has a high exposure to real estate linked assets, representing nearly one-fifth of invested assets at third quarter 2014, through commercial mortgage loans, alternative assets and directly owned real property. The company may also face integration challenges related to the Standard Life transaction and the acquisition further increases the company’s goodwill and intangibles assets. In addition, MFC’s leverage is currently temporarily elevated and above the company’s targeted level due recent pre-financing activities.
Positive ratings movement is unlikely in the near to medium term. Key factors that could result in negative rating actions include a significant and sustained decline in MFC’s risk-adjusted capitalization; operating performance that does not meet A.M. Best’s expectations over a sustained period; or difficulty in managing its large in-force blocks of interest and equity market sensitive business.
For a complete list of Manulife Financial Corporation and its subsidiaries’ FSRs, ICRs and debt ratings, please visit Manulife.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- A.M. Best’s Perspective on Operating Leverage
- Evaluating Country Risk
- Evaluating U.S. Surplus Notes
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for U.S. and Canadian Life/Health Insurers
- Understanding Universal BCAR
- Equity Credit for Hybrid Securities
- Insurance Holding Company and Debt Ratings
- Analyzing Insurance Holding Company Liquidity
- Rating Funding Agreement-Backed Securities
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.
