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Best’s News & Research Service - July 11, 2018 03:37 PM (EDT)

A.M. Best Affirms Credit Ratings of Manulife Financial Corporation and Its Subsidiaries

  • July 11, 2018 03:37 PM (EDT)

Oldwick //BestWire// - A.M. Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of the life insurance subsidiaries of Manulife Financial Corporation (MFC) (Toronto, Canada) [NYSE: MFC]. Concurrently, A.M. Best has affirmed the Long-Term ICR of “a-” and the Long-Term Issue Credit Ratings (Long-Term IR) of MFC. The outlook of these Credit Ratings (ratings) is stable. (See link below for a detailed listing of the companies and ratings.)

The ratings reflect MFC’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its strong operating performance, favorable business profile and very strong enterprise risk management. The rating affirmations also reflect MFC’s solid risk-adjusted capitalization, strong liquidity profile and strong global business profile in Asia, Canada and the United States. The ratings also acknowledge stability in operating earnings and the increased scale of core business lines, growth in net flows and fee-based revenues, particularly within Asia and the company’s global wealth asset management (WAM) business segment. The company’s strategy is to focus on less capital intensive and less volatile lines of business with a balance between fee-based revenues and core legacy blocks of business, while growing its WAM business segment and selective high-growth Asian markets. Recently, MFC set targets related to expense-reduction initiatives and targeted asset sales to enhance regulatory capital levels and profitability metrics.

Offsetting rating factors include MFC’s elevated investment risk relative to capital with significant in-force balance sheet exposure to equity and credit risk embedded in MFC’s alternative asset portfolio (i.e., public equities, real estate, timber and agriculture), which the company views as a natural hedge against their long-term liabilities in addition to providing asset diversification. MFC retains a large block of variable annuities that remain subject to equity market volatility, future policyholder annuitization election rates and interest rate risk, and are considered well-hedged given the degree of embedded risk that exist within the block of business. While the company has discontinued sales of its stand-alone individual long-term care (LTC) products and has continued to prudently manage its in-force legacy LTC block through rate increases and additional reserve increases, A.M. Best continues to monitor the reserving levels of the LTC legacy block.

MFC has temporarily elevated financial leverage above the company’s long-term targeted level due to recent pre-financing capital management activities, which over time is expected to decline from the current level that exists today. In addition, interest coverage is currently lower than expectations, albeit subject to the accounting volatility inherent in IFRS accounting and offset by a very strong liquidity profile in its investment portfolio.

For a complete listing of FSRs, Long-Term ICRs and Long-Term Issue Credit Ratings for MFC and its life/health subsidiaries, please visit Manulife Financial Corporation.

This press release relates to Credit Ratings 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 see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source.

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