AM Best Affirms Credit Ratings of Manulife Financial Corporation and Its Subsidiaries

Rhea-AI Summary

AM Best has affirmed an A+ (Superior) Financial Strength Rating and a long-term issuer credit rating of “aa-” (Superior) for the life/health subsidiaries of Manulife Financial Corporation (MFC), along with a stable outlook. MFC's strong balance sheet includes a Life Insurance Capital Adequacy Test (LICAT) ratio above peers and a solid pre-tax income exceeding CAD 5 billion over three years. However, concerns exist regarding the company's exposure to volatile legacy businesses and an elevated alternative investment portfolio, which may introduce earnings volatility.

Positive

• A+ (Superior) FSR and 'aa-' (Superior) ratings affirmed with stable outlooks.
• Very strong balance sheet strength with strong capital position.
• Strong pre-tax income above CAD 5 billion for the past three years.
• Diversified business profile with strong market positions.

Negative

• Significant exposure to volatile legacy businesses raises concerns.
• Elevated alternative investment portfolio may increase earnings volatility.

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

The ratings of MFC’s L/H subsidiaries reflect their balance sheet strength, which AM Best assesses as very strong, as well as their strong operating performance, favorable business profile and very strong enterprise risk management (ERM).

MFC’s balance sheet remains solid despite the economic and insurance-related impacts of the COVID-19 global pandemic. MFC’s balance sheet strength reflects its strong capital position with a Life Insurance Capital Adequacy Test (LICAT) ratio above that of its peers and a Best’s Capital Adequacy Ratio (BCAR) score assessed as strong, as the company continues to focus on growing more capital-efficient lines of business. In addition to MFC’s balance sheet strength assessment, the ratings also acknowledge the company’s generally strong operating performance within each of its core lines of business over the past several years, with pre-tax income of over CAD 5 billion in each of the past three years. MFC’s return on equity was 11.6% at year-end 2020 and has benefited from numerous expense efficiency initiatives in recent periods.

MFC also benefited from its diversified business profile over the past year, which includes leading market positions in many of its core lines of business and an expansive geographic footprint in Asia, Canada and the United States. Additionally, innovation played a crucial role during an unpredictable year, and MFC’s digitization efforts enabled continued sales, servicing of customers and a relatively seamless transition to a remote work environment. Ultimately, the company’s very strong ERM capabilities are supportive of the risks within its balance sheet, operating performance and business profile.

While MFC actively manages its legacy businesses – including long-term care and variable annuities – to optimize and de-risk with organic and inorganic opportunities, AM Best remains somewhat concerned with the significant exposure to these historically more volatile blocks of business. In addition, while MFC’s alternative investment portfolio is well-managed and provides good diversity, it remains elevated compared with industry averages and may contribute to additional earnings volatility.

The FSR of A+ (Superior) and the Long-Term ICRs of “aa-” (Superior) have been affirmed with stable outlooks for the following L/H subsidiaries of Manulife Financial Corporation:

• The Manufacturers Life Insurance Company
• John Hancock Life Insurance Company (U.S.A.)
• John Hancock Life Insurance Company of New York
• John Hancock Life & Health Insurance Company

The following Long-Term IRs have been affirmed with stable outlooks:

Manulife Financial Corporation—
-- “a-” (Excellent) on USD 1.0 billion 4.15% senior unsecured fixed rate, due 2026
-- “a-” (Excellent) on USD 500 billion 2.484% senior unsecured fixed rate, due 2027
-- “a-” (Excellent) on USD 750 million 5.375% senior unsecured fixed rate, due 2046
-- “a-” (Excellent) on USD 1.155 billion 3.05% senior unsecured fixed rate, due 2060
-- “bbb+” (Good) on CAD 600 million 3.317% subordinated debentures, due 2028
-- “bbb+” (Good) on CAD 750 million 3.049% subordinated debentures, due 2029
-- “bbb+” (Good) on SGD 500 million 3.0% subordinated debentures, due 2029
-- “bbb+” (Good) on CAD 1 billion 2.237% subordinated debentures, due 2030
-- “bbb+” (Good) on USD 750 million 4.061% subordinated debentures, due 2032
-- “bbb+” (Good) on CAD 1 billion 2.818% subordinated debentures, due 2035
-- “bbb+” (Good) on CAD 2 billion 3.375% limited recourse capital notes, due 2081
-- “bbb” (Good) on CAD 350 million 4.65% non-cumulative Class A Series 2 preferred shares
-- “bbb” (Good) on CAD 300 million 4.5% non-cumulative Class A Series 3 preferred shares
-- “bbb” (Good) on CAD 158.4 million 2.178% non-cumulative Class 1 Series 3 preferred shares
-- “bbb” (Good) on CAD 200 million 3.891% non-cumulative Class 1 Series 5 preferred shares
-- “bbb” (Good) on CAD 250 million 4.312% non-cumulative Class 1 Series 7 preferred shares
-- “bbb” (Good) on CAD 250 million 4.351% non-cumulative Class 1 Series 9 preferred shares
-- “bbb” (Good) on CAD 200 million 4.731% non-cumulative Class 1 Series 11 preferred shares
-- “bbb” (Good) on CAD 200 million 4.414 non-cumulative Class 1 Series 13 preferred shares
-- “bbb” (Good) on CAD 200 million 3.786 non-cumulative Class 1 Series 15 preferred shares
-- “bbb” (Good) on CAD 350 million 3.9% non-cumulative Class 1 Series 17 preferred shares
-- “bbb” (Good) on CAD 250 million 3.8% non-cumulative Class 1 Series 19 preferred shares
-- “bbb” (Good) on CAD 425 million 5.6% non-cumulative Class 1 Series 21 preferred shares
-- “bbb” (Good) on CAD 475 million 4.85% non-cumulative Class 1 Series 23 preferred shares
-- “bbb” (Good) on CAD 250 million 4.70% non-cumulative Class 1 Series 25 preferred shares
-- “bbb” (Good) on CAD 41.6 million variable rate non-cumulative Class 1 Series 4 preferred shares

The Manufacturers Life Insurance Company—
-- “a” (Excellent) on CAD 1.0 billion 3.181% subordinated debentures, due 2027

Manulife Finance (Delaware), L.P.—
-- “bbb+” (Good) on CAD 650 million 5.059% subordinated debentures, due 2041

John Hancock Life Insurance Company (U.S.A.)—
-- “a” (Excellent) on USD 450 million 7.375% surplus notes, due 2024 (formerly issued by John Hancock Life Insurance Company)
-- “a+” (Excellent) on all outstanding notes issued under the program John Hancock Signature Notes (formerly issued by John Hancock Life Insurance Company)

The following indicative Long-Term IRs under the shelf registration have been affirmed with stable outlooks:

Manulife Financial Corporation—
-- “a-” (Excellent) on senior unsecured debt
-- “bbb+” (Good) subordinated debt
-- “bbb” (Good) on preferred stock

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

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2021 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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FAQ

What did AM Best affirm for Manulife Financial Corporation (MFC)?

AM Best affirmed an A+ Financial Strength Rating and a long-term issuer credit rating of 'aa-' for MFC's life/health subsidiaries.

What is the outlook for the credit ratings of MFC?

The outlook for the credit ratings of MFC is stable.

What has been MFC's pre-tax income in recent years?

MFC reported pre-tax income exceeding CAD 5 billion each year for the past three years.

What concerns does AM Best have regarding MFC's business?

AM Best is concerned about MFC's significant exposure to volatile legacy businesses and the elevated alternative investment portfolio.

How does MFC's LICAT ratio compare to peers?

MFC's LICAT ratio is above that of its peers, indicating a strong capital position.