AM Best Comments on Credit Ratings of Manulife Financial Corporation and Its Subsidiaries Following Reinsurance Agreement Announcement With Venerable Holdings Inc.

Rhea-AI Summary

AM Best has reaffirmed the Credit Ratings of Manulife Financial Corporation (MFC) following its agreement to reinsure over 75% of its legacy U.S. variable annuity block to Venerable Holdings Inc. The reinsurance, closing in Q1 2022, aligns with MFC's strategy to de-risk its liability profile and is expected to release approximately $2.0 billion in capital and improve net income by $750 million. The deal significantly reduces MFC's U.S. VA net amount-at-risk and market sensitivity.

Positive

• Reinsurance deal anticipated to release approximately $2.0 billion in capital.
• Expected one-time increase in net income of $750 million.
• Reduction of U.S. VA net amount-at-risk by 75%.
• 54% reduction in equity market sensitivity from VA guarantees.

Negative

• Increased share repurchases may impact earnings per share.
• -

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has commented that the Credit Ratings (ratings) of Manulife Financial Corporation (MFC) (Toronto, Canada) [NYSE: MFC] and its subsidiaries remain unchanged following the Nov. 15, 2021, announcement that the company has entered into an agreement to reinsure a significant portion—more than 75%—of its legacy U.S. variable annuity (VA) block to Venerable Holdings Inc. The block consists mainly of policies with guaranteed minimum withdrawal benefit riders. The reinsurance deal is expected to close during first-quarter 2022.

The transaction is in line with MFC’s previously announced strategy of identifying opportunities to de-risk its liability profile by transferring all or a portion of higher risk and more capital-intensive businesses to third parties, as well as pursuing other internal measures to improve business performance. AM Best believes that MFC’s reinsurance agreement with Venerable Holdings Inc. is a net positive as it is expected to release a significant amount of capital and allow the company to redeploy that capital into its other higher growth and less capital-intensive businesses, as well as reduce its exposure to equity market volatility and interest rate sensitivity. While MFC has announced that it will increase share repurchases to offset the loss in earnings per share, AM Best notes that overall capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remains strong.

Upon closing, the transaction is expected to positively benefit capital by approximately $2.0 billion, including a one-time increase in net income of $750 million, and will reduce U.S. VA net amount-at-risk by approximately 75%, as well as generate a 54% reduction, excluding the impact from the company’s hedges, in the company’s equity market sensitivity from VA guarantees.

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 use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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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Shauna Nelson

Senior Financial Analyst

+1 908 439 2200, ext. 5365

shauna.nelson@ambest.com

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Michael Adams

Associate Director

+1 908 439 2200, ext. 5133

michael.adams@ambest.com

Jim Peavy

Director, Communications

+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Source: AM Best

FAQ

What is the recent Credit Rating announcement for MFC?

AM Best has confirmed that the Credit Ratings of Manulife Financial Corporation (MFC) remain unchanged.

How does the reinsurance deal affect MFC's financial position?

The reinsurance deal is expected to release $2.0 billion in capital and increase net income by $750 million.

When is the reinsurance transaction for MFC expected to close?

The reinsurance transaction is anticipated to close in the first quarter of 2022.

How much will MFC reduce its U.S. VA net amount-at-risk?

MFC will reduce its U.S. VA net amount-at-risk by approximately 75%.

What is the impact of MFC's reinsurance deal on equity market sensitivity?

The reinsurance deal is expected to generate a 54% reduction in equity market sensitivity from VA guarantees.