March 17, 2017 / 8:49 PM / 9 months ago

Fitch Affirms Manulife Financial; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, March 17 (Fitch) Fitch Ratings has affirmed Manulife Financial Corporation (MFC) and its primary insurance related operating subsidiaries' ratings, including The Manufacturers Life Insurance Company (MLI) and John Hancock Life Insurance Company (U.S.A.) (JHUSA). A full list of rating actions follows at the end of this release. The Rating Outlook is Stable. KEY RATING DRIVERS MFC's ratings reflect very strong capitalization, continued improvement in core operating earnings and solid business profile with significant geographic and product diversification. Offsetting these positive factors are MFC's modest fixed charge coverage, which Fitch views as low for the rating category, above-average asset risk and net earnings sensitivity to market-related impacts. Fitch believes MFC is well-capitalized on a risk-adjusted basis, with a minimum continuing capital and surplus requirement (MCCSR) ratio for MFC's leading operating company (MLI) at 230% at Dec. 31, 2016. The Office of the Superintendent of Financial Institutions issued the final Life Insurance Capital Adequacy Test (LICAT) guideline for Canadian life insurers with an effective date of Jan. 1, 2018. The LICAT will replace the MCCSR framework and Fitch expects MFC to remain in a strong capital position under the new framework. MFC's financial leverage increased to 24% at Dec. 31, 2016 on a pro forma basis following the issue of USD750 million of subordinated debt in February 2017. With consideration for potential debt redemptions in second- and third-quarter 2017, MFC's financial leverage is expected to drop to approximately 23%. In 2016, MFC reported net income attributed to shareholders of CAD2.9 billion, a 34% increase over the prior year. The increase primarily reflected growth in core earnings and an improvement in investment-related experience, partially offset by an increase in charges related to the direct impact of markets. Higher core earnings was largely driven by strong new business and in-force growth in Asia, investment gains of CAD197 million (compared with nil in 2015) and a CAD142 million release of tax and related provisions as a result of the closure of multiple tax years in the U.S., partially offset by higher macro hedging costs. Non-core charges totaled CAD1.1 billion in 2016, which was primarily related to market-related impacts and unfavorable updates to actuarial methods and assumptions. This compares with non-core charges of CAD1.2 billion in 2015, which primarily reflected fair value losses related to oil and gas investments along with charges related to actuarial methods and assumptions. Core earnings-based ROE remained flat at 10% in 2016, which is below expectations for the current rating category. MFC remains committed to increase core ROE to 13% or higher over the medium term, driven primarily by organic growth of less capital intensive/higher ROE businesses, particularly Asia and WAM businesses, contributions from recent acquisitions and strategic partnerships in Asia along with greater investment-related experience. Key challenges to profitability improvements include sustained low interest rates, currency movements, potential financial market volatility and an uncertain global economy. MFC continued its de-risking initiative in 2016 by announcing that it was discontinuing new sales of stand-alone individual LTC in the U.S. The company wrote off a LTC distribution-related intangible asset of CAD97 million. Fitch views MFC's 8.1x fixed charge coverage ratio as below the median guideline for the current rating category. Improved core earnings were offset by higher interest expense and preferred dividends on recent debt and preferred share issuances in 2016. Favorably, under Canadian regulations, MFC has greater flexibility to upstream common stock dividends from operating subsidiaries to the regulated holding company without regulatory approval than most U.S. peers. MFC has a higher allocation to alternative asset classes relative to its peers, which causes greater variability in investment results. MFC's 2016 risky assets ratio, defined as below investment-grade bonds net impairments, equities and MFC's alternative long duration assets (ALDA) portfolio divided by total equity, of 139% is above the median guideline for the current rating category. Excluding the ALDA portfolio, which was the basis for Fitch's previous calculation, MFC's risky asset ratio is 60%. RATING SENSITIVITIES Key rating triggers for MFC that could lead to a downgrade include: --Fixed-charge coverage on a core earnings basis below 6x; --An increase in financial leverage to over 25% or an increase in total leverage to over 35%; --Risky asset ratio above 140%; --A sustained drop in MFC's risk-adjusted capital position evidenced by an MCCSR ratio below 200% and a less favorable view of capital under the LICAT framework; --Large acquisitions that are outside the company's historical risk preference or that have a material impact on the company's leverage and capitalization. Key ratings triggers for MFC that could lead to an upgrade include: --Improvement in return on equity (ROE) based on core earnings to 12% or higher; --Stability in reported net income; --An increase in fixed-charge coverage on a core earnings basis to over 10x; --Maintaining current capital and earnings sensitivity to interest rates and equity markets; --Maintenance of financial leverage at or below 20%. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings with a Stable Outlook: Manulife Financial Corporation --Long-Term Issuer Default Rating (IDR) at 'A'; --Medium term notes at 'A-'; --Senior notes at 'A-'; --Subordinated notes at 'BBB+'; --Non-cumulative preferred stock at 'BBB-'. The Manufacturers Life Insurance Company --Insurer Financial Strength (IFS) at 'AA-'; --IDR at 'A+'; --Subordinated notes at 'A'. The Manufacturers Investment Corporation --IDR at 'A'; --Short-Term IDR at 'F1'; --Commercial paper at 'F1'. Manulife Finance, L.P. --Subordinated notes (Manulife Financial Corp. guarantor) at 'BBB+'. Manulife Financial Capital Trust II --MaCS II at 'A-'. John Hancock Life Insurance Co (U.S.A.) --IFS at 'AA-'; --IDR 'A+'; --Surplus notes at 'A'. The John Hancock Life Insurance Company of New York --IFS at 'AA-'. John Hancock Life & Health Insurance Company --IFS at 'AA-'. Contact: Primary Analyst Dafina M. Dunmore, CFA Director +1-312-368-3136 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Jamie Tucker, CPA Associate Director +1-212-612-7856 Committee Chairperson James B. Auden, CFA Managing Director +1-312-368-3146 Date of Relevant Rating Committee: July 18, 2016 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1020769 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below