Fitch Rates Manulife Financial's C$900MM 5-Year Notes 'A-'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A-' rating to Manulife Financial Corporations (MFC's) recently issued C$900 million 4.079% medium-term notes due Aug. 20, 2015. At the same time Fitch affirmed all of MFC's existing ratings. (A full list of rating actions follows at the end of this release.) The Rating Outlook is Stable.

Today's rating action recognizes that MFC's current financial leverage metrics remain within Fitch's expectation for the rating, including Fitch's equity adjusted leverage of 20%. Fitch estimates pro forma equity adjusted leverage increased to 16.3% from 14.2% at June 30, 2010 with the issuance of the notes. Fitch considers MFC's debt service capacity as being adequate for the rating level and expects run-rate, earnings based fixed charge coverage to range from 6 times (x) to 7x in a generally flat equity market scenario.

The ratings also reflect MFC's strong capital position, below-average exposure to credit-related risk, good liquidity and excellent business profile with favorable diversification of products and distribution channels. Fitch considers MFC's capital position as very strong with an operating company Minimum Continuing Capital and Surplus Requirements ratio (MCCSR) at 221% at June 30, 2010.

Key rating concerns include MFC's large exposure to equity market declines related to segfund/variable annuity guarantees and uncertainty regarding the scale of results from MFC's pending third quarter 2010 (3Q'10) annual actuarial review and its effect on MFC's long-term earnings profile. It is Fitch's view that improvements in MFC's capital sensitivity and reported earnings in the short term are dependent to a significant degree upon favorable capital markets, including higher interest rate levels and equity market prices. Uncertainty related to capital markets, as well as the possibility of a potentially sizable charge in 3Q'10 for MFC's pending annual review of actuarial methods and assumptions, leads Fitch to believe that MFC's run rate earnings will not likely rebound to pre-2008 levels within the next 12-18 months.

The Stable Outlook reflects Fitch's view that current capitalization provides sufficient cushion over the next 12 to 18 months at the current rating level to absorb future investment related credit losses and negative operating results, including results driven by equity and interest rate related volatility in Fitch's core stress scenarios.

Within Fitch's rating rationale are multiple considerations. If MFC were to materially deviate from any of these items, especially for an extended period, the ratings could be impacted. Included within these key rating rationale factors are the following:

--The annual 3Q'10 actuarial experience and methods adjustments of at least C$1 billion;

--MFC adjusted earnings of C$3 billion a year;

--Operating company Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio above 190%;

--Holding company financial leverage not exceeding 20% on Fitch's equity adjusted leverage basis;

--Current sensitivity to equity markets;

--Current volatility in earnings.

Fitch has assigned the following rating:

Manulife Financial Corporation

--C$900 million medium term notes 4.079% due Aug. 20, 2015 'A-'.

Fitch has affirmed the following ratings:

Manulife Financial Corporation

--Issuer Default Rating (IDR) at 'A';

--C$350 million medium term notes 4.67% due 2013 at 'A-';

--C$550 million medium term notes 5.161% due 2015 at 'A-';

--C$1 billion medium term notes 4.896% due 2014 at 'A-';

--C$400 million medium term notes 5.505% due 2018 at 'A-';

--C$600 million medium term notes 7.768% due 2019 at 'A-';

--C$$350 million 4.1% class A, series 1, preferred stock at 'BBB';

--C$350 million 4.65% class A, series 2, preferred stock at 'BBB';

--C$300 million 4.5% class A, series 3, preferred stock at 'BBB';

--C$450 million 6.6% non-cumulative, preferred class A, series 4 stock at 'BBB';

--C$350 million 5.60% non-cumulative rate reset, preferred class 1, series 1 stock at 'BBB'.

The Manufacturers Investment Corporation

--IDR at 'A'.

Manulife Financial Capital Trust II

--C$1 billion 7.405% MaCS II series 1 at 'A-'.

Manulife Finance, L.P.

--C$550 million 4.448% fixed/floating senior debentures due 2026 (Manulife Finance Corp. guarantor) at 'A-'.

--C$650 million 5.059% fixed/floating subordinated debentures due 2041 (Manulife Finance Corp. guarantor) at 'BBB+'.

The Manufacturers Life Insurance Company

--Insurer Financial Strength (IFS) at 'AA-';

--IDR at 'A+';

--Subordinated debt C$550 million 6.24% due 2016 at 'A-'.

John Hancock Life Insurance Co (USA).

--IFS at 'AA-';

--IDR at 'A+';

--US$450 million surplus notes 7.375% due 2024 at 'A'.

The John Hancock Life Insurance Company of New York

--IFS at 'AA-'.

Manulife Financial Capital Trust

--C$60 million 7% MaCS series at 'A-';

--C$940 million 6.7% MaCS series B at 'A-';

John Hancock Life & Health Insurance Company

--IFS at 'AA-'.

John Hancock Global Funding Ltd.

--Global MTN program at 'AA-'.

John Hancock Global Funding II

--Global MTN program at 'AA-'

The Manufacturers Investment Corporation

--Short-term IDR & commercial paper at 'F1'.

Additional information is available at 'www.fitchratings.com'.

Related Research:

--'Insurance Rating Methodology', dated Dec. 29, 2009;

--'Life Insurance Rating Methodology', dated March 24, 2010

--'Fitch's Approach to Rating Insurance Groups' (March 24, 2010);

--'Equity Credit for Hybrids and Other Capital Securities - Amended' (Dec. 29, 2009);

--'Rating Hybrid Securities' (Dec. 29, 2009).

Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766

Life Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506285

Fitch￢ﾀﾙs Approach to Rating Insurance Groups

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506368

Equity Credit for Hybrids & Other Capital Securities - Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493112

Rating Hybrid Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493086

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