OLDWICK, N.J.--(BUSINESS WIRE)--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 existing 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 rating affirmations 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 favorable growth in operating earnings over the past five years 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 in recent years has led to a focus on less capital intensive and less volatile lines of business with higher emphasis on fee-based revenues while growing its WAM business segment and concurrently expanding its geographic footprint into selective high-growth Asian markets. The ratings also reflect benefits derived from recent acquisitions and strategic partnerships in North America and Asia that coupled with organic growth have resulted in a material increases in assets under management and administration. A.M. Best believes that these transactions will help to support MFC’s growing global market position, specifically in the WAM business segment in the intermediate and long term.
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. Furthermore, despite strong risk management practices, MFC retains a large block of variable annuities that remains subject to equity market volatility, future policyholder annuitization election rates and interest rate risk. While the company has discontinued sales of its stand-alone individual long-term care (LTC) products and continues to prudently manage its inforce legacy LTC block through rate increases and additional reserve increases, A.M. Best continues to monitor the legacy block given industrywide headwinds regarding the adequacy of interest rate, lapse rate and morbidity assumptions. Amid an evolving global regulatory framework, MFC also is experiencing temporarily elevated financial leverage above the company’s long-term targeted level due to recent pre-financing capital management activities. Also, 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 Manulife Financial Corporation and its subsidiaries’ FSRs, Long-Term ICRs and Long-Term IRs, please visit Manulife Financial Corporation.
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