DBRS Confirms Ratings on Manulife Financial Corporation and Affiliates

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Medium-Term Notes rating of Manulife Financial Corporation (MFC or the Company) at “A” as well as its Non-Cumulative Preferred Shares rating at Pfd-2. DBRS has also confirmed the Financial Strength Rating (FSR) and Issuer Rating of The Manufacturers Life Insurance Company at AA (low) as well as its Unsecured Subordinated Debentures rating at A (high) and its Non-Cumulative Preferred Shares rating at Pfd-1 (low). At the same time, DBRS has confirmed the Fixed/Floating Senior Debentures and Fixed/Floating Subordinated Debentures of Manulife Finance (Delaware), L.P. at “A” and A (low), respectively, as well as the Manulife Financial Capital Trust Notes II - Series 1 rating of Manulife Financial Capital Trust II at “A.” All trends are Stable.

The confirmation of the ratings results from DBRS’s application of its “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (Global Insurance Methodology). In DBRS’s view, the Company has an excellent franchise. Indeed, MFC is one of the top three insurance organizations in Canada with extensive wealth management and insurance operations in Canada, the United States and various parts of Asia. Helped by its strong distribution, product mix, global brand recognition and an increased emphasis on risk management and innovation, MFC has experienced high growth and improving profitability in recent years. Strong market presence in a majority of its chosen markets allow for a high degree of diversification, although dealing with the different legal, regulatory, solvency and accounting requirements for the numerous jurisdictions in which it operates adds to operational complexity.

DBRS considers MFC to have excellent earnings capacity as well as good liquidity and capitalization. Although financial leverage has increased to 29.3% at Q3 2016 (from 22.7% at Q3 2015), the Company’s fixed-charge coverage ratio has also improved because of higher profitability compared with the first nine months of 2015. The Company’s Minimum Continuing Capital and Surplus Requirements ratio continues to be strong at 234%, positioning it well to adapt to the January 2018 implementation of the new Life Insurance Capital Adequacy Test. MFC maintains good capitalization and asset quality.

The Stable trend considers the Company’s resilient fundamentals and its ability to adapt to the current challenging operating environment as well as its proactive financial management.

RATING DRIVERS
Negative rating pressure could arise if the Company pursues an aggressive acquisition policy that results in an elevated risk profile, difficulty managing market volatility and hedging programs or if there is a deterioration in leverage and fixed-charge ratios below the levels supported by the rating. Conversely, positive rating pressure could arise from more consistent profitability, combined with lower financial leverage and an improvement in the fixed-charge coverage ratio. Similarly, meaningful profit gains from a successful execution of MFC’s customer-centric strategy and bancassurance deals could also prove to be positive for the ratings.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (December 2015), DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (January 2016) and DBRS Criteria: Guarantees and Other Forms of Support (February 2016), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Stewart McIlwraith
Rating Committee Chair: Roger Lister

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

For more information on this credit or on this industry, visit www.dbrs.com.