The rating agency A.M.Best has undertaken a favorable rating
Manulife Financial Corporation
), whereby it affirmed the financial strength ratings (FSR) of A+
and issuer credit ratings (ICR) of "aa-" of the life insurance
subsidiaries of the company.
The rating agency also affirmed the ICR of "a-" as well as
all existing debt ratings of Manulife.
All the ratings are of investment grade and carry a stable
A.M.Best acknowledges Manulife's dominant life insurers within
its domestic Canadian market and its growing operations in the
U.S. and several Asian countries.
Despite a difficult economic environment Manulife has been able
to maintain the strength of its core business while at the same
time growing assets under management.
The rating agency also views favorably the company's strong
balance sheet position and maintenance of adequate regulatory
risk-adjusted capitalization. Manulife has made consistent
efforts to reduce its business exposure to involuntary forces of
equity and interest rate risks. These efforts include aggressive
hedging programs, modification in product design and pricing and
targeting specific products for growth in its various
geographical markets. It also includes cutting down the sales of
capital intensive products, especially variable annuities in the
Alongside, Manulife's exposure to real estate through direct
mortgage loans and commercial real estate, forms a high
percentage of total invested assets
Despite the hedging program undertaken by Manulife, the rating
agency A.M.Best remains concerned with the company's substantial
existing exposure to the equity market and interest rate risk.
This is particularly within its insurance segments, reduced
interest coverage and a high financial leverage. Also while the
company no longer sells U.S. variable annuities, it will face
problems to manage the already written large book of this
business, given the persistent low interest rates.
Moreover, Manulife's earnings also witnessed significant
volatility recently due to unfavorable reserve release, which was
again caused by current interest and equity market conditions.
Over the near term, there are low chances of a change in ratings.
However, over the long term factors that could result in negative
rating actions include a significant and sustained decline in
Manulife's risk-adjusted capitalization, operating performance
over a sustained period or difficulty in managing large in-force
blocks of interest and equity market sensitive business.
Manulife currently retains a Zacks # 3 Rank, which translates
into a short-term Strong Hold rating. The company closely
China Life Insurance Co. Ltd.
Sun Life Financial Inc.
CHINA LIFE INS (LFC): Free Stock Analysis
MANULIFE FINL (MFC): Free Stock Analysis
SUN LIFE FINL (SLF): Free Stock Analysis
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