DBRS Morningstar Changes Trends to Positive from Stable on Manulife Financial Corporation and Affiliates, Confirms Ratings

DBRS Limited (DBRS Morningstar) changed the trends to Positive from Stable on Manulife Financial Corporation (Manulife or the Company) and affiliates. DBRS Morningstar also confirmed the Issuer Rating and Medium-Term Notes rating of Manulife at “A,” its Unsecured Subordinated Debentures rating at A (low) and its Non-Cumulative Preferred Shares rating at Pfd-2. In addition, DBRS Morningstar confirmed the Issuer Rating and Financial Strength Rating of The Manufacturers Life Insurance Company (MLI) 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). Concurrently, DBRS Morningstar confirmed the Fixed/Floating Subordinated Debentures of Manulife Finance (Delaware), L.P. at A (low) and the Manulife Financial Capital Trust II Notes – Series 1 rating of Manulife Financial Capital Trust II at “A.”

KEY RATING CONSIDERATIONS
The rating confirmations reflects the Company’s strong position in its home market, as well as its powerful franchises across several key markets, including the United States and Asia. The Company benefits from a renewed strategic vision, an excellent risk management infrastructure and continued progress in de-risking its legacy products exposure. The ratings also consider Manulife’s large exposure to guaranteed products in Canada and the United States that can result in profit volatility, as well as the additional complexities of operating an international insurance organization.

RATING DRIVERS
The Positive trends considers the Company’s progress with its strategy and its profitability, as well as its improved risk profile. Ratings could move in an upward direction if the Company sustains its profitability with reduced quarter-to-quarter volatility and continues to strengthen its market positions in its international operations, while continuing to reduce the risk profile of its long-term guaranteed insurance products.

Conversely, ratings are likely to be negatively pressured if the Company experiences persistently weaker profitability as measured by returns on equity below 10% and a sustained deterioration in financial leverage over 30% or if an adverse event causes regulatory capital to decline substantially.

RATING RATIONALE
Manulife’s ratings confirmation reflects the Company’s excellent franchise strength, which is supported by significant market shares in Canada, the United States and Asia. The confirmation also considers the Company’s improvements in its risk profile and earnings ability. MLI’s regulatory capital is also supportive of its current rating levels. DBRS Morningstar, moreover, notes the improvement in the Company’s financial leverage and the commitment from senior management for further reductions in the medium term.

The ratings also benefit from the Company’s strong distribution, product mix, global brand recognition and increased emphasis on risk management and innovation. More recently, Manulife has been making progress with its focus on growing its Global Wealth and Asset Management and Asian insurance operations. These business lines provide the highest growth opportunities compared with the more mature insurance markets in North America. Together with a focus on expenses management, this strategy has allowed Manulife to improve profitability in recent quarters. Like other large international insurance companies, MFC is subject to the legal, regulatory, solvency and accounting challenges of dealing in multiple jurisdictions. The Company is also exposed to large earnings sensitivity to equity market and interest rate movements.

Notes:
The applicable methodologies are Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (September 2019) and DBRS Criteria: Guarantees and Other Forms of Support (January 2019), which can be found on our website under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrs.com

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on this issuer took place on October 23, 2018, when all ratings were confirmed.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Marcos T. Alvarez, Senior Vice President, Global FIG
Rating Committee Chair: Roger Lister, Managing Director, Chief Credit Officer

Initial Rating Date: August 1, 1989

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

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