DBRS Comments on Manulife Financial’s Sale of Life Retrocession Business

DBRS notes that Manulife Financial Corporation (Manulife or the Company) has today announced that it has entered into an agreement to sell its Life Retrocession business to Pacific Life Insurance Company (Pacific Life). There are no rating implications at this time.

DBRS notes that the Life Retrocession sale is expected to result in an after-tax gain of approximately $275 million for Manulife. The sale is expected to increase the Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio of Manulife’s operating subsidiary, The Manufacturers Life Insurance Company, by approximately six percentage points. This MCCSR ratio was 243% as of March 31, 2011. Given Manulife’s higher relative market exposure to the equity markets and the current uncertain economic environment, DBRS regards the Company’s maintaining higher regulatory capital ratios as prudent until its risk-reduction targets are more fully achieved.

The Life Retrocession business was a non-core business for Manulife that did not have a lot of growth potential, in part because of the fact that competitors in other jurisdictions have an advantage as a result of less restrictive capital requirements. The proposed sale is consistent with the Company’s strategy to achieve a better balance of risk exposures while focusing on more profitable and capital-efficient products, with a stronger component of fee-based revenues. The transaction is subject to standard closing conditions, including receipt of regulatory approvals, and is expected to close during the third quarter of 2011.

The Company’s current ratings are supported by its strong and diversified business franchise anchored in its Canadian insurance and wealth management businesses, the John Hancock brand, its excellent distribution capabilities in the U.S. market and its presence in the fast-growing Asian market.

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

The applicable methodology is Rating Companies in the Canadian Life Insurance Industry, which can be found on our website under Methodologies.