DBRS Confirms The Manufacturers Life Insurance Company Ratings at AA (low); Downgrades Manulife Financial Corporation’s MTNs to “A” from A (high)

DBRS Limited (DBRS) has today downgraded the long-term ratings of Manulife Financial Corporation (MFC or the Company), including downgrading its Medium-Term Notes rating to “A” from A (high). At the same time, DBRS assigned a Financial Strength Rating (FSR) of AA (low) to The Manufacturers Life Insurance Company (Manufacturers Life Insurance) and confirmed its Issuer Rating at AA (low) and its Unsecured Subordinated Debentures rating at A (high). DBRS withdrew the Claims Paying Ability rating of Manufacturers Life Insurance, as it is being replaced by the newly assigned FSR. All trends are Stable. All the rating actions are noted in the table below. The rating actions taken today follow the publication of DBRS’s new methodology, “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (December 2015) (Global Insurance Methodology).

The downgrade of the holding company ratings results from the application of the Global Insurance Methodology, under which there is typically a wider notching differential between holding company and operating company ratings than in prior methodologies. Specifically, MFC’s Issuer Rating is rated two notches below the FSR of its major operating subsidiary, The Manufacturers Life Insurance Company. Among other factors, the two-notch differential reflects the structural subordination of the holding company’s creditors to the operating company’s creditors in an insolvency situation and recognizes the reliance of the Company on the upstreaming of earnings from its operating companies.

In confirming the ratings of The Manufacturers Life Insurance Company, DBRS evaluated MFC’s fundamentals utilizing the 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 profitability in recent years. These characteristics demonstrate the Company’s good risk profile, good liquidity and excellent earnings capacity. As indicated by its leverage ratio of 22.7% and a Minimum Continuing Capital and Surplus Requirement (MCCSR) of 226%, 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. Negative ratings pressure could arise from earnings volatility, or a deterioration in financial metrics that indicates a weakening in the Company’s franchise strength. Conversely, positive rating pressure could arise from a sustained improvement in the Company’s fixed-charge coverage ratio.

The Commercial Paper rating of The Manufacturers Life Insurance Company has been withdrawn by DBRS due to dormant market activity.

Notes:
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), Preferred Share and Hybrid Criteria for Corporate Issuers (January 2015), DBRS Criteria: Guarantees and Other Forms of Explicit Support (February 2015), which can be found on our website under Methodologies.

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

DBRS will publish a report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report or for more information on this industry, visit www.dbrs.com or contact us at info@dbrs.com.