DBRS Morningstar Finalizes Provisional Rating of A (low), Stable Trend, on Manulife Financial Corporation’s Limited Recourse Capital Notes

DBRS Limited (DBRS Morningstar) finalized its provisional rating of A (low) with a Stable trend on Manulife Financial Corporation’s (Manulife or the Company) Limited Recourse Capital Notes (the Capital Notes). The rating is equal to the Company’s Issuer Rating of A (high) less two rating notches, which is consistent with DBRS Morningstar’s notching approach for capital instruments issued by insurance holding companies. This is one notch below the rating of Manulife’s Unsecured Subordinated Debentures.

Manulife expects to issue $2 billion of Capital Notes on February 19, 2021, with a maturity date of June 19, 2081. The Capital Notes will have an initial five-year fixed rate of 3.375%.

RATING DRIVERS
Given Manulife’s recent ratings upgrade, DBRS Morningstar does not see upward ratings pressure over the intermediate term. Over the longer term, if Manulife continues to improve profitability and de-risk by further reducing its exposure to product guarantees and long-term care products, while maintaining its capital profile, the ratings would be upgraded.

Conversely, persistent weaker and volatile profitability with a sustained deterioration in financial leverage and coverage ratios would result in a ratings downgrade. An adverse event causing regulatory capital to decline substantially would also result in a ratings downgrade.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

The Grid Summary Grades for Manulife Financial Corporation are as follows: Franchise Strength – Very Strong/Strong; Risk Profile: Strong/Good; Earnings Ability: Strong/Good; Liquidity: Very Strong; Capitalization: Strong.

DBRS Morningstar notes that this press release was amended on February 23, 2021, to incorporate the disclosure regarding Coronavirus Disease (COVID-19).

DBRS Morningstar notes that this press release was amended on April 13, 2021, to correct the previous rating action date.

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

The principal methodology is the Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (https://www.dbrsmorningstar.com/research/364260/global-methodology-for-rating-life-and-pc-insurance-companies-and-insurance-organizations; July 21, 2020). Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings; February 03, 2021).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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.dbrsmorningstar.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 United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision, Specifically, the “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (July 21, 2020) was used to evaluate the Issuer, and “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” (February 03, 2021) was used to assess ESG factors.

The last rating action on this issuer took place on 10 February 2021, when the provisional rating was assigned.

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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Marcos Alvarez, Senior Vice President, Head of Insurance
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG
Initial Rating Date: June 12, 2003

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

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