MOODY'S AFFIRMS MANULIFE'S AND JOHN HANCOCK'S DEBT AND INSURANCE FINANCIAL STRENGTH RATINGS FOLLOWING ANNOUNCEMENT OF DEFINITIVE AGREEMENT TO MERGE
New York, September 29, 2003 -- Moody's Investors Service has affirmed the ratings of Manulife Financial
Corporation's (MFC) primary life insurance operating company,
The Manufacturers Life Insurance Company (Manulife -- insurance financial
strength at Aa2) and its other rated affiliates.
Moody's has also affirmed the ratings of John Hancock Financial
Services, Inc. (JHFS -- senior debt at A3), John
Hancock Life Insurance Company (John Hancock Life -- insurance financial
strength at Aa3), and JHFS' other rated U.S.
affiliates. The outlook for all of the ratings is stable.
At the same time, Moody's has placed the A1 insurance financial
strength rating of Maritime Life Assurance Company, JHFS'
Canadian subsidiary, on review for upgrade.
Moody's says that these rating actions follow the announcement by MFC
and JHFS of their definitive agreement to merge. MFC is to acquire
100% of the outstanding common shares of JHF, in a share
exchange valued at approximately $37.60 a share, or
C$14.8 billion based on 292 million shares of JHF outstanding.
Completion of the acquisition is subject to approval by shareholders of
JHFS, as well as approval of numerous regulatory authorities.
MFC is the third largest life insurance company in Canada. MFC
also has extensive business operations in the US and Asia. JHFS
is one of the largest life insurance and related financial service providers
in the US, and owns the fourth largest Canadian life insurance company
along with modestly sized operations in Asia.
The new, combined entity will have a broad market presence in almost
every sizable sector of the US and Canadian life insurance business.
The company will also benefit by having considerable opportunities for
expense savings, especially in those business lines that have extensive
overlaps. Most of these benefits will occur in Canada, as
well as in the US life insurance and variable annuity businesses.
Moody's believes scale is crucial in Canada, as the market
is extremely concentrated among a few large competitors. Greater
scale in Canada will allow the company to reduce its costs and strengthen
its margins. The combined entity's progress in this regard
will be evaluated in the review for upgrade of Maritime Life, the
credit profile of which should benefit from the plans for operational
and management integration with MFC's Canadian operations.
Credit positives arising from the transaction include, in addition
to the above discussed cost efficiencies, increased business diversification,
improved market presence, and better cross selling opportunities.
Credit negatives arising from the transaction include an expected reduction
in capital at MFC of up to C$3 billion to fund a stock repurchase
program, which would reduce the capitalization of its primary Canadian
operating subsidiary over the near-term.
MFC will not incur any additional debt with the acquisition and financial
leverage (calculated after deducting 100% of pro-forma goodwill
from the company's balance sheet) is approximately 26%,
representing a marginal decrease. The marginal decrease is the
result of JHFS's somewhat lower financial leverage, offset
somewhat by the negative impact on financial leverage from the company's
anticipated use of cash for share repurchase. The current ratings
of MFC incorporate an expectation of the company maintaining its financial
leverage ratio in the 25% range.
Moody's also believes that the successful execution of this combination
is subject to extensive execution risk. The combination is on a
much larger scale than those ever previously accomplished by either organization,
and would be one of the largest to ever occur in the life industry.
Moody's therefore believes that the successful execution of the
combination is subject to numerous uncertainties and market forces.
Once the execution risks, challenges, and uncertainties arising
from the combination are substantially reduced, Moody's believes
there is likely to be positive rating implications for both JHFS and John
Hancock Life, as the operations become an increasingly integrated
core part of the MFC organization.
The following ratings have been affirmed:
Manufacturers Life Insurance Company -- insurance financial
strength at Aa2; subordinated debt at A1; short-term
rating for commercial paper of Prime -1.
Manufacturers Life Insurance Company (USA) -- insurance
financial strength at Aa2.
Manufacturers Investment Corporation -- preferred stock
at P(A3); preferred stock at A1; short-term rating for
commercial paper of Prime-1.
MIC Financing Trust I -- preferred stock at A1.
North American Capital Corporation -- subordinated debt
John Hancock Financial Services, Inc.-- Senior
debt at A3; Issuer rating at A3; subordinated debt at (P)Baa1;
junior subordinated at (P)Baa1; preferred stock at (P)Baa2;
and commercial paper rating at Prime-2.
John Hancock Canadian Corporation -- guaranteed senior debt at A3.
John Hancock Capital Trust I -- preferred stock at (P)Baa1.
John Hancock Capital Trust II -- preferred stock at (P)Baa1.
John Hancock Global Funding II -- backed debt at Aa3.
Structured Asset Repackaged Trust Series 2002-2 -- backed
debt at Aa3.
John Hancock Life Insurance Company -- insurance financial
strength at Aa3; senior debt at A1 (including SignatureNotes);
and surplus notes at A2.
John Hancock Variable Life Insurance Company -- insurance
financial strength rating at Aa3.
Investors Partner Life Insurance Company -- insurance financial
strength rating at Aa3.
The following ratings are on review for possible upgrade:
Maritime Life Assurance Company -- insurance financial strength
rating of A1.
MFC, headquartered in Toronto, Canada, is an international
provider of life insurance, pension and investment products and
reported consolidated total general fund and segregated fund assets of
C$138 billion and total equity of C$9.0 billion at
June 30, 2003.
JHFS, headquartered in Boston, Massachusetts, is primarily
a US provider of life insurance and financial products. As of June
30, 2003, the company reported total assets of US$108
billion and shareholders' equity of US$8.0 billion.
Moody's will be conducting a teleconference call for its research clients
on the merger of Manulife and John Hancock at 12:30 PM (E.S.T.)
today. An invitation to the teleconference call will be sent out
An insurance financial strength rating measures an insurance company's
ability to repay punctually its senior policyholder obligations and claims.
For more information, please visit our Web site at www.moodys.com/insurance.
Financial Institutions Group
Moody's Investors Service
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service