MOODY'S CHANGES MANULIFE SUBSIDIARIES' OUTLOOK TO POSITIVE
Toronto, January 23, 2006 -- Moody's Investors Service affirmed the ratings and changed the outlook
to positive from stable for Manulife Financial Corporation's (MFC)
subsidiaries, including the outlook on the Aa2 insurance financial
strength ratings of Manufacturers Life Insurance Company (MLI),
John Hancock Life Insurance Company (JHLICo), John Hancock Variable
Life Insurance Company (JHVLICo), and John Hancock Life Insurance
Company (USA) (JHUSA). Moody's also affirmed and changed the rating
outlook for the debt ratings of several subsidiaries of MFC.
According to Moody's, the change in the rating outlook is based
on several factors: (1) a diversified and growing earnings base,
(2) very strong life insurance franchises in Canada and the United States,
and (3) a conservative capital structure.
Regarding MFC's earnings base, the rating agency said there
are three major trends in MFC's performance since the April 2004 acquisition
of John Hancock Financial Services, Inc. (JHFS): (1)
solid earnings growth primarily driven by the Canadian and US Wealth Management
divisions; (2) a recovery in the US Protection division's earnings
from an initial decline that was due mainly to a product redesign effort;
and (3) stability in the combined earnings, indicating diversification
benefits, from the potentially more volatile of MFC's divisions
(Asia & Japan, Reinsurance, and Guaranteed and Structured
Moody's said MFC's solid earnings are a product of strengthened
franchises in the United States and Canada. The JHFS acquisition
elevated MFC to the ranks of one of the largest and most diversified life-insurance
operations in the United States. The combined MFC US operations
have major market positions in life insurance, fixed, and
variable annuities, as well as in 401(k) savings plans, long-term
care, and institutional investment products. With this acquisition,
Manulife also acquired Maritime Life and cemented its market position
in Canada -- solidifying its top tier position in virtually all market
segments. The resulting market clout obtained by Manulife in the
United States and Canada gives it the flexibility to protect its margins
and extract attractive profits.
The rating agency added that complementing MFC's earnings base and
franchise strength is one of the more conservative capital structures
among stock life insurance companies. MFC has reduced its financial
leverage to approximately 18% (after reducing common equity by
50% of goodwill and intangibles) from 23% before the John
Hancock acquisition. Combined with a growing earnings base,
this has resulted in an increasing earnings coverage ratio that currently
stands in excess of 13x.
Moody's remains concerned, however, with MFC's
exposure to secondary guarantees. MFC has written a significant
amount of guaranteed minimum death benefits, maturity benefits,
and withdrawal benefits on its variable annuity product line in the Canada
and the U.S. Though it manages this risk carefully,
we note that MFC is exposed to "catastrophic risk" —
a high severity, low frequency occurrence of a prolonged and steep
equity market downturn.
Moody's commented that the ratings could be upgraded if the company continues
to: (a) achieve post-acquisition improvement in its earnings
capacity, predictability, and quality, without material
operational setbacks; (b) maintain its adjusted financial leverage
on a CGAAP basis in the 20% range and earnings coverage ratio in
excess of 12x, and (c) maintain MLI's capital adequacy at
over 225% MCCSR and JHLICo's capital adequacy at over 375%
Moody's said that the outlook could return to stable if the following
occurs: (a) significant disruption and / or problems arise out of
the JHFS acquisition/integration; (b) adjusted financial leverage
increases to above 20% for a sustained period or earnings coverage
ratio falls below 12x; (c) MFC's spread businesses as a percentage
of general account liabilities expands; or (d) MCCSR ratio declines
The following ratings were affirmed with the outlook changed to positive
Manufacturers Life Insurance Company -- insurance financial
strength of Aa2.
The John Hancock Life Insurance Company (U.S.A.)
-- insurance financial strength of Aa2.
Manufacturers Investment Corporation -- preferred stock
MIC Financing Trust -- backed preferred stock of A1
John Hancock Life Insurance Company -- insurance financial
strength of Aa2; senior unsecured debt of Aa3; surplus note
rating of A1
John Hancock Variable Life Insurance Company -- insurance
financial strength rating of Aa2.
John Hancock Financial Services, Inc. -- senior
debt of A2 and commercial paper rating of Prime-1.
John Hancock Canadian Corporation -- backed senior unsecured
debt of A2.
John Hancock Capital Trust I -- preferred stock of (P)A3.
John Hancock Capital Trust II -- preferred stock of (P)A3.
John Hancock Global Funding II -- backed senior secured
debt of Aa2.
Structured Asset Repackaged Trust Series 2002-2 --
backed senior secured debt of Aa2.
Moody's last rating action on MFC-related companies occurred
on November 24, 2005 when the rating agency affirmed and withdrew
the Prime-1 commercial paper ratings for MLI and Manufacturers
Investment Corporation. Both commercial paper programs had been
dormant with no outstandings for a number of years.
Manulife, headquartered in Toronto, Canada, is an international
provider of life insurance, pension, and investment products.
On September 30, 2005, the company reported consolidated total
general-fund and segregated-fund assets of C$311
billion, common shareholders' equity of C$23 billion,
and year-to-date net income available to common shareholders
of C$2.4 billion.
Moody's insurance financial strength ratings are opinions on the ability
of insurance companies to repay punctually their senior policyholder claims
For more information, visit our website at www.moodys.com/insurance
Financial Institutions Group
Moody's Investors Service
Vice President - Senior Analyst
Financial Institutions Group
Moody's Canada Inc.