MOODY'S PLACES RATINGS OF JOHN HANCOCK FINANCIAL SERVICES (SENIOR AT A2) AND SUBSISIARIES ON REVIEW FOR DOWNGRADE
Moody's Investors Service has placed on review for downgrade the debt ratings of John Hancock Financial Services, Inc., (JHF) and its subsidiaries and related entities. The ratings included in this review include JHF's senior unsecured debt rating and issuer rating (senior at A2), a variety of ratings related to a JHF shelf registration, the short-term Prime-1 rating of JHF, and the senior debt rating of John Hancock Canadian Corporation's guaranteed debt.
Moody's has also placed on review the existing Aa2 insurance financial strength rating (IFSR) and debt ratings of John Hancock Life Insurance Company (John Hancock) and its two life insurance subsidiaries, John Hancock Variable Life Insurance Company and Investors Partner Life Insurance Company. The Aa2 note programs supported by funding agreements issued by John Hancock were also placed on review for possible downgrade.
The rating agency says that these actions are part of its industry wide assessment of its current US life insurers' ratings given the increasingly harsh environment in which the industry is operating (discussed in a separate press release).
Moody's says that JHF and its subsidiaries have been directly impacted by many of the negative environmental factors that are presently affecting the industry's creditworthiness. Issues affecting JHF in particular that will be part of the review include substantial credit losses from investment grade and speculative grade investments, and to a lesser extent a reduction in fees earned from products that have been adversely affected by declining equity markets.
In addition, JHF has a substantial book of institutional investment products for which it has guaranteed investment returns and is, therefore, unable to pass on any credit loses to contractholders. Moody's believes that JHF prudently manages its liquidity profile including a supporting $1 billion bank line, but that adverse investment results could stress the company's liquidity profile over time.
Moody's also believes that JHF, as a recently demutualized life insurer, as have others, will be under considerable pressure to engage in activities intended to increase shareholder value -- activities that the company would likely have not considered under its previous mutual company structure. These activities include equity repurchase programs, increased use of debt, securitization or reinsurance transaction related to the closed block or other transactions that would improve JHFS return on equity. Moody's believes that these actions when taken reduce the company's overall financial flexibility and creditworthiness.
Moody's believes that JHF's rating benefits from the company's favorable name recognition, revenue source diversification, good capitalization, and its large and stable base of traditional life insurance policies. It also benefits from strong positions in the individual life, long-term care, asset accumulation, and investment management markets.
The following ratings have been placed on review for downgrade:
John Hancock Financial Services, Inc.: Senior debt at A2; Issuer rating at A2; Subordinated debt at (P)A3; Junior subordinated at (P)A3; Preferred stock at (P)Baa1; and commercial paper rating at Prime-1.
John Hancock Canadian Corporation: senior debt at A2
John Hancock Capital Trust I: preferred stock at (P)A3
John Hancock Capital Trust II: preferred stock at (P)A3
John Hancock Global Funding II: backed debt at Aa2
John Hancock Life Insurance Company: insurance financial strength rating at Aa2; senior debt rating at Aa3; and surplus notes at A1.
John Hancock Variable Life Insurance Company: insurance financial strength rating atAa2.
Investors Partner Life Insurance Company: insurance financial strength rating at Aa2
JHFS is an insurance and investment management organization headquartered in Boston, Massachusetts. JHFS had approximately $94 billion in GAAP assets and $6.0 billion in shareholders' equity as of June 30, 2002.
For more information, please visit our Web site at www.moodys.com/insurance.
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