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PLEASE READ AND SCROLL DOWN!

 

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Announcement:

Moody's Disclosures on Credit Ratings of John Hancock Global Funding II and John Hancock Life Insurance Company

15 Mar 2012

New York, March 15, 2012 -- The following release represents Moody's Investors Service's summary credit opinion on John Hancock Global Funding II and John Hancock Life Insurance Company and includes certain regulatory disclosures regarding its ratings. This release does not constitute any change in Moody's ratings or rating rationale for John Hancock Global Funding II and John Hancock Life Insurance Company.

Moody's current ratings on John Hancock Global Funding II and John Hancock Life Insurance Company are:

BACKED Senior Secured (domestic and foreign currency) ratings of A1

BACKED Senior Secured MTN Program (domestic currency) ratings of (P)A1

John Hancock Life Insurance Company

Senior Unsecured (domestic currency) ratings of A2

Senior Unsecured MTN Program (domestic currency) ratings of (P)A2

BACKED Senior Unsecured (domestic currency) ratings of A2

BACKED Senior Unsecured MTN Program (domestic currency) ratings of (P)A2

BACKED Surplus Notes (domestic currency) ratings of A3; (hyb)

RATINGS RATIONALE

Moody's rates Manulife Financial Corporation's (MFC's) primary U.S. life insurance operating companies (MFC US, led by the John Hancock Life Insurance Company (U.S.A.) (John Hancock), A1 (stable) for insurance financial strength (IFS). MFC US, which is indirectly owned by The Manufacturers Life Insurance Company (MLI; IFS at A1, stable outlook) is a leading participant in the U.S. life insurance, annuities, retirement savings, and long-term care markets via its U.S. life insurance subsidiaries.

The IFS ratings are based on MFC US' substantial scale as one of the largest issuers of life insurance in the United States; distribution through most major distribution channels; excellent brand recognition supported by the widely recognized John Hancock name; extensive product diversification and a wide array of offered products; and established, if not leading market positions in a number of lines of business, most notably small case 401(k) plans, long-term care insurance (LTC) and variable annuities (VAs) - the latter two in terms of inforce liabilities. The rating also reflects MFC US' strong financial and operational support from its parent, MLI.

These strengths are tempered by a large variable annuity business that is highly sensitive to both equity market movements and interest rate risks, particularly in the continuing low interest rate environment. During the 2008-2009 financial crisis and equity market downturn, sizable blocks of unhedged VA business had reserve increases and charges that caused major losses, forced capital raises (and injections to the MFC US subsidiaries), and a dividend reduction at MFC. Continuing equity market volatility, together with the impact of low interest rates on MFC's long-term liabilities (including no-lapse universal life and long-term care) contributed to a C$2.4 billion consolidated net loss in 2Q10, and C$391 million for the full year. More comprehensive hedging programs introduced for both new VA sales and in-force business (discussed below) should substantially reduce equity market and interest rate risk over the next two years.

MFC US' strengths are also tempered by its sizable exposure to LTC - a relatively unseasoned product, whose financial performance is highly dependent on the accuracy of uncertain and highly impactful long-term assumptions made during the product design, pricing, and risk management decision-making process. Worsening morbidity and claims experience largely in pre-2004 business (acquired with John Hancock in the first half of 2004) contributed to significant charges in 2010 for product and morbidity assumption changes, necessitating substantial (i.e., average 40%) rate hike requests from U.S. state regulators. In Moody's opinion, uncertainty around regulatory acceptance of these rate hikes remains. In addition, weaker earnings coverage and increased financial leverage on a consolidated MFC level reduces the group's financial flexibility.

Prior to the 2008-2009 financial crisis, MFC did not, as a policy, engage in a comprehensive hedging program of the equity risk in its VA portfolio. As noted, resultant losses and capital issues led to the redesign and hedging of new VA products, as well as to the commitment to cover 60% of the group's earnings sensitivity to the equity market on inforce business by 2012 and 75% by 2014. Certain senior management changes also took place. As of 4Q10, MFC's commitment to risk reduction was changed from strictly market-based to include a time-based element, which should ensure that the company meets its hedging goals in its timeframe. The company made a similar time-based commitment to hedging its interest rate risk in the same time period. At the same time, sales of older product lines exposed to equity and interest rate risk (i.e., variable annuities; no-lapse universal life; certain types of fixed annuities; long-term care) have been curtailed (and certain new, less risky products launched). Through the end of 3Q11, the company is ahead of its schedule in achieving its risk reduction targets, reducing sensitivity to $1 billion after-tax for a 100bps decline in interest rates (excluding impact of reinvestment rates). For equity markets sensitivity, Manulife has achieved 88% of its 2014 goal for earnings sensitivity for a 10 percent drop in equity markets.

The operating companies in the Manulife Financial Corporation U.S. operations share their A1 IFS rating based on the commonality of the operations of the companies: shared names, product, management and distribution, among other key factors. In addition, in certain cases there are various forms of additional explicit support through methods such as partial guarantees of specific liabilities.

Rating Outlook

The rating outlook is stable.

What to watch for:

- Implementation of expected rate increase in long-term care block;

-Timely execution of equity and interest rate hedging programs.

What Could Change the Rating - Up

The ratings could be upgraded if a combination of the following events were to occur:

- Successful implementation of expected LTC rate increases, as well as stabilization in morbidity experience, leading to improved profitability on the block;

- Completion of equity and interest rate risk hedging according to company commitments, leading to reduced earnings volatility;

- Sustained earnings improvement to an ROC of over 8%;

- Maintenance of current NAIC RBC ratio levels at John Hancock (i.e., 325% RBC - while maintaining adequate capital adequacy at reinsurance captives);

- An upgrade of MLI's ratings.

What Could Change the Rating - Down

The ratings could be downgraded if one or more of the following occurs:

- A downgrade of MLI's ratings;

- Failure to implement expected LTC rate increases, leading to worsening LTC experience and additional charges on the block;

- Failure to complete equity and interest rate risk hedging;

- A decline in ROC to below 4% on a sustainable basis, and increased earnings volatility;

- NAIC RBC ratio at John Hancock below 275%; inadequate capital adequacy at reinsurance captives;

- Reduction in the implied support or strategic value of the U.S. operations to the organization;

- U.S. statutory investment losses in excess of US$750 million (pre-tax) in 2011.

The principal methodology used in these ratings was Moody's Global Rating Methodology for Life Insurers published in May 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

Although these credit ratings have been issued in a non-EU country which has not been recognized as endorsable at this date, the credit ratings are deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Laura Bazer
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Disclosures on Credit Ratings of John Hancock Global Funding II and John Hancock Life Insurance Company
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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