PrefBlog

Moody’s has announced:

downgraded the insurance financial strength (IFS) ratings of Manulife Financial Corporation’s (Manulife; TSX: MFC) subsidiaries to Aa3 from Aa1.
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Manulife reported the following sensitivities of its capital and earnings to equity markets: (1) MLI’s regulatory capital ratio (known as MCCSR) will decline 2 percentage points for every 1 percentage point decline in the equity markets; and (2) MLI will suffer a C$1.6 billion rise in reserve charges (after-tax) for equity market guarantees for every 10% drop in equity markets. By contrast, some of Manulife’s peers have reported significantly less onerous sensitivities — with MCCSR and reserve charge sensitivities a fraction of Manulife’s. Equity markets, Moody’s notes, are down approximately 10-15% since the start of 2009, and had been down 20% earlier this year, highlighting the potential for further volatility in regulatory capitalization.
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The negative outlook reflects the company’s continuing susceptibility to declines in the equity markets. As noted above, Manulife, unlike most of the other large writers of variable annuities and segregated funds in North America, has not implemented a comprehensive equity hedging program, making the company more vulnerable than peers to equity market volatility. After giving benefit for Manulife’s C$450 million preferred share equity raise this month, Moody’s estimates MLI’s MCCSR at or around 200%, which is low relative to historic standards and relative to Moody’s expectations at Manulife’s current Aa3 IFS rating level. Assuming a C$2.4 billion charge for higher variable annuity guarantee reserves (given equity markets are down 15%), Moody’s estimates a consolidated financial leverage ratio of over 25% at present, versus 22% at the end of 2008.

Moody’s Global Rating Methodology for Life Insurers notes:

The IFS ratings are assigned to life insurance operating companies and are Moody’s opinions of the ability of insurance companies to repay punctually senior policyholder claims and obligations.

Manulife has the following preferreds outstanding: MFC.PR.A (OpRet); MFC.PR.B (PerpetualDiscount); and MFC.PR.C (PerpetualDiscount). These issues were last mentioned on PrefBlog when Fitch downgraded MFC on March 2.

This entry was posted on Wednesday, March 18th, 2009 at 12:37 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.