AM Best has affirmed its ratings on Manulife Financial, saying they reflect the strong balance sheet of the company and its subsidiaries.
AM Best has given Manulife a Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings of “aa-” on its life/health insurance subsidiaries. As well, AM Best affirmed the Long-Term ICR of “a-” and its Long-Term Issue Credit Ratings (Long-Term IR). All the ratings have a stable outlook.
Ratings reflect strong balance sheet
The ratings of Manulife’s subsidiaries reflect their balance sheet strength, which AM Best categorizes as very strong, as well as their strong operating performance, favourable business profile and very strong enterprise risk management.
The company’s balance sheet strength remains solid despite recent market volatility caused by the COVID-19 pandemic, as the company continues to focus on shedding higher capital-intensive assets and businesses.
While financial leverage has increased recently due to the issuance of the equivalent of approximately $3 billion of senior and subordinated debt in May 2020, the debt issuance was primarily used as pre-funding measures for upcoming debt maturities, as well as for general corporate purposes.
Financial leverage high, but within ratings
Although Manulife’s financial leverage is relatively high compared with industry averages, it remains within AM Best’s guidelines for its current ratings.
Manulife “may experience an increase in financial leverage, but it is anticipated to remain within the company’s current rating profile,” said AM Best.
The ratings also acknowledge the generally favourable operating performance within its core business lines, particularly the strong new business and earnings growth within its Asia segment over the past several years.
While operating trends are expected to be impacted negatively over the near term, similar to the rest of the industry, AM Best believes that Manulife will be well-positioned to benefit from its leading market positions within several countries in Asia, as well as the United States and Canada, as economies begin to rebound.
New technology helps strong operating results
Expense reduction initiatives and a focus on improving efficiencies by investing in new, innovative technology also has contributed to the strong operating results in recent periods.
AM Best recognizes that Manulife has faced increased competition within its global wealth and asset management area and higher mortality within its Canadian segment.
In addition, while it continues to manage its legacy businesses actively, AM Best remains somewhat concerned about the significant exposure to its long-term care insurance and variable annuity blocks of business, which could create some volatility or strain compared with other product lines.
