Rating agency DBRS Morningstar assigned the insurer The Manufacturers Life Insurance Company a financial solvency rating of AA (low). It gave the holding company Manulife Financial Corporation an issuer rating of A, and both organizations have a positive outlook.

The agency notes that the income of Manulife Financial Corporation (Manulife) declined due to market pressure on the returns of its Alternative Long Duration Assets portfolio.

DBRS Morningstar figures indicate that earnings attributed to common shareholders of Manulife Financial Corporation totalled $684 million (M$) in Q2 2020, equal to a 52% plunge versus Q2 2019. The investment experience losses on the alternative assets mainly result from market fluctuations on the valuation of private equity, real estate, and oil and gas exposure.

Insurance sales dwindle

DBRS Morningstar reports that the insurer’s base core earnings were up 5% versus the same quarter of 2019, to reach $1.6 billion in Q2 2020. During this quarter, favourable policyholders experience was offset by the lack of core investment gains and lower insurance sales, the agency says. Due to the pandemic, the insurer recorded a decrease in insurance sales in Canada and Asia, while sales stagnated in the United States.

Despite financial market volatility and the decline in sales, the rating agency finds that Manulife maintains strong capital levels and financial flexibility. It also thinks geographical diversification worked in the insurer’s favour, because its diversified income pool is affected at different times depending on where cases of coronavirus are rising.

Fund income down

The MorningStar analysis shows that Manulife’s global wealth asset management dipped slightly in Q2 2020 versus the same quarter of 2019, to reach $238 million, despite net inflows of $5.1 billion in its funds. DBRS attributes this decrease to fee compression of fund management costs and customers shifting into lower-margin funds. All the same, the agency views this segment as a stable source of income.

Low interest rates boost rating

Manulife financial leverage rose to 26% due to recent net debt issuance. The agency notes that this percentage slightly exceeds Manulife’s target of 25% as the company proactively pre-finances its debt to take advantage of low interest rates.

The insurer’s solvency ratio remained the same in Q2 2020 versus the same quarter of 2020. It was 155% according to the life insurance capital adequacy test (LICAT), well above that of its relevant peers.