Zacks_Analysts' Blog : Manulife Downgraded - Analyst Blog

On July 17, 2009, A.M. Best Co. downgraded the financial strength rating to A+ from A++  and issuer credit ratings to “aa" from “aa+" for The Manufacturers Life Insurance Company (MLI) (Toronto, Canada), John Hancock Life Insurance Company (JHLIC) (Boston, MA) and their affiliates. Additionally, A.M. Best downgraded the ICR to “a" from “aa-" and all debt ratings of Manulife Financial Corporation (MFC) as well as the enterprise. The outlook for all ratings has been revised to stable from negative.

Declining real estate values, challenged mortgage markets and the consequent decline in business and consumer confidence and increased unemployment globally have precipitated a recession in many of the regions in which MFC does business, including the United States and Canada. All operating divisions of the company have incurred losses related to segregated fund guarantees and reduced capitalized future fee income on equity-linked and variable universal life products, reduced fees due to lower levels of assets under management and shared in the credit losses.

The recent substantial declines in the global equity capital markets have had an adverse impact on MFC’s earnings and capital ratios primarily due to variable annuity and universal life insurance products, particularly because the guarantee risk in a substantial majority of its in-force business is not reinsured or hedged.

Earlier during March 2009, the financial strength and credit ratings of MFC’s operating subsidiaries were downgraded by two notches by Moody’s, moving to Aa3 from Aa1, with a negative outlook.

Among its peers, Prudential Life Insurance (PRU) and Lincoln Financial's (LNC) ratings were upgraded last month by Moody’s and S&P, respectively. Prudential Life Insurance was moved to stable from negative while LNC was also confirmed “Stable" from “Negative." Capital raising by both the companies led to ratings upgrade.

MFC expects to release second quarter results on August 6, 2009. Manulife has experienced large reported Canadian GAAP net losses in each of the last two reporting quarters. We expect further delay in the recovery of global equity markets and as such we anticipate no significant improvement over prior period results. Thus we recommend to Hold the shares.