Fitch Expects to Rate Manulife Financial's Preferred Stock 'BBB-'

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings expects to assign a 'BBB-' rating to Manulife Financial Corporation (MFC) CAD400 million 5.6% non-cumulative rate reset class 1 series 21 preferred shares.

KEY RATING DRIVERS

The rating for the new offering is equivalent to the rating on MFC's existing preferred shares. Under Fitch's notching methodology, a baseline recovery assumption of 'Poor' and a nonperformance risk assessment of 'Moderate' were used. Notching of four down was applied relative to the holding company Issuer Default Rating (IDR), which was based on two notches for recovery and two notches for nonperformance risk.

Proceeds from the issuances will be used for general corporate purposes, including future refinancing requirements. Fitch expects pro forma financial leverage following the preferred share issue to decrease to 17.5% from 17.7% at Dec. 31, 2015. Fitch treats these securities as 100% equity in the calculation of financial leverage.

Fitch affirmed the ratings of MFC and its insurance operating subsidiaries with a Stable Outlook on Jan. 26, 2016.

RATING SENSITIVITIES

Key rating triggers for MFC that could lead to a downgrade include:

--Decline in core earnings;

--Elevated charges for actuarial methods and assumptions or experience losses;

--Fixed-charge coverage on a core earnings basis below 6x;

--An increase in financial leverage to over 25% or an increase in total leverage to over 35%;

--A sustained drop in MFC's risk-adjusted capital position with no plans or ability to rectify. This would include the minimum continuing capital and surplus requirement ratio falling below 200%. The ratings on the U.S. insurance subsidiaries could be impacted if the U.S. risk-based capital ratio fell below 400%;

--Large acquisitions that are outside the company's historical risk preference or that have a material impact on the company's leverage and capitalization.

Key ratings triggers for MFC that could lead to an upgrade include:

--Improvement in return on equity based on core earnings to 12% or higher;

--Stability in reported net income;

--An increase in fixed-charge coverage on a core earnings basis to over 10x;

--Maintaining current capital and earnings sensitivity to interest rate and equity markets;

--Continued maintenance of financial leverage at or below 20%.

FULL LIST OF RATING ACTIONS

Fitch expects to assign the following rating:

Manulife Financial Corporation

--CAD400 million 5.6% non-cumulative rate reset, preferred class 1, series 21 stock at 'BBB-'.

Fitch currently rates the MFC entities as follows:

Manulife Financial Corporation

--Long-term IDR at 'A';

--CAD400 million medium term notes 5.505% due 2018 at 'A-';

--CAD600 million medium term notes 7.768% due 2019 at 'A-';

--USD500 million senior notes 4.90% due 2020 at 'A-';

--CAD350 million 4.65% non-cumulative class A, series 2, preferred stock at 'BBB-';

--CAD300 million 4.50% non-cumulative class A, series 3, preferred stock at 'BBB-';

--CAD200 million 4.20% non-cumulative rate reset, preferred class 1, series 3 stock at 'BBB-';

--CAD200 million 4.40% non-cumulative rate reset, preferred class 1, series 5 stock at 'BBB-';

--CAD250 million 4.60% non-cumulative rate reset, preferred class 1, series 7 stock at 'BBB-';

--CAD250 million 4.40% non-cumulative rate reset, preferred class 1, series 9 stock at 'BBB-';

--CAD200 million 4% non-cumulative rate reset, preferred class 1, series 11 stock at 'BBB-';

--CAD200 million 3.8% non-cumulative rate reset, preferred class 1, series 13 stock at 'BBB-';

--CAD200 million 3.9% non-cumulative rate reset, preferred class 1, series 15 stock at 'BBB-';

--CAD350 million 3.9% non-cumulative rate reset, preferred class 1, series 17 stock at 'BBB-';

--CAD250 million 3.8% non-cumulative rate reset, preferred class 1, series 19 stock at 'BBB-'.

The Manufacturers Life Insurance Company

--Insurer Financial Strength (IFS) at 'AA-';

--IDR at 'A+';

--CAD550 million 4.21% fixed/floating subordinated debentures due 2021 (Manulife Financial Corp. guarantor) at 'A';

--CAD500 million 4.165% fixed/floating subordinated debentures due 2022 (Manulife Financial Corp. guarantor) at 'A';

--CAD200 million 2.819% fixed/floating subordinated debentures due 2023 (Manulife Financial Corp. guarantor) at 'A';

--CAD250 million 2.926% fixed/floating subordinated debentures due 2023 (Manulife Financial Corp. guarantor) at 'A';

--CAD500 million 2.811% fixed/floating subordinated debentures due 2024 (Manulife Financial Corp. guarantor) at 'A';

--CAD500 million 2.64% fixed/floating subordinated debentures due 2025 (Manulife Financial Corp. guarantor) at 'A';

--CAD750 million 2.1% fixed/floating subordinated debentures due 2025 (Manulife Financial Corp. guarantor) at 'A';

--CAD350 million 2.389% fixed/floating subordinated debentures due 2026 (Manulife Financial Corp. guarantor) at 'A';

--CAD1 billion 3.181% fixed/floating subordinated debentures due 2027 (Manulife Financial Corp. guarantor) at 'A'.

The Manufacturers Investment Corporation

--IDR at 'A';

--Short-term IDR at 'F1';

--Commercial paper at 'F1'.

Manulife Finance, L.P.

--CAD550 million 4.448% fixed/floating senior debentures due 2026 (Manulife Financial Corp. guarantor) at 'A-';

--CAD650 million 5.059% fixed/floating subordinated debentures due 2041 (Manulife Financial Corp. guarantor) at 'BBB+'.

Manulife Financial Capital Trust II

--CAD1 billion 7.405% MaCS II series 1 at 'A-'.

John Hancock Life Insurance Co (U.S.A.)

--IFS at 'AA-';

--IDR at 'A+';

--USD450 million surplus notes 7.375% due 2024 at 'A'.

The John Hancock Life Insurance Company of New York

--IFS at 'AA-'.

John Hancock Life & Health Insurance Company

--IFS at 'AA-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Insurance Rating Methodology (pub. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=999714

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=999714

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160219005549/en/

Fitch Ratings
Primary Analyst
Tana M. Higman
Director
+1-312-368-3122
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Dafina M. Dunmore, CFA
Director
+1-312-368-3136
or
Committee Chairperson
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Media Relations:
Hannah James, New York, + 1 646-582-4947
Email: [email protected]

Source: Fitch Ratings

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