Fitch Affirms Manulife Financial; Outlook Negative; Rates Pfd Stock

  Fitch Affirms Manulife Financial; Outlook Negative; Rates Pfd Stock

Business Wire

CHICAGO -- February 11, 2013

Fitch Ratings has affirmed Manulife Financial Corporation (MFC) and its
primary insurance related operating subsidiaries' ratings, including The
Manufacturers Life Insurance Company (MLI) and John Hancock Life Insurance
Company (U.S.A.) (JHUSA). See the full list of ratings at the end of this
release.

At the same time, Fitch has assigned an 'A-' rating to previously issued MLI
CAD500 million 4.165% fixed/floating subordinated debentures due 2022 (MFC
guarantor), and a 'BBB' rating to MFC's CAD250 million non-cumulative Rate
Reset Class 1, series 7 preferred shares, CAD250 million non-cumulative Rate
Reset Class 1, series 9 preferred shares, and CAD200 million non-cumulative
Rate Reset Class 1, Series 11 preferred shares. A complete list of ratings
actions is at the end of this release. The Outlook remains Negative for all
ratings.

KEY RATING DRIVERS

Fitch's rationale for the ratings includes MFC's strong capital position,
below-average exposure to credit-related risk, good liquidity and strong
business profile with significant geographic and product diversity. Additional
positive considerations include MFC's reduced risk profile driven by better
hedging of volatility of earnings and capital related to interest rate and
equity market risks. Fitch favourably views improved profitability in 2012 and
notes that MFC's adjusted earnings have met the lower end of expectations.

The Negative Outlook is driven by Fitch's continued concerns about low
profitability and earnings and their effect on organic capital generation and
low-fixed charge coverage. MFC's reported profitability has regularly been
affected by significant, unfavorable updates to actuarial methods and
assumptions over the past two years. These charges are related to updates to
actuarial standards, charges related to the impact of the current
macro-economic climate and other changes to actuarial methods and assumptions,
including product-related experience and policyholder behavior. Fitch views
the earnings volatility over time as not consistent with MFC's current rating
level.

Key challenges to profitability improvements could be driven by sustained low
interest rates, financial market volatility, and a faltering of the weak
economic recovery. Fitch expects these factors to constrain MFC's earnings
growth over the near term, and in a severe, albeit unexpected, economic
scenario, they could significantly affect the company's earnings and capital.

Fitch considers MFC's debt service capacity as below average for the rating as
fixed-charge coverage on reported earnings was 3.5x and on a core earnings
basis 5.6x in 2012. Fitch expects core earnings-based, fixed-charge coverage
to exceed 5.5x in 2013. MFC's liquidity is considered strong with a
high-quality, liquid fixed-income portfolio. Fitch believes that under
Canadian regulations, MFC has greater flexibility to upstream common stock
dividends from operating subsidiaries to the regulated holding company without
regulatory approval than most U.S. peers.

MFC's profitability improved in 2012 but remains below Fitch's expectations
for the rating. Return on common shareholder's equity increased to 7.2% in
2012 as MFC's reported net income to common shareholders increased to CAD1.624
billion for 2012 versus CAD44 million for 2011. Results in both periods
reflect the direct effect of capital markets, which Fitch adjusts for in its
analysis. Core earnings for 2012 remained flat at CAD2.2 billion and
investment related gains were again strong at CAD937 million above core
investment gains. Key drivers of profitability in 2012 were reduced direct
effects of lower interest rate levels and equity markets and lower goodwill
impairments, offset by increases in charges for changes in actuarial reserves
related to product assumptions. MFC posted record insurance and wealth sales
in 2012.

Fitch believes MFC is well-capitalized on a risk-adjusted basis, with a
minimum continuing capital and surplus requirement (MCCSR) ratio for MFC's
leading operating company, MLI, at 211% at Dec. 31, 2012. Fitch notes that MFC
has made significant progress in reducing capital volatility with regards to
equity markets and interest rate fluctuations. MFC's financial leverage was
25% at year-end 2012 versus 26% at year-end 2011. Total debt and preferred
stock to capital of 32% is at the high end of expectations and is expected to
remain elevated in 2013. Financial leverage ratios are expected to decline
modestly in the intermediate term driven by improved organic capital
generation.

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 below 5.5x

--Financial leverage increases to above 30% from current levels

--Operating company MCCSR ratio below 190%

Key ratings triggers for MFC that could lead to a revision of the Outlook to
Stable include:

--Maintain profitability and related fixed-charge coverage consistent with
2012

--Maintain current earnings volatility levels

--Sustain current capital and earnings sensitivity to equity markets

Fitch has assigned the following ratings:

The Manufacturers Life Insurance Company

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

Manulife Financial Corporation

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

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

--CAD250 million 4.00% non-cumulative rate reset, preferred class 1, series 11
stock 'BBB'

Fitch has affirmed the following ratings with a Negative Outlook:

Manulife Financial Corporation

--Issuer Default Rating (IDR) at 'A'

--CAD350 million medium term notes 4.67% due 2013 at 'A-'

--CAD1 billion medium term notes 4.896% due 2014 at 'A-'

--CAD550 million medium term notes 5.161% due 2015 at 'A-'

--USD600 million senior notes 3.40% due 2015 at 'A-'

--CAD900 million medium term notes 4.079% due 2015 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 4.10% class A, series 1, preferred stock at 'BBB'

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

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

--CAD450 million 6.60% non-cumulative, preferred class A, series 4 stock at
'BBB'

--CAD350 million 5.60% non-cumulative rate reset, preferred class 1, series 1
stock at 'BBB'

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

--CAD250 million 4.40% non-cumulative rate reset, preferred class 1, series 5
stock - 'BBB'

The Manufacturers Investment Corporation

--IDR at 'A'

--Short-term IDR at 'F1'

--Commercial paper at 'F1'

Manulife Financial Capital Trust II

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

Manulife Finance, L.P.

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

--CAD650 million 5.059% fixed/floating subordinated debentures due 2041
(Manulife Finance Corp. guarantor) 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 Finance Corp. guarantor) 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-'

John Hancock Global Funding II

--Global MTN program at 'AA-'

Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Jan. 11, 2011)

Applicable Criteria and Related Research:

Insurance Rating Methodology - Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=698731

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Contact:

Fitch Ratings
Primary Analyst
R. Andrew Davidson, CFA, +1-312-368-3144
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Tana M. Higman, +1-312-368-3122
Director
or
Committee Chairperson
Brian C. Schneider, CPA, CPCU, ARe, +1-312-368-2321
Senior Director
or
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Email: brian.bertsch@fitchratings.com