Manulife Financial Corp., Sun Life Financial Inc. and other Canadian life insurers plunged amid credit-rating downgrades after Federal Reserve Chairman Ben S. Bernanke said inflation in the U.S. will remain restrained.
Manulife, the country’s largest insurer, fell 3.9 percent to C$12.07 at 12:53 p.m. in Toronto. Earlier, it was down as much as 5.3 percent, the most since Nov. 1. Sun Life, the third-largest Canadian insurer, slipped about 4 percent to C$20.27, its steepest decline since Dec. 19.
The Federal Reserve pledged yesterday to keep interest rates at a record low until at least late 2014. Manulife and Sun Life, both based in Toronto, had their ratings cut to “neutral” from “buy” by Peter Rozenberg, a UBS AG analyst. Moody’s Investors Service downgraded the operating units of Sun Life’s U.S. business to A3 from Aa3.
“The lower-for-longer interest-rate outlook communicated by the Fed puts some pressure on the Bank of Canada to follow suit or risk providing additional fuel to the already strong Canadian dollar,” Sumit Malhotra, a Macquarie Capital Markets analyst, wrote today in a note to clients. He called it “a clear negative for the life insurers.”
The S&P/TSX Life & Health Insurance Index declined 3.2 percent, its biggest drop since Dec. 8, as all six of its companies moved lower. The index includes Industrial Alliance Insurance, Great-West Lifeco Inc., Power Corp. of Canada and Power Financial Corp., as well as Manulife and Sun Life.