Manufacturers Life Insurance Company (The) -- Moody's affirms The Manufacturers Life Insurance Company's and affiliates ratings

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Rating Action:

Moody's affirms The Manufacturers Life Insurance

Company's and affiliates ratings

1 April 2021

Toronto, April 1, 2021 – Moody's Investors Service (”Moody's”) has affirmed the credit ratings of The

Manufacturers Life Insurance Company (MLI, A1 for insurance financial strength (IFS)), a wholly-

owned subsidiary of Manulife Financial Corporation (MFC, unrated), and of MFC US, composed of

John Hancock Life Insurance Company (USA), John Hancock Life & Health Insurance Company,

and John Hancock Life Insurance Company of New York (MFC US, A1 for insurance financial

strength (IFS)). Other affiliated ratings were also affirmed (see full list of affected ratings at the end of

this Press Release). The rating outlooks for the companies remain stable.
RATINGS RATIONALE
RATINGS RATIONALE – MLI
The affirmation of MLI's credit rating reflects the company’s diversification within business lines

and geographies, which has helped MLI weather the operating environment's coronavirus related

challenges. MLI has a significant commitment to asset management, which performed well in

improving capital markets and is a valuable offset to many insurance risks. MLI also has a strong

market presence and pricing power in its home market of Canada and a strong and growing

presence in Asia, where the business benefits from favorable demographics and a growing market

presence, but where the operating environments of some countries are less stable than in Canada.

MLI's credit profile benefits from a favorable Canadian industry structure, as one of three dominant

players in a protected oligopoly where its pricing power and market presence drive stable profitability

and solid capitalization.
MLI has articulated and executed significant strategic initiatives in recent years, focused on

expanding the company’s higher ROE opportunities while reducing exposure to lower ROE legacy

businesses. Management is also committed to improving efficiency through cost reduction, while

investing in the digitization of distribution, underwriting and internal processing, and enhancing the

client experience. These initiatives, while credit positive, are, in our view, largely shareholder friendly

and not without execution risk. Significant gains in terms of reducing exposure to legacy businesses

and selling alternative long duration (non-fixed income) assets have been made, resulting in higher

capital levels. We continue to monitor the company’s next steps, in terms of capital allocation

choices. The company's residual exposure to equity market risk and to interest rate risk, particularly

within MLI's long- tailed liabilities continues to represent downside risk.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS – MLI
Factors could lead to a ratings upgrade at MLI include sustained improvement in profitability levels

with return on capital consistently above 8% and earnings coverage of fixed charges above 8x on

a sustainable basis; continued stabilization and reduced risk profile of long-term care and variable

annuities within the US operation with no deterioration in earnings, thus reducing the likelihood of the

Canadian operation having to provide support to the US operation; maintenance of MLI's LICAT ratio

above 145%; or consolidated adjusted financial leverage below 30%.

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Conversely, the following developments would put downward pressure on MLI's ratings: a significant

deterioration in the long-term care or variable annuity blocks; LICAT level at MLI falls below 115%;

consolidated adjusted financial leverage rises above 35% or earnings coverage ratio falls below 6x

for a sustained period; or return on capital at MLI averages below 6%.
RATINGS RATIONALE – MFC US
The affirmation of MFC US’ ratings is based on the group’s strong position in the US retirement

savings market, particularly for small case 401(k) plans, a segment in which it is a leading player,

and in asset management. The rating is also based on expected capital and financial support, if

needed, from MFC and/or MLI, given MFC US’ own, weaker intrinsic credit profile. MFC US’ Vitality

products, a behavior-based insurance that provide benefits for maintaining good health, had been

gaining sales momentum pre-2020, and they are likely to lead growth as the pandemic recedes.
These strengths are tempered by the group’s sizable exposure to legacy blocks of high-risk

long-term care (LTC), variable annuities (VAs), and guaranteed universal life (GUL). While well

hedged, these liabilities have interest rate, equity market, and hedging risks that cause continuing

earnings volatility. LTC, an historically troubled product for MFC US and peer providers, is subject

to potentially sizable reserve increases for inaccurate assumptions and is dependent on regular

premium increases to support expected future benefit payments. The disposal of legacy blocks of

life and annuity business over the last several years has reduced interest rate risk incrementally, a

positive, but also slightly reduced the group’s overall profits while concentrating its remaining legacy

liability risk.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS – MFC

US
Moody’s said the following factors could result in an upgrade of MFC US’ ratings: material reduction

of legacy LTC, VA, and GUL blocks, leading to a sustainable reduction in earnings volatility, while

maintaining 100% ownership by, and “core” status with, MLI/MFC; sustained earnings improvement,

as measured by steady growth in annual surplus generation (before dividends to MFC and the

impact of reinsurance); NAIC RBC ratio at John Hancock of at least 375% (company action level),

with adequate capitalization at reinsurance captives; or consolidated MFC adjusted financial

leverage below 30% and earnings coverage above 8x on a sustainable basis.
Conversely, the following factors could lead to a downgrade in MFC US’ ratings: reduction in the

implied support or strategic value of the U.S. operations to the Manulife organization; significant

deterioration in the legacy LTC, VA, and/or GUL blocks; Reduction in annual surplus generation

(before dividends to MFC or reinsurance), and increased capital volatility; NAIC RBC ratio at JHUSA

below 350%, adjusting for adequate capitalization at reinsurance captives; consolidated MFC

adjusted financial leverage above 35% and earnings coverage below 6x for a sustained period; or

high risk asset ratio of 200% or more, with gross asset impairments of $750 million or more.
The following ratings have been affirmed with stable outlooks:
The Manufacturers Life Insurance Company – insurance financial strength at A1;
John Hancock Life & Health Insurance Company – insurance financial strength at A1;
John Hancock Life Insurance Company of New York – insurance financial strength at A1;
John Hancock Life Insurance Company (USA) – insurance financial strength at A1;
John Hancock Global Funding II – backed senior secured MTN program at (P)A1;

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John Hancock Life Insurance Company – backed senior unsecured debt at A2 (assumed by John

Hancock Life Insurance Company (USA));
John Hancock Life Insurance Company – surplus notes at A3 (hyb) (assumed by John Hancock Life

Insurance Company (USA)).
The principal methodology used in these ratings was Life Insurers Methodology published in

November 2019 and available at

https://www.moodys.com/research/Life-Insurers-Methodology--

PBC_1187348

. Alternatively, please see the Rating Methodologies page on www.moodys.com for a

copy of this methodology.
MFC, a leading international financial service group headquartered in Toronto, Ontario, is the owner

of Canadian life insurer, MLI, and the Boston-based John Hancock life insurance companies. At

December 31, 2020 MLI reported total general and segregated fund assets of CAD880.8 billion, net

income to shareholders of CAD5,884 million and shareholders' equity of approximately CAD64.8

billion.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see

the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure

form. Moody’s Rating Symbols and Definitions can be found at:

https://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_79004

.

For ratings issued on a program, series, category/class of debt or security this announcement

provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or

note of the same series, category/class of debt, security or pursuant to a program for which the

ratings are derived exclusively from existing ratings in accordance with Moody's rating practices.

For ratings issued on a support provider, this announcement provides certain regulatory disclosures

in relation to the credit rating action on the support provider and in relation to each particular credit

rating action for securities that derive their credit ratings from the support provider's credit rating.

For provisional ratings, this announcement provides certain regulatory disclosures in relation to the

provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent

to the final issuance of the debt, in each case where the transaction structure and terms have not

changed prior to the assignment of the definitive rating in a manner that would have affected the

rating. For further information please see the ratings tab on the issuer/entity page for the respective

issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies)

of this credit rating action, and whose ratings may change as a result of this credit rating action, the

associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach

exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated

entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no

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Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the

related rating outlook or rating review.

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Moody’s general principles for assessing environmental, social and governance (ESG) risks in our

credit analysis can be found at

https://www.moodys.com/researchdocumentcontentpage.aspx?

docid=PBC_1243406

.

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affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt

am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No

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of the issuer page at www.moodys.com, for each of the ratings covered, Moody’s disclosures on the

lead rating analyst and the Moody’s legal entity that has issued the ratings.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the

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disclosures for each credit rating.
David Beattie

Senior Vice President

Financial Institutions Group

Moody's Canada Inc.

70 York Street

Suite 1400

Toronto, ON M5J 1S9

Canada

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653
Scott Robinson, CFA

Associate Managing Director

Financial Institutions Group

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653
Releasing Office:

Moody's Canada Inc.

70 York Street

Suite 1400

Toronto, ON M5J 1S9

Canada

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653

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