AM Best Reaffirms Credit Ratings for Manulife Financial Corporation and Its Subsidiaries

AM Best has reaffirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “aa-” (Superior) for the life/health (L/H) insurance subsidiaries of Manulife Financial Corporation (MFC) based in Toronto, Canada [NYSE: MFC]. Additionally, the Long-Term ICR of “a-” (Excellent) and the Long-Term Issue Credit Ratings (Long-Term IRs) for MFC have also been affirmed. The outlook for all ratings remains stable. (See below for a detailed list of companies and their ratings.)

These ratings reflect the very strong balance sheet strength of MFC’s L/H subsidiaries, alongside their robust operating performance, favorable business profile, and very strong enterprise risk management (ERM).

MFC’s balance sheet strength is characterized as very strong, underscored by a solid risk-adjusted capital position, as evidenced by the Life Insurance Capital Adequacy Test (LICAT) and Best’s Capital Adequacy Ratio (BCAR). MFC’s LICAT score has remained favorable and has increased over recent quarters, while its BCAR stays within the strong category. The company’s financial flexibility is also a factor in this assessment, as it strategically utilizes debt and other financing channels while maintaining moderate financial leverage and strong interest coverage well within the guidelines for its current ratings. In late 2023 and early 2024, MFC took proactive measures to de-risk its business portfolio by reinsuring $18 billion of legacy and low return-on-equity business, including $6 billion related to long-term care insurance.

From an operational standpoint, MFC has a track record of stable earnings, consistently reporting favorable results in its core business lines, despite annual fluctuations due to market conditions. MFC’s restated earnings for 2022 under IFRS 17 were negatively impacted by the implementation of IFRS 9 hedge accounting and expected credit loss principles. This was a one-time impact, and results in 2023 aligned with long-term trends. The company’s earnings reflect its diversified business model, which features a comprehensive product offering, geographic spread across Asia, Canada, and the United States, and strong market positions in its core sectors. The company’s ERM program, assessed by AM Best as very strong, effectively manages risks associated with its balance sheet, operational performance, and overall business profile.

However, some risks remain, particularly MFC’s exposure to legacy business lines, including long-term care and universal life with secondary guarantees, which make up a significant portion of the company’s reserves. AM Best recognizes MFC’s prudent management of these legacy blocks through initiatives focused on loss prevention, policy conversion programs, reinsurance, and conservative reserving practices. While the performance of the alternative long-duration asset (ALDA) portfolio has shown some volatility, it has historically provided a favorable investment yield and diversification. MFC actively manages its investments in these asset classes. AM Best notes that ALDA’s performance industry-wide in 2023 was less favorable compared to other asset classes, potentially contributing to earnings volatility.

The FSR of A+ (Superior) and the Long-Term ICRs of “aa-” (Superior) have been reaffirmed with stable outlooks for the following L/H subsidiaries of Manulife Financial Corporation:

  • The Manufacturers Life Insurance Company
  • John Hancock Life Insurance Company (U.S.A.)
  • John Hancock Life Insurance Company of New York
  • John Hancock Life & Health Insurance Company

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