Fitch Ratings has upgraded its rating outlook on Manulife Financial Corp., and affirmed its ratings on the insurer, citing its improved earnings.
The rating agency revised its outlook to stable from negative due to an improvement in the firm’s reported and core earnings, and Fitch’s view that earnings volatility will decline.
It notes that core earnings were up 14% in 2013 due to interest rate moves and equity market gains, the absence of goodwill impairments and a significant decline in charges for changes in actuarial methods and assumptions.
“While rising interest rates and equity markets have had a favourable impact on earnings in 2013, Fitch also believes that de-risking initiatives taken by MFC over the past several years will improve the consistency of earnings,” the rating agency says.
It also notes that the firm boasts a strong capital position, below-average exposure to credit risk, good liquidity and strong business profile with significant geographic and product diversity. Challenges that could impact its ability to further improve profitability are sustained low interest rates, equity market volatility, and a faltering of the economic recovery, it adds.
Separately, Fitch also affirmed its ratings on Great-West Lifeco, which already has a stable outlook. “The ratings rationale is based upon the company’s consistently strong and stable core insurance earnings; strong competitive position in the Canadian market; conservative investment profile; and overall actuarial liability profile that is not heavily exposed to the equity markets,” it says.
“Offsetting these positives are the company’s relatively high use of financial leverage and the ongoing underperformance of Putnam Investments, which has strained overall earnings levels,” it adds.