Fitch Ratings Tuesday revised its outlook on Manulife Financial Corp. to negative, while also affirming its current ratings on the firm.
The rating agency says the move to a negative outlook is driven by concerns about negative trends in adjusted earnings and the company’s financial leverage, which is at the high end of rating expectations. It notes that Manulife’s run rate profitability has been negatively affected by the unfavourable reserve adjustments for product-related experience and policyholder behaviour. Over the near term, Fitch expects reported profitability to be negatively impacted by an extended period of lower interest rates. It also says it considers the insurer’s debt service capacity as below average for the rating.
Fitch says that a downgrade could be triggered if adjusted earnings were to come in below $2.5 billion for 2012; or if leverage increases notably from current levels; among other things.
That said, Fitch says the rationale for its ratings on Manulife includes the firm’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 the insurer’s progress in hedging the volatility of earnings and capital related to interest rate and equity market risks.
No change following DBRS review
Separately, DBRS reports that it has reviewed Manulife’s recent fourth quarter results, and that it believes there were no surprises, and no rating implications. The rating agency says that the most notable news in the Q4 earnings release was the announcement that the firm’s current chief financial officer will be leaving the company. It notes that the outgoing CFO “appeared to have been instrumental to the re-engineering of the company’s product lines and risk policies, procedures and mitigants, which have positioned the company to remain a going concern.”
It says that while his departure could be a source of uncertainty in the short run, DBRS believes that there is a depth of management expertise and capability which can “drive brighter earnings prospects with reduced risk exposures”.