Fitch Ratings has affirmed its ratings on Manulife Financial Corp. (TSX:MFC) and its primary insurance related operating subsidiaries’ ratings, albeit with a negative outlook.

The rating agency says that the rationale for its current ratings on Manulife includes its strong capital position, below-average exposure to credit-related risk, good liquidity and strong business profile with significant geographic and product diversity. It also notes that the insurer has reduced risk with better hedging of the volatility of its earnings and capital related to interest rate and equity market risks.

Still, it maintains a negative outlook on the ratings, which Fitch says is driven by its continued concerns about low profitability and earnings and their effect on organic capital generation and low-fixed charge coverage.

“[Manulife’s] reported profitability has regularly been affected by significant, unfavorable updates to actuarial methods and assumptions over the past two years. These charges are related to updates to actuarial standards, charges related to the impact of the current macro-economic climate and other changes to actuarial methods and assumptions, including product-related experience and policyholder behavior,” it says, adding that the earnings volatility over time is not consistent with its current rating level.

Key challenges to profitability improvements could be “sustained low interest rates, financial market volatility, and a faltering of the weak economic recovery,” Fitch says, noting that it expects these factors to constrain Manulife’s earnings growth over the near term, “and in a severe, albeit unexpected, economic scenario, they could significantly affect the company’s earnings and capital.”

Fitch also notes that it considers Manulife’s debt service capacity as below average for its rating.

But, it says the firm’s liquidity is considered strong with a high-quality, liquid fixed-income portfolio. And, it says that the insurer has greater flexibility to upstream common stock dividends from operating subsidiaries to the holding company without regulatory approval than most U.S. peers.