Manulife Financial Corp. – Fitch Brightens Outlook On Manulife Financial
Fitch Ratings Inc., a major ratings agency, has revised its outlook on Canada’s Manulife Financial Corp. (TSE:MFC, Market cap 40.59B, P/E 14.75, Div/yield 0.13/2.36, EPS 1.49, Shares outstanding 1.84B) to “stable” from “negative.” This revision reflects the improvement in the earnings of the financial services firm and its view that earnings volatility will gradually abate. The agency maintained all of the company’s ratings, including its issuer default rating (IDR) of “A,” as well as those of its insurance-related operating units.
At the same time, Fitch set an “A-” rating to the company’s C$250 million subordinated debentures, which mature in 2023.
According to the agency, the major factors driving the increase in MFC’s 2013 earnings were the more favourable equity market environment and higher interest rates. The firm’s de-risking measures, initiated several years ago, were also key to the improvement. Fitch is upbeat that these initiatives – including its hedging strategy for equity market exposure and interest rates, the changes in its business portfolio and the re-pricing of its long-term care and universal life products – will continue to underpin its earnings in the coming years.
Manulife Financial reported core earnings of C$1.9 billion for 2013, a rise of 14% compared to 2012. This was chiefly thanks to the lower impact of interest rates and equity markets, the absence of goodwill impairments and a substantial drop in charges related to changes in actuarial methods and assumptions.
The ratings are also backed by the firm’s healthy capital position, below-average exposure to credit-related risk, its sound liquidity and solid business position. The factors that counterbalance these strengths include its low debt service capacity and somewhat unsatisfactory fixed-charge coverage. However, Fitch said that it expects core earnings-based, fixed charge coverage to improve to over 7x in 2014.
The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.