Manulife's Fundraising Pushes Reserve Levels Above Targeted Range - Scotia

Manulife Financial Corp. (MFC) could withstand a further significant fall in equity markets thanks to the recent move by Canada’s largest insurer to raise C$2-billion in capital, according to Scotia Capital. The S&P 500 would have to fall to 640 points before the company’s reserves would again reach precarious levels, said analyst Tom MacKinnon.

He continues to be very bullish about the insurer’s outlook, saying the success in raising fresh capital and trimming back an emergency C$3-billion loan from Bay Street’s biggest banks provides “further reassurance.”

“What would appear to be an unworkable C$3-billion loan was replaced by C$2-billion in equity and a restructured C$2-billion loan,” the Scotia analyst said.

The funds raised through the issue of new shares in Manulife pushed the insurer’s reserve level “well above its targeted” range, Mr. MacKinnon noted. Reserves would stay well ahead of target as long as the S&P 500 continues to trade above 725 points, he added.

The company also has the flexibility to add to its capital base by taking advantage of new looser rules put in place by Ottawa that would allow the insurer to issue at least C$2-billion of preferred shares, which are seen as a more shareholder-friendly option, the Scotia analyst said.

The extra capital has also deleveraged Manulife’s balance sheet, with debt-to-total capital falling from 27% to 23% – increasing the capacity of the company to take on C$750-million to C$3-billion of extra loans. This leaves Manulife “well positioned now to pursue acquisition opportunities,” according to Mr. MacKinnon.