A.M. Best Affirms Credit Ratings of Manulife Financial Corporation and Its Subsidiaries

A.M. Best has affirmed the Financial Strength Rating (FSR) of A+
(Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of
“aa-” of the life insurance subsidiaries of Manulife Financial
Corporation (MFC) (Toronto, Canada) [NYSE:MFC]. Concurrently, A.M.
Best has affirmed the Long-Term ICR of “a-” and the Long-Term Issue
Credit Ratings (Long-Term IR) of MFC. The outlook of these Credit
Ratings (ratings) is stable. (See link below for a detailed listing of
the companies and ratings.)

The ratings reflect MFC’s balance sheet strength, which A.M. Best
categorizes as very strong, as well as its strong operating performance,
favorable business profile and very strong enterprise risk management.
The rating affirmations also reflect MFC’s solid risk-adjusted
capitalization, strong liquidity profile and strong global business
profile in Asia, Canada and the United States. The ratings also
acknowledge stability in operating earnings and the increased scale of
core business lines, growth in net flows and fee-based revenues,
particularly within Asia and the company’s global wealth asset
management (WAM) business segment. The company’s strategy is to focus on
less capital intensive and less volatile lines of business with a
balance between fee-based revenues and core legacy blocks of business,
while growing its WAM business segment and selective high-growth Asian
markets. Recently, MFC set targets related to expense-reduction
initiatives and targeted asset sales to enhance regulatory capital
levels and profitability metrics.

Offsetting rating factors include MFC’s elevated investment risk
relative to capital with significant in-force balance sheet exposure to
equity and credit risk embedded in MFC’s alternative asset portfolio
(i.e., public equities, real estate, timber and agriculture), which the
company views as a natural hedge against their long-term liabilities in
addition to providing asset diversification. MFC retains a large block
of variable annuities that remain subject to equity market volatility,
future policyholder annuitization election rates and interest rate risk,
and are considered well-hedged given the degree of embedded risk that
exist within the block of business. While the company has discontinued
sales of its stand-alone individual long-term care (LTC) products and
has continued to prudently manage its in-force legacy LTC block through
rate increases and additional reserve increases, A.M. Best continues to
monitor the reserving levels of the LTC legacy block.

MFC has temporarily elevated financial leverage above the company’s
long-term targeted level due to recent pre-financing capital management
activities, which over time is expected to decline from the current
level that exists today. In addition, interest coverage is currently
lower than expectations, albeit subject to the accounting volatility
inherent in IFRS accounting and offset by a very strong liquidity
profile in its investment portfolio.

For a complete listing of FSRs, Long-Term ICRs and Long-Term Issue
Credit Ratings for MFC and its life/health subsidiaries, please visit Manulife
Financial Corporation.

This press release relates to Credit Ratings that have been published
on A.M. Best’s website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and A.M. Best press releases, please view Guide
for Media – Proper Use of Best’s Credit Ratings and A.M. Best Rating
Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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