A.M. Best Affirms Ratings of John Hancock Financial Services Group.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--May 12, 2003 A.M. Best Co. has affirmed the financial strength rating of A++ (Superior) of John Hancock Life Insurance Company (JHLIC) (Boston, MA), the flagship company of John Hancock Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. , Inc., and its two principal life insurance subsidiaries, John Hancock Variable Life Insurance Company and Investors Partner Life Insurance Company (collectively, Hancock). The ratings of John Hancock Variable Life Insurance Company and Investors Partner Life Insurance Company are based on these companies' strategic and operational ties with JHLIC. Concurrently, A.M. Best has affirmed the "aa-" debt rating on JHLIC's $450 million 7.375% surplus note due 2024. The outlooks on the financial strength ratings and surplus note have been changed to negative from stable. The ratings reflect Hancock's prominent position in the U.S. insurance market, excellent earnings performance and historically sound capital strength. Offsetting these strengths are the near- and longer-term challenges facing the organization in an increasingly competitive and rapidly changing financial services environment; Hancock's higher exposure to investment-related credit risk than its peers, which has resulted in an upward surge in capital losses; and an increasingly aggressive balance sheet. As a provider of insurance and other financial services to both retail and institutional clients, Hancock has established significant market positions in the individual life and group pension sectors and developed a leading presence in the guaranteed interest contract (GIC GIC See: Guaranteed Investment Contract GIC See guaranteed investment contract (GIC). ) and funding agreement Funding Agreement Illiquid insurance contracts that provide guaranteed principal repayment and interest payments for a predetermined period of time. Notes: Funding agreements are marketed to mutual fund companies and municipal reinvestments. (FA) markets as well. Hancock's past strategy heavily emphasized these products, but prospectively the company intends to reduce its exposure to commodity-type spread-based institutional offerings and focus on expanding and strengthening its presence in more value-added products in both the retail and institutional sectors. However, A.M. Best believes Hancock will be challenged in its business repositioning repositioning Laparoscopic surgery The changing of a Pt's position during a procedure to improve access or visualization of the operative field, which may be linked to complications, as it changes anatomic planes of operation. Cf Laparoscopic surgery. efforts--particularly on the retail side--reflecting the competitive impact of larger and more diversified financial The diversified financial services segment includes a range of consumer and commercially-oriented companies offering a wide variety of products and services, including various lending products (such as home equity loans and credit cards), insurance, and securities and investment services institutions and the potential influence on new sales of a continuing lackluster economy. As a result, Hancock may have difficulty developing and sustaining revenue, asset and earnings growth in some of its retail segments commensurate with many peers. Hancock's diversified product base has contributed to well-balanced earnings streams and sound profitability. Reported GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. has risen steadily in recent years, with return on assets Return on assets (ROA) Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/assets). exceeding 80 basis points. Contributing to Hancock's earnings has been the incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. investment return generated from maintaining a more aggressive asset profile than some peers. While maintaining above-average levels of credit risk in its investment portfolio served the company well during the favorable investment climate in the mid-to-late 1990s, Hancock has suffered significant realized capital losses (mainly write-downs of impaired assets Impaired Asset An asset with a market value that is worth less than its book value. Notes: If the sum of all estimated future cash flows is less than the carrying value of the asset, then the asset would be considered impaired and would have to be written down to its fair ) during the economy's reversal of the past few years, which partly negate ne·gate tr.v. ne·gat·ed, ne·gat·ing, ne·gates 1. To make ineffective or invalid; nullify. 2. To rule out; deny. See Synonyms at deny. 3. the strength of reported earnings. Looking ahead, A.M. Best believes Hancock could remain susceptible to further significant asset deterioration, particularly if the U.S. economy continues to stagnate stag·nate intr.v. stag·nat·ed, stag·nat·ing, stag·nates To be or become stagnant. [Latin st . Hancock historically has maintained a solid risk-based capital position through consistent earnings and prudent financial policies. However, as a result of statutory general account balance sheet growth and surplus erosion mainly caused by investment losses and annual shareholder dividends, A.M. Best believes Hancock's capitalization has become increasingly stretched and remains exposed to the effect of additional capital losses. Consolidated group (GAAP) financial leverage, which was under 15% in 2000, rose to nearly 25% at year-end 2002, further affecting the balance sheet, although interest coverage has remained very strong at over 10 times. A.M. Best anticipates that Hancock will be challenged to maintain capital strength commensurate with its rating and similarly rated peers, while also pursuing favorable shareholder returns. Despite these pressures, Hancock continues to benefit from excellent financial flexibility, with access to both debt and equity markets, bank credit lines and strong cash flows. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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