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Falling stock markets are affecting Manulife's key capital levels. THE CANADIAN PRESS/Frank GunnFrank Gunn/The Canadian Press

Manulife Financial Corp.'s chief executive Don Guloien says he is "very comfortable" with the insurer's capital levels, even in light of Operation Twist.



The actions that the U.S. Federal Reserve began taking last week to lower long-term interest rates and jumpstart the economy spooked life insurance investors in both Canada and the U.S. The life insurance sector is still struggling to regain its footing in the wake of the financial crisis (much more so than banks), and falling interest rates will materially add to its pain.



In Canada, the news heightened concerns that arose after Industrial Alliance decided to bolster its capital levels this month with a $200-million equity infusion from the Caisse de dépôt et placement du Québec.



With both interest rates and stock markets plunging anew, Manulife has found itself fielding a slew of analyst and investor questions. While the company has made significant progress reducing its stock market exposure, and to a lesser degree its interest rate exposure, it remains more exposed than its peers.



Analysts expect that the key measure of Manulife's capital levels, called the Minimum Continuing Capital and Surplus Requirements Ratio, will likely come in around 215 to 220 per cent this quarter, down from 241 per cent last quarter. While that's still well above the regulatory minimum of 150 per cent (and Manulife's internal targets, which are believed to be closer to 200 per cent), some observers are questioning whether the insurer might find itself needing to raise capital if low rates and falling stock markets persist in the months to come.



"I am very comfortable with our capital position," Mr. Guloien says.



Manulife's executives have noted recently that because of differences between Canadian and U.S. accounting rules, the impact of low interest rates shows up more quickly and more severely on the income statements and balance sheets of Canadian insurers. If stock markets and interest rates recover, insurers here will be able to release some of their reserves back into their profits.



But if the tough environment persists, analysts expect that a number of insurers, including Manulife, will have to take actions to shore up their balance sheets. Those actions could range from issuing debt or equity to selling businesses.

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