Manulife fortifies balance sheet

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Knowing that investors will pounce on any sign of balance sheet weakness, Manulife Financial is slowly pushing up its capital ratios.

Manulife's issuance Tuesday of $200-million of preferred shares will nudge up its main capital measure, the minimum continuing capital and surplus requirements ratio, a fraction higher. Taken with the added capital from a recent $550-million debt offering, the new money goes some way to regaining some of the balance sheet strength that Manulife lost in the last quarter.

"This action is prudent when faced with uncertain market and economic conditions. Our capital position remains strong but we recognize that there could be pressure on our common share price and bond spreads if our capital ratios decline," Manulife chief executive officer Donald Guloien said in the announcement.

Based on the MCCSR at Manulife at the end of last quarter, the $200-million would increase the ratio to 221 per cent from 219 per cent. (That's assuming all other things remain equal, which never happens in life insurance because of all the moving parts on the balance sheet and income statement.)

The $550-million debt issue would take it to about 225 per cent.

Manulife's MCCSR ratio dropped from 241 per cent in the second quarter to 219 per cent in the third quarter.

At that level, most analysts view the company as strongly capitalized, but should the ratio begin to approach 200 alarm bells would likely begin to go off.