Massachusetts Approves Proposed Merger of Three John Hancock Life Companies

The Massachusetts Division of Insurance has approved the proposed merger of three John Hancock insurance companies.

The merger agreement was proposed by John Hancock Life Insurance Co., its subsidiary, John Hancock Variable Life Insurance Co. ? both Massachusetts domestic insurance companies ? and John Hancock Life Insurance Co. (USA), a Michigan-domiciled insurer licensed in Massachusetts (BestWire, July 28, 2009).

Under the proposed transaction, John Hancock Life and John Hancock Variable would combine with and into John Hancock USA.

The transaction isn't scheduled to close until the end of this year, according to an Aug. 27 order approving the deal by Massachusetts Insurance Commissioner Nonnie S. Burnes.

The John Hancock companies are subsidiaries of Canada's Manulife Financial Corp. (TSX/NYSE/PSE: MFC).

The Massachusetts Division of Insurance held a public hearing Aug. 5 on the proposed merger. John Vrysen, senior vice president of John Hancock Financial Services, was among those who testified.

The deal, he said, is intended to give Manulife added capital flexibility, and reduce the need to raise external capital because Manulife will have a more capital-efficient structure internally, according to the order.

The complexity of Manulife's current legal structure precludes it from getting greater diversification of product and asset risk that would occur in a combined company, Vrysen said.

John Hancock Life (USA) has more exposure to equity markets due to its variable annuity, variable life and group pension products, while John Hancock Life has more "on-balance-sheet investment risk" and risks related to mortality and morbidity due to its life insurance, long-term care insurance and fixed-annuity business, Vrysen testified.

In July, A.M. Best Co. downgraded the financial strength rating to A+ (Superior) from A++ (Superior) and issuer credit ratings to aa from aa+ for Manulife Financial subsidiaries, the Manufacturers Life Insurance Co., Toronto; John Hancock Life Insurance Co., Boston, and their affiliates (BestWire, July 17, 2009).

A.M. Best noted that while progress has been made in hedging its segregated fund products and de-risking its product portfolio, Manulife's earnings and capital remained exposed to equity market fluctuations as only a portion of the block is either hedged or reinsured.

Manulife is a significant player in the U.S. variable annuity market. Continued equity market declines would require additional funding to maintain its favorable risk-adjusted capital levels, Best said (BestWire, July 17, 2009).