Manulife Faces Proposed Class Action for 'Misleading Statements'

By Fran Matso Lysiak, senior associate editor, BestWeek
A. M. Best
July 22, 2009

TORONTO, Jul 22, 2009 (A. M. Best via COMTEX) -- Manulife Financial Corp. is facing a proposed shareholder class-action lawsuit in the United States, alleging the life insurer and some of its executive officers violated federal securities laws and made "false and misleading statements" regarding the company's ability to manage risk.

Filed in the U.S. District Court for the Southern District of New York, the law firm of Abbey Spanier Rodd & Abrams said it's representing those who bought Manulife's securities between March 28, 2008, and June 22, 2009.

Last month, the Ontario Securities Commission said it preliminarily concluded Manulife failed to meet its continuous disclosure obligations related to its exposure to market price risk in its segregated funds and variable annuity guaranteed products. Manulife said it received an enforcement notice from the Canadian regulator concerning its disclosure of risks before March of this year related to guarantees on its variable annuities and its segregated funds business (BestWire, June 22, 2009).

Segregated fund contracts are insurance contracts, also known as individual variable annuities, which offer death benefits and guarantees, the firm said.

"In fact, contrary to the company's own risk management strategy, Manulife applied no material hedging strategy to manage risk particularly during an economic downturn," the firm said. The life insurer also "built up a massive stock portfolio," which it didn't hedge, the firm alleges.

"This resulted in a huge decline in the funds available to guarantee the separate fund contract obligations, forcing the company to raise billions in capital to make up for a widening shortfall in the amount in had promised to pay customers decades from now."

David Paterson, a Manulife spokesman, said the company continues to believe "that our financial disclosure has satisfied applicable disclosure requirements. These issues have nothing to do with regard to our policyholders or products, which we continue to stand behind 100%."

According to the firm, when trading markets reopened on June 22, after Manulife's June 19 announcement of the OSC's enforcement notice, the company's shares dropped 12%.

The plaintiffs seek to recover damages for class members.

In the United States, Manulife (TSX/NYSE/PSE: MFC) does business through its Boston-based John Hancock subsidiary.

On the early afternoon of July 22, Manulife's stock was trading at $21.10 a share, up 3.08% from the previous close.

Manufacturers Life Insurance Co., a unit of Manulife Financial, currently has a Best's Financial Strength Rating of A+ (Superior).

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