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In order to reap the benefits of the current low interest rates, Manufacturers Life Insurance Company – a subsidiary of  Manulife Financial Corp. (MFC - Analyst Report), proposed to issue subordinated debentures worth $456.2 (C$500) million. The debentures, scheduled to mature on Feb 21, 2014, will bear a fixed/floating interest of 2.811%.
 
For the first five years, the debenture will carry interest at a fixed rate of 2.811% and then at a rate of 0.80% over the three-month Canadian Dealer Offered Rate (CDOR). Manulife intends to deploy the net proceeds for general corporate purposes.
 
In terms of capital position, Manulife ended the year with a capital ratio of 248%, reflecting a 37-point increase over the prior year. Leverage trended toward the long-term target of 25%. Total long-term debt at the company was $4464 million (C$4775 million), down from $5061 million (C$5046 million) as on Dec 31, 2012.
 
During 2013, Manulife’s interest expense of $996 (C$1045) million was higher than $942 (C$934) million recorded in the prior year. We expect the interest burden to increase further with the new issuance. Nonetheless, it is a prudent decision to capitalize on the prevailing low interest rate environment. In addition, its strong operational performance supports it well to service debt uninterruptedly, retaining creditworthiness. 
 
The company is expected to come out with more debt issue since it has more than C$3.0 billion of refinancing requirements over the next one and a half years. 
 
Besides reducing interest expense by issuing debt in this low interest rate environment, Manulife has achieved a great deal during the year in reducing potential equity markets and interest rates risk exposures, while also minimizing existing risks. The company has also made significant progress in diversifying its businesses, achieving growth in targeted areas and cultivating new revenue streams. 
 
Manulife retains a Zacks Rank #3 (Hold). Other better-ranked life insurers like Lincoln National Corp. (LNC - Analyst Report), Primerica, Inc. (PRI - Snapshot Report) and Protective Life Corp. (PL - Analyst Report), all with a Zacks Rank #2 (Buy), are worth considering.

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