UPDATE 1-S&P lowers Manulife ratings on U.S. risk

Mon Dec 13, 2010 5:35pm EST

* Cuts debt ratings on uncertain U.S. earnings

* Insurer's stock hit six-month high Monday

TORONTO Dec 13 (Reuters) - Standard & Poor's Ratings Services has cut ratings on Manulife Financial (MFC.TO) debt, citing concern about the Canadian-based insurer's U.S. earnings potential and capital risks.

U.S.-based S&P said on Monday it was lowering its counterparty credit and financial strength ratings on the insurer's insurance operating subsidiaries to "AA-" from "AA" and cutting its counterparty credit rating on the parent company to "A-" from "A".

"We believe that the prospective earnings profile of Manulife Financial's U.S. operations will be weaker than we previously expected, given the current economic environment," S&P said in a statement.

The agency added that Manulife's equity and interest rate risk, while declining, still remains high relative to its peers.

Manulife has recorded losses over the last two quarters due to weak stock markets and low bond yields, which forced the insurer to hold more capital to ensure it can meet future payout obligations.

The insurer has been hedging its exposure, and has benefited of late by rising stocks and rebounding bond yields.

Manulife owns the John Hancock insurance brand in the United States.

The stock hit a six-month high on Monday, and closed down 10 Canadian cents at C$16.79 on the Toronto Stock Exchange. The downgrade was disclosed after markets closed.

($1=$1.01 Canadian) (Reporting by Cameron French; editing by Rob Wilson)

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