Manulife Financial rejects the conclusions of a report by the short selling firm Muddy Waters that claim that the insurer has recently concluded a trial that “could significantly damage its earnings, capital, creditworthiness, business, and solvency – per its own expert’s sworn affidavit.”
Manulife describes Muddy Waters’ allegations as “a short seller's attempt to profit at the expense of our shareholders.”
Using the policy as a deposit contract
The case in question was filed by hedge fund Mosten Investment. It alleges that it is possible to use a life insurance policy purchased in 1997 as an unlimited deposit instrument. Mosten could thus receive an annualized guaranteed return of at least 4.00% with one-month liquidity, according to the fund’s interpretation of the contract.
Mosten adds that its life insurance contract promises a bonus of 0.85% at each policy anniversary. Muddy Waters speculates that the fund may deposit the money the day before the anniversary of the policy and withdraw it 30 days later to receive the bonus. The firm thinks that Mosten holds several contracts of this type, which would let it reap several similar bonuses each year.
“If Mosten prevails, it could sell an unlimited amount of limited partnership interests backed by the Manulife insurance contract, and likely become the most lucrative money market fund in the developed world,” Muddy Waters’ report reads.
Position legally unfounded
Manulife insists that Mosten’s position is legally unfounded. “We firmly believe that the consumers purchasing universal life policies, and the insurers issuing these policies, never intended to have the policies function as deposit or securities contracts,” the insurer says in a press release.
“We have a sound, highly rated global franchise. We expect we will prevail with respect to this matter and that it will not affect our business operations or our ability to meet obligations to our customers, vendors and other key stakeholders,” the insurer concludes.