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October 30, 2018 at 11:19 PM
Manulife Financial Corp. got help from insurance regulators in Saskatchewan in its battle with Mosten Investment LP over how much the hedge fund could deposit into the insurer’s high-yielding investment policies.
The Canadian province published regulations Monday limiting the amount of premiums a life insurer may receive or accept for deposit in life insurance policies. Mosten sued Manulife in November 2016, claiming it should be allowed to deposit unlimited amounts of capital and earn high interest rates based on a 1997 policy. The suit prompted Muddy Waters to short the stock of Manulife, Canada’s biggest life insurer. Bank of Montreal and Industrial Alliance Insurance and Financial Services Inc. face similar legal challenges.
(Related: Muddy Waters Shorts Manulife on Risks in Universal Life Trial)
“Given the new Saskatchewan regulations, Manulife and the other life insurers involved in similar matters plan to make submissions to the court, asking it to dismiss the claims that life insurers can be compelled to accept unlimited premium payments,” the Toronto-based insurer said Tuesday in a statement. “Manulife believes these regulations should accelerate the resolution, in its favor, of the principal matters in the Mosten litigation in Saskatchewan.”
Manulife surged 4.6% to C$20.78 at 11:44 a.m. in Toronto, the biggest jump in almost two years. The shares had dropped to a two-year low when Muddy Waters unveiled its short position on Oct. 4.
“This change of law could put the litigation to rest,” Gabriel Dechaine, an analyst with National Bank Financial said Tuesday in a note to clients. “The amendments to the Saskatchewan Insurance Act could protect MFC (and others) even if plaintiff litigation goes against them.”
Higher Rates
The case is tied to life insurance policies sold more than two decades ago, when interest rates were higher, that allowed holders to invest their surplus funds into side accounts with guaranteed rates of at least 4%. Mosten claims it should be allowed to deposit unlimited amounts of capital with Manulife based on a universal life insurance policy it owns. Manulife reiterated in the latest statement that Mosten’s position is “legally unfounded.”
Carson Block, who runs Muddy Waters, announced a short position in the firm this month, saying the trial could lead to billions in losses for the insurer that operates John Hancock in the U.S. Block declined to comment Tuesday on the Saskatchewan ruling, saying they’re gathering more information.
