October 4, 2018 / 4:30 PM / 8 months ago

Manulife shares fall as Muddy Waters announces short position

TORONTO, Oct 4 (Reuters) - Shares of Manulife Financial Corp fell as much as 4 percent on Thursday, hitting their lowest since November 2016, after research firm Muddy Waters Capital LLC said it had taken a short position on Canada’s biggest life insurer.

Muddy Waters, which researches companies it thinks have fundamental problems not reflected in their stock price, cited a court case pending in the Canadian province of Saskatchewan which it believes could damage Manulife’s financials.

Manulife did not respond to requests for comment.

The case relates to universal life insurance policies which were underwritten in 1997 by Aetna Life Insurance Co, which was acquired by Manulife in 2004.

Universal life insurance is a type of policy sold mostly in the United States where the insurer credits the customer every month when premiums exceed the actual cost of insurance, with interest, building up the cash value of the policy, usually at a contractually agreed minimum rate.

The policies were written when interest rates were much higher than now and the case is set to decide whether a holder of one of the policies can force Manulife to back up the policies with very high-yielding, short-term investment grade products.

Muddy Waters said it believes a verdict is likely by the end of the year and there are material risks to the financial health of the company that investors have failed to see and price into the stock.

Shares in Manulife were down 3.5 percent to C$22.39 in midday trading, on track for their biggest daily fall since March 2017. (Reporting by Matt Scuffham Editing by Bill Rigby)

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