Manulife wins battle with hedge fund over policies with a guaranteed return
Mosten wanted to load capital into life policy from 20 years ago to get 4% return
Manulife Financial Corp. says it has won its legal battle with hedge fund Mosten Investments over universal life insurance products.
Saskatchewan Court of Queen's Bench ruled Friday that the fund cannot deposit an unlimited amount of money in these contracts to get a guaranteed return of four per cent.
Mosten Investment LP had sued Manulife, Industrial Alliance and BMO Life over the policies. Similar suits by Ituna Investment LP and Atwater Investment LP also were dismissed.
Mosten which holds one such insurance policy dating from 1997 had argued it should be allowed to deposit unlimited amounts of capital and earn the guaranteed rate. It planned to sell partnerships in the policy.
Prominent short-seller Muddy Waters had warned that could cripple Manulife financially and shorted the stock. .
Universal life policies, sold more than two decades ago when interest rates were higher, allowed holders to invest their surplus funds into side accounts with guaranteed rates of at least four per cent.
In a statement released Monday Manulife says the ruling in Saskatchewan court found the policy "does not provide for unlimited stand-alone investment opportunities within the carrier fund."
The court held that payments to the contract are "limited to funds paid or invested to pay current and future costs of insurance, related premium taxes, specified administration fees, and the permitted accrual tax-exempt investments."
Manulife welcomed the ruling which it said backed its position that Mosten's request was "legally unfounded and commercially absurd" as universal life policies were not meant to be used as securities contracts.
On Monday, Manulife stock jumped more than three per cent to $23.32 Cdn.
Last October, Saskatchewan regulators published new rules limiting the amount of premiums a life insurer may receive or accept for deposit in life insurance policies.
Canadian Life and Health Insurance Association, which had called for the new rules, welcomed the court ruling on Monday.
"This important ruling unequivocally supports what insurers, their customers and regulators already know to be true: the purpose of an insurance policy is to protect the lives of the insured and their families. Insurance policies are not intended to offer an unlimited investment opportunity completely unrelated to insurance coverage," said CLHIA President and CEO Stephen Frank.