The Manufacturers Life Insurance Company (Re), 2012 CanLII 1239

Headnote

Passport – credit support issuer does not satisfy conditions of exemption in section 13.4 of NI 51-102 – credit support issuer has securities outstanding that are not designated credit support securities because credit supporter has not provided a full and unconditional guarantee – designated credit support securities cannot have a full and unconditional guarantee because of regulatory capital requirements – credit support issuer exempt from certain continuous disclosure, certification, and insider reporting requirements under the Legislation, subject to conditions.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c.S-5, as amended, s.121(2)(a)(ii).

National Instrument 51-102 Continuous Disclosure Obligations, ss. 13.1 and 13.4.

National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, ss. 8.6.

National Instrument 55-102 System for Electronic Disclosure by Insiders (SEDI), ss. 2.1 and 6.1.

National Instrument 55-104 Insider Reporting Requirements and Exemptions, ss. 10.1

January 13, 2012

IN THE MATTER OF

THE SECURITIES LEGISLATION

OF ONTARIO (the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS

IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

THE MANUFACTURERS LIFE INSURANCE COMPANY (MLI) AND MANULIFE FINANCIAL CAPITAL TRUST (the Trust and, together with MLI, the Filers)

DECISION

Background

The Filers received the 2007 Order exempting the Filers from the continuous disclosure, certification and insider reporting requirements of securities legislation as specified in the 2007 Order. The 2007 Order expires on January 15, 2012.

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) to renew the 2007 Order, and in particular that:

1. MLI be granted an exemption (the Continuous Disclosure Exemption) from the Continuous Disclosure Requirements pursuant to section 13.1 of NI 51-102;

2. the Trust be granted a Continuous Disclosure Exemption from the Continuous Disclosure Requirements pursuant to section 13.1 of NI 51‑102;

3. MLI be granted an exemption (the Certification Exemption) from the Certification Requirements pursuant to section 8.6 of NI 52-109;

4. the Trust be granted a Certification Exemption from the Certification Requirements pursuant to section 8.6 of NI 52-109;

5. insiders of MLI be granted an exemption (the Insider Profile Exemption) from the requirement to file an insider profile under section 2.1 of NI 55-102 pursuant to section 6.1 of NI 55-102; and

6. insiders of MLI be granted an exemption (the Insider Reporting Exemption) from the Insider Reporting Requirements in respect of securities of MLI pursuant to section 121(2)(a)(ii) of the Act and section 10.1 of NI 55-104 (collectively, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 — Passport System (MI 11-102) is intended to be relied upon in each of the provinces and territories other than Ontario.

Interpretation

Defined terms contained in National Instrument 14-101 — Definitions and MI 11-202 have the same meaning in this decision, unless they are defined in this decision.

In this decision,

2007 Order means the decision document dated January 22, 2007 from certain provincial securities regulatory authorities in Canada, as described in more detail herein, granting relief to: (a) MLI and the Trust from filing certain continuous disclosure document and certain annual and interim certifications; and (b) insiders of MLI from filing an insider profile and from certain insider reporting requirements in respect of securities of MLI, subject to certain specified conditions;

Act means the Securities Act (Ontario);

AIF means an annual information form;

Annual Filings means an issuer’s AIF, annual financial statements and annual MD&A filed pursuant to NI 51-102;

At Par Redemption Date means June 30, 2012;

Automatic Exchange means the automatic exchange of each MaCS – Series A for 40 MLI Class A Shares Series 3 upon the occurrence of certain stated events relating to the solvency of MLI or actions taken by the Superintendent in respect of the financial strength of MLI;

Canadian GAAP means generally accepted accounting principles determined with reference to the Handbook of the Canadian Institute of Chartered Accountants, as amended from time to time;

Certification Requirements means the requirements to file: (a) annual certificates (as defined in NI 52-109) under sections 4.1 and 6.1, as applicable, of NI 52-109; and (b) interim certificates (as defined in NI 52-109) under sections 5.1 and 6.2, as applicable, of NI 52-109;

Continuous Disclosure Filings means: (a) audited annual financial statements including MD&A thereon required by sections 4.1 and 5.1 of NI 51-102; (b) unaudited interim financial reports including MD&A thereon required by sections 4.3 and 5.1 of NI 51-102; (c) an AIF required by section 6.1 of NI 51-102; (d) press releases and material change reports required by section 7.1 of NI 51-102 in the case of material changes that are also material changes in the affairs of MFC; and (e) other material contracts required by section 12.2 of NI 51-102;

Continuous Disclosure Requirements means the requirements contained in NI 51-102 to file and deliver, as applicable, the Continuous Disclosure Filings;

Conversion Right means the right to convert the whole or a part of the MLI A Debenture into MLI Class A Shares Series 2 and MLI Class A Shares Series 3, respectively;

Credit Facility has the meaning given to such term in the MaCS Final Prospectus;

credit support issuer has the meaning given to such term in NI 51-102;

credit supporter has the meaning given to such term in NI 51-102;

DBRS means DBRS Limited;

Deficiency Payment means a payment to be calculated as follows:

(a) in the event that, at the time of the determination date, a winding-up order has been made with respect to MFC, then the Deficiency Payment shall be the amount that, when paid to the holders of the MLI Preferred Shares outstanding as of the Triggering Event, will result in:

(i) the holders of Class A Shares of MLI outstanding as of the Triggering Event receiving payment of the same proportion of the unpaid amounts on the Class A Shares of MLI as the holders of such shares would have received had their claim to such unpaid amounts on the final distribution of surplus of MFC, if any, pursuant to section 95(1) of the WURA ranked on a parity with the claims of the holders of the Class A Shares of MFC; and

(ii) the holders of Class B Shares of MLI outstanding as of the Triggering Event receiving payment of the same proportion of the unpaid amounts for such Class B Shares of MLI as the holders of such shares would have received had their claim to such unpaid amounts on the final distribution of surplus of MFC, if any, pursuant to section 95(1) of the WURA ranked on a parity with the claims of the holders of Class B Shares of MFC;

(b) in all circumstances other than those listed above, the Deficiency Payment will equal the aggregate unpaid amounts attributable to all classes of MLI Preferred Shares outstanding as of the Triggering Event;

Demutualization means the demutualization of MLI on September 23, 1999 pursuant to letters patent of conversion issued by the Minister of Finance;

designated credit support securities has the meaning given to such term in NI 51-102;

Dividend Reference Period has the meaning given to such term in the MaCS Final Prospectus;

Dividend Stopper Undertaking has the meaning given to such term in the MaCS Final Prospectus;

Dividends has the meaning given to such term in the MaCS Final Prospectus;

Early Redemption Price has the meaning given to such term in the MaCS Final Prospectus;

Exchange Trustee has the meaning given to such term in the MaCS Final Prospectus;

Fitch means Fitch Ratings Ltd.;

Funding Debenture has the meaning given to such term in the MaCS Final Prospectus;

Holder Exchange Right means the right of holders of MaCS – Series A to exchange each of their MaCS – Series A for 40 MLI Class A Shares Series 2;

ICA means the Insurance Companies Act (Canada), as amended;

ICA Financial Statements means the audited annual financial statements of MLI prepared in order to comply with the ICA;

Indicated Yield means each fixed, semi-annual, non-cumulative cash distribution distributed to holders of a particular series of MaCS;

Insider Reporting Requirements means the requirements for an insider of a reporting issuer to file:

(a) insider reports required by section 107 of the Act and sections 3.2 and 3.3 of NI 55-104 in respect of securities of the reporting issuer; and

(b) insider reports required under any provisions of securities legislation of any of the provinces or territories of Canada substantially similar to section 107 of the Act and sections 3.2 and 3.3 of NI 55-104 in respect of securities of the reporting issuer;

Interim Filings means an issuer’s interim financial reports and interim MD&A filed pursuant to NI 51-102;

Liquidation Preference means any amount to which holders of a particular class or series of MLI Preferred Shares are entitled in priority to any amounts which may be payable in respect of any class of shares of MLI which rank junior to such class or series in the event of a distribution of assets upon the liquidation, dissolution or winding-up of MLI;

MaCS means the Tier 1 capital units of the Trust called Manulife Financial Capital Securities;

MaCS Declaration of Trust means the declaration of trust dated October 30, 2001 made by the MaCS Trustee, as amended and restated on December 5, 2001;

MaCS Final Prospectus means the final prospectus of the Trust dated December 5, 2001;

MaCS Redemption Price has the meaning given to the term “Redemption Price” in the MaCS Final Prospectus;

MaCS Trustee means Computershare Trust Company of Canada, as trustee of the Trust;

MD&A means management’s discussion and analysis;

MFC means Manulife Financial Corporation;

MFC Dividend Restricted Shares has the meaning given to such term in the MaCS Final Prospectus;

MFC Guarantees means collectively the Subordinated Debt Guarantee and the Preferred Share Guarantee;

MFC Preferred Shares means collectively the outstanding Class A Shares, Class B Shares and Class 1 Shares of MFC from time to time;

MFC Responsible Issuer Undertaking means the undertaking delivered by MFC to the principal regulator confirming that, among other things:

(a) following MFC entering into the Preferred Share Guarantee and the subordinated guarantee dated January 29, 2007 by MFC of MLI’s payment obligations in respect of the $550,000,000 principal amount of 6.24% subordinated debentures of MLI due February 16, 2016 and for so long as MLI and the Trust both qualify for the Continuous Disclosure Exemption, MFC will be considered a “responsible issuer” for purposes of determining MFC’s liability under Part XXIII.1 of the Securities Act (Ontario) as if MaCS were an “issuer’s security” of MFC for purposes of such Part; and

(b) for greater certainty, pursuant to the definition of “issuer’s security” in section 138.3(1) of the Securities Act (Ontario), MLI Preferred Shares and designated credit support securities of MLI guaranteed by MFC constitute issuer’s securities of MFC for purposes of determining MFC’s liability under Part XXIII.1 of the Securities Act (Ontario);

MLI means The Manufacturers Life Insurance Company;

MLI A Debenture means the senior debenture issued by MLI in respect of the MaCS – Series A;

MLI B Debenture means the senior debenture issued by MLI in respect of the MaCS – Series B;

MLI Class A Shares Series 2 means the Class A Shares Series 2 of MLI;

MLI Class A Shares Series 3 means the Class A Shares Series 3 of MLI;

MLI Dividend Restricted Shares has the meaning given to such term in the MaCS Final Prospectus;

MLI MaCS Debentures means collectively the MLI A Debenture and the MLI B Debenture;

MLI Preferred Shares means collectively the outstanding Class A Shares, Class B Shares and Class 1 Shares of MLI from time to time other than shares issued to and held by MFC or an affiliate (as defined in NI 51-102) of MFC;

MLI Subordinated Debentures means the $550,000,000 principal amount of 4.21% fixed/floating subordinated debentures of MLI due November 18, 2021 (first redeemable November 18, 2016);

NI 45-106 means National Instrument 45-106 — Prospectus and Registration Exemptions;

NI 51-102 means National Instrument 51-102 — Continuous Disclosure Obligations;

NI 52-109 means National Instrument 52-109 — Certification of Disclosure in Issuers’ Annual and Interim Filings;

NI 55-102 means National Instrument 55-102 — System for Electronic Disclosure by Insiders (SEDI);

NI 55-104 means National Instrument 55-104 — Insider Reporting Requirements and Exemptions

NI 71-101 means National Instrument 71-101— The Multijurisdictional Disclosure System;

Offering means the public offering of 60,000 MaCS – Series A and 940,000 MaCS – Series B pursuant to the MaCS Final Prospectus;

OSFI means the Office of the Superintendent of Financial Institutions (Canada);

parent credit supporter has the meaning given to such term in NI 51-102;

Preferred Share Guarantee means the subordinated guarantee dated January 29, 2007 by MFC of the payments to be made by MLI under the MLI Preferred Shares, which consist of: (a) the amount of any declared and unpaid dividends on the MLI Preferred Shares; (b) the Redemption Price of the MLI Preferred Shares; and (c) the Liquidation Preference of the MLI Preferred Shares;

Public Preferred Shares has the meaning given to such term in the MaCS Final Prospectus;

Redemption Date has the meaning given to such term in the MaCS Final Prospectus;

Redemption Price means the amount payable by MLI following presentation and surrender of any MLI Preferred Shares which have been redeemed by MLI or which are then redeemable by the holder pursuant to the terms of such MLI Preferred Shares;

S&P means Standard & Poor’s Rating Services, a division of the McGraw-Hill Companies Inc.;

SEDAR means the System for Electronic Document Analysis and Retrieval;

Share Exchange Agreement MaCS – Series A means the share exchange agreement MaCS – Series A entered into by MFC, MLI, the Trust and the Exchange Trustee on December 10, 2001;

Share Exchange Agreement MaCS – Series B means the share exchange agreement MaCS – Series B entered into by MFC, MLI, the Trust and the Exchange Trustee on December 10, 2001;

Special Trust Securities means the Special Trust Securities of the Trust;

Subordinated Debt Guarantee means the full and unconditional subordinated guarantee by MFC of MLI’s payment obligations in respect of the MLI Subordinated Debentures;

Summary Financial Information has the meaning given to such term in NI 51-102;

Superintendent means the Superintendent of Financial Institutions (Canada);

Tax Act means the Income Tax Act (Canada), as amended;

Triggering Event will occur if MLI:

(a) fails to make full payment of any dividend declared on any MLI Preferred Shares on the date required for such payment; or

(b) fails to make payment in full when due of the Redemption Price; or

(c) becomes subject to a “winding-up order” (as defined under the WURA or any order of similar effect made under applicable laws for the winding-up, liquidation or dissolution of MLI);

Trust means Manulife Financial Capital Trust;

Trust Assets has the meaning given to such term in the MaCS Final Prospectus;

Trust Redemption Right means the redemption right held by the Trust commencing on December 31, 2006 and on any Distribution Date thereafter, subject to regulatory approval and on not less than 30 nor more than 60 days’ prior written notice, to redeem the MaCS – Series A at the greater of the MaCS Redemption Price and the Early Redemption Price, if the MaCS – Series A are redeemed prior to the At Par Redemption Date and at the MaCS Redemption Price, if the MaCS are redeemed on or after the At Par Redemption Date;

Trust Securities means, collectively, the Special Trust Securities and the MaCS;

Trust Special Event Redemption Right means the redemption right of the Trust, subject to regulatory approval and on not less than 30 nor more than 90 days’ prior written notice, whereupon the occurrence of certain regulatory or tax events affecting MLI or the Trust, the Trust may redeem, at any time, all but not less than all of the MaCS – Series A at the Early Redemption Price if the MaCS – Series A are redeemed prior to the At Par Redemption Date and at the MaCS Redemption Price if the MaCS – Series A are redeemed on or after the At Par Redemption Date;

VIEs means variable interest entities; and

WURA means the Winding-up and Restructuring Act (Canada), as amended.

Representations

This decision is based on the following facts represented by the Filers:

MLI

Incorporation and Status

1. MLI was incorporated on June 23, 1887, by a Special Act of Parliament of the Dominion of Canada. Pursuant to the provisions of the then Canadian and British Insurance Companies Act (Canada), the predecessor legislation to the ICA, MLI undertook a plan of mutualization and became a mutual life insurance company on December 19, 1968. On September 23, 1999 MLI completed the Demutualization. MLI’s head office is located at 200 Bloor Street East, Toronto, Ontario, M4W 1E5.

2. MLI is regulated by OSFI and it is licensed under the insurance legislation of each province and territory of Canada. MLI has a financial year end of December 31. MLI is a reporting issuer or the equivalent in each of the provinces and territories of Canada and is not, to the best of its knowledge, in default of its reporting issuer obligations under the securities legislation of any of the provinces or territories of Canada.

Capital Structure

3. MLI’s authorized share capital consists of an unlimited number of Common Shares, an unlimited number of Class A Shares, issuable in series, an unlimited number of Class B Shares, issuable in series and an unlimited number of Class 1 Shares, issuable in series.

4. There are seven series of Class A Shares which are authorized for issuance. MLI is authorized to issue 40,000 Class A Shares Series 1; 2,400,000 Class A Shares Series 2; 2,400,000 Class A Shares Series 3; 37,600,000 Class A Shares Series 4; 37,600,000 Class A Shares Series 5; 4,000,000 Class A Shares Series 6; and an unlimited number of Class A Shares Series Z.

5. There are one series of Class B Shares and two series of Class 1 Shares which are authorized for issuance: MLI is authorized to issue 1,100,000 Class B Shares Series 1 and an unlimited number of Class 1 Shares Series 1 and Class 1 Shares Series Z.

6. As of December 31, 2011, approximately 4,336 million Common Shares and 40,000 Class A Shares Series 1 were issued and outstanding. MFC holds all of the issued and outstanding MLI Common Shares and Class A Shares Series 1. MFC may from time to time subscribe for a sufficient number of Class A Shares Series Z such that at all times MFC will control any class vote of the Class A Shares.

7. MLI also issued the MLI Subordinated Debentures on November 18, 2011 pursuant to prospectus supplement dated November 15, 2011 to MLI’s base shelf prospectus dated November 11, 2011. The MLI Subordinated Debentures are rated A(high) with a Stable trend by DBRS and A+ by S&P.

Financial Statements

8. MLI prepares the ICA Financial Statements in order to comply with section 331 of the ICA, which requires that such financial statements be placed before its shareholders and policyholders at every annual meeting. MLI is also required to send the ICA Financial Statements to its registered shareholder and policyholders and to file them with the Superintendent not later than 21 days before the date of the annual meeting pursuant to sections 334(1) and 335(1) of the ICA. MLI files its annual financial statements prepared in accordance with Canadian GAAP on SEDAR in compliance with the 2007 Order.

MFC

Incorporation and Status

9. MFC was incorporated under the ICA on April 26, 1999. On September 23, 1999, in connection with the Demutualization, MFC became the sole shareholder of MLI. MFC’s head office is located at 200 Bloor Street East, Toronto, Ontario, M4W 1E5.

10. MFC is regulated by OSFI. MFC is a publicly traded company on the Toronto Stock Exchange, the New York Stock Exchange, the Stock Exchange of Hong Kong Limited and the Philippine Stock Exchange. MFC has a financial year end of December 31. MFC is a reporting issuer or the equivalent in each of the provinces and territories of Canada and is not, to the best of its knowledge, in default of its reporting issuer obligations under the securities legislation of any of the provinces or territories of Canada.

Capital Structure

11. The authorized share capital of MFC consists of an unlimited number of Common Shares, an unlimited number of Class A Shares, issuable in series, an unlimited number of Class B Shares, issuable in series and an unlimited number of Class 1 Shares, issuable in series. There are five series of Class A Shares and six series of Class 1 Shares which are authorized for issuance. MFC is authorized to issue 14 million Class A Shares Series 1, 14 million Class A Shares Series 2, 12 million Class A Shares Series 3, 18 million Class A Shares Series 4, 18 million Class A Shares Series 5, 14 million Class 1 Shares Series 1, 14 million Class 1 Shares Series 2, 8 million Class 1 Shares Series 3, 8 million Class 1 Shares Series 4, 8 million Class 1 Shares Series 5 and 8 million Class 1 Shares Series 6.

12. As of December 31, 2011, approximately 1,801 million Common Shares, 14 million Class A Shares Series 1, 14 million Class A Shares Series 2, 12 million Class A Shares Series 3, 18 million Class A Shares Series 4, 14 million Class 1 Shares Series 1, 8 million Class 1 Shares Series 3 and 8 million Class 1 Shares Series 5 were issued and outstanding. As of December 31, 2011 the Class A Shares Series 1, Class A Shares Series 2, Class A Shares Series 3, Class A Shares Series 4, Class 1 Shares Series 1, Class 1 Shares Series 3 and Class 1 Shares Series 5 were rated Pfd‑2 (high) by DBRS, P‑2 by S&P and BBB by Fitch.

13. MFC also issued medium term notes on March 28, 2006, June 26, 2008, April 8, 2009, June 2, 2009 and August 20, 2010. As of December 31, 2011, an aggregate principal amount of $3.8 billion in medium term notes were issued and outstanding. The medium term notes are rated A (high) by DBRS, A- by S&P and A- by Fitch.

14. MFC also issued senior notes on September 17, 2010. As of December 31, 2011, an aggregate principal amount of US$1.1 billion in senior notes were issued and outstanding.

The Trust and the MaCS Trustee

Formation and Status

15. The Trust is an open-end trust established under the laws of the Province of Ontario by the MaCS Trustee pursuant to the MaCS Declaration of Trust. The Trust’s head office is located at 200 Bloor Street East, Toronto, Ontario, M4W 1E5.

16. The Trust has a financial year end of December 31. The Trust is a reporting issuer or the equivalent in each of the provinces and territories of Canada and is not, to the best of its knowledge, in default of its reporting issuer obligations under the securities legislation of any of the provinces or territories of Canada.

Capital Structure

17. The Trust’s authorized capital consists of an unlimited number of MaCS, issuable in series, and an unlimited number of Special Trust Securities. The outstanding securities of the Trust consist of: (a) Special Trust Securities, which are voting securities of the Trust; and (b) MaCS – Series A and MaCS – Series B. All 2,000 outstanding Special Trust Securities are held by MLI, which is a direct subsidiary of MFC. As a result, the Trust is an indirect subsidiary of MFC under the ICA. The Trust distributed 60,000 MaCS – Series A and 940,000 MaCS – Series B pursuant to the Offering. The MaCS – Series A are listed on the Toronto Stock Exchange and the MaCS – Series B are not listed on any exchange. The MaCS may be redeemed at par beginning on June 30, 2012.

Business of the Trust

18. The Trust is a special purpose issuer established solely for the purpose of effecting the Offering in order to provide MLI (and indirectly MFC) with a cost-effective means of raising capital for Canadian insurance company regulatory purposes by: (a) creating and selling the Trust Securities; and (b) acquiring and holding Trust Assets which consist primarily of the MLI MaCS Debentures. The Trust used the proceeds of the Offering to purchase the MLI MaCS Debentures. The MLI MaCS Debentures generate income for distribution to holders of the Trust Securities on a semi-annual, non-cumulative basis.

19. The Trust does not have any material assets other than the MLI MaCS Debentures and the Funding Debenture. An aggregate of $4.0 million was outstanding on the Funding Debenture as of December 31, 2011. The Trust Securities are the only outstanding securities of the Trust. The only material liability of the Trust is the Credit Facility. The Credit Facility is used by the Trust only for purposes of ensuring liquidity in the normal course of the Trust’s activities, to facilitate the payment by the Trust of the expenses of the Offering and to finance the purchase of the Funding Debenture from MLI. As of December 31, 2011 an aggregate of $2.1 million was outstanding under the Credit Facility.

Description of the Trust Securities

20. Representations 21 through 37 only refer to the MaCS – Series A, MLI Class A Shares Series 2, MLI Class A Shares Series 3, the MLI A Debenture and the Share Exchange Agreement MaCS – Series A. The features of each series of MaCS, each related debenture issued by MLI and each related share exchange agreement will be, and in the case of the MaCS – Series B, the MLI B Debenture and the Share Exchange Agreement MaCS – Series B are, the same as the MaCS – Series A, the MLI A Debenture and the Share Exchange Agreement MaCS – Series A described herein except as follows:

(a) the Indicated Yield payable on each series of MaCS is different;

(b) the interest rate on each debenture is different but corresponds to the Indicated Yield of the particular corresponding series of MaCS;

(c) the Redemption Date of each debenture is different; and

(d) each series of MaCS and the corresponding debenture is exchangeable or convertible into separate series of shares of MLI with attributes similar to the MLI Class A Shares Series 2 and Series 3, except that the dates upon which various rights arise are different from the MaCS – Series A and the MLI Class A Shares Series 2 and Series 3.

All of these terms for the MaCS – Series A and the MaCS – Series B were fully set forth in the MaCS Final Prospectus.

21. The MLI A Debenture bears interest that is distributed to holders of MaCS – Series A by way of payment of the Indicated Yield and any excess net income, after such distributions are made, is distributed to MLI as the holder of the Special Trust Securities.

22. The MaCS Final Prospectus also qualified certain other related securities for distribution in the provinces and territories of Canada, including the Conversion Right which will allow the Trust to satisfy the Holder Exchange Right and the Automatic Exchange.

23. The Trust will not pay the Indicated Yield if: (a) MLI has Public Preferred Shares outstanding and MLI fails to declare Dividends on any of the Public Preferred Shares in accordance with their respective terms; or (b) MLI fails to declare Dividends on its Class A Shares Series 1, in either case, in the Dividend Reference Period. Pursuant to the Dividend Stopper Undertaking, MFC and MLI have agreed, for the benefit of the holders of MaCS – Series A, that, in the event that the Trust fails, on any applicable distribution date, to pay the Indicated Yield on the MaCS – Series A in full: (a) MLI will not pay Dividends on the MLI Dividend Restricted Shares; or (b) if MLI Dividend Restricted Shares are not outstanding, MFC will not pay Dividends on the MFC Dividend Restricted Shares, in each case, until the 12th month following the Trust’s failure to pay the Indicated Yield in full, unless the Trust first pays such Indicated Yield (or the unpaid portion thereof) to holders of the MaCS – Series A. The Dividend Stopper Undertaking is in the Share Exchange Agreement MaCS – Series A. At the date hereof, MLI does not have a class of Public Preferred Shares outstanding.

24. Pursuant to an administration agreement dated December 10, 2001 between the MaCS Trustee and MLI, the MaCS Trustee has delegated to MLI certain of its obligations in relation to the administration of the Trust. Under such agreement, MLI, as administrative agent, provides advice and counsel with respect to the administration of the day-to-day operations of the Trust and other matters as may be requested by the MaCS Trustee from time to time.

25. Pursuant to the terms of the MaCS – Series A and the Share Exchange Agreement MaCS – Series A, the MaCS – Series A: (a) may be exchanged for MLI Class A Shares Series 2 pursuant to the Holder Exchange Right; and (b) will be automatically exchanged for MLI Class A Shares Series 3 pursuant to the Automatic Exchange.

26. The Holder Exchange Right and the Automatic Exchange will be effected through the Conversion Right. Upon the exercise of the Holder Exchange Right or the Automatic Exchange, the Trust will convert the corresponding principal amount of the MLI A Debenture into MLI Class A Shares Series 2 or MLI Class A Shares Series 3, as the case may be.

27. The MLI Class A Shares Series 2 and the MLI Class A Shares Series 3 will be redeemable after specified dates, at the option of MLI and subject to regulatory approvals, by the payment of a cash amount or by the delivery of Common Shares of MFC.

28. On and after June 30, 2051, the MLI Class A Shares Series 2 and MLI Class A Shares Series 3 will be exchangeable, at the option of the holder, into Common Shares of MFC, except under certain circumstances.

29. The Trust has the Trust Redemption Right. Similarly, MLI, as the holder of the Special Trust Securities, may require the termination of the Trust provided that holders of MaCS − Series A receive the Early Redemption Price or the MaCS Redemption Price, as applicable, and subject to regulatory approval. References to the Trust Redemption Right includes a termination of the Trust on this basis.

30. The Trust has an additional redemption right, subject to regulatory approval and on not less than 30 nor more than 90 days’ prior written notice, whereupon the occurrence of certain regulatory or tax events affecting MLI or the Trust, the Trust may redeem, at any time, all but not less than all of the MaCS − Series A at the Early Redemption Price if the MaCS − Series A are redeemed prior to the At Par Redemption Date and at the MaCS Redemption Price if the MaCS − Series A are redeemed on or after the At Par Redemption Date.

31. As set forth in the MaCS Declaration of Trust, MaCS – Series A are non-voting except in certain limited circumstances and Special Trust Securities entitle the holders to vote.

32. Except to the extent that the Indicated Yield is payable to holders of MaCS and, other than in the event of termination of the Trust (as set forth in the MaCS Declaration of Trust), holders of MaCS have no claim or entitlement to the income of the Trust or the assets held by the Trust.

33. In certain circumstances (as described in paragraph 25 above), including at a time when MLI's financial condition is deteriorating or proceedings for the winding-up of MLI have been commenced, the MaCS – Series A will be automatically exchanged for MLI Class A Shares Series 3 without the consent of the holders of MaCS. As a result, holders of MaCS will have no claim or entitlement to the assets held by the Trust, other than indirectly in their capacity as preferred shareholders of MLI.

34. Holders of MaCS may not take any action to terminate the Trust.

35. The return to holders of MaCS is dependent on the financial condition of MLI rather than the Trust. Holders of MaCS are ultimately concerned about the affairs and financial performance of MLI as opposed to that of the Trust.

36. The MaCS are currently treated for insurance regulatory capital purposes as if they are preferred shares of MLI and as a result, if any circumstance arose where the solvency or financial strength of MLI was threatened, the Superintendent would be expected to move to ensure that the Automatic Exchange is triggered prior to the occurrence of any potential insolvency event at MLI (such as a situation where MLI failed to make a payment on an outstanding debt, including the MLI MaCS Debentures or a declared and unpaid dividend on the MLI Preferred Shares).

37. MLI owns 100% of the outstanding voting Special Trust Securities and has covenanted, pursuant to the Share Exchange Agreement MaCS – Series A, to maintain ownership, directly or indirectly, of 100% of the Special Trust Securities. Under Canadian GAAP in force at the time of the Offering, MLI’s covenant resulted in the financial results of the Trust being consolidated with those of MLI.

Change in Accounting Policy

38. In June 2003, the Canadian Institute of Chartered Accountants issued AcG 15, which was effective for MFC and its subsidiaries on January 1, 2005. AcG 15 sets out the application of consolidation principles to VIEs that are subject to consolidation on the basis of beneficial financial interest as opposed to ownership of voting interest. MLI determined that the Trust is a VIE and that MLI is not the primary beneficial interest holder. As a result, the Trust has been deconsolidated and the MLI MaCS Debentures issued to the Trust by MLI have been reported in liabilities for preferred shares and capital instruments in MLI’s interim and annual financial statements for periods commencing on and after January 1, 2005. MFC also determined that the Trust is a VIE and that MFC is not the primary beneficial interest holder. As a result, the Trust has been deconsolidated and the MLI MaCS Debentures have been reported in liabilities for preferred shares and capital instruments in MFC’s interim and annual financial statements for periods commencing on and after January 1, 2005. Nevertheless, the outstanding MaCS continue to form part of the Tier 1 regulatory capital for MLI.

Prior Securities Exemptive Relief

39. The securities regulatory authority in each province and territory in Canada other than Yukon, Northwest Territories, Nunavut and Prince Edward Island issued the 2007 Order on January 22, 2007. For so long as the terms and conditions of the 2007 Order are satisfied, MLI and the Trust are not required to file the following documents required by NI 51-102: (a) audited annual or unaudited interim financial reports required by sections 4.1 and 5.1 of NI 51-102; (b) annual or interim MD&A required by sections 4.3 and 5.1 of NI 51-102; (c) an AIF required by section 6.1 of NI 51-102; (d) press releases and material change reports required by section 7.1 of NI 51-102 in the case of material changes that are also material changes in the affairs of MFC; and (e) other material contracts required by section 12.2 of NI 51-102. The 2007 Order is conditional upon, among other things: (a) MLI preparing and filing ICA Financial Statements; (b) MFC filing certain comparative financial information of MLI on a quarterly basis; and (c) MFC making available to holders of MLI and Trust securities on an ongoing basis MFC’s audited annual financial statements and unaudited interim financial reports (including MD&A thereon) and other MFC continuous disclosure materials. The 2007 Order will cease to apply on January 15, 2012.

40. On January 29, 2007, in accordance with the 2007 Order, MFC entered into guarantees under which MFC guaranteed certain obligations of MLI, including: (a) the Preferred Share Guarantee; (b) a full and unconditional subordinated guarantee in respect of MLI’s $550 million principal amount of outstanding 6.24% subordinated debentures due February 16, 2016; and (c) a full and unconditional guarantee of MLI’s obligations under the annuities which provided the cash flows to service the $200 million principal amount of 5.390% annuity-backed notes due March 12, 2007 and the $200 million principal amount of 4.551% annuity-backed notes due November 12, 2008 issued by Maritime Life Canadian Funding. The $550 million principal amount of 6.24% subordinated debentures were redeemed on February 16, 2011 and the annuity-backed notes were repaid on maturity, and the guarantees with respect to those securities terminated on the date of the redemption or maturity, as applicable, of such securities.

41. On November 18, 2011, in accordance with the 2007 Order, MFC entered into the Subordinated Debt Guarantee in respect of the MLI Subordinated Debentures.

The MFC Guarantees

42. MFC intends to grant a full and unconditional guarantee of MLI’s payment obligations in respect of any non-convertible debt securities issued by MLI in the future, which will result in holders of such debt securities being entitled to receive payment from MFC within 15 days of any failure by MLI to make a payment due under such debt securities, other than:

(a) debt securities issued to and held by MFC or its affiliates (as defined in NI 51-102);

(b) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions; or

(c) securities issued under exemptions from the prospectus requirement in section 2.35 of NI 45-106.

Such a guarantee will be described in the applicable prospectus or prospectus supplement filed by MLI in connection with a distribution of the guaranteed debt securities.

43. MFC has provided the Preferred Share Guarantee. The amount payable under the Preferred Share Guarantee for any declared and unpaid dividends, Redemption Price and Liquidation Preference is limited so that the claims of holders of the MLI Preferred Shares under the guarantee, in effect, rank equally with the claims of holders of the corresponding series of MFC Preferred Shares. To accomplish this, the Preferred Share Guarantee provides that if a Triggering Event occurs, MFC will pay the Deficiency Payment to MLI, in trust for the benefit of holders of MLI Preferred Shares outstanding as of the Triggering Event.

44. The Preferred Share Guarantee applies in respect of any MLI Preferred Shares outstanding from time to time. The Preferred Share Guarantee will be described in the applicable prospectus or prospectus supplement filed by MLI in connection with any future distribution of MLI Preferred Shares.

45. The Preferred Share Guarantee ranks subordinate to any and all outstanding liabilities of MFC unless otherwise provided by the terms of the instrument creating or evidencing any such liability. However, since the Preferred Share Guarantee will be a debt obligation of MFC and therefore will rank ahead of the claims of holders of MFC’s Preferred Shares, the calculation of the amount payable under the Preferred Share Guarantee will be subject to reduction so that, on the distribution of assets upon a winding-up of MFC, claims under the Preferred Share Guarantee will effectively rank equally with the claims of holders of the MFC Preferred Shares. Otherwise, the Preferred Share Guarantee would negatively impact the capital treatment of the MLI Preferred Shares for MFC for insurance regulatory purposes.

46. Each of the MFC Guarantees will terminate (except in respect of any demand previously made on MFC thereunder) upon the earlier to occur of:

(a) unless MFC and MLI agree to the contrary, the date that no MLI securities which are the subject of such guarantee (or securities convertible into or exchangeable for such securities, including, in the case of the Preferred Share Guarantee, MaCS) are outstanding;

(b) the date that MFC no longer owns all of the outstanding common shares of MLI;

(c) the date that the relief contemplated by this decision is no longer available to MLI; or

(d) the date MLI commences filing its own Continuous Disclosure Filings with the security regulatory authorities in each of the provinces and territories of Canada;

provided that, MFC may not terminate the Preferred Share Guarantee in respect of the MLI Class A Shares Series 2, the MLI Class A Shares Series 3, the MLI Class A Shares Series 4 and the MLI Class A Shares Series 5 pursuant to clauses (b), (c) or (d) above at any time:

(i) after the occurrence of an Automatic Exchange; or

(ii) during a period when MLI has failed to make full payment of any dividend declared on any MLI Preferred Shares on the date required for such payment or has failed to make payment in full when due of the Redemption Price and, in either case, such failure has not been remedied by payment of such amounts in full by MLI or MFC.

The Exemption Sought

47. The Exemption Sought is a renewal of and supersedes the relief granted pursuant to the 2007 Order.

48. The Exemption Sought will extend the simplified approach currently utilized with respect to MFC’s, MLI’s, and the Trust’s respective continuous disclosure obligations. The obligation to prepare and, where applicable, print and distribute, continuous disclosure materials for MLI and the Trust would be costly and time consuming.

49. As a result of the various covenants of MLI and MFC made in accordance with the Exemption Sought, information about the affairs and financial performance of MFC and MLI will continue to be made available to the holders of securities of MLI and the Trust and the general investing public. This information, as opposed to information solely related to MLI and the Trust, is more meaningful to holders of securities of MLI and the Trust and the general investing public, and will provide holders of securities of MLI and the Trust and the general investing public with all information required to make an informed decision relating to an investment in MLI and the Trust. This information will also be relevant to an investor’s expectation of being paid the principal, interest, dividends and redemption prices, as applicable, and any other amounts paid of securities of MLI and the Trust.

Continuous Disclosure and Certification Exemptions of MLI

50. The MLI Continuous Disclosure Exemption is substantially similar to the relief available to “credit support issuers” under section 13.4(2) of NI 51-102. With the MFC Guarantees, MLI would be able to satisfy each of the criteria of section 13.4(2) of NI 51‑102, other than the requirements set out in section 13.4(2)(c).

51. The MLI Certification Exemption is substantially similar to the relief under section 8.5 of NI 52-109, which provides an exemption from the requirements of NI 52-109 for an issuer that qualifies for the relief contemplated by, and is in compliance with the requirements and conditions set out in, section 13.4(2) of NI 51-102.

52. Section 13.4(2)(c) of NI 51‑102 requires that the credit support issuer not issue any securities and not have any securities outstanding, other than:

(a) non-convertible debt securities, non-convertible preferred shares, or convertible debt securities or convertible preferred shares that are convertible into securities of the credit supporter (in each case, where the parent credit supporter has provided alternative credit support or a full and unconditional guarantee of the payments to be made by the credit support issuer that results in the holder of such securities being entitled to receive payment from the credit supporter or, in the case of alternative credit support, the credit support issuer, within 15 days of any failure by the credit support issuer to make a payment);

(b) securities issued to and held by the parent credit supporter or an affiliate (as defined in NI 51-102) of the parent credit supporter;

(c) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions; or

(d) securities issued under exemptions from the prospectus requirement in section 2.35 of NI 45-106.

53. The Preferred Share Guarantee is structured such that, in a circumstance where MLI fails to make payment of either declared dividends or the Redemption Price of MLI Preferred Shares when properly surrendered for redemption, or there exists insufficient assets to pay the Liquidation Preference upon the liquidation or winding-up of MLI, and at such time a winding-up order has been made in respect of MFC, payment of such amounts to holders of MLI Preferred Shares will not be made until the final distribution of surplus of MFC, if any, to shareholders of MFC pursuant to section 95(1) of the WURA. In circumstances where MFC is not the subject of a winding-up order, holders of MLI Preferred Shares will be entitled to payment from MFC within 15 days of the non-payment of dividends or of the non-payment of the Redemption Price of MLI Preferred Shares and, in the case of the Liquidation Preference, within 15 days of the later of: (a) the date of the final distribution of property of MLI to creditors pursuant to section 93 of the WURA; and (b) the date of the final distribution of surplus of MLI, if any, to shareholders pursuant to section 95(1) of the WURA.

54. With the implementation of the MFC Guarantees, the only issued and outstanding securities of MLI that will not satisfy the conditions in section 13.4(2)(c) of NI 51-102 are the MLI Preferred Shares because the Preferred Share Guarantee will not be a full and unconditional guarantee as required by the definition of “designated credit support securities” in section 13.4(1) of NI 51-102 for the following reasons:

(a) if MFC is subject to a winding-up order under the WURA, holders of MLI Preferred Shares will not be entitled to payment from MFC under the Preferred Share Guarantee until the final distribution of surplus of MFC, if any, to MFC shareholders pursuant to section 95(1) of the WURA;

(b) if MFC is subject to a winding-up order under the WURA, the payment by MFC to holders of MLI Preferred Shares under the Preferred Share Guarantee will be an amount that, when paid, will result in the holders of a class of MLI Preferred Shares receiving payment of the same proportion of the unpaid amounts on the class of MLI Preferred Shares as the holders of such shares would have received had their claim to such unpaid amounts on the final distribution of surplus of MFC under the WURA ranked on parity with the claims of the holders of the corresponding class of MFC Preferred Shares; and

(c) if MLI is subject to a winding-up order under the WURA, holders of MLI Preferred Shares will not be entitled to payment from MFC under the Preferred Share Guarantee until the later of (i) the date of the final distribution of property of MLI to creditors pursuant to section 93 of the WURA, and (ii) the date of the final distribution of surplus of MLI, if any, to MLI shareholders pursuant to Section 95(1) of the WURA.

Insider Reporting Exemption of MLI

55. Section 13.4(3) of NI 51-102 provides an exemption from the requirement to file an insider profile under NI 55-102 and from the Insider Reporting Requirements for an insider of a credit support issuer in respect of securities of the credit support issuer provided that certain conditions are satisfied. With the MFC Guarantees, MLI satisfies each of the criteria of section 13.4(3) of NI 51‑102, other than the requirement set out in section 13.4(3)(a), which requires MLI to comply with sections 13.4(2)(a) and 13.4(2)(c) of NI 51-102.

Liability for Secondary Market Disclosure

56. MFC has delivered to the principal regulator the MFC Responsible Issuer Undertaking. MFC has filed the MFC Responsible Issuer Undertaking on its SEDAR profile following MFC entering into the Preferred Share Guarantee.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for it to make the decision.

The decision of the principal regulator under the Legislation is that the Continuous Disclosure Exemption be granted to MLI provided that:

(a) MFC and MLI continue to be regulated by OSFI;

(b) MFC continues to be the direct or indirect beneficial owner of all the issued and outstanding voting securities (as defined in the Legislation) of MLI;

(c) MFC and MLI remain reporting issuers or the equivalent thereof under the Legislation;

(d) MFC continues to provide the Preferred Share Guarantee;

(e) MFC complies with the requirements of the Legislation and the requirements of the Toronto Stock Exchange in respect of making public disclosure of material information on a timely basis;

(f) MFC immediately issues in Canada and files any news release that discloses a material change in its affairs;

(g) MFC concurrently sends to all holders of guaranteed debt securities of MLI all disclosure materials that are sent to holders of similar debt securities of MFC in the manner and at the time required by the Legislation and the Toronto Stock Exchange;

(h) MFC concurrently sends to all holders of MLI Preferred Shares and MaCS all disclosure materials that are sent to holders of preferred shares of MFC which are similar to MLI Preferred Shares in the manner and at the time required by the Legislation and the Toronto Stock Exchange;

(i) no person or company other than MFC provides a guarantee or alternative credit support (as defined in NI 51-102) for the payments to be made under any issued and outstanding securities of MLI;

(j) MFC files for the periods covered by any interim or annual consolidated financial statements of MFC (either as a standalone document or as part of such MFC financial statements), consolidating Summary Financial Information for MFC presented with a separate column for each of the following: (i) MFC; (ii) MLI; (iii) any other subsidiaries of MFC on a combined basis; (iv) consolidating adjustments; and (v) the total consolidated amounts;

(k) MLI files a notice indicating that it is relying on the Continuous Disclosure Filings of MFC and setting out where those documents can be found for viewing in electronic format;

(l) MLI immediately issues in Canada a news release and files a material change report for all material changes in respect of the affairs of MLI that are not also material changes in the affairs of MFC;

(m) MLI files its annual financial statements prepared in accordance with Canadian GAAP concurrently with the filing of the ICA Financial Statements with the Superintendent in accordance with the ICA;

(n) MLI does not issue any securities, and does not have any securities outstanding, other than: (i) designated credit support securities; (ii) securities issued to and held by MFC or an affiliate (as defined in NI 51-102) of MFC; (iii) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions; (iv) securities issued under exemptions from the prospectus requirement in section 2.35 of NI 45-106; and (v) MLI Preferred Shares that have a Preferred Share Guarantee; and

(o) such Continuous Disclosure Exemption will cease to apply on January 15, 2017.

The further decision of the principal regulator under the Legislation is that the Continuous Disclosure Exemption be granted to the Trust provided that:

(a) MLI qualifies for the relief contemplated by, and MFC and MLI are in compliance with the requirements and conditions set out in MLI’s Continuous Disclosure Exemption;

(b) for so long as any MaCS are outstanding, MFC and MLI continue to provide the Dividend Stopper Undertaking;

(c) the Trust does not issue any securities, and does not have securities outstanding, other than: (i) MaCS, and (ii) Special Trust Securities;

(d) the Trust does not have any material assets other than the MLI MaCS Debentures and the Funding Debenture and has no other material liabilities other than the Credit Facility;

(e) the Trust files a notice indicating that it is relying on the Continuous Disclosure Filings of MFC and setting out where those documents can be found for viewing in electronic format;

(f) the Trust immediately issues in Canada a news release and files a material change report for all material changes in respect of the affairs of the Trust that are not also material changes in the affairs of MLI or MFC;

(g) all of the outstanding Special Trust Securities are beneficially owned by MLI or any of its affiliates (as defined in NI 51-102) and all of the issued and outstanding voting shares of MLI or of its affiliates which own the Special Trust Securities are beneficially owned by MFC;

(h) the rights and obligations, other than the economic terms thereof as described in representation 20, of holders of additional MaCS are the same in all material respects as the rights and obligations of holders of MaCS – Series A and MaCS – Series B at the date of this decision, including any rights and obligations related to the Preferred Share Guarantee; and

(i) such Continuous Disclosure Exemption will cease to apply on January 15, 2017.

The further decision of the principal regulator is that the Certification Exemption be granted to MLI provided that:

(a) MLI qualifies for the relief contemplated by, and MFC and MLI are in compliance with the requirements and conditions set out in MLI’s Continuous Disclosure Exemption;

(b) MLI and the Trust are not required to, and do not, file their own Annual Filings and Interim Filings; and

(c) such Certification Exemption will cease to apply on January 15, 2017.

The further decision of the principal regulator is that the Certification Exemption be granted to the Trust provided that:

(a) the Trust qualifies for the relief contemplated by, and MFC, MLI and the Trust are in compliance with the requirements and conditions set out in the Trust’s Continuous Disclosure Exemption;

(b) the Trust is not required to, and does not, file its own Annual Filings and Interim Filings; and

(c) such Certification Exemption will cease to apply on January 15, 2017.

The further decision of the principal regulator is that the Insider Profile Exemption be granted to insiders of MLI provided that:

(a) MLI qualifies for the relief contemplated by, and MFC and MLI are in compliance with, the requirements and conditions set out in MLI’s Continuous Disclosure Exemption;

(b) the insider does not receive, in the ordinary course, information as to material facts or material changes concerning MFC before the material facts or material changes are generally disclosed;

(c) the insider is not an insider of MFC in any capacity other than by virtue of being an insider of MLI;

(d) if the insider is MFC, MFC does not beneficially own any designated credit support securities issued by MLI, MLI Preferred Shares or MaCS; and

(e) such Insider Profile Exemption will cease to apply on January 15, 2017.

The decision of the principal regulator is that the Insider Reporting Exemption be granted to insiders of MLI provided that:

(a) MLI qualifies for the relief contemplated by, and MFC and MLI are in compliance with, the requirements and conditions set out in MLI’s Continuous Disclosure Exemption;

(b) the insider qualifies for the relief contemplated by the Insider Profile Exemption; and

(c) such Insider Reporting Exemption will cease to apply on January 15, 2017.

As to the Exemption Sought (other than from the Insider Reporting Requirements in the Securities Act (Ontario)).

“Jo-Anne Matear”

Jo-Anne Matear Manager Ontario Securities Commission

As to the Exemption Sought from the Insider Reporting Requirements in the Securities Act (Ontario).

“Judith N. Robertson” “James Turner”

Commissioner Ontario Securities Commission

VISE-CHAIR Ontario Securities Commission