Manulife Financial has reached a reinsurance agreement with Reinsurance Group of America (RGA), valued at $5.4bn (C$7.54bn), which includes $2.4bn of LTC reserves.
This agreement will see Manulife reinsure $5.4bn of reserves across two business blocks to RGA, involving portions of US LTC and structured settlements.
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The LTC block, valued at $2.4bn, constitutes 6% of Manulife’s total LTC reserves as of 30 September 2024.
This transaction, expected to close in early 2025, is priced close to 1-times book value and includes a 75% quota share on both ceded blocks.
Reinsurer RGA has multiple existing reinsurance arrangements with Manulife.
Manulife will continue to administer all reinsured policies.
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By GlobalDataThe transaction is expected to reduce LTC reserves by $2.4bn, or 6%, and lower LTC reserve sensitivity to morbidity assumption changes by 7%.
Following the closure of this transaction and a previous LTC reinsurance transaction in February 2024, Manulife will have cumulatively reduced its LTC reserves and morbidity sensitivity by 18% and 17%, respectively.
The modest negative ceding commission on the LTC block, at 4% of IFRS reserves, further validates Manulife’s LTC reserves and assumptions. The deal is expected to release $800m of capital, intended to be fully returned to shareholders through common share buybacks.
Manulife aims to repurchase for cancellation the full 90 million common shares permitted under its current NCIB programme, expiring in February 2025.
The transaction is also expected to result in an annual reduction to core earnings and net income attributed to shareholders of $70m and $50m, respectively.
Manulife president & CEO Roy Gori said: “We are further unlocking significant shareholder value with a second milestone LTC reinsurance transaction within 12 months, which accelerates our transformation to reshape our portfolio towards higher return and lower risk.
“This transaction further demonstrates our ability to execute on complex transactions and collaborate with experienced counterparties to deliver win-win outcomes, including on both mature and younger LTC blocks. The deal is priced at 11.4-times core earnings multiple and is expected to be accretive to core ROE after we return the released capital to shareholders through share buybacks.”
Recently, Manulife named Phil Witherington as its new CEO. Roy Gori, the current president and CEO, will retire on 8 May 2025.
