Life and annuity re/insurance firm Global Atlantic has agreed to reinsure a portion of Unum Group’s Closed Individual Disability Insurance Block (IDI) business through a coinsurance arrangement.
The block of business in question is backed by $8.5 billion in assets and approximately $7.1 billion in reserves.
Unum is a Fortune 500 insurance company based in Tennessee with a focus on disability, life, accident, critical illness, dental and vision insurance.
Under the terms of the agreement, a subsidiary of Global Atlantic will maintain over-collateralized trust accounts for Unum’s three ceding insurance subsidiaries.
Unum, meanwhile, will continue to provide service and administration for the reinsured IDI business.
Once the transaction is complete, Unum expects to release $600 million of capital backing the block of reinsurance business.
Global Atlantic’s subsidiaries will invest alongside its recently launched Ivy Co-Investment Vehicle. In total following this transaction, Ivy will have deployed approximately 60% of its capital commitments.
“We are pleased to provide a long-term solution that meets Unum’s capital objectives and strategic goals for its legacy closed block of individual disability income business,” said Manu Sareen, President of Global Atlantic’s Institutional business. “This is a seasoned run-off block of business with a rich history of data and stability of cash flows that are very attractive to Global Atlantic.”
“Global Atlantic’s experience in executing block deals like these made them an ideal partner for us,” added Unum President and CEO Richard P. McKenney. “The team’s collaborative approach resulted in a custom solution tailored specifically to meet our financial objectives.”
“With this agreement, we continue to make meaningful steps in actively managing the Closed Block to increase our financial flexibility and further rebalance our portfolio to more capital efficient businesses,” McKenney continued.
“Looking forward, we remain focused on delivering growth in our core businesses while continuing to pursue additional opportunities to optimize our capital and balance sheet for long-term shareholder value.”
As part of the transaction, a subsidiary of Unum will provide a 12-year volatility cover for the active life cohort, which represents approximately 5 percent of the total statutory reserves of the IDI block reinsured by Global Atlantic’s subsidiary.
At the end of the coverage period, Global Atlantic’s subsidiary will retain the risk for the remaining incidence and claims risk on the block.
Unum and Global Atlantic expect to complete this deal in two phases, with 75% of the IDI to set to be reinsured this month with effect from July 1, 2020.
Additional IDI business, consisting of direct business not ceded at the first closing in December 2020 and business assumed by Unum from third parties, will be reinsured in the first quarter of 2021.
The total net considerations to be paid to Global Atlantic’s subsidiary at the closing of the first phase is $376 million, while the ceding commission for the second phase is subject to adjustment based on the consents actually received.
Morgan Stanley & Co. LLC and Rothschild & Co acted as financial advisors and Debevoise & Plimpton LLP served as legal counsel to Unum on transaction.