Manulife Financial Corporation has agreed to reinsure a combined $13 billion of reserves across four legacy/low ROE blocks to Global Atlantic and its partners.
As per Manulife, the blocks include portions of U.S. LTC, U.S. structured settlements, and two Japan whole life products.
The LTC block represents $6 billion, or 14% of Manulife’s total LTC reserves as of September 30, 2023.
The transaction is expected to close in the first half of 2024 and is subject to regulatory approval.
Roy Gori, Manulife President & CEO, commented, “This agreement represents the largest LTC reinsurance transaction ever in the insurance industry, and it is a major milestone in our strategy to reshape our portfolio, reduce risk, deliver value to shareholders, and invest in high-potential growth areas of our business.
“We expect to generate a $1.2 billion capital release, achieving over $10 billion of capital released since 2018. We intend to deploy the full capital release toward buying back common shares, driving core EPS and core ROE growth.
“The deal, valued at 9.5 times earnings, and the pricing at book value demonstrate the prudence of our reserves, our focus on execution and our commitment to unlocking shareholder value.”
Manulife disclosed that the deal is a full risk transfer, and includes significant structural protections, including over-collateralized trusts to hold investment assets.
The reinsurance represents an 80% quota share of the ceded LTC blocks and 100% quota share of the other ceded blocks. Manulife said it will continue to administer all reinsured policies for a seamless customer service experience.
Meanwhile, with this deal, Global Atlantic said it further advances its position as a reinsurer of choice in the annuity and life insurance marketplace.
The company has established a 20-year track record, completing more than 40 transactions with nearly 30 clients and reinsuring more than $140 billion of assets since inception.
Manu Sareen, Co-President of Global Atlantic, said, “Throughout this process, we partnered closely with Manulife teams in Canada, the US and Japan to gain a strong understanding of their goals.
“Due to our organizations’ close collaborative process, we were able to develop a tailored solution that aligns with all parties’ strategic objectives. Our innovative LTC structure separates the insurance risks from the underlying investment and spread-based risk, and enables Global Atlantic to reinsure the insurance risks to a highly regarded reinsurance partner.
“With this structure, our retained liability cashflows on this part of the transaction are not subject to any lapse, longevity or morbidity risks.”
