Manulife Financial Corporation has agreed to reinsure CAD 5.8 billion (USD 4.4 billion) of reserves of low ROE Canadian universal life block to RGA Life Reinsurance Company of Canada.
RGA Life Reinsurance Company of Canada, a subsidiary of global life and health reinsurer RGA, and the Manufacturers Life Insurance Company, a subsidiary of Manulife Financial Corporation, have completed the largest universal life reinsurance transaction in the Canadian market to date.
Under the terms of the transaction, Manulife will continue to administer all policies to maintain a seamless customer service experience, while reinsuring a 100% quota share on the reserves ceded, backed by significant structural protections including posted collateral.
The transaction is not subject to closing conditions and is expected to close early in Q2 2024.
Roy Gori, Manulife President & Chief Executive Officer, commented, “This transaction is the largest Universal Life reinsurance transaction in the Canadian insurance industry and represents another milestone in our journey to transform our portfolio to higher ROE and lower risk businesses.
“This deal, valued at 16.2 times earnings and priced at book value further demonstrates our focus and ability to execute on attractive terms and our commitment to unlocking shareholder value. With this transaction, we will have released $11 billion of capital since 2018 and improved Core ROE by ~5% since 2017. We remain highly focused on exploring additional organic and inorganic actions to deliver value to shareholders.”
Dominic Hains, President and Chief Executive Officer, RGA Canada, commented, “Our relationship with Manulife has spanned many years, and our strong partnership has been a key factor in the success of this transaction. We greatly appreciate Manulife’s ongoing trust in RGA’s expertise, and we take pride in being a reliable partner and providing support for their strategic goals.”
Tony Cheng, President and CEO, RGA, added, “RGA’s dedication to providing long-term value through tailored solutions is exemplified in this historic coinsurance transaction with Manulife. Our latest agreement not only cements our long-standing partnership with Manulife but also highlights RGA’s capacity for innovation and delivering solutions that expertly address our clients’ needs.”
Manulife notes that the transaction is priced at book value and is expected to result in an annual reduction to core earnings of approximately $50 million and net income attributed to shareholders of approximately $40 million and, with a capital release of $0.8 billion, represents an attractive deal multiple of 16.2 times core earnings.
Marc Costantini, Manulife Global Head of Inforce Management, concluded, “We are pleased to partner with RGA, a highly reputable and experienced counterparty. Manulife has been committed to improving the profitability and profile of our inforce business. This transaction will reduce our Canadian Universal Life reserves by $5.8 billion, and we will dispose $0.6 billion of ALDA backing this block, further reducing our sensitivities to markets.”
