A subsidiary of global life reinsurer, Reinsurance Group of America (RGA) has completed a $2.9 billion annuity reinsurance transaction with Horace Mann Life Insurance Company, a subsidiary of Horace Mann Educators Corporation.
Under the transaction, effective April 1st, 2019 RGA’s subsidiary will reinsure a seasoned block of U.S. annuity business and Horace Mann will continue to service and administer the policies.
The block of U.S. annuity business reinsured by RGA’s subsidiary related to legacy U.S. individual annuities written in 2002 or earlier. This includes $2.2 billion of fixed annuities that represented roughly half of Horace Mann’s fixed annuity assets under management at the end of March, 2019 and also $700 million of variable annuities.
Approximately 54,000 policies are being reinsured under the transaction, which Horace Mann will continue to service and administer.
John Laughlin, Executive Vice President, Global Financial Solutions, RGA, said: “We are pleased to expand the strong partnership with Horace Mann and to advance RGA’s overarching long-term strategy to grow our asset-intensive business.
“This transaction is another solid example of RGA’s dedication to working with clients to meet their capital and risk management objectives.”
For Horace Mann, the transaction reduces ongoing interest rate risk and releases around $200 million of capital. The firm states that it will use $185 million of this, alongside roughly $85 million of excess capital and the line of credit, to fund its previously announced acquisition of supplemental insurance provider NTA.
Horace Mann President and Chief Executive Officer (CEO), Marita Zuraitis, said: “Reinsuring our legacy annuity business is a win-win for our shareholders and our policyholders. We will continue to service and administer the reinsured annuity policies, so our educators will be able to rely on the customer experience they have always known.
“And for Horace Mann, the reinsurance agreement reduces our exposure to interest rate fluctuations, releases capital that can be redeployed to provide more solutions for educators and increases long-term earnings for our shareholders.”
Horace Mann expects to recognise an after-tax realised investment gain of $107 million following the reinsurance transaction, and as a result, book value per share, excluding unrealised investment gains on securities as at the end of June, 2019, should increase by roughly 8%.
“Combined with our acquisition of National Teachers Associates Life Insurance Company (NTA), the reinsurance transaction sets the stage for strong earnings growth and accelerated shareholder value creation, while also reducing earnings volatility.
“NTA expands the suite of products we provide to educators and adds points of distribution. We expect NTA to deliver earnings and ROE accretion in its first 12 months as part of Horace Mann, with additional long-term upside from cross-sell opportunities,” continued Zuraitis.
Horace Mann has also revealed that it’s replaced its current line of credit with a new five-year Credit Agreement, which increases the amount available on the senior revolving credit facility from $150 million to $225 million.
“Our guidance for full-year 2019 core EPS remains unchanged, as NTA’s expected contribution to earnings in the second half of 2019 will be offset by nine months of lower Retirement core earnings due to the reinsurance transaction.
“In 2020, we expect core EPS growth of at least 10%, as NTA will be part of Horace Mann for the full year. This guidance presumes the NTA acquisition closes as anticipated and catastrophe losses remain in line with prior guidance,” said Zuraitis.
