Reinsurance Group of America (RGA) and John Hancock, a subsidiary of Manulife Financial Corporation (Manulife), have entered into a $4.1 billion reinsurance transaction, including $1.9 billion of long-term care (LTC) reserves.
The transaction includes the aforementioned LTC reserves and also a legacy block of U.S. structured settlements with $2.2 billion of reserves.
Both transactions are on a full-risk basis, with RGA coinsuring 75% quota share with 25% retained by John Hancock.
The reinsured LTC block is comprised of policies that closely match the characteristics of RGA’s current in-force LTC portfolio, including that all such policies were issued in 2007 or later.
Additionally, RGA will continue supporting John Hancock on their expected growth in U.S. permanent life business through partnership on yearly renewable term reinsurance, at market terms.
Life and health reinsurer RGA states that this latest transaction builds on its long-standing strategic partnership with Manulife across a wide range of business types and global markets.
RGA was represented by Sidley Austin LLP as its legal advisor in this $4.1 billion agreement.
Manulife has reported that it has entered into a CAD 5.4 billion reinsurance agreement with RGA, which includes CAD 2.4 billion of LTC reserves and a legacy block of U.S. structured settlements with CAD 3 billion of reserves.
With RGA reporting in USD and Manulife in CAD, the difference between the figures reported by the pair is a matter of currency exchange.
Inclusive of Manulife’s previous LTC reinsurance transaction, the $13 billion reinsurance transaction with Global Atlantic, upon closing this latest deal Manulife would have cumulatively reduced its LTC reserves by 18% and LTC morbidity sensitivity by 17%. The international financial services group notes that the transacted LTC block is younger, with a greater proportion of active life reserves than its previous agreement.
Manulife expects to dispose $1.5 billion of alternative long-duration assets in connection with this transaction, and will continue to administer all reinsured policies for a seamless customer service experience.
This latest transaction is expected to close in early 2025, subject to customary closing conditions.
Ron Herrmann, Executive Vice President, Head of the Americas, RGA, said: “We are excited to announce another mutually beneficial transaction with Manulife and are grateful for their continued trust in RGA. RGA’s expertise in biometric risks, combined with our robust asset platform, enables us to reinsure both sides of the balance sheet, delivering tailored long-term value through transactions like this. The acquired LTC block aligns well with our existing LTC portfolio, and both blocks will benefit from our diverse asset capabilities.”
Axel André, Executive Vice President, Chief Financial Officer, RGA, added: “The transaction is funded with existing internal capital resources and is expected to be accretive to RGA earnings in 2025, with attractive returns on capital.”
Roy Gori, Manulife President & Chief Executive Officer, commented: “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.”
“Together with our previously completed LTC transaction, we will have cumulatively reduced our LTC reserves by 18% within a year, upon closing, meaningfully improving the return profile of our inforce business. The pricing of this transaction further validates our prudent LTC reserves and assumptions. There continues to be attractive opportunities to generate shareholder value through organic LTC optimization, and we remain open to further inorganic opportunities,” added Marc Costantini, Manulife Global Head of Strategy and Inforce Management.
