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Transacting on a younger LTC block further validates LTC reserves and assumptions
Another milestone transaction that optimizes our portfolio
$0.8 billion capital release will be returned to shareholders via share buybacks
Conference call to be held Thursday, November 21, 2024, at 8:00 a.m. ET; details below
TSX/NYSE/PSE: MFC SEHK: 945
C$ unless otherwise stated
TORONTO, Nov. 20, 2024 /PRNewswire/ - Manulife Financial Corporation ("Manulife" or the "Company") announced today that it has entered into a $5.4 billion1 reinsurance agreement with Reinsurance Group of America ("RGA"), including $2.4 billion of long-term care ("LTC") reserves.
Key highlights of the transaction:
- Reinsuring $2.4 billion of LTC reserves to RGA on a full risk transfer basis
- Inclusive of our previous LTC reinsurance transaction2 ("previous transaction"), upon closing we will have cumulatively reduced LTC reserves by 18% and LTC morbidity sensitivity by 17%3
- Transacted LTC block is younger, with a greater proportion of active life reserves than our previous transaction
- Modest negative 4% LTC cede4 further validates our reserves and assumptions
- Transaction also includes a legacy block of U.S. structured settlements with $3.0 billion of reserves
- Accretive to core ROE5, and an attractive core earnings5 multiple of 11.4 times6; neutral impact to core EPS5
- Close to 1.0x book value7; expect to release $0.8 billion of capital, which we intend to fully return to shareholders
- Expect to dispose $1.5 billion of alternative long-duration assets ("ALDA")
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"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." — Roy Gori, Manulife President & Chief Executive Officer "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." — Marc Costantini, Manulife Global Head of Strategy and Inforce Management |
Transaction Summary
We will reinsure a combined $5.4 billion of reserves across two blocks of legacy business to RGA. The blocks include portions of U.S. LTC and U.S. structured settlements. The LTC block represents $2.4 billion, or 6% of Manulife's total LTC reserves as of September 30, 2024. The transaction is priced at close to 1.0 times book value, reflecting a modest negative ceding commission on LTC, and a nominal ceding commission on the structured settlements block.
RGA is a highly experienced global reinsurer with multiple existing reinsurance arrangements with Manulife. The transaction includes significant structural protections, including over-collateralized trusts to hold investment assets. The reinsurance represents a 75% quota share on both ceded blocks.
In connection with the transaction, we expect to dispose $1.5 billion of ALDA. Manulife will continue to administer all reinsured policies for a seamless customer service experience. The transaction is expected to close in early 2025, subject to customary closing conditions.
Transacting on a younger LTC block further validates LTC reserves and assumptions
The transaction will reduce LTC reserves by $2.4 billion, or 6%, and is expected to reduce the underlying LTC reserve sensitivity to changes in morbidity assumptions by 7%. The transaction represents a full risk transfer on a younger LTC block, which has similar characteristics to our retained LTC blocks, with a greater proportion of active life reserves than the ceded block in our previous LTC reinsurance transaction.
Including our previous LTC reinsurance transaction, which closed in February 2024, we will have cumulatively reduced LTC reserves and morbidity sensitivity by 18% and 17%, respectively, upon closing. This demonstrates our proven ability to transact on both mature and younger LTC blocks.
The modest negative ceding commission ...
