Manulife Financial announces landmark LTC reinsurance deal with Global Atlantic

Manulife Financial Corporation has announced a transformative reinsurance transaction with Global Atlantic, a leading insurance provider. This deal, involving the reinsuring of C$13 billion of reserves, including C$6 billion in long-term care (LTC) reserves, represents the largest LTC reinsurance transaction in the insurance industry. Scheduled for an initial period from 2024-2026, with options for extensions, this strategic move signals a significant shift in Manulife’s business operations.

Breaking Down the Transaction

The reinsurance agreement involves transferring C$13 billion of reserves, including a substantial portion of Manulife’s LTC reserves, to Global Atlantic and its partners. This deal is expected to reduce Manulife’s LTC morbidity sensitivities by 12% and involves disposing of C$1.7 billion of alternative long-duration assets (ALDA) backing these blocks.

Manulife Financial and Global Atlantic Partner in Industry’s Largest LTC Reinsurance Agreement

Capital Release and Shareholder Value

A notable aspect of this transaction is the release of C$1.2 billion in capital, which Manulife intends to fully return to shareholders via share buybacks. The deal is priced attractively at 9.5 times core earnings and at book value, demonstrating the prudence of Manulife’s reserves and its commitment to enhancing shareholder value.

Executive Perspectives

Manulife’s President & Chief Executive Officer, Roy Gori, expressed the significance of the agreement, stating, “This agreement represents the largest LTC reinsurance transaction ever in the insurance industry.” Marc Costantini, Manulife’s Global Head of Inforce Management, also highlighted the full risk transfer and significant structural protections involved in the transaction.

Strategic Implications for Manulife

This reinsurance deal is a major milestone in Manulife’s strategy to reshape its portfolio, reduce risk, and invest in high-potential growth areas. It is anticipated to generate a $1.2 billion capital release, contributing to over $10 billion of capital released since 2018. The transaction is a testament to Manulife’s focused execution and commitment to unlocking shareholder value.

Approval for Share Buybacks

Manulife has received approval from the Office of the Superintendent of Financial Institutions (“OSFI”) to launch a normal course issuer bid (“NCIB”) to purchase for cancellation up to approximately 2.8% of its outstanding common shares, commencing February 2024. This NCIB is subject to the approval of the Toronto Stock Exchange (“TSX”).

Legal Counsel

Willkie Farr & Gallagher LLP acted as legal counsel to Manulife for this significant transaction.

In summary, Manulife’s agreement with Global Atlantic is a landmark in the insurance industry, promising to reshape Manulife’s LTC portfolio, enhance operational efficiency, and solidify its commitment to its shareholders.