Manulife Financial announces massive reinsurance agreement

Manulife Financial Corp. has agreed to a CA$13 billion ($9.57 billion) reinsurance deal with Global Atlantic. Under the agreement, Manulife Financial will reinsure four blocks of legacy and low return-on-equity business.

The deal is a full risk transfer and includes significant structural protections, including overcollateralized trusts to hold investment assets, Manulife Financial announced.

Manulife reinsures CA$6 billion, or a 14% total, of total long-term care reserves to Global Atlantic and its partners, representing its largest ever LTC reinsurance transaction.

Through the deal, Manulife Financial expects to release CA$1.2 billion of capital, which is intended to be fully returned to shareholders through share buybacks, leading to core EPS2 and core ROE2 accretion.

The new deal is also expected to reduce the risk from legacy blocks including a 12% reduction in LTC morbidity sensitivities, Manulife Financial said.

The agreement is also expected to dispose $1.7 billion of alternative long-duration assets, and is a major milestone in reshaping its portfolio.

“The deal, valued at 9.5 times earnings, and the pricing at book value demonstrate the prudence of our reserves, our focus on execution and our commitment to unlocking shareholder value,” said Manulife Financial CEO and President Roy Gori.

The transaction is expected to close in the first half of 2024.

Global Atlantic currently has two existing reinsurance arrangements with the Canadian insurer.