Canada-based Manulife Financial Corp. said it has entered into a CAD5.4 billion reinsurance agreement with Reinsurance Group of America (RGA), including CAD2.4 billion of long-term care (LTC) reserves. The deal reduces Manulife’s LTC reserves by 18 percent and decreases LTC morbidity sensitivity by 17 percent.
Manulife is listed in a number of stock exchanges, including the Philippine Stock Exchange. CAD is the banking code for Canadian dollars. Every CAD100 is currently equivalent to USD72.
Under the full risk transfer basis, RGA will reinsure the CAD2.4 billion of LTC reserves. The transaction includes a legacy block of U.S. structured settlements with CAD3.0 billion in reserves. The LTC block being transacted is younger, with a higher proportion of active life reserves compared to previous transactions. This reinsurance deal is accretive to Manulife’s core return on equity.
As a result of the deal, Manulife expects to release CAD0.8 billion in capital, which the company plans to return entirely to shareholders. The transaction will have a neutral impact on core earnings per share and is also expected to dispose of CAD1.5 billion of alternative long-duration assets.
Manulife president and chief executive officer Roy Gori highlighted the significant shareholder value unlocked through the company’s second LTC reinsurance transaction within 12 months. This transaction accelerates Manulife’s transformation by reshaping its portfolio towards higher returns and lower risk, he added.
Gori said the deal’s attractive pricing, at 11.4 times core earnings multiple, and its expected positive impact on core return on equity, especially after returning the released capital to shareholders through share buybacks.
