Manulife announces $5.4 billion reinsurance transaction, including $2.4 billion of long-term care, with RGA
Manulife has announced a $5.4 billion reinsurance agreement with RGA, including $2.4 billion of long-term care (LTC) reserves. The transaction will reduce LTC reserves by 6% and morbidity sensitivity by 7%. Combined with a previous transaction, this will result in an 18% cumulative reduction in LTC reserves. The deal, priced at close to 1.0x book value, is expected to release $0.8 billion of capital which will be returned to shareholders through buybacks. The transaction includes a 75% quota share on both ceded blocks and is expected to close in early 2025. It will result in an annual reduction of $70 million in core earnings and $50 million in net income.
Manulife ha annunciato un accordo di riassicurazione da 5,4 miliardi di dollari con RGA, inclusi 2,4 miliardi di dollari in riserve per assistenza a lungo termine (LTC). La transazione ridurrà le riserve LTC del 6% e la sensibilità alla morbidità del 7%. Combinata con una transazione precedente, ciò porterà a una riduzione cumulativa del 18% delle riserve LTC. L'accordo, valutato a quasi 1,0x valore contabile, si prevede libererà 800 milioni di dollari di capitale che saranno restituiti agli azionisti attraverso riacquisti. La transazione include una quota del 75% sui blocchi ceduti e dovrebbe concludersi all'inizio del 2025. Comporterà una riduzione annuale di 70 milioni di dollari negli utili core e di 50 milioni di dollari nel reddito netto.
Manulife ha anunciado un acuerdo de reaseguro de 5.4 mil millones de dólares con RGA, incluyendo 2.4 mil millones de dólares en reservas de atención a largo plazo (LTC). La transacción reducirá las reservas de LTC en un 6% y la sensibilidad a la morbilidad en un 7%. Combinado con una transacción anterior, esto resultará en una reducción acumulativa del 18% en las reservas de LTC. El acuerdo, valorado en cerca de 1.0x valor contable, se espera que libere 800 millones de dólares en capital, que será devuelto a los accionistas a través de recompras. La transacción incluye una participación del 75% en ambos bloques cedidos y se espera que se cierre a principios de 2025. Resultará en una reducción anual de 70 millones de dólares en ganancias centrales y 50 millones en ingresos netos.
Manulife는 RGA와 54억 달러 규모의 재보험 계약을 체결했다고 발표했습니다. 여기에는 24억 달러의 장기 요양(LTC) 준비금이 포함됩니다. 이번 거래는 LTC 준비금을 6% 감소시키고 morbidity의 민감도를 7% 줄일 것입니다. 이전 거래와 결합하여, LTC 준비금이 18% 누적 감소하는 결과를 초래할 것입니다. 이 거래는 장부가치의 거의 1.0배에 가격이 책정되어 있으며, 8억 달러의 자본이 방출될 것으로 예상되며, 이는 자사주 매입을 통해 주주에게 반환될 것입니다. 이 거래는 양도된 블록에 대해 75%의 쿼터 쉐어를 포함하며, 2025년 초에 마무리될 것으로 예상됩니다. 연간 7천만 달러의 핵심 수익 감소와 5천만 달러의 순이익 감소를 초래할 것입니다.
Manulife a annoncé un accord de réassurance de 5,4 milliards de dollars avec RGA, comprenant 2,4 milliards de dollars de réserves pour les soins de longue durée (LTC). La transaction réduira les réserves de LTC de 6 % et la sensibilité à la morbidité de 7 %. Combinée à une transaction précédente, cela entraînera une réduction cumulative de 18 % des réserves de LTC. L'accord, évalué à près de 1,0 fois la valeur comptable, devrait libérer 800 millions de dollars de capital, qui sera restitué aux actionnaires par le biais de rachats. La transaction comprend une quote-part de 75 % sur les deux blocs cédés et devrait être finalisée au début de 2025. Cela entraînera une réduction annuelle de 70 millions de dollars des bénéfices de base et de 50 millions de dollars du revenu net.
Manulife hat eine Rückversicherungsvereinbarung über 5,4 Milliarden Dollar mit RGA angekündigt, die 2,4 Milliarden Dollar an langfristigen Pflege (LTC) Rücklagen umfasst. Die Transaktion wird die LTC-Rücklagen um 6% und die Morbiditätsempfindlichkeit um 7% reduzieren. In Kombination mit einer vorherigen Transaktion wird dies zu einer kumulierten Reduktion der LTC-Rücklagen um 18% führen. Der Deal, der fast dem 1,0-fachen Buchwert entspricht, wird voraussichtlich 0,8 Milliarden Dollar an Kapital freisetzen, das den Aktionären durch Rückkäufe zurückgegeben wird. Die Transaktion beinhaltet einen Quotenanteil von 75% auf beide übertragene Blöcke und soll Anfang 2025 abgeschlossen sein. Sie wird zu einer jährlichen Reduzierung von 70 Millionen Dollar im Kernergebnis und 50 Millionen Dollar beim Nettogewinn führen.
- Expected release of $0.8 billion in capital to be returned to shareholders via buybacks
- Transaction is accretive to core ROE
- Deal validates LTC reserves with modest 4% negative cede
- Cumulative 18% reduction in LTC reserves and 17% reduction in morbidity sensitivity
- Annual reduction of $70 million in core earnings
- Annual reduction of $50 million in net income attributed to shareholders
- Requires disposal of $1.5 billion in alternative long-duration assets
Insights
This
- Capital release of
$0.8 billion to be returned via share buybacks - Attractive 11.4x core earnings multiple
- Core ROE accretive post-buybacks
- Near 1.0x book value pricing validates reserve adequacy
The modest
This transaction showcases the evolving LTC reinsurance market dynamics. Unlike the previous deal with Global Atlantic, this one involves a younger LTC block with more active life reserves, proving market appetite exists across different LTC portfolio segments. The cumulative
Transacting on a younger LTC block further validates LTC reserves and assumptions
Another milestone transaction that optimizes our portfolio
Conference call to be held Thursday, November 21, 2024, at 8:00 a.m. ET; details below
TSX/NYSE/PSE: MFC SEHK: 945
C$ unless otherwise stated
Key highlights of the transaction:
- Reinsuring
$2.4 billion - Inclusive of our previous LTC reinsurance transaction2 ("previous transaction"), upon closing we will have cumulatively reduced LTC reserves by
18% and LTC morbidity sensitivity by17% 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 - 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 - Expect to dispose
$1.5 billion
"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 — Marc Costantini, Manulife Global Head of Strategy and Inforce Management |
Transaction Summary
We will reinsure a combined
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
In connection with the transaction, we expect to dispose
Transacting on a younger LTC block further validates LTC reserves and assumptions
The transaction will reduce LTC reserves by
Including our previous LTC reinsurance transaction, which closed in February 2024, we will have cumulatively reduced LTC reserves and morbidity sensitivity by
The modest negative ceding commission on the LTC block of
Unlocks Value for Shareholders
The transaction is expected to release
The transaction is priced at close to 1.0 times book value and is expected to result in an annual reduction to core earnings and net income attributed to shareholders of
Conference Call
A live webcast and conference call are scheduled for Thursday, November 21, 2024, at 8:00 a.m. (ET), where Roy Gori, President and CEO, Marc Costantini, Global Head of Strategy and Inforce Management, and other members of Manulife's executive leadership team will discuss the transaction, followed by a question and answer period with analysts.
To access the conference call, dial 1-800-806-5484 or 1-416-340-2217 (Passcode: 1915608#). Please call in 15 minutes before the scheduled start time.
Slides related to this announcement are available on the Manulife website.
About Manulife
Manulife Financial Corporation is a leading international financial services provider, helping people make their decisions easier and lives better. With our global headquarters in
Not all offerings are available in all jurisdictions. For additional information, please visit manulife.com.
About RGA
Reinsurance Group of America, Incorporated (NYSE: RGA) is a global industry leader specializing in life and health reinsurance and financial solutions that help clients effectively manage risk and optimize capital. Founded in 1973, RGA is today one of the world's largest and most respected reinsurers and remains guided by a powerful purpose: to make financial protection accessible to all. As a global capabilities and solutions leader, RGA empowers partners through bold innovation, relentless execution, and dedicated client focus — all directed toward creating sustainable long-term value. RGA has approximately
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Note: All figures and estimates are based on September 30, 2024, position, unless otherwise noted, and are expressed in Canadian dollar, based on exchange rate of US | |
1 | IFRS 17 current estimate of present value of future cash flows + risk adjustment + contractual service margin. |
2 | Refers to the |
3 | Impact of a change in reserves would be reported through the contractual service margin, net income attributed to shareholders, and other comprehensive income attributed to shareholders. Morbidity sensitivity is based on 2Q24, grossed up for 3Q24 reserves. Transaction is expected to close in early 2025 and is subject to customary closing conditions. |
4 | On IFRS basis. |
5 | Core return on shareholders' equity ("Core ROE") and diluted core earnings per common share ("Core EPS") are non-GAAP ratios. Core earnings is a non-GAAP financial measure. See "Non-GAAP and other financial measures" below and in our 3Q24 Management Discussion and Analysis ("3Q24 MD&A"). |
6 | On IFRS basis. Ratio of the capital release to annual core earnings impact. |
7 | On IFRS basis. Ratio of the market value of assets transferred to the sum of IFRS 17 current estimate of present value of future cashflows + risk adjustment + contractual service margin. |
Non-GAAP and other financial measures
Manulife prepares its Consolidated Financial Statements in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. We use a number of non-GAAP and other financial measures to evaluate overall performance and to assess each of our businesses. This section includes information required by National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure in respect of "specified financial measures" (as defined therein). Core earnings is a Non-GAAP financial measure and diluted core earnings per common share and core ROE are Non-GAAP ratios. For more information on the non-GAAP financial measures and non-GAAP ratios in this document please see section E3 "Non-GAAP and other financial measures" of the 3Q24 MD&A which is incorporated by reference and available on the SEDAR+ website at www.sedarplus.com.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS:
From time to time, Manulife makes written and/or oral forward-looking statements, including in this document. In addition, our representatives may make forward-looking statements orally to analysts, investors, the media and others. All such statements are made pursuant to the "safe harbour" provisions of Canadian provincial securities laws and the
The forward-looking statements in this document include, but are not limited to, statements with respect to the disposal of ALDA assets, the expected closing time of the reinsurance transaction referred to in this document and its associated capital release, possible share buybacks, and organic LTC optimization and also relate to, among other things, our objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as "may", "will", "could", "should", "would", "likely", "suspect", "outlook", "expect", "intend", "estimate", "anticipate", "believe", "plan", "forecast", "objective", "seek", "aim", "continue", "goal", "restore", "embark" and "endeavour" (or the negative thereof) and words and expressions of similar import, and include statements concerning possible or assumed future results. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements and they should not be interpreted as confirming market or analysts' expectations in any way.
Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from expectations include but are not limited to: general business and economic conditions (including but not limited to the performance, volatility and correlation of equity markets, interest rates, credit and swap spreads, inflation rates, currency rates, investment losses and defaults, market liquidity and creditworthiness of guarantors, reinsurers and counterparties); the satisfaction of customary closing conditions in connection with the reinsurance transaction described herein; the ongoing prevalence of COVID-19, including any variants, as well as actions that have been, or may be taken by governmental authorities in response to COVID-19, including the impact of any variants; changes in laws and regulations; changes in accounting standards applicable in any of the territories in which we operate; changes in regulatory capital requirements; our ability to obtain premium rate increases on in-force policies; our ability to execute strategic plans and changes to strategic plans; downgrades in our financial strength or credit ratings; our ability to maintain our reputation; impairments of goodwill or intangible assets or the establishment of provisions against future tax assets; the amount of contractual service margin recognized for service provided; the accuracy of estimates relating to morbidity, mortality and policyholder behaviour; the accuracy of other estimates used in applying accounting policies, actuarial methods and embedded value methods; our ability to implement effective hedging strategies and unforeseen consequences arising from such strategies; our ability to source appropriate assets to back our long-dated liabilities; level of competition and consolidation; our ability to market and distribute products through current and future distribution channels; unforeseen liabilities or asset impairments arising from acquisitions and dispositions of businesses; the realization of losses arising from the sale of investments classified as fair value through other comprehensive income; our liquidity, including the availability of financing to satisfy existing financial liabilities on expected maturity dates when required; obligations to pledge additional collateral; the availability of letters of credit to provide capital management flexibility; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; the availability, affordability and adequacy of reinsurance; legal and regulatory proceedings, including tax audits, tax litigation or similar proceedings; our ability to adapt products and services to the changing market; our ability to attract and retain key executives, employees and agents; the appropriate use and interpretation of complex models or deficiencies in models used; political, legal, operational and other risks associated with our non-North American operations; geopolitical uncertainty, including international conflicts, acquisitions or divestitures, and our ability to complete transactions; environmental concerns, including climate change; our ability to protect our intellectual property and exposure to claims of infringement; and our inability to withdraw cash from subsidiaries and the fact that the amount and timing of any future common share repurchases will depend on the earnings, cash requirements and financial condition of Manulife, market conditions, capital requirements (including under LICAT capital standards), common share issuance requirements, applicable law and regulations (including Canadian and
Additional information about material risk factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in our 3Q24 Management's Discussion and Analysis under "Risk Management and Risk Factors Update" and "Critical Actuarial and Accounting Policies", in our 2023 Management's Discussion and Analysis under "Risk Management and Risk Factors" and "Critical Actuarial and Accounting Policies", and in the "Risk Management" note to the Consolidated Financial Statements in our most recent annual and interim reports and elsewhere in our filings with Canadian and
The forward-looking statements in this document are, unless otherwise indicated, stated as of the date hereof and are presented for the purpose of assisting investors and others in understanding our financial position and results of operations, our future operations, as well as our objectives and strategic priorities, and may not be appropriate for other purposes. We do not undertake to update any forward-looking statements, except as required by law.
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SOURCE Manulife Financial Corporation
FAQ
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