Manulife Closes Milestone Reinsurance Transaction with Global Atlantic
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Insights
The closure of the reinsurance transaction with Global Atlantic by Manulife represents a significant strategic move in the insurance industry. This transaction, being the largest long-term care (LTC) reinsurance deal to date, indicates a robust approach to risk management and capital efficiency. From a financial perspective, the deal is likely to have a positive impact on Manulife's return on equity (ROE) by offloading lower ROE legacy blocks. This could potentially lead to an improved financial profile and possibly an uptick in investor confidence.
Furthermore, the approval to commence share buybacks is a direct benefit to shareholders, as it often leads to an increase in the stock's value by reducing the number of shares outstanding, thus potentially increasing earnings per share (EPS). The announcement of the buyback program, scheduled to commence the day after the news release, is a clear signal to the market of Manulife's strong capital position and its commitment to delivering shareholder value. However, the actual impact on the stock price will depend on various factors including market conditions and investor sentiment at the time of the buyback.
The long-term care insurance sector is known for its high level of risk due to the unpredictability of claim rates and the duration of payments. Manulife's transaction with Global Atlantic could be seen as a proactive measure to mitigate these risks and optimize its product portfolio. By reinsuring legacy LTC business, Manulife may be able to better focus on its core businesses and growth areas, potentially leading to a more streamlined operation and stronger market position.
Industry observers and competitors will likely take note of this transaction's scale, as it sets a precedent for future reinsurance deals within the sector. It may also trigger a reassessment of LTC reserves and assumptions across the industry, as Manulife's move has been described as validating the prudence of its LTC reserves and assumptions. This could have broader implications for the insurance industry's approach to managing long-term liabilities.
The regulatory approvals from TSX and OSFI preceding Manulife's share buybacks are critical components of this transaction. These approvals indicate compliance with stringent financial regulations and underscore the importance of regulatory due diligence in such large-scale financial dealings. For stakeholders, the regulatory green light provides a layer of assurance regarding the transaction's legitimacy and Manulife's adherence to financial regulations.
It is also worth noting the legal complexities involved in a reinsurance transaction of this magnitude. The successful closing without any reported hitches may reflect highly competent legal and compliance teams within Manulife. The absence of legal disputes or challenges at this stage suggests that the transaction was well-structured and that the counterparty, Global Atlantic, is a reputable entity in the reinsurance space.
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"An industry milestone, the transaction is the largest LTC reinsurance transaction ever, and our ability to transact with a leading reinsurance counterparty and its LTC reinsurance partner further validates the prudence of our LTC reserves and assumptions," said Manulife President and Chief Executive Officer Roy Gori.
As previously announced, Manulife has received TSX and OSFI approval to commence share buybacks on February 23, 2024, to return unlocked capital from the transaction to its shareholders.
For more information on the transaction, please see the news release, slides and webcast from our December 11th, 2023, announcement.
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FOOTNOTES
- The effective date of the transaction is January 1, 2024.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS:
From time to time, Manulife makes written and/or oral forward-looking statements, including in this presentation. 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 possible share buybacks under a normal course issuer bid. 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 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 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
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SOURCE Manulife Financial Corporation
FAQ
What was the announced transaction involving Manulife and Global Atlantic?
Who stated that the transaction validates the prudence of Manulife's LTC reserves and assumptions?
When will Manulife begin share buybacks to return capital to shareholders?
Where can more information about the transaction be found?
