Manulife has reinsured four blocks of old contracts and low-yield products with American reinsurer Global Atlantic. The reinsurance agreement totals $13 billion.
Announced on December 11, 2023, the agreement includes $6 billion in Manulife's long-term care (LTC) insurance reserves in force in the United States. The insurer states this is the largest ever LTC reinsurance transaction.
The agreement also includes blocks of U.S. structured settlements ($1.6 billion) and two Japan whole life products ($5.6 billion). A structured settlement is a legal settlement where a third party subscribes to an annuity with an insurer to compensate a claimant.
Reducing risk
In a teleconference with investors, Manulife's President and CEO, Roy Gori, said the reinsurance agreement with Global Atlantic allows it to reduce the risk associated with old business blocks. The operation reduces Manulife's LTC insurance reserves by $6 billion (as of September 30, 2023), a 14% reduction.
Manulife's Global Head of In-Force Management, Marc Costantini, added that the reinsurance agreement will reduce the morbidity sensitivity of LTC insurance by 12%. According to details presented during the call, the agreement absorbs any unfavorable variation in morbidity assumptions within a 5% range. In insurance, morbidity represents the risk of illness and injury. "We will dispose $1.7 billion of alternative long-duration assets (ALDA) backing these blocks," added Costantini.
Experienced reinsurer
During the teleconference, Costantini described Global Atlantic as "a highly experienced counterparty." Manulife has concluded two other reinsurance agreements with Global Atlantic, including for trusts with excess guarantee reserves to hold investments.
The current agreement is the third. Global Atlantic's reinsurance represents an 80% quota share of the LTC insurance blocks ceded by Manulife, and a 100% quota share of the other ceded blocks. Manulife will continue to administer all the reinsured contracts.
More capital and return
"It’s a major milestone in our strategy of reshaping our portfolio, by reducing risk, improving our return on investment (ROI), strengthening capital, growing our businesses and delivering value to our shareholders," added Gori during the teleconference.
The CEO of Manulife explains that the transaction frees up $1.2 billion in capital, which he plans to redistribute to Manulife shareholders through share buybacks. Gori notes that Manulife has received approval from the Office of the Superintendent of Financial Institutions (OSFI) to repurchase for cancellation a maximum of approximately 2.8% of the insurer's common shares, starting in February 2024.
Gori stated that the freed capital will promote the growth of basic earnings per share and basic return on equity. "The transaction, valued at 9.5 times earnings, and the cost to book value demonstrate the prudence exercised with regard to our reserves," he added.
Reassuring generosity
During the teleconference, the CEO of Manulife mentioned that the reinsured LTC insurance block contains policies with more generous benefits than those not reinsured.
According to the data he shared, 19% of the reinsured policies offer lifetime LTC benefits, compared to 8% of the non-reinsured policies. Additionally, 71% of the reinsured policies offer benefits protected against inflation, compared to 57% of the non-reinsured policies.
Nonexistent market in Canada
No mention of the Canadian LTC insurance portfolio in the transaction details. The small market that remained in Canada for LTC insurance disappeared on October 1, 2021, when Blue Cross Canassurance (Quebec Blue Cross and Ontario Blue Cross) ceased offering its Tangible LTC insurance product.
Several predecessors threw in the towel due to low sales of the product. The only product still available, Sun Life's Sun Retirement Health Assist, is distributed by Sun Life's exclusive agent network.
Here is a brief history of a market that has shrunk significantly, according to information available on our comparative product site InsuranceINTEL and our publication Insurance Portal:
- October 1, 2021 — Blue Cross Canassurance ceased offering Tangible
- June 14, 2021 — Sun Life ceased offering Sun Long Time Care Insurance
- July 9, 2018 — La Capitale ceased offering Long Term Care Insurance
- June 15, 2018 — Desjardins Insurance ceased offering Independent Living
- November 30, 2017 — Manulife ceased offering LivingCare
- January 2017 — UV Insurance ceased offering AdaptCI Hybrid +
- 2015 — La Capitale ceased offering One Step
- 2012 — RBC Insurance ceased offering Long Time Care Insurance
At its peak, the market had eight insurers. In addition to the seven insurers already named, ACE INA is among the insurers that withdrew their products, according to InsuranceINTEL data on discontinued LTC insurance products. This insurer launched its LTC product in the mid-2000s.
