Manulife Financial Corporation has reinsured C$5.8 billion in reserves with RGA Life Reinsurance Company of Canada. The reinsurance transaction targets a block of universal life products in Canada, with low return on equity.
Manulife expects to close the transaction early in the second quarter of 2024. Manulife will continue to administer all policies and will reinsure a 100 per cent quota share of the ceded reserves. The insurer specifies that these reserves are “backed by significant structural protections including posted collateral.”
Manulife says the universal life reinsurance transaction is the largest ever carried out in Canada. The insurer describes the profit ratio of this transaction as attractive. The value of the transaction represents 16.2 times core earnings. Core earnings are the after-tax profits earned by a company from its core activities.
Less risk
This is Manulife's third major inforce business reinsurance transaction with RGA. "This transaction is the largest universal life reinsurance transaction in the Canadian insurance industry and represents another milestone in our journey to transform our portfolio to higher ROE and lower risk businesses,” stated Roy Gori, President and CEO of Manulife.
Manulife's reinsurance transaction with RGA comes on the heels of an $13 billion deal announced in December 2023 with Global Atlantic and closed in February 2024. Manulife reinsured four low-return blocks, including a $6 billion block of long-term care insurance in the United States. According to the insurer, that was the largest LTC reinsurance transaction ever carried out. Overall, the transaction was designed to reduce the risk associated with blocks of legacy business.
Reducing market sensitivity
Gori adds that with the $5.8 billion reinsurance transaction with RGA, Manulife will have released a total of $11 billion in capital since 2018 and improved core ROE by approximately 5 per cent since 2017. “We remain highly focused on exploring additional organic and inorganic actions to deliver value to shareholders," stated Manulife's CEO.
The reinsurance transaction with RGA will enable Manulife to release $0.8 billion in capital. As part of this transaction, the insurer expects to dispose of $0.6 billion in long-term alternative investments (ALDA) backing this block.
"Manulife has been committed to improving the profitability and profile of our inforce business. This transaction will reduce our Canadian Universal Life reserves by $5.8 billion, and we will dispose $0.6 billion of ALDA backing this block, further reducing our sensitivities to markets," stated Marc Costantini, Manulife Global Head of Inforce Management.
Shareholder value
Roy Gori underlined Manulife's commitment to generating value for its shareholders. The insurer says it intends to distribute to shareholders the $0.8 billion in capital released as a result of the reinsurance transaction with RGA.
Manulife will make this distribution through share buybacks. According to the insurer, this will result in an increase in core return on equity of 0.14 percentage points, and core earnings per share of $0.01.
Manulife has received approval from the Office of the Superintendent of Financial Institutions to amend its existing normal course issuer bid (currently limited to 50 million shares) to up to 90 million common shares. The 90 million shares represent approximately 5 per cent of its outstanding shares. This is subject to obtaining approval from the Toronto Stock Exchange. As at Feb. 29, 2024, Manulife had 1,805,798,064 common shares issued and outstanding.
