The reinsurance agreement involves Global Atlantic and its partners. According to Manulife, the blocks covered in the agreement encompass portions of US Long-Term Care (LTC), US structured settlements, and two Japan whole life products. Notably, the LTC block alone accounts for US$6 billion, representing 14% of Manulife’s total LTC reserves as of September 30, 2023.
The transaction, expected to close in the first half of 2024, is contingent on regulatory approval. This strategic move underscores Manulife’s commitment to optimising its risk profile and capital efficiency by offloading a significant portion of its reserves to Global Atlantic and its partners. The reinsurance agreement marks a pivotal step for both Manulife and Global Atlantic, shaping the landscape of their risk portfolios. As the deal progresses, industry stakeholders will closely monitor its impact on the financial dynamics of the involved entities and the broader insurance sector.
Roy Gori, Manulife President & CEO, commented, “This agreement represents the largest LTC reinsurance transaction ever in the insurance industry, and it is a major milestone in our strategy to reshape our portfolio, reduce risk, deliver value to shareholders, and invest in high-potential growth areas of our business. We expect to generate a $1.2 billion capital release, achieving over $10 billion of capital released since 2018. We intend to deploy the full capital release toward buying back common shares, driving core EPS and core ROE growth.“
The deal, valued at 9.5 times earnings, and the pricing at book value demonstrate the prudence of our reserves, our focus on execution and our commitment to unlocking shareholder value.”Manulife announced that the reinsurance deal with Global Atlantic is a complete risk transfer, featuring robust structural safeguards such as over-collateralised trusts designed to secure investment assets.The reinsurance arrangement encompasses an 80% quota share of the ceded Long-Term Care (LTC) blocks and a full 100% quota share of the other ceded blocks.
Simultaneously, Global Atlantic sees this deal as a significant stride in reinforcing its standing as a preferred reinsurer in the annuity and life insurance marketplace. With a well-established 20-year track record, Global Atlantic boasts a history of completing over 40 transactions with nearly 30 clients, having reinsured assets exceeding $140 billion since its inception.
This strategic collaboration between Manulife and Global Atlantic is poised to have a lasting impact on the risk landscape of both entities. As the details of the deal unfold, industry observers will closely assess its implications on customer service, risk management, and the broader dynamics of the annuity and life insurance sectors.
Manu Sareen, Co-President of Global Atlantic, said, “Throughout this process, we partnered closely with Manulife teams in Canada, the US and Japan to gain a strong understanding of their goals.“
Due to our organisations’ close collaborative process, we were able to develop a tailored solution that aligns with all parties’ strategic objectives. Our innovative LTC structure separates the insurance risks from the underlying investment and spread-based risk, and enables Global Atlantic to reinsure the insurance risks to a highly regarded reinsurance partner.He added: “With this structure, our retained liability cashflows on this part of the transaction are not subject to any lapse, longevity or morbidity risks.”
Author: Joanna England
