Manulife Announces C$5.4 Billion Reinsurance Transaction, Including C$2.4 Billion of Long-Term Care, with RGA

Manulife Financial Corporation announced that it has entered into a C$5.4 billion reinsurance agreement with Reinsurance Group of America (RGA), including C$2.4 billion of long-term care (LTC) reserves.

“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,” said Roy Gori, Manulife President & Chief Executive Officer.

“Together with our previously completed LTC transaction, we will have cumulatively reduced our LTC reserves by 18% within a year, upon closing, meaningfully improving the return profile of our inforce business. The pricing of this transaction further validates our prudent LTC reserves and assumptions. There continues to be attractive opportunities to generate shareholder value through organic LTC optimization, and we remain open to further inorganic opportunities,” said Marc Costantini, Manulife Global Head of Strategy and Inforce Management.

Manulife will reinsure a combined C$5.4 billion of reserves across two blocks of legacy business to RGA. The blocks include portions of U.S. LTC and U.S. structured settlements. The LTC block represents C$2.4 billion, or 6% of Manulife’s total LTC reserves as of September 30, 2024. The transaction is priced at close to 1.0 times book value, reflecting a modest negative ceding commission on LTC, and a nominal ceding commission on the structured settlements block.

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 75% quota share on both ceded blocks.

In connection with the transaction, the company expect to dispose C$1.5 billion of ALDA. Manulife will continue to administer all reinsured policies for a seamless customer service experience. The transaction is expected to close in early 2025, subject to customary closing conditions.

The transaction will reduce LTC reserves by C$2.4 billion, or 6%, and is expected to reduce the underlying LTC reserve sensitivity to changes in morbidity assumptions by 7%. The transaction represents a full risk transfer on a younger LTC block, which has similar characteristics to our retained LTC blocks, with a greater proportion of active life reserves than the ceded block in our previous LTC reinsurance transaction.

Including the company's previous LTC reinsurance transaction, which closed in February 2024, Manulife will have cumulatively reduced LTC reserves and morbidity sensitivity by 18% and 17%, respectively, upon closing. This demonstrates the company proven ability to transact on both mature and younger LTC blocks. The modest negative ceding commission on the LTC block of 4% of IFRS reserves further validates our LTC reserves and assumptions.

The transaction is expected to release C$0.8 billion of capital, which the company intends to fully return to shareholders through common share buybacks post-closing. Manulife is committed to repurchasing for cancellation the full 90 million common shares allowed under its current NCIB program, which expires in February 2025. Further buybacks beyond the 90 million common shares allowed under the company's current NCIB program will require a new NCIB program, which will be subject to the approval of the Office of the Superintendent of Financial Institutions (OSFI) and the Toronto Stock Exchange (TSX).

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 C$70 million and C$50 million, respectively. With a capital release of C$0.8 billion, the transaction represents a deal multiple of 11.4 times core earnings. The transaction is expected to be accretive to core ROE, and have a neutral impact on core EPS, after the impact of expected share buybacks.

Manulife Financial Corporation is a leading international financial services provider, helping people make their decisions easier and lives better. With its global headquarters in Toronto, Canada, the company provides financial advice and insurance, operating as Manulife across Canada, Asia, and Europe, and primarily as John Hancock in the United States. Through Manulife Wealth & Asset Management, the company offers global investment, financial advice, and retirement plan services to individuals, institutions, and retirement plan members worldwide. At the end of 2023, Manulife had more than 38,000 employees, over 98,000 agents, and thousands of distribution partners, serving over 35 million customers. Manulife trades as ‘MFC’ on the Toronto, New York, and Philippine stock exchanges and under ‘945’ in Hong Kong.

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 US$4.0 trillion of life reinsurance in force and assets of US$120.3 billion as of September 30, 2024.