Life insurer agrees $13bn transfer of long-term care business to Global Atlantic
Bermuda-based Global Atlantic has agreed to reinsure four blocks of long term care business valued at $13 billion for Canadian life insurer Manulife Financial.
The transfer includes $6 billion or 14% of Manulife's long-term care reserves.
Manulife said the deal will release $1.2 billion of capital which it will use to buy back shares.
Global Atlantic said that it was simultaneously reinsuring 100% of the long-term care insurance risks with a highly rated third-party global reinsurer, meaning it will only retain the underlying spread-based risks on the subset of the block that involves the LTC business.
"Similar to Global Atlantic’s other spread-based reinsurance transactions, the predictable nature of the retained risks makes this an attractive profile for Global Atlantic and Ivy II, its co-investment vehicle," the company said.
Global Atlantic has successfully completed more than 40 transactions with nearly 30 clients, reinsuring more than $140 billion of assets since its inception 20 years ago.
“Throughout this process, we partnered closely with Manulife teams in Canada, the US and Japan to gain a strong understanding of their goals,” said Manu Sareen, co-president of Global Atlantic. “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. With this structure, our retained liability cashflows on this part of the transaction are not subject to any lapse, longevity or morbidity risks.”
Manulife said the deal will reduce the risk from legacy blocks, including a 12% reduction in LTC morbidity sensitivities and the company also expects to dispose of $1.7 billion of alternative long-duration assets.
"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,” said Manulife chief executive Roy Gori.
“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."
Marc Costantini, Manulife global head of in-force management, added: “Manulife has been committed to improving the profitability and risk profile of our in-force business. This deal will reduce our LTC reserves by $6 billion, LTC morbidity sensitivities by 12%, and we will dispose $1.7 billion of ALDA backing these blocks.
“The transaction is a full risk transfer with significant structural protections, and we are pleased to partner with Global Atlantic, a highly experienced counterparty."
The blocks being transferred include portions of US LTC, US structured settlements, and two Japan whole life products. The LTC block represents $6 billion, or 14% of Manulife's total LTC reserves as of September 30, 2023.
Global Atlantic has two existing reinsurance arrangements with Manulife.
Manulife said: “The deal is a full risk transfer, and includes significant structural protections, including over-collateralized trusts to hold investment assets. The reinsurance represents an 80% quota share of the ceded LTC blocks and 100% quota share of the other ceded blocks.
“Manulife will continue to administer all reinsured policies for a seamless customer service experience. The transaction is expected to close in the first half of 2024 and is subject to regulatory approval.”
The company said the transaction is expected to result in an annual reduction to core earnings of approximately $130 million and net income attributed to shareholders of approximately $15 million and, “with a capital release of $1.2 billion, represents an attractive deal multiple of 9.5 times core earnings”.
