Manulife Financial-S (00945.HK) announced on November 21 that on November 20, 2024 (Toronto time), the company today announced a reinsurance agreement with Reinsurance Group of America (RGA) totaling 5.4 billion Canadian dollars, including 2.4 billion Canadian dollars in LTC reserves.

The company will reinsure a total of 5.4 billion Canadian dollars in reserves for two existing sets of business to RGA. These two sets of businesses involve partial U.S. LTC business and U.S. structured settlements. The LTC business involves 2.4 billion Canadian dollars, accounting for 6% of Manulife's LTC reserves as of September 30, 2024. The pricing of this transaction is close to 1.0 times book value, reflecting underserved LTC business premium ceding commissions and symbolic structured settlement premium ceding commissions.

RGA is an experienced global reinsurance company and currently has multiple reinsurance arrangements with Manulife. The transaction covers several important structural safeguards, including using excess collateral trusts to hold investment assets. This reinsurance transaction provides 75% pro rata share for two sets of businesses. In connection with this transaction, the company expects to dispose of 1.5 billion Canadian dollars of alternative long-term assets. Manulife will continue to administer all reinsurance policies to provide a seamless customer service experience. The transaction is expected to be completed in early 2025, subject to customary closing conditions.

Roy Gori, President and Chief Executive Officer of Manulife, said: "Within 12 months, we have completed a second significant LTC reinsurance transaction, further unlocking significant shareholder value. This transaction helps accelerate the company's transformation pace, reshaping the business portfolio to move towards higher returns and lower risks, further demonstrating our ability to undertake complex transactions including mature and younger LTC businesses, and cooperate with experienced counterparts to achieve win-win outcomes. This transaction is priced at 11.4 times core earnings and is expected to enhance our core ROE after we return funds to shareholders through share repurchases."

Marc Costantini, Head of Manulife Global Strategy and Effective Policy Management, said: "Together with our earlier completed LTC reinsurance transaction, we will reduce the cumulative decline in LTC reserves by 18% within one year from the completion of this transaction, significantly improving the return status of our effective policy business. The pricing of this transaction further confirms our level of prudence in LTC reserves and assumptions. Through organic optimization of LTC business, we will continue to create value for shareholders and remain open to further optimization through inorganic measures."