Manulife Financial recently announced a reinsurance deal with Global Atlantic worth $13 billion. This deal involves reinsuring four blocks of legacy and low return-on-equity business. Manulife emphasized that this is a full risk transfer and comes with significant structural protections. One such protection is the use of overcollateralized trusts to hold investment assets.
The blocks covered by the deal include U.S. long-term-care, U.S. structured settlements, and two Japan whole life products. Manulife stated that the long-term-care (LTC) block represents 14% of its total LTC reserves as of September 30, 2023, amounting to C$6 billion. As part of the agreement, Manulife plans to dispose of approximately $1.7 billion of alternative long-duration assets.
The transaction is priced at a one-times book value multiple. Although there will be a modest negative ceding commission on the LTC and structured settlement blocks, it will be offset by a positive ceding commission on the Japan blocks.
Manulife expects this reinsurance deal to result in an annual reduction to core earnings of about C$130 million and net income of approximately $15 million. However, it is anticipated to be accretive to core earnings per share by $0.01 and accretive to EPS by $0.07. Additionally, the reinsurance agreement will release C$1.2 billion of capital, which Manulife intends to return to its shareholders.
It's worth noting that Global Atlantic already has two existing reinsurance arrangements with Manulife.
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