TORONTO - Manulife Financial Corporation (NYSE:MFC) disclosed a reinsurance agreement with Reinsurance Group (NYSE:RGA) of America, Incorporated (NYSE: RGA), valued at $5.4 billion, which includes $2.4 billion in long-term care (LTC) reserves. The transaction is set to reshape Manulife's portfolio towards higher return and lower risk, with an expected capital release of $0.8 billion to be returned to shareholders via share buybacks.
The agreement involves a full risk transfer of $2.4 billion of LTC reserves, representing 6% of Manulife's total LTC reserves as of September 30, 2024. This move is part of a larger strategy to reduce the company's LTC reserves and morbidity sensitivity by 18% and 17%, respectively, upon closing. This follows a previous LTC reinsurance transaction completed in February 2024.
The transaction also includes a legacy block of U.S. structured settlements with $3.0 billion of reserves. It is priced near 1.0 times book value and is expected to be accretive to Manulife's core return on equity (ROE), with a neutral impact on core earnings per share (EPS). The deal, representing a 75% quota share on both ceded blocks, includes structural protections such as over-collateralized trusts to hold investment assets.
Manulife's President and CEO, Roy Gori, highlighted the transaction's role in accelerating the company's transformation and unlocking significant shareholder value. Marc Costantini, Global Head of Strategy and Inforce Management at Manulife, noted the transaction's validation of the company's prudent LTC reserves and assumptions.
In connection with the deal, Manulife expects to dispose of $1.5 billion in alternative long-duration assets (ALDA). The company will continue to administer all reinsured policies to ensure a seamless customer service experience. The transaction is anticipated to close in early 2025, subject to customary closing conditions.
Manulife has committed to repurchasing for cancellation the full 90 million common shares allowed under its current Normal Course Issuer Bid (NCIB) program, expiring in February 2025. Any further buybacks will depend on a new NCIB program, subject to regulatory approvals.
A conference call with analysts is scheduled for Thursday, where Manulife's executive leadership will discuss the transaction details. This news is based on a press release statement from Manulife Financial Corporation.
InvestingPro Insights
Manulife Financial Corporation's recent reinsurance agreement with RGA aligns well with several key financial indicators and trends highlighted by InvestingPro. According to InvestingPro data, Manulife has maintained dividend payments for 25 consecutive years, demonstrating a strong commitment to shareholder returns. This track record is particularly relevant given the company's plan to return $0.8 billion to shareholders through share buybacks as part of the transaction.
InvestingPro Tips also reveal that Manulife has raised its dividend for 11 consecutive years, further underlining its focus on creating shareholder value. This consistent dividend growth, coupled with the planned share buybacks, suggests that the company is well-positioned to continue rewarding investors even as it reshapes its portfolio.
The transaction's expected accretive impact on Manulife's core ROE is particularly noteworthy when considering another InvestingPro Tip: the company is trading at a low P/E ratio relative to near-term earnings growth. This indicates that the market may not have fully priced in the potential benefits of this strategic move, possibly presenting an opportunity for investors.
For readers interested in a more comprehensive analysis, InvestingPro offers 13 additional tips that could provide further insights into Manulife's financial health and market position.
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