Manulife Financial has signed a C$5.8bn ($4.3bn) reinsurance deal with RGA Life Reinsurance Company of Canada (RGA Canada), a subsidiary of Reinsurance Group of America.
This is reputed to be the largest Canadian universal life reinsurance deal to date.
Under the agreement, RGA Canada will reinsure C$5.8bn of reserves from Manulife’s low return on equity (ROE) Canadian Universal Life block at 16.2-times earnings multiple and one times book value multiple.
Manulife will retain customer service responsibilities for the reinsured blocks.
Priced at book value, the transaction is anticipated to reduce Manulife’s annual core earnings by around C$50m and net income attributed to shareholders by approximately C$40m.
It will also free up C$800m in capital, earmarked for share buybacks.
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By GlobalDataManulife president & CEO Roy Gori said: “This transaction is the largest universal life reinsurance transaction in the Canadian insurance industry and represents another milestone in our journey to transform our portfolio to higher ROE and lower risk businesses.
“This deal, valued at 16.2-times earnings and priced at book value further demonstrates our focus and ability to execute on attractive terms and our commitment to unlocking shareholder value. With this transaction, we will have released C$11bn of capital since 2018 and improved core ROE by ~5% since 2017.”
The transaction is expected to conclude early in the second quarter of 2024.
RGA Canada president and CEO Dominic Hains said: “Our relationship with Manulife has spanned many years, and our strong partnership has been a key factor in the success of this transaction. We greatly appreciate Manulife’s ongoing trust in RGA’s expertise, and we take pride in being a reliable partner and providing support for their strategic goals.”
Reinsurance contracts typically mitigate risk for insurers, aiding in solvency or unlocking capital.
In December 2023, Manulife agreed to a reinsurance deal involving C$13bn of its reserves with KKR & Co-backed Global Atlantic.
Last week, Reinsurance Group of America entered into an agreement with Japan Post Insurance Company (Kampo) to reinsure a Y700bn ($4.6bn) block of individual life annuities through co-insurance.
