Manulife Financial Corporation has entered into an agreement with RGA Life Reinsurance Company of Canada to reinsure $5.8 billion of reserves of low return on equity (ROE) Canadian universal life block, in what is said to be the biggest universal life reinsurance transaction in the country.
In Manulife’s announcement, president and chief executive 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 $11 billion of capital since 2018 and improved core ROE by ~5% since 2017.
Gori added that his camp remains highly focused on exploring further organic and inorganic actions to deliver shareholder value.
Marc Costantini, Manulife’s global head of inforce management, commented: “We are pleased to partner with RGA, a highly reputable and experienced counterparty. Manulife has been committed to improving the profitability and profile of our inforce business.
“This transaction will reduce our Canadian universal life reserves by $5.8 billion, and we will dispose of $0.6 billion of ALDA (alternative long-duration assets) backing this block, further reducing our sensitivities to markets.”
It was noted that Manulife will retain the administration of all policies to ensure continuous, high-quality customer service, while a 100% quota share on the reserves ceded will be reinsured, supported by robust structural safeguards including posted collateral. Not requiring closing conditions, the transaction is slated for completion in the second quarter of the year.
An existing reinsurance ally of Manulife, RGA will see this transaction as the third major inforce reinsurance deal between the two entities.
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