Largest ever LTC
reinsurance transaction
Major milestone for
Manulife's portfolio transformation
$1.2 billion capital release will be returned to
shareholders via share buybacks
Conference call to be
held Monday, December 11, 2023, at
8:30 a.m. ET; details below
TSX/NYSE/PSE: MFC SEHK: 945
C$ unless otherwise stated
TORONTO, Dec. 11,
2023 /PRNewswire/ - Manulife Financial
Corporation ("Manulife" or the "Company") announced today it has
agreed to reinsure to Global Atlantic four blocks of legacy/low
ROE business, including $6
billion of long-term care ("LTC") reserves.
Key highlights of the
transaction:
- Reinsuring $13 billion of
reserves1, including $6
billion, or 14% of total LTC reserves, to Global Atlantic
and its partners
- Represents largest ever LTC reinsurance transaction
- Ability to transact with leading reinsurance counterparty and
its LTC reinsurance partner further validates the prudence of our
LTC reserves and assumptions
- Releases $1.2 billion of capital,
which we intend to fully return to shareholders via share buybacks,
resulting in core EPS2 and core ROE2
accretion
- Attractive earnings multiple of 9.5 times3 and 1.0
times book value multiple4
- Reduces the risk from legacy blocks, including a 12% reduction
in LTC morbidity sensitivities5
- Expect to dispose $1.7 billion of
alternative long-duration assets ("ALDA")
- Represents a full risk transfer with significant structural
protection, and with a highly experienced counterparty and its
partners
- A major milestone in reshaping our portfolio with core
earnings2 contribution from LTC and variable annuities
further reduced to 11%6 from 24% in
20177
New NCIB:
- We have received approval from the Office of the Superintendent
of Financial Institutions ("OSFI") to launch a normal course issuer
bid ("NCIB") that permits the purchase for cancellation of up to
approximately 2.8% of our outstanding common shares commencing
February 2024. The NCIB remains
subject to the approval of the Toronto Stock Exchange ("TSX").
"This agreement
represents the largest LTC reinsurance transaction ever in the
insurance industry, and it is a major milestone in our strategy to
reshape our portfolio, reduce risk, deliver value to shareholders,
and invest in high-potential growth areas of our business. We
expect to generate a $1.2 billion capital release, achieving over
$10 billion of capital released since
20188. We intend to
deploy the full capital release toward buying back common shares,
driving core EPS and core ROE growth. The deal, valued at 9.5 times
earnings, and the pricing at book value demonstrate the prudence of
our reserves, our focus on execution and our commitment to
unlocking shareholder value."
— Roy Gori,
Manulife President & Chief Executive Officer
"Manulife has been
committed to improving the profitability and risk profile of our
inforce business. This deal will reduce our LTC reserves by $6
billion, LTC morbidity sensitivities by 12%, and we will dispose
$1.7 billion of ALDA backing these blocks. The transaction is a
full risk transfer with significant structural protections, and we
are pleased to partner with Global Atlantic, a highly experienced
counterparty."
— Marc
Costantini, Manulife Global Head of Inforce
Management
|
Transaction Summary
We will reinsure a combined $13
billion of reserves across four legacy/low ROE blocks to
Global Atlantic and its partners. The blocks include portions of
U.S. LTC, U.S. structured settlements, and two Japan whole life products. The LTC block
represents $6 billion, or 14% of
Manulife's total LTC reserves as of September 30, 2023. The transaction is priced at
a one times book value multiple, with a modest negative ceding
commission on LTC and structured settlement blocks, offset by a
positive ceding commission on the Japan blocks.
Global Atlantic is a highly experienced reinsurer that has two
existing reinsurance arrangements with Manulife. The deal is a full
risk transfer, and includes significant structural protections,
including over-collateralized trusts to hold investment assets. The
reinsurance represents an 80% quota share of the ceded LTC blocks
and 100% quota share of the other ceded blocks. Manulife will
continue to administer all reinsured policies for a seamless
customer service experience. The transaction is expected to close
in the first half of 2024 and is subject to regulatory
approval.
Meaningful Reduction in LTC
Exposure and Further Validation of Reserves and
Assumptions
The transaction reduces LTC reserves by $6 billion, or 14%, and is expected to reduce the
underlying LTC reserve sensitivity to changes in morbidity
assumptions by 12%. In connection with the transaction, we expect
to dispose $1.7 billion of ALDA
backing these blocks.
The transaction also further validates our LTC reserves and
assumptions. The negative ceding commission associated with the LTC
block of $270 million is driven by
different return expectations on deployed capital rather than
differences in reserving assumptions.
Unlocks Value for
Shareholders
The transaction is expected to release $1.2 billion of capital and Manulife intends to
return the full amount of freed up capital to shareholders via
share buybacks. We have received approval from OSFI to buy back up
to approximately 2.8% of our outstanding common shares commencing
February 2024. The NCIB remains
subject to the approval of the TSX.
The transaction is priced at book value and is expected to
result in an annual reduction to core earnings of approximately
$130 million and net income
attributed to shareholders of approximately $15 million and, with a capital release of
$1.2 billion, represents an
attractive deal multiple of 9.5 times core earnings. The
transaction is expected to be $0.01
accretive to core EPS, $0.07
accretive to EPS, 0.13 pps accretive to core ROE, and 0.33 pps
accretive to ROE, including the impact of share buybacks.
Willkie Farr & Gallagher LLP
acted as legal counsel to Manulife.
About Global
Atlantic
Global Atlantic is an existing reinsurance partner of Manulife,
and this is our third transaction with them. With differentiated
investment and risk management capabilities, deep client
relationships, and a strong financial foundation, Global Atlantic
has established a track record of delivering proven, value-added
solutions and long-term growth.
NCIB
Subject to the approval of the TSX, Manulife intends to launch a
NCIB permitting the purchase for cancellation of up to 50 million
of its common shares, representing approximately 2.8% of
Manulife's issued and outstanding common shares. As at November 30, 2023, Manulife had 1,806,518,839
common shares issued and outstanding.
Purchases under the NCIB may be made through the facilities of
the TSX, the New York Stock Exchange, and alternative trading
systems in Canada and the United States at market prices prevailing
at the time of purchase or such other price as may be permitted.
Manulife will file a notice of intention to make an NCIB with the
TSX. The bid period will commence after the TSX has accepted the
notice of intention and continue for up to one year. All common
shares acquired by Manulife under the NCIB will be cancelled.
Repurchases will be subject to compliance with applicable Canadian
securities laws and United States
federal securities laws.
In addition, Manulife may undertake repurchases of its common
shares outside of Canada and
the United States in compliance
with applicable laws. Subject to regulatory approval, Manulife may
also acquire common shares directly from other holders by way of
private agreement pursuant to issuer bid exemption orders issued by
applicable securities regulatory authorities. Any private purchase
made under an exemption order issued by a securities regulatory
authority will generally be at a discount to the prevailing market
price. Manulife may also enter into derivative-based programs in
support of its repurchase activities, including the writing of put
options and forward purchase agreements, accelerated share
repurchase transactions, other equity contracts or use other
methods of acquiring shares, in each case subject to regulatory
approval and on such terms and at such times as shall be permitted
by applicable securities laws. The total number of common shares
repurchased under the NCIB and all other potential arrangements
will not exceed 50 million common shares.
Subject to regulatory approval, Manulife intends from time to
time to enter into pre-defined plans with a registered investment
dealer to allow for the repurchase of common shares at times when
Manulife ordinarily would not be active in the market due to its
own internal trading blackout periods, insider trading rules or
otherwise. Any such plans will be adopted in accordance with
applicable Canadian securities laws and United States federal securities laws.
Manulife's most recent normal course issuer bid (the "2023
NCIB") commenced on February 23,
2023, for the purchase of up to 55.7 million common shares,
and will expire on February 22, 2024.
Manulife has repurchased approximately 53.9 million common shares
for cancellation during the period from the commencement of its
2023 NCIB to November 30, 2023, at a
volume weighted average repurchase price per common share of
$25.44. All repurchases were made
through the facilities of the TSX.
Conference Call:
A live webcast and conference call are scheduled for
Monday, December 11, 2023, at
8:30 a.m. (ET), where Roy Gori, President and CEO, Marc Costantini, Global Head of Inforce
Management, and other members of Manulife's executive leadership
team will discuss the transaction, followed by a question and
answer period with analysts.
To access the conference call, dial 1-800-806-5484 or
1-416-340-2217 (Passcode: 7766594#). International dial-in
numbers are also available. Please call in 15 minutes
prior to the scheduled start time.
Slides related to this announcement are available on the
Manulife website.
The archived webcast will be available
at manulife.com/en/investors/ following the
call.
About Manulife
Manulife Financial Corporation is a leading international
financial services provider, helping people make their decisions
easier and lives better. With our global headquarters in
Toronto, Canada, we provide
financial advice and insurance, operating as Manulife across
Canada, Asia, and Europe, and primarily as John Hancock in the
United States. Through Manulife Investment Management, the
global brand for our Global Wealth and Asset Management segment, we
serve individuals, institutions, and retirement plan members
worldwide. At the end of 2022, we had more than 40,000 employees,
over 116,000 agents, and thousands of distribution partners,
serving over 34 million customers. We trade as 'MFC' on the
Toronto, New York, and the Philippine stock exchanges
and under '945' in Hong Kong.
Not all offerings are available in all jurisdictions. For
additional information, please visit manulife.com.
FOOTNOTES
All figures and estimates are based on September 30, 2023 position and exchange rate of
US$1.00 to C$1.352 unless otherwise noted.
1.
|
IFRS 17 current
estimate of present value of future cashflows + risk adjustment +
contractual service margin.
|
2.
|
Core earnings is a
Non-GAAP financial measure, and diluted core earnings per common
share ("core EPS") and core ROE are Non-GAAP ratios. See
"Performance and Non-GAAP measures" below and in our Third Quarter
2023 Management's Discussion and Analysis ("3Q23 MD&A") for
additional information.
|
3.
|
Ratio of capital
release to annual core earnings impact.
|
4.
|
Ratio of the market
value of assets transferred to the sum of IFRS 17 current estimate
of present value of future cash flows + risk adjustment +
contractual service margin.
|
5.
|
Pro forma, post-tax
reduction in potential impact on reserves for a 5% adverse change
in LTC morbidity assumptions.
|
6.
|
Pro forma 3Q23
year-to-date.
|
7.
|
Under IFRS
4.
|
8.
|
Pro forma. Includes $9
billion of capital release through 2022 under IFRS 4, $0.2 billion
from year-to-date 3Q23 other initiatives under IFRS 17, and an
estimated $1.2 billion of capital release under IFRS 17 from this
transaction to be recognized in 2024.
|
PERFORMANCE AND NON-GAAP
MEASURES:
Manulife prepares its Consolidated Financial Statements in
accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board.
We use a number of non-GAAP and other financial measures to
evaluate overall performance and to assess each of our businesses.
This section includes information required by National Instrument
52-112 – Non-GAAP and Other Financial Measures Disclosure in
respect of "specified financial measures" (as defined therein).
Core earnings is a Non-GAAP financial measure and diluted core
earnings per common share ("core EPS") and core ROE are Non-GAAP
ratios. For more information on the non-GAAP and other financial
measures in this document and a complete list of transitional
financial measures, please see section A1 "Implementation of IFRS
17 and IFRS 9" and section E3 "Non-GAAP and other financial
measures" of the 3Q23 MD&A which are incorporated by reference
and available on the SEDAR+ website at www.sedarplus.com.
CAUTION REGARDING FORWARD-LOOKING
STATEMENTS:
From time to time, Manulife makes written and/or oral
forward-looking statements, including in this presentation. In
addition, our representatives may make forward-looking statements
orally to analysts, investors, the media and others. All such
statements are made pursuant to the "safe harbour" provisions of
Canadian provincial securities laws and the U.S. Private Securities
Litigation Reform Act of 1995.
The forward-looking statements in this document include, but are
not limited to, statements with respect to the disposal of ALDA
assets, the expected closing time of the reinsurance transactions
referred to in this document and their associated capital release
and possible share buybacks under a normal course issuer bid and
also relate to, among other things, our objectives, goals,
strategies, intentions, plans, beliefs, expectations and estimates,
and can generally be identified by the use of words such as "may",
"will", "could", "should", "would", "likely", "suspect", "outlook",
"expect", "intend", "estimate", "anticipate", "believe", "plan",
"forecast", "objective", "seek", "aim", "continue", "goal",
"restore", "embark" and "endeavour" (or the negative thereof) and
words and expressions of similar import, and include statements
concerning possible or assumed future results. Although we believe
that the expectations reflected in such forward-looking statements
are reasonable, such statements involve risks and uncertainties,
and undue reliance should not be placed on such statements and they
should not be interpreted as confirming market or analysts'
expectations in any way.
Certain material factors or assumptions are applied in making
forward-looking statements and actual results may differ materially
from those expressed or implied in such statements. Important
factors that could cause actual results to differ materially from
expectations include but are not limited to: general business and
economic conditions (including but not limited to the performance,
volatility and correlation of equity markets, interest rates,
credit and swap spreads, inflation rates, currency rates,
investment losses and defaults, market liquidity and
creditworthiness of guarantors, reinsurers and counterparties); the
ongoing prevalence of COVID-19, including any variants, as well as
actions that have been, or may be taken by governmental authorities
in response to COVID-19, including the impact of any variants;
changes in laws and regulations; changes in accounting standards
applicable in any of the territories in which we operate; changes
in regulatory capital requirements; our ability to obtain premium
rate increases on in-force policies; our ability to execute
strategic plans and changes to strategic plans; downgrades in our
financial strength or credit ratings; our ability to maintain our
reputation; impairments of goodwill or intangible assets or the
establishment of provisions against future tax assets; the amount
of contractual service margin recognized for service provided; the
accuracy of estimates relating to morbidity, mortality and
policyholder behaviour; the accuracy of other estimates used in
applying accounting policies, actuarial methods and embedded value
methods; our ability to implement effective hedging strategies and
unforeseen consequences arising from such strategies; our ability
to source appropriate assets to back our long-dated liabilities;
level of competition and consolidation; our ability to market and
distribute products through current and future distribution
channels; unforeseen liabilities or asset impairments arising from
acquisitions and dispositions of businesses; the realization of
losses arising from the sale of investments classified as fair
value through other comprehensive income; our liquidity, including
the availability of financing to satisfy existing financial
liabilities on expected maturity dates when required; obligations
to pledge additional collateral; the availability of letters of
credit to provide capital management flexibility; accuracy of
information received from counterparties and the ability of
counterparties to meet their obligations; the availability,
affordability and adequacy of reinsurance; legal and regulatory
proceedings, including tax audits, tax litigation or similar
proceedings; our ability to adapt products and services to the
changing market; our ability to attract and retain key executives,
employees and agents; the appropriate use and interpretation of
complex models or deficiencies in models used; political, legal,
operational and other risks associated with our non-North American
operations; geopolitical uncertainty, including international
conflicts; acquisitions or divestitures, and our ability to
complete transactions; environmental concerns, including climate
change; our ability to protect our intellectual property and
exposure to claims of infringement; and our inability to withdraw
cash from subsidiaries and the fact that the amount and timing of
any future common share repurchases will depend on the earnings,
cash requirements and financial condition of Manulife, market
conditions, capital requirements (including under LICAT capital
standards), common share issuance requirements, applicable law and
regulations (including Canadian and U.S. securities laws and
Canadian insurance company regulations), and other factors deemed
relevant by Manulife, and may be subject to regulatory approval or
conditions, our ability to sell ALDA assets and the timing to close
the reinsurance transactions described in this document.
Additional information about material risk factors that could
cause actual results to differ materially from expectations and
about material factors or assumptions applied in making
forward-looking statements may be found in our 3Q23 Management's
Discussion and Analysis under "Risk Management and Risk Factors
Update" and "Critical Actuarial and Accounting Policies", in our
2022 Management's Discussion and Analysis under "Risk Management
and Risk Factors" and "Critical Actuarial and Accounting Policies",
and in the "Risk Management" note to the Consolidated Financial
Statements in our most recent annual and interim reports and
elsewhere in our filings with Canadian and U.S. securities
regulators.
The forward-looking statements in this presentation are, unless
otherwise indicated, stated as of the date hereof and are presented
for the purpose of assisting investors and others in understanding
our financial position and results of operations, our future
operations, as well as our objectives and strategic priorities, and
may not be appropriate for other purposes. We do not undertake to
update any forward-looking statements, except as required by
law.
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