Transacting on a younger LTC block further
validates LTC reserves and assumptions
Another milestone
transaction that optimizes our portfolio
$0.8 billion capital release will be returned to
shareholders via share buybacks
Conference call to be
held Thursday, November 21, 2024, at
8:00 a.m. ET; details below
TSX/NYSE/PSE: MFC SEHK: 945
C$ unless otherwise stated
TORONTO, Nov. 20,
2024 /CNW/ - Manulife Financial Corporation
("Manulife" or the "Company") announced today that it has entered
into a $5.4
billion1 reinsurance agreement
with Reinsurance Group of America ("RGA"), including $2.4 billion of long-term care ("LTC")
reserves.
Key highlights of the transaction:
- Reinsuring $2.4 billion of LTC
reserves to RGA on a full risk transfer basis
- Inclusive of our previous LTC reinsurance
transaction2 ("previous transaction"),
upon closing we will have cumulatively reduced LTC reserves by 18%
and LTC morbidity sensitivity by 17%3
- Transacted LTC block is younger, with a greater proportion of
active life reserves than our previous transaction
- Modest negative 4% LTC cede4 further
validates our reserves and assumptions
- Transaction also includes a legacy block of U.S. structured
settlements with $3.0 billion of
reserves
- Accretive to core ROE5, and an attractive
core earnings5 multiple of 11.4
times6; neutral impact to core
EPS5
- Close to 1.0x book value7; expect to
release $0.8 billion of capital,
which we intend to fully return to shareholders
- Expect to dispose $1.5 billion of
alternative long-duration assets ("ALDA")
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"We are further
unlocking significant shareholder value with a second milestone LTC
reinsurance transaction within 12 months, which accelerates our
transformation to reshape our portfolio towards higher return and
lower risk. This transaction further demonstrates our ability to
execute on complex transactions and collaborate with experienced
counterparties to deliver win-win outcomes, including on both
mature and younger LTC blocks. The deal is priced at 11.4 times
core earnings multiple and is expected to be accretive to core ROE
after we return the released capital to shareholders through share
buybacks."
— Roy Gori,
Manulife President & Chief Executive Officer
"Together with our
previously completed LTC transaction, we will have cumulatively
reduced our LTC reserves by 18% within a year, upon closing,
meaningfully improving the return profile of our inforce business.
The pricing of this transaction further validates our prudent LTC
reserves and assumptions. There continues to be attractive
opportunities to generate shareholder value through organic LTC
optimization, and we remain open to further inorganic
opportunities."
— Marc
Costantini, Manulife Global Head of Strategy and
Inforce Management
|
Transaction Summary
We will reinsure a combined $5.4
billion of reserves across two blocks of legacy business to
RGA. The blocks include portions of U.S. LTC and U.S. structured
settlements. The LTC block represents $2.4
billion, or 6% of Manulife's total LTC reserves as of
September 30, 2024. The transaction
is priced at close to 1.0 times book value, reflecting a modest
negative ceding commission on LTC, and a nominal ceding commission
on the structured settlements block.
RGA is a highly experienced global reinsurer with multiple
existing reinsurance arrangements with Manulife. The transaction
includes significant structural protections, including
over-collateralized trusts to hold investment assets. The
reinsurance represents a 75% quota share on both ceded blocks.
In connection with the transaction, we expect to dispose
$1.5 billion of ALDA. Manulife will
continue to administer all reinsured policies for a seamless
customer service experience. The transaction is expected to close
in early 2025, subject to customary closing conditions.
Transacting on a younger LTC block further validates LTC
reserves and assumptions
The transaction will reduce LTC reserves by $2.4 billion, or 6%, and is expected to reduce
the underlying LTC reserve sensitivity to changes in morbidity
assumptions by 7%. The transaction represents a full risk transfer
on a younger LTC block, which has similar characteristics to our
retained LTC blocks, with a greater proportion of active life
reserves than the ceded block in our previous LTC reinsurance
transaction.
Including our previous LTC reinsurance transaction, which closed
in February 2024, we will have
cumulatively reduced LTC reserves and morbidity sensitivity by 18%
and 17%, respectively, upon closing. This demonstrates our proven
ability to transact on both mature and younger LTC blocks.
The modest negative ceding commission on the LTC block of 4% of
IFRS reserves further validates our LTC reserves and
assumptions.
Unlocks Value for Shareholders
The transaction is expected to release $0.8 billion of capital, which we intend to fully
return to shareholders through common share buybacks
post-closing. We are committed to repurchasing for cancellation the
full 90 million common shares allowed under our current NCIB
program, which expires in February
2025. Further buybacks beyond the 90 million shares common
shares allowed under our current NCIB program will require a new
NCIB program, which will be subject to the approval of the Office
of the Superintendent of Financial Institutions ("OSFI") and the
Toronto Stock Exchange ("TSX").
The transaction is priced at close to 1.0 times book value and
is expected to result in an annual reduction to core earnings and
net income attributed to shareholders of $70
million and $50 million,
respectively. With a capital release of $0.8
billion, the transaction represents a deal multiple of 11.4
times core earnings. The transaction is expected to be accretive to
core ROE, and have a neutral impact on core EPS, after the impact
of expected share buybacks.
Conference Call
A live webcast and conference call are scheduled for
Thursday, November 21, 2024, at
8:00 a.m. (ET), where Roy Gori, President and CEO, Marc Costantini, Global Head of Strategy and
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: 1915608#). Please call in 15 minutes
before the scheduled start time.
Slides related to this announcement are available on the
Manulife website.
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 Wealth & Asset
Management, we offer global investment, financial advice, and
retirement plan services to individuals, institutions, and
retirement plan members worldwide. At the end of 2023, we had more
than 38,000 employees, over 98,000 agents, and thousands of
distribution partners, serving over 35 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.
About RGA
Reinsurance Group of America, Incorporated (NYSE: RGA) is a
global industry leader specializing in life and health reinsurance
and financial solutions that help clients effectively manage risk
and optimize capital. Founded in 1973, RGA is today one of the
world's largest and most respected reinsurers and remains guided by
a powerful purpose: to make financial protection accessible to all.
As a global capabilities and solutions leader, RGA empowers
partners through bold innovation, relentless execution, and
dedicated client focus — all directed toward creating sustainable
long-term value. RGA has approximately US$4.0 trillion of life reinsurance in force and
assets of US$120.3 billion as of
September 30, 2024. To learn more
about RGA and its businesses, please visit rgare.com or follow
RGA on LinkedIn and Facebook. Investors can learn more at
investor.rgare.com.
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_________
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Note: All figures and
estimates are based on September 30, 2024, position, unless
otherwise noted, and are expressed in Canadian dollar, based on
exchange rate of US$1:00 to C$1.351
|
|
1
|
IFRS 17 current
estimate of present value of future cash flows + risk adjustment +
contractual service margin.
|
|
2
|
Refers to the $13
billion reinsurance transaction, including $6 billion of LTC, with
Global Atlantic that was announced in December 2023 and closed in
February 2024.
|
|
3
|
Impact of a change in
reserves would be reported through the contractual service margin,
net income attributed to shareholders, and other comprehensive
income attributed to shareholders. Morbidity sensitivity is based
on 2Q24, grossed up for 3Q24 reserves. Transaction is expected to
close in early 2025 and is subject to customary closing
conditions.
|
|
4
|
On IFRS
basis.
|
|
5
|
Core return on
shareholders' equity ("Core ROE") and diluted core earnings per
common share ("Core EPS") are non-GAAP ratios. Core earnings is a
non-GAAP financial measure. See "Non-GAAP and other financial
measures" below and in our 3Q24 Management Discussion and Analysis
("3Q24 MD&A").
|
|
6
|
On IFRS basis.
Ratio of the capital release to annual core earnings
impact.
|
|
7
|
On IFRS basis.
Ratio of the market value of assets transferred to the sum of IFRS
17 current estimate of present value of future cashflows + risk
adjustment + contractual service margin.
|
Non-GAAP and other financial 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 and core ROE are Non-GAAP ratios. For
more information on the non-GAAP financial measures and non-GAAP
ratios in this document please see section E3 "Non-GAAP and other
financial measures" of the 3Q24 MD&A which is 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 document. 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 transaction
referred to in this document and its associated capital release,
possible share buybacks, and organic LTC optimization 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
satisfaction of customary closing conditions in connection with the
reinsurance transaction described herein; 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 our ability to
execute our plans for inorganic LTC initiatives and close the
reinsurance transaction 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 3Q24 Management's
Discussion and Analysis under "Risk Management and Risk Factors
Update" and "Critical Actuarial and Accounting Policies", in our
2023 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 document 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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SOURCE Manulife Financial Corporation