Manulife to reinsure C$13 billion with KKR’s Global Atlantic

MANULIFE Financial agreed to reinsure C$13 billion (S$12.9 billion) of reserves with KKR & Co’s Global Atlantic Financial Group and its partners in a deal the company said is the largest long-term care reinsurance transaction in the industry’s history.

The deal includes C$6 billion of long-term care reserves, or 14 per cent of Manulife’s total, and will release C$1.2 billion of capital, which the Toronto-based insurer said it plans to return to shareholders through share buybacks. That will add to core earnings per share and return on equity, according to a statement on Monday (Dec 11). Manulife will continue to administer the policies.

“We are taking some of the risks that we’ve accumulated over the years, and we are offloading it to another counterparty,” Manulife chief financial officer Colin Simpson said. With inflation in medical costs putting pressure on the long-term care business, finding a reinsurer for the liabilities was significant. “Not only is it difficult to do a deal, but we’ve done the biggest deal.”

Manulife’s shares climbed 2.7 per cent to C$27.80 at 12.59 pm in Toronto. They are up 15 per cent this year, more than the 3.7 per cent increase in the S&P/TSX Financials Index.

The transaction is expected to be completed in the first half of next year, subject to regulatory approval.

The agreement could open up the market to similar deals in the future, Simpson said. Jeffrey Flynn, an insurance-industry analyst for Bloomberg Intelligence, made a similar prediction, saying the deal “may open a new chapter in the life-insurance liability-transfer market, helping the group lower risk”.

SEE ALSO

Manulife cuts 250 jobs in asset management and wealth unit

Canada’s Manulife beats profit estimates on Asia recovery

DECODING ASIA

Navigate Asia in
a new global order

Get the insights delivered to your inbox.

“Manulife’s LTC block is relatively well-reserved – making a transaction easier – but the deal could suggest more LTC-exit activity,” Flynn said. Genworth Financial, Unum Group, Ameriprise Financial, MetLife and Prudential Financial all “have LTC exposure”, he added.

The deal is the third block transaction Global Atlantic has reached with Manulife, according to a separate statement from the New York-based insurance company, which focuses on the retirement and life insurance sectors. Following a concurrent deal in which all the long-term care insurance risks are simultaneously reinsured with another firm, Global Atlantic will retain only the underlying spread-based risks of that portion.

Global Atlantic is a majority-owned subsidiary of investment firm KKR. BLOOMBERG