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 Manulifes 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 Manulifes 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