Transaction releases capital, reduces risk, and unlocks value
from legacy business.
Manulife intends to increase the size of its
previously announced proposed Normal Course Issuer Bid and buy back
common shares to neutralize the impact of this transaction on Core
EPS2.
C$ unless otherwise
stated
TSX/NYSE/PSE:
MFC SEHK:
945
TORONTO, Nov. 15, 2021 /PRNewswire/ - Manulife today
announced that it entered into an agreement with Venerable Holdings
Inc. ("Venerable") to reinsure over 75%1 of its legacy
U.S. Variable Annuity ("VA") block, consisting primarily of
policies with Guaranteed Minimum Withdrawal Benefits ("GMWB")
riders. Key highlights of the transaction on closing include:
- Approximately $2.0 billion of
capital released3 including a one-time after-tax gain of
approximately $750 million to net
income attributed to shareholders, validating the conservatism of
our reserves, and the release of approximately $1.3 billion of net LICAT4 required
capital.
- Immediately accretive to book value and represents an
attractive transaction multiple of 10.25 times.
- Lowers the total U.S. VA net amount at risk ("NAR")6
by more than 75% and meaningfully reduces equity
sensitivities.
- Manulife intends to deploy a significant portion of the capital
released to buy back shares in order to neutralize the impact of
the transaction on diluted EPS and core EPS2. The
transaction is expected to lower annual earnings by approximately
$200 million in 2022 and the impact
is forecasted to decrease as the block runs-off.
- Manulife remains committed to its medium-term financial targets
including core EPS2 growth of 10% to 12% and core
ROE2 of 13% plus.
"This transaction represents a significant milestone for
Manulife." said Manulife President & Chief Executive Officer
Roy Gori. "The agreement to reinsure
a substantial portion of our U.S. VA block reduces risk, releases
approximately $2.0 billion of capital
and unlocks shareholder value. We are committed to deploy a
significant portion of the capital released to buy back common
shares and neutralize the impact of the transaction on core
EPS."
"The deal, which is expected to close in the first quarter of
2022, will reduce our exposure to U.S. VA Guaranteed Value and net
amount at risk by more than 75%, and our equity market sensitivity
from our variable annuity guarantees by roughly 54%7,
greatly lowering our go forward risk profile," said Naveed Irshad, Global Head of Inforce
Management. "We are pleased to execute this transaction with
Venerable, a strong and experienced counterparty, and together with
a robust deal structure, we have the necessary protections in place
to achieve a full risk transfer."
"Upon completion of this transaction and our intended capital
deployment actions, we remain confident in our ability to achieve
our medium-term financial targets, including growing core EPS by
10% to 12% and generating core ROE of 13% plus," said Phil Witherington, Chief Financial Officer.
Transaction Summary
John Hancock Life Insurance Company (U.S.A.) ("John Hancock"), a subsidiary of
Manulife will reinsure with Corporate Solutions Life Insurance
Company, a subsidiary of Venerable, a significant portion of
our U.S. VA block, consisting primarily of policies with VA GMWB
riders. These policies were written outside of New York state, between 2003 and 2012.
As of September 30, 2021, this block
included approximately 143,000 policies with a GMWB rider and
approximately 20,000 with a Guarantee Minimum Death Benefits
("GMDB") rider, as well as $2.3
billion of IFRS reserves, representing 76% of Manulife's
U.S. VA net amount at risk.
Venerable brings significant expertise in managing variable
annuities, with a seasoned management team, strong operating
platform and top tier risk management capabilities. Under the terms
of the agreement, Venerable's reinsurance obligations will be
secured by a comfort trust with assets in excess of statutory
reserve requirements. An initial deposit of approximately
$1.3 billion of assets will be
transferred to the trust on closing. John
Hancock will continue to administer the policies, providing
for a seamless customer service experience. The transaction is
expected to close in the first quarter of 2022, subject to
customary closing conditions.
Capital release of approximately $2.0
billion
The transaction is expected to generate a one-time after-tax
gain of approximately $750 million
and release LICAT segregated fund guarantee capital of
approximately $2.4
billion4, less the LICAT equity risk charge
offset of approximately $1.1
billion4. The LICAT equity risk charge offset is
reduced due to the expected termination of equity hedges supporting
the block.
Significant reductions in Net Amount at Risk6,
Guaranteed Value and equity market sensitivity
The transaction is expected to reduce the U.S. VA NAR
significantly, from $1.9 billion as
of September 30, 2021 to less than
$0.5 billion on a pro forma basis.
The residual NAR for the legacy U.S. VA block includes less than
$0.1 billion for GMWB policies
written in New York State or
before 2003, less than $0.1 billion
for Guarantee Minimum Income Benefits ("GMIB"), which are
substantially reinsured and less than $0.4
billion for GMDB which are low risk.
Guaranteed value exposure for the U.S. VA block will also
decline materially, from approximately $33
billion as of September 30,
2021 to $7 billion on a pro
forma basis, representing a 78% decrease.
Upon closing of the transaction, Manulife's exposure to tail
equity market risk is expected to decrease materially. On a pro
forma basis, the underlying sensitivity to net income attributed to
shareholders from variable annuity guarantees8 from a
30% decrease in public equity returns would decline from a
$2.7 billion loss to a $1.2 billion loss, representing a 54% reduction.
On a total company level, the underlying sensitivity to net income
attributed to shareholders, after the impact of hedging, from a 30%
decrease in public equity returns would decline from a $1.9 billion loss to a $1.7 billion loss, representing a 10% reduction.
Attractive deal multiple and book value impact
The transaction is expected to result in a reduction to annual
net income attributed to shareholders and core earnings of
approximately $200 million, or
$0.10 reduction in diluted EPS and
core EPS2, with the capital release of approximately
$2.0 billion representing an
attractive transaction multiple of 10.25 times.
Book value and book value per share are expected to increase by
approximately $750 million and
$0.38, respectively. Together
with the expected reduction to annual core earnings, core
ROE2 is estimated to decline by approximately half
a percentage point, before the positive impact of the intended
share buyback.
Intention to deploy a significant portion of the capital
released from the transaction by increasing the scale of its
proposed share buyback
Manulife intends to use a significant portion of the capital
released from the transaction to repurchase its common shares,
subject to regulatory approvals and market conditions, in order to
neutralize the expected $0.10 core
EPS2 impact. It is estimated that this would
require approximately 3 percent of common shares to be purchased
and cancelled. Note the resulting impact on core
ROE2 and book value per share will vary based on
market pricing, however, we expect the impact on these metrics to
be modest.
The remainder of the capital released will further increase
Manulife's strong excess capital position and be available for
other organic and inorganic opportunities. Overall, we remain
confident in our ability to achieve our medium-term financial
targets following this transaction and the related capital
deployment actions noted above.
Increasing size of previously announced intended Normal
Course Issuer Bid from up to 2% to up to 5% of common shares
outstanding
On November 5, 2021, Manulife
announced its intention to launch a Normal Course Issuer Bid
("NCIB"), subject to the approval of the Office of the
Superintendent of Financial Institutions ("OSFI") and the Toronto
Stock Exchange ("TSX"), permitting the purchase for cancellation of
up to 39 million of its common shares, representing
approximately 2% of Manulife's issued and outstanding common
shares as at September 30, 2021.
Manulife announced today that, subject to the approval of OSFI and
the TSX, it intends to increase the size of its proposed NCIB to
permit the purchase for cancellation to up to 97 million of its
common shares, representing approximately 5% of Manulife's issued
and outstanding common shares. As at October
31, 2021, Manulife had 1,942,473,867 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 97 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.
Barclays is acting as exclusive financial advisor to Manulife on
the transaction and Debevoise & Plimpton LLP is serving as
legal advisor.
About Manulife
Manulife Financial Corporation is a leading international
financial services provider that helps 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 2020, we had more than 37,000 employees,
over 118,000 agents, and thousands of distribution partners,
serving over 30 million customers. As of September 30, 2021, we had CAD$1.4 trillion (US$1.1
trillion) in assets under management and administration, and
in the previous 12 months we made CAD$31.6
billion in payments to our customers.
Our principal operations are in Asia and Canada, and the
United States, where we have served customers for more than
155 years. 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
Note all figures and estimates are based on September 30, 2021 position and exchange rate of
US$1.00 to C$1.2741.
- Represents a reduction in our exposure to U.S. variable annuity
guaranteed value as of September 30,
2021.
- Diluted core earnings per common share ("core EPS") and core
return on common shareholders' equity ("core ROE") are non-GAAP
measures. See "Performance and non-GAAP measures below and in our
Third Quarter 2021 Management's Discussion and Analysis ("3Q21
MD&A") for additional information.
- Projected capital release based on September 30, 2021.
- 100% of the Life Insurance Capital Adequacy Test capital
requirement multiplied by the OSFI scalar for the Base Solvency
Buffer of 1.05 and grossed up based by an operating range.
- Ratio of capital release to annual core earnings impact.
- Net Amount at Risk is based on sum of excess of guarantee value
over fund value only on contracts where amount at risk is currently
positive.
- Represents underlying sensitivity to net income attributed to
shareholders from variable annuity guarantee before impact of macro
and dynamic hedge assets under a -30% market return as of
September 30, 2021. The
expected reduction to the net potential impact on net income
attributed to shareholders after impact of hedging would be
approximately 10%.
- Before impact on macro and dynamic hedge assets.
PERFORMANCE AND NON-GAAP MEASURES:
We use a number of non-GAAP financial measures to measure
overall performance and to assess each of our businesses. A
financial measure is considered a non-GAAP measure if it is
presented other than in accordance with generally accepted
accounting principles used for the Company's audited financial
statements. Non-GAAP measures referenced in this news release
include: core earnings; core ROE; diluted core earnings per common
share (core EPS); and constant exchange rate basis (measures that
are reported on a constant exchange rate basis include percentage
growth/decline in core earnings). Non-GAAP financial measures are
not defined terms under GAAP and, therefore, are unlikely to be
comparable to similar terms used by other issuers. Therefore, they
should not be considered in isolation or as a substitute for any
other financial information prepared in accordance with GAAP. For
more information on non-GAAP financial measures, including those
referred to above, see "Performance and non-GAAP measures" in our
3Q2021 MD&A and 2020 MD&A.
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 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", "outlook",
"expect", "intend", "estimate", "believe", "plan", "objective",
"aim", "continue", and "goal" (or the negative thereof) and words
and expressions of similar import, and include statements
concerning the reinsurance transaction between John Hancock and Corporate Solutions Life
Insurance Company, including the expected closing date, and impact
and capital benefits of such transaction to Manulife, possible or
assumed future results, and possible future purchases by
Manulife of its common shares. 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, currency rates, investment
losses and defaults, market liquidity and creditworthiness of
guarantors, reinsurers and counterparties); the severity, duration
and spread of the COVID-19 outbreak, as well as actions that have
been or may be taken by governmental authorities to contain
COVID-19 or to treat its impact; 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 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 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 available-for-sale; 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; acquisitions and our ability to
complete acquisitions including the availability of equity and debt
financing for this purpose; the disruption of or changes to key
elements of the Company's or public infrastructure systems;
environmental concerns; our ability to protect our intellectual
property and exposure to claims of infringement; 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.
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 under "Risk Factors and
Risk Management" and "Critical Actuarial and Accounting Policies"
in the Management's Discussion and Analysis in our most recent
annual report, under "Risk Management and Risk Factors Update" and
"Critical Actuarial and Accounting Policies" in the Management's
Discussion and Analysis in our most recent interim report, in the
"Risk Management" note to the consolidated financial statements in
our most recent annual and interim reports as well as 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