Manulife inks $9.6 bln reinsurance deal with KKR-backed Global Atlantic to cut risk

Dec 11 (Reuters) – Manulife Financial Corp (MFC.TO) is further de-risking its long-term care business by reinsuring C$13 billion ($9.6 billion) of its reserves with KKR & Co (KKR.N)-backed Global Atlantic, with Canada’s top insurer planning to buyback shares with the capital released with the deal.

The reinsurance deal will cut Manulife’s long-term care (LTC) reserves by C$6 billion, or 14% of its total reserves. It will allow the Canadian insurer to invest in high-potential growth areas.

LTC insurance risks are simultaneously reinsured with a third-party global reinsurer and not retained by Global Atlantic, the company said in a statement.

LTC insurance is considered a high-risk business as it involves coverage for people with a chronic or disabling condition who need constant care, typically those above the age of 65.

“We wanted to reset our investors’ expectations around this business,” Head of Inforce Management Marc Costantini said in an interview.

Apart from LTC, the reserves range across multiple product lines including payout annuities and whole-life policies helping Manulife dispose C$1.7 billion of alternative long-duration assets (ALDA), the company said.

The transfer, which is expected to close in the first half of 2024, will improve profitability and the risk profile of the inforce business, Costantini said.

“Long term care is one of the most riskiest products for life insurance … they were able to unload it and unload it at a decent valuation,” Morningstar analyst Suryansh Sharma said.

Sharma noted that the core earnings contribution from LTC and variable annuities businesses have gone down to 11% from 24% in 2017, indicating that the overall quality of the business has improved.

The C$1.2 billion released by the deal will be used to buyback shares. The stock rose 3.3% on Monday to touch its highest since February 2022.

Global Atlantic, an existing reinsurance partner of Manulife, serves policyholders through its retirement and life insurance products. It was set up by Goldman Sachs in 2004 and separated as an independent, privately held company in 2013.

Last month, KKR & Co (KKR.N) said it would buy a remaining 37% stake in Global Atlantic Financial Group for $2.7 billion in an all-cash deal.

A contract between a reinsurer and an insurer typically reduces the risk for the latter, allowing them to remain solvent by recovering a part of the payout.

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