Mr. Roy Gori reports

MANULIFE ANNOUNCES $5.4 BILLION REINSURANCE TRANSACTION, INCLUDING $2.4 BILLION OF LONG-TERM CARE, WITH RGA

Manulife Financial Corp. has entered into a $5.4-billion reinsurance agreement with Reinsurance Group of America Inc., including $2.4-billion of long-term-care reserves.

Key highlights of the transaction:

• Reinsuring $2.4-billion of LTC reserves to RGA on a full risk transfer basis;
• Inclusive of previous LTC reinsurance transaction; upon closing, it will have cumulatively reduced LTC reserves by 18 per cent and LTC morbidity sensitivity by 17 per cent;
• Transacted LTC block is younger, with a greater proportion of active life reserves than its previous transaction;
• Modest negative 4-per-cent LTC cede further validates reserves and assumptions;
• Transaction also includes a legacy block of U.S. structured settlements with $3.0-billion of reserves;
• Accretive to core return on equity and an attractive core earnings multiple of 11.4 times six; neutral impact to core earnings per share;
• Close to 1.0 times book value; expect to release $800-million of capital, which it intends to fully return to shareholders;
• Expect to dispose $1.5-billion of alternative long-duration assets.

"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," said Roy Gori, Manulife Financial president and chief executive officer.

"Together with our previously completed LTC transaction, we will have cumulatively reduced our LTC reserves by 18 per cent 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," said Marc Costantini, Manulife Financial global head of strategy and Inforce management.

Transaction summary

The company 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 per cent of Manulife Financial's total LTC reserves as of Sept. 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 Financial. The transaction includes significant structural protections, including overcollateralized trusts, to hold investment assets. The reinsurance represents a 75-per-cent quota share on both ceded blocks.

In connection with the transaction, the company expects to dispose $1.5-billion of ALDA. Manulife Financial 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 per cent, and is expected to reduce the underlying LTC reserve sensitivity to changes in morbidity assumptions by 7 per cent. The transaction represents a full risk transfer on a younger LTC block, which has similar characteristics to its retained LTC blocks, with a greater proportion of active life reserves than the ceded block in its previous LTC reinsurance transaction.

Including its previous LTC reinsurance transaction, which closed in February, 2024, the company will have cumulatively reduced LTC reserves and morbidity sensitivity by 18 per cent and 17 per cent, respectively, upon closing. This demonstrates its proven ability to transact on both mature and younger LTC blocks.

The modest negative ceding commission on the LTC block of 4 per cent of international financial reporting standard reserves further validates its LTC reserves and assumptions.

Unlocks value for shareholders

The transaction is expected to release $800-million of capital, which the company intends to fully return to shareholders through common share buybacks postclosing. It is committed to repurchasing for cancellation the full 90 million common shares allowed under its current NCIB program, which expires in February, 2025. Further buybacks beyond the 90 million shares common shares allowed under its 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 and the Toronto Stock Exchange.

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 $800-million, 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, Nov. 21, 2024, at 8 a.m. ET, where Mr. Gori, Mr. Costantini and other members of Manulife Financial's executive leadership team will discuss the transaction, followed by a question-and-answer period with analysts.

To listen to the conference call, dial 1-800-806-5484 or 1-416-340-2217 (passcode: 1915608 followed by the number sign). Please call in 15 minutes before the scheduled start time.

Slides related to this announcement are available on the Manulife Financial website.

About Manulife Financial Corp.

Manulife Financial is a leading international financial service provider, helping people make their decisions easier and lives better. With its global headquarters in Toronto, Canada, it provides 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, it offers global investment, financial advice and retirement plan services to individuals, institutions and retirement plan members worldwide. At the end of 2023, it had more than 38,000 employees, over 98,000 agents and thousands of distribution partners, serving over 35 million customers. It trades as MFC on the Toronto, New York and Philippine stock exchanges, and under 945 in Hong Kong.

About Reinsurance Group of America Inc.

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 solution leader, RGA empowers partners through bold innovation, relentless execution and dedicated client focus -- all directed toward creating sustainable long-term value. RGA has approximately $4.0-trillion (U.S.) of life reinsurance in force and assets of $120.3-billion (U.S.) as of Sept. 30, 2024.

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