Manulife Financial MFC-T +1.30%increase said on Monday it has agreed to reinsure $5.8-billion of reserves of Canadian Universal Life block, as the country’s top insurer looks to de-risk its business and improve shareholder returns.
The deal with RGA Life Reinsurance Company of Canada is expected to generate $800-million of capital, which Manulife intends to use to buy back shares, it said.
CEO Roy Gori said the insurer has released $11-billion of capital since 2018 and improved the core return on equity (ROE) by about 5 per cent since 2017.
Manulife has been seeking to cut risk in its insurance portfolio and focus on profitable areas for growth. In December, it signed a $13-billion deal to reinsure its long-term care business reserves.
“We remain highly focused on exploring additional organic and inorganic actions to deliver value to shareholders,” Gori added.
A contract between a reinsurer and an insurer typically reduces the risk for the latter, allowing it to, in some cases, remain solvent by recovering a part of the payout and in others, transfer the risk of the business to create fresh capital.
Manulife’s shares hit a 16-year high in February following strong quarterly results and are up about 21 per cent since the $13-billion reinsurance deal in December.
They rose about 0.8 per cent on Monday, with an 11.5 per cent year-to-date gain outperforming a roughly 7.4 per cent rise in closest rival Sun Life’s shares.
“We believe that this deal indicates that management remains focused on optimizing its profitability and capital deployment,” Jefferies analyst John Aiken said.
The transaction marks the third large reinsurance transaction between Manulife and global reinsurance company RGA, Manulife said.
Under the latest deal, Manulife also expects to sell $600-million in alternative long-duration assets (ALDA) that it had invested in to back the Canadian Universal Life block.
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