November 6, 2018 09:30
Photo : Freepik
This summer, Manulife has set an ambitious goal : to free by 2022 with the equivalent of 5 billion dollars (G$) of its blocks of business legacy (legacy business). A first milestone in this quest was announced on the 1st November.
Manulife has indicated that it had reinsured virtually all of its former products, individual annuities and group exhibitions in the United States, as well as the risks related to mortality and lapse on part of its old contracts universal life insurance canadians.
The detail of the portfolio reinsured
• Group annuities to u.s. ;$ 8 billion of obligations reinsured with Jackson National Life Insurance Company ;
• Individual annuities u.s. :$ 4 billion of obligations reinsured with RGA Reinsurance Company ;
• Risks of mortality and of decay of old insurance policies universal canadian :$ 1 billion bond reinsured with RGA reinsurance Company life of Canada.
Result of the operation : Manulife will free up$ 1 billion of capital a year from now. A tranche of $ 35 million ($M) capital has been released in the third quarter of 2018. Another$ 585 Million of capital is expected to be released in the fourth quarter of 2018. Then, another cut of$ 470 Million is expected to be over the next 12 months, taking into account the optimization of the portfolios of u.s. assets occurred after the transformations.
The objective of Manulife
It therefore remains to be$ 4 billion to release in 2022. If one relies on what the insurer unveiled at the day of the investor in June, Manulife will continue to pursue this type of transaction, but will also grow these portfolios dormant. The$ 5 billion that wants to earn Manulife represent 20 % of the equity in protecting its business heritage, revealed its CEO Roy Gori, on the Day of the investor of the insurer.
Naveed Irshad, head of portfolio business heritage of Manulife in North America, is leading the operation. This summer, he unveiled what questions guided the insurer in its reflection for each of the segment blocks heritage that it has :
• Is this block responds to our long-term goals ?
• Write-on of new business ?
• What is the financial impact of this power on our earnings, our capital reserves and our return on shareholders ‘ equity ?
• Achieved our performance targets in the current environment ?
• What is his risk profile ? Framework there with our appetite for risk ?
• What are the risks of this block in terms of equity, interest rates and insurance ? “
Four distinct blocks
The block of business heritage of Manulife is divided into four blocks :
• Products of long-term care in the United States ;
• Variable annuities in the United States and Canada ;
• Life insurance products, the sale of which is suspended in Canada and the United States ;
• Fixed annuities in Canada and the United States.
“It is not necessary to see these portfolios as being of bad assets, says Mr. Irshad. There are several product profiles. Some will generate returns in the short term, others long-term. Some have rates of return is more satisfactory than others. In addition, as we operate now under the regime of the new accounting standards (IFRS), we must make the best assumptions. In insurance, we reviewed in depth every three years. “
Options inorganic preferred
To achieve this target of$ 5 billion, Manulife said that it is preferable to have recourse to options inorganic. This includes the sale of some blocks of heritage or to cede the reinsurance risks, such as Manulife has done for some of them.
“We’re evaluating our options as a function of various parameters. The main goal is to bring value to our shareholders, ” said Naveed Irshad, at the beginning of the summer. We also see a lot of interest for some of our blocks as heritage. There have been several transactions involving fixed annuities, longevity risk, and even variable annuities in particular. Moreover, we have reinsured this summer, the mortality risk related to a portfolio of universal life insurance policies in Canada, which totaled a volume of$ 240 Million, which has allowed us to release$ 11 Million of capital to maintain. “
It is a modest amount, acknowledges Mr. Irshad. Manulife determines that there is an interest to take this path. It doesn’t mean that all of the transactions that we will do in this sense are favourable to us at this point. However, we are in a process where we discuss with a lot of players.
Manulife will also be a organic management of certain blocks of heritage, said Mr. Irshad. Among the solutions chosen, particularly for the cases of long-term care, there is a rate increase, initiatives of reduction of risk or claims management.
“Our plan is ambitious, should be Mr. Irshad. We have the right team in place to carry it. We evaluate everything and we are working to take the right actions to generate value. “
Portrait of the situation tomorrow
Manulife will present a state of his financial situation tomorrow, Wednesday, while the company will disclose its results for the third quarter of 2018. Last year, Manulife was presented a net income of$ 1.1 billion in the third quarter of 2017. In the second quarter of 2018, its net income was $ 1,262 G$.