Manulife Financial Corporation MFC has inked a $5.4 billion reinsurance agreement with Reinsurance Group of America RGA. This strategic move is intended to optimize the portfolio and release capital to distribute wealth to its shareholders.  The deal is priced at 11.4 times the core earnings multiple and bears testimony to its prudent LTC reserves and assumptions.

Per the transaction, Manulife has reinsured its $2.4 billion of long-term care (LTC) reserves by RGA on a full-risk transfer basis. This represents 6% of Manulife'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. Upon closing, MFC will lower its TC reserves by 18% and LTC morbidity sensitivity by 17%. This reinsurance agreement also includes a legacy block of U.S. structured settlements with $3 billion of reserves.

Though the transaction will be accretive to the core return on equity, it will not impact the bottom line. MFC has increased the core ROE target from 15% to 18% and above and introduced a cumulative remittances target of more than $22 billion, both by 2027. However, through this transaction, this life insurer intends to release $0.8 billion of capital, to be returned to shareholders via share buybacks. MFC also intends to dispose of $1.5 billion of alternative long-duration assets. 
   
This move marks the insurer’s focus on building a higher return and lower-risk portfolio. The company focuses on expediting growth in the highest potential businesses and targets two-thirds of core earnings from these businesses. The Zacks Rank #2 (Buy) insurer focuses on expediting growth in the highest potential businesses and targets two-thirds of core earnings from these businesses. Coupled with other previous LTC transactions, MFC has been improving the return profile of the in-force business.

MFC shares have gained 45.5% year to date, outperforming its industry’s increase of 31.5%, the Finance sector's rise of 20.9% and the Zacks S&P 500 composite's gain of 24.4%. Solid Asia and Wealth and Asset Management business and a strong capital position should help it retain momentum.

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Other Stocks to Consider

A couple of other top-ranked stocks from the insurance space are F&G Annuities & Life, Inc. FG and Primerica PRI. Each stock presently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

F&G Annuities & Life delivered positive surprise in two of the last four reported quarters while missed in other two. The stock has lost 1.8% year to date.  The Zacks Consensus Estimate for FG’s 2024 and 2025 earnings translate to 61.2% and 23.4% year-over-year increase. 

Primerica delivered a trailing four-quarter average earnings surprise of 4.89%. The stock has surged 43.1% year to date.  The Zacks Consensus Estimate for PRI’s 2024 and 2025 earnings translate to 19% and 7.9% year-over-year increase.

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Manulife Financial Corp (MFC) : Free Stock Analysis Report

Reinsurance Group of America, Incorporated (RGA) : Free Stock Analysis Report

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F&G Annuities & Life, Inc. (FG) : Free Stock Analysis Report

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