Manulife Financial (MFC.TO, MFC) on Wednesday said it reached a $5.4 billion reinsurance agreement with Reinsurance Group of America.

The company said the agreement is in two blocks; $2.4 billion for long-term care (LTC) reserves, reducing Manulife's LTC reserve by 18%, and a legacy block of U.S. structured settlements with $3.0 billion of reserves.

Manulife said the agreement will be accretive to its core return on equity and release $800 million of capital it plans to return to shareholders through share buybacks. However it said the deal will reduce annual core earnings by by $70 million and net income by $50 million.

"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 block," chief executive Roy Gori noted.

The company's shares closed down $0.48 to $45.03 on the Toronto Stock Exchange.