Manulife Sells Life Retrocession

Manulife Financial Corp. is selling its Life Retrocession business, saying that the decision was made in large part because Canadian insurers face tougher capital requirements than those in other countries.

As a result of the sale Manulife expects to post an after-tax gain of about $275-million. And while the company's profits will not be significantly impacted, its capital ratio is expected to rise.

“The Life Retrocession business does not align with Manulife's strategy because of changes in the life reinsurance market going forward,” stated CEO Donald Guloien.

“Although this business is profitable, it does not have a growth profile acceptable to us. Also, as a result of more restrictive Canadian regulatory requirements for this business, a buyer in another jurisdiction can operate this business with less capital. The transaction releases capital which will be reinvested in higher growth businesses or to reduce leverage,” he added.

The key measure of Manulife's capital levels, called the Minimum Continuing Capital and Surplus Requirements ratio, will increase by about six percentage points, the company said. The ratio was 243 per cent at the end of March.

Manulife's Life Retrocession business has about 90 employees in offices in Toronto, Boston, Barbados and Cologne. The business assumes risk from life reinsurers and has net life insurance in-force of $106-billion (U.S.).

“The life retrocession market has been in decline in recent years as primary insurers increased their retention of written business, thereby reducing business opportunities for life retrocession companies,” RBC Capital Markets analyst Andre-Philippe Hardy wrote in a note to clients. “Manulife, like Sun Life in late 2010, appears to have reached the conclusion that its capital would be better utilized in faster growing businesses.”

The company said this deal will not impact its other reinsurance businesses which focus on property and casualty retrocession and international employee benefits management.

“Our remaining reinsurance businesses provide good earnings profiles,” Mr. Guloien stated, adding that the company remains committed to them.