Mr. Roy Gori reports

MANULIFE ANNOUNCES $13 BILLION REINSURANCE DEAL, INCLUDING $6 BILLION OF LONG-TERM CARE, WITH GLOBAL ATLANTIC

Manulife Financial Corp. has agreed to reinsure to Global Atlantic four blocks of legacy/low-ROE (return on equity) business, including $6-billion of long-term care (LTC) reserves.

Key highlights of the transaction:

• Reinsuring $13-billion of reserves, including $6-billion, or 14 per cent, of total LTC reserves, to Global Atlantic and its partners;
• Represents largest-ever LTC reinsurance transaction;
• Ability to transact with leading reinsurance counterparty and its LTC reinsurance partner further validates the prudence of Manulife's LTC reserves and assumptions;
• Releases $1.2-billion of capital, which Manulife intends to fully return to shareholders via share buybacks, resulting in core EPS (earnings per share) and core ROE accretion;
• Attractive earnings multiple of 9.5 times and 1.0 times book value multiple;
• Reduces the risk from legacy blocks, including a 12-per-cent reduction in LTC morbidity sensitivities;
• Expect to dispose $1.7-billion of alternative long-duration assets (ALDA);
• Represents a full risk transfer with significant structural protection, and with a highly experienced counterparty and its partners;
• A major milestone in reshaping Manulife's portfolio with core earnings contribution from LTC and variable annuities further reduced to 11 per cent from 24 per cent in 2017.

New normal course issuer bid (NCIB)

The company has received approval from the Office of the Superintendent of Financial Institutions (OSFI) to launch a normal course issuer bid that permits the purchase for cancellation of up to approximately 2.8 per cent of its outstanding common shares commencing February, 2024. The NCIB remains subject to the approval of the Toronto Stock Exchange.

"This agreement represents the largest LTC reinsurance transaction ever in the insurance industry, and it is a major milestone in our strategy to reshape our portfolio, reduce risk, deliver value to shareholders and invest in high-potential growth areas of our business. We expect to generate a $1.2-billion capital release, achieving over $10-billion of capital released since 2018. We intend to deploy the full capital release toward buying back common shares, driving core EPS and core ROE growth. The deal, valued at 9.5 times earnings, and the pricing at book value demonstrate the prudence of our reserves, our focus on execution and our commitment to unlocking shareholder value," commented Roy Gori, Manulife's president and chief executive officer.

"Manulife has been committed to improving the profitability and risk profile of our inforce business. This deal will reduce our LTC reserves by $6-billion, LTC morbidity sensitivities by 12 per cent, and we will dispose $1.7-billion of ALDA backing these blocks. The transaction is a full risk transfer with significant structural protections, and we are pleased to partner with Global Atlantic, a highly experienced counterparty," said Marc Costantini, Manulife's global head of inforce management.

Transaction summary

Manulife will reinsure a combined $13-billion of reserves across four legacy/low-ROE blocks to Global Atlantic and its partners. The blocks include portions of U.S. LTC, U.S. structured settlements and two Japan whole-life products. The LTC block represents $6-billion, or 14 per cent, of Manulife's total LTC reserves as of Sept. 30, 2023. The transaction is priced at a 1.0 times book value multiple, with a modest negative ceding commission on LTC and structured settlement blocks, offset by a positive ceding commission on the Japan blocks.

Global Atlantic is a highly experienced reinsurer that has two existing reinsurance arrangements with Manulife. The deal is a full risk transfer, and includes significant structural protections, including overcollateralized trusts to hold investment assets. The reinsurance represents an 80-per-cent quota share of the ceded LTC blocks and 100-per-cent quota share of the other ceded blocks. Manulife will continue to administer all reinsured policies for a seamless customer service experience. The transaction is expected to close in the first half of 2024 and is subject to regulatory approval.

Meaningful reduction in LTC exposure and further validation of reserves and assumptions

The transaction reduces LTC reserves by $6-billion, or 14 per cent, and is expected to reduce the underlying LTC reserve sensitivity to changes in morbidity assumptions by 12 per cent. In connection with the transaction, Manulife expects to dispose $1.7-billion of ALDA backing these blocks.

The transaction also further validates Manulife's LTC reserves and assumptions. The negative ceding commission associated with the LTC block of $270-million is driven by different return expectations on deployed capital rather than differences in reserving assumptions.

Unlocks value for shareholders

The transaction is expected to release $1.2-billion of capital, and Manulife intends to return the full amount of freed-up capital to shareholders via share buybacks. Manulife has received approval from OSFI to buy back up to approximately 2.8 per cent of its outstanding common shares commencing February, 2024. The NCIB remains subject to the approval of the TSX.

The transaction is priced at book value and is expected to result in an annual reduction to core earnings of approximately $130-million and net income attributed to shareholders of approximately $15-million and, with a capital release of $1.2-billion, represents an attractive deal multiple of 9.5 times core earnings. The transaction is expected to be one cent accretive to core EPS, seven cents accretive to EPS, 0.13 point accretive to core ROE and 0.33 point accretive to ROE, including the impact of share buybacks.

Willkie Farr & Gallagher LLP acted as legal counsel to Manulife.

About Global Atlantic

Global Atlantic is an existing reinsurance partner of Manulife, and this is the company's third transaction with Global Atlantic. With differentiated investment and risk management capabilities, deep client relationships and a strong financial foundation, Global Atlantic has established a record of delivering proven, value-added solutions and long-term growth.

NCIB

Subject to the approval of the TSX, Manulife intends to launch an NCIB permitting the purchase for cancellation of up to 50 million of its common shares, representing approximately 2.8 per cent of Manulife's issued and outstanding common shares. As at Nov. 30, 2023, Manulife had 1,806,518,839 common shares issued and outstanding.

Purchases under the NCIB may be made through the facilities of the TSX, the New York Stock Exchange, and alternative trading systems in Canada and the United States at market prices prevailing at the time of purchase or such other price as may be permitted. Manulife will file a notice of intention to make an NCIB with the TSX. The bid period will commence after the TSX has accepted the notice of intention and continue for up to one year. All common shares acquired by Manulife under the NCIB will be cancelled. Repurchases will be subject to compliance with applicable Canadian securities laws and United States federal securities laws.

In addition, Manulife may undertake repurchases of its common shares outside of Canada and the United States in compliance with applicable laws. Subject to regulatory approval, Manulife may also acquire common shares directly from other holders by way of private agreement, pursuant to issuer bid exemption orders issued by applicable securities regulatory authorities. Any private purchase made under an exemption order issued by a securities regulatory authority will generally be at a discount to the prevailing market price. Manulife may also enter into derivative-based programs in support of its repurchase activities, including the writing of put options and forward purchase agreements, accelerated share repurchase transactions, other equity contracts or use other methods of acquiring shares, in each case subject to regulatory approval and on such terms and at such times as shall be permitted by applicable securities laws. The total number of common shares repurchased under the NCIB and all other potential arrangements will not exceed 50 million common shares.

Subject to regulatory approval, Manulife intends, from time to time, to enter into predefined plans with a registered investment dealer to allow for the repurchase of common shares at times when Manulife ordinarily would not be active in the market due to its own internal trading blackout periods, insider trading rules or otherwise. Any such plans will be adopted in accordance with applicable Canadian securities laws and United States federal securities laws.

Manulife's most-recent normal course issuer bid commenced on Feb. 23, 2023, for the purchase of up to 55.7 million common shares, and will expire on Feb. 22, 2024. Manulife repurchased approximately 53.9 million common shares for cancellation during the period from the commencement of its 2023 NCIB to Nov. 30, 2023, at a volume-weighted average repurchase price per common share of $25.44. All repurchases were made through the facilities of the TSX.

Conference call

A live webcast and conference call are scheduled for Monday, Dec. 11, 2023, at 8:30 a.m. ET, where Roy Gori, president and chief executive officer, Marc Costantini, global head of inforce management, and other members of Manulife's executive leadership team will discuss the transaction, followed by a question-and-answer period with analysts.

To access the conference call, dial 1-800-806-5484 or 1-416-340-2217 (passcode 7766594 followed by the pound key). International dial-in numbers are also available. Please call in 15 minutes prior to the scheduled start time.

Slides related to this announcement are available on the Manulife website.

The archived webcast will be available at the company's website following the call.

About Manulife Financial Corp.

Manulife Financial is a leading international financial services provider, helping people make their decisions easier and lives better. With its global headquarters in Toronto, Canada, the company provides financial advice and insurance, operating as Manulife across Canada, Asia and Europe, and primarily as John Hancock in the United States. Through Manulife Investment Management, the global brand for its global wealth and asset management segment, Manulife serves individuals, institutions and retirement plan members worldwide. At the end of 2022, Manulife had more than 40,000 employees, over 116,000 agents and thousands of distribution partners, serving over 34 million customers.

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