Global Atlantic, John Hancock Strike Biggest LTCI Reinsurance Deal Ever
The Global Atlantic deal with Manulife involves life insurance policies in Japan and structured settlement annuities in the United States as well as the John Hancock LTCI policies. The other policies involved are backed by about $3 billion in reserves, in U.S. dollars.
The companies hope to close on the deal by June 30, 2024.
The deal would decrease John Hancock’s long-term care insurance statutory reserves by 16%, to $35 billion.
Several reinsurers were interested in participating in the deal, and Manulife expanded the scope partly because of reinsurers’ interest in making a bigger deal, Manulife executives said.
Global Atlantic noted that it will have a “highly rated third-party global reinsurer” reinsure 100% of the LTCI block risk related to the insured people’s use of their coverage.
For the LTCI block of business, Global Atlantic will retain only the risk associated with spreads between what the company earns on its own investments and the investment earning assumptions built into the LTCI reserves.
Manu Sareen, co-president of Global Atlantic, said in a comment included in Global Atlantic’s deal announcement that separating the insurance risk from the spread-based risk was an important innovation.
“With this structure, our retained liability cashflows on this part of the transaction are not subject to any lapse, longevity or morbidity risks,” Sareen said.
Global Atlantic and Manulife did not name the third-party global reinsurer.
Representatives from two large, highly rated reinsurers — Venerable and Swiss Re — were not immediately available to answer questions about whether their companies were involved in the Global Atlantic-Manulife deal.
One clue may be where the companies have to get regulatory approvals. Costanti reported that Global Atlantic is seeking regulatory approvals for the deal from regulators in Massachusetts and Bermuda.
The policyholders: John Hancock will continue to administer the U.S. LTCI policies and other U.S. policies involved in the Global Atlantic deal, and other Manulife affiliates will continue to administer the Japanese life insurance policies involved, Manulife said.
Gori noted during the conference call that the LTCI block involved is relatively mature. The average policy in the block has been in force for many years, and the average insured is 83 years old.
About 19% of the insureds have lifetime benefits, and 71% have inflation protection.
Only 8% of the holders of the LTCI policies John Hancock is keeping have lifetime benefits, and only 57% have inflation protection.
Costantini said John Hancock was able to make an attractive deal partly because it has been careful about setting reserves for the policies and has taken steps to use wellness programs and care management programs to reduce the number of claims and hold down claim costs.
John Hancock has included about $2 billion in LTCI premium increases in LTCI reserving assumptions, and it has received approvals for $700 million of those increases, Costantini said.
He noted that the company was the first to offer policy owners alternatives to paying higher LTCI bills when it increased the premiums. The menu of standard alternatives to paying higher premiums now includes cash buyout offers.
When policy owners accept the cash buyout offers, that gives the owners another alternative to paying higher rates and reduces John Hancock’s own benefits obligation risk, Costantini said.
The John Hancock Building in Boston. Credit: John Hancock
