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Manulife sells off life retrocession business

Manulife Financial President and Chief Executive Officer Donald Guloien.


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

The business - which essentially insures reinsurance companies - is being bought by U.S. insurer Pacific Life Insurance Co.

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

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"The life retrocession business does not align with Manulife's strategy because of changes in the life reinsurance market going forward," chief executive officer Donald Guloien said Monday.

"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.

Manulife's life retrocession business has about 90 employees in offices in Toronto, Boston, Barbados and Cologne. It 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."

Pacific Life, based in Newport Beach, Calif., said the transaction is expected to be completed in the third quarter. The deal will give Pacific Life about 41 per cent share in the North American market for individual life retrocession, the company said in a statement.

Manulife said the deal will not have an impact its other reinsurance businesses, which focus on property and casualty retrocession and international employee-benefits management.

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

As a result of the division's sale, 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.

Last year, rival Sun Life Financial Inc. sold its life reinsurance business to Nebraska-based Berkshire Hathaway Life Co.

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