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Life Health > Long-Term Care Planning

Global Atlantic, John Hancock Strike Biggest LTCI Reinsurance Deal Ever

By Allison Bell

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What You Need to Know

  • John Hancock will continue to administer the LTCI policies involved in the $4.4 billion deal.
  • Global Atlantic will pass its share of the LTCI reinsurance risk to a company that has not yet been named.
  • John Hancock noted that it is now offering cash buyouts as a standard option for policyholders facing premium increases.

Global Atlantic has agreed to take responsibility for a block of John Hancock long-term care insurance policies backed by $4.4 billion in reserves through a reinsurance agreement.

The LTCI reinsurance agreement is the biggest ever announced, and executives at John Hancock’s Toronto-based parent, Manulife Financial, said they hoped this deal would lead to more big LTCI reinsurance deal announcements soon.

The company is looking for a reinsurer for a similar block of LTCI business backed by about $2.8 billion in reserves, Mark Costantini, global head of in-force management, said Monday during a conference call Manulife held with securities analysts to talk about the deal.

Costantini said Manulife wanted the LTCI reinsurance deal with Global Atlantic to be the biggest ever. “We wanted to re-set the marketplace and the perception of long-term care insurance,” he told the analysts. “You’re setting the framework for future transactions.”

“We believe it makes an important step in establishing an active LTC reinsurance market,” Roy Gori, Manulife’s CEO, said during the same call.

What it means: The Global Atlantic-Manulife long-term care insurance reinsurance deal could be a sign of a recovery in the overall LTCI market.

Gori described the deal as part of an effort to dispose of unwanted legacy businesses and businesses with low earnings, but the existence of an active reinsurance market for LTCI policies could increase direct writers’ interest in selling your clients LTCI policies.

LTCI history: The individual and group long-term care insurance markets boomed in the 1980s and 1990s, as insurance company marketers saw that the aging of the baby boomers would eventually lead to a huge increase in the need for mechanisms for paying for care for older people.

Critics accused some insurers of charging too little for their coverage.

State LTCI rate increase control rules took effect as insurers’ blocks of LTCI business began to mature.

The issuers discovered that they had been overly optimistic about almost every assumption involved in creating the policies, including how high earnings on bonds would be, how many policyholders would keep their policies and how many insureds would use their coverage.

Most issuers left the U.S. LTCI market. John Hancock, which is based in Boston and helped create the modern U.S. LTCI market, stopped selling new individual LTCI policies in late 2016.

In recent years, there have been signs of a modest revival of the private LTCI market.

National Guardian Life has been expanding sales of a relatively new individual LTCI product, and insurers like Mutual of Omaha, New York Life and Thrivent continue to write new LTCI coverage.

Federal Life, Transamerica and John Hancock itself have all recently announced efforts to offer worksite life insurance policies to include built-in or optional access to benefits that can be used to pay for long-term care.

LTCI reinsurance history: Every quarter, securities analysts have asked any publicly traded insurers with LTCI policies on their books whether could reduce their LTCI risk by using reinsurance.

LTCI reinsurance deals have been rare.

CNO Financial made headlines in 2018 when it arranged for Wilton Re to reinsure an LTCI block backed by $2.8 billion in reserves.

Continental General has helped the direct writers shed unwanted LTCI business by buying Kanawha from Humana and arranging earlier this year to acquire a block of LTCI policies from Elevance Health, the health insurer formerly known as Anthem.

The Global Atlantic-Manulife deal: Global Atlantic is a New York-based affiliate of KKR.

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

Allison Bell

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