Manulife Financial Corp. has signed a reinsurance deal with Global Atlantic that it says will free up $1.2 billion in capital that it plans to use to buy back shares.

The Toronto-based insurer said Monday it is reinsuring $13 billion of reserves to Global Atlantic and its partners, including $6 billion in long-term care reserves. 

By having Global Atlantic agree to insure its exposure to the portfolios, Manulife said the deal is expected to release $1.2 billion of capital that it plans return to shareholders via share buybacks.

The deal on long-term care (LTC) reserves was especially notable, as it's a riskier area of insurance that Manulife has been working on deals for some time.

"With this largest-ever LTC reinsurance deal, we believe it marks an important step in establishing an active LTC reinsurance market," Manulife chief executive Roy Gori told a conference call with investment analysts.

Manulife said it ceeded $270 million on the LTC reserves, while the rest of the reserves were done at full value.

Gori called the agreement a major milestone for the company as it reshapes its portfolio, reduces risk and delivers value to shareholders.

Scotiabank analyst Meny Grauman said in a note that the deal marked a "giant leap" for sentiment around LTC transactions by establishing a good valuation baseline for such deals.

Manulife said it has received approval from the Office of the Superintendent of Financial Institutions to buy back up to about 2.8 per cent of its outstanding common shares starting in February.

The share repurchase plan remains subject to the approval of the Toronto Stock Exchange.

This report by The Canadian Press was first published Dec. 11, 2023.