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Unum (UNM) Enters Into $7.1B Reinsurance Deal With Global Atlantic

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Unum Group (UNM - Free Report) has entered an agreement with the life and annuity re/insurance firm, Global Atlantic, wherein a subsidiary of Global Atlantic will reinsure a portion of Unum’s Closed Individual Disability Insurance Block (IDI) business through a coinsurance arrangement.

The block of business in question is backed by $8.5 billion in assets and $7.1 billion in reserves.

Per the agreement, a subsidiary of Global Atlantic will maintain over-collateralized trust accounts for Unum’s three ceding insurance subsidiaries.

Unum expects to release $600 million of capital backing the block of reinsurance business, after executing the deal.

In order to finance the deal, a ceding commission or fee of about $376 million will be paid to Global Atlantic’s subsidiary at the closing of the first phase of the reinsurance to reinsure about 75% of the in-force policies in the closed block. It will be offset by cash tax benefits.

The ceding commission for the second phase of the reinsurance transaction is subject to adjustment, based on the consents received. The payment for the volatility cover is also subject to adjustment, based on the consents received.

Hamilton, Bermuda-based Global Atlantic has been focusing on selling life insurance and annuities, and reinsuring other companies’ businesses in North America. The subsidiary of Global Atlantic, which is executing the disability insurance reinsurance arrangement with Unum, is Commonwealth Annuity and Life Insurance Company, which has its official state of domicile in Massachusetts.

This transaction adds to Unum’s financial flexibility and further re-balances the company’s portfolio to more capital-efficient businesses. The insurer has reinsurance agreements on about 76% of the Closed Block individual disability business. Such activities will boost and enhance the Closed Block segment and thus add to the overall premium income of the insurer. With these agreements, the company continues to focus on growth in the core business as well as pursue additional opportunities to optimize the capital and balance sheet for long-term shareholder value.

Unum will also retain certain Closed Block IDI business and certain assets, with yields exceeding current market levels to support yields on other product lines, including long-term care.

Shares of this Zacks Rank #4 (Sell) company have lost 24.6% in the past year compared with the industry’s decline of 10.6%. Nevertheless, solid fundamentals, robust capital position and segmental performances should help its shares bounce back.

Stocks to Consider

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