Unum Group Announces Reinsurance Transaction with Global Atlantic on $7.1 Billion Closed Individual Disability Block
CHATTANOOGA, Tenn. (December 17, 2020) – Unum Group (NYSE: UNM) today announced that three of its insurance company subsidiaries have entered into an agreement to reinsure a substantial portion of Unum’s Closed Individual Disability Insurance Block (“IDI”) business, backed by approximately $7.1 billion in reserves, to a subsidiary of Global Atlantic through a coinsurance arrangement. Global Atlantic’s subsidiary will maintain over-collateralized trust accounts for the benefit of each Unum ceding company to secure its obligations under the relevant reinsurance agreement. Unum will continue to provide service and administration for the reinsured IDI business.
Once the transaction is fully executed, assuming receipt of all consents and regulatory approvals, Unum expects to release approximately $600 million of capital backing the block. Initially, the released capital is expected to be held at the holding company, increasing capital flexibility during the current challenging economic environment. There is expected to be minimal impact to the weighted average risk-based capital ratio and statutory operating earnings of its U.S. traditional insurance subsidiaries once the transaction is fully completed.
“With this agreement, we continue to make meaningful steps in actively managing the Closed Block to increase our financial flexibility and further rebalance our portfolio to more capital efficient businesses,” said Richard P. McKenney, president and chief executive officer. “Looking forward, we remain focused on delivering growth in our core businesses while continuing to pursue additional opportunities to optimize our capital and balance sheet for long-term shareholder value.”
Unum will retain the multi-life IDI block that is reported as part of the Unum US Supplemental & Voluntary segment, which continues to be an important element of the Company's core growth strategy. The Company will also retain certain Closed Block IDI business not reinsured as part of the transaction, as well as certain assets with yields exceeding current market levels, which will support yields for other product lines, including long-term care.
As part of the transaction, a subsidiary of Unum will provide a 12-year volatility cover for the active life cohort, which represents approximately 5 percent of the total statutory reserves of the IDI block reinsured by Global Atlantic’s subsidiary. At the end of the coverage period, Global Atlantic’s subsidiary will retain the risk for the remaining incidence and claims risk on the block.
Unum and Global Atlantic will complete the reinsurance transaction in two phases. During December 2020, approximately 75% of the in-force IDI block, primarily direct business written by the Unum ceding companies, will be reinsured to Global Atlantic’s subsidiary effective as of July 1, 2020. Additional IDI business, consisting of direct business not ceded at the first closing in December 2020 and business assumed by Unum from third parties, will be reinsured in the first quarter of 2021, subject to receipt of required consents and regulatory approvals.
The total net considerations to be paid to Global Atlantic’s subsidiary at the closing of the first phase of the reinsurance transaction is approximately $376 million, which 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 actually received. The payment for the volatility cover is also subject to adjustment based on the consents actually received.
Morgan Stanley & Co. LLC and Rothschild & Co acted as financial advisors and Debevoise & Plimpton LLP served as legal counsel to Unum in connection with this transaction.
2021 OUTLOOK MEETING INFORMATION
Members of Unum Group senior management will host its virtual annual investor meeting on Thursday, December 17th at 8:00 a.m. (Eastern Time) to discuss Unum’s 2021 outlook and the reinsurance transaction.
The meeting will be simulcast via an audio & video webcast and will be accessible through the company’s website at www.unum.com in the “Investors” section.