July 2 (Reuters) - Reinsurance Group of America Inc said its unit has agreed to reinsure 90 percent of a block of John Hancock Life Insurance Co’s fixed deferred annuity business, for an initial premium of $5.4 billion in invested assets.
Reinsurance Group, which plans to invest about $350 million of capital from existing resources, expects the deal to immediately boost its earnings per share, starting from the quarter ending June 30.
Macquarie analyst Sean Dargan sees the transaction as an attractive opportunity for Reinsurance Group to put its excess capital to work.
The company’s RGA Re unit will reinsure John Hancock, the U.S arm of Manulife Financial Corp , for 90 percent of death benefits, withdrawals, surrenders and other benefits related to the annuities covered by the deal.
The initial premium will consist mainly of investment grade fixed income securities and commercial mortgage loans, Reinsurance Group said in a filing with the U.S. Securities and Exchange Commission.
A fixed deferred annuity allows customers to earn a fixed rate of interest while deferring income tax. However, the annuity sector has been under heavy pressure from persistently low interest rates, which have now started to weigh on insurer earnings.
“I think we will see more transactions like these where primary insurance companies are looking to smooth the risk in products that they don’t want to focus in the future,” analyst Dargan said.
Shares of Reinsurance Group were up about 1.5 percent at $54.02 in late morning trade on the New York Stock Exchange.