Close up of businessman hands making handshake - greeting, dealing, merger and acquisition concepts

With a deal to sell a large chunk of its legacy U.S. variable annuity exposure, Manulife says it will release approximately $2 billion in capital.

The insurance giant said it has reached a deal with Venerable Holdings Inc. to reinsure more than 75% of its U.S. variable annuity business, which will result in a one-time after-tax gain of $750 million to net income and another $1.3 billion in capital.

Manulife said it will use a “significant portion” of the capital freed up in the deal to buy back shares in order to cushion the impact on earnings per share. The rest will be available to finance other growth opportunities.

Earlier this month, after the Office of the Superintendent of Financial Institutions (OSFI) removed restrictions on capital distributions, Manulife announced a share buyback representing about 2% of its outstanding common shares. It now intends to increase that to approximately 5%.

The reinsurance transaction, which is expected to close in the first quarter of 2022, is also seen lowering annual earnings by approximately $200 million in 2022, with the earnings impact decreasing over time.

Roy Gori, president and CEO of Manulife, said the agreement reduces risk in addition to freeing up capital.

“This transaction represents a significant milestone for Manulife,” he said in the release.