Legal & General today announced it has acquired a £3bn annuity portfolio from Aegon.
The transaction has been structured initially as a reinsurance contract and covers approximately 27,000 of in-payment policyholders who will remain customers of Aegon during this period. They will continue to be serviced by Aegon until the effective date of a Part VII Transfer which is subject to regulatory and court approval.
Transitional benefits will be available to offset the Solvency II risk margin. Legal & General has chosen not to reinsure the longevity risk in relation to this transaction. On a proforma basis, the ‘Day 1’ impact of this transaction decreases the Group’s Solvency II surplus by c.£50m and the Solvency II coverage ratio by c.3 percentage points.
Kerrigan Procter, Managing Director of Legal & General Retirement, said:
“We are delighted Aegon has chosen Legal & General to secure its policyholders’ annuities. Back book annuity risk transfer deals can be executed efficiently under our post-Solvency II model. Our pricing of this transaction is consistent with achieving our cost of capital hurdle rate. In the UK there is an estimated £100bn of Individual Annuities in back books and we expect further consolidation of these back books.
“As well as this deal, other significant transactions in recent months include a further buy-in with ICI in excess of £300m, the UK’s largest medically underwritten contract for Kingfisher for £230m and our first two US PRT deals for $450m and $65m. “
Alex Wynaendts, CEO of Aegon, added:
“I am very pleased that we are able to announce this transaction. Achieving the divestment of our UK annuity portfolio is an important step in the strategic repositioning of our business in the United Kingdom. The divestment enables us to fully focus on growing our platform business. At the same time, I am pleased that we have found in Legal & General a good home for our annuity customers.”
Legal & General Retirement has written approximately £550m of total annuities year to date, in addition to the £3bn Aegon transaction, with a further £150m in lifetime mortgage lending. Globally as at 31 March 2016, Legal & General manages an annuity book of £45.5bn, and provides annuity benefits to over a million customers. In full year 2015 Legal & General Retirement (LGR) completed £2.4bn of bulk annuity deals. LGR’s operating profit grew 49% in 2015 to £639m and generated £417m net cash, up 22% on 2014.
As at the end of December 2015, Legal & General Retirement had c.£10bn of undiscounted VIF, on an EEV basis, which over the next five years is expected to unwind c.£0.4bn each year.
We are going to be holding a conference call to talk through the transaction, the continued attractiveness of the bulk market opportunity in the UK and US and why Legal & General is well placed to benefit from those opportunities.