Aegon announces the sale of GBP 3 billion annuity liabilities to Legal & General.
This transaction follows the recently announced sale of GBP 6 billion of its UK annuity portfolio and completes the divestment of Aegon's own annuity portfolio. Aegon now has approximately GBP 1 billion annuity liabilities remaining through an inward reinsurance transaction.
Today's divestment is consistent with the company's strategy to free up capital from non-core businesses. The expected Solvency II capital release following the completion of the transaction announced today is approximately GBP 275 million.
"I am very pleased that we are able to announce this transaction," said Alex Wynaendts, CEO of Aegon. "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."
In 2010, Aegon chose to no longer be an active player in the UK annuity market, as it believed these products did not meet Aegon's long-term risk adjusted return requirements.
The divestment of the annuity portfolio significantly reduces Aegon's exposure to both longevity and credit risk. The transaction is in line with the company's continued shift to capital-light businesses.
Platform focus
The divestment of the annuity portfolio enables Aegon to focus on its platform, which helps workplace savers and consumers to build their savings across their working lives, and then manage an income in retirement with the support of a financial adviser or directly online.
The UK platform-based pension market is growing fast, and by repositioning our business, Aegon is in a stronger position to benefit from this growth opportunity.
Under the terms of the agreement, Aegon will initially reinsure GBP 3 billion of liabilities to Legal & General followed by a Part VII transfer. The Solvency II ratio of Aegon's operations in the United Kingdom is expected to increase by an estimated 15%-point following the reinsurance transaction with Legal & General, and another ~5%-point following the Part VII transfer.
Financial impact
Aegon expects annual capital generation from its UK operations to be reduced by approximately GBP 30 million (EUR 38 million) as a result of the transaction announced today. Underlying earnings before tax are expected to be reduced by approximately GBP 16 million (EUR 20 million) per annum. The reinsurance transaction is expected to result in an IFRS loss of approximately GBP 215 million (EUR 273 million), which will be reported in other charges in the second quarter of 2016.
To ensure a smooth transition for its customers, Aegon and Legal & General will put a migration plan in place in which the administration of the annuity portfolio will be executed by Aegon until the completion of the Part VII transfer.