During the second quarter of 2016, Aegon announced the divestment of its GBP 9 billion annuity portfolio in the United Kingdom through two transactions, to Rothesay Life and Legal & General.
Aegon today confirms that the disposals are proceeding as planned, with the market and underwriting risks transferred to the counter parties.
In line with our earlier communicated estimates this will lead to a total capital release of GBP 500 million once both transactions have been finalized through the Part VII transfers, which are expected to be completed in the first half of 2017.
Solvency II impact
The Rothesay Life and the Legal & General transactions each contributed 15% to Aegon UK's Solvency II ratio based on year-end 2015 and March 31, 2016 capital positions, respectively. Whereas the absolute amount of the capital release is unchanged, the relative impact on the Solvency II ratio in the second quarter amounts to ~20% combined, mainly as a result of market-driven higher capital requirements.
In finalizing the transaction agreements and as part of its quarterly closing process, Aegon has adjusted the IFRS book loss on these transactions. In its second quarter 2016 results, Aegon will incur a post-tax book loss of GBP 481 million (EUR 618 million), up from the GBP 245 million (EUR 315 million) previously indicated.
This loss is expected to be partly offset by the release of the expense reserves on the annuity portfolio of GBP 70 million (EUR 82 million) post tax upon completion of the Part VII transfers. In addition, Aegon expects to realize gains on assets that are to be disposed of and were related to the annuity book with an unrealized gain position of GBP 50 million (EUR 59 million) post tax on May 31, 2016.
These are challenging times for the insurance industry, with record low interest rates and volatile financial markets. The divestment of the UK annuity book has significantly reduced the exposure to these market risks.
Aegon will publish its Q2 2016 results at 7.30 am (CET) on Augustus 11, 2016.