Aegon announces the sale of two thirds of its UK annuity portfolio to Rothesay Life. The transaction is consistent with the company’s ambition to free up capital from non-core businesses.
Under the terms of the agreement, Aegon will reinsure GBP 6 billion of liabilities to Rothesay Life, followed by a Part VII transfer.
The pro forma Solvency II ratio per end-2015 for Aegon's operations in the United Kingdom increases to an estimated ~155% following the reinsurance transaction and ~165% following the Part VII transfer. Aegon is exploring options to also divest the remainder of its UK annuity portfolio.
"I am very pleased that we have reached an agreement with Rothesay Life," said Alex Wynaendts, CEO of Aegon. "This is an important step in the process to fully divest our UK annuity portfolio, and will enable us to focus on our fast-growing platform in the UK. We are confident that this transaction is also in the best interests of our annuity customers, as Rothesay Life is an established and respected specialist provider in the UK annuity market."
Focus on retirement platform
Aegon has not been an active player in the UK annuity market since 2010. By selling the majority of the annuity portfolio, Aegon will be able to focus on its platform which enables 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.
As a result of the transaction, the benefit in the Solvency II own funds from transitional measures for Aegon's UK annuity portfolio will be reduced. After the completion of the transaction, Aegon intends to upstream excess capital to the holding in line with Aegon's capital management policy for its units.
Following the transaction, Aegon expects annual operational free cash flows from its UK operations to be reduced by approximately GBP 35 million (EUR 43 million).
Impact on underlying earnings
The expected impact of the transaction on 2016 underlying earnings before tax is approximately GBP (20) million (EUR (25) million).
The reinsurance transaction is expected to result in an IFRS loss of approximately GBP 30 million (EUR 37 million) to be reported in other charges in the second quarter of 2016.
To ensure a smooth transition for its customers, Aegon and Rothesay Life 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.