Under the terms of the deal, an initial reinsurance contract will cover 27,000 of in-payment policyholders who will remain customers of Aegon until the acquisition gains regulatory and court approval.
Aegon’s chief executive Alex Wynaendts said the divestment of its UK annuity book will allow the life group to focus on its platform business.
In a statement released on Monday, L&G confirmed that it has chosen not to reinsure the longevity risk of the transaction.
Annuity market turmoil
The sale comes during a difficult time for the annuity market in the UK. In 2014, the chancellor George Osborne announced reforms granting unrestricted access to pension savings – scrapping the need for people to buy an annuity.
As a result, UK annuity sales plunged 42% from £11.9bn in 2013 to £6.9bn in 2014.
Consolidation of back books
Last month, Aegon sold two-thirds of its UK annuity book, worth £6bn, to insurer Rothesay Life.
As a result, the company said at the time that it expects to make a loss of around £30m for the second quarter, with cash flows from its UK operations dipping by around £35m.
Meanwhile, L&G said it expects the consolidation of annuity books to continue, estimating that £100bn worth of individual annuities are currently held in the “back books” of UK insurers.
Kerrigan Procter, managing director of L&G Retirement (LGR), said the pricing of the Aegon book is consistent with achieving the insurer’s cost of capital hurdle rate.
“Back book annuity risk transfer deals can be executed efficiently under our post Solvency 2 model,” he said.
Latest figures from the life company show that as of 31 March 2016, it manages an annuity book of £45.5bn, with LGR writing about £550m of total annuities over the past year. The subsidiary also completed £2.4bn of bulk annuity deals in the year to date, which saw its operating profits soar by 49% in 2015 to £639m.
L&G’s ‘declutter’
L&G’s latest acquisition comes as part of a wider move to “declutter” its other non-core business. In January, the stalwart offloaded its UK Sipp provider Suffolk Life to the Curtis Banks Group, in a deal reportedly worth £45m.
The insurer also sold its Irish arm to Canada Life last summer, while revealing plans to dispose of its operations in Egypt, Germany and the Gulf.
Instead, the company has invested heavily in pension liabilities, completing its second US pension risk transfer deal, worth $65m, earlier this year – with hubs now operating in the UK, US, and Europe.
