UK insurer Rothesay leading race for €11bn of Prudential annuities

BRITISH insurer Rothesay Life, backed by Blackstone Group, has emerged as the lead bidder to buy at least £10bn (€11bn) of UK annuities from Prudential, according to people with knowledge of the matter.

Rothesay is on track to beat out Legal & General Group, the Scottish Widows pension unit of Lloyds Banking Group and Pension Insurance Corp, the people said, declining to be identified because the deliberations are confidential. The entire portfolio could be worth about £1bn to £1.5bn, they said. The suitors have been bidding for all or part of the book, they said.

Insurers such as Prudential have been looking to exit the annuity business to free up capital for share buybacks, debt repayment or acquisitions. The deals are attractive to private equity-backed firms including Blackstone, Apollo Global Management and Atlas Merchant Capital, who are betting that they can generate better returns than insurers. Liabilities on the contracts for annuities — which guarantee customers a future stream of income in return for a lump sum — can rise if interest rates are lower than anticipated, or if equity markets plunge.

The deal will free up capital that Prudential had set aside under the European Union’s Solvency II regulations, designed to protect insurers from a once-in-200-years shock. The insurer began signalling its intention to scale back on UK annuities in January 2016.