Standard Life open to annuity sale
LONDON: Standard Life Plc would sell its £16.1 billion ($20 billion) annuity portfolio but has no plans to exit the insurance business altogether after it merges with Aberdeen Asset Management Plc, chief executive Keith Skeoch said.
The Scottish company will seek investor approval next week for an £11 billion merger with Aberdeen and plans to shed its index classification as an insurer to become an asset manager.
With the boss of Standard Life’s insurance business set to lose his seat on the board after the merger, analysts have questioned whether the Edinburgh-based company could sell off its near 200-year-old life insurance business completely.
Skeoch, however, said the company’s asset management business relied on money held by clients in retail and workplace savings products, some of which had a life insurance element attached to them.
He was, though, open to selling the annuity business, which provides an income for life to retirees.
While it was delivering “reasonable” profits, it was no longer growing after the company stopped writing new business last year, and took up balance sheet resources, Skeoch said.
“It is the most capital-heavy part of our business, so I would be quite happy to dispose of that book of business if I can get benefit for shareholders.
“However, at this level of interest rates, the capital would tend to go with the book (and) pricing is quite tight because there are quite a lot of books for sale.”
Specialist annuity providers are often keen to take on back books of business as they can use economies of scale to run them more efficiently, and the policies generate cash.
Dutch insurer Aegon NV last year sold a £9 billion book of UK annuities to Legal and General Group Plc and Rothesay Life Limited.
Skeoch said that under the insurance industry’s move to new European Solvency II rules on capital adequacy, Standard Life had several years to sell and did not need to do a deal quickly.
“I’m price-sensitive and could be patient,” he said.
RBC Capital Markets analyst Gordon Aitken said in a note that a sale of the annuity business could provide shareholders with a £900 million payday, with specialist firms Pension Insurance Corporation and Rothesay Life among possible buyers.
While an outright sale of all its insurance assets was off the board, Skeoch said he was open to changing how the company managed the rest of its so-called ‘back-book’ of business — multi-year pensions and insurance business that were often written years ago and which are closed to new customers.
The proposed merger between Standard Life and Aberdeen is the culmination of a years-long journey to ramp up the contribution of investment fee income to the company’s bottom line.
After the deal, around two-thirds of profits will come from overseeing assets in one form or another.