Legal & General buys £3bn annuity portfolio from Aegon

Legal & General said it had acquired a £3bn annuity portfolio from Aegon.

L&G said the transaction had been structured initially as a reinsurance contract and covers approximately 27,000 of in-payment policyholders who will remain customers of Aegon during this period. They will continue to be serviced by Aegon until the transfer is approved.

Transitional benefits will be available to offset the Solvency II risk margin, L&G said, adding that it had chosen not to reinsure the longevity risk in relation to the deal.

On a proforma basis, the 'Day 1' impact of this transaction decreases the Group's Solvency II surplus by around 50m and the Solvency II coverage ratio by about 3 percentage points.

Kerrigan Procter, managing director of Legal & General Retirement, said: “We are delighted Aegon has chosen Legal & General to secure its policyholders' annuities. Back book annuity risk transfer deals can be executed efficiently under our post-Solvency II model. Our pricing of this transaction is consistent with achieving our cost of capital hurdle rate. In the UK there is an estimated £100bn of Individual Annuities in back books and we expect further consolidation of these back books.”

Globally as at 31 March 2016, Legal & General manages an annuity book of £45.5bn, and provides annuity benefits to over a million customers. In full year 2015 Legal & General Retirement (LGR) completed £2.4bn of bulk annuity deals. LGR's operating profit grew 49% in 2015 to £639m and generated £417m net cash, up 22% on 2014.