Swiss Re to take on Legal & General mature savings unit

Legal & General Group has reached agreement to sell its mature savings business to the ReAssure division of Swiss Re for £650m, it announced on Wednesday.

The FTSE 100 company said Swiss Re's ReAssure division is a life and pensions business designed to manage closed and non-core in-force portfolios, focussing on delivering “excellent service and outcomes” to policyholders

By transferring the mature savings business to Swiss Re, Legal & General said it was confident that it would deliver positive results for existing customers who would benefit from ReAssure’s focus and economies of scale in the specialisms required.

The business being sold comprised primarily retail customers, who held traditional insurance-based pensions, savings and investment products.

Its assets as at the first half of 2017 of £33bn included both unit-linked business and Legal & General's £21.4bn with-profits fund.

With around one million customers, the division had largely been closed to new business.

Legal & General said its continued growth in those product areas would be through Legal & General Investment Management's workplace pension business, which now had around 2.5 million customers through its intermediated retail savings business, and through its personal investing unit which offered ISAs and unit trusts directly to customers.

“This was a difficult decision as with-profits savings has been a part of Legal & General's UK business for over 50 years,” said chief executive Nigel Wilson.

“However we have in Swiss Re a great partner, who will be an excellent steward of the business and its many customers and policyholders.”

Wilson said selling Mature Savings was “the right decision” for Legal & General, and another important, measured, step in growing the company and updating its products.

“It will drive further earnings growth by allowing us to focus on our successful market-leading businesses and to accelerate the scaling up of our growth businesses.”

Following the disposal, Legal & General said it would accelerate its growth agenda in a number of areas, including investing and annuities through Legal & General Retirement and Legal & General Capital, investment management through LGIM; and insurance through Legal & General Insurance and General Insurance.

The £650m proceeds, to be satisfied in cash, would be received by Legal & General at the start of January 2018 and all profits and transfers for the 2017 financial year would be retained by Legal & General.

Swiss Re would assume the economic exposure of the business from 1 January 2018 via a reinsurance structure.

It was expected that the formal transfer of the business would be completed in mid-2019, subject to satisfaction of normal conditions for a transaction of the type including court sanction.

The transfer would be effected by way of a Part VII transfer under the Financial Services Markets Act 2000.

Swiss Re had agreed an investment management agreement with LGIM to continue to manage the funds transferred.

The transaction was expected to generate a small increase in the group Solvency II coverage ratio at outset, increasing to approximately 2% on completion of the Part VII transfer.

Legal & General said the sale of the business was expected to generate a one-off IFRS gain on completion of the Part VII transfer, anticipated in 2019, of around £450m.

The adjusted Solvency II Own Funds for the business was £659m, and during 2016, the mature savings business generated £105m operating profit.

Legal & General said the net proceeds of the transaction would be reinvested in the “attractive growth opportunities” of its core businesses.

“Under-saving, including for retirement, is an economic and social challenge for the UK, and Legal & General remains committed to providing attractive solutions to help our customers achieve their financial goals based around LGIM's modern workplace savings, personal investment and intermediated product range,” Nigel Wilson added.