AEGON NVand Rothesay Life Plcsaid April 11 that Rothesay agreed to acquire £6 billion of annuities fromAEGON's U.K. unit Scottish EquitablePlc.
The deal has been structured initially as a reinsurancecontract and is expected to lead to a Part VII transfer of the underlyingassets and liabilities to Rothesay Life, subject to approval. The deal is oneof the largest transactions of its type in the U.K. and covers approximately187,000 policyholders.
AEGON said the deal is consistent with its ambition to freeup capital from noncore businesses and focus on its U.K. platform wherebyworkplace savers can manage their retirement income with the support of afinancial adviser or directly online. The acquisition covers two-thirds ofAEGON's U.K. annuity portfolio. The company said it is also consideringdivesting the remainder of the portfolio.
AEGON said its pro forma Solvency II ratio as at end-2015for its operations in the U.K. increases to about 155% following thereinsurance transaction, and to about 165% following the Part VII transfer. Itsaid that, as a result of the deal, the benefit in the Solvency II own fundsfrom transitional measures for its U.K. annuity portfolio will be reduced.After the deal completes, AEGON plans to upstream excess capital to the holdingcompany. It expects its annual operations free cash flows from its U.K.operations to be reduced by about £35 million. The expected impact of the dealon 2016 underlying earnings before tax is about £20 million. The reinsurancedeal is expected to result in an IFRS loss of about £30 million to be reportedin other charges in the second quarter of 2016.
To ensure a smooth transaction for their clients, the firmswill implement a migration plan in which the administration of the annuityportfolio will be executed by AEGON until the completion of the Part VIItransfer.