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Phoenix, the debt-laden life assurance consolidator set up by entrepreneur Hugh Osmond, has agreed to transfer a £5bn annuity book to Guardian Financial Services, a private equity-backed rival.
Shares in Phoenix rallied 3.3 per cent as analysts said the deal with Guardian should give the FTSE 250 company some additional breathing space to renegotiate the terms of its £2.1bn net debt.
Under the complex structure of the transaction, the 300,000 retirement policies – accounting for about 40 per cent of Phoenix’s total annuity liabilities – will be transferred from Phoenix to Guardian in two stages.
Initially it will be structured as a reinsurance deal, transferring longevity and investment risk from Phoenix to Guardian. This is expected to be followed by an outright acquisition, subject to court approval, next year.
“Any move the group makes like this to strengthen its balance sheet and reduce risk should have a positive impact on those ongoing discussions [with banks],” Phoenix said in a statement.
The transaction will double Guardian’s policyholders and increase its assets under management to £13bn.
“It’s very significant for us,” said Jonathan Yates, Guardian chief executive and a former finance director of Phoenix.
He said Guardian, acquired by Cinven for £275m in November, was still looking for fresh acquisitions in the sector.
“Life assurance is going through a complete transformation. If you go back 20 years it was about essentially savings with guarantees.
“Those policies are written on old-style systems and it’s very unlikely that the companies will ever sell any more business to those [old] policyholders.
“Because of the capital that’s tied up, they’re looking to release that capital and redevelop into the new business.”
Phoenix – led by Clive Bannister, a former managing director of insurance for HSBC who became the life assurer’s chief executive last year – said the transaction “significantly reduces the group’s risk profile by transferring these long-term policies to Guardian”.
The company added that the deal was expected to increase its cash generation this year by about £200m “by releasing capital which would otherwise emerge over time.”
The debt burden of Phoenix, previously known as Pearl, was taken on to finance the £5bn acquisition in 2007 of Clive Cowdery’s original Resolution group. The new Resolution company made an approach for Phoenix last year.
Shares in Phoenix rose 15.4p to 475.4p, giving the company a market capitalisation of £828m.