Legal & General has acquired a £3bn annuity portfolio from Aegon, it has announced.

The transaction, which has initially been structured as a reinsurance contract, 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 effective date of a Part VII Transfer which is subject to regulatory and court approval. Transitional benefits will be available to offset the Solvency II risk margin.

L&G has chosen not to reinsure the longevity risk in relation to this transaction. On a pro-forma basis, the ‘day 1’ impact of this transaction decreases the Group’s Solvency II surplus by c.£50m and the Solvency II coverage ratio by c.3 percentage points.

Commenting on the acquisition, L&G Retirement managing director Kerrigan Procter said he is “delighted” that Aegon has chosen L&G 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.”

Aegon CEO Alex Wynaendts said achieving the divestment of their UK annuity portfolio is an “important step in the strategic repositioning of our business in the United Kingdom”.

“The divestment enables us to fully focus on growing our platform business. At the same time, I am pleased that we have found in L&G a good home for our annuity customers.”

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