Ahead of a merger with Aberdeen Asset Management, the CEO of Standard Life has said that the financial giant has no plans to exit the insurance business, though he admitted it would sell its £16.1 billion ($20 billion) annuity portfolio, which he called the “most capital-heavy part of our business.”
The Edinburgh-headquartered firm will seek investor approval next week for an
£11 billion all-share merger with Aberdeen, and has plans to shed its index classification as an insurer to become an asset manager.
Barry O’Dwyer, chief executive of Standard Life’s insurance arm, is set to lose his seat on the company’s board after the impending merger, which had left some analysts speculating over the future of the firm’s insurance business.
But chief executive Keith Skeoch said the company’s asset management business relied on money held by clients in retail and workplace savings products, some of which had a life insurance element attached to them, according to a Reuters report.
While Skeoch said the company would not sell-off its nearly 200-year-old life insurance business completely, he conceded that it is open to selling its annuity business, which he said delivers “reasonable” profits but is no longer growing after the company stopped writing new business last year and took up balance sheet resources.
Skeoch said he would be “quite happy to dispose of that book of business if I can get benefit for shareholders… However, at this level of interest rates, the capital would tend to go with the book (and) pricing is quite tight because there are quite a lot of books for sale.”
He went on to say that he was “price-sensitive and could be patient,” adding that under the new European Solvency II rules on capital adequacy, Standard Life had several years to sell and did not need to do a deal quickly.
Despite a sell-off of Standard Life’s entire insurance portfolio being off the cards, the CEO said he was open to changing how the company manages the rest of its ‘back-book’ of business, which includes multi-year pensions and insurance business, many of which were written years ago and are closed to new customers, Reuters said.
“There may well be bits of our back book where there isn’t a future retail component ... and if we can think of a better way of doing that, either through outsourcing or maybe in strategic partnership getting to do other things, then we would… (But), it’s not as simple as some people think, that you simply flog off life and pensions; these are actually very, very attractive books of business,” Skeoch commented.
Possible buyers for the annuity business could include specialist firms Pension Insurance Corporation and Rothesay Life, and a sale could provide shareholders with a £900 million payday, according to a note from RBC Capital Markets analyst Gordon Aitken.
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