LONDON Standard Life (SL.L) would sell its 16.1 billion pound ($20 billion) annuity portfolio but has no plans to exit the insurance business altogether after it merges with Aberdeen Asset Management (ADN.L), Chief Executive Keith Skeoch said.
The Scottish company will seek investor approval next week for an 11 billion pound merger with Aberdeen and plans to shed its index classification as an insurer to become an asset manager.
With the boss of Standard Life's insurance business set to lose his seat on the board after the merger, analysts have questioned whether the Edinburgh-based company could sell off its near 200-year-old life insurance business completely.
Skeoch, however, 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.
He was, though, open to selling the annuity business, which provides an income for life to retirees. While it was delivering "reasonable" profits, it was no longer growing after the company stopped writing new business last year, and took up balance sheet resources, he said.
"It is the most capital-heavy part of our business, so I 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."
Specialist annuity providers are often keen to take on back books of business as they can use economies of scale to run them more efficiently, and the policies generate cash.
Dutch insurer Aegon (AEGN.AS) last year sold a 9 billion pound book of UK annuities to Legal and General (LGEN.L) and Rothesay Life.
Skeoch said that under the insurance industry's move to new European Solvency II rules on capital adequacy, Standard Life had several years to sell and did not need to do a deal quickly. "I'm price-sensitive and could be patient," he said.
RBC Capital Markets analyst Gordon Aitken said in a note that a sale of the annuity business could provide shareholders with a 900 million pounds payday, with specialist firms Pension Insurance Corporation and Rothesay Life among possible buyers.
While an outright sale of all its insurance assets was off the board, Skeoch said he was open to changing how the company managed the rest of its so-called 'back-book' of business - multi-year pensions and insurance business that were often written years ago and which are closed to new customers.
BACK-BOOK OF ASSETS
The proposed merger between Standard Life and Aberdeen is the culmination of a years-long journey to ramp up the contribution of investment fee income to the company's bottom line. After the deal, around two-thirds of profits will come from overseeing assets in one form or another.
As well as the annuity business, Standard Life has an 88.8 billion pound back-book of other insurance assets. They comprise 34 billion pounds of UK so-called 'with profits' - which can carry a guarantee - and unit-linked pensions, as well as 10 billion pounds of German with-profits business and 44 billion pounds of back-book business acquired through its purchase of Ignis Asset Management.
Of the other books of mature business, Skeoch said some were valuable because they could continue to generate flows of money into the company's retail asset management products.
"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."
($1 = 0.7903 pounds)
(Editing by Susan Fenton)