Sun Capital, the private equity group run by Hugh Osmond, the leisure sector entrepreneur, will today take its first steps into the UK life insurance sector, as it teams up with a fellow venture capitalist, TDR, to buy the closed life book of HHG for £1bn.
The portfolio, which has assets of some £26bn, includes the closed funds of Pearl, NPI and London Life, which are not taking on new policyholders, were spun off from AMP along with the UK fund management business, Henderson, and the financial advisers, Towry Law, to form HHG at the end of last year.
HHG will return £875m of the proceeds to shareholders, keeping the remainder for potential warranty or indemnity claims against the group over the next 12 months. Once the deal is complete, HHG's fund management business, Henderson, will represent the bulk of its operations.
As part of the deal, Sun Capital and TDR will take on £1.5bn of HHG's £1.7bn pension deficit, dramatically reducing the risk in HHG's ongoing operations. The closed HHG life funds have an embedded value of £1.3bn, and some 2.3m policyholders.
As part of the deal, Sun Capital and TDR plan to keep HHG's existing life fund management in place, with Ian Laughlin, the managing director of the life services division, set to continue running the operations. John Reeve, the former group managing director of Sun Life Assurance, will be brought in as company chairman.
Hugh Osmond, famous for co-founding PizzaExpress and taking it to market, has been one of the lower-profile players in the closed life fund market over the past few months.
However, it is believed that he was among the bidders for Royal & SunAlliance's closed funds, which eventually sold to Resolution Life for £850m in July. He is believed to be interested in further acquisitions in the sector.
Separately, Resolution yesterday pulled off its own deal, as it made its second acquisition since its launch eight months ago, snapping up Swiss Life's UK business in a cash deal worth £205m.
The Swiss Life book, which closed to business in the UK a year ago, is estimated to have an embedded value of about £271m, and comprises about 750,000 policies. Together with RSA's closed life book, the Swiss Life purchase will leave Resolution managing more than £25bn of assets, with and embedded value of some £1.6bn, and more than 2.25m policyholders. The group plans to spend up to a further £1.8bn on a handful of further acquisitions over the next couple of years, after which it intends to float on the London market.
Commenting on the deal yesterday, Sir Brian Williamson, the chairman of Resolution, said: "Resolution was formed to provide an industry solution to the problem of closed life funds. The acquisition of Swiss Life UK is another important step toward achieving that goal."
Resolution and Sun Capital are among a handful of groups which have been fighting to take a foothold in the closed life fund industry over the past year. However, they remain the only two to have made any substantial progress.
Britannic, the Scottish insurer, is believed to have been narrowly beaten to the Swiss Life deal, while Old Mutual has said it plans to spend up to £1bn investing in the sector, but has also failed to secure a deal. Britannic, however, is believed to be close to buying Cornhill's closed life business, which is owned by Allianz, the German insurer, for about £100m.
Swiss Re, which earlier this year bought the Life Assurance Holdings Corporation from a consortium led by St James' Place, is another company competing for closed life funds.Reuse content