Private equity firm Cinven has reached an agreement to buy life insurance and pension provider Guardian Financial Services for £275 million, Aegon confirmed today, ending weeks of speculation.
The deal provides UK-based Cinven an “attractive entry point into the UK closed life market and a strong platform from which to execute a consolidation strategy for the sector,” the firm announced after Aegon’s confirmed selling Guardian today.
The private equity firm said “the fragmented nature of the life insurance market coupled with the ongoing pressure that the industry is facing” will continue to drive firms to look for acquisitions.
Banking institutions looking to exit insurance investments and international insurers looking to recycle capital may accelerate the consolidation process further, the Cinven added.
The divestment of Guardian Financial is in line with Aegon’s business objective to “optimise its portfolio of businesses” in the UK, said Aegon. The company is currently undergoing a restructuring process that is expected to reduce operating costs by £80 million in 2011.
Aegon Asset Management has meanwhile, entered into an agreement with Cinven to manage Guardian’s assets worth £7.4 billion.
Guardian’s embedded value has been estimated at £322 million while the book value amounted to £271 million as on June 30, 2011.
Guardian Linked Life Assurance Ltd, Guardian Assurance plc and Guardian Pensions Management Ltd trade collectively under the name Guardian and the firm has been closed to new business for 10 years. It has about 300,000 policies and 170 employees. Pre-tax profit for year 2010 was reported at £23 million.
“Consistent with actions over the past three years to dispose of, or run-off, certain businesses deemed non-core, Aegon has concluded that managing the closed business of Guardian companies no longer fits with our strategic objectives,” said Jan Nooitgedagt, chief financial officer at Aegon.
“Cinven’s Financial Services team has invested considerable time into developing its strategy for the closed life market and believes it represents an excellent investment opportunity with attractive returns,” said Casper Berendsen, partner at Cinven.
“Guardian is an ideal entry point for us into the market and provides us with a strong platform from which to deploy further capital to create a leading closed life consolidator,” he added. This is the third acquisition for Cinven in the UK; the previous two were Avolon – an aircraft lease financing company and Partnership Assurance – an enhanced annuities provider in the UK.