Legal & General to battle with Rothesay Life for Aegon's £9bn annuity book

Legal & General (L&G) has joined the race to acquire the annuity business of Aegon, the Dutch insurance group. It will compete with Rothesay Life, the specialist pensions insurer built by Goldman Sachs, for the same.

Aegon is keen to sell its £9bn (€12.2bn, $13.4bn) annuity portfolio before sweeping new capital rules known as Solvency II are introduced next month. The deal, which will lead to thousands of annuity-holders' policies changing hands, is set to conclude by the end of the year through an auction, according to The Times.

An Aegon spokesman said: "In September we confirmed we'd initiated a review of our UK annuity portfolio. This process continues and we will update the market in due course."

The move to sell the annuity book by the Dutch company follows Chancellor George Osborne's pension reforms, which now don't require one to buy an annuity with retirement savings. This reform has put pressure on the entire industry to consolidate and in August triggered the announcement of a merger between Just Retirement, a British company specialising in retirement products and services, and Partnership Assurance, a provider of non-standard annuities for individuals with medical or lifestyle conditions.

Ratings agency Moody's had issued a warning this year that companies in this industry such as Aegon and Scottish Widows, which lack a "differentiating asset management proposition", were "vulnerable to margin pressures".

For Rothesay, which insures pension schemes at British Airways, Panasonic and General Motors, this will not be its first annuity acquisition. Last year, it acquired a £1.2bn book of annuities from Zurich UK Life that involved 28,000 pension plan members.

L&G too has been expanding inorganically through M&A's. It recently struck a €200m deal with ASR Nederland, marking its foray into the pension risk transfer market and its first deal in Europe. As per the deal, it will take on risks associated with part of ASR's defined benefit, or final-salary, pension scheme in a so-called bulk annuity transaction.

Also in October, L&G along with Prudential struck a similar deal with the American subsidiary of Royal Philips, the electronics group, for $450m.