Phoenix takes Abbey Life from Deutsche Bank for £935m

Phoenix Life Holdings Limited, a subsidiary of life insurance and reinsurance consolidator Phoenix Group Holdings Limited, has agreed to acquire the Abbey Life business from Deutsche Bank, a deal that will provide the troubled bank with £935m ($1.215 billion) in cash.

Abbey Life is company that regularly features in the longevity risk transfer, longevity swap and longevity reinsurance world, as it specialises in the management of closed life books, pension funds and annuities in payment.

The transaction sees Phoenix Life Holdings Limited acquiring 100% of Abbey Life, which consists of Abbey Life Assurance Company Limited, Abbey Life Trustee Services Limited and Abbey Life Trust Securities Limited, all of which had been held within the Deutsche Asset Management unit.

Initially, the sale will cause Deutsche Bank an expected pre-tax loss of approximately EUR800 million, largely due to impairment of goodwill and intangible assets. However the bank notes that the sale could result in as much as a 10 basis point improvement to its Common Equity Tier 1 capital ratio.

John Cryan, Chief Executive Officer of Deutsche Bank, commented; “We are pleased to have reached this agreement with Phoenix Group, a specialist life fund provider which is well qualified to serve Abbey Life policyholders. Deutsche Asset Management will continue to focus on its core businesses of Active, Passive and Alternatives, while this transaction will also strengthen Deutsche Bank’s capital position. We continue to build a simpler and better Deutsche Bank.”

For Phoenix the transaction brings significant assets and business in-force, with £10 billion of assets under management and approximately 735,000 policyholders coming with Abbey Life and the deal expected to generate £0.5 billion of aggregate cashflows from 2016 to 2020 and around £1.1 billion in aggregate from 2021 onwards.

Phoenix Group’s CEO, Clive Bannister explained; “This is a pivotal deal for Phoenix, giving us the platform and scale to continue as a leader in the consolidation of the UK life industry.

“The dynamics of this industry offer a number of value-accretive opportunities, as evidenced by the announcement of our acquisition of AXA Wealth’s pensions and protection business earlier this year.

“This attractively-priced deal meets precisely Phoenix’s areas of strategic focus and stated acquisition criteria, whilst significantly increasing our cash generation and supporting a further increase in our proposed dividend.

“The business models of AXA and Abbey Life are complementary and will allow the Group to gain from economies of scale. Furthermore, Abbey Life policyholders will benefit from stable ownership, improved service levels and a robust governance framework.”

Scale matters in the life consolidator business and this propels Phoenix to a new level, with the £10 billion of assets providing a significant boost to its in-force policy capital pool. The Abbey Life deal will take Phoenix’s assets under management to £62 billion of life company assets and approximately 5.2 million policyholders, while the AXA deal will add another £12 billion of assets and over 910,000 policyholders.

However, protection also matters and hence these consolidators are also looking for reinsurance certainty on some of the risks they assume. In the case of Abbey Life, more than 80% of the longevity risk arising from annuity related liabilities has already been transferred to third party reinsurance providers.

Phoenix Group was itself the provider of longevity swap and reinsurance capacity to its own pension fund back in 2014. With the acquisition of Abbey Life the group may again look to enter the longevity space, either in search of reinsurance capacity or as a provider of risk transfer services.