Winnipeg-based Great-West Lifeco swooped in for Equitable’s annuity business after British laws were changed to give retirees more control over their defined-contribution pensions.JOHN WOODS/The Canadian Press
Great-West Lifeco Inc.'s acquisition of assets from the world's oldest mutual life assurance company paves the way for further expansion in Britain, the insurer's chief executive said.
Winnipeg-based Great-West said Tuesday that it would take on the annuity business of Equitable Life Assurance Society, an investment and pensions company – a portfolio of about 31,000 policies with assets and liabilities worth about $1.69-billion. In addition to increasing the total assets Great-West manages, it also expands its market presence in Britain
"This is consistent with us continuing to strengthen and bolster our business in the U.K. because we want to continue to grow there," said Paul Mahon, chief executive of Great-West, in an interview.
Mr. Mahon says Great-West's hunt for opportunities to build its business have been spurred by changes in pension legislation in Britain, which give people more control over their defined contribution pensions during their retirement. Under the current rules, most retirees can only convert their pensions into annuities that pay out steady, annual income for the rest of their life. Now, savers will be able to withdraw their savings with more flexibility and invest how they like.
After the rules take effect in April, the retail payout annuity market is expected to shrink. "Historically, we were writing about $2.2-billion of payout annuities, in terms of new sales [each year]. And we've seen those sales decline by some margin over this past year," Mr. Mahon said.
For Great-West, the deal will help boost their share of the retail annuity market, even as fewer people in Britain are buying them.
The assets in portfolios such as Equitable's give Great-West a source of inexpensive capital to manage, which it then uses to make investments that will not only cover the portfolio's liabilities, but also generate profit for the insurer. Great-West has been an active player in buying up blocks of payout annuity businesses from other providers. Back in 2008, it took on a block of annuities from Standard Life Assurance Ltd. in Britain, valued at about $13-billion in assets and liabilities.
Mr. Mahon added that the company is known for being open to acquiring blocks of annuities when it has capital available to do that. He wouldn't give a profit target on the Equitable deal, saying that the long-dated liabilities will produce returns in the coming decades.
For Equitable, parting ways with the annuities business frees up capital for its remaining business, which was founded in 1762. The company went through a spectacular flame-out in 2000 as poor investment performance, slim reserves and mounting benefits owed on annuity policies sold decades earlier brought the mutual company to its knees. Equitable stopped accepting new customers and looked for buyers for its assets after an acquirer for the whole company failed to materialize. Equitable now says its objective is to "recreate policyholder value"
Back in 2006, Great-West bought Equitable's pension annuity business in a transfer of $9.3-billion in liabilities and assets from 130,000 policies. Mr. Mahon said maintaining this business relationship and providing good service in the past few years opened the door for this acquisition.
For Great-West, this is the second incremental acquisition in Western Europe this year following the acquisition of Dublin-based Legal and General International (Ireland) Ltd. The investment and tax-planning business focuses on high net-worth clients in Britain. And two years ago, Great-West bought Ireland's largest life insurer in a $1.75-billion deal with the Irish government.
"This keeps us as a very relevant player in this market as the market continues to evolve, and in a lot of ways evolve with a broader selection of options for consumers," Mr. Mahon said, adding that the company hopes to offer more new retirement products in the coming years.