Legal & General waves goodbye to with-profits in $900m Swiss Re deal

Published in: Risk management, Longevity - mortality, Corporate strategy, Capital management, Reinsurance, UK, Rest of Europe

Companies: Swiss Re, ReAssure, Legal & General, Generali, Chesnara, Zurich, Guardian, Munich Re, Ergo

Editor's note: This story was updated at 10.30 to include comments from Bernstein in paragraphs 6 and 7


Swiss Re is to pay Legal & General £650m ($871m) for a closed book of UK business, liberating the UK composite underwriter of more than 1m policies.

These will be managed by ReAssure, the closed life book consolidator division of Swiss Re.

The 1.1m policies involved included with-profits, and unit-linked and savings products, and come from Legal & General Assurance Society Limited (LGAS), part of the L&G Group.

The deal, due to complete in mid-2019, means that L&G will no longer hold any with-profits business. L&G closed the with-profits book to new business in 2015.

"This was a difficult decision as with-profits savings has been a part of Legal & General's UK business for over 50 years," said L&G chief executive Nigel Wilson, but he added the sale will allow the firm to focus on growth businesses.

Analysts at investment advisor Bernstein suggested that L&G had obtained a good price for the business, with Swiss Re needing to do the deal in order to gain scale in ReAssure. The £650m price is 0.99 times the Solvency II own funds, compared with Phoenix's recent deals for Abbey Life and Axa books at 0.85-0.90 times own funds.

"Overall, we see this deal as slightly negative for Swiss Re as we think [the] valuation is not attractive, it increases Swiss Re's reliance on traditional life earnings and it further depletes excess capital," said the Bernstein analysis by Thomas Seidl and Edward Houghton.

The solvency and financial condition report from its LGAS unit showed technical provisions of £10.6bn for with-profit participation, and £41.6bn for index- and unit-linked insurance, representing half its total technical provisions.

The business being sold had assets of £33bn at mid-2017, including both unit-linked business and L&G's £21.4bn with-profits fund. L&G Investment Management will continue to manage the assets after the sale.

Today's sale is the second major offloading of life business by Legal & General this year, after its sale in April of Legal & General Nederland Levensversekering to Chesnara, in a deal worth €161m ($190m).

That boosted Legal & General's group solvency coverage ratio by 1%. Today's divestment will boost the ratio by roughly 2%. L&G last reported a "shareholder" solvency ratio of 186% at 30 June, that excludes the with-profits fund and the final salary pension schemes.

Thierry Léger, chief executive of Swiss Re Life Capital, said: "Swiss Re remains committed to diversify its portfolio by accessing life and health risk pools via alternative channels, and ReAssure provides an excellent platform for growth."

After the deal ReAssure Group will administer or own about 4.7m policies, and will have grown its total assets under management to about £77bn.

Matt Cuhls, ReAssure's chief executive, said this gave the operation "economies of scale".

Swiss Re's activity in UK closed life book consolidation stretches back to at least 2003, when it bought Zurich Life from Zurich Financial Services, inheriting 225,000 customers in the process. It reapproached Zurich in 2007 for a second deal.

It has also bought other consolidators including Life Assurance Holding Corporation (2004) , which itself had purchased portfolios from Gan Life & Pensions, Crown Life, Aegon, Combined Life and Bank of Ireland Lifetime; and Guardian (2015).

In October, reports also linked Swiss Re to interest in buying about 10m German life portfolios being decommissioned and sold by Munich Re subsidiary Ergo, and by Generali.

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Christopher Cundy, David Walker