The high court’s recent decision to block a £12bn annuity transfer will make insurers more wary of making deals that require court approval, according to the head of life insurance group Chesnara.
John Deane, chief executive, told the Financial Times that insurers wanting to sell parts of their business would make more use of structures that avoid the need to go through the courts.
Over the past few years there has been a surge in deals involving “closed books” — businesses that are no longer open to new customers — as insurers look to free up capital by selling off old policies to specialists.
But two weeks ago, a high court judge blocked one of the biggest deals in the market — the proposed £12bn transfer from Prudential to Rothesay — after objections from Prudential’s customers.
Mr Deane predicted that insurers would still look to offload books of business, but would try to avoid structures that must be approved by the high court in a process called a Part VII transfer.
“Until this gets sorted out, people may be more nervous about going through a Part VII, and will leave reinsurance deals in place,” said Mr Deane.
Reinsurance deals transfer the economic liability for the policies, while leaving the legal liability with the original insurer.
Chesnara is one of the companies that buys up books of old insurance business, although it avoids the sort of annuities involved in the Prudential-Rothesay deal.
Mr Deane said that Chesnara was still on the lookout for more deals in the UK, the Netherlands and Sweden, where it already has businesses. He expects the costs involved in implementing IFRS 17 — a new global insurance accounting standard — to push a lot of smaller insurers to consider disposals.
However he added that the prices in some recent deals had looked rather high. “We are under no pressure to do a deal,” he said. “We’d rather explain why we haven’t done a deal, than explain why we did one at the wrong price.”
His comments came as Chesnara reported results for the first half of the year. Pre-tax profits rose from £26m to £66m as its Dutch unit benefited from an increase in the value of its bond portfolio.
The dividend was increased by 3 per cent to 7.43p per share.
Andreas van Embden, an analyst at Peel Hunt, said that the results were “broadly ahead of our estimates with the exception of cash releases from the life funds, which missed our assumption”.
Chesnara’s shares rose 3 per cent on the results, but are down 16 per cent in the year to date.