Resolution has taken financial advisers by surprise by announcing a £102m acquisition of Bupa Health Assurance.
The buyout vehicle is integrating Bupa’s individual protection and group risk divisions into its Friends Provident business, which sits with the Axa UK life business it bought in September.
The group says it will retain the Bupa brand for BHA for “up to 12 months”, as staff are integrated into the new Friends Life business to encompass all three insurers, planned for launch in the first quarter of 2011.
Master Adviser senior partner Roy McLoughlin says: “I am shocked. I do not think anyone saw this coming. I do not think it is healthy for there to be less competition in the marketplace. Bupa are very well respected for a very good product range. I hope Resolution will take good things out of it.”
Highclere Financial Services principal Alan Lakey says: “I was absolutely staggered. I do not think any of us had a clue that this was going on. I am also disappointed as I think the Bupa name is a brand that means a lot to people.
“I have got two plans with Bupa myself. They are very good, well designed plans. Bupa has a reputation for being honest and truthful which not every company has and they have astonishing brand awareness.”
Friends Provident chief executive Trevor Matthews told Money Marketing the jobs of the 300 BHA staff were not at risk although numbers will fall with attrition.
He says: “They are specialists in critical-illness cover. They are a good business with good quality people.”
He says BHS has a share of the individual protection market of around 3 per cent, which will combine with Friends Provident’s 5 per cent and Axa’s 6 per cent. The Bupa group risk portfolios represent about 8 per cent of the market and these would combine with the 2 per cent market share of Friends’ group risk business, he says.
Matthews adds: “We will use the group risk portfolio as the basis for expanding our group risk business. We are trying to build up a substantial portfolio here in the UK.”
BHA is being bought by Resolution for £165.15m gross but £86m of reserves held by the group will be immediately handed over, equal to £63m after tax, reducing the net purchase cost to £102m.
Resolution says it expects to make £22m of efficiency savings following the transfer of the Bupa business in 2011. The embedded value of the acquired business is £228m at completion on a Resolution basis.
Bupa says the sale reflects its intention to focus on healthcare, including its hea-lth insurance products and services in the UK.
Bupa health & wellbeing managing director Natalie-Jane Macdonald says: “Our decision to sell is based on strategic fit. Importantly, this decision also allows Bupa to concentrate on healthcare products and services.”
A Bupa statement adds that Friends Provident and Bupa have agreed to work together to distribute products, including Friends Provident possibly introducing Bupa private medical insurance to its distribution channels. In return Bupa will consider selling Friends Provident products.
Goldman Sachs analysts say the buyout does not reduce Resolution’s war chest for further acquisitions substantially. In a research note, it says: “In our opinion, this acquisition is strategically sensible as it increases the group’s scale in protection and adds income protection capability.”
2012/2013: Resolution to have created a life insurer worth £10bn and sold it off
March 2011: Resolution to have merged Friends Provident and Axa UK life business into a new Friends Life brand
October 2010: Announces plans to buy Bupa Health Assurance Limited for £102m, funded by surplus Friends Provident capital
September 2010: Completes buyout of Axa UK life business
June 2010: Agrees to buy Axa UK life business for £2.75bn
November 2009: Completes takeover of Friends Provident
August 2009: Confirms it made a £1.86bn bid for Friends Provident
July 2009: Confirms it is in talks with Friends Provident over a possible buyout
May 2009: Announces that the FSA investigation had ended
March 2009: Tells markets that the FSA is investigating its directors over previous takeovers
December 2008: Resolution Limited lists on the London Stock Exchange