Just Retirement and Partnership, the two insurers whose share prices were savaged by Chancellor George Osborne’s radical annuities overhaul, are to merge.
The deal, announced this morning on the London Stock Exchange, is expected to result in Just Retirement shareholders owning roughly 60 per cent of the combined business, with Partnership shareholders controlling the remaining 40 per cent. The merger will value Partnership at around £668.5m.
Partnership chief executive Steve Groves will step down on completion of the deal, with Just Retirement chief executive Rodney Cook set to take overall control of the combined businesses.
Why are they merging?
Just Retirement has split the perceived benefits of merging into two broad buckets: ‘strategic’ and ‘financial’.
Just Retirement cites five key strategic benefits resulting from the deal.
Firstly, it says the combined group’s larger capital base will allow it to take on more defined benefit de-risking business.
Secondly, the merger will “strengthen the competitive position” of the combined businesses relative to the more established UK insurers.
Thirdly, it is expected the merger will mean product development is accelerated as expertise and management teams are combined.
Fourthly, combining the firms’ mortality data and underwriting experience “will facilitate improved risk selection and greater reserving accuracy”. Essentially, this means it will be able to price products and allocate capital more effectively.
Finally, the “streamlining” of sales functions is expected to lead to a more efficient distribution model.
Unsurprisingly, “synergy” is one of the main drivers behind the merger. The Just Retirement board expects to achieve savings of at least £40m a year by 2018 – although integration costs of £60m are likely to be incurred in the first two years.
The combined businesses will also generate more cash, Just Retirement says, supporting growth and, importantly, dividend payments to shareholders.
And the group’s capital position will be strengthened through a £150m capital raising exercise following the merger. This cash will be put to work pursuing “future growth initiatives and product development”.
In addition, the new insurer will look to spread its wings globally by offering “attractive products in new geographies”.