Legal & General is issuing a £500m convertible bond to separate its investment management arm from its life fund, creating a new unit which will aim to forge investment links with smaller life offices.
The investment management business will be taken out of L&G's long-term fund and become a separate business within the group.
The bond will allow £400m to be put into the life fund to support new business from its Barclays, Alliance & Leicester and IFA channels.
L&G says this figure is enough for the fund to withstand any further sharp market falls.
The new unit will look to white-label its index funds to smaller insurance companies. This would mean another insurance company would invest the majority of its portfolio in white-labelled L&G index funds.
It is also looking to expand selling opportunities in Eur-ope by seeking white-labelling opportunities for retail funds.
The bond and investment business transfer are subject to FSA approval.
L&G says two-thirds of the fund management arm's business is unit trusts and Isas, meaning it is no longer a necessary part of the longterm fund.
Head of PR John Morgan says: “We believe a number of insurance companies will need to reduce fund management costs.
“By investing the majority of the portfolio into our white-labelled index funds, they can cut costs and concentrate on smaller active management.”