Standard Life has reinsured £6.7bn of UK immediate annuity liabilities to Canada Life International Re.
The back-book consists primarily of pension customers who took out an annuity product with the life office on retirement.
Standard conducted a comprehensive review of the options to manage longevity exposure within its annuity book. The review concluded that the best return to shareholders and with-profits policyholders would be achieved by reinsuring a major block of the business that predated the life office’s demutualisation.
The transaction has taken the form of a single-premium reinsurance structure and has resulted in the transfer of £6.7bn of Standard Life’s total £12bn UK immediate annuity liability.
The transaction is expected to deliver an expected one-off increase in embedded value operating profit of at least £100m this year.
Standard will continue to administer all the business being reinsured and says the transaction should have no effect on the service provided to annuity customers.
Group chief executive Sandy Crombie says: “This transaction is believed to be the biggest of its kind in the UK and follows a full analysis of the strategic options for our annuity book and a competitive tender process.
“It substantially reduces pure longevity risk while providing a significant increase to embedded value, a release of cash and a reduction in capital requirements. It creates capacity to broaden our innovative product range and take advantage of the profitable opportunities available to us.”