Equitable Life Transfers $4.6 billion Of Pension Annuities To Canada Life

U.K. mutual Equitable Life is to transfer around 90% of its non-profit annuity business to Canada Life, in a deal that will make the company more financially stable and reduce its capital requirements.

The U.K. division of Canada Life, a subsidiary of Canadian life insurer Great-West Lifeco, will take on roughly 130,000 policies worth £4.6 billion ($8.7 billion) in the largest acquisition of non-profit annuities in the U.K. to date.

“The deal was a winner for everyone,” says Alistair Dunbar, head of communications at Equitable Life.

Equitable Life, which ran into severe difficulties in 2000 and was forced to close to new business shortly after, has been eager to improve its financial stability by transferring much of the risk associated with non-profit annuity holders living longer than expected.

“Because of the way the business developed, we had a large proportion of non-profit annuity business and not a lot of spare cash,” says Dunbar. “So essentially we had a large risk which threatened the well-being of the business and the with-profit policy holders who own it.”

The company avoided paying a premium to transfer the risk, says Dunbar. “We managed to get a good competitive process going and negotiated a straightforward transferral of risk,” he says. “This means our with-profit policyholders have avoided paying to eliminate risk and our non-profit policyholders can be happy to have their continuing payments handled by a group that has masses of capital behind it.”

Canada Life, which has been looking to expand its U.K. annuity operations, welcomed the deal with equal enthusiasm. Ian Gilmour, chief executive of Canada Life’s U.K. division, said in a statement: “We are delighted to have agreed this transaction with Equitable. This transaction is a major strategic step in our continued expansion in one of our key areas of business.”

The company already has around 150,000 annuity policyholders in the U.K. and says it hopes to benefit from greater economies of scale.

Canada Life will assume Equitable’s pension annuity obligations immediately through the reassurance of annuity payments made by Equitable Life. The companies are hoping the transfer of the pension annuities will be finalized in early 2007 following court approval.