Aegon UK is set to sell two-thirds of its UK annuity portfolio to Rothesay Life in a deal that, at £6bn (€7.5bn), is said to mark the first substantial annuity transfer since Solvency II came into force and one of the largest transfers in recent years.

Under the terms of the agreement, Scottish Equitable, the UK subsidiary of Aegon NV, will reinsure £6bn of liabilities to Rothesay Life.

What is known as a Part VII transfer will follow, subject to regulatory approval.

Part VII is the section of the 2000 Financial Services and Markets Act, under which (re)insurers can transfer a portfolio of contracts.

Rothesay Life said the deal was the first “substantial” annuity transfer since Solvency II came into force in January, while Charlie Finch, partner at consultants LCP, highlighted it as the largest annuity transfer in recent years.

He said the deal showed there was “significant” capacity among insurers for annuity transfers but also for pension buyouts/buy-ins by pension plans.

Solvency II, the new regulations for the insurance industry, has been helpful, he said, by “providing certainty on financial metrics and boosting capacity”.

“We expect there will be further significant annuity transfers as insurers review their strategy in a Solvency II world,” added LCP’s Fitch. 

“Pension plans will be competing with such transactions for capacity, and so it remains vital they engage with the market effectively to achieve the best results.”

Addy Loudiadis, chief executive and founder of Rothesay Life, said the deal took Rothesay’s total assets under management to more than £20bn and “total lives insured” to more than 400,000.

“The prevalence of non-core businesses in multi-line insurers is creating opportunities for Rothesay Life,” she added.

“With the market set to expand and strong support from our shareholders, Rothesay Life is well positioned to pursue these opportunities in addition to our ongoing bulk annuity business.”

Rothesay Life’s investors are Blackstone Group, Singapore’s GIC, Goldman Sachs and MassMutual. 

The transaction with Aegon UK covers 187,000 policyholders.

They will remain customers of Aegon until the effective date of a Part VII transfer.

Standard & Poor’s said the sale would not affect its ratings of Scottish Equitable (A+, on negative outlook).

“The sale is in line with the group’s plan to free up capital from its non-core business,” said the rating agency.

“This sale is unlikely to impact Scottish Equitable’s competitive position or its financial profile, notably its strong capital and earnings.”

Aegon said it was exploring options to divest the remainder of its UK annuity portfolio; it has not been an active player in the UK annuity market since 2010.

Alex Wynaendts, chief executive at Aegon, said: “This is an important step in the process to fully divest our UK annuity portfolio and will enable us to focus on our fast-growing platform in the UK.”