Lloyds to sell £6bn of Scottish Widows bulk annuities to Rothesay

Lloyds Banking group will sell a £6bn bulk annuity portfolio from its Scottish Widows business to pensions insurance specialist Rothesay.

The companies said in a joint statement that the portfolio covers the pension benefits of around 42,000 people and that the deal would allow Lloyds to focus on growing its “strategically important lines of business”.

Lloyds said the financial impact of the sale on its group would be immaterial.

Bulk annuities are insurance policies brought by pension plans to offload the long-term risks of their defined-benefit pensioners. Such deals have become more attractive in recent months as rising gilt yields improved pensions’ funding positions.

The sale is initially structured as a reinsurance agreement for the in-force bulk annuity portfolio, with Scottish Widows to continue servicing the policies until a so-called Part VII transfer next year – a court-approved process for a firm to move business from one entity to another.

After the transfer, policyholders included in the sale will begin to receive benefits normally
from Rothesay.

Rothesay has £60bn in assets under management and pays out an average of £2.5bn in pension payments each year. The deal announced today is its sixth acquisition of in-force bulk annuities.

Chira Barua, chief executive of Scottish Widows and head of insurance, pensions and investments at
Lloyds, said: “This sale will enable us to focus and invest in the insurance, pensions, investments,
retirement and protection markets where we want to grow, whilst ensuring positive outcomes for our bulk annuities customers.”

Bulk annuities, which have grown in popularity in the UK among pension scheme trustees, are a form of insurance whereby a company’s pension plan offloads liabilities to an insurer.

Scottish Widows has grown rapidly since entering the market in 2015, but still has a roughly four per cent market share.

Experts predict the UK bulk annuity market will hit a record value more than £50bn this year.

Tom Pearce, chief executive of Rothesay, said: “Rothesay’s substantial capital resources combined with the proven strength of our execution capabilities mean we are able to deliver solutions for our clients across all areas of the pension de-risking market.”

Fenchurch Advisory Partners advised Lloyds on the acquisition.