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Just Retirement buys Partnership for $1B amid deal flurry

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(Bloomberg) — Just Retirement Group Plc is buying Partnership Assurance Group Plc in the second billion-dollar merger prompted by the U.K. government’s overhaul of the pensions market.

The all-share deal, which values Partnership at 668.5 million pounds ($1 billion), will give Just Retirement shareholders control of about 60 percent of the merged firm, which will be named JRP Group Plc, the companies said on Tuesday. Both insurers are controlled by private-equity firms.

The two companies have seen earnings and shares slump since the government announced last year it would scrap rules that forced retirees to buy annuities, which guarantee income. In combining with a competitor, Partnership follows Friends Life Group Ltd., also battered by a decline in profitability, which Aviva Plc agreed to take over for $8.3 billion earlier this year.

The rule change “did have a significant impact,” said Just Retirement Chief Executive Officer Rodney Cook, who will lead the combined company. “We decided we would be much stronger together to attack all the growth opportunities,” particularly in the bulk annuities space.

Shares of Partnership fell 0.5 percent to 153.5 pence by 4:13 p.m. in London, giving the company a market value of 622 million pounds. The stock was up 10 percent in earlier trading. Just Retirement’s shares fell 4.6 percent to 189.5 pence.

M&A Wave

The U.K. deal is the second life-insurance transaction to be announced Tuesday amid a wave of global consolidation. In the U.S., Japan’s Sumitomo Life Insurance Co. agreed to buy Symetra Financial Corp. for about $3.8 billion. It also follows Zurich Insurance Group’s announcement last month that it may bid for the U.K.’s RSA Insurance Group, a non-life insurer.

Insurers are merging as margins get squeezed amid increased competition from alternative players entering the industry, such as hedge funds; and as investment income dwindles from record low interest rates.

Permira Advisers and Cinven own about 52 percent of Just Retirement and Partnership, respectively, and will remain partners, Cook said.

The combined group will have a market share of about 18 percent in the individual annuity market and 5 percent in the corporate bulk annuity space, Cook said, who expects to continue to expand in both markets. In bulk annuities, insurers take on liabilities from company pension plans to pay retirement income.


“Two small- to medium-sized companies operating in the same market didn’t make sense in a world that has changed since both came to the market,” said Trevor Moss, an analyst at Berenberg in London. “It makes sense to bulk up capability to make it a viable player.”

The companies plan to raise about 150 million pounds of equity capital to help pay about 60 million pounds in integration costs and strengthen capital buffers before stricter European-wide rules, known as Solvency II, come into effect next year. The deal should also result in pre-tax cost savings of at least 40 million pounds, the companies said.

Partnership Assurance earlier today reported a 45 percent decline in first-half operating profit as sales of individual annuities slumped 62 percent.

–With assistance from Keila Guimaraes and Julia Verlaine in London.