Guardian Financial Services

Activity
Consolidator of life insurance books
Transaction value
£693 million
Acquired
Nov 2011/July 2012/
May 2014/July 2014
Realised
Jan 2016
Sector
Financial Services
Guardian Financial Services

Business
Guardian Financial Services (Guardian) is a consolidator of closed life assurance books with a focus on the UK and Ireland. Guardian has been a provider of life insurance and pension products in the UK for more than 190 years. Cinven acquired Guardian from AEGON in November 2011. The company had been closed to new business for some 10 years but still managed approximately 327,000 policies, had total gross reserves of £7.5 billion and employed c.165 people. The acquisition of Guardian was the starting point for a closed life consolidation strategy in the UK.

Strategy
Cinven's Financial Services sector team spent three years developing an investment strategy for the closed life assurance sector.

The fragmented nature of the UK life assurance market, coupled with on-going pressure on new business volumes and regulatory change, is set to drive considerable opportunity for consolidation in the market over the medium term. This is supported by banking institutions looking to exit insurance assets and overseas insurers seeking to recycle capital.

Closed life books enjoy highly visible and stable long-term cash flows with attractive returns on equity. Cinven's investment strategy focused on acquiring a life insurance back book with a solid administration platform and creating a long term, strategic consolidator in the fragmented UK market.

Guardian represented a highly attractive entry point from which to execute this buy-and-build strategy for the closed life sector, centred on creating a well-capitalised, leading long term consolidator, enhancing value creation through operational, financial, tax and capital synergies.

During the due diligence process, working with an executive management buy-in team led by CEO Jonathan Yates (the former CFO of Phoenix Group), we identified a number of key strategic initiatives to enhance Guardian's embedded value and generate significant value for shareholders. These included:

  • de-risking Guardian's With-Profit (WP) fund and acceleration of estate distribution through the transfer of annuities out of the fund and into the non-profit environment;
  • improvement and automation of the operations to enhance customer service and increase efficiency;
  • continuity of management at Guardian's offices in Lytham, strengthened by the addition of new members of the executive management team and independent non-executive directors;
  • implementation of a low risk, interest and duration matched asset strategy; and
  • execution of M&A to become a long term consolidator of closed books in the UK life assurance market, driving operational and capital synergies.

Progress
Since the acquisition of Guardian, we have made good progress in the execution of our investment strategy.

After consideration by the WP Committee, the Guardian Assurance Board of Directors approved an arrangement which transferred all of the liabilities in respect of Immediate and Deferred Annuity, and certain guaranteed business, from the With-Profit fund to the Non-Profit fund, as from 1 January 2012. This de-risked the WP fund and increased the pace at which surplus assets in the WP fund can be distributed to WP policyholders.

An industry-leading executive management team with a proven track record of successfully executing closed life strategies and creating value for shareholders has been appointed (including a new COO, CFO, CIO and CRO).

In July 2012, Guardian completed its first follow-on acquisition, acquiring three blocks of in-payment UK annuities from Phoenix plc (Ping). These three blocks consist of £4.9bn of reserves and >300,000 policies. A further add-on acquisition from Phoenix plc (Ping II) was completed in July 2014, with a portfolio of £1.7bn of in-payment annuities.

In May 2014, Guardian completed the acquisition of Ark Life, which manages assets of €4.2 billion and 330,000 policies, from Allied Irish Bank.

The acquisition of Ping, Ping II and Ark Life has added significant embedded value to the group. The combined group now manages approximately £17bn in assets and approximately 900,000 in policies.

The acquisition of Guardian, followed by Ping, Ping II and Ark Life, has created an attractive platform from which to participate in on-going consolidation. Guardian has significant capital available to acquire further businesses or portfolios and build value through operational, actuarial, tax and capital synergies. We continue to actively explore further attractive potential acquisition opportunities.

In January 2016, Cinven completed the sale of Guardian Financial Services to Admin Re®, Swiss Re's unit active in the closed life book business for a total consideration of £1.6bn.