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Lloyds Banking Group’s insurance arm Scottish Widows has put its offshore investment and tax planning business up for sale in the latest sign that dealmaking in the sector is heating up.
Several parties have expressed an interest in the Isle of Man-based operation, which manages about £5bn of policyholders’ funds, according to people with knowledge of the process.
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The business, which Lloyds inherited when it acquired HBOS during the financial crisis, has an estimated embedded value – a way of valuing life insurance companies – of about £200m.
Bankers expect more life assurance deals as regulatory changes put the industry’s business models under pressure.
Aviva is close to completing due diligence on the insurance group’s planned £5.3bn all-share takeover of smaller FTSE 100 rival Friends Life.
Lloyds has appointed investment bankers at Fenchurch Advisory Partners to handle the sale of the offshore investment division, known as Clerical Medical International.
Lloyds and Scottish Widows declined to comment.
CMI, set up in 1987 to allow UK savers to generate tax-free capital gains, helped shape the financial services industry on the Isle of Man, which has a separate tax regime as a self-governing dependent territory of the British Crown.
Insurance has the largest share of gross domestic product of any sector of the Isle of Man’s economy, at 15 per cent. The island is home to brands such as Zurich, Axa and Canada Life.
UK tax changes have made the offshore investment products offered by CMI less attractive to British savers. CMI stopped writing new policies two years ago after a review of Scottish Widows by Toby Strauss, its chief executive.
Closed life assurance businesses typically sell at a discount of about 20 per cent to their embedded value. CMI has a book value, a more conservative valuation metric, of about £140m.
The planned sale comes after Royal London, the UK’s largest mutual life and pensions company, disposed of its Isle of Man-based offshore investments business last year in a £134m management-led buyout, backed by private equity house Vitruvian Partners. Lloyds’ decision to put CMI on the block is the latest strategic move under António Horta-Osório, chief executive, who is focusing the group on its main UK retail and commercial banking business.
This year Lloyds completed the sale of its German life insurance operation Heidelberger Leben to private equity group Cinven and the reinsurer Hannover Re for about £250m.
Scottish Widows last week announced plans to cut 130 jobs across the UK as part of a restructuring of its pensions and investments businesses, although it is also creating about 45 roles in Edinburgh and Bristol.
The insurance group is braced for an overhaul of the pensions system being introduced by George Osborne, the UK chancellor, which has already led to a fall in individual annuity sales.
