Standard Life has turned to long-term adviser Slaughter and May in a deal that will see the life insurance giant offload annuity liabilities worth £6.7bn to Canada Life.
Slaughter & May partner Craig Cleaver is leading the team acting on the deal, which is expected to reduce the longevity risk on Standard Life’s annuity book by £12bn.
Annuity life insurance contracts promise to make periodical payments to the policyholder until they die. Standard Life’s outstanding liabilities have escalated significantly as life expectancy increases. The reinsurance deal is expected to boost the firm’s embedded value operating profit by £100m.
As life insurers are expected to reserve capital that is proportionate to their risk exposure, the deal will also cut the amount Standard Life is required to have in its reserves.
Canada Life was represented by Herbert Smith corporate partner Geoffrey Maddock.
Standard Life’s in-house team was led by associate general Peter Tyson.
Following the demutualisation of Standard Life in July 2006 shareholders bore the longevity risk while investment risk fell on its Heritage With Profits Fund.