Lovells and O'Melveny & Myers have steered a landmark joint venture between UK insurance giant Prudential and its South African counterpart Discovery.
Under the terms of the deal the two insurers each own a 50 per cent stake in PruProtect, a new company established to write UK life assurance business. As part of the new venture, Prudential will no longer write life policies in the UK.
O'Melveny's London office pitched to win the role acting for Discovery and the joint firm, with Lovells acting for longstanding client Prudential.
Justin Stock, corporate counsel who led the O'Melveny team, said the deal was particularly complicated because PruProtect had to rely on Prudential's balance sheet to enter the insurance market while remaining a completely separate entity.
"There are very high barriers to entry in the life assurance sector, particularly as it is very expensive in the first few years," said Stock. "When a company writes a life assurance policy it will get £100 a month, but if the person who took it out dies within the first year the company will have to pay out a huge amount. Companies have to have a huge amount of capital in the first three to four years to cover that risk." As PruProtect is a new company it had nothing on its balance sheet, so the lawyers came up with a mechanism that allowed Prudential to write the policies on behalf of PruProtect with all profits going to the latter.
This, said Stock, created a complex tax situation resulting in his colleague, tax partner Jan Birtwell, also working on the deal.
"It's complicated when you are using someone else's balance sheet to make sure that there isn't double tax," he said.
The Lovells team acting for Prudential was led by corporate partner Rachel Kent, with input from insurance specialist and senior partner John Young.