Phoenix Group Holdings (>> Phoenix Group Holdings), Britain's largest owner of life assurance funds closed to new customers, plans to buy more such assets, in a market which its chief executive said was worth about 300 billion pounds.
Clive Bannister's forecast of 300 billion pounds of opportunities in the broader life insurance market tops guidance by insurance heavyweights, with Legal & General (>> Legal & General Group Plc) having estimated the UK market to have 100 billion pounds of closed annuities.
"We think there is inevitable further consolidation because the old vertical model of insurance companies combined with asset management companies is under threat, therefore we see a separation," Bannister told Reuters.
Insurer and asset manager Standard Life's (>> Standard Life Plc) plans to merge with Aberdeen Asset Management (>> Aberdeen Asset Management plc) in an 11 billion pound deal have triggered speculation Standard Life may sell its closed annuity book.
Insurer Prudential (>> Prudential plc) has also stopped offering annuities to new customers, and has a 33 billion pound book of closed annuity business.
"There is vendor motivation in the terms of release of trapped capital," Clive added, after Phoenix raised its long-term cash generation target due to benefits of acquisitions made last year.
In 2016, Phoenix bagged AXA's (>> AXA) UK investment and pensions business as the French firm exited from a mature life assurance market and Deutsche Bank's (>> Deutsche Bank AG) British insurance business Abbey Life as the German firm sold off assets.
However, the British insurer, which makes money by buying life insurance portfolios that are closed to new customers and running them more efficiently, lost out last year on buying Guardian Financial Services, which was bought by reinsurer Swiss Re <SRENH.VX> for about 1.6 billion pounds.
Chief Financial Officer Jim McConville told Reuters that the company could consider purchases of a similar size to the unsuccessful Guardian deal, for which they would seek financing. Smaller deals could be funded from existing resources.
Bannister declined to comment specifically on Prudential and Standard Life's annuity book, but said: "We are very comfortable with annuities.... So yes, we are interested in a transaction in the UK market."
Britain's vote to leave the European Union had increased opportunities to buy assets, Bannister said, as foreign companies reassessed the market after the August interest rate cut, a drop in the sterling currency making dividends less attractive and concerns over bond market volatility.
Thanks to its recent deals, Phoenix said it now expects to generate 2.8 billion pounds ($3.5 billion) of cash from operating companies between 2016 and 2020, up from an earlier target of 2 billion pounds.
The company's shares were up 1.5 percent at 803 pence at 1037 GMT.
(Reporting by Esha Vaish and Noor Zainab Hussain in Bengaluru, Carolyn Cohn in London, additional reporting by Rahul B; Editing by Amrutha Gayathri and Louise Heavens)
By Esha Vaish and Noor Zainab Hussain