Resolution in £165m deal for Bupa division

THE owner of Friends Provident yesterday unveiled a deal worth £165m to acquire Bupa's operations in critical illness and life insurance cover.

Buyout firm Resolution said its move for Bupa Health Assurance would bolster its position in the group income protection market, alongside its strong presence in the corporate pensions and individual protection markets.

The Bupa business, which employs nearly 300 people, provides companies with tailored packages that offer income protection, critical illness and life insurance to their employees. The division also offers the same products to individuals.

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Bupa said the decision to sell the business would enable it to focus on its healthcare business, including health insurance products in the UK.

As part of the agreement, the two firms will work together to explore ways in which they can introduce each other's products to their respective distribution channels.

Bupa's health assurance business was set up in 1994 to offer individual and group protection insurance to complement its core private medical insurance offering. It distributes products through ties with more than 20,000 independent financial advisers.

Resolution, which aims to build up a life insurer with 10bn of embedded value before selling or floating it in 2012 or 2013, also confirmed it was still looking out for small and large-scale acquisitions.

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Resolution paid 2.75bn for most of Axa's British arm in June and also bought Friends Provident for 1.8bn last year.

John Tiner, the chief executive of Resolution, who described himself as a "passionate Leeds United supporter" said: "Our operations are nationwide and all parts of the country are important to us, including Yorkshire."

Buying the Bupa business will allow Resolution to offer employee life insurance, income protection and critical illness cover alongside its corporate pensions packages.

Analysts believe this could help it to attract corporate pensions business direct from employers in 2012, when many independent financial advisers are seen withdrawing from that market as regulatory changes outlaw commission payments to intermediaries.

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Mr Tiner told the Yorkshire Post that the corporate pensions market was about to undergo huge changes, adding: "We expect new entrants to come into that market."

He added: "We want to build a strong market position in the protection market. Our customers are ordinary citizens like you and I."

Michael Biggs, the chairman of Resolution, added: "This transaction is entirely consistent with Resolution's strategy.

"Both the terms of the transaction and the synergies to be gained from it will create value for shareholders.

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"It will also enhance Friends's proposition as a focused and disciplined writer of new business in key product areas."

Bupa health assurance has an embedded value – an insurance industry valuation comprising the present value of future earnings from existing policies plus net assets – of 228m, compared with Resolution's 6bn.

Resolution said the acquisition would boost its earnings and added it could extract unspecified cost savings from the deal.

"You can look at it and say it does not really move the needle, which is definitely true," said Berenberg Bank analyst Trevor Moss.

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"However, it is an attractively priced acquisition in a product area they're wanting to gain more exposure to."

In the arms of friends

Under the terms of the deal announced yesterday, Bupa Health Assurance will be acquired by Friends Provident Life and Pensions, a subsidiary life company of Resolution. The gross consid-eration is 165.15m in cash.

It is proposed that Bupa Health Assurance will run as a stand-alone business within the Friends group for up to a year.

Trevor Matthews, the chief executive of Friends, said: "This acquisition will strengthen our group risk business product range and improve the profitability of our individual protection business."

The acquisition is subject to approval by the FSA and the Guernsey Financial Services Commission.