UK insurance giant Aviva has formed a bancassurance joint venture in Ireland between its wholly-owned Irish subsidiary, Hibernian Group , and Allied Irish Banks (AIB). The aim is to create a “leading force” in the Irish life and pensions market.
Hibernian currently distributes Aviva products via an IFA network. By securing exclusive access to Ireland’s largest retail bank – AIB has over 280 retail outlets and 1.6 million customers – the joint venture will greatly enlarge the reach of the firm.
The joint venture brings together Hibernian Life & Pensions Ltd , the third largest company in the Irish long-term savings market, and AIB-owned Ark Life Assurance Company Ltd, the fourth largest. Hibernian will own 75.01% of the new combined operation, with an estimated Embedded Value of EUR1,326 million as at 31 December 2004.
Sales on an annual premium equivalent basis from the combined entities were EUR226 million on a pro-forma basis for 2004.
The management of the investments of current Ark Life policyholders, which totalled EUR2.6 billion as at 31 December 2004, will transfer to Hibernian Investment Managers Ltd (HIM), a wholly-owned subsidiary of Morley Fund Management, Aviva’s UK-based fund management business.
The exclusive bancassurance distribution agreement with AIB is for five years and may be renewed for further five-year periods up to 2031.
The vehicle for the joint venture will be Hibernian Life Holdings Ltd (HLH). HLH is the parent company of Hibernian Life & Pensions. HLH will acquire all the shares of Ark Life from AIB in exchange for a 24.99% stake in HLH and a balancing cash payment of EUR195.4 million. The cash payment also reflects the management of Ark Life funds by HIM. A further deferred cash payment of up to EUR10 million is payable subject to the fulfilment of certain performance criteria.
Bryan Jenkins, chief executive, Hibernian, describes the joint venture as “a transformational deal. This partnership will bring us broader distribution capability, building on the already strong relationship we have with our broker partners. It provides us with an opportunity to significantly grow our life business while achieving operational economies of scale by bringing the two companies together. The deal will offer customers greater product choice and access to a wider range of fund options and managers, which will be available through the AIB network from mid-2006.”
The new joint venture will employ approximately 800 staff. Tony O’Riordan, currently managing director of Hibernian Life & Pensions, will become managing director of the joint venture.
Completion of the transaction is subject to the approval of the European Commission and the Financial Regulator. The deal is expected to complete in the first quarter of 2006.
Hibernian General Insurance Limited does not form part of the transaction and remains wholly-owned by Aviva plc.