Life insurance business to be sold for £39m
Chesnara is acquiring Direct Line Group’s UK closed life insurance business, Direct Line Life Insurance.
Direct Line Group will receive gross proceeds of £62m from the sale.
Chesnara will pay Direct Line Group £39m for the business and on top of that Direct Line Life will pay Direct Line Group a pre-closing dividend of £23m.
The acquisition will be funded by cash as well as a new loan facility of £73.8m agreed with The Royal Bank of Scotland.
Chesnara chief executive Graham Kettleborough said: “We are very pleased to have reached agreement to acquire a complementary UK business that we can integrate with our existing UK life book. Adding this portfolio to our existing book of business brings extra security, from increased size and concentrated governance to both existing and the newly acquired policyholders. It is of benefit to our shareholders as it fits with our strategy, is accretive to our embedded value and will also help support our dividend-paying capacity in the medium term.”
Direct Line Life Insurance made profit after tax of £6.9m in the year ending 31 December 2012, and parent Direct Line Group expects to make a £12m gain on the sale.
The proceeds of the sale will be used to pay out a special interim dividend of 4p per share and will occur shortly after completion. Approval for the sale is likely within 60 days.
The group is already looking into other life product opportunities and is testing a ‘white-label’ term assurance product.