Private equity Cinven will on Monday announce the €200m (£158.5m) management buy-out of Partnership Assurance, underlining private equity’s interest in impaired and enhanced annuities, which pay higher pensions to people prone to illnesses.
The deal will generate a six-fold return for Phoenix Equity Partners, which bought 80 per cent of the company in a deal valuing it at £31m as part of the demutualisation and management buy-out of the Pension Annuity Friendly Society in 2005.
In spite of its deathly business model, based on adapting pensions and other savings products to pay out more quickly for smokers, the obese and others more susceptible to serious illness, the enhanced annuities market is booming. Partnership Assurance’s written premiums equivalent to revenues have increased by 70 per cent over the past two years, surpassing £220m last year, a person close to the deal said.
The company had considered a flotation in the wake of an Aim market listing in 2006 by its rival Just Retirement, a specialist insurer. The plans were dropped following the credit crisis.
Enhanced annuities account for about £1.2bn of the £12bn annuities market. But the niche market has grown rapidly as more independent financial advisers recommend enhanced annuities to clients and more insurers start offering their own products.
Cinven’s buy-out of Partnership Assurance hinges on the expectation that the market will continue to grow, with as much as 40 per cent of the UK annuities market eligible for enhanced annuity products.
Some 1,500 conditions are now taken into account by underwriters for annuities, including asthma, diabetes, a high body mass index and high cholesterol.
People who qualify could net hundreds of additional pounds a month when they turn their pension pot into an annual income.
Partnership Assurance’s website forecasts 7.1 per cent of the UK population will be aged over 85 by 2056, compared with 2 per cent in 2006.
