ING Group has announced that it is to exit the individual life reinsurance business in the US and to this end has signed a co-insurance agreement with Scottish Re. The move forms part of the group's ongoing strategy to focus on core businesses.
Under the terms of the agreement, Scottish Re will reinsure the individual life reinsurance business of ING Re. ING will transfer all assets and reinsure the liabilities of the business through Scottish Re. ING will also pay Scottish Re a ceding commission of €450m. Assets will be held in trust for the benefit of ING Re reinsureds and Scottish Re will manage the assets within agreed investment guidelines. Scottish Re will assume the obligations of the business, including client service, administration and claims payments. All future business after the closing of the transaction will be written by Scottish Re.
The agreement is set to be completed in the fourth quarter, and will see a loss for ING of approximately €500m after tax. Of that €500m, ING will take a charge of €160m after tax in the third quarter of 2004 to reduce deferred acquisition costs because of mortality experience in the business. Of the remaining €340m after tax, €100m will be taken as a charge in the fourth quarter primarily to write off a tax asset that will not be realisable as a result of the transaction. The remaining €240m will be amortised over the life of the business, resulting in a charge to the profit & loss account of €25m in 2005 and gradually decreasing in subsequent years as the business runs off.
Fred Hubbell, Executive Board member responsible for Insurance Americas at ING, said: "The transaction fits into ING's strategy to actively manage its portfolio of businesses, allocating capital to those businesses where it can generate the best returns. It will reduce volatility in ING's earnings, increase the return on economic capital, improve the Group's debt/equity and solvency ratios, and allow management to focus on our core wealth management business in the US."
The transaction is expected to reduce the capital requirements of ING's US insurance business by €700m, improve ING Group's debt/equity ratio by 20 basis points and increase the capital coverage ratio of ING Insurance by 19 percentage-points.
