'Friends Life' the new brand formed by Axa's UK Life and Pensions business merging with Friend's Provident has been announced today after Resolution acquired Axa's business for £2.75 bn.
Resolution, a buyout vehicle, which has already bought Friend's Provident in August 2009 is now the owner of Axa's life and pensions book, making it the market leader of 'protections and corporate pensions', says 'Friends Life' and Friends Provident CEO, Trevor Matthews in an interview today.
In a note to the London Stock Exchange, Resolution said that its bid is made up of a rights issue worth £2.025bn gross, and a share offering worth £500 million of Axa by Resolution.
If successful, Axa's Chief Operating Officer David Hyman will move to work under the Friend's Provident brand as part of the board whilst Axa Life's CEO Paul Evans will spearhead the combining of Axa's Life and Pensions business with that of Friend's Providents.
Meanwhile, Axa's corporate pensions team would be moved to work under the Friend's Provident brand.
The bid is subject to regulatory approval still.
The move follows a 'consolidation' of the UK Life and Pensions market, which is being spearheaded by Resolution, Aviva and Legal & General who are also amongst the top shareholders of Resolution also.
Resolution, Aviva and L&G all believe that a consolidation of the market will lead to a reducing of providers that can make cost synergies and achieve better returns by ensuring a 'better pricing environment'.
Resolution meanwhile, hopes that a consolidation of the market will allow it to gain enough value to enter the FTSE - something it has already achieved with Friend's Provident, which allowed it to list on the FTSE 250.
Clive Cowdery, entrepreneur set up the vehicle after failing to merge his previous insurance company with Friends Provident in July 2007. His subsequent retainment of the Resolution brand, after it was bought out by Pearl Group, who were against this merger is now successfully creating what Clive initially intended - a bigger breed of life and pensions insurance company.
In doing so, Clive hopes to build a £10bn-plus company which can gain access to the FTSE 100 for his now Guernsey-based company.
Marcus Bernard, analyst at Oriel Securities comments, "Axa's poor returns have been typical for mid-tier providers, which have a limited product range and are highly dependent upon IFAs [individual financial advisers] for distribution,"
"Consolidation will help to reduce the number of providers [and] increase the scale of those that remain, which should lead to a better pricing environment."
Citigroup, adds that this deal, which is 'a default response of the credit crisis' will protect accumulate growth, and hence 'profitably accumulate future growth'.
Indeed, 'Friends Life' and Friends Provident CEO, Trevor Matthews is adamant the new vehicle will be open to new business.
Resolution's move follows a recent announcement that says investors are 'underestimating' the prospect of medium-term growth in the UK Life and Pensions business.
Nick Holmes, an insurance analyst with Nomura says that Prudential, who concentrated growth overseas were misplaced with their assumptions on the UK 'medium-term prospect'
"Conventional wisdom sees Asia as offering more growth than the UK, although we agree with this in the longer term, we think the market underestimates the UK's medium-term prospects."
Nick added that he thought Aviva and L&G who have more exposure to the UK market, as Resolution are focused on at the moment, are worth more than Prudential:
"We see Legal & General and Aviva as more positively exposed to this than Prudential, with its greater Asian and US focus, and consequently we reiterate our preference for them, rating them Buy, and reinitiate coverage of Prudential with a Neutral recommendation." He said on his note on UK insurance, last week.
The analyst said that the Retail Distribution Review, spearheaded by the FSA would improve consumer understanding of the UK Life and Pensions market putting less strain on the sale of life and pensions business.
Meanwhile, a change in focus from the UK Coalition would allow annuities, which are linked to government bonds, to grow as 'fiscal tightening' lowers the UK's debt over the next five years.