MGM Advantage, the retirement income specialist and mutual society, has reached an agreement to sell its new business franchise to TDR Capital LLP.
The move will generate a goodwill payment of £9m for distribution to eligible members of the mutual society who hold with profits policies.
It is likely eligible policyholder will get a windfall of nearly £600 each. The price of the sale has not been disclosed.
The mutual society will close to new business once the deal is completed allowing a distribution of the surplus capital over time to eligible members.
A new life company, financed by funds managed by TDR Capital LLP, will continue to focus on the retirement income market trading under the MGM Advantage brand.
The new life company will also continue to service the closed mutual society. As part of the transaction, £800m of annuity business risks will transfer to the new life company, improving the financial strength of the closed mutual, says MGM.
The deal with TDR Capital generates a goodwill payment of £9m for distribution for the benefit of 15,200 eligible members who hold a with profits policy and provides new capital to fund growth, according to MGM.
Sir William Proby, chairman of MGM Advantage, said: "We set out a strategy in 2008 to return the society to growth, reverse the decline in our membership and to manage our risks in uncertain markets.
"Since then our focus has been selling new business in the retirement income market, which has proven highly successful. We have been looking at how to unlock the value created by the new business strategy and have considered a whole range of options. This deal provides the best outcome for members and policyholders."
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The MGM Advantage board has agreed in principle to the proposed transaction. The board will now seek the support of members by way of an EGM, expected to be held in May 2013. The MGM Group including a new life company will be established, and subject to FSA approval, will be in operation later this year.
TDR Capital was founded in 2002 and manages over £2.3 billion on behalf of a range of investors. The company has experience of the life industry through its investment in Phoenix Group Holdings plc.
MGM says the mutual society will remain as a separate operation managed by its own board and owned by members, although it will be closed to new business.
Hargreaves Lansdown, commenting on the sale, says the deal is still subject to approval from members and from the FSA and there will be an EGM in May.
Tom McPhail, head of pensions research, Hargreaves Lansdown: "This deal should bring a more stable and prosperous future to members, policyholders and employees. Annuity business is extremely competitively priced and also requires substantial amounts of capital so it is good news that the MGM board have found a way to maintain their presence in the market place.
"Annuity buyers in the UK can take advantage of this competition by shopping around for the best terms; hopefully through this deal MGM Advantage will continue to play an active role in this competitive market."