Standard Life Aberdeen has announced plans to sell its insurance business to Phoenix Group in a £3.2 billion deal.
The decision was revealed in its full-year numbers, with the firm saying the disposal of the 'capital intensive' insurance arm will make it more nimble.
Standard Life Aberdeen will retain its platforms and advice arm, 1825, which currently sit within the insurance division.
Standard Life Aberdeen chair Gerry Grimstone said: 'This transaction completes our transformation to a capital light investment business, a process started in 2010 with the sale of Standard Life Bank, continuing with the sale of our Canadian business [in 2014] and the merger last year between Standard Life and Aberdeen Asset Management.
'This transaction represents excellent value for our shareholders, including a comprehensive and mutually beneficial strategic relationship entered into with Phoenix Group, a longstanding partner of the firm.'
He added: 'In addition, I am particularly pleased to note Phoenix Group's commitment to maintain operational headquarters in Edinburgh.'
The total value of the deal is £3.24 billion, the bulk of which will be made up of cash. Standard Life Aberdeen will also take a 19.99% stake in Phoenix worth around £1 billion, forming a strategic partnership between the pair.
The alliance will see the firm's investment division, Aberdeen Standard Investments, take on the running of around £158 billion of Phoenix's assets under management.
The insurer has also committed to review further mandates not currently run by Aberdeen Standard Investments.
It also provides Aberdeen Standard Investments the opportunity for wider collaboration as the asset manager of choice for Phoenix.
Martin Gilbert (pictured right) and Keith Skeoch (left), co-chief executives of Standard Life Aberdeen, said:
'Today's announcement represents a logical next step in Standard Life Aberdeen's journey to build a world-class investment company positioning us strongly for the future and enabling us to meet the evolving needs of our customers and clients.
'We have a diverse range of modern investment capabilities with global distribution and our leading UK retail platforms are growth engines generating significant net inflows for our asset management business.
'The enhancement of our strategic partnership with Phoenix Group is evidence of our market-leading insurance asset management capabilities. It is also a great opportunity for wider collaboration as the asset manager of choice for Phoenix Group who see further significant consolidation opportunities.'
The pair added: 'With the foundations of a world class investment company in place, we look forward to capitalising on the opportunities that we see ahead of us whilst continuing to deliver for our shareholders.'
The news comes a week after Scottish Widows pulled a £109 billion mandate from Standard Life Aberdeen, saying it was uncomfortable with the assets being run by a ‘material competitor’.
It has since emerged that failed merger talks between Standard Life and Scottish Widows before Christmas were the reason why the mandate was withdrawn. It has been suggested a dispute over the structure of the merged operation was the key factor behind the failure to reach an agreement.
That represented a setback for by Standard Life Aberdeen, which had previously indicated that it was looking to renew the contract, following the merger between Standard Life and Aberdeen Asset Management last June. The plan was the brainchild of Aberdeen chief Gilbert and Standard Life chair Grimstone.
In an exclusive interview with Citywire last year Gilbert highlighted why the insurance business was so important, describing it as a ‘market leader in defined contribution pensions’.
The decision to sell the insurance unit could pave the way for Scottish Widows to return the £109 billion mandate to Standard Life Aberdeen.
In a press briefing earlier this week following the release of its full-year numbers, Lloyds boss Antonio Horta-Osorio said there was a 'lot of interest’ in the mandate and he did not rule out giving it back to Standard Life Aberdeen 'if they fix their problem with competition'.
Following the acquisition, Phoenix will administer some £240 billion of legacy assets for 10.4 million policyholders. It expects the purchase to generate a total of £5.5 billion in aggregate cashflow.
'This is a compelling transaction for Phoenix, consistent with the group's stated strategy and acquisition criteria,' Phoenix CEO Clive Bannister said.
'The proposed acquisition establishes Phoenix as the pre-eminent closed life fund consolidator in Europe with more than 10 million policyholders and supports a significant increase in Phoenix's cash generation.
'The reinforced strategic partnership with Standard Life Aberdeen allows both companies to focus on their key strategic strengths whilst generating future value through the new client service and proposition agreement.'