Annuities partnership tries to make the best of impaired market

Partnership Assurance is good at writing annuities for customers known as “impaired lives” due to illness or unhealthy lifestyles. Now it is planning a £1.6bn merger with fellow annuities specialist Just Retirement. Their own prospects have been impaired by pension reforms. The abolition of penal taxation on withdrawals from defined contribution schemes means insurers no longer have a captive market for annuity sales.

The “C” word — “capital” — hangs in the air like an oath here, as with other insurance M&A. Zurich hopes to buy RSA of the UK partly because its location outside the EU means it has a guaranteed $3bn in surplus capital. Analysts think one reason Aviva has bought Friends Life for £6.5bn is its scope to release some £1bn in trapped cash.

Just Retirement and Partnership would raise £150m in equity even though they anticipate annual savings of £40m at a one-off cost of £60m. Both are comfortably capitalised on paper. But meeting the EU’s incoming Solvency II standard with room to spare must be one driver for this deal.

The other is competing in a retirement savings business that has had the roof blown off it by the chancellor. Though paying higher rates than conventional annuities — which pay almost nothing — impaired life annuities look unattractive to some customers who would rather leave pension pots to relatives.

Investors in Just Retirement will receive 60 per cent of the shares of the combined business, roughly in line with its relative market capitalisation. The company’s chief executive Rodney Cook will keep his job. Private equity groups Permira and Cinven, which control Just Retirement and Partnership, have agreed the deal.

A few minority shareholders in Partnership may grumble this is a low-premium takeover by Just Retirement. Others will be grateful a business whose shares have fallen 70 per cent from their peak after a 2013 float is merging with a stronger ally. The market hardly needed two big quoted annuity specialists in the first place. One could still prove to be one too many in the wake of pensions liberation.

Bombazine team

The Financial Conduct Authority should buy a lorgnette. These spectacles on sticks were deployed by dowager duchesses to stare angrily at debutantes whose decolletages were too daring and majors whose mustachios were excessively dashing.

The watchdog was doing its best to transfix Co-operative Bank with a basilisk stare unaided on Tuesday, censuring the lender for breaching listing rules. The Prudential Regulation Authority joined in by criticising risk management procedures. Well spotted — the bank boasted a chairman, the Reverend Paul Flowers, who was later fined for possession of cocaine and crystal meth.

The Co-op Bank disingenuously told bondholders in March 2013 that it had enough capital to cover regulatory minima. Instead, a revised requirement from the financial watchdog of the day had diagnosed a £1.5bn shortfall. CT1 capital is currently 13 per cent of assets, but will fall sharply as losses accumulate.

The FCA was thus precluded from levying a fine of its own. The censure of the watchdog applies only to the organisation rather than individuals, some of whom are under investigation, and therefore carries little weight.

Dowager par excellence Lady Bracknell is paraphrased so persistently that Lombard has no option but to do the same. To be sat on by one regulator in a day may be regarded as a misfortune. To be sat on by two definitely reflects carelessness.

Playing patience

Has Neil Woodford over-reached himself? It feels sacrilegious to suggest so. Mr Woodford is the UK’s most admired fund manager. The launch of his eponymous investment management company has been a triumph. Followers see his image in window reflections and his name spelt in seeds on cut aubergines.

What should give fans pause for thought is the ex-Invesco star’s Patient Capital Trust. About one-third of this £930m pet project has been invested in early stage healthcare and innovation funds, according to maiden numbers. In time, half will be in such ventures, whose failure rates are high

Around a quarter of the trust’s cash has yet to be invested. Even so, Mr Woodford plans to raise another £80m by trickling new shares on to the market. One fellow fund manager described this as “opportunistic”. Sour grapes would be understandable, given the trust’s 15 per cent premium.

Investment in UK biotechs has been a trickle since flagship cancer group British Biotech collapsed in value, an event in which Mr Woodford played a vindicated part. His attempt to reverse the trend is audacious and welcome. But it is freighted with risks for which income fund fans may be unprepared.

jonathan.guthrie@ft.com