The Swedish-based Skandia Insurance Group has reached an agreement with Prudential Financial to sell its U.S. operations, American Skandia, for a total consideration of $1.265 billion, around 72 percent of its book value. As of Sept. 30 the company had under management $21.5 billion in variable-annuity assets and $4.1 billion in mutual-fund assets.
Earlier this year Skandia acknowledged that its effort to establish a place in the U.S. market, principally for its variable annuity products, had resulted in larger than expected losses, and that it was therefore seeking a buyer.
Variable annuities, essentially insurance products tied to mutual fund performance, have suffered sharp falls due to the current depressed stock market conditions. The company took a $720 million charge against earnings in the third quarter as a result.
The sale to Prudential will provide needed capital, and allow the company to concentrate on its primary markets in Sweden and the U.K. It’s also expected to have a positive effect on the company’s credit ratings, which have been on a downward slide over the last year.
For Prudential, acquiring Skandia’s U.S. operations makes it one of the leading players in the index-linked pension market, at a time when its expected to experience further growth, as the “baby boom” generation increasingly prepares for retirement. Prudential will also acquire Skandia’s mutual fund distribution network as part of the deal.
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