Deutsche Bank considers sale of life insurance unit

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(Bloomberg) -- Deutsche Bank AG, Germany’s largest bank, is considering the sale of a unit that helps pension funds protect themselves against the risk of their members living longer than expected, according to people familiar with the discussions.

No decision has been taken on the potential sale of the Abbey Life unit, said the people, who spoke on condition of anonymity because the matter is private. The Bournemouth, U.K.- based business may fetch as much as 3 billion pounds ($4.6 billion), one person said.

Anke Hallmann, a spokeswoman for Frankfurt-based Deutsche Bank, declined to comment.

Deutsche Bank is waiting to hear how much capital the European Central Bank will require lenders to hold against risk from their insurance units, said one of the people. Regulators are requiring banks and insurers to build larger buffers to help them weather losses and avoid a repeat of the financial crisis of 2008, in which taxpayers had to step in to their rescue.

Phoenix Group Holdings Plc, a London-based company that had held talks to buy Guardian Holdings Europe Ltd., may be interested in bidding if Abbey Life is put up for sale, said a person familiar, who asked not to be identified. A spokeswoman for Phoenix didn’t immediately respond to calls or e-mails seeking comment.

Strategic Review

Deutsche Bank has sought to grow in asset management, where Abbey Life is held, as a counterweight to investment banking, which is the company’s largest division and is grappling with declining profitability. Co-Chief Executive Officer John Cryan on Oct. 29 will present details of the lender’s strategic review which will see the firm exit some countries, sell a consumer banking unit and shrink trading activities to bolster returns.

Deutsche Bank said on Oct. 7 that it will probably post a third-quarter loss of 6.2 billion euros ($7.04 billion), the largest three-month loss in at least a decade, because of writedowns and legal costs. The bank said it may also cut or eliminate the annual dividend, which has been paid at least since 1957.

A growing number of investment banks have sought to scale back insurance operations as Wall Street copes with low interest rates and increased government oversight. Goldman Sachs Group Inc. announced in May 2013 that it had sold most of Global Atlantic Financial Group, a reinsurance business, to institutions and high-net worth clients. Citigroup Inc., which has been divesting businesses and pulling back in some regions to sharpen its strategy, took steps early this year toward selling its Prime Reinsurance Co. subsidiary, people familiar with that process said in April.

Abbey Life is an insurer in run off, meaning it is closed to new retail business. Deutsche Bank acquired the company from what is now called Lloyds Banking Group Plc for 977 million pounds in 2007.

Abbey Life insured 2 billion pounds of pension liabilities for Scottish Power, a unit of Spain’s Iberdrola SA in February. That longevity swap, structured as an insurance policy, hedges against rising costs of pensioners living longer than expected, the utility said at the time.

In a transaction involving a business similar to Abbey Life, Swiss Re agreed last month to acquire Guardian Holdings Europe Ltd. from buyout firm Cinven for 1.6 billion pounds to increase its portfolio of U.K. life-insurance policies.

Deutsche Bank transferred Abbey Life from its investment bank in 2012 after naming Michele Faissola head of the asset and wealth management business. That unit is the only one of the company’s four operating divisions which has not had to scrap profit forecasts made in 2012.

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