Annuities to drive Scottish Widows infra lending

Lloyds and its insurance arm will from next year originate infrastructure loans.

In a similar tie-up to French bank Natixis and Belgian insurer Ageas, the UK's Lloyds Group and Scottish Widows – its insurance arm – have entered into a partnership which will originate infrastructure loans from next year.

The driver for the pairing is Scottish Widows’ land grab for the annuities market and its need to acquire assets that will help it pay out the guaranteed income retirement contracts for the individuals that buy its products.

A spokesman for Lloyds explained that Scottish Widows plans to launch a “new enhanced annuity product” this month and is seeking to grow its share of the UK annuities market to between 10 percent and 15 percent over the next few years.

To kick-start the partnership and help fund the new product, Lloyds has already transferred more than £700 million (€823 million; $1.1 billion) in social housing association loans and some £100 million in university accommodation loans to Scottish Widows.
The spokesman said these assets “are ideal for generating investment cash flows that match the annuity liabilities payable in the future to policyholders”.

“While we have invested only in existing loan assets to date, Scottish Widows and Lloyds will from next year originate new loans directly to help match our goal of growing our annuities market share. The plan for future investments includes infrastructure and project finance, social housing associations, and higher and further education institutions,” the spokesman explained.

He added the pairing “will not only support the growth of our insurance business, but also enable the group to provide significant support for UK infrastructure”.

Lloyds and Scottish Widows join Natixis and Ageas as the second joint venture between a bank and an insurance firm targeting infrastructure debt.

Last October, Ageas and Natixis signed an agreement to help the Belgian insurer build an infrastructure debt portfolio.

Under the agreement, Ageas will invest up to €2 billion over the next two to three years in infrastructure loans originated by Natixis. The loans will have to conform to pre-agreed criteria between the two parties and Natixis will retain a percentage of each facility, the bank had previously explained.