Aviva buys rival Friends Life

Insurer Aviva has agreed to purchase rival Friends Life for £5.6 billion to meet increasing pressure following pension reforms.

The industry has undergone a major shakeup following changes in government policy, which means many companies are now having to look for new opportunities to boost their returns.

In March, the government announced changes that will remove the need for people to buy an annuity or income for life – leading to a sharp fall in the sales of annuity products.

Aviva is hoping the new purchase will make its balance sheet more attractive and increase its asset management services.

However, some analysts are surprised that the two firms would choose now to agree a deal.

“Consolidation per se in UK life insurance is not a surprise and is necessary,” said David Moss, head of European equities at F&C, which has Aviva shares, according to Thomson Reuters data.

“The surprise is perhaps that both businesses are not where they would want to be yet and are in the middle of restructuring programmes of their own.”

A deal would mean the two firms would have a combined market value of close to £20 billion.

Friends Life shareholders would own around 26 per cent of the combined group, as well as receiving a cash amount equal to any Friends Life final dividend for the current financial year.

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