Insurance group Phoenix Group Holdings said it had agreed to buy the British unit of Swiss Re, ReAssure, for £3.2 billion in cash and shares, its biggest deal to date.
The deal is the latest in a rapidy consolidating sector as many insurance firms, hit by tougher capital rules since the financial crisis, seek to sell old books of business to free up capital for high-growth areas.
By consolidating lots of books together, Phoenix aims to run the business more efficiently. Its strong growth helped propel it into Britain's blue-chip FTSE this year.
"The deal confirms Phoenix's position as Europe's largest life and pensions consolidator," outgoing Phoenix chief executive Clive Bannister said in a statement, adding that it took its total assets to £329 billion.
It would also give the company an "enhanced platform to pursue further growth opportunities", he said, including in the active market for insuring defined benefit, or final salary, pension schemes, so-called 'bulk annuities'.
Aviva and M&G are among a group of large insurers with substantial legacy books of insurance business that analysts have speculated could hit the market.
The pipeline for large bulk deals is also strong.
Phoenix Group, Europe's largest owner of life assurance funds closed to new customers, said acquiring ReAssure was expected to bring in additional cash flows of about £7 billion over time.
Swiss Re said it would get a cash payment of £1.2 billion and a stake in Phoenix of 13% to 17%.
ReAssure's minority shareholder, MS&AD Insurance Group Holdings, will receive shares in Phoenix representing an 11% to 15% stake.
The landmark deal is the biggest since Phoenix completed a £2.9 billion deal for Standard Life Assurance in 2016, which saw Standard Life Aberdeen also retain a stake in the combined group.
Swiss Re Group CEO Christian Mumenthaler said the deal secured "a strong buyer" for the business.
"The strategic rationale for the combination of the businesses is compelling, and we look forward to working together with Phoenix and to sharing the financial benefits of the combination," he said in a statement.
Swiss Re estimated the transaction, expected to close in mid-2020, would have a positive impact on its Group Swiss Solvency Test (SST) ratio and economic profit and a negative impact on its US GAAP results in the fourth quarter of 2019.
The company said it would take an estimated pretax charge of about $300m in the fourth quarter, mainly to reflect the higher consolidated book value of ReAssure, driven by historically low interest rates.
The Zurich-based company in July shelved its plans for a $4.1 billion flotation of ReAssure, citing weak demand from institutional investors.
Swiss Re, the world's second-largest reinsurer, had wanted to spin off ReAssure to put the business under a more favourable regulatory regime and give it easier access to capital to fund expansion.