(Reuters) - Irish Life & Permanent IPM.I has suspended the sale of its life insurance arm and the Irish government will likely have to put 1 billion euros into the bancassurer to meet tough new capital requirements under an EU-IMF bailout.
“The current very challenging market conditions are not conducive to concluding a transaction of this size at this time and in that context the process has been suspended,” the group said in a statement.
Canada Life, a unit of Canada’s second-largest life insurer Great-West Lifeco GWO.TO, had been the lead candidate to buy the business, which has an embedded value of around 1.6 billion euros ($2.12 billion), a source told Reuters last week.
Faced with a near 4 billion euros capital hole and heavily reliant on emergency funding from the European Central Bank and Ireland’s central bank, the bancassurer had put the unit, Ireland’s largest life insurer and fund manager, up for sale earlier this year.
Ireland’s government has already poured 2.7 billion euros into Irish Life & Permanent, which came under pressure when Ireland’s lenders were locked out of debt markets, creating a huge funding strain for its residential mortgage book.
The state was relying on the sale of the life insurance arm, which has over 32 billion euros in funds under management, to avoid having to use more public funds to shore the group up.
Irish banks had until July of this year to increase their capital by 24 billion euros, most of it from state funds under an EU-IMF bailout, but Irish Life was given extra time to meet the requirement so a deal for its life business could be agreed.
Finance Minister Michael Noonan had previously said he hoped to have a sale sealed before the end of the year.
No one from the Department of Finance was immediately available to comment on the shelving of the sale.
Irish Life & Permanent said it would continue the process of separating its life business and banking arm, which is due to be completed by the end of March 2012.
Reporting by Carmel Crimmins, editing by Bernard Orr