The Australian division of US insurer Metlife is transferring A$2 billion ($1.56 billion) worth of annuity, allocated pension and personal superannuation liabilities to Challenger Financial Services under a scheme of arrangement.

Under the terms of the agreement, Challenger will also receive about A$1 billion of Australian investment grade fixed income assets and nearly A$1 billion in cash. The company says it will be able to managed the assumed liabilities and assets transferred under the deal with the existing capital levels in its asset management business. The firm has assets under management of A$5.3 billion.

Challenger is a funds management and non-bank mortgage business backed by James Packer, one of AustraliaÆs richest entrepreneurs, who owns a 22% stake in the company.

Challenger is already a large player in the annuities market in Australia claiming a 17% market share. The deal with Metlife will nearly double ChallengerÆs customer base in this area, adding 24,000 new policies to its books. It will become the largest provider of retail annuities in Australia ahead of AMP (with a 22% market share) and Comminsure (13%).

Metlife is exiting the business to focus on life insurance and bancassurance. According to a source familiar with the insurer, Metlife took a decision in around May last year to wind down the distribution of its annuity and pension products. ôThe company wants to focus more closely on its core businesses and achieving its target of being a top three player in life and bank insurance by 2010.ö

Challenger announced its half yearly results on Monday this week recording a 117% increase in net profit after tax to A$130 million for the six month period. The group saw an 18% increase in total assets and loans under management to A$46.4 billion. About half of this is in residential and commercial mortgages.

The deal between Challenger and Metlife is subject to approval and is expected to close by June 30.