Standard Life has agreed to sell Standard Life Healthcare to Discovery for £138m payable in cash at completion.
Following completion and a transitional period the intention is to re-brand Standard Life Healthcare under the PruHealth brand.
The transaction is subject to approval by the FSA and the South African Reserve Bank and is expected to complete by 31 July 2010.
Standard Life's announcement to the stock exchange said its strategic focus is on the long-term savings and investments market and as a result the manufacturing of private medical insurance ("PMI") is not core to its UK strategy.
The net cash proceeds from the sale will be used for general corporate purposes including the acceleration of Standard Life's key initiatives to grow its business. At completion approximately 562 employees will transfer as part of the transaction. Standard Life Healthcare is the fourth largest provider of PMI in the UK with a market share of approximately 8%.
In 2009, Standard Life Healthcare generated IFRS profit before tax of £9.4m (2008: £7.1m) and profit after tax of £7.1m (2008: £5.0m). Standard Life Healthcare had total assets of £258.5m and net assets of £97.1m as at 31 December 2009.
Chief executive of Standard Life, David Nish, comments: "Standard Life Healthcare is a leading and successful business in the UK PMI market, but in the context of sharpening our strategic focus on the long-term savings and investments market we concluded it is not core."
Discovery, listed on the Johannesburg stock exchange with a market capitalisation of ZAR 20.9bn (£1.9bn), is a financial services institution operating in insurance, long-term savings and well-being in South Africa, the United Kingdom, the United States and China.
In the UK Discovery operates via a joint-venture with Prudential plc, that comprises PruHealth, a specialist private medical insurance provider, and PruProtect, a provider of pure risk protection products.