Insurer Old Mutual is selling its non-core Nordic business for 22.5 billion Swedish crowns (2.1 billion pounds) to Skandia Liv, sending its shares up 10 percent on expectations the deal will boost investor returns.

The businesses being sold comprise Old Mutual's long-term savings and banking operations in Denmark, Norway and Sweden operating under the Skandia brand, and Old Mutual hopes the sale will cut debt and enable it to return capital to shareholders.

Old Mutual, which bought the Skandia businesses for around $6 billion (3.9 billion pounds) towards the end of 2005, has come under pressure from shareholders to divest non-core assets to improve returns.

The sale of Nordic to Skandia Liv represents a truly unique opportunity to create value for both Skandia Liv's policyholders and Old Mutual's shareholders through unlocking significant synergies from the combination of Skandia Liv and Nordic, chief executive Julian Roberts said on Thursday.

Roberts said Old Mutual's Skandia UK business would not be affected by the sale, and Old Mutual expected to complete the deal towards the end of the first quarter of 2012.

Old Mutual's London-listed shares were up 10.4 percent at 122.50 pence in early trading.

This sale price is significantly in excess of our sum-of-the-parts component for these businesses of around 1.4 billion pounds, Goldman Sachs said in a research note.

OLD MUTUAL'S CONGLOMERATE DISCOUNT

Old Mutual has recently embarked on a programme of selling businesses no longer part of its core operation.

Skandia Liv Chairman Gunnar Palme told Reuters that when Old Mutual first acquired the Skandia businesses, they also got Skandia Liv, which is a mutually-owned life insurance company.

Because Skandia Liv was mutually-owned, that meant it could not pay out profits to Old Mutual. However, it was still integrated in and owned by Skandia Nordic, which included the rest of the insurance and banking business of Skandia. So effectively Skandia Liv is now buying its former owner.

We are buying our mother company, Palme told Reuters.

Skandia Liv is Sweden's biggest life insurance company, with some 500 billion Swedish crowns of assets under management.

The companies said the sale would lead to some synergies, but did not have any detail on whether or not the deal would result in job cuts.

The planned Nordic sale is part of Old Mutual's attempts to address investors' concerns that the market value of the group, which runs banking, insurance and asset management operations in 33 countries, is below the combined standalone value of its businesses, and is weighed down by a conglomerate discount.

Old Mutual sold its American life insurance business to hedge fund Harbinger this year and remains keen on selling its stake in South African lender Nedbank .

The price is so good, it is hard for OM to refuse, said a banker who advises European insurance companies and did not work on the Old Mutual/Skandia deal.

OM needs to recreate itself. It is a ragtag of businesses. Over the longer-term I can see it positioning itself as an African insurer. The African story is compelling compared to low growth western European markets, added the banker.

Investment banks Evercore Partners and Morgan Stanley both advised Old Mutual on the deal.

($1 = 7.0180 Swedish crowns)

(Additional reporting by Victoria Howley; Editing by Mark Potter and Helen Massy-Beresford)