The deal, which would have been the largest ever such transfer covering 400,000 policyholders, was announced in 2018 at the same time as Prudential said it would split in two. The annuities - which pay pensioners a fixed income for life - are now managed by M&G, Prudential's former UK arm.
The High Court in London last year blocked the deal following representations from around 1,000 policyholders, who were wary about the financial strength of Rothesay, a major player in the sector.
But the High Court was wrong to assume there was a material difference between the level of financial support which the two firms could offer, according to a summary of the appeal judgment published on Wednesday.
"This will be very well received by the insurance industry, as the original and unprecedented ruling risked stymieing corporate activity," said Michael Abramson, partner at consultants Hymans Robertson.
Insurers frequently transfer books of business to one another, but the process requires court approval.
Another hearing for the policy transfer can now go ahead, the appeal court said.
The hearing is likely to take place late next year, a Rothesay spokesperson said.
(Reporting by Carolyn Cohn, editing by Louise Heavens)