Published: Thu, March 15, 2018
Business | By Max Garcia

Prudential to spin off United Kingdom and European business in radical break-up

Prudential to spin off United Kingdom and European business in radical break-up

Prudential opted to merge life insurance business Prudential with its asset management arm M&G in August past year in an attempt to make better use of the scale and capabilities available, the company said.

M&G Prudential also will be headquartered in the United Kingdom and take a "premium" listing on the London Stock Exchange.

Rating actions include a downgrade of The Prudential Assurance Company Ltd's (PAC) and Prudential's United States subsidiaries" (collectively Jackson) Insurer Financial Strength (IFS) Ratings to "AA-' from "AA".

The merger of M&G and Prudential's UK life insurance business, Prudential UK and Europe, to create M&G Prudential was only established last August.

Following the demerger, shareholders will be left with shares in both companies.

The ratings agency noted that the demerger plan removes the company's global diversification benefits.

The transaction will result in a significant increase to Rothesay Life's asset base to over £37bn.

Both companies will be headquartered and listed on the London Stock Exchange.

The move was made after "a rigorous review" by the board, which concluded it is in the best interest of the group to operate as two separately listed firms and allow each other to focus on their individual strategies, said Paul Manduca, Prudential's chairman. Revenue from the sale will support the demerging process.

Chief executive Mike Wells said after the separation, M&G Prudential will have more control over its business strategy and capital allocation, allowing it to play a "greater role in developing the savings and retirement markets in the United Kingdom and Europe".

"Looking forward, we believe we will be better able to focus on meeting our customers' rapidly evolving needs and to deliver long-term value to investors as two separate businesses", he said.

Following the demerger, Prudential plc will remain headquartered in the United Kingdom and retain its premium listing on the London Stock Exchange, its primary listing in Hong Kong, and other listings in Singapore and NY.

Prudential also announced the sale of £12bn ($16.7bn) of its United Kingdom shareholder annuity portfolio to life insurer Rothesay Life. "This will enable it to play a greater role in developing the savings and retirement markets in the United Kingdom and Europe through two of the financial sector's most trusted brands, while Prudential plc will be able to focus on the attractive returns and growth potential of its market-leading businesses in Asia and the U.S.".

M&G Prudential saw "record" flows of £17.3bn, taking its total funds under management to £350.7bn at the end of the period, up 13%. Prudential PLC is now served by its asset management arm Eastspring.

BRITISH insurer Prudential on Wednesday reported a 6 per cent rise in IFRS operating profit for the full-year ended 2017 to £4.7 billion (S$8.6 billion) on a constant exchange rate basis, led by double-digit growth in its Asia business. This may include the redemption or debt liability management of issued debt, and new debt issuance. It is also subject to regulatory and shareholder approval.

This reinsurance deal covers an annuity book containing around 400,000 policyholders, which makes the deal the largest reinsurance transaction of its kind in the UK.

With pressure expected on reinsurance pricing due to recent data showing that lower levels of mortality improvement continue in England and Wales, the timing is ripe for those seeking longevity risk transfer related solutions.

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