Prudential Plc Through its Wholly-Owned Subsidiary Jackson National Life to Acquire the US Holding Company of REALIC for Pounds398M
June 3, 2012 by N/A
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LONDON, May 31 — Prudential issued the following news release:
On 30 May 2012, Jackson National Life Insurance Company (“Jackson”), an indirect wholly-owned subsidiary of Prudential plc (“Prudential”), entered into an agreement to buy SRLC America Holding Corp (“SRLC”) from Swiss Re. Jackson will pay US$621 million (Pounds398 million) in cash for the business, financed from its own resources. The purchase price will be adjusted as explained in more detail in the explanatory notes below. Swiss Re will retain a portion of the SRLC business through reinsurance arrangements to be undertaken prior to completion. The transaction is subject to regulatory approval and is expected to complete in the third quarter of 2012.
SRLC is a life insurance business that sits within the US division of Swiss Re’sAdmin Re. The primary operating subsidiary of SRLC is Reassure America Life Insurance Company (“REALIC”), which since 1995 has completed a significant number of transactions through stock acquisitions and reinsurance arrangements and has acquired a diverse portfolio of traditional US life business. The earnings of SRLC are derived from seasoned, long-duration cash flows generated principally from term life, whole life and basic universal life products. Jackson will acquire assets related to the subject business of approximately Pounds6.7 billion and approximately 1.5 million policies.
The acquisition is expected to be accretive immediately to Prudential’s IFRS and EEV earnings. The accretion to Jackson’s IFRS pre-tax earnings from the business to be acquired is estimated at Pounds100 million in the first year of ownership. The acquisition diversifies Prudential’s earnings base by increasing the profits that Jackson derives from insurance income.
It is estimated that the embedded value of the acquired business at 30 June 2012 will be Pounds865 million before taking into account future cost and capital synergies (net of implementation costs), which are expected to further enhance the value of the acquired business.
The acquisition is capital efficient such that it will have a modest impact on Prudential’s IGD excess capital and Jackson will maintain a RBC ratio within its target range following completion of the transaction. Following the acquisition, Prudential is increasing its 2013 Jackson annual net remittance objective from Pounds200 million to Pounds260 million per year. Jackson’s net remittance in 2012 will not be affected by the acquisition.
Commenting on the acquisition, Mike Wells, President and Chief Executive Officer, Jackson, said:
“This bolt-on acquisition is in-line with our strategy and is a great opportunity to increase the scale of our life business. It is a capital efficient transaction that will produce an attractive IRR (internal rate of return) and payback period commensurate with what we achieve organically on writing new business. It helps diversify Jackson’s earnings by increasing the amount of income we generate from underwriting activities thereby enhancing the quality of our earnings and our ability to remit more cash to the Group.”
Explanatory notes on the financial impact of the transaction
IFRS 1. As the acquisition relates to a closed book of business, the acquired assets and liabilities will be accounted for at fair value which is anticipated to be equivalent to the purchase consideration. Accordingly, no goodwill will be recognised on completion.
2. The estimated earnings accretion of Pounds100 million represents stand-alone earnings of approximately Pounds115 million, less Pounds15 million of income foregone on the assets sold to finance the transaction.
3. The pre-tax earnings accretion forecast represents earnings between 1 July 2012 and 30 June 2013. European Embedded Value (EEV) 4. The estimated EEV at 30 June 2012 is based on the economic assumptions for Jackson’s non-variable annuity business at 31 December 2011.
5. In accordance with market practice, the difference between the purchase consideration and the embedded value on completion will be treated as a gain on acquisition and be reported in the 2012 EEV income statement.
Capital 6. The impact of the transaction on the US Statutory basis balance sheet is expected to be modest, as Pounds398 million of securities will be replaced by: * A net Pounds123 million of general account assets less liabilities; and
* A Pounds275 million admissible asset representing future statutory profits acquired.
7. The Group’s IGD excess capital calculation incorporates Jackson’s capital position on a US Statutory basis. Accordingly the impact on the Group’s IGD is also modest, with the Group’s IGD excess capital expected to reduce by approximately Pounds0.1 billion, representing the incremental capital requirements of the business acquired. Consideration 8. As is customary in such transactions, the consideration of Pounds398 million is based on an estimated balance sheet and will be adjusted within 90 business days after completion to reflect the actual value of SRLC according to its balance sheet on the date of completion. The consideration will be adjusted to reflect the potential differences between the actual and expected balance sheets which may include market value movements on capital and surplus, unwinding of expected future profits, finalisation of the extraction of business that is not part of the acquisition and associated tax attributes. The Directors reasonably believe the purchase price will not be adjusted by more than Pounds60 million. A further announcement will be made to confirm the final purchase price. Conditionality 9. One of the regulatory approvals on which the transaction is conditional relates to a pre-closing dividend Swiss Re will take. If this condition is not satisfied and is not waived by Jackson, Jackson will pay Swiss Re US$20 million. Historic profits 10. In 2011, on a US Statutory basis, REALIC delivered profit before tax and before net realised capital gains and losses of US$143 million and profit after tax and after net realised capital gains and losses of US$138 million. This information includes the results of the business to be retained by Swiss Re and is not representative of the business to be acquired (such information is not available from the statutory accounts of REALIC). Foreign exchange 11. A US$:Pounds foreign exchange rate of 1.56 has been used to determine the figures disclosed above.
About Jackson National Life Insurance Company
With US$120 billion in assets (IFRS), Jackson National Life Insurance Company (Jackson) is a leading provider of retirement solutions. The company sells variable, fixed and fixed index annuities, life insurance and institutional products. Through its affiliates and subsidiaries, Jackson also provides asset management and retail brokerage services. Jackson markets its products in 49 states and the District of Columbia through independent and regional broker-dealers, wirehouses, financial institutions and independent insurance agents. Jackson’s subsidiary, Jackson National Life Insurance Company of New York(TM), similarly markets products in the state of New York.
About SRLC
SRLC was incorporated on 29 March 2011 in order to effectuate the internal restructuring transactions of Swiss Re Ltd., the ultimate public company parent, into 3 distinct business units. SRLC was dormant until the reorganisation of the U.S. Admin Re business on 1 July 2011. Accordingly, the historical profit before tax and profit after tax information in respect of SRLC itself is not available.
About Swiss Re
Swiss Re is a leading wholesale provider of insurance, reinsurance and other insurance-based forms of risk transfer.
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