Prudential Plc to Demerge Businesses in UK and Europe, Sell £12 Billion of Annuity Portfolio to Rothesay
March 15, 2018 by Robert O'Connor
LONDON – Prudential plc said it will demerge its businesses in the United Kingdom and Europe.
The demerger of M&G Prudential, Prudential’s U.K. and European retirement and savings business, will “create compelling opportunities in each of our geographies,” it said in a statement. The new entity, to be known as M&G Prudential, will have 7.2 million customers and £351 billion (US$434 billion) in assets under management. The company will serve 18 markets and have a network of 25,000 financial advisers.
The move will create two separate listed companies. M&G Prudential will be “an independent, capital-efficient U.K. and Europe savings and investment provider, headquartered and premium-listed in London,” Prudential said in a statement.
Prudential plc will be “a leading international insurance group focused on high-growth opportunities in Asia, the U.S. and Africa, headquartered and premium-listed in London.”
“This is an important step, which we believe will deliver long-term benefits for both businesses and all our stakeholders,” Paul Manduca, Prudential’s chairman, said in a webcast.
As a stand-alone business, Manduca said, “M&G Prudential has strong capabilities in the growing savings and wealth management marketplace. It will be focused on outperforming its U.K. and European competitors and will no longer compete with our businesses in Asia and the U.S.”
In line with the strategy to transition towards a more capital efficient, de-risked business model, M&G Prudential will also sell £12 billion of its shareholder annuity portfolio to Rothesay Life. Under the terms, M&G Prudential has reinsured £12.0 billion of liabilities to Rothesay Life. The capital benefit of this transaction will be retained within the group to support the demerger process.
Barrie Cornes, an equity analyst at Panmure Research in London, offered a favorable assessment of Prudential’s demerger plans. It will be a “very positive move” for shareholders, he said in a note.
Bernstein Research in London, said the demerged company will be in the FTSE 100 list of largest U.K. businesses.
The annuity sale to Rothesay Life will buttress the economics of the demerger. “Prudential will retain the capital benefit of this transaction within the group,” Bernstein said in a note.
Also, Prudential announced a 6% increase in IFRS operating profit to £4.69 billion in 2017, U.K.-based financial services group Prudential said its 2017 operating profit figure, calculated at constant rates of exchange, benefited from double-digit growth in Asia.
“Our clear, consistent strategy, high-quality products and constantly improving capabilities have enabled us to deliver excellent progress across the group,” Mike Wells, group chief executive, said in a statement.
Prudential, Wells added, has “also achieved all of our 2017 objectives, which we set in December 2013. This represents the third set of objectives successfully achieved within the last 10 years.”
The group Solvency II surplus was estimated at £13.3 billion, equivalent to a coverage ratio of 202%. Underlying free surplus generated fell by 1% to £3.64 billion. Life new business profit rose by 12% to £3.6 billion. IFRS after-tax profit increased by 21% to £2.39 billion.
Cornes described Prudential’s annual results as “good,” but not the main event. The operating profit was “well ahead of consensus,” Cornes said in a research note.
(By Robert O’Connor, London editor: Robert.OConnor@ambest.com)
BN-NJ-3-14-2018 1453 ET #
Originally Posted at AM Best on March 14, 2018 by Robert O'Connor.
Categories: Industry Articles
