Prudential announces split of global businesses

Mike Wells

Mike Wells

Prudential today announced that it will be demerging its UK & Europe business M&G Prudential from the overall Prudential plc group, resulting in two separately-listed companies.

On a day when it declared solid annual results, United Kingdom insurance giant Prudential Plc managed to steal its own thunder with a huge announcement - namely its plans to demerge M&G Prudential from Prudential Plc and partially sell off its United Kingdom annuity portfolio.

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

Back in August, the life insurer merged its asset management arm with its United Kingdom savings business, forming M&G Prudential with some £332bn in assets under management.

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The ratings agency noted that the demerger plan removes the company's global diversification benefits. Based on asset and liability values as at Dec 31, 2017, the transaction is estimated to give rise to a pre-tax IFRS loss of around £500 million in the first half of 2018, alongside the de-risking being achieved.

Prudential shares leapt over five per cent this morning, adding more than £2.5bn to the market capitalisation of the London-listed insurance giant.

It said it planned to demerge M&G Prudential into a separate company with a premium listing on the London Stock Exchange (Other OTC: LDNXF - news).

Meanwhile, Prudential, under the stewardship of group chief executive Mike Wells, will focus its efforts on the Asian, US and African markets. 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. As a standalone entity, M&G Prudential will be led by its current Chief Executive John Foley and will continue its transformation into a more capital-efficient and customer-focused business, targeting growing demand for comprehensive financial solutions. "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 will be able to focus on the attractive returns and growth potential of its market-leading businesses in Asia and the USA". We believe this shows the United Kingdom market has matured, remains very competitive and can cope with this kind of change.

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Separately on Wednesday, Prudential also said that it plans to sell off a £12bn United Kingdom annuities book to Rothesay Life. Prudential PLC is now served by its asset management arm Eastspring.

Its Asia business jumped 15 per cent in operating profits, compared with a 10 per cent increase in its United Kingdom and European division. Proceeds will be used to support the group's demerger.

Following completion, Rothesay Life will be the largest specialist annuity insurer in the United Kingdom, covering 400,000 policyholders.

The transition to a Part VII transfer will see all of the underlying assets and policy liabilities transferred to Rothesay Life, subject to regulatory and court approval. An update on the demerger, related steps and timing will be provided in due course.

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