Prudential sells £12bn annuity book to Rothesay Life

Ivan Schwartz
March 15, 2018

Insurer Prudential (PRU) led the index, up 5.7% at £19.30 on its plans to hive off its recently formed United Kingdom and European M&G Prudential group into a separate London-listed FTSE 100 business.

The group announced plans to combine its United Kingdom savings and investments businesses to create a single entity named M&G Prudential in August.

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.

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).

Alongside the demerger, M&G will sell £12.0 billion of its shareholder annuity portfolio to Rothesay Life.

"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.

Life, annuities, pension and longevity re/insurer Rothesay Life has reinsured a £12 billion chunk of Prudential plc's annuity book managed under the M&G Prudential brand.

Regarding its demerger plans, the company said that M&G Prudential will become a capital-efficient UK & Europe savings and investment provider, while Prudential plc will be an insurance group focused on high-growth opportunities in Asia, the U.S. and Africa.

Prudential will be able to focus on the "attractive returns and growth potential of its market-leading businesses in Asia and the US", he said.

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The aim is to turn M&G Prudential into a more capital-efficient and customer-focused business, as the business targets increasing demand for its retirement and savings offering.

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

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%.

The Group will look to realise efficiencies to benefit the two businesses post demerger.

Group debt will be rebalanced across the entities and will involve debt redemption and new issuance.

Discussions have already commenced with regulators to ensure the Group will remain subject to effective on-going supervision in line with worldwide standards set by the global Association of Insurance Supervisors (IAIS).

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.

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.

The timing of the demerger will be subject to a number of factors, including the completion of the United Kingdom annuity sale, prevailing market conditions, the transfer of the legal ownership of the Hong Kong business and efforts to minimise costs associated with the demerger.

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