March 23, 2018

Prudential to demerge fund management business

15 March 2018, 02:32 | Melvin Schneider

Prudential shares jump on spin-off news: This is how the City is reacting

Prudential to spin off UK and European business

The decoupling of Pru from M&G Prudential will result in two separately-listed companies, which the life insurer expects will both be included in the FTSE 100 index.

M&G Prudential will be headquartered in the United Kingdom and hold a premium listing on the London Stock Exchange. John Foley, the current head of M&G Prudential, will remain in charge of that business.

James Mullins Partner and Head of Risk Transfer Solutions at Hymans Robertson commented on the transaction, "Today's announcement that £12 billion of Prudential's existing annuity portfolio will transfer to Rothesay Life, combined with the recent news that Phoenix is taking on Standard Life's annuity portfolio means that the total value of annuity liabilities taken on by the eight insurers now active in the buy-in and buy-out market is expected to be around £40 billion in 2018, before allowing for any further consolidation of insurer annuity business". The transaction has been initially set up as a reinsurance contract and is expected to lead to a transfer of the portfolio by the end of 2019.

"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", said Wells.

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

"Following separation, M&G Prudential will have more control over its business strategy and capital allocation".

Meanwhile, Prudential will be able to focus on the attractive returns and growth potential of its business in Asia and the US.

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Prudential says the demerger will result in two separately-listed companies, "each with its own distinct investment prospects". Proceeds will be used to support the group's demerger.

Asia new business profit was up 12 per cent, mainly as a result of prioritisation of health and protection products and positive pricing actions.

The reinsurance arrangement with Rothesay Life will help Prudential to separate out legacy annuity business, so de-risking and preparing its two new separated operating entities for further growth.

Shares (Berlin: DI6.BE - news) in Glencore (Frankfurt: 8GC.F - news) were up 1.8 percent, Anglo American added 3.3 percent and Antofagasta (Other OTC: ANFGF - news) rose 3.4 percent.

Alongside the announcement, Prudential reported an operating profit of £4.7bn for 2017, up 6% at constant exchange rates.

For fiscal 2017, Prudential's profit before tax grew to 3.97 billion pounds from last year's 3.21 billion pounds.

M&G Prudential achieved record levels of external asset management net inflows of £17.3bn, contributing to total assets under management of £351bn, up from £311bn the previous year. 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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