December 18, 2018

Prudential to spin-off M&G Prudential and sell £12bn of United Kingdom annuity portfolio

15 March 2018, 02:35 | Joann Bryant

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

Prudential to spin off UK and European business

Prudential has announced plans to demerge its UK & Europe business, M&G Prudential, as well as the sale of a £12.0 billion UK annuity portfolio to Rothesay Life.

Prudential plans to demerge its UK & Europe business from the US, Asia and Africa business, creating two separately-listed companies.

John Foley, chief executive of M&G Prudential, added: "The demerger will allow M&G Prudential to play a broader leadership role in the fast-changing savings and investments market within the United Kingdom and Europe".

Fitch believes that the demerger announcement crystallises Prudential's strategic intent to separate M&G Prudential from the relatively higher-growth U.S. and Asia-Pacific businesses.

As part of the changes, M&G Prudential will also sell £12 billion (€13.5 billion) of its shareholder annuity in Rothesay Life.

Both transactions are expected to complete 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. "Rising interest rates in the United States would not necessarily work to Prudential's advantage, and the group's complex currency position is to an extent driven by the vagaries of sterling's performance".

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.

Prudential says the demerger will result in two separately-listed companies, "each with its own distinct investment prospects".

The Group will look to realise efficiencies to benefit the two businesses post demerger. 'This suggests total capital release potential of c£3.3bn assuming that the entire £34bn United Kingdom annuity portfolio is eventually divested, ' comments Cathcart. This reflected 6 per cent growth in the insurance business, with core life operating profit "stable" at £597 million, and record asset management profit of £500 million resulting from the positive impact on earnings of net fund inflows, supportive markets and higher performance fees.

Outside of the blue chips, shares in funeral services provider Dignity surged more than 15 percent, putting the stock on track for its biggest one-day gain since listing in 2004 after reporting full-year results.

Total revenue, net of reinsurance, was 86.56 billion pounds, up from 71.84 billion pounds a year ago.

Prudential raised its full year dividend by 8% to 47p per share even as underlying free surplus capital generation fell by 1% to £3.6bn due to an increase in restructuring costs and a lower contribution from our U.S. business.

"I am confident that, given the extent of our opportunities and our proven ability to execute and innovate, we are well positioned to continue to grow profitably", said Mr Wells.

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