What Prudential's United Kingdom demerger plan means for its shareholders

Anne Richards CEO of M&G
Anne Richards CEO of M&G
Author

15 March, 2018

Prudential has announced plans to separate M&G Prudential from the insurance business to create two separately-listed companies.

Meanwhile, Prudential will include the Asian, US and African operations and retain the listing status in London, Hong Kong, Singapore and NY.

Following the demerger, Prudential plc will remain headquartered in the United Kingdom and retain its premium listing on the London Stock Exchange, its primary listing in Hong Kong, and other listings in Singapore and NY.

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.

Prudential also announced the sale of £12bn ($16.7bn) of its United Kingdom shareholder annuity portfolio to life insurer Rothesay Life. This is expected to be followed by a full Part VII transfer of the portfolio by the end of 2019, with the capital benefits of the transaction expected to be retained within the Prudential group to support the demerger process.

"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. Fitch has concluded that the Prudential Assurance Company (PAC), the main insurance operating subsidiary of M&G Prudential, will no longer be treated as "Core" to the Prudential group under the agency's group rating methodology.

Last year, DB pension schemes in the United Kingdom totalled £12.4bn of buy-ins and buy-outs with seven insurance companies.

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Meanwhile, Prudential will be able to focus on the attractive returns and growth potential of its business in Asia and the US. 'This suggests total capital release potential of c£3.3bn assuming that the entire £34bn United Kingdom annuity portfolio is eventually divested, ' comments Cathcart. Despite an early rise, shares in Morrison's gave up gains and posted the worst performance of the index, down 4.8 percent after the supermarket gave a full-year update amid a tough environment for food retailers due to competition in pricing and online.

Growth was again driven by Asia, which delivered a 15% rise in operating profit and a 12% increase in new business profit.

Profits taken from its Asian operations far outstripped those generated from its business in the United Kingdom and Europe.

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. The US business saw profit grow by 9 per cent to £2.2bn. The Prudential dividend policy will remain unchanged through the separation period.

Donald Trump's USA tax reform resulted in a £445mln charge for re-measuring deferred tax balances a year ago.

The company improved its capital strength with Solvency II surplus rising by 6% to £13.3bn and the ratio increasing by 1 percentage point to 202%.


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