United Kingdom bulk annuity market takes off with record £12bn deal

United Kingdom bulk annuity market takes off with record £12bn deal

United Kingdom bulk annuity market takes off with record £12bn deal

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.

Shares of Prudential plc (PRU.L) were gaining around 5 percent in London trading after the UK-based financial services group reported Wednesday higher profit in its fiscal 2017 with increased premiums and strong growth in Asia.

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.

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

"The decision to demerge M&G Prudential follows a rigorous review by the board which considered all options, including the status quo, and concluded that it is in the best interest of the group to operate as two separately-listed companies, able to focus on their distinct strategic priorities in their chosen geographies", Prudential's chairman Paul Manduca said.

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In line with the demerger, Prudential also announced on Wednesday that M&G Prudential has agreed to sell £12 billion of its United Kingdom 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.

When the merger completes - subject to shareholder and regulatory approval - shareholders will have holdings in both Prudential and M&G Prudential.

According to the company's statement, its United Kingdom and Europe savings and investment business, M&G Prudential, led by its current division chief, John Foley, will be a standalone entity focusing on more "capital-efficient and customer-focused" financial services.

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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Last year, DB pension schemes in the United Kingdom totalled £12.4bn of buy-ins and buy-outs with seven insurance companies. Proceeds will be used to support the group's 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.

Donald Trump's U.S. tax reform resulted in a £445mln charge for re-measuring deferred tax balances past year. Its remaining business will contain its faster growth USA and Asian operations. Its IFRS group operating profit of £4,699 million was up 6% thanks largely to double digit broad-based growth in new business profit in Asia.

A transaction of this size demonstrates the ability of reinsurance capital to provide large solutions for life entities and pensions, nearly equaling the size of the entire United Kingdom bulk annuity market from 2017 where transactions totaled just £12.4 billion.

Prudential plc's dividend policy will remain unchanged through the separation period.

"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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