Prudential PLC plans to separate its U.S. business, Jackson Financial Inc., in the second quarter through a demerger, subject to shareholder and regulatory approval.
The demerger will see shares in Jackson distributed to Prudential shareholders, with the British insurer retaining a 19.9% noncontrolling interest in the unit, which the group will monetize over time to support investment in Asia.
The demerger will lead to a "significantly" earlier separation of Jackson than would have been possible through a minority IPO and future sell-downs. This accelerated process will allow Prudential to focus exclusively on growth opportunities in Asia and Africa. Following the proposed separation, Jackson expects to list on the NYSE.
The insurer appointed former MetLife Inc. CEO Steven Kandarian as nonexecutive chair of Jackson's board of directors, effective Feb. 1. Additional appointments of independent directors will be announced in due course.
Jackson National Life Insurance Co. is revising its hedge modelling for U.S. statutory standards for calculating reserves and capital from Dec. 31, 2020, which is estimated to reduce its risk-based capital ratio by roughly 80 percentage points. During the proposed separation, Jackson expects to have a risk-based capital ratio in the range of 425% to 450% and total financial leverage between 25% to 30%, subject to market conditions. The company's risk-based capital ratio is estimated to be around 340% to 355% at the end of December 2020.
Jackson expects to achieve this level of risk-based capital by contributing proceeds of its debt and hybrid capital raising to its regulated insurance subsidiaries. As a result, the unit does not anticipate to pay a pre-separation dividend to Prudential.
Prudential anticipates to maintain its existing credit ratings and growth trajectory, including a focus on achieving sustained double-digit growth in embedded value per share. Following the demerger, Prudential will target a debt-leverage ratio of about 20% to 25% over the medium term.
Additionally, the insurer is considering raising new equity of around $2.5 billion to $3 billion in Hong Kong or London, or both, with the aim of increasing the group's Asian investor base. Any future equity raising will allow the company to capture the rapid growth in the health, protection and savings needs of people in its chosen markets, according to Prudential CEO Mike Wells.
Prudential confirmed that the overall quarterly sales trajectory in Asia continued to improve during the second half of 2020 and operating performance for the year is anticipated to be in line with current market expectations.
