British insurer Prudential Plc announced plans to demerge M&G Prudential — its U.K. and Europe business — from its international business, a move that will result in two separately listed companies, as the group reported a year-over-year rise in full-year 2017 net profit.
Prudential will focus on high-growth opportunities in Asia, the U.S. and Africa, while M&G Prudential is intended to be an independent U.K. and European savings and investment provider, the group said March 14.
In preparation for the demerger process, and to align the ownership of its businesses with their operating structures, the group intends to transfer the legal ownership of its Hong Kong insurance subsidiaries from The Prudential Assurance Co. Ltd., M&G Prudential's U.K. regulated insurance entity, to Prudential Corp. Asia Ltd. The transfer is expected to complete by 2019-end.
After the demerger's completion, the group noted that shareholders will hold interests in both Prudential Plc and M&G Prudential. Prudential will remain headquartered in the U.K. and retain its listings on the London Stock Exchange, as well as in Hong Kong, Singapore and New York. M&G Prudential will also be based in the U.K. and listed in London.
"Following separation, M&G Prudential will have more control over its business strategy and capital allocation. This will enable it to play a greater role in developing the savings and retirement markets in the U.K. and Europe through two of the financial sector's most trusted brands, while Prudential Plc will be able to focus on the attractive returns and growth potential of its market-leading businesses in Asia and the U.S.," Group CEO Mike Wells said.
The demerger is subject to shareholders and regulatory approvals.
Annuities sale
The group also announced the sale of M&G Prudential's £12.0 billion shareholder annuity portfolio to Rothesay Life Plc. Under the terms of the agreement, M&G Prudential has reinsured £12.0 billion of IFRS shareholder annuity liabilities, valued as of Dec. 31, 2017, to Rothesay Life. The portfolio sale is expected to complete by the end of 2019.
The timing of the demerger will depend on the completion of the transaction and prevailing market conditions, among other factors, according to the group.
Prudential reported full-year 2017 profit attributable to equity holders of the company of £2.39 billion under International Financial Reporting Standards, up from £1.92 billion a year ago. EPS increased on a yearly basis to 93.0 pence from 75.0 pence.
IFRS operating profit from Prudential's Asia life insurance and asset management businesses increased year over year to £1.98 billion from £1.64 billion and insurance operating profit in the U.S. rose 8% year over year to £2.21 billion. The total operating profit in the U.K. and Europe long-term business, before restructuring costs, amounted to £861 million, compared to the year-ago £799 million.
Gross premiums earned amounted to £44.01 billion in 2017, up from £38.98 billion in 2016. Earned premiums, net of reinsurance, rose to £41.94 billion from the year-ago £36.96 billion.
Benefits and claims totaled £71.85 billion in 2017, compared to £60.95 billion a year earlier.
The group's Solvency II ratio stood at 202% at the end of 2017, compared to 201% at the end of 2016.
A second interim dividend of 32.50 pence per share will be paid for 2017, bringing the full-year dividend to 47.00 pence per share, up from the 2016 dividend of 43.50 pence per share. Prudential noted that its dividend policy will remain unchanged through the separation period.
