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UK's Prudential mulls external funding, reinsurance to fuel US acquisitions

U.K.-listed insurance group Prudential PLC's U.S. unit will consider third-party funding and reinsurance among its options to fund bolt-on acquisitions, according to its CEO.

Speaking to analysts at a presentation of Prudential's first-half earnings, Michael Falcon, CEO of Prudential U.S. subsidiary Jackson National Life Insurance Co. said his company wanted to accelerate diversification away from variable annuities and that, in addition to organic growth, which it had already started, it would do this through "a more active stance on bolt-ons."

He added that in cases where its pursuit of this expansion outpaced Jackson's statutory capital generation, the company was "flexible as to funding options," which would include but not be limited to third-party financing "within the U.S. corporate structure" and reinsurance deals to reduce the risks of the books of business being acquired.

Could do better

Jackson's desire to diversify its book comes from a desire to boost remittances to the group. Falcon argued that boosting the level of non-variable annuity business in Jackson's portfolio would result in a "natural hedge," reducing the company's reliance on third-party hedging and so improving surplus cash generation.

The diversification push comes amid a review of the business, which Falcon, who joined Jackson at the beginning of 2019, described as "without limitation in scope and without preconceived outcome or conclusion."

He said there was a broad consensus that Jackson, despite being a "strong and dominant" player in its market, "can be more than it is today and we still somehow punch below our weight."

He added that in diversifying its business mix, Jackson could "deliver a step-change in value."

However, Falcon stressed that the company would not be cutting back on variable annuities. He said Jackson "understands and likes VA risks and returns" and that the business delivered "attractive, long-term, through-cycle returns." He also noted that the company was "well capitalized for its current book of business."

Active managers

Prudential reported IFRS profit after tax, including discontinued operations, of £1.54 billion in the first half of 2019, up 14% on the £1.36 billion profit it made in the same period of 2018. The continuing operations — Prudential's Asian and U.S. businesses — both boosted their operating profits by 14%.

Despite the positive results, Prudential's share price was down 3.91% to 1,437 pence as of 3:26 p.m. London time.

Along with its results, Prudential announced that the pending spinoff of its U.K. division, M&G Prudential, would take place in the fourth quarter of 2019.

Prudential group CEO Mike Wells told analysts that the spinoff was a "prime example" of the group continuing to monitor all parts of its business to ensure that they still fit.

"No part of the portfolio, nothing in Asia, no market we're in in Africa, no market we're in period, doesn't get that same lens applied to it," he said, adding: "That discipline needs to be there and we'll be active portfolio managers."