Published: Thu, March 15, 2018
Money | By Armando Alvarado

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

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

Fitch Ratings has downgraded the long-term ratings of UK-based life insurance group Prudential following the company's decision to separate its UK & European businesses (M&G Prudential) from the rest of the group.

The idea of the demerger is to give M&G Prudential more control over its capital allocation and strategy, while Prudential can focus also on the growth opportunities within the U.S., Asia and Africa.

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

After the merger, shareholders will hold interests in both Prudential and M&G Prudential.

M&G Prudential saw "record" flows of £17.3bn, taking its total funds under management to £350.7bn at the end of the period, up 13%.

Prior to the demerger, the group's debt capital position will be re-balanced across Prudential and M&G Prudential, which may include the redemption or debt liability management of issued debt, and new debt issuance.

Separately on Wednesday, Prudential also said that it plans to sell off a £12bn United Kingdom annuities book to Rothesay Life.

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. The business remains on track to deliver its previously announced cost savings target, the firm said.

"Our clear, consistent strategy, high-quality products and constantly improving capabilities have enabled us to deliver excellent progress across the Group, led by double-digit growth in our Asia business", said Wells.

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Prudential plans to demerge its UK & Europe business from the US, Asia and Africa business, creating two separately-listed companies.

The blue chip FTSE 100 index closed down 0.09 percent at 7,132.69 points, slightly above the pan-European STOXX 600, down 0.15 percent while the Dow Jones Industrial Average was losing about 1 percent at the same time.

Mike Wells, Group Chief Executive, said: "Our businesses share common heritage, values and goal".

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.

Discussions have already commenced with regulators to ensure the Group will remain subject to effective on-going supervision in line with worldwide standards set by the global Association of Insurance Supervisors (IAIS).

This reinsurance deal covers an annuity book containing around 400,000 policyholders, which makes the deal the largest reinsurance transaction of its kind in the UK.

The transition to a Part VII transfer will see all of the underlying assets and policy liabilities transferred to Rothesay Life, subject to regulatory and court approval.

The demerger may not happen until late 2019 or early 2020 as Prudential first needs to undertake some legal paperwork.

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