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Rothesay Life reinsures £12 billion annuity book for Prudential

14th March 2018 - Author: Steve Evans

Life, annuities, pension and longevity re/insurer Rothesay Life has reinsured a £12 billion chunk of Prudential plc’s annuity book managed under the M&G Prudential brand.

Rothesay Life logoPrudential today announced that it will be demerging its UK & Europe business M&G Prudential from the overall Prudential plc group, resulting in two separately-listed companies.

The aim is to turn M&G Prudential into a more capital-efficient and customer-focused business, as the business targets increasing demand for its retirement and savings offering.

As part of the demerger arrangements Prudential is also de-risking the M&G Prudential business, with a £12 billion annuity reinsurance deal, announced today, the start of that process.

Under the terms of the deal M&G Prudential has reinsured £12 billion of its annuity book liabilities to Rothesay Life. This is expected to be followed by a full Part VII transfer of the portfolio by the end of 2019, with the capital benefits of the transaction expected to be retained within the Prudential group to support the demerger process.

The transaction covers an annuity book containing roughly 400,000 policyholders, making this the largest 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. Rothesay Life’s shareholders have invested additional equity to finance this large deal.

Given the size of the deal it will boost Rothesay Life’s asset base to over £37 billion, which will make the firm the largest specialist annuity insurer in the UK.

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.

Paul Manduca, Chairman of Prudential plc, explained, “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. Both are expected to meet the criteria for inclusion in the FTSE 100 index”.

Mike Wells, Group Chief Executive, added, “Our businesses share common heritage, values and purpose. 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.

“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 UK 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 US.”

Addy Loudiadis, Chief Executive of Rothesay Life, commented, “I am delighted that Prudential, one of the UK’s most respected insurance companies, has chosen Rothesay Life to secure its policyholders’ pensions over the long term in a landmark transaction for us and for the industry. This is a testament to the quality and strength of our business, our focus on customer service, our execution proficiency and the support we receive from our shareholders. We look forward to building on this success as we predict a very active pension buy-out pipeline ahead.”

John Foley, Chief Executive of M&G Prudential, also said, “The demerger will allow M&G Prudential to play a broader leadership role in the fast-changing savings and investments market within the UK and Europe. M&G Prudential’s proven investment capabilities and balance sheet management provide an excellent platform from which to serve the demand for comprehensive financial solutions.”

The reinsurance arrangement with Rothesay Life will help Prudential to separate out legacy annuity business, so de-risking and preparing its two new separated operating entities for further growth.

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