For a while now, City experts had speculated that Pru was planning to break up its operations to concentrate on the more profitable parts of the business in Asia and the US.
Regarding its demerger plans, the company said that M&G Prudential will become a capital-efficient UK & Europe savings and investment provider, while Prudential plc will be an insurance group focused on high-growth opportunities in Asia, the U.S. and Africa.
Worldwide insurer Prudential has announced that its United Kingdom and European units will be split from the rest of its global insurance business.
Ahead of the demerger, Prudential will transfer the legal ownership of its Hong Kong insurance subsidiaries from its United Kingdom regulated insurance entity, The Prudential Assurance Company Limited, to Prudential Corporation Asia Limited.
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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. M&G Prudential also announced the sale of 12 billion pounds of United Kingdom annuity portfolio 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.
Mike Wells, group chief executive of Prudential, says following separation, M&G Prudential will have more control over its business strategy and capital allocation. It is also subject to regulatory and shareholder approval. New business profit increased by 12% to £3.6bn.
"The move represents a welcome expansion of the United Kingdom listed asset management sector which in recent years has lost Henderson, which delisted on the London Stock Exchange following its merger with New York Stock Exchange listed Janus, and F&C following its acquisition by Canada's BMO, a subsidiary of the Bank of Montreal".
The announcement comes as Prudential posted a 10 per cent rise in operating profits for 2017 to £4.7bn, up from £4.3bn a year earlier.
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Profits taken from its Asian operations far outstripped those generated from its business in the United Kingdom and Europe.
The US division saw operating profit edge up 3% and net business profit rise 9% as the life business Jackson delivered net inflows of £3.5bn with separate account assets rising 19% to £130.5bn.
Total revenue, net of reinsurance, was 86.56 billion pounds, up from 71.84 billion pounds a year ago. However, the company said the tax changes will be "positive in the long term" with the effective tax rate expected to fall to 18% from 28%.
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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"I am confident that, given the extent of our opportunities and our proven ability to execute and innovate, we are well positioned to continue to grow profitably", said Wells.
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