14th Mar 2018 10:47
LONDON (Alliance News) - Prudential PLC was the best performer in the FTSE 100 on Wednesday after announcing its intention to demerge M&G Prudential to create two separately listed companies, while also reporting a rise in profit for 2017.
Shares in Prudential were up 5.1% at 1,918.00 pence on Wednesday.
The insurance and financial services provider said IFRS pretax profit in 2017 rose to GBP3.30 billion from GBP2.28 billion the year before, as total revenue net of reinsurance rose to GBP86.56 billion from GBPP71.84 billion.
The company raised its full-year dividend by 8% to 47.00 pence per share, from 43.50p the year before.
Among geographic divisions in 2017, Asia saw underlying free surplus generated rise 19% at constant exchange rates, or up 25% at actual exchange rates, while the US suffered a 19% decline at constant exchange rates and a 15% fall at actual rates.
The UK & Europe achieved a 13% increase in underlying free surplus generated at both constant and actual exchange rates.
In the UK & European unit, operating profit before tax rose 10% to GBP1.38 billion, while Asia saw a 20% rise to GBP1.98 billion and the US a 9% increase to GBP2.22 billion.
In Asia, new business profit increased 12% primarily as a result of prioritisation of health and protection products and positive pricing actions.
Among markets, China's new business profit more than doubled, driven by higher sales and a "significant uplift" in regular premium health and protection business from increased scale and productivity in the agency channel. Hong Kong saw an 8% rise in new business profit.
In Singapore, new business profit increased by 22%, supported by annual premium equivalent sales growth of 21%.
Prudential said it saw improvement in all of its markets in Asia, with double-digit growth in IFRS operating profit in eight out of twelve countries, led by Hong Kong and China, both increasing 38%.
In the US, new business profit increased by 9% at constant exchange rates to GBP906 million, reflecting a "modest increase" in annual premium equivalent sales, up 1%.
US equity markets continued to rise in 2017, Prudential noted, which together with separate account net asset inflows of GBP3.5 billion, led to separate account balances that were on average 17% higher than the prior period. As a result, fee income increased 15% to GBP2.34 billion.
UK life new business profit grew by 28%, driven by a 29% increase in annual premium equivalent sales, supported by consumer demand for products offering access to its PruFund investment option.
Prudential on Wednesday also said it intends to demerge its UK & Europe business, M&G Prudential, from Prudential PLC - which will cover Asia, Africa and the US - "resulting in two separately-listed companies with different investment characteristics and opportunities".
On completion of the demerger, shareholders will hold interests in both Prudential PLC and M&G Prudential.
In line with the demerger strategy, Prudential said, M&G Prudential has agreed the sale of GBP12.0 billion of its shareholder annuity portfolio to Rothesay Life.
Under the terms of the agreement, M&G Prudential has reinsured GBP12.0 billion of liabilities to Rothesay Life, which is expected to be followed by a Part VII transfer of the portfolio by the end of 2019.
In a statement on Wednesday, Rothesay said the transaction, covering 400,000 policy holders, will result in a significant increase to Rothesay Life's asset base to over GBP37 billion, making it the largest specialist annuity insurer in the UK.
"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," said Addy Loudiadis, chief executive of Rothesay Life.
Prudential said the capital benefit of the Rothesay transaction will be retained within the group to support the demerger process.
Prudential PLC's dividend policy will remain unchanged through the separation period, the company said.
Following the demerger, Prudential PLC will remain headquartered in the UK and retain its premium listing on the London Stock Exchange, its primary listing in Hong Kong, and other listings in Singapore and New York.
M&G Prudential also will be headquartered in the UK and also will take a premium listing on the London Stock Exchange.
The timing of the demerger will be subject to a number of factors, including the completion of the UK annuity sale, prevailing market conditions, the transfer of the Hong Kong business to Prudential Corporation Asia Ltd, and the minimisation of costs associated with the demerger.
Prudential said an update on the demerger, related steps and timing will be provided in due course.
"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," said Prudential Chief Executive Mike Wells.
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