9th Sep 2019 17:00
(Alliance News) - Moody's Investors Service said Monday the soon-to-be-demerged UK asset management arm of FTSE 100-listed insurer Prudential PLC will benefit from strong growth in its PruFunds unit, despite short term pressure on profitability.
Prudential plans to demerge its M&G PLC asset management unit later in 2019.
Moody's argued that M&G will benefit over the next five to ten years from "robust" sales from its new generation products business, PruFund.
"The key competitive advantage of PruFund policies, which smooth out returns, insulating policyholders from market fluctuations, is that they are backed by M&G's strongly capitalised UK life fund," Moody's Associate Vice President Helena Kingsley-Tomkins said.
"Rapid growth at PruFund will help counterbalance a decline in assets under management as M&G's closed life insurance businesses run off."
Moody's added that the expertise at M&G in designing innovative products to help retirees benefits from recent UK pension reforms works in its favour. Despite this, most of the "heritage" life insurance business at M&G is closed to new customers and so it will increasingly rely on the more volatile earnings from its asset management business.
In the meantime, M&G will still be able to rely on the stable cash flows from the life insurance business as they run-off gradually.
"Nevertheless, M&G faces short-term pressure on profitability, driven by a reduced magnitude of longevity releases and competitive pressure on asset management fund flows," Moody's added. "Also, its central costs and interest expenses will rise following the split from its parent, when M&G will take on an estimated GBP3.2 billion share of group debt."
Shares in Prudential closed 1.6% higher at 1,426.74 pence in London on Monday.
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