Rothesay Life reinsures £12 billion annuity book for Prudential

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Prudential 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.

Profits taken from its Asian operations far outstripped those generated from its business in the United Kingdom and Europe.

Also commenting on the announcement, Hymans Robertson partner and head of risk transfer solutions James Mullins said: "These highly material annuity back book transactions are significant for the bulk annuity market and for pension schemes looking to complete buy-ins and buyouts because they effectively use up insurance company capacity". Following completion, Rothesay Life will be the largest specialist annuity insurer in the UK.

Shareholders will retain stakes in both companies after the demerger, and both will have premium listings on the London Stock Exchange. We have also achieved all of our 2017 objectives, which we set in December 2013.

Group IFRS operating profit of 4.70 billion pounds grew 6 percent. Earnings per share were 93 pence, higher than 75 pence past year. In Asia, the company reported double-digit broad-based growth in new business profit of 12 percent.

Total revenue, net of reinsurance, was 86.56 billion pounds, up from 71.84 billion pounds a year ago.

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Earned premiums, net of reinsurance, went up to 41.94 billion pounds from 36.96 billion pounds a year ago.

"Captive asset managers embedded within life offices are rarely fully-reflected in the parent's valuation and the move should give M&G increased strategic flexibility in charting its own destiny over the long run", said Hollands.

Under the agreement, the group's M&G Prudential arm has reinsured £12 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.

Full-year ordinary dividend rose 8 per cent to 47 pence per share.

James Mullins Partner and Head of Risk Transfer Solutions at Hymans Robertson commented on the transaction, "Today's announcement that £12 billion of Prudential's existing annuity portfolio will transfer to Rothesay Life, combined with the recent news that Phoenix is taking on Standard Life's annuity portfolio means that the total value of annuity liabilities taken on by the eight insurers now active in the buy-in and buy-out market is expected to be around £40 billion in 2018, before allowing for any further consolidation of insurer annuity business".

Prudential's shares were up 5.4 percent to 19.25 pounds at 0841 GMT, taking it to the top of the FTSE 100 index.