Prudential PLC, the London-based parent of Jackson National Life Insurance Company, plans to keep its life and annuity operations in the United States and Asia but separate from its life and asset management operations in the United Kingdom and Europe.
Executives from the U.K. Prudential — which has no connection with the Newark, New Jersey-based Prudential Financial Inc. — talked about the proposed spin-off of its U.K. and European life business today, when they released the company’s earnings for 2017.
(Related: AXA Talks More About US Life Spinoff)
The U.K. Prudential, which uses the International Financial Reporting Standards (IFRS) and trades in Europe under the stock symbol PRU, reported 2.4 billion British pounds in profits for 2017 after taxes, up from 1.9 billion pounds in profits for 2016. The company’s underlying free surplus generated increased 2%, to 3.6 billion pounds.
Operating profits increased 10%, to 4.7 billion pounds.
Prudential has been in business since 1848, and it has been selling life insurance in London since 1854. Managers created the current life business, M&G Prudential, by merging a number of homegrown and acquired businesses with M&G, an asset manager that Prudential acquired in 1999.
European Solvency II financial standards apply to life insurers in the United Kingdom and Europe.
Mike Wells, the chief executive officer of the U.K. Prudential, said separating M&G Prudential from the other Prudential operations, by distributing shares of M&G Prudential stock to Prudential PLC shareholders, should make both companies stronger.
“Following separation, M&G Prudential will have more control over its business strategy and capital allocation,” Wells said. “This will enable it to play a greater role in developing the savings and retirement markets in the U.K. 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 U.S.”
M&G Prudential, the business involved in the proposed spin-off accounted, for 1.4 billion pounds of Prudential’s 4.7 billion pounds in 2017 operating profits.
Prudential is calling the separation process a “demerger.”
The demerger is subject to shareholder and regulatory approval.
Prudential executives say they are already talking to regulators, and to the rating agencies.
The company notes that it hopes to realign its operations in Asia before it goes ahead with the demerger.
Jackson National is based in Lansing, Michigan, and it’s a leader in the U.S. annuity market.
Market share tables for 2017 from the National Association of Insurance Commissioners show that Jackson National brought in more considerations from annuities than any other insurer in the U.S. annuity market. Jackson National accounted for about $19 billion in annuity considerations and a 7.7% share of 2017 U.S. annuity considerations.
Prudential’s 2017 financial report shows that the U.S. operations generated 2.2 billion pounds in operating profits in 2017, up from 2 billion pounds in operating profits in 2016.
Variable annuity sales increased 1%, in spite of the turmoil related to the U.S. Department of Labor’s fiduciary rule, Prudential says.
Some critics have argued that offering variable annuities exposes an insurer to risk, but Prudential says it believes selling new variable annuities in the United States is “extremely attractive, with high internal rates of return and short payback periods.”
Prudential says in an official description of risk factors that Jackson National’s main competitors in the United States include units of companies such as Aegon N.V., American International Group Inc., AXA S.A., Brighthouse Financial Inc., Lincoln Financial, MetLife Inc. and the U.S. Prudential.
“Prudential believes competition will intensify across all regions in response to consumer demand, digital and other technological advances, the need for economies of scale and the consequential impact of consolidation, regulatory actions and other factors,” the U.K. Prudential says. “Prudential’s ability to generate an appropriate return depends significantly upon its capacity to anticipate and respond appropriately to these competitive pressures.”
— Read Analyst Sees ‘Great Restructuring’ of Life Industryon ThinkAdvisor.