U.K. Pru Aims to Sell Stake in Jackson to Investors

Prudential PLC says it wants to sell a minority stake in Jackson National Life Insurance Company to investors, to help get Jackson capital it can use to continue to diversify its product mix.

But Prudential executives are emphasizing that they will want to make the stock sale at the right time, to get a good price, and that they simply want to sell a minority stake in Jackson.

“We can change the timing,” Mike Wells, Prudential’s chief executive officer, said Wednesday, during a conference call with securities analysts that was streamed live on the web. “We’re not forced into doing this… It’s a very different circumstance that someone disposing of a business that’s not performing and needs capital.”

Prudential PLC is a London-based company that was founded in 1848. It has no connection with Prudential Financial Inc., which is based in Newark, New Jersey.

Resources

• Links to many Prudential PLC filings are  available here.
• The Prudential PLC investor relations page, which offers a link to a video recording of a management discussion of the company’s latest results and plans, is available here.
• An article about Prudential’s discussions of a Jackson realignment is available here.

Jackson is a Lansing, Michigan-based insurer with about $298 billion in assets.

Jackson ranked second in the U.S. annuity market in 2019 in terms of annuity considerations, with about $20 billion in annuity considerations and a 6.6% share of the market, according to a preliminary 2019 National Association of Insurance Commissioners market share report.

Prudential PLC announced the preparations for a minority initial public offering for Jackson around the same time the company announced its earnings for the second half of 2019.

The Earnings

Prudential reports its earnings in U.S. dollars, using the International Financial Reporting Standards (IFRS) format.

An IFRS statement of operations looks much different from a statement of operations prepared according to the U.S. Generally Accepted Accounting Principles (GAAP) rules and, for example, does not include a revenue figure.

Prudential is reporting $2 billion in profit for the second half of 2019 on $706 billion in assets, compared with $1.9 billion in profit on $662 billion in assets for the second half of 2018.

The U.S. operations are reporting $1.9 billion in operating profits for the half year on $286 billion in assets, up from $1.4 billion on $267 billion in assets.

The Conference Call

Here’s a look at some of what Prudential executives talked about during the conference call.

The Covid-19 Pneumonia Virus

Mike Wells, Prudential’s chief executive officer, said the outbreak of severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), the virus that causes Covid-19 pneumonia, has been hurting sales in China and Hong Kong, but that sales elsewhere have been strong.

At Prudential agencies, and in the company’s own offices, “we’ve been very fortunate,” Wells said. “We’ve had very, very few incidents of the virus.”

Prudential has tried to manage risk by encouraging people to work at home, splitting up work times, and taking other steps to keep people healthy, Wells said.

Nic Nicandrou, Prudential’s chief executive officer for Asia, said the company needed, and received, relief from some face-to-face meeting requirements from regulators in Hong Kong.

Wells said that, given that Prudential is a large player in Asia, it sees itself as having an important role as a corporate citizen.

The company has contributed millions of dollars to Covid-19 response efforts in China and other markets, and it has added outbreak-related benefits, such as quarantine benefits, to in-force products, Wells said.

“There’s been very, very low utilization of those benefits, because we’ve been very fortunate, so far, that we’ve not had a lot of our consumers affected by the virus,” Wells said. “It’s in the few hundreds. So, this has not had a financial impact on us yet.”

Volatility and Low Rates

Securities analysts asked the Prudential executives about the effects of falling interest rates and stock market volatility.

Nicandrou said Prudential can cope with low rates by changing product prices, and by creating new types of products that can meet consumer needs while performing well in a new rate environment.

He added that, in the long run, periods of shock and volatility should be good for Prudential.

The kinds of periods “speak to the value of the risk transfer in the insurance that we provide,” Nicandrou said. “People have 11 years of bull market, and they feel that they don’t need to pay for insurance, because markets always go up. And then they’re reminded that markets don’t always go up. So, there’s value in what we do.”

Jackson

Prudential executives noted during the conference call that Jackson adopted new National Association of Insurance Commissioners variable annuity reserving rules early for 2019, and that the company recorded a $395 million one-time hedging loss as a result of the rule shift.

Overall, however, sales were strong, according to Mark FitzPatrick, Prudential’s chief financial officer.

“Fixed annuity, fixed index annuity and the institutional business represents 34% of 2019 new sales, thereby demonstrating the strength of the Jackson franchise,” FitzPatrick said.

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