Speculation over the future of Prudential in the UK intensified after the announcement that the firm is to merge its two UK businesses – a life insurer and a fund group – into one.
Last month reports claimed that the firm was seeking to sell a £10 billion back book of annuities – but group CEO Mike Wells said yesterday that the firm is assessing both internal and external options, with long-term shareholder returns the ultimate focus.
“There’s been a lot of noise around this,” Wells said on a results call. The business is looking at how to de-risk and lower the capital intensity of the book, he said.
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“We’re not going to announce any specific terms, we’re not looking to displace the entire book,” he noted. “We’ve exited the business on a retail level. It’s a profitable business for us that produces good cash flow, we’re very efficient at operating it, so we’re going to take a long-term look at this from a shareholder return point of view, not a short-term ‘can we create cash’ point of view.”
“We do not need to do anything to release capital as a group,” Wells said. What will be assessed is whether there are buyers in the marketplace that would like to participate in some of the risk, and whether there is something that Prudential can do with them that reduces its exposure to some of the risk, he went on to say. “This is not a wholesale exit for us of that business.”
As for the merger of M&G with Prudential UK & Europe, which will form M&G Prudential, he stressed that the focus is not on reducing costs.
“This really isn’t a cost saving story if you look at it,” he said. “We’re investing in both these firms transformationally, they’re both positioned well in terms of their relative competitive position and ability to compete price-wise, or they wouldn’t have the success they’ve had.”
The group will be investing heavily in new combined business, particularly in technology and systems, he said.
“Some of the direction of travel in the UK is clearly an intersection between where insurers are going, and where asset managers are going. We don’t want to pay twice for the intersect, so that’s a disproportionate amount of the savings. But to be clear, we are investing in these businesses, this is not a cost saving [exercise].”
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