Split and Annuity Sale



Market likes today’s news, results, split and the sale of the annuity portfolio.

I?m not so sure about the split or the annuity sale.

The split separates US Asia and Africa from UK and European M&G Prudential Business. Inclusion of US with Asia Africa seems odd, Mike Wells gave some explanation around opportunities in Pensions in US & Asia and demographic difference which sounded odd. It feels that the two parts being less geographically diversified, potential returns in Asia likely will be higher, but the risks will also increase, could be a bumpier ride.
Timing is unclear as there are various approvals needed, I worry there will be uncertainty around the companies for some time and no doubt a lot of advisers to support. It will be several years before we get clear picture of the accounts of these two companies uncluttered by large one-offs.

?The Group will look to realize efficiencies to benefit the two businesses post demerger? Funny that, they would claim the same if this was a merger. Establishing and paying two Corporate management structures, HQs etc. no doubt puts a broad smile of the faces for those jockeying for the newly duplicated positions, my smile is more bemused.

The annuity sale is to de-risk, but the FY results state ?Based on asset and liability values as at 31 December 2017, the transaction is estimated to give rise to a pre-tax IFRS loss of around £500 million in the first half of 2018, alongside the de-risking being achieved.? I?m no expert, but I wonder whether they would not be better holding this business in a rising interest rate environment. ?The capital benefit of this transaction will be retained within the Group to support the demerger process.? I hope this is not a reflection of the costs of demerger!

I have long been a fan of PRU?s Asia strategy and maybe under this structure it will move that up a notch, I?m willing to hold and see how this plays out and probably hold Prudential long term. CNBC asked Mike Wells why demerge M&G not go for a trade sale, he went on about shareholders having the option to sell or hold each of the demerged entities but in the current environment with M&A in European Life Insurance area I think that might be a better option. I?m not yet sure if M&G Prudential (UK & Europe) would be a business I?d be wanting to hold.

Don?t want to sound churlish with the stock up over 6% as I write and nearly 5% of my wad invested here but the FY results are probably account for a chunk of the rise, I?ll be watching anxiously how this plays out after the sugar rush wears off.



Hydrogen, I agree it seems a very odd split indeed. Why not a 3-way split, by demerging; M&G, and Africa/ Asia ( growth areas surely) and leave the rest in the Old Pru.
Annuities - this also seems odd, with Aviva recently recognising a gain on their annuity business due to reductions in life expectancy, but Pru saying they will take a loss on selling-- why? possibly because their view of life expectancy was already lower than Aviva’s.