Britain’s biggest insurer, Prudential, has transferred £36bn ($47.33bn) in customer assets to its new Luxembourg subsidiary ahead of Brexit, it said yesterday, as the company reported a 5% rise in operating profit.
Insurers and banks have been shifting hundreds of billions of pounds in assets to European Union subsidiaries regardless of the form Brexit takes, reversing decades of European financial market integration and chipping away at the City of London’s dominance.
British Prime Minister Theresa May suffered a second, heavy parliamentary defeat on the withdrawal deal she struck with the EU on Tuesday, leaving open the possibility of an abrupt, economically damaging Brexit without a transition arrangement.
But parliament was expected to vote against a no-deal Brexit later yesterday and then, today, vote for a delay.
Prudential chief executive Mike Wells told a media call that the life insurer’s strategy was “not to assume any shape on Brexit, but to look at what retail and institutional clients would want, regardless of the shape of Brexit”.
John Foley, head of Prudential’s UK business M&G Prudential, said the insurer had spent £27mn on setting up the new Luxembourg operation, which currently has 35 staff.
Prudential said it was making continued progress with plans to separate M&G Prudential through a stock market listing, which market sources expect before the end of the year.
Wells declined to give a time frame for the demerger.
Other insurers and asset managers such as Old Mutual and Standard Life Aberdeen have also restructured their businesses as they grapple with increased regulatory requirements and competitive pressures.
JP Morgan Cazenove analysts said the demerger of the UK operations was a positive step.”It removes S-II (Solvency II capital requirements) overhang for non-European businesses and it is a step forward to further simplification by potentially splitting US
and Asia in the future to unlock more value.”
After the spin-off, Prudential’s international business will be subject to Hong Kong regulation but will remain headquartered in Britain.
Prudential reported a higher than forecast rise in 2018 operating profit to £4.8bn after a strong performance from its Asian business.
The company’s Asian business “may be attractive to other players, as there are very few similar franchises”, JP Morgan Cazenove analysts also said, reiterating a “neutral” rating on the stock.
The Asian business reported a 14% rise in operating profit.
M&G Prudential’s profit rose 19%, with its British pensions business helped by a slowdown in improvements to life expectancy.
In the United States, Prudential’s Jackson business reported an 11% fall in profit due to accounting measures related to lower US stock markets.
M&G Prudential had net asset management outflows of £9.9bn from external clients, including an expected redemption of a £6.5bn institutional mandate.
Prudential’s shares were trading at £15.32 at 1025 GMT, up 0.2% and in line with the FTSE 100 index.
Prudential said it would pay a total dividend of 49.35 pence per share, up 5% but below a forecast 50.36 pence.
Pedestrians walk past as a banner featuring the Prudential logo is displayed atop a building in Hong Kong. John Foley, head of Prudential’s UK business M&G Prudential, said the insurer had spent u00a327mn on setting up the new Luxembourg operation, which currently has 35 staff.
