Under the terms of the agreement, M&G Prudential has reinsured £12bn of liabilities to Rothesay Life, which is expected to complete by the end of 2019.
London-headquartered Prudential said the sale is “in line with [it’s] strategy to transition towards a more capital efficient, de-risked model”.
The portfolio covers around 400,000 policyholders and, according to Rothesay Life, it is “the largest transaction of its type in the UK”.
Following the sale, Rothesay said it will be the largest specialist annuity insurer in the UK, with over £37bn of assets under management and over 750,000 lives insured.
Addy Loudiadis, chief executive of Rothesay, described the deal as “landmark” for both the company and the industry.
No stranger to M&A activity, the Prudential acquisition follows Rothesay buying a £6bn annuity book from Aegon in April 2016.
In August 2017, Goldman Sachs agreed to sell its remaining stake in Rothesay, which it founded in 2007, to MassMutual Life Insurance.
Prudential is the latest life insurer to announce a big shake up of its operations, following Standard Life Aberdeen selling its insurance arm and Axa pivoting away from the life sector.
Business split
The sale to Rothesay was only one part of a series of announcements Prudential made on Wednesday, which also saw the firm announce its business will split in two and release its 2017 annual results.
Following the amalgamation of Prudential’s UK and European operations with its asset manager, M&G, in 2017; the insurer has confirmed that M&G Prudential will now become a stand-alone entity.
Prudential plc will focus on Asia, the US and Africa and will be led by its current group chief executive, Mike Wells.
Paul Manduca, chairman of Prudential, said: “The decision to demerge M&G Prudential follows a rigorous review by the board which considered all options, including the status quo, and concluded that it is in the best interest of the group to operate as two separately-listed companies, able to focus on their distinct strategic priorities in their chosen geographies.”
He added that both companies, which will continue to be headquartered in the UK, are expected to meet the criteria for inclusion in the FTSE 100 index.
John Foley, chief executive of M&G Prudential, said: “The demerger will allow M&G Prudential to play a broader leadership role in the fast-changing savings and investments market within the UK and Europe.”
The specific timing of the demerger is subject to a number of factors, including the completion of the annuity book sale to Rothesay Life.
Another issue is “realigning” the ownership of Prudential’s Hong Kong subsidiaries from its UK-focused business to Prudential Corporation Asia.
The company expects that the demerger will be complete by the end of 2019 but added that an update will be provided “in due course”.
On completion, shareholders will hold interests in both Prudential plc and M&G Prudential.
