TIDMPRU
RNS Number : 3670Q
Prudential PLC
18 June 2020
18 June 2020
This announcement contains inside information
Prudential plc announces $27.6 billion(1) US reinsurance
agreement alongside $500 million equity investment by Athene
Holding Ltd into its US business
-- $27.6 billion(1) of Jackson's in-force fixed and fixed
indexed annuity portfolio fully reinsured by Athene, effective from
1 June 2020
-- Athene to make a $500 million anchor equity investment in Prudential's US business
-- Athene to hold a 11.1 per cent economic interest in the
enlarged common equity of Prudential's US business
-- Equity investment and reinsurance transactions expected to
increase Jackson's RBC cover ratio by approximately 80 percentage
points(2)
-- Equity investment expected to close in July 2020
-- Preparations for a minority IPO of Jackson continue alongside an evaluation of other options
The Board of Prudential plc ("Prudential") has today reached
agreement with Athene Holding Ltd ("Athene"), a leading retirement
services company, for its subsidiary Athene Life Re Ltd to invest
$500 million in Prudential's US business in return for an 11.1 per
cent economic interest for which the voting interest is 9.9 per
cent. Athene's investment will be deployed in Jackson,
strengthening its capital base.
Athene Life Re Ltd has also fully reinsured a $27.6 billion(1)
in-force portfolio of Jackson's US fixed and fixed indexed annuity
liabilities under a long-term arrangement.
Athene's investment will take the form of a cash subscription
for the issuance of new common equity in Brooke (Holdco 1) Inc, the
holding company containing Prudential's US businesses. These
include Jackson National Life Insurance Company ("Jackson"), a
top-two annuity provider with best-in-class products, distribution
and operations headquartered in Lansing, Michigan, and PPM America
Inc, an asset manager headquartered in Chicago, Illinois.
The combined effects of the investment and reinsurance
transactions are expected to increase Jackson's risk-based capital
cover ratio by approximately 80 percentage points(2) .
Prudential continues to prepare for a minority IPO of Jackson
alongside the active evaluation of other options to create an
independent US business. A further update will be provided at
Prudential's half-year results in August. After the transaction,
Prudential's US business will have an anchor investor of Athene's
standing bringing a long-term commitment to Jackson and its
development, while Prudential will retain full strategic
flexibility in relation to the business.
Mike Wells, Group Chief Executive of Prudential, said: "We are
delighted to be forging a new relationship with the team at Athene,
given their deep expertise in the US annuity sector and long-term
commitment to its development. This agreement is a key step forward
in meeting our strategic objectives for Jackson."
Michael Falcon, Chairman and Chief Executive Officer of Jackson,
said: "Today's transactions with Athene, a leading franchise in the
retirement services market, further strengthen our capital position
and enhance our ability to grow. We value Athene's investment in
Jackson, which is aligned to our common goal of serving the growing
population of American savers transitioning into and through
retirement."
Jim Belardi, CEO of Athene, said: "We are very pleased to
announce this mutually beneficial transaction in coordination with
Jackson and its parent, Prudential plc. As top annuity providers
focused on serving the US retirement marketplace, we are excited to
bring these two leading franchises together through a large-scale
reinsurance transaction that includes a new investment in Jackson
by Athene."
Marc Rowan, Co-Founder and Senior Managing Director of Apollo
Global Management Inc, Athene's strategic partner and largest
shareholder, said: "In support of our strategic partnership with
Athene, we are delighted to help tailor a solution for, and work
with, Jackson and Prudential plc on this significant transaction.
Jackson has complementary distribution capabilities relative to
Athene's business, and it is the largest and highest-quality
variable annuity platform in the marketplace. Through our
significant investment and support of Athene, we look forward to
working with leading insurance franchises like Jackson and
Prudential plc to enable them to achieve their strategic
objectives."
Contacts
Media Investors/Analysts
Jonathan Oliver +44 (0)20 3977 9500 Patrick Bowes +44 (0)20 3977 9702
Tom Willetts +44 (0)20 3977 9760 William Elderkin +44 (0)20 3977 9215
Person responsible
The person responsible for arranging the release of this
announcement on behalf of Prudential plc is Tom Clarkson, Company
Secretary.
Transaction details
Reinsurance of $27.6 billion (1) of Jackson fixed and fixed
indexed annuity portfolio
Under the terms of the agreement, Jackson National Life
Insurance Company has fully reinsured $27.6 billion(1) of
liabilities to Athene Life Re Ltd, as at 31 March 2020, in return
for $28.2 billion of assets (principally bonds)(1) . The portfolio
reinsured represents substantially all of Jackson's fixed and fixed
indexed annuity portfolio but excludes its legacy life and
institutional business as well as the REALIC portfolio and group
pay-out annuity business reinsured from John Hancock. The annuity
business being reinsured contributed around $0.1 billion towards US
adjusted operating profit(3) before tax of $3.1 billion in
2019.
Based on IFRS accounting principles and values as at 31 March
2020, the reinsurance agreement is estimated to give rise to a
pre-tax IFRS profit of around $1.2 billion(2) alongside the
improvement in Jackson's capital position achieved. After allowing
for tax and the reduction in unrealised gains recorded directly in
other comprehensive income, the estimated impact of the reinsurance
transaction, on a discrete basis, on IFRS shareholders' equity is a
reduction of $0.7 billion(2) . The reinsurance agreement will be
effective as at 1 June 2020 and be recorded in the HY20 financial
statements after allowing for closing balance sheet pricing
adjustments.
$500 million new equity investment by Athene into Prudential's
US business
The $500 million investment (payable in cash at completion) by
Athene into Brooke (Holdco 1) Inc, in return for an 11.1 per cent
economic interest for which the voting interest is 9.9 per cent, is
expected to additionally reduce IFRS shareholders' funds(2) by
approximately $0.7 billion, based on asset and liability values as
at 31 March 2020. The investment is expected to complete in July
2020 and the financial effects will correspondingly be updated
using asset and liability values at the completion date.
The aggregate impact of the equity investment and reinsurance,
assuming both occurred at 31 March 2020, is a reduction to IFRS
shareholders' funds of $1.4 billion(2) .
Pro-forma impact on Jackson RBC cover ratio and Group
shareholder LCSM cover ratio(2)
The estimated pro-forma impact on the Jackson RBC cover ratio,
assuming that these actions had both been completed as at 31 March
2020, is an estimated increase of 80 percentage points. On the same
basis, the Group shareholder LCSM cover ratio(4) is estimated to
increase by 27 percentage points.
Summary of relevant contractual terms
The reinsurance agreement is effective as at 1 June 2020. The
common equity investment is subject to US Hart-Scott-Rodino
antitrust filings, and is expected to complete in July 2020. There
are no break fee arrangements and Athene is bound by formal drag
along and tag along rights in respect of any future strategic sales
to third parties. Prudential plc is not restricted in the conduct
of the other strategic options in respect of its US business.
Athene has no right to appoint Board members in respect of its
shareholding and its shareholding voting rights will be limited to
9.9% following completion of the investment.
Advisors
Goldman Sachs International, Moelis & Company LLC and N.M.
Rothschild & Sons Limited are serving as financial advisers to
Prudential in connection with this transaction.
1 Valued under IFRS as at 31 March 2020.
2 The pro-forma estimates assume that the reinsurance of the
Jackson fixed and fixed indexed annuity portfolio and the capital
investment by Athene had both been completed as at 31 March 2020.
Actual impacts could differ materially depending on the value of
assets (including those to be transferred), liabilities and
shareholders' equity at the date the transactions are recorded in
the financial statements and, in respect of the reinsurance
contract, on any closing balance sheet pricing adjustments.
3 In this announcement 'adjusted operating profit' refers to
adjusted IFRS operating profit based on longer-term investment
returns from continuing operations as defined in note B1 of the
Group's 2019 Annual Report & Accounts.
4 Based on coverage of available capital over Group minimum
capital requirement. Shareholder business excludes the available
capital and minimum capital requirement of participating business
in Hong Kong, Singapore and Malaysia.
Notes to Editors
About Prudential's US business
Jackson is a leading provider of retirement products for
industry professionals and their clients. The company and its
affiliates offer variable, fixed and fixed indexed annuities
designed for tax-efficient growth and distribution of retirement
income for retail customers, as well as products for institutional
investors. Jackson is a proud founding member and co-chair of the
Alliance for Lifetime Income, a nonprofit 501(c)(6) organisation
formed and supported by 24 of the US's financial services
organisations to create awareness and educate Americans about the
importance of protected lifetime income. With $297.6 billion in
IFRS assets*, the company prides itself on sound corporate risk
management practices and strategic technology initiatives. Focused
on thought leadership and education, Jackson provides industry
insights and financial representative training on retirement
planning and alternative investment strategies. The company is also
dedicated to corporate philanthropy and supports non-profit
organisations focused on strengthening families and creating
economic opportunities in the communities where its employees live
and work. For more information, please visit www.jackson.com .
Founded in 1990, PPM America is a global institutional asset
manager with $130 billion in assets as of 31 March 2020. It offers
investment solutions in public fixed income, public equity, private
equity, and private debt. Its investment approach is guided by
team-based values and its firm size allows the company to remain
nimble and investment-led. For more information, please visit
www.ppmamerica.com .
*Prudential plc's US business has IFRS total assets of $299.2
billion (of which $297.6 billion relate to Jackson) and $269.5
billion of IFRS policyholder liabilities (as of 31 December
2019).
The US business generated IFRS loss before tax of $(725) million
in 2019 ($(380) million net of tax) and a profit before tax of
$2,322 million in 2018 (net of tax $1,982 million).
About Prudential plc
Prudential plc is an Asia-led portfolio of businesses focused on
structural growth markets. The business helps individuals to
de-risk their lives and deal with their biggest financial concerns
through life and health insurance, and retirement and asset
management solutions. Prudential plc has 20 million customers and
is listed on stock exchanges in London, Hong Kong, Singapore and
New York. Prudential plc is not affiliated in any manner with
Prudential Financial, Inc. a company whose principal place of
business is in the United States of America, nor with the
Prudential Assurance Company, a subsidiary of M&G plc, a
company incorporated in the United Kingdom.
About Athene Holding Ltd
Athene, through its subsidiaries, is a leading retirement
services company that issues, reinsures and acquires retirement
savings products designed for the increasing number of individuals
and institutions seeking to fund retirement needs. The products
offered by Athene include:
-- Retail fixed, fixed indexed and index-linked annuity products;
-- Reinsurance arrangements with third-party annuity providers; and
-- Institutional products, such as funding agreements and the
assumption of pension risk transfer obligations.
Athene had total assets of $142.2 billion as of 31 March 2020.
Athene's principal subsidiaries include Athene Annuity & Life
Assurance Company, a Delaware-domiciled insurance company, Athene
Annuity and Life Company, an Iowa-domiciled insurance company,
Athene Annuity & Life Assurance Company of New York, a New
York-domiciled insurance company, and Athene Life Re Ltd., a
Bermuda-domiciled reinsurer.
Forward-Looking Statements
This document may contain 'forward-looking statements' with
respect to certain of Prudential's plans and its goals and
expectations relating to its future financial condition,
performance, results, strategy and objectives. Statements that are
not historical facts, including statements about Prudential's
beliefs and expectations and including, without limitation,
statements containing the words 'may', 'will', 'should',
'continue', 'aims', 'estimates', 'projects', 'believes', 'intends',
'expects', 'plans', 'seeks' and 'anticipates', and words of similar
meaning, are forward-looking statements. These statements are based
on plans, estimates and projections as at the time they are made,
and therefore undue reliance should not be placed on them. By their
nature, all forward-looking statements involve risk and
uncertainty.
A number of important factors could cause Prudential's actual
future financial condition or performance or other indicated
results of the entity referred to in any forward-looking statement
to differ materially from those indicated in such forward-looking
statement. Such factors include, but are not limited to, the impact
of the current Covid-19 pandemic; future market conditions,
including fluctuations in interest rates and exchange rates, the
potential for a sustained low-interest rate environment, and the
impact of economic uncertainty, asset valuation impacts from the
transition to a lower carbon economy, inflation and deflation and
the performance of financial markets generally; global political
uncertainties; the policies and actions of regulatory authorities,
including, in particular, the policies and actions of the Hong Kong
Insurance Authority, as Prudential's new Group-wide supervisor, as
well as new government initiatives generally; the impact of
continuing application of Global Systemically Important Insurer or
'G-SII' policy measures on Prudential; the impact on Prudential of
systemic risk policy measures adopted by the International
Association of Insurance Supervisors; the impact of competition and
fast-paced technological change; the effect on Prudential's
business and results from, in particular, mortality and morbidity
trends, lapse rates and policy renewal rates; the physical impacts
of climate change and global health crises on Prudential's business
and operations; the timing, impact and other uncertainties of
future acquisitions or combinations within relevant industries; the
impact of internal transformation projects and other strategic
actions failing to meet their objectives; the ability to complete a
potential minority initial public offering of Jackson, or one of
its related companies, or other strategic options in relation to
Jackson , or one of its related companies ; the risk that
Prudential's operational resilience (or that of its suppliers and
partners) may prove to be inadequate, including in relation to
operational disruption due to external events; disruption to the
availability, confidentiality or integrity of Prudential's
information technology, digital systems and data (or those of its
suppliers and partners); any ongoing impact on Prudential of the
demerger of M&G plc; the impact of changes in capital, solvency
standards, accounting standards or relevant regulatory frameworks,
and tax and other legislation and regulations in the jurisdictions
in which Prudential and its affiliates operate; the impact of legal
and regulatory actions, investigations and disputes; and the impact
of not adequately responding to environmental, social and
governance issues. These and other important factors may, for
example, result in changes to assumptions used for determining
results of operations or re-estimations of reserves for future
policy benefits. Further discussion of these and other important
factors that could cause Prudential's actual future financial
condition or performance or other indicated results of the entity
referred to in any forward-looking statements to differ, possibly
materially, from those anticipated in Prudential's forward-looking
statements can be found under the 'Risk Factors' in Prudential's
Annual Report for the year ended 31 December 2019. Prudential's
2019 Annual Report is available on its website at
www.prudentialplc.com .
Any forward-looking statements contained in this document speak
only as of the date on which they are made. Prudential expressly
disclaims any obligation to update any of the forward-looking
statements contained in this document or any other forward-looking
statements it may make, whether as a result of future events, new
information or otherwise except as required pursuant to the UK
Prospectus Rules, the UK Listing Rules, the UK Disclosure and
Transparency Rules, the Hong Kong Listing Rules, the SGX-ST listing
rules or other applicable laws and regulations.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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