Prudential Plc - Update on separation of Jackson
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Update on separation of Jackson
Prudential announces plan to separate Jackson in Q2 2021 through demerger; Steven A Kandarian appointed Jackson Non-Executive Chair
· Proposed demerger would accelerate Jackson separation and complete Prudential's transformation to focus exclusively on its high-growth Asia and Africa businesses
· Former MetLife CEO Steven A Kandarian to serve as Non-Executive Chair of Jackson, effective 1 February 2021
· Jackson RBC ratio expected to be 425-450 per cent at point of separation following recapitalisation from debt raising
· Prudential considering equity raise of around $2.5-3 billion to increase financial flexibility and take advantage of Asia growth opportunities
· 2020 operating performance expected to be in line with current market expectations
The Board of Prudential plc ("Prudential" or "the Group") has decided to pursue the separation of its US business, Jackson Financial Inc. ("Jackson"), from the Group in the second quarter of 2021 through a demerger, whereby shares in Jackson would be distributed to Prudential shareholders. The demerger, which is subject to shareholder and regulatory approval, would lead to a significantly earlier separation of Jackson from the Group than would have been possible through a minority IPO and future sell-downs. This accelerated process would complete Prudential's transformation into a group focused exclusively on the high-growth opportunities of Asia and Africa. At the point of demerger, Prudential would retain a 19.9 per cent non-controlling interest in Jackson, which the Group would monetise over time to support investment in Asia.
Prudential is also pleased to announce the appointment of Steven A Kandarian as Non-Executive Chair of Jackson's Board of Directors. Mr Kandarian , the former Chief Executive Officer of the US life insurer MetLife, will assume his new role on 1 February 2021 , and will bring substantial and relevant experience to the governance and leadership of an independent Jackson. Additional appointments of independent directors for Jackson will be announced in due course. Following the proposed separation, Jackson expects to list on the New York Stock Exchange using the ticker "JXN".
Jackson is revising its hedge modelling for US statutory standards for calculating reserves and capital from 31 December 2020 , which is estimated to reduce Jackson's Risk Based Capital (RBC) ratio 1 by around 80 percentage points. Allowing for this change and other second-half 2020 items, Jackson's RBC ratio as at 31 December 2020 is estimated to be around 340 to 355 per cent. At the point of proposed separation, Jackson expects to have an RBC ratio in the range of 425 to 450 per cent and total financial leverage2 in the range of 25 to 30 per cent, subject to market conditions. Jackson expects to achieve this level of RBC at the point of separation by contributing proceeds of its debt and hybrid capital raising to its regulated insurance subsidiaries. As a result, Jackson does not expect to pay a pre-separation dividend to Prudential.
Following completion of the separation of Jackson, Prudential will be wholly focused on its growing health & protection and savings markets in Asia and Africa. These regions offer attractive demographic characteristics and have generally low levels of penetration of insurance products. Prudential expects to maintain its existing strong credit ratings and growth trajectory, including a focus on achieving sustained double-digit growth in embedded value per share. As at 31 December 2020, pro forma for the separation of Jackson and assuming no pre-separation dividend, the debt-leverage ratio3 for Prudential is estimated to be in the low 30s in percentage terms. Following the demerger, as a pure-play Asia and Africa business, Prudential will target a debt-leverage ratio of around 20 to 25 per cent over the medium term. Prudential may operate outside this range temporarily to take advantage of growth opportunities with attractive risk-adjusted returns as they arise, while still preserving its strong credit ratings.
While Prudential is a strongly capital-generative business, in order to accelerate de-levering during 2021 through the redemption of existing high-coupon debt, Prudential is considering raising new equity of around $2.5-3 billion in Hong Kong or London, or both, with an objective being to increase the Group's investor base in Asia. Such a transaction, if executed, would maintain and enhance the Group's financial flexibility in light of the breadth of the opportunities to invest in growth .
The Group confirms that the overall quarterly sales trajectory in Asia has continued to improve during the second half of 2020 and operating performance for 2020 is anticipated to be in line with current market expectations. Prudential plc expects to announce its 2020 preliminary results on 3 March 2021.
Mike Wells, Group Chief Executive of Prudential, said: "Our priorities as a Group remain, first, to ensure our investors fully benefit from the opportunities of Asia and, second, to pursue, at pace, a fully independent Jackson. The demerger we are announcing today will significantly accelerate Prudential's transformation into a business purely focused on profitable growth in Asia and Africa. I am delighted that Steve has agreed to join as Chair of Jackson. He brings an unrivalled track record in the US life insurance sector, and I am more confident than ever that Jackson will flourish as a separate business. Any future equity raising by Prudential will allow us to capture even more fully the rapid growth in the health, protection and savings needs of people in our chosen markets."
Steven A Kandarian said: "I am honoured to lead Jackson's board as Non-Executive Chair at this pivotal time. Jackson is a market leader in helping US investors meet their retirement income needs and I look forward to supporting Jackson's growth and success as an independently listed company."
Michael Falcon, Chief Executive Officer of Jackson, said: "As we move closer to the demerger, Jackson continues its core focus on providing industry-leading products and services to our clients, managing risk and generating capital returns for shareholders. Steve brings significant insurance sector experience to Jackson that will serve our firm and stakeholders well. We are excited to have him on board and look forward to benefiting from his insights and guidance in years to come."