Pru to take on £1.8bn Equitable Life fund

Published on Friday 16 March 2007 01:05

PRUDENTIAL is to take on more than 60,000 Equitable Life policyholders in a deal which will generate £180 million in premiums and give its UK operation a much-needed shot in the arm.

Speculation had been mounting in recent weeks that the Pru might consider selling off its struggling UK operation, which has shown sluggish growth compared to the US and Asia.

However, Britain's second-largest insurer has announced a raft of changes to streamline its local business, including a major extension in its cost-cutting programme, signalling a renewed commitment.

The deal to take on Equitable's 1.8 billion with-profit annuity fund is subject to court approval as well as a vote by Equitable members later this year. Assuming the move is approved, policyholders will also be given the option of surrendering their policies, something they are currently unable to do.

Equitable Life, which shut its door to new business in 2000, would be left holding around 7bn in assets for the remaining 250,000 policyholders. Its chief executive, Charles Thomson, said its members faced the prospect of better returns while the remains would be more attractive to another company.

It was announced as Prudential reported a 15per cent rise in full-year operating profits of 1.98bn under European Embedded Value. This was boosted by new-business profits which climbed 20 per cent to 1.04bn, exceeding 1bn for the first time.

Helped by a 5 per cent dividend boost, Prudential shares rose by almost 5 per cent to 675p. This values the company at around 16.4bn, below the 17bn Aviva offered for the company a year ago, but chief executive Mark Tucker said results vindicated the decision to reject the approach.

"We said we had a clear action plan for the UK and the rest of the business, and I think you've seen that today. The record results, growth in Asia, the US and [fund management arm] M&G, and progress in the UK are testament to us having done the right thing back in March [2006]."

Policyholders could see the return of 9bn in surpluses build up over decades in its life fund not needed to meet commitments to its policyholders. Former City lawyer Peter Bloxham has been nominated to fill the position of policyholder advocate through the process.

Prudential also announced it had increased the amount by which it wants to cut annual costs by 2010, up 80m to 195m. This includes a restructure which will place uncertainty over up to 3,000 jobs, of which around 1,100 are at its Scottish base near Stirling.

The moves are an attempt to keep unit costs down on its mature life and pensions backbook, which is set to be reduced by 40 per cent over the next five years.

A spokesman for Prudential refused to give details on how many jobs would be affected.

It is possible a third-party outsource provider could simply take over the office space currently used by the Prudential's backbook staff, but the spokesman said the final outcome was likely to include both outsourcing and off shoring.

He would not put a figure on how much Prudential was aiming to save from the jobs shakeup, adding it was only one of a number of cost-saving measures being taken.

PRU'S LANDMARK

PRUDENTIAL to take control of Equitable Life's 1.8 billion with-profits annuities fund

• Shares rise 5 per cent on operating profits of almost 2bn, 8 per cent ahead of consensus

• Increase in cost-cutting target to 195m by 2010

• 1bn of customer money generated for first time last year, 20 per cent up on the previous year.

• New-business profit margins improved to 42 per cent.

• Retail retirement business to be set up.

• A leaner, more focused group to "generate superior returns".

• BUT... 3,000 jobs could be at risk as a result of cost-cutting targets, including staff in Stirling.