Rothesay Life is one of Britain's leading life insurers specialising in providing de-risking solutions to UK-defined benefit pension schemes and insurance companies.
The two businesses will have their own distinct investment prospects, the firm said today, with M&G Prudential lined up to be "an independent, capital-efficient UK & Europe savings and investment provider" and Prudential aiming to be a "a leading worldwide insurance group focused on high-growth opportunities in Asia, the U.S. and Africa".
"The move represents a welcome expansion of the United Kingdom listed asset management sector which in recent years has lost Henderson, which delisted on the London Stock Exchange following its merger with New York Stock Exchange-listed Janus, and F&C following its acquisition by Canada's BMO, a subsidiary of the Bank of Montreal".
The aim is to turn M&G Prudential into a more capital-efficient and customer-focused business, as the business targets increasing demand for its retirement and savings offering.
Prudential says the demerger will result in two separately-listed companies, "each with its own distinct investment prospects".
Prudential PLC (LON:PRU) investors today welcomed the financial giant's plans to demerge its M&G Prudential business, which accompanied solid full-year results, a move that continues the seismic changes happening in the previously rather staid sector.
The transaction which was announced this morning saw life, pensions and longevity re/insurer Rothesay Life providing the reinsurance capacity to back a £12 billion chunk of Prudential plc's annuity book, which was managed under the M&G Prudential brand, as part of a demerger process.
When the merger completes - subject to shareholder and regulatory approval - shareholders will have holdings in both Prudential and M&G Prudential.
"We're not looking to get rid of all of our capital-intensive products, we're looking to grow the piece that's capital-light", Wells told Reuters, adding that the M&G Prudential business "is better off standalone, competing domestically for people, for capital".
Pic: ReutersLONDON:Prudential is to spin its British and European business off from its worldwide operations, breaking up the 170-year-old insurer in the latest shake-up in a fast-changing industry.
Given the size of the deal it will boost Rothesay Life's asset base to over £37 billion, which will make the firm the largest specialist annuity insurer in the UK. "Both are expected to meet the criteria for inclusion in the FTSE 100 index".
Prudential, which will continue to be led by current group chief executive Mike Wells, will combine growth opportunities in its Asia, US and Africa businesses.
M&G Prudential saw "record" flows of £17.3bn, taking its total funds under management to £350.7bn at the end of the period, up 13%.