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Group News Releases
Prudential plc through its wholly-owned subsidiary Jackson National Life to acquire the US holding company of REALIC for £398m
31 May 2012
Financially attractive
- Accretive to IFRS and EEV earnings immediately; Accretion to
Jackson’s IFRS pre-tax earnings is estimated at £100
million in the first year of ownership
- Represents price-to-European Embedded Value of approximately 46
per cent
- Capital efficient bolt-on acquisition entirely funded by
Jackson’s own resources
- Modest impact on the Group’s IGD excess capital of
£0.1 billion
Strategically enhancing
- Increases scale and diversifies Jackson’s earnings
- Adds high-quality seasoned and stable income stream
Increases Jackson 2013 cash net remittance
objective
- 2013 Jackson annual net remittance objective increased from
£200 million to £260 million
On 30 May 2012, Jackson National Life Insurance Company
(“Jackson”), an indirect wholly-owned subsidiary of
Prudential plc (“Prudential”), entered into an
agreement to buy SRLC America Holding Corp (“SRLC”)
from Swiss Re. Jackson will pay US$621 million (£398 million)
in cash for the business, financed from its own resources. The
purchase price will be adjusted as explained in more detail in the
explanatory notes below. Swiss Re will retain a portion of the SRLC
business through reinsurance arrangements to be undertaken prior to
completion. The transaction is subject to regulatory approval and
is expected to complete in the third quarter of 2012.
SRLC is a life insurance business that sits within the US
division of Swiss Re’s Admin Re. The primary operating
subsidiary of SRLC is Reassure America Life Insurance Company
(“REALIC”), which since 1995 has completed a
significant number of transactions through stock acquisitions and
reinsurance arrangements and has acquired a diverse portfolio of
traditional US life business. The earnings of SRLC are derived from
seasoned, long-duration cash flows generated principally from term
life, whole life and basic universal life products. Jackson will
acquire assets related to the subject business of approximately
£6.7 billion and approximately 1.5 million policies.
The acquisition is expected to be accretive immediately to
Prudential’s IFRS and EEV earnings. The accretion to
Jackson’s IFRS pre-tax earnings from the business to be
acquired is estimated at £100 million in the first year of
ownership. The acquisition diversifies Prudential’s earnings
base by increasing the profits that Jackson derives from insurance
income.
It is estimated that the embedded value of the acquired business
at 30 June 2012 will be £865 million before taking into
account future cost and capital synergies (net of implementation
costs), which are expected to further enhance the value of the
acquired business.
The acquisition is capital efficient such that it will have a
modest impact on Prudential’s IGD excess capital and Jackson
will maintain a RBC ratio within its target range following
completion of the transaction. Following the acquisition,
Prudential is increasing its 2013 Jackson annual net remittance
objective from £200 million to £260 million per year.
Jackson’s net remittance in 2012 will not be affected by the
acquisition.
Commenting on the acquisition, Mike Wells, President and
Chief Executive Officer, Jackson, said:
“This bolt-on acquisition is in-line with our strategy and
is a great opportunity to increase the scale of our life business.
It is a capital efficient transaction that will produce an
attractive IRR (internal rate of return) and payback period
commensurate with what we achieve organically on writing new
business. It helps diversify Jackson’s earnings by increasing
the amount of income we generate from underwriting activities
thereby enhancing the quality of our earnings and our ability to
remit more cash to the Group.”
Enquiries:
| Media |
|
Investors |
|
| Jonathan Oliver |
+44 (0)20 7548 3719 |
David Collins |
+44 (0) 20 7548 2871 |
| Robin Tozer |
+44 (0)20 7548 2776 |
Richard Gradidge |
+44 (0) 20 7548 3860 |
Explanatory notes on the financial impact of the
transaction
| IFRS |
| |
|
| 1. |
As the acquisition relates to a closed
book of business, the acquired assets and liabilities will be
accounted for at fair value which is anticipated to be equivalent
to the purchase consideration. Accordingly, no goodwill will be
recognised on completion. |
| 2. |
The estimated earnings accretion of £100
million represents stand-alone earnings of approximately £115
million, less £15 million of income foregone on the assets
sold to finance the transaction. |
| 3. |
The pre-tax earnings accretion forecast represents
earnings between 1 July 2012 and 30 June 2013. |
| |
| European Embedded Value
(EEV) |
| |
|
| 4. |
The estimated EEV at 30 June 2012 is based on the
economic assumptions for Jackson’s non-variable annuity
business at 31 December 2011. |
| 5. |
In accordance with market practice, the difference
between the purchase consideration and the embedded value on
completion will be treated as a gain on acquisition and be reported
in the 2012 EEV income statement. |
| |
| Capital |
| |
|
| 6. |
The impact of the transaction on the US Statutory
basis balance sheet is expected to be modest, as £398 million
of securities will be replaced by: |
| |
| • |
a net £123 million of general account assets
less liabilities; and |
| • |
a £275 million admissible asset representing future
statutory profits acquired. | |
| 7. |
The Group’s IGD excess capital calculation
incorporates Jackson’s capital position on a US Statutory
basis. Accordingly the impact on the Group’s IGD is also
modest, with the Group’s IGD excess capital expected to
reduce by approximately £0.1 billion, representing the
incremental capital requirements of the business
acquired. |
| |
| Consideration |
| |
|
| 8. |
As is customary in such transactions, the
consideration of £398 million is based on an estimated
balance sheet and will be adjusted within 90 business days after
completion to reflect the actual value of SRLC according to its
balance sheet on the date of completion. The consideration will be
adjusted to reflect the potential differences between the actual
and expected balance sheets which may include market value
movements on capital and surplus, unwinding of expected future
profits, finalisation of the extraction of business that is not
part of the acquisition and associated tax attributes. The
Directors reasonably believe the purchase price will not be
adjusted by more than £60 million. A further announcement
will be made to confirm the final purchase price. |
| |
| Conditionality |
| |
|
| 9. |
One of the regulatory approvals on which the
transaction is conditional relates to a pre-closing dividend Swiss
Re will take. If this condition is not satisfied and is not waived
by Jackson, Jackson will pay Swiss Re US$20 million. |
| |
| Historic profits |
| |
|
| 10. |
In 2011, on a US Statutory basis, REALIC delivered
profit before tax and before net realised capital gains and losses
of US$143 million and profit after tax and after net realised
capital gains and losses of US$138 million. This information
includes the results of the business to be retained by Swiss Re and
is not representative of the business to be acquired (such
information is not available from the statutory accounts of
REALIC). |
| |
| Foreign exchange |
| |
|
| 11. |
A US$:£ foreign exchange rate of 1.56 has
been used to determine the figures disclosed
above. |
About Prudential plc
Prudential plc is incorporated in England and Wales, and its
affiliated companies constitute one of the world's leading
financial services groups. It provides insurance and financial
services through its subsidiaries and affiliates throughout the
world. It has been in existence for over 160 years and has
£351 billion in assets under management (as at 31 December
2011). 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.
About Jackson National Life Insurance
Company
With US$120 billion in assets (IFRS), Jackson National Life
Insurance Company (Jackson) is a leading provider of retirement
solutions. The company sells variable, fixed and fixed index
annuities, life insurance and institutional products. Through its
affiliates and subsidiaries, Jackson also provides asset management
and retail brokerage services. Jackson markets its products in 49
states and the District of Columbia through independent and
regional broker-dealers, wirehouses, financial institutions and
independent insurance agents. Jackson’s subsidiary, Jackson
National Life Insurance Company of New York®, similarly markets
products in the state of New York.
About SRLC
SRLC was incorporated on 29 March 2011 in order to effectuate
the internal restructuring transactions of Swiss Re Ltd., the
ultimate public company parent, into 3 distinct business
units. SRLC was dormant until the reorganisation of the U.S.
Admin Re business on 1 July 2011. Accordingly, the historical
profit before tax and profit after tax information in respect of
SRLC itself is not available.
About Swiss Re
Swiss Re is a leading
wholesale provider of insurance, reinsurance and other
insurance-based forms of risk transfer.
Forward-Looking Statements
This release 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, 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 to
differ materially from those indicated in any forward-looking
statement. Such factors include, but are not limited to,
future market conditions, fluctuations in interest rates and
exchange rates, and the performance of financial markets generally;
the policies and actions of regulatory authorities, including, for
example, new government initiatives related to the financial crisis
and the effect of the European Union's ‘Solvency II’
requirements on Prudential's capital maintenance requirements; the
impact of competition, inflation, and deflation; experience in
particular with regard to mortality and morbidity trends, lapse
rates and policy renewal rates; the timing, impact and other
uncertainties of future acquisitions or combinations within
relevant industries; the impact of changes in capital, solvency
standards or accounting standards, and tax and other legislation
and regulations in the jurisdictions in which Prudential and its
affiliates operate; and the impact of legal actions and
disputes. 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 to differ,
possibly materially, from those anticipated in Prudential's
forward-looking statements can be found under the ‘Risk
factors’ heading in the Annual Report and the ‘Risk
Factors’ heading of Prudential's most recent annual report on
Form 20-F filed with the U.S. Securities and Exchange Commission,
as well as under the ‘Risk Factors’ heading of any
subsequent Prudential Half Year Financial Report.
Prudential's most recent Annual Report, Form 20-F and any
subsequent Half Year Financial Report are/will be available on its
website at
www.prudential.co.uk.
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 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.
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