Prudential is to take on Equitable Life’s £1.8bn portfolio of in-force with-profits annuities subject to a vote from Equitable’s policyholders.
The transaction is expected to generate premium income for Pru of approximately £180m on an annual premium equivalent basis.
The move is part of a series of proposed changes following Prudential’s strategic review of its operations which were announced this morning.
Under the terms of the agreement, this portfolio of with-profits annuities would transfer into Prudential’s with-profits fund.
Prudential would assume direct responsibility for the management of these policies and payment to these annuitants after the transfer is completed under a Part VII scheme.
The intention is for the Equitable book to transfer to Prudential by the end of 2007.
Pru says the transaction is one of the first of its kind and will provide Equitable policyholders with improved prospects and greater security.
Equitable’s with-profits annuities book covers approximately 62,000 policies (weighted average age 74 with no deferred annuities) with assets as at 31 December 2006 of around £ 1.8 billion.
The transferring policies will form part of the Defined Charge Participating Sub-Fund of Prudential’s with-profits fund.
Profits to shareholders will emerge on a ‘charges less expenses’ basis and policyholders will be entitled to 100 per cent of the investment earnings.
Equitable policyholders will not be eligible to participate in any reattribution of Prudential’s inherited estate.
Nick Prettejohn, Chief Executive, Prudential UK , says: “This transaction demonstrates Prudential’s ability to grow its with-profits business to create value for its policyholders and shareholders while providing Equitable Life policyholders with improved prospects and greater security by being part of one of the largest and financially strongest funds in the UK . The fund has delivered excellent investment returns over many years and as a result of this transaction, Equitable Life’s with-profit annuitants will benefit from Prudential’s considerable experience in the annuities market where we are a market leader.”
Vanni Treves, Equitable Life’s Chairman, added: “The proposal, which will benefit all policyholders, to transfer with-profits annuity policies to Prudential is a further major success arising from the Society’s ongoing review of strategic options. The Board has been very conscious of the particular difficulties faced by with-profits annuitants and we are pleased to have negotiated this excellent proposition for them. Our agreement with Prudential represents the next phase of our plan to improve prospects for all with-profits policyholders and to simplify further the Equitable Life book of business.”
Charles Thomson, Equitable Life’s Chief Executive, said: “The proposal from Prudential represents an excellent opportunity for with-profits annuitants to transfer to a fund where they will enjoy far greater investment flexibility and which has a much better recent bonus record. They will become part of an actively managed fund, which is one of the largest and strongest in the U.K. It will also help us in the search for the best strategic solution for the remaining 80 per cent of policyholders.”