A prudent plan

15 March 2007

The UK insurer has eschewed the year zero solution of selling the UK business, partly because it wouldn t have got a good price. But the moves it s making should enhance value, while leaving all options open. That said, after past screwups, good execution will be key.

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The Prudential intends to concentrate its UK life insurance operations on profitable products, such as individual annuities, and phase out less remunerative lines of business.

The insurance group also intends to find ways to release £8.7bn of socalled orphan assets that are trapped in its life operations, and has stepped up its cost cutting efforts.

The news came as the Pru announced a series of moves designed to shake up its underperforming UK life operations. These follow a review of the business that had considered a range of options, including outright sale or joint venture.

The Pru also announced its statutory pretax profits fell by 7% to £893, due partly to significantly increased losses at the Egg banking business which it has agreed to sell to Citigroup. The group raised its fullyear dividend by 5%.

The decision to close down business lines should affect roughly 15% of the Pru's UK new business revenues. The group has also stepped up its costcost cutting efforts. It now intends to reduce its UK cost base by £195m by 2010, versus the £115m previously promised. The higher number is about 40% of UK costs.

The insurance group also said it intends to remain a significant force in the UK bulk annuities market, and has just bought a £1.8bn book from Equitable Life, the troubled mutual insurer.

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