UK life insurer Prudential has announced it is scaling back its position in the protection sector and is essentially transferring management of its healthcare and protection business to South African firm Discovery.
In a statement issued this morning with the firm’s 2006 full-year results, Prudential stops short of announcing it is pulling out of the market but instead says it will “expand its joint venture” with South African insurer Discovery.
The firm says its flexible protection plan (FPP) will be “incorporated” into the 50:50 Discovery joint venture later this year, and "will participate in the health market through [its] existing joint venture with Discovery".
“Our view is that participation in the protection market will be most effective if we allow our specialist sales force to continue selling,” says Nick Prettejohn, ceo of Prudential UK and Europe.
“We believe it has a lot to offer to the protection market and will allow us to place greater emphasis on the protection market but on our existing joint venture.”
Officials deny this deal will lead to an effective white-labelling of Discovery’s protection proposition to be sold into the UK market, as they stress they will be “putting the protection products” which they created with Discovery “into the joint venture”.
The specific details of how products will be managed, however, are not yet clear and some of the logistics of the deal have yet to be finalised, as Pru officials argue while this will allow the firm to maintain a dedicated sales force - PruHealth currently having 450 employees - it is still looking at what will happen to around 100 employees in the current protection division.
Elsewhere in its results, the firm makes it clear the company is scaling back its four core operations - wholesale, asset management, retirement and protection - and realigning them to focus on wholesale, retail retirement and mature life and pensions, effectively pulling out of the protection sector.
The firm argues its PruHealth product grew at a rate of 15% per month in 2006 and hopes through the new deal it will break even in 2008 through a “multi-channel distribution strategy” by doubling its client base to 200,000.
PruHealth is said to have produced full-year gross written premiums of £36m - up 300% on 2005’s £9m. GWP from new lives (which is equivalent to new business APE) was £28m.
Alongside the shift away from protection business, Prudential has also revealed plans to increase its position in the retirement market and, more specifically, has created a new line of business known as “Retail Retirement”, which is targeted at people close to retirement and looking for income, and comprises of individual annuities, equity release and “a new approach to retirement savings”.
This is driven in part by an additional announcement this morning revealing Prudential will see £1.8bn worth of bulk annuity business transferred from Equitable Life - a deal representing around 20% of Equitable’s remaining book of with-profits business.
Mark Tucker, group chief executive, says: “We have significant competitive advantages in the retirement income market, in particular our flow of internal vestings from our back book of personal pensions, and this market remains very attractive. We therefore see retail annuities and equity release and the nurturing of our existing policyholders as key parts of our strategy.“
This shift in strategy should see the company launch a new range of retirement-related products to the market later this year, which concentrate on payment of intermediary commission through trail, rather than front-end commission - all highlighted by Pru‘s push for factory-gate pricing.
“We will concentrate our advice-based distribution activity on the significant number of investors approaching retirement who have substantial assets outside personal or corporate pension plans, or have investments in poorly performing funds, and require inflation protection,” continues Tucker.
Under the terms of the Equitable agreement, before the transfer of all of Equitable’s in-force with-profits annuity policies to Prudential can take place, Equitable Life members have to vote to approve the transaction at an Extraordinary General Meeting (EGM) in the autumn.
Equitable says the deal will “substantially improve both bonus earning prospects and investment flexibility for the Society’s with-profits annuitants”, as at the moment the income payments from a majority of the firm’s with-profits annuities currently reduce each year and the firm is forced to keep most of its assets in fixed interest investments, to cover the investment needs of this income, whereas linking with Prudential's with-profits philosophy and assets will give it a more aggressive options for the investment of the funds.
When the deal is completed - if approved by the Equitable members EGM - the agreement will see 62,000 with-profits annuities, including around 50,000 annuitants, transferred into Prudential’s actively managed with-profits fund, although Prudential has made a commitment to maintain the expense charges for the with-profits annuities at the level currently levied by Equitable Life.
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