Prudential PLC Plans to Part With Jackson by June 30

Executives at Prudential PLC talked Wednesday about becoming a “pure-play Asia and Africa business” and removing Jackson Holdings LLC from its corporate family.

“We have two key priorities,” Mike Wells, Prudential’s group CEO, said during a conference call the company held to go over its 2020 earnings with securities analysts. “One is to pursue at pace an independent Jackson; and the second is to enable our investors to fully benefit from the opportunities of Asia and Africa.”

Prudential PLC — which is based in London, and has no connection with Prudential Financial Inc. of Newark, New Jersey — told investors in January that it would separate from Jackson through a demerger, or distribution of Jackson stock to Prudential PLC shareholders, to accelerate the process of cutting ties with Jackson.

Prudential as a whole is reporting $2.2 billion in profit for 2020 on $56 billion in revenue.

Jackson is the parent of Jackson National Life Insurance Co. The company generated $2.8 billion in adjusted operating profits in 2020, in spite of a raging COVID-19 pandemic and low interest rates. It also generated about $1.8 billion in retail annuity sales, and it collected more annuity considerations in 2020 than any other U.S. annuity provider, according to the National Association of Insurance Commissioners.

Prudential said it decided to demerge from Jackson, rather than sell a stake in Jackson to the public through an initial public offering, because a demerge could let it reduce its ownership interest in Jackson to less than 10% as soon as June 2022, and separating from Jackson through an IPO could take until 2023.

Prudential intends to demerge from Jackson by June 30, have a 19.9% stake in Jackson at that time, and reduce the stake to less than 10% within 12 months after the demerger, according to the U.S. Securities and Exchange Commission.

Risk-Based Capital

Prudential executives told securities analysts that Jackson started with a U.S. risk-based capital (RBC) ratio, or financial strength indicator, of 406% of the company action level June 2020, then saw the unit’s RBC ratio fall to 347% of the company action level Dec. 31, 2020, in part because of new U.S. hedge accounting rules.

One of the analysts asked Prudential what it and Jackson can do about the volatility of the RBC ratio.

Wells said that Prudential has secured bank financing to ensure that Jackson will have an RBC ratio of 450% around the time the demerger takes place.

The RILA Solution

Laura Prieskorn, Jackson’s new chief executive officer, says one thing Jackson intends to do to make itself less dependent on traditional variable annuities is to introduce a registered index-linked annuity (RILA), which is like a non-variable indexed annuity that’s filed with the Securities and Exchange Commission as a variable annuity.

Because a RILA is registered as a security, the issuer can limit the level of protection against market losses.

The RILA product “should be helpful in terms of diversification and add some more stability,” Prieskorn said.