By Ben Martin, Carolyn Cohn and Simon Jessop
LONDON (Reuters) - Prudential (LSE:PRU.L - News) is to spin off its British and European business from its international operations, breaking up the 170-year-old insurer to refocus on faster-growing markets in the sector's latest major shake-up.
British insurers have been changing tack to cut their exposure to capital-intensive products following the introduction of rigorous European solvency rules, while also seeking ways to deal with growing fee pressure.
Prudential said it is splitting off savings and investment-focused M&G Prudential, which will be based in London, leaving Prudential plc focused on life insurance and asset management in the rapidly expanding markets of Asia and Africa as well as the United States, which is less tightly regulated than Europe.
The demerger could herald further changes for the group, analysts said. Bernstein analysts pointed to the example of AXA's (:AXAF.PO) plans for an IPO in the United States, while RBC said the Asian and U.S. businesses could eventually be split, and that asset manager M&G could separate from UK insurance.
Prudential shares were up 6 percent to 19.37 pounds at 1244 GMT on Wednesday, taking it to the top of the FTSE 100 index.
The international business will also remain headquartered and listed in London, led by chief executive Mike Wells.
"We're looking to grow the piece that's capital-light," Wells said of M&G Prudential, adding that it would be "competing domestically" for people and capital.
Prudential will also move the legal entity for its Hong Kong insurance subsidiaries to Asia from Britain, further reducing exposure to European capital rules.
Prudential's move follows Standard Life's (LSE:SLA.L - News) merger with Aberdeen Asset Management in 2017 which led to the sale of the bulk of its insurance business to Phoenix Group (LSE:PHNX.L - News).
"Imitation is the greatest form of flattery," Old Mutual chairman Patrick O'Sullivan said of the Prudential move.
(Graphic: Britain's largest insurer Prudential outperforms rivals - http://reut.rs/2Hyvl7j)
RBC analysts value the new M&G Prudential business at 9.8 billion pounds ($13.7 billion) and Prudential said it expects both companies to feature on Britain's FTSE 100 index.
Wells told a media call that the spin-off was not connected with Brexit and Prudential is not planning to sell any of the British business. One banker told Reuters a bid for M&G Prudential was unlikely before the deal completes.
Ben Ritchie, senior investment manager at top-15 shareholder Aberdeen Standard Investments, told Reuters that M&G Prudential was likely to have good cashflow and would be capable of paying a reasonably high and recurring dividend.
M&G Prudential's head John Foley will steer it through the demerger and investors will hold shares in both, although the timing of the spin-off has not yet been set.
Prudential, which also disclosed the sale of a 12 billion-pound UK annuities book to Rothesay Life, is not planning to sell more of the around 20 billion pounds in annuities it still has, Foley said.
The insurer posted a 6 percent rise in 2017 operating profit to 4.7 billion pounds, beating market expectations of 4.6 billion pounds.
(Reporting by Ben Martin, additional reporting by Noor Zainab Hussain, editing by Sinead Cruise and Alexander Smith)