March 13, 2019 / 9:24 AM / in 6 days

UPDATE 2-Prudential shifts $50 bln in assets to Luxembourg ahead of Brexit

* Demerger plans making progress, no time frame - CEO

* Asia, UK businesses see profit rise, U.S. profit down

* UK funds business records 10 bln stg in net outflows

* Dividend up 5 pct to 49.35 pence, below forecast (Recasts with comments from media call, adds analyst, updates shares)

By Carolyn Cohn

LONDON, March 13 (Reuters) - Britain’s biggest insurer, Prudential, has transferred 36 billion pounds ($47.33 billion) in customer assets to its new Luxembourg subsidiary ahead of Brexit, it said on Wednesday, as the company reported a six percent rise in operating profit.

Insurers and banks have been shifting hundreds of billions of pounds in assets to European Union subsidiaries regardless of the form Brexit takes, reversing decades of European financial market integration and chipping away at the City of London’s dominance.

British Prime Minister Theresa May suffered a second, heavy parliamentary defeat on the withdrawal deal she struck with the EU on Tuesday, leaving open the possibility of an abrupt, economically damaging Brexit without a transition arrangement.

But parliament is expected to vote against a no-deal Brexit later on Wednesday and then, on Thursday, vote for a delay.

Prudential Chief Executive Mike Wells told a media call that the life insurer’s strategy was “not to assume any shape on Brexit, but to look at what retail and institutional clients would want, regardless of the shape of Brexit”.

John Foley, head of Prudential’s UK business M&G Prudential, said the insurer had spent 27 million pounds on setting up the new Luxembourg operation, which currently has 35 staff.

Prudential said it was making continued progress with plans to separate M&G Prudential through a stock market listing, which market sources expect before the end of the year.

Wells declined to give a time frame for the demerger.

Other insurers and asset managers such as Old Mutual and Standard Life Aberdeen have also restructured their businesses as they grapple with increased regulatory requirements and competitive pressures.

JP Morgan Cazenove analysts said the demerger of the UK operations was a positive step. “It removes S-II (Solvency II capital requirements) overhang for non-European businesses and it is a step forward to further simplification by potentially splitting U.S. and Asia in the future to unlock more value.”

After the spin-off, Prudential’s international business will be subject to Hong Kong regulation but will remain headquartered in Britain.

Prudential reported a higher than forecast rise in 2018 operating profit to 4.8 billion pounds after a strong performance from its Asian business.

The company’s Asian business “may be attractive to other players, as there are very few similar franchises”, JP Morgan Cazenove analysts also said, reiterating a “neutral” rating on the stock.

The Asian business reported a 14 percent rise in operating profit. M&G Prudential’s profit rose 19 percent, with its British pensions business helped by a slowdown in improvements to life expectancy.

In the United States, Prudential’s Jackson business reported an 11 percent fall in profit due to accounting measures related to lower U.S. stock markets.

M&G Prudential had net asset management outflows of 9.9 billion pounds from external clients, including an expected redemption of a 6.5 billion pound institutional mandate.

Prudential’s shares were trading at 15.32 pounds at 1025 GMT, up 0.2 percent and in line with the FTSE 100 index.

Prudential said it would pay a total dividend of 49.35 pence per share, up 5 percent but below a forecast 50.36 pence.

$1 = 0.7606 pounds Reporting by Carolyn Cohn; editing by Simon Jessop/Louise Heavens/Jane Merriman

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