May 31 (Bloomberg) -- Prudential Plc, the U.K.’s biggest insurer, agreed to buy a life insurance unit from Swiss Re AG for 398 million pounds ($621 million) in cash to expand in the U.S.
Prudential will finance the acquisition of SRLC America Holding Corp., which manages closed life insurance funds, from existing cash holdings, London-based company said in a statement today. The purchase is expected to be completed in the third quarter, pending regulatory approval, it said.
The acquisition will increase and diversify Prudential’s earnings in the U.S., where its Jackson National Life unit currently gains most of its income from selling variable annuities to baby boomers approaching retirement. SRLC holds about 1.5 million life insurance policies and books profits by releasing capital as they mature, Prudential said.
“This looks like an extremely attractive deal and is very financially enhancing,” Marcus Barnard, a London-based analyst at Oriel Securities Ltd. with a buy rating on the stock said. Prudential may increase its earnings forecast by between 2 percent and 5 percent, he said.
The acquisition will add about 100 million pounds of pretax profit to Jackson National Life in the first year of ownership, according to the statement. Prudential increased the unit’s 2013 cash generation target to 260 million pounds from 200 million pounds.
For Swiss Re, the transaction unlocks capital for use across the group, and will boost the reinsurer’s return on equity, earnings per share and economic net worth growth targets, it said.
“Swiss Re sees attractive growth potential in the U.K. and Continental Europe,” the company said in today’s statement. “Admin Re will focus on these active areas with insurance deal-flow as well as higher profitability,” Swiss Re said, referring to its closed-life division.
Prudential climbed 1 percent to 679.5 pence in London trading at 12:05 p.m., valuing the firm at about 17.3 billion pounds. Swiss Re rose 1.3 percent to 55.7 Swiss francs.
Prudential’s sales rose 9 percent to 964 million pounds in the first quarter, beating the 942 million-pound median estimate of eight analysts surveyed by Bloomberg.
The insurer this week appointed Paul Manduca, a former chief executive officer of Deutsche Bank AG’s European asset management unit, as chairman to replace Harvey McGrath.
Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc.
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