Prudential is to merge its UK and European businesses bringing together its insurance and savings arm with M&G Investments to create a £332bn subsidiary.
M&G is currently wholly-owned by the insurance group but run separately, managing assets for Prudential but with a heavy focus on external institutional and retail clients.
The merger brings together FTSE 100-listed Prudential's UK & Europe operations, including its insurance, savings, advisory and retirement businesses, with M&G's asset management operation. Combined, the firm will run £332bn of assets.
Mike Wells, chief executive of the Prudential Group said the merger of the firm's two subsidiaries would create scale. The tie-up is expected to produce £145m in annual cost savings by 2022.
The move has lent credence to speculation that Prudential may split out or spin off its UK business, as reported by the FT. In recent years the insurance giant has made strides into the Asian insurance market amid growing rumours the company could split into two separate groups.
“In recent years, we have seen a convergence in the investments and savings markets. Bringing together these two businesses, while transitioning to a capital-light model, will enable [us] to increase its growth prospects," Mr Wells said of the merger.
The newly combined entity, named M&G Prudential, will be led by current Prudential UK&E chief executive John Foley.
M&G chief executive Anne Richards will remain in charge of the asset management business line and will become co-deputy chief executive, alongside Clare Bousfield, currently chief executive of insurance for Prudential UK&E.
Mr Foley said: "Prudential UK&E and M&G both offer well-designed solutions. Combining their complementary strengths allows us to provide greater choice to a wider range of customers.”
Ms Richards added: “[The merger] will enable our investment teams to offer their expertise to a wider range of customers and across a broader range of investment and savings formats, while continuing to provide our current clients with the same high level of service.”
The news came as M&G reported £7.2bn of net inflows for the first half of 2017. This is compared with £7bn of net outflows in the same period in 2016 and the £8bn in outflows witnessed for 2016 as a whole.
External assets under management at the firm rose to £149bn from £137bn at the start of 2017.