Prudential UK Insurance

Prudential PLC
2 November 2001

Embargoed until 8:30am on Friday 2 November 2001

2 November 2001

PRUDENTIAL ANNOUNCES STRUCTURE AND STRATEGIC DIRECTION FOR ITS UK INSURANCE
OPERATIONS

Prudential plc announced today further details of the future structure and
strategic direction of its UK insurance operations. This follows a review of
the business by Mark Wood, Chief Executive of Prudential's UK and European
insurance operations, who joined the Group in June 2001.

The key highlights of today's announcement include:

  * Focus on revenue growth through a targeted product range with an
    emphasis on high-growth medium and long-term savings, and investments;
  * Translating the potential of Prudential's scale UK insurance business
    into superior profitability;
  * Building strong multi-channel distribution (direct, corporate,
    affinities, and intermediaries);
  * Decision to pursue a single brand strategy for life and pensions
    (includes full integration of Scottish Amicable's operations under the
    Prudential brand, with a full commitment to the IFA channel);
  * Simplification of organisational structure for UK insurance operations;
  * A step reduction in operating costs (annual gross cost savings from 2004
    of £175 million);
  * Prudential's UK long-term fund remains strong (Form 9 ratio of 13 per
    cent as at 30 September 2001); and
  * A strategic alliance for General Insurance in the UK.

Commenting on today's announcement, Mark Wood said: 'Our focus going forward
will be on delivering profitable growth by providing good value and secure
savings, pensions and investment products to our customers. Prudential has an
outstanding business and brand in the UK and when combined with our financial
strength, I believe that we are extremely well placed for the future.'

A targeted product range
In the UK, Prudential has very strong positions in a number of product areas
and the focus going forward will be on high-growth medium to long-term savings
and investments. These include:

  * Annuities - Prudential continues to lead the annuities market with a
    total market share in terms of total sales of just under 25 per cent. It
    has a fully established bulk annuity business with a market share of 39
    per cent. Prudential is fully committed to this market and will actively
    compete as the defined benefit market (estimated to be £700 billion)
    changes and schemes continue to pursue the buy-out option.
  * With-Profits Bonds - Prudential manages over £15 billion of funds for
    more than 500,000 With-Profits Bond customers, and has around 25 per cent
    of the market by funds under management. Market share is being regained
    because of the strength of the Prudential product offering and brand.
  * Group Pensions - Prudential's concentration has been on securing schemes
    with access to large numbers of employees and where premium income will
    materialise quickly, resulting in more profitable business. It now has
    corporate and stakeholder designations that give it access to around 3.5
    million lives, including the recently announced joint management of the
    NHS stakeholder and AVC schemes.
  * ISAs - The profile of Prudential's existing customer base lends itself
    to significant cross- selling opportunities in this area. The
    Prudential-branded range of ISAs is currently being developed and
    extended, and a series of marketing campaigns is being planned to target
    Prudential's existing customer base, particularly maturing policies.

By concentrating on higher growth areas of the market and by increasing market
share within these areas, Prudential expects to generate annual growth in new
business that exceeds its estimate of market growth by up to 50 per cent.
Prudential also believes that managing this mix of business will ensure that
its UK new business margin will be among the best in the sector.

Prudential forecasts that its 2001 new business margin for pensions will be 11
per cent and for annuities 32 per cent, contributing to an overall UK margin
of 32 per cent.

PruLab
A new function, PruLab, has been established to research and develop new and
innovative life and savings products. Prudential will be directing £50 million
of resources into this business over the next five years.

Strong distribution
Prudential has established a multi-channel distribution capability to meet the
changing needs of its customers. Four distribution channels have been created:

  * Direct to its customers, through which customers are served and advised
    by the internet and telephone. During the year, Prudential has built up a
    strong capability in response to growing demand for telephone, and
    increasingly, internet sales;
  * Business to Business, through which Prudential's strong base of
    corporate pensions customers can be targeted through workplace
    cross-selling;
  * Affinities, whereby Prudential will develop partnerships with banks,
    retail brands and other distributors; and
  * The intermediary channel, which was significantly strengthened by the
    acquisition of Scottish Amicable in 1997, accounted for over 60 per cent
    of Prudential UK insurance operations' sales in the first nine months of
    the year. Prudential remains fully committed to the intermediary channel
    and will upgrade the quality of its product and service proposition.

Brand
In order to fully exploit the brand leadership of the Prudential name,
particularly in its target market, Prudential will move to a single brand for
its life and pensions business in the UK. The Prudential brand is a
significant competitive advantage and there will be an increase in advertising
spend of £20 million in 2002 to help promote this key asset.

As a result of this single brand strategy, the Scottish Amicable brand will no
longer be used and all new business will be branded 'Prudential' (Scottish
Amicable's in-force book will also be re-branded). The transfer of Scottish
Amicable Limited's in-force book, which is subject to Court and regulatory
approval, is expected to release £100 million of shareholder solvency capital
and reduce ongoing shareholder capital requirements by around £25 million per
annum.

Scottish Amicable's offices at Craigforth will remain one of the key customer
service locations for the life and pensions business.

Structure
Prudential's UK insurance operations will in future operate as one integrated
business as was announced on 13 September. This will improve operational
effectiveness by removing duplication as well as achieving greater customer
focus by providing a seamless service from product manufacture to
distribution.

As part of this single integrated business structure, all support functions
(Operations including IT, Finance, Risk and Compliance, Marketing, Human
Resources, Communications and Actuarial) will be centralised.

Staff Numbers
As a result of these changes, Prudential anticipates that after allowing for a
number of redeployment opportunities, total headcount will reduce by 2,100 by
the end of 2003. Of this total, it is expected that 1,000 will be compulsory
redundancies, principally from within central back-office and support
functions.

Following these job reductions, and the 1,200 staff in the General Insurance
business who will transfer to Churchill under the terms of the strategic
alliance being announced separately today, Prudential's UK insurance
operations will employ 6,200 staff by the end of 2003.

Costs
The Group expects to incur a restructuring charge of £170 million by the end
of 2003 as a result of these changes. The estimated impact on shareholders
will be a charge of £70 million against achieved basis pre-tax profit, of
which £40 million will be charged in 2001 (£15 million in 2002 and £15 million
in 2003).

However, due to the creation of the single customer service organisation, the
rationalisation of support services and a refocusing of IT investment,
Prudential expects to achieve annual gross cost savings from 2004 of around £
175 million, of which £20 million (on an achieved profit basis) will be
directly attributable to shareholders in 2002 (increasing to £45 million in
2003, and to £55 million in 2004 and thereafter). This is in addition to the
gross cost savings of around £135 million Prudential expects to achieve from
2002 following the closure of the direct sales force earlier in the year, of
which £15 million will be directly attributable to shareholders.

Prudential projects that the effect of the changes announced today will be to
reduce its expense ratio to less than one per cent by 2004.

General Insurance
In a separate statement, Prudential announced today that it has agreed to
transfer its UK personal lines general insurance business to Winterthur
Insurance. The transaction includes the formation of a strategic alliance to
offer Prudential-branded general insurance products in the UK. General
insurance will continue to be an important part of Prudential's branded
customer offering in the UK and this strategic alliance is consistent with its
strategy of focusing on its core medium and long-term savings businesses.

                                    -ENDS-

Enquiries to:-

Media                                       Investors and Analysts
                                            
Group

Geraldine Davies       020 7548 3911        Rebecca Burrows      020 7548  3537
Steve Colton           020 7548 3721
                       
UK Insurance Operations
James Murray           020 7334 6363
Clare Staley           020 7334 6023
                       

Notes to Editors:-

1. A presentation to analysts will take place at 8.30am on Friday 2 November
at Laurence Pountney Hill, London EC4R 0HH.

2. A webcast of the presentation (including slides) will be available on the
Group's website, www.prudential.co.uk/plc.

3. A broadcast of an interview with Mark Wood (in video/audio/text) will be
available on www.cantoscomms.com and www.prudential.co.uk/plc from 9.00am on 2
November 2001.

4. A Newswires Conference Call will take place at 9.45am (Dial in number: 020
8288 4700 - Chair: Geraldine Davies).

5. A Conference Call for Press will take place at 3.15pm (Dial in number: 020
8288 4700 - Chair: Geraldine Davies)

6. Prudential's UK insurance operations are currently structured into three
key areas: Prudential Financial Services (responsible for all direct
distribution of Prudential-branded products); Prudential Intermediary Business
(responsible for all distribution of products via the Independent Financial
Adviser channel); and Prudential Insurance Services (responsible for all
administration of in-force products under the Prudential brand, together with
the General Insurance business).

7. In the first half of 2001, total achieved basis operating profit (before UK
re-engineering costs relating to the closure of the direct sales force) for
the UK insurance long-term businesses was up 15 per cent to £377 million. This
represented 56 per cent of total Group achieved basis operating profit of £677
million.

8. The UK insurance business recorded sales of £627 million in the first nine
months of 2001 on an APE basis (annual premium equivalent). This was an
improvement of 12 per cent on the same period in 2000 and represented 31 per
cent of Group sales on an APE basis.

9. The annual gross cost savings of £175 million that Prudential expects to
achieve from 2004 is broken down as follows:
Distribution                                            £25 million
Support services                                        £55 million
IT                                                      £25 million
Investment projects                                     £40 million
Customer services                                       £30 million

10. The UK long-term fund remains strong (Form 9 ratio of 13 per cent as at 30
September 2001). Over two years ago, Prudential began reducing its investment
allocation away from equities, and therefore, following the market falls after
11 September, it has not needed to make any change to the life fund's asset
mix.

The Form 9 ratio of 13 per cent represents the excess of the assets of
Prudential Assurance Company's long term business over its long-term business
liabilities (both assets and liabilities being determined on the statutory
basis) expressed as a percentage of the liabilities. This excess is equal to
around three times the long-term business required minimum margin. It is
calculated on the basis of resilience test 2 and contains no implicit items.

The asset mix of the with-profits fund as at 30 June 2001 was as follows:
UK shares                                              41 per cent
Non-UK shares                                          16 per cent
Fixed interest                                         25 per cent
Property                                               14 per cent
Other investments                                      4 per cent

Prudential's year-end embedded value will have moved with market values. A one
per cent change in equity values will change the embedded value by
approximately £25 million.

11. The new business margin is defined as new business achieved profit divided
by APE (annual premium equivalent) sales.

12. The total expense ratio is defined as total operating expenses (FSA
returns Form 41) divided by total admissible assets as defined by the FSA.

13. Headcount of Prudential UK Insurance Operations since 1995 (year average):

1995 - 17,710            1998 - 15,729
1996 - 16,487            1999 - 13,695
1997 - 17,265            2000 - 11,241

In February 2001, Prudential announced that following changes to its direct
sales channels and customer service operations in the UK, 2000 jobs would
become redundant within the sales force, sales support operations and in
central back-office and administration support functions. These job reductions
are taking effect over a 12 month period and are in addition to the headcount
reductions being announced today.



This communication may contain projections or other forward-looking statements
relating to the Prudential Group that involve risks and uncertainties. Readers
are cautioned that these statements are only projections and may differ
materially from actual future results or events. Readers are referred to the
documents filed by the Prudential Group with the SEC, specifically its most
recent filing on Form 20-F, which identifies important risk factors that could
cause actual results to differ from those contained in the forward-looking
statements, including, among other things, risks relating to market
fluctuations and volatility, significant interest rate changes, credit
exposures, cross border transactions and foreign exchange fluctuations,
impaired liquidity, competition and legal liability. All forward-looking
statements are based on information available on the date of this announcement
and the Prudential Group does not assume any obligation to update such
statements unless otherwise required by applicable law.