10 Oct 2002

Prudential and Abbey National in distribution agreement

Abbey National and Prudential have signed an agreement for Abbey National to distribute Prudential's market-leading with-profits bond for an initial four-year period from 2003. This anticipates the proposed changes to polarisation rules1 that will allow banks to offer advice on other companies' regulated products.

The companies have also signed a Heads of Agreement, under which Abbey National will tailor its highly-regarded range of life protection products for distribution by Prudential through its multi-channel distribution network.

The benefits of the agreements post-depolarisation will be:

• Prudence Bond, Prudential's market-leading with-profits bond, will be distributed through Abbey National's extensive high street branch network.
• Prudential will make a with-profits bond tranche of up to £750 million available to Abbey National each year.
• Enhanced income opportunities and increased capital efficiency for both parties.
• Both parties will receive commission at market-leading rates for selling each other's products.

Pre-depolarisation, both companies will enter a similar distribution arrangement that will meet the current regulatory requirements2 and will provide similar benefits.

The with-profits agreement is an exclusive four-year arrangement between Abbey National and Prudential. Abbey National remains free to sell any of its own investment and protection products but will not sell any other third party's with-profits bond through its branches for at least the next four years.

Similarly, under the Heads of Agreement proposals, Prudential will not sell any other protection products during this period. Both these arrangements are subject to certain conditions and regulatory approval and are consistent with both companies' focus on selectively manufacturing products where they have a clear competitive advantage. Both parties are also free to seek further distribution arrangements for these and other products.

The with-profits agreement, post-depolarisation, will allow Abbey National to sell a jointly-branded version of the Prudence Bond through its 700 specialist investment advisers based in its 756 branches and on the telephone.

Under the Heads of Agreement, it is intended that Prudential will replace its current protection products with new products developed on its behalf by Abbey National, such as life assurance, critical illness cover and income protection, and sell these through its multi-channel distribution network. The products will be underwritten and administered by a new dedicated business unit within Scottish Provident, Abbey National's award-winning specialist protection arm, but sold under the Prudential brand.

Mark Wood, Head of Prudential UK said: "The with-profits agreement will give Abbey National's 15 million customers the opportunity to purchase our market-leading Prudence Bond. It reflects our strategy of building multi-channel distribution and enables us to focus our capital on areas of the business that give us a competitive advantage.”

Andrew Pople, Managing Director, Retail Banking, Abbey National, said: “We are pioneers in developing innovative ways of using partnerships in UK financial services, and are moving swiftly to embrace the opportunities offered by depolarisation proposals.
This will further Abbey National's ambition to be the best place on the high street for a wide range of superior investment products.

“As with MBNA, where we use their expertise to manufacture credit cards for us, we are taking advantage of Prudential's brand strength and recognised leading position in with-profits, whilst expanding our in-house capabilities across the broader range of investment and protection offerings.”

Ends

Notes to editors:

1. The agreement is dependent on the implementation of the proposals to liberalise the polarisation regime envisaged in the FSA's Consultation Paper 121 (CP121). The FSA is due to publish proposed rule changes later this year.

2. Pre-depolarisation, Abbey National intends to distribute a new Abbey National with-profits bond provided by Prudential.

3. This agreement builds on Prudential's current agreements with Bradford and Bingley and Woolwich IFAs (WIFAS) who are major distributors of Prudence Bond in the intermediated channel.

4. Abbey National customers investing in Prudence Bond will have their money invested in Prudential's with-profits fund, a mixture of stock market equities, property, gilts and other investments.

The Prudential life fund had a balanced asset mix as at 30 June 2002 (details of asset mix as at 31 December 2001 are in brackets):

• UK equities - 36 per cent (38.6 per cent)
• International equities - 14.8 per cent (14.4 per cent)
• Property - 15.6 per cent (14.9 per cent)
• Bonds - 29.4 per cent (27.8 per cent)
• Other asset classes - 2 per cent (1.6 per cent)
• Cash - 2.2 per cent (2.7 per cent)

5. Scottish Provident is the award-winning protection brand of Abbey National for Intermediaries, offering better protection to individuals and families against the financial effects of serious illness, death, disability and unemployment.