Asian middle classes lift Pru, UK test laid bare

While Asia's growing middle classes revved up the Pru's profits, Jackie Hunt faces a tough job to turn around business at home. Picture: Getty
While Asia's growing middle classes revved up the Pru's profits, Jackie Hunt faces a tough job to turn around business at home. Picture: Getty
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Prudential yesterday promised that its exposure to Asia’s growing middle class will keep hitting the sweet spot but warned that new European rules will impact on its already weak UK operations.

The insurer, which employs 2,200 people at its base in Stirling, reported a 22 per cent surge in first-half profits and said it was on track to meet or beat the financial targets it set itself three years ago.

It said the rise in operating profits to £1.42 billion, from £1.16bn a year earlier, showed its resilience amid wobbly stock markets.

The gains were driven by Prudential’s drive into what it calls “sweet-spot” economies in South Asia, where a burgeoning middle class is rapidly becoming aware of the need for financial products such as life insurance.

But chief executive Tidjane Thiam warned that new capital rules being introduced by the EU, known as Solvency II, were a threat both to the insurance industry and the UK economy in general, although the firm is fighting to have the proposals amended.

Prudential’s UK business has been suffering from the introduction of the Retail Distribution Review (RDR), which came into force on 1 January and bans commission payments from product providers across the industry, forcing insurers to charge customers for advice.

The Pru has brought in former Standard Life finance chief Jackie Hunt to turn around the domestic business as head of its European operations.

The scale of the task facing Hunt, who takes over from Rob Devey in October, was laid bare in figures showing new UK life sales fell 14 per cent to £355 million. The domestic business was also hurt by the absence of bulk wholesale annuity deals.

The firm said while “market dislocation will persist”, sales have started to settle and it is growing its own in-house advice team.

Record life and health insurance sales helped the group’s Asian operating profits grow 18 per cent to £474m. Life sales leapt 42 per cent in Hong Kong in the April to June quarter, and were up 38 per cent in the Philippines.

Thiam brushed aside worries of a slowdown in emerging markets, saying the long-term picture remains encouraging.

He said: “The global economic environment remains uncertain, with continued equity market and interest-rate volatility often driven by short-term news flows, as confidence remains fragile.

“Despite this, the long-term structural trends of a growing middle class, low insurance penetration and faster relative economic growth underpin our profitable growth in south-east Asia.

“Our multi-product portfolio, multi-channel distribution platform and our leading position in six out of our 13 Asian markets leave us well placed to capture profitably this unique opportunity.”

He added that the transition of US baby-boomers into retirement and the ageing of the UK population provide the firm with more opportunities to generate “significant value”.

Prudential declared an interim dividend up 15.8 per cent to 9.73p, in contrast to rival Aviva which slashed its payout as it undergoes a painful restructuring. Pru’s shares closed at a record high of 1,232p, up 48p.