11th Aug 2015 11:49
(Clarifying Prudential's expectations for when any US Department of Labor changes would come into effect.)
LONDON (Alliance News) - Prudential PLC is not about to change its strategy of targeting the growing middle class in Asia, the retiring baby boomers in the US, and the ageing population in the UK, according to new Chief Executive Mike Wells, who on Tuesday presented increases in operating profit and a key measure of sales that beat analyst forecasts for the first half of 2015.
"We're not pausing to look at what our strategy is or should be. We're focused more on very precise execution of that and levering some of the capabilities around the group," Wells told journalists in a conference call. Wells said his confidence in the existing strategy was a result of visiting all of Prudential's major business operations since he took on the job.
Wells previously led the FTSE 100 life insurer's North American operations before he became the 21st chief executive to lead Prudential in its 167-year history on June 1. He succeeded Tidjane Thiam, the respected executive who left to become chief executive of Credit Suisse after just shy of six years in the role at Prudential.
Prudential's operating profit based on longer-term investment returns before tax increased by 24% to GBP1.88 billion in the six months to the end of June, beating the GBP1.74 billion analyst consensus estimates provided by the company. Annual premium equivalent sales increased by 20% to GBP2.73 billion in the half, also ahead of the relevant analyst consensus forecast of GBP2.50 billion.
The company increased its interim dividend by 10% to 12.31 pence per share.
Investors have come to expect strong growth at Prudential's operations in Asia, where long-term operating profit before tax increased by 19% at actual exchange rates and by 15% at constant exchange rates to GBP574 million, equivalent to almost a third of the total reported in the half.
Eastspring, its Asia asset-management businesses, saw its operating result increase by 38% at actual exchange rates and by 35% at constant rates to GBP58 million.
"Asia's results in the first half of 2015 evidence the quality of our diversified business platform and our disciplined execution, which together enable the business to deliver strong, profitable growth across the economic cycle. We have a market-leading franchise in a region which is well supported by the long-term structural tailwinds of low insurance penetration, a rapidly growing and wealthy middle class and limited social insurance, providing significant headroom to create value for customers and shareholders," Wells said in a statement.
Prudential's US business generated a long-term business operating profit before tax of GBP834 million, up by 22% at actual exchange rates and by 11% at constant currency, mainly due to increased fee income from higher levels of separate account assets.
There have been fears that proposals being considered by the US Department of Labor could affect variable annuities and hit sales at Prudential's Jackson life company in the US. The changes being reviewed could result in rules on investment advice being extended to cover more products, including variable annuities.
Wells, who was previously the chief executive of Jackson, told reporters that any changes could look different to the agency's first proposal. The insurer said any changes made are not expected to take effect until at least late 2016.
"I think directionally what you'll see in the US is more transparency of fees. That's always a good thing in any market, probably more levelling of the commissions, which again is something we can deal with. The question comes down to underlying product quality, and I do believe we have the best product in that space in the market. The performance for our consumers would demonstrate that. Would a consumer still want the same sort of assurances and guarantees the product creates: they will. We are still addressing the same need," Wells told journalists.
Wells likened the potential changes to the "market disruption" seen in the UK when the government abolished an effective requirement for people to buy annuities to guarantee income in retirement.
"I think it's a disruption in the market, no different than the one we saw here with pensions. At some level we actually like market disruptions because they define and test the capabilities of us versus our peers. And I think historically we do pretty well when it gets pretty challenging," Wells said.
Prudential thinks that any changes by the US Department of Labor will be manageable because it has had a so-called voluntary sales cap for the last three years, which is designed to control sales in line with its appetite for risk.
"Jackson remains focused on actively managing sales volumes of variable annuities with living benefits to maintain an appropriate balance of our revenue streams and to match our annual risk appetite. As a result, Jackson experiences fluctuations in quarterly sales volumes as we implement management actions through the year to achieve these goals and continue to price new business on a conservative basis, placing value over volume," the company's results statement said.
In the UK, long-term business operating profit increased by 19% to GBP436 million, and the company cited its decision to focus on both retail and wholesale business segments that make the best economic sense.
"The UK market saw significant disruption from the reforms to the pension industry announced in 2014, which came into force in April 2015," Prudential said.
It said that focusing on the provision of risk-managed savings and investment products, development of new products, and "disciplined participation" in bulk annuities, saw total annual premium equivalent sales in the UK increase by 22% to GBP510 million in the half.
Operating profit at its M&G asset management business increased by 11% to GBP251 million in the half, driven by higher levels of average funds under management including internal funds.
By Samuel Agini; [email protected]; @samuelagini
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