12th Mar 2014 13:06
LONDON (Alliance News) - Prudential PLC Wednesday upped its full-year dividend after reporting 17% growth in its operating profit, driven by its US and Asia operations.
The UK life insurer also unveiled plans to expand into new markets as it seeks to make sure its recent success can continue past 2017.
Prudential increased its full-year dividend by 15% to 33.57 pence from 29.19 pence.
Prudential said it has signed a new 15-year agreement with Standard Chartered PLC that will see a wide range of Prudential's life insurance products exclusively distributed through the emerging markets-focused bank's branches in a number of markets, including Hong Kong and Singapore.
The two FTSE 100 powerhouses also will look to collaborate in other parts of Asia and Africa.
Although Prudential's 2013 pretax profit fell by 40% to GBP1.64 billion, its closely-watched operating profit, which is based on longer-term investment returns, grew to GBP2.95 billion from GBP2.52 billion in 2012, after strong profit growth in Asia, the US and the UK, beating analysts' expectations.
The main difference between the two measures is that pretax profit includes short-term fluctuations in investment returns, which in 2013 resulted in Prudential booking a GBP1.11 billion cost, compared to a small gain in 2012, mainly because of a fall in the paper value of bond holdings in Asia and the UK, as bond yields rose, and a fall in certain hedging positions taken out in the US.
However, as a long-term holder of bonds, Prudential is unlikely to realise these losses, preferring to hold them to maturity. Indeed, rising bond yields are welcomed by the insurance industry, as historically low interest rates have been a weight on their investment returns.
According to consensus estimates provided by Prudential, analysts had been forecasting a GBP2.83 billion operating profit.
New business profit grew to GBP2.84 billion from GBP1.45 billion, driven by the US and Asia, with that trend continuing in 2013, as the life insurer's strategy of diversifying away from the UK continues to bear fruit.
"We remain focused on pursuing the three significant opportunities - the significant protection gap in the Asian middle class, the transition of US 'baby-boomers' into retirement, and the need for savings and retirement income for an ageing population in the UK - that are core to our strategy," Chief Executive Tidjane Thiam said in a statement.
Through Jackson National Life Insurance Company, Prudential has been targeting the US's 'baby-boomer' generation as they prepare for retirement. This has driven the company's strongly cash generative business. In 2013 total variable annuity annual premium equivalent in the US grew to GBP1.34 billion from GBP1.25 billion.
But Thiam picked out Asia as the area that "remains more than ever central to the long-term, profitable growth opportunities" for Prudential.
"The longer-term structural trends of a rapidly growing and wealthier middle class with significant unmet needs for savings and protection remain intact and underpin our prospects in the region," Thiam said.
Asia also is at the core of Prudential's three new objectives for 2017, which Thiam outlined at an investor conference in December.
Thiam said "an encouraging start" has been made towards achieving two of those objectives.
"We have grown Asia life and asset management pre-tax IFRS operating profit by 16% over 2012, and we have also delivered an 18% increase in underlying free surplus from Asia to GBP573 million in 2013. We will regularly update the market on our progress on all three objectives," Thiam said.
Those increases exclude the 2012 GBP51 million one-off gain from the sale of Prudential's stake in China Life Insurance Company of Taiwan.
Prudential set 2017 targets for Asia underlying free surplus generation, life and asset management pretax operating profit, and group underlying free surplus generation.
Looking beyond 2017, Thiam said Prudential is considering investing in Saudi Arabia. This would be in addition to new investments in the past two years in Cambodia, Myanmar, Poland and, most recently, Ghana.
The emerging markets insurer has had a strong three years since announcing six 'cash and growth' objectives set out at its 2010 investor conference, announcing that the targets were met at the full-year, with new business profits in Asia more than doubling to GBP1.46 billion from GBP1.43 billion in 2009.
Thiam predicted "more of the same, just better".
Prudential shares were Wednesday quoted up 3.2% at 1,405.16 pence.
By Samuel Agini; [email protected]; @samuelagini
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