9th Mar 2016 12:44
LONDON (Alliance News) - Prudential PLC, the London-listed life insurer and asset manager with a strong presence in Asia, UK and US, on Wednesday surprised the market with its first special dividend since 1970, as operating profit grew in all three of its main regions in 2015.
The results marked an opportunity for Prudential to reassure the market over fears about China's economic slowdown and its effect on Asian and global growth, and the company responded by beating analyst expectations. Shares in Prudential were up 4.4% at 1,384.50 pence on Wednesday morning.
"We have the flexibility and resilience to adapt to these developments due to our focus on those markets where the need for our products is greatest, our growing level of recurring income from our sizeable in-force portfolio and our robust balance sheet position," Chief Executive Mike Wells said in presenting his first set of annual results since taking charging last June.
Net profit rose to GBP2.58 billion in 2015, Prudential said in a statement, from GBP2.22 billion in 2014. The company increased its full-year ordinary dividend to 38.78 pence per share from 36.93p. Prudential declared a special dividend of 10p on top of that payment, after its UK life business provided a likely one-off boost to earnings from balance sheet actions related to new Solvency II insurance rules in the EU.
Operating profit based on longer-term investment returns grew to GBP4.01 billion in 2015, up 26% at actual exchange rates.
Prudential's life insurance operations in Asia contributed GBP1.21 billion to operating profit, up 15% at actual exchange rates. Its Asian asset manager, Eastspring Investments, grew its operating profit by 28% to GBP115.0 million. Prudential said its focus on growing recurring life insurance premium underpins growth in the region and reinforces its resilience in tougher economic conditions.
"Despite our strong progress over the last decade, insurance penetration in the markets in which we operate remains low and the demand for savings, health and protection products from a growing middle class continues to be high," Wells said of Asia.
In the US, where Prudential sells savings and income products to the ageing baby boomer generation born in the wake of World War II, operating profit generated by Jackson Life grew by 18% at actual exchange rates to GBP1.69 billion. That was driven by growth in fee income earned on separate account assets that have continued to benefit from robust net inflows, Prudential said.
Prudential said it is working on "contingency plans" ahead of the expected implementation of new fiduciary obligations for distributors of investment products in the second half of 2016. The proposals, made by the US Department of Labor, could result in a shake-up of the nation's variable annuity market.
Demand for variable annuities in the US remained strong, Prudential said, with annual premium equivalent sales 3.0% higher at GBP1.73 billion at constant exchange rates.
"Given Jackson's proven record of product innovation, best-in-class infrastructure, access to competitive intelligence and integration of product design with distribution, we believe we are well positioned to respond, adapt and take advantage of any market disruptions," Prudential said.
Prudential's life business in the UK grew operating profit by 60% to GBP1.17 billion. That figure included GBP339 million in the second half of 2015 from "management actions" taken to position the balance sheet "more efficiently" under new Solvency II insurance rules in the EU.
Those actions included extending the reinsurance of longevity risk - the potential for people to live longer than expected to cover GBP8.7 billion of annuity liabilities by the end of 2015. At the end of 2014, the programme covered GBP2.3 billion of liabilities. Other actions included "repositioning" its fixed income asset portfolio.
Meanwhile, Prudential's UK investment house M&G Investment generated an operating profit of GBP442 million in 2015, which was more or less in line with the GBP446 million generated in 2014.
M&G's funds under management, including internal funds, were 7.0% lower at GBP246.1 billion, with retail net outflows more than offsetting positive inflows from institutional new business. Retail investors pulled assets from bond funds, Prudential said.
In the fourth quarter of 2015, M&G experienced net retail outflows of GBP3.5 billion, including GBP2.4 billion from Europe. "This reflected the continuation of a market-wide change in investor sentiment away from fixed income, against a backdrop of high levels of volatility and macroeconomic uncertainties, conditions that have continued into the early part of 2016," Prudential said.
In February, Prudential named Anne Richards, chief investment officer at Aberdeen Asset Management PLC, as the new chief executive of M&G. She is the successor to Michael McLintock, who is retiring after 19 years in charge of M&G.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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