Prudential rides out the storm to bolster profits

The strong pound and changes to UK annuities failed to stop the country’s biggest insurer, Prudential, from surging to a better-than-expected rise in profit yesterday. 

 

The Pru, led by high-profile chief executive Tidjane Thiam, said operating profits rose seven per cent to £1.5bn for the six months ending June, beating analysts’ estimates.

 

The FTSE 100 giant’s US business National Life, which writes annuities, was the main driver of success with an 18 per cent rise in profit to £686m. 

 

The increase came despite a sharp decline in the UK retail annuity market and currency headwinds dragging down on its performance. 

 

Volatile currency exchange rates weak­ened profits, which would have surged 17 per cent if currency fluctuations had been stripped out. “We faced some challenges,” Thiam said.

 

UK profits rose 10 per cent to £374m despite a 43 per cent collapse in individual UK annuity sales after the government’s announced in March that it would scrap rules compelling savers to buy the product. 

 

Stronger bulk annuity sales to corporate pension schemes helped to cushion the plunge in individual sales.

 

The results also show the business awash with cash from its many divisions, including fund management arm M&G, which saw an 11 per cent profit rise and £4.2bn of inflows. 

 

Cash remitted back to the group by M&G, Prudential Capital and its US, UK and Asian divisions rose 15 per cent to £974m. 

 

Shares closed up 2.2 per cent at 1,368.50p.

 

The Prudential’s success in the face of mounting adversity this year chimes with a long running theme of chief executive Tidjane Thiam’s reign at the FTSE 100 giant: snatching victory from the jaws of defeat. 

 

Four years ago this summer, Tidjane led a bungled £24bn bid for Asian rival AIA. The botched bid cost the company £450m in costs and sparked mounting calls by shareholders for the newly installed man from the Pru – Thiam had taken the helm just a year earlier – to be fired over the collapse of the deal. 

 

Shares were languishing at 600p at the time yet four years on, Tidjane has managed to calm investor nerves by more than doubling the company’s share price, with the Pru closing up at 1,368.50p last night – a 128 per cent increase from the dark days of 2010. 

 

Thiam reflected on the failed takeover bid yesterday in a conference call, calling it a “once in a lifetime opportunity”.

 

“My only frustration is that I didn’t succeed. I’m still animated about it. There’s no point in speculating about an acquisition spree in Asia,” he said.    

 

His Asian invasion, while not taking the form of the much-anticipated takeover, has come to fruition, albeit more organically. 

 

Prudential now generates half of its revenues from the Asian region. “I want to grow in Asia. There is enormous and attractive opportunity and I am asking our shareholders to back that,” he added.