Prudential's 2010 Results Beat Expectations

Posted on Mar 10, 2011 by Sergio Ulloa (G+)

The major British insurer Prudential plc reported better than expected results for 2010, with pre-tax profits totaling £2.1 billion (US$3.36 billion) reflecting a 24 percent year-on-year improvement in earnings. Prudential's operating profit also increased by 24 percent in 2010, amounting to £1.9 billion (US$3.04 billion), with new business sales rising by 23 percent to reach £3.5 billion (US$5.6 billion). Following the controversial and unsuccessful bid to acquire AIG's Asian arm, AIA, for £21 billion (US$35.5 billion) in 2010, Prudential focused on the generation of cash reserves and improvements in profit margins in order to enhance its position on the global insurance stage - especially in the rapidly growing Asian market. The ambitious approach to acquire AIA was part of newly appointed Chief Executive Tidjane Thiam's bid to seize AIG's Asian assets and thereby instantly increase its network in a rapidly expanding region of the world for insurance products. However, Prudential's shareholders strongly challenged the Chief Executive's judgment and rationale in respect of the size of the bid, which was subsequently dropped by Tidjane Thiam. In the event, Tidjane Thiam has been largely able to redeem himself with Prudential investors following the latest results after announcing a 20 percent jump in dividend payments at 23.85 pence per share; thus offsetting the disquiet over the £377 million (US$ 603.2 million) cost associated with the failed AIA bid. Despite the failed bid, Prudential's Asian insurance network has been able to grow and generate significant increases in sales activity during 2010. The demand for Prudential's saving and protection products has primarily been down to the rapidly strengthening Asian economy, with the improving wealth of the massive populations in Asian countries such as China, India and Indonesia driving premium growth. Following the collapse in the world's financial markets in 2007-2008, Prudential adopted a disciplined strategy in order to protect and strengthen its balance sheet with the objective of improving profit margins. These measures have rewarded the multinational insurer by providing a springboard for substantial growth, primarily in the Asian region, and the consolidation of business in its other key markets. Prudential is now focusing on the acceleration of profitable growth, with Asia expected to be the primary source of delivery. Within the Asian region, Prudential has highlighted the demands for insurance products in Indonesia, Malaysia, Vietnam, Thailand and the Philippines as hotspots for premium growth during 2011. In addition to the emerging markets in Asia, the demands for protection and saving products in the two mature Asian island nations of Hong Kong and Singapore remain an attractive proposition for Prudential. Although Prudential failed in the move to acquire AIA, the British insurer has a well established reputation across Asia, with an extensive distribution platform and good brand recognition providing the company with a competitive edge over rival insurers. Prudential's rivals include other multinational insurers such as Aviva, AIG, AXA, Allianz and Zurich with these companies also highlighting the Asian insurance market for potential growth as the once buoyant markets in Western Europe and the USA suffer from more challenging conditions as a result of stuttering economies and the imposition of austerity measures. Insurance Companies Mentioned: Prudential Prudential has been in the insurance and financial services business since 1848. Today they operate throughout the UK, US and Asia offering international health insurance and retirement planning services, supported by 27,000 employees worldwide. AIG The American International Group is a leading international insurance organization with operations in more than 130 countries and jurisdictions globally. AIA The AIA Group is a leading life insurance organisation in Asia Pacific that traces its roots in the region back more than 90 years. It provides individuals and businesses with products and services for life insurance, retirement planning, accident and health insurance as well as wealth management solutions. Through an extensive network of more than 320,000 agents and approximately 23,500 employees across 15 geographical markets, the AIA Group serves the customers of over 23 million in-force policies in the region. The AIA Group has branch offices, subsidiaries and affiliates located in jurisdictions including Australia, Brunei, China, Hong Kong, India, Indonesia, Macau, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.