Prudential, AXA boosted by Asia

Posted on Aug 08, 2011 by Sergio Ulloa (G+)

Prudential PLC, The UK's largest insurer by market value, has reported a 25 percent increase in its half-year profits, beating industry estimates on the back of double-digit growth in key Asian regional markets of Indonesia, Singapore, Hong Kong and Malaysia. Prudential now believes that the strength of its Asian business will continue to protect the insurer against the worst of another potential financial crisis in the West. Nine months after their controversial and unsuccessful bid to acquire AIA, AIG's coveted Asian arm, for £21 billion (US$35.5 billion) in 2010, Prudential has focused on generating of cash reserves and improving profit margins to enhance its position on the global insurance stage, especially in the increasingly important emerging Asian markets. According to a company statement released on Friday, Prudential made an operating profit of £1.06 billion (US$1.7 billion) in the first six months of 2011, compared with £968 million (US$1.57 billion) reported during the same period a year earlier. Markets had largely expected the insurer's profits to be under £963 million (US$1.56 billion). Annual premium equivalent sales, a gauge of revenue that includes all annualized first-year premiums and a tenth of all single premium products, is now £1.8 billion (US$2.9 billion), demonstrating an annual increase of 10 percent. The considerable rise in profit has allowed the London-based insurer to boost its interim dividend by 20 percent, up to 7.95 pence a share. Prudential attributed much of this growth to the particularly robust performance of its Asian operations where first-half new business profits rose 17 percent year-on-year to £465 million (US$72.2 million). The insurance company has now set an ambitious goal to double its profits from the region within the next two years, in an attempt to further capitalize on the growing demand for insurance among the expanding middle classes in emerging Asian economies such as Indonesia, Malaysia and Thailand. "We have continued to concentrate on the fast-growing and highly profitable markets of Southeast Asia, and the positive momentum of 2010 has been maintained during the first half of this year, with new business profit up 17 percent in Asia and 22 percent in Asia ex-India," Prudential Chief Executive Officer Tidjane Thiam said in the statement. Prudential's long-term operating profit forecast in Asia rose 24 percent to £326 million (US$384.5 million) in the first six months of 2011, boosted in particular by the performance of the Indonesian market, according to the report. With a 36 percent growth in first half profit to £95 million (US$154.8 million), and more than 100,000 active agents, Indonesia has outpaced the rest of Asia to become Prudential's biggest market in the region for the first time. In China meanwhile, Prudential's local joint venture operation, Citic Prudential Life, has planned to step up staff recruitment efforts after the insurer reported a 30 percent rise in annual premium equivalent sales, which are at £35 million (US$57 million) up from £27 million (US$44 million) in 2010. Success in these and other Asian markets has enabled Prudential to offset losses from India, where new business sales reportedly fell by 61 percent to £47 million (US$76.6 million) in 2011. The Indian market has been a particular challenge for multinational company's after the local insurance regulator (IRDA) issued a mandate to re-register all insurance products in the country at the end of 2010. However, despite this noted administrative obstacle, Prudential remain confident about their long-term prospects in India. Mr. Thiam added that the company would continue to develop its businesses in the region with an organic growth investment strategy and due financial diligence. Prudential has been using the cash generated through its legacy UK business to fund the group's expansion in these booming Southeast Asian economies, which now account for nearly half the insurer's overall sales. Between 60 to 65 percent of company profit in this region has been coming from the sale of protection products, the statement noted. The bancassurance channel meanwhile has accounted for 30 percent of Prudential's combined annual premium, excluding India, across the Asia-Pacific. The statement concluded with the Prudential CEO insisting that the company's growth in Asia and ability to gradually de-risk its balance sheet has enabled the multinational insurer to become better insulated against the current market turmoil engulfing the United Sates and Europe. According to Prudential, the insurer's sovereign debt exposure amounts to £53 million (US$86.3 million) in Portugal, Ireland, Greece and Spain, with £1 billion in reserve for use in the event of a second global economic downturn. "While these issues may have some temporary adverse effects across the globe, we continue to believe that our substantial presence in the growing and developing markets across Asia put us in a position to deliver relative outperformance in the medium term," Mr. Thiam concluded. While Prudential has demonstrated success from the continued development of its Asian operations, AXA has been able to generate similar positive returns by divesting from some of its assets in the region. Last week, Europe's second largest insurer, AXA, announced that their first-half profit had more than quadrupled to €3.99 billion (US$5.71 billion), beating estimates largely on the gains related to asset disposals in mature insurance markets. While AXA reported that total revenues for the period had fallen 5 percent to €46.84 billion (US$66.3 billion) from €49.15 billion (US$69.6 billion) a year-ago, these results were offset by an exceptional €1.44 billion (US$2.04 billion) gain linked to the sale of a stake in Taikang Life, a Chinese life insurer, to Goldman Sachs as well as the disposal of AXA's operations in Australia, Canada and New Zealand. The ability of the French insurer to now profit from divestment contrasts with 2010 when AXA's net income was hurt by a €1.48 billion (US$2.09 billion) exceptional loss related to the sale of most of its life insurance assets in the UK. AXA Chief Executive Officer and Chairman Henri de Castries remarked in a statement that the results were a good start and showed that the company was progressing in the difficult circumstances surrounding the eurozone debt crisis. "The macro factors are not looking good at the beginning of this summer, but as far as we are concerned regarding our business and the things we can control we are pretty confident we will deliver on our targets," he said. Through AXA's restructuring plan, the insurer will continuing to retreat from mature over-saturated markets and chase lucrative business opportunities in Asia. Insurance Companies Mentioned AXA AXA Group is a worldwide leader in Financial Services. Headquartered in Paris, the AXA Group companies are engaged in life insurance, health insurance and asset management services among others. AXA's operations are diverse geographically, with major operations in Europe, North America and the Asia/Pacific area. 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.