Asia Sales Push Prudential Forward

Posted on Nov 09, 2011 by Sergio Ulloa (G+)

Prudential PLC, The largest UK-based insurer by market value, has posted a 10 percent rise in group insurance sales through the first nine months of the year, beating analyst estimates on the back of sustained double-digit premium growth in the key Southeast Asian insurance markets of Singapore, Indonesia, Malaysia and Hong Kong. Prudential are now confident that the continued strong performance of its Asian and US businesses would enable the insurer to outperform its immediate rivals and meet its medium-term financial targets despite the ongoing Euro-zone sovereign debt crisis. Following last year's highly publicized and controversial failed bid to acquire AIA, AIG's coveted Asian insurance arm, for £21 billion (US$35.5 billion), Prudential has since focused on generating cash reserves and improving company margins to improve it's position in the global insurance marketplace, especially in rapidly growing Asian markets. Had the bid for AIA been improved, Prudential would have become the largest pan-Asian insurance firm. The deal broke down when Prudential's shareholders forced the firm's executives to renegotiate the price, a move that was rejected by AIG and left Prudential with £377 million (US$605 million) in fees. Despite this unsuccessful bid however, Prudential has been able to grow its Asian insurance network and generate significant increases in sales activity over the past year. The demand for Prudential's saving and protection products has been driven by the rapidly expanding economies in Southeast Asia, where rising per capita wealth in countries like China, Malaysia and Indonesia are driving premium growth. According to a company statement filed on Tuesday, Prudential made £2.7 billion (US$4.3 billion) in revenues from new business sales for the first nine months of 2011, compared with £2.46 billion (US$3.95 billion) reported during the same period a year earlier. Market analysts had largely expected the insurer's revenues to be slightly lower, around the £2.68 billion (US$4.3 billion) range. Prudential's nine-month profit from new business meanwhile increased by 14 percent to £1.5 billion (US$2.41 billion) from £1.35 billion (US$2.17 billion) a year earlier. This considerable rise in profit enabled the London-based insurance conglomerate to increase its margins from 55 percent to 57 percent during the period. Prudential attributed much of this growth to the particularly strong performance of its varied Asian insurance operations, where new business sales have cumulatively risen by 8 percent year-on-year to £1.147 billion (US$1.84 billion) through September 30th. The company noted furthermore that if the results from India were excluded, as new industry regulations are adversely affecting business there, sales in Asia would be up 19 percent to £1.107 billion (US$1.78 billion) for the period. According to the company filing, Prudential's profitable growth in Asia has been driven by its four leading regional markets, with sales in Singapore up 38 percent, Indonesia up 27 percent, Hong Kong up 17 percent and Malaysia up 16 percent through the first nine months of the year. Prudential is looking to double its profits in the region over the next two years in an attempt to further capitalize on the growing demand for protection and investment products among the expanding middle class consumers in the other emerging Asian markets, such as the Philippines, Thailand and Vietnam. "These results confirm the value of our strategic focus on the fast-growing and highly profitable markets of South-East Asia½Our main strength is Asia. We grow anywhere between 15 percent and 25 percent per year in Asia, which shows business doubles every three to five years. We're still well on track to do that." Prudential Chief Executive Officer Tidjane Thiam said in the briefing. Broken down more succinctly, Prudential's ongoing success in Asia has been boosted in particular this year by the performance of the Indonesian insurance market. With a 37 percent growth in third quarter sales to £81 million (US$130 million), and more than 108,000 agents, Indonesia has outpaced the rest of Asia in 2011 to become Prudential's biggest insurance market in the region for the first time. Meanwhile in China, Prudential's share of new business volume from local joint venture operation, Citic Prudential Life, is up 10 percent to £46 million (US$73.8 million), and plans are underway to accelerate staff recruitment and productivity efforts to capitalize on this tremendous market. Prudential also singled out the performance of its Singapore division, which had a robust third quarter with new business of £60 million (US$96.34 million), up 40 percent over last year. Success in these and other Asian insurance markets has enabled Prudential to offset its losses in India, where sales were down by 46 percent to £26 million (US$41.75 million) from last year's third quarter. For the past year, the Indian market has proven to be a particular challenge for many multinational insurers due to the mandate from the national insurance regulator (the IRDA) that all companies would have to re-register their insurance products in the country by the end of 2010. Despite this noted administrative obstacle, Prudential remain confident about their long-term prospects in India, noting in the statement that domestic sales figures would improve from fourth quarter 2011 onwards, which is when last year's IRDA regulatory reforms kick in. Outside of Asia, Prudential reported that new business profits in the United States were up by 17 percent to £968 million (US$1.15 billion) for the year, while the company's home UK market experienced a more modest 4 percent growth rate to £569 million (US$913.59 million). Prudential's overall regulatory surplus capital now stands at £3.9 billion (US$6.26 billion) and this compares favorably to its largest British rival Aviva, who have seen their capital position plummet by 33 percent to £2.7 billion (US$4.34 billion) this summer in the aftermath of the eurozone debt crisis. The company briefing concluded with Prudential Chief Executive Officer Tidjane Thiam insisting that their continued growth in Asia, combined with their ability to gradually de-risk their balance sheet from Southern European debt, has enabled the multinational insurer to remain competitive and become better protected against the current market turmoil engulfing the Eurozone. According to Prudential, the insurer's sovereign debt exposure now amounts to £49 million (US$78.67 million) in Portugal, Ireland, Italy, Greece and Spain, with a further £1 billion in reserve for use if a second global economic downturn comes to pass. "In volatile times, capital, balance sheet and risk management are more important than ever½The group's balance sheet remains strong and our capital position is robust. Our prudent and pro-active approach to capital and risk management has led us to retain a defensive stance since the 2008 financial crisis." Mr. Thiam concluded. Insurance Companies mentioned Prudential PLC Prudential PLC 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.