British insurer Prudential met forecasts with a 25 percent rise in annual profit, fuelled by growth in Asia where it expects to double the value of new business in 2008, a year earlier than planned. Asia accounts for almost half Prudential's profit and analysts and investors are watching for signs of contagion from a US slowdown.
However, Britain's largest insurer by market value said it remained confident, with Asian margins expected to stay at current levels despite wider market turmoil. "Bringing (the Asian target) forward one year is effectively guiding for 26 percent new business profit growth in Asia this year," Lehman Brothers said in a research note, adding that would be 17 percent ahead of its forecasts.
"Prudential's long-term growth prospects are clear, but for the company to feel able to increase guidance for this year in this sort of market, should in our view be taken as a strongly positive signal."
Prudential's shares, which have outperformed the sector but still languished in 2008, jumped in early trade, lifted by Asia and the absence of surprise writedowns on risky assets that have battered the financial sector. But the shares later pared the gains to trade up 0.5 percent at 657.5 pence by 1015 GMT.
Total operating profit came in at 2.54 billion pounds ($5.17 billion) on a European embedded value basis. That compares with 2.13 billion for 2006, restated to exclude loss-making Internet bank Egg, sold to Citigroup in early 2007.
Analysts polled by Reuters had on average forecast an operating profit of 2.5 billion pounds. New business profit rose 22 percent to just under 1.22 billion pounds, while the group's margin remained stable at 42 percent, as higher margins in the UK business offset a dip in Asia, where the group wrote more, lower-margin business in fast-growing markets such as India. In its Asian unit, operating profit rose 28 percent to 1.1 billion pounds. Its insurance operations there rose 26 percent, slightly dented by the weaker dollar.
New business profit - boosted by a stronger agency force, with India alone employing 277,000 agents - rose 34 percent. Margins dipped 4 percentage points to 50 percent, but that was a recovery after a first half at 46 percent, and CEO Mark Tucker eased concerns of a steep fall if US turbulence continues. "We remain confident that they (Asian margins) will be at or around current levels," he told reporters.
Tucker has long said that the potential of Prudential's Asian business is not priced into its shares, which trade at the sector's highest multiple but are still close to historic lows. But on Friday he dismissed speculation of a separate listing.
In the United States, its Jackson National Life unit saw an 11 percent dip in insurance operating profit, hit by a tough comparison, after assumption changes inflated 2006 numbers. In its slimmed-down UK business, where Pru announced plans to restructure and pull out of lower-margin business last year, operating profit from its insurance operations rose to 859 million pounds, up 25 percent.
Prudential eased concerns over its exposure to longevity risk, as one of the largest writers of annuities, strengthening its assumptions by 312 million pounds to allow it to assume longer lives for UK men. That was offset by changes elsewhere.
It also said it was on track to hit its UK saving targets and said it would decide on plans for surplus assets in its with-profits fund, or its inherited estate, in the first half. Prudential said it would pay a dividend of 18p per share, up 5 percent, as its dividend cover remained short of its target, in line with forecasts but a yield still behind the UK sector.
"Once we get to that (2 times) cover level we will look at the situation again," Tucker said. The group is currently at 1.9 times. "Our aim is to have a progressive dividend, we are not hoarders of capital." Shares in Prudential have been lifted in recent weeks by speculation linked to China's Ping An Insurance, whose shareholders have approved plans for a $17 billion fund raising.
Tucker declined to comment on speculation Ping An could take a stake but said he welcomed new shareholders in the group. British life insurers have remained largely immune to the heavy writedowns that have battered banks and US peers, and Prudential said on Friday its portfolio, which includes 912 million pounds of sub-prime and Alt-A mortgage assets, was solid, though lower interest rates and widening spreads resulted in US net credit losses of 78 million pounds.
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