Contrasting sentiments on UK from insurance giants Prudential and Standard Life
INSURANCE giant Prudential today confirmed that it considering its future as a European-based company amid changes in the EU regulatory regime.
The statement came as Prudential revealed that its fast-growing Asian business generated more profits than its UK arm for the first time during 2011.
But rival Standard Life, which also reported its annual results today, said it continiued to see opportunities in the home market, despite posting a reduced contribution from the UK to group-wide profits ahead of market expectations.
The Pru’s Asian profits rose 32% to �709million and have now nearly trebled in the past three years, driven by the booming middle class’ appetite for life insurance and other savings and protection products.
That compares with profits growth of just 1% to �683m in the UK, where the Pru’s sales fell as it focused more on higher margin products and more profitable markets in Asia.
Overall group operating profits rose 7% to �2.1billion but the stellar performance in Asia will add to speculation it will move its domicile to Asia as a result of EU plans to force it to horde more capital.
Prudential said today it was considering its position, and admitted that it fears the new rules will place it at a “competitive disadvantage”.
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Prudential said it is increasingly moving away from its traditional business model of being reliant on the UK life assurance business for its cash generation.
Chief executive Tidjane Thiam said: “The heart of our strategy remains Asia, where our positive momentum has been maintained in 2011.
“Asia is generating both growth and cash and our focus on the fast-growing markets of South-East Asia continues to pay off.”
The group has enjoyed strong growth in south-east Asia, which it describes as its “sweet spot”, led by emerging markets such as Indonesia, the Philippines, Vietnam and Thailand.
Indonesia has the fourth biggest population in the world but just 1% have insurance, providing significant opportunity for growth. All of its Asian markets apart from India grew sales in 2011.
In the UK, it said it is still the market leader in selling annuities and with-profits investment products. Sales of individual annuities fell 13% to �179m although this was partly offset by an increase in with-profits sales.
It is a similar story in the US where it says more than 10,000 people a day will reach retirement age over the next 20 years. Its US business, Jackson National Life Insurance Company, saw profits fall 17%.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said the results continued to build bridges with shareholders who were angered by the failed bid to buy AIA, the Asian arm of AIG, which left the group with a �377m bill.
He said: “Prudential had previously declared its hand in chasing Asian growth with the failed purchase of AIA, and these results fully explain that interest.
“The Asian business has become the largest contributor to earnings for the first time, and underlined that the company is well positioned in several of the region’s strongest markets.”
Standard Life said its UK profits dropped 6% last year as economic uncertainty and volatility returned to hit confidence.
The decline to �220m was offset by cost cuts and a much stronger result in Canada as the group reported a better-than-expected 28% rise in full-year profits to �544m.
Chief executive David Nish said the results showed the company remained on track to transform its “operational and financial performance”, including by focusing on those markets where it has leading positions.
For 2011, assets under administration in the UK were 2% higher at �122bn but net inflows of �2.12bn were down 29% on a year earlier. It has more than six million customers and is one of the UK’s biggest corporate pensions providers with a market share of more than 19%.
In the UK, the company said it was entering a period of unprecedented change and potential for growth. The company is being helped by lower commission costs as more IFAs switch to fee-charging ahead of the forthcoming overhaul of retail distribution rules.
It is focused on working with IFAs who are best placed to prosper in the new market environment, allowing it to grow its intermediary market share without incurring the cost of commission on new business.
However, Standard Life warned that trading conditions remained tough, added: “The uncertain economic backdrop and its effect on consumer confidence have impacted new business volumes since the start of the year against a strong start to last year. However, we see significant opportunities in all of our chosen markets.”
The operating profits of �544m were around 14% higher than City expectations. Barrie Cornes, an analyst at Panmure Gordon stockbrokers, said: “The beat appears to have come from a number of sources but primarily in the UK business and a lower investment spend.”
Standard Life said rising life expectancy and Government changes to increase the proportion of the population saving for retirement meant the UK represented an “exciting market with great potential”.
Last year, 17% of the population were aged 65 and over and this is expected to increase to 23% by 2033.
However, among factors affecting insurers in the UK, new business has slowed as customers choose to defer retirement rather than crystallise market losses in the current environment.