Prudential non-exec's £100k show of faith

At the beginning of the year, UK-headquartered insurer Prudential (PRU) outlined its master plan. It was going to demerge its US business, Jackson, and raise $3bn (£2.1bn) of fresh equity so that it could focus solely on its Asian and African businesses. Chief executive Mike Wells described it as “the largest structural change in Pru’s 172-year history”. Evidently, investors are still to be convinced it is the right move though, with the share price flat since it was announced in January.

Some of their reservations might be around the fact the plan keeps changing. Initially it was going to IPO the US business before deciding in January that a Q2 demerger would be quicker. The demerger and $3bn equity raise were then planned to go ahead in Q2. However, on 13 May the group announced that the move had been pushed back to the second half of the year as it awaits regulatory approval in the US.

The promising news is that Asia and Africa annual premium equivalent sales are up 14 per cent compared with Q1 2020. Prudential believes investing in these regions is the right plan because rapid digitalisation, growing middle classes and heightened awareness brought about by the pandemic is generating an ever-growing demand for health and life insurance products. This assertion is supported by a McKinsey report last year which stated that between 2010 and 2019 Asia was responsible for 84 per cent of individual annuities growth in life insurance.

This might be why newly appointed non-executive director Ming Lu was confident enough to buy 7,000 shares at 1,425p, for a total outlay of £99,715.

It is standard practice for new non-executive directors to purchase shares as a show of confidence in the company they have joined. However, as current Head of Asia Pacific for the private equity group KKR, Lu’s show of confidence in Prudential’s Asian strategy carries a little extra weight than normal.  

Prudential’s Asia strategy is the right play and takes advantage of the continuing and inevitable shift in population demographics. According to the Brookings Institute, Asia Pacific’s share of the global middle class is set to rise from 54 per cent in 2020 to 65 per cent by 2030.

The only question is whether the stop start approach to the largest structural change in history is evidence of a dysfunctional management or genuinely just the result of an invasive regulator.

Last IC view: Buy, 1,188p, 29 Jan 2021