Focused, high-growth Prudential at a discount

Following some teething problems, Prudential’s expansion into Asian life and savings markets is delivering impressive growth. Macroeconomic drivers include an increase in working age population, a growing middle class and higher personal healthcare costs. Over the next five years nearly 700m people are expected to move into the 'middle-class' bracket in Asian countries, according to estimates from the Brookings Institution. At the same time, spending on private health insurance in some areas accounts for less than a quarter of private healthcare spend, according to research by the World Bank.

Management has focused on expanding its product ranges, as well as increasing its scale across the continent. Prudential is already the number one private life insurance provider in Malaysia, India, Indonesia and Cambodia. However, the biggest potential prize will come from growing its presence in mainland China, where it is ranked number four in terms of market penetration. Its long-term joint-venture partnership in the country with CITIC  is starting to pay off, and China is now the third-largest contributor to new business sales in Asia. 

Prudential’s life businesses are driving earnings growth in the region. During the first half of this financial year new business profit for the Asian life businesses increased more than a fifth on an annual premium equivalent basis to £1.1bn. That was equivalent to more than half of Prudential’s worldwide life sales. However, it’s not just making progress on the life insurance front. Wealth management business Eastspring Investments had funds under management of £131bn at the end of June, representing 11 per cent growth in just six months. Part of this uplift was due to external net inflows of £2.3bn. In 2012 management set a target for its Asia business to achieve a compound annual growth rate of more than 15 per cent by 2017, which it hit a year ahead of schedule. What’s more, management says the region is on track to meet its other full-year targets, of an operating profit of more than £1.8bn and underlying free cash generation of between £0.9bn and £1.1bn.

In the US, life business Jackson looks in strong form following the introduction of government reforms to the variable annuity market at the start of June. Management has been growing average account balances and strengthening its distribution network. Although some uncertainty remains over the way regulation will work in practice over the longer term, management actions look to be paying off. First-half variable annuity operating profit at Jackson was up 17 per cent on the back of higher asset balances, while the division as a whole saw profit up 7 per cent.    

The decision to withdraw from the UK individual annuity market has continued to dampen life insurance profits here. However, asset management business M&G managed to reverse the net outflows it suffered in 2016 by recording net fund inflows of £7.2bn during the first half of this year. Meanwhile, the plan to merge M&G with its UK and European life businesses to form M&G Prudential are expected to create annual cost savings of £145m by the end of 2022 as well as focusing resources on the higher-growth US and Asia regions.