Prudential to float US arm

Since the Covid-19 outbreak began, economic activity has slowed, dampening the life insurer’s sales in Hong Kong and China. “Given these conditions, lower levels of new sales activity in affected markets are to be expected with a consequential effect on new business profit,” Mr Wells warned investors.

However, in-force business has proved resilient, while management is hopeful that Prudential’s wide geographical spread will act as a hedge to the hardest-hit countries it operates in.

Prior to the outbreak, momentum was certainly strong: annual premium-equivalent sales surged 17 per cent across smaller Asian arms, including China, the Philippines, Indonesia and Taiwan. That was more than enough to offset a poor year in Hong Kong, where social unrest led to a 11 per cent reduction in premiums and a 12 per cent fall in new business profit to $2bn (£1.54bn).

Another of Prudential’s geographical hedges is being readied for a part-disposal. Just days after activist shareholder Third Point called on the company to spin off its wholly-owned US annuity provider business Jackson, management confirmed that preparations for a minority initial public offering have begun. The division – which generated 48 per cent of the group’s $6.3bn of adjusted operating profit in 2019 – is valued at £6.5bn by analysts at Citi, although management and regulators are yet to work out the level of capital Jackson will need to hold as a standalone entity.

Questions around capital are mirrored by the larger group. Following the spin-off of M&G, Prudential is no longer subject to Bank of England regulations that require the group to report its Solvency II ratio. The figure in the table below – which refers to Hong Kong rules for calculating capital – reflects a surplus of $9.5bn, as much as $2.9bn above regulatory constraints.

Consensus forecasts are for adjusted EPS of 174¢ in 2020, rising to 189¢ in 2021.