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Prudential
Life assurer Prudential, Britain’s second-largest listed insurance company, released strong profit figures for the full year. Operating profits were up 39% to £1.2bn boosted by a record level of new business profits of £688m, up 23% on 2003. Pre-tax profits have risen to £1.5bn from £838m last year.
New business written was boosted by a big one-off purchase of an annuity portfolio in excess of £1bn from Scottish Life, with group insurance annual premium equivalent (APE) up 19% over last year, compared to to 16% growth seen in the third quarter figures. At constant exchange rates the figures were even stronger with group APE growing by 26%.
Prudential is a large life assurance group that also owns online bank Egg. Overseas, Prudential owns Jackson National Life (in the US) and the Prudential Corporation Asia.
The strongest growth was seen in the UK and Europe (where sales of insurance products grew by 58% and investment products by 54%), followed by the US(where insurance sales grew 22%) and Asia (where insurance sales grew 30% and investments 12%).
In terms of products, the growth was limited to a few types with bulk annuities (up 445%), life bonds (up 108%), and life-other(ie excluding with profit and life bonds) up 78% leading the way.
An agreement with Royal London to reinsure Scottish Life’s approximately 60,000 in-force annuities (representing more than of £1bn of funds under management) contributed £111m in APE (or about half of the 40% growth seen in Europe/UK).
The results are indicative two trends, a growing willingness of consumers to invest in life assurance and a distinct switch to low risk products (or those perceived as being lower level risk)-there is a dramatic fall in ‘with-profit’ products.
Sales agreements with Lloyds TSB and Alliance and Leicester have proved very profitable with sales of credit life protection products growing 224% over last year. The wider distribution channel (the company is decreasing its dependency on the direct sales force) will improve growth prospects.
While the business is undoubtedly improving, solvency has improved partly as a result of better profits but also as a result of the rights issue. The free asset ratio has improved to 14.8 up from 10.7% in June (Dec 2003:10.5%) which now brings it in line with its’ peers (Aviva 14.3%, Legal & General 14%)). A surprise rights issue earlier in the year (raising £1bn) was thought to be prompted by new EU solvency requirements. About a fifth of the funds raised were estimated be needed to meet new EU standards.
Prudential shares trade at 486.25p on a prospective PE of 11.8×, within the sector range with yield of 3.3%.
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