Prudential Profit Rises on U.S. Sales, Bulk Annuity Deals

Aug 12, 2014 1:48 pm ET

(Updates with definition in third paragraph.)

Aug. 12 (Bloomberg) -- Prudential Plc, the U.K.’s biggest insurer by market value, posted a bigger-than-estimated rise in first-half profit, helped by increasing U.S. sales and bulk deals with company pension plans. The stock advanced.

Operating profit climbed 7 percent to 1.52 billion pounds ($2.6 billion), helped by an 18 percent jump in profit at its Jackson National Life unit in the U.S. and four so-called bulk annuities in the U.K., according to a statement today. Profit compared with the 1.47 billion-pound average estimate of 17 analysts surveyed by the London-based company.

The growth in the U.S. and Asia more than offset a slump in annuities sold to British retirees after the U.K. government abolished rules pushing them to buy the products. Competitors Legal & General Group Plc and Aviva Plc said last week they are focusing on bulk annuities, where insurers take on risk for company pension plans, after they too posted a slump in sales to individual retirees.

“We allocate capital to where the best opportunities are,” Chief Executive Officer Tidjane Thiam said in a telephone interview from London. “We would have written bulks whether annuities in the U.K. had collapsed or not. We don’t run a business to make up for another.”

Thiam said he had provided an additional 22 million pounds to the U.K. unit to facilitate bulk annuity transactions, which generated 104 million pounds of revenue in the first half. Operating profit for the U.K. rose 10 percent to 374 million pounds even as sales of the products to individual retirees slumped 43 percent.

‘Strong Appetite’

“Bulks are very attractive right now and therefore we have a good strong appetite,” Thiam said.

In the U.S., operating profit rose to 686 million pounds, boosted by a 24 percent increase in sales of variable annuities, whose returns change with the underlying performance of investments. Profit at Prudential’s M&G investment unit climbed 11 percent, as external funds under management jumped by 14.7 billion pounds to a record 132.8 billion pounds.

The shares closed up 2.2 percent at 1,368.5 pence in London, the steepest gain since April, as the insurer lifted its first-half dividend 15 percent to 11.19 pence.

In Asia, where Prudential generates about half of its revenue, operating profit climbed 2 percent to 483 million pounds with the results affected by political uncertainty in Indonesia and Thailand and a stronger pound against local currencies.

Thiam said distribution is the key to Asia, after the insurer extended such an agreement with Standard Chartered Plc in the first quarter. The CEO reiterated plans to grow in the region without relying on acquisitions, adding that his abandoned $35.5 billion bid for AIA Group Ltd. in 2010 was a “once in a lifetime” opportunity.

“The strategy has been, is and will remain to grow fast and aggressively,” Thiam said on a conference call with journalists. “I want to grow in Asia. There is enormous and attractive opportunity and I am really asking our shareholders to back that.”