Prudential Sales Fall 5% as Asian Economies Slows (Update2)

By Kevin Crowley
Bloomberg News
May 14, 2009

May 14 (Bloomberg) -- Prudential Plc, the U.K.'s biggest insurer by market value, said first-quarter revenue fell 5 percent as the global economic slowdown hurt sales in Asia.

Insurance sales dropped to 697 million pounds ($1.1 billion) compared with 732 million pounds a year earlier, the London-based company said today in a statement. That beat the average estimate of 647 million pounds from 17 analysts surveyed by the company.

"In Asia we're seeing a sharp contraction in gross domestic product and that has an impact on the business," Finance Director Tidjane Thiam said on a conference call with reporters. "We are not targeting sales or volume growth, the game is about capital preservation."

Prudential, which operates in 13 countries in Asia, is looking to the region's growing middle class to boost revenue as sales in Britain slow. Sales in the region, which accounts for more than half of Prudential's profit, dropped 11 percent to 333 million pounds as Korea and Hong Kong bordered on recession, and China's economy grew at the weakest pace in at least a decade.

"They've been warning about a slowdown in Asia for some time now so it was expected," said Kevin Ryan, a London-based analyst at ING Financial Markets with a "buy" rating on the stock. ""There's less money about and insurance is the ultimate discretionary purchase."

Asia sales fell 11 percent to 333 million pounds. That beat the average analyst estimate of 308 million pounds as customers bought more regular premium products and health insurance, Prudential said in the statement. Revenue from equity-linked linked savings declined as stock markets tumbled.

Best Performer

Prudential was unchanged at 409.5 pence at 10:20 a.m. in London trading, valuing the company at 10.2 billion pounds.

Prudential is the best performer in the nine-member FTSE ASX Life Insurance Index during the past three months as concern eased that its capital reserves wouldn't be enough to weather the global economic crisis. The index has risen almost 80 percent from its March 6 as the U.K. government's plan to purchase corporate bonds helped damp speculation insurers would be hurt by further writedowns on their bond holdings.

In Korea, Prudential's biggest market in Asia, new business fell 37 percent as the company ceded market share to rivals because of "unattractive economics." Sales in India also fell 37 percent.

Sales in Hong Kong, the third largest market, dropped 15 percent as consumers lost confidence in the banks through which Prudential sells its product, the company said. The banks also sold so-called mini-bonds from Lehman Brothers Holding Inc. before the U.S. bank collapsed last year.

Surplus Increases

The insurer estimated that its capital surplus is 2 billion pounds, up from 1.6 billion pounds at the end of March because of a hybrid debt sale this month. The surplus will increase by 800 million pounds after its Taiwanese business is transferred to Taipei-based China Life Insurance Company Ltd.

Prudential's U.S. unit, Jackson, increased the amount set aside to cover potential losses on its 16.3 billion-pound bond portfolio by 13 percent to 3.5 billion pounds as the market value of the holding fell.

"We have the intention to hold all those bonds to maturity so frankly if the price goes down it doesn't affect us from an economic perspective," Thiam said.

The company in March said Thiam would succeed current chief executive officer Mark Tucker on Oct. 1. Prudential has since hired Nic Nicandrou, former head of finance at Aviva Plc's life unit, as its new chief financial officer and Thibaut Le Maire, an ex-managing director of Societe Generale SA, as chief risk officer.

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