Prudential (LON:PRU)

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	==Business Growth==		==Business Growth==
		+	2010 was a good year for Prudential as we delivered strong performance
		+	in our key growth metrics. EEV new business profit (‘new business profit’)
		+	was up 25 per cent to £2,028 million (2009: £1,619 million) and IFRS
		+	operating profit based on longer-term investment returns (‘IFRS operating
		+	profit’) increased 24 per cent to £1,941 million (2009: £1,564 million).
		+
		+	In life insurance, APE sales1 in 2010 were up 23 per cent to £3,485 million (2009: £2,844
		+	million) and new business profit has increased by 25 per cent to £2,028 million (2009:
		+	£1,619 million) as our new business margins1 increased to 58 per cent (2009: 57 per cent).
		+	Asia produced APE sales1 of £1,501 million (2009: £1,209 million) and new business
		+	profit1 of £902 million (2009: £725 million) in 2010, both figures up 24 per cent on the
		+	prior year. AER sales performance across Asia was strong, particularly in Indonesia
		+	(up 49 per cent), Malaysia (up 40 per cent), Hong Kong (up 19 per cent) and Singapore
		+	(up 37 per cent) where we have a powerful market presence. Our agency and
		+	bancassurance channels both continue to flourish, each growing at a rate in excess
		+	of 25 per cent, and our health and protection rider strategy remains highly successful,
		+	with health and protection products representing 27 per cent of new business
		+	premiums in 2010.
		+	Jackson delivered APE sales of £1,164 million (2009: £912 million) and £761 million of
		+	new business profit (2009: £664 million), up 28 per cent and 15 per cent respectively
		+	on the prior year. The decline in our new business margin in the US from 73 per cent
		+	in 2009 to 65 per cent in 2010 was expected. Nevertheless, Jackson successfully
		+	defended most of the exceptional margin gains achieved in 2009 in taking advantage
		+	of the extreme dislocation prevalent in the corporate bond market. Jackson has
		+	capitalised on the weakened competitive environment in the US life insurance market
		+	and has emerged as one of the top three players in the variable annuity market in terms
		+	of sales and number two in terms of net flows. However, our expansion in variable
		+	annuities has been opportunistic and this market share may not be sustained as
		+	competition re-emerges over the medium term.
		+
		+	In the UK, we delivered total retail and bulk annuity APE sales of £820 million
		+	(2009: £723 million) and new business profit of £365 million (2009: £230 million),
		+	up 13 per cent and 59 per cent respectively. At a retail level, new business profit of
		+	£257 million was up 15 per cent from £223 million in 2009 at an expanded margin
		+	of 35 per cent versus 31 per cent in the prior year. This reflects improved margins on
		+	with-profits bond sales where we have seen volumes 11 per cent higher on improved
		+	demand and the strong annuity margins experienced in 2009 continuing into 2010.
		+
		+	In asset management, we have delivered £8.9 billion of net inflows over 2010 compared
		+	with £15.4 billion in 2009, a year which benefited from exceptionally high flows into
		+	M&G’s fixed income funds due to the credit spread environment at the time. M&G is the
		+	driver of our inflows in asset management, producing £9.1 billion (2009: £13.5 billion)
		+	of net inflows in the period (£7.4 billion retail, £1.7 billion institutional). M&G’s track
		+	record in attracting positive net inflows is highly impressive, ranking number 1 in the
		+	UK retail market for the last nine consecutive quarters, making it one of the leading
		+	asset managers in Europe. At the end of 2010 it had external funds under management
		+	of £89.3 billion, an increase of £19.0 billion from the position at the beginning of the
		+	year; adding these funds to internal amounts, M&G’s total funds under management
		+	were £198.3 billion. Asia asset management continues to make great strides forward
		+	attracting £1.8 billion of retail and institutional inflows in 2010 (2009: £556 million).
		+	These were offset by £2.1 billion of outflows (2009: £1.4 billion inflows) in low margin
		+	money market funds where sales and redemptions tend to be highly volatile.
		+	It is encouraging to note that we continue to grow our balance sheet with shareholderbacked
		+	policyholder liabilities up by 22 per cent to £122 billion, benefiting from both
		+	net inflows and investment market movements. We continue to see positive net inflows
		+	into our life businesses, with a net £9.7 billion being received in 2010, an increase from
		+	the net £7.2 billion received in 2009. In asset management our Group net inflows as a
		+	percentage of opening external funds under management stands at 9.9 per cent for
		+	2010. Both measures emphasise the significant organic growth we are delivering across
		+	the Group. In addition, the returns we expect to generate on the capital we invest in
		+	writing life new business have also reached a new high. For every £1 we invested in new
		+	business strain in 2010 we expect to generate £2.2 of post-tax new business profit and
		+	our initial capital investment is expected to be paid back within two years.
	==Trends and Forces==		==Trends and Forces==
		+
		+	===Growth in Asia===
		+	At the centre of our strategy is the acceleration of our profitable growth in Asia, which
		+	offers many of the highest growth and return opportunities. The emerging markets of
		+	South-East Asia – such as Indonesia, Malaysia, Vietnam, the Philippines and Thailand,
		+	together with Hong Kong and Singapore – are particularly attractive. They remain the
		+	priority destination for our new capital investment. With our compelling platform of
		+	distribution, brand and product development capabilities in the high growth markets
		+	of Asia, we believe we are particularly well positioned to take advantage of the
		+	considerable opportunity that the region offers.
		+
		+	In 2010, in line with our strategy, our core investment was in the fast growing and
		+	highly profitable markets of South-East Asia and Hong Kong and Singapore. Due to the
		+	long-term structural changes taking place in these economies, we continue to believe
		+	they offer the most attractive opportunity in the global life insurance market today.
		+	Distribution remains critical to our business in Asia, and our unique combination of
		+	proprietary agency distribution and bank partnerships continues to deliver excellent
		+	results. Agency will remain the dominant and most profitable channel in Asia for
		+	many years to come. It is clear that Prudential’s agency distribution platform compares
		+	favourably to our peer group, whether in terms of scale, training or productivity.
		+	In addition, we will continue developing our presence in the bancassurance channel.
		+	The performance of our new partnership with UOB reinforces our view that the
		+	bancassurance channel will be increasingly important as Asian middle classes become
		+	wealthier and increasingly use banks and their services. This, together with our strategy
		+	of growing health and protection business, has been central to increasing our
		+	profitability and margins.
		+	Our financial performance in Asia will continue to be based on three principal drivers.
		+	First, as a result of our strong new business growth, and its contribution to the increase
		+	in our in-force policies book, net inflows will be a major contributor to our IFRS
		+	earnings. Second, there will continue to be a contribution from investment returns,
		+	which will increase as the business grows. Third, as the scale of the business increases,
		+	our profitability will continue to benefit from the efficiency of our Asian platform, with
		+	revenues growing faster than our cost base. These three drivers support our
		+	confidence in our ability to double our 2009 IFRS profits by 2013.
		+
		+	===Baby boomer generation===
		+	Regarding Western economies, we continue to be more cautious about the outlook, with
		+	some clear differences between the US and Europe. The US economy is recovering, and
		+	the combination of the transition of 78 million ‘baby boomers’ into retirement, and our
		+	skill base and products, creates a unique and exciting opportunity for us.
	==Competition==		==Competition==
		+	*[[Prudential Public Limited Company (PUK)]]
		+	*[[Aviva (AV)]]
		+	*[[Aegon (AMS:AGN)]]
		+	*[[Manulife Financial (MFC)]]
		+	*Ingaing Groep N.V.
		+	*[[MetLife (MET)]]
		+	*[[Prudential Financial (PRU)]]
		+	*[[Lloyds Banking Group (LYG)]]
		+	*[[Sun Life Financial (SLF)]]
		+	*[[AXA (AXA)]]
	==References==		==References==

---

Revision as of 13:02, July 1, 2011

Prudential plc (LON: PRU) is a U.K.-based financial services company with operations in the United Kingdom, the United States and Asia. It operates in the United Kingdom through its subsidiaries, primarily The Prudential Assurance Company Limited (PAC), Prudential Annuities Limited (PAL), Prudential Retirement Income Limited (PRIL) and M&G Investment Management Limited.^[1] In the United States, the Prudential’s main subsidiary is Jackson National Life Insurance Company.^[1] The company also has operations in Hong Kong, Malaysia, Singapore, Indonesia and other Asian countries.^[1]

Prudential has two segments: insurance operations and asset management operations. Prudential offers a range of retail financial products and services, and asset management services. The retail financial products and services include life insurance, pensions and annuities, as well as collective investment schemes.^[1]

Business Growth

2010 was a good year for Prudential as we delivered strong performance in our key growth metrics. EEV new business profit (‘new business profit’) was up 25 per cent to £2,028 million (2009: £1,619 million) and IFRS operating profit based on longer-term investment returns (‘IFRS operating profit’) increased 24 per cent to £1,941 million (2009: £1,564 million).

In life insurance, APE sales1 in 2010 were up 23 per cent to £3,485 million (2009: £2,844 million) and new business profit has increased by 25 per cent to £2,028 million (2009: £1,619 million) as our new business margins1 increased to 58 per cent (2009: 57 per cent). Asia produced APE sales1 of £1,501 million (2009: £1,209 million) and new business profit1 of £902 million (2009: £725 million) in 2010, both figures up 24 per cent on the prior year. AER sales performance across Asia was strong, particularly in Indonesia (up 49 per cent), Malaysia (up 40 per cent), Hong Kong (up 19 per cent) and Singapore (up 37 per cent) where we have a powerful market presence. Our agency and bancassurance channels both continue to flourish, each growing at a rate in excess of 25 per cent, and our health and protection rider strategy remains highly successful, with health and protection products representing 27 per cent of new business premiums in 2010. Jackson delivered APE sales of £1,164 million (2009: £912 million) and £761 million of new business profit (2009: £664 million), up 28 per cent and 15 per cent respectively on the prior year. The decline in our new business margin in the US from 73 per cent in 2009 to 65 per cent in 2010 was expected. Nevertheless, Jackson successfully defended most of the exceptional margin gains achieved in 2009 in taking advantage of the extreme dislocation prevalent in the corporate bond market. Jackson has capitalised on the weakened competitive environment in the US life insurance market and has emerged as one of the top three players in the variable annuity market in terms of sales and number two in terms of net flows. However, our expansion in variable annuities has been opportunistic and this market share may not be sustained as competition re-emerges over the medium term.

In the UK, we delivered total retail and bulk annuity APE sales of £820 million (2009: £723 million) and new business profit of £365 million (2009: £230 million), up 13 per cent and 59 per cent respectively. At a retail level, new business profit of £257 million was up 15 per cent from £223 million in 2009 at an expanded margin of 35 per cent versus 31 per cent in the prior year. This reflects improved margins on with-profits bond sales where we have seen volumes 11 per cent higher on improved demand and the strong annuity margins experienced in 2009 continuing into 2010.

In asset management, we have delivered £8.9 billion of net inflows over 2010 compared with £15.4 billion in 2009, a year which benefited from exceptionally high flows into M&G’s fixed income funds due to the credit spread environment at the time. M&G is the driver of our inflows in asset management, producing £9.1 billion (2009: £13.5 billion) of net inflows in the period (£7.4 billion retail, £1.7 billion institutional). M&G’s track record in attracting positive net inflows is highly impressive, ranking number 1 in the UK retail market for the last nine consecutive quarters, making it one of the leading asset managers in Europe. At the end of 2010 it had external funds under management of £89.3 billion, an increase of £19.0 billion from the position at the beginning of the year; adding these funds to internal amounts, M&G’s total funds under management were £198.3 billion. Asia asset management continues to make great strides forward attracting £1.8 billion of retail and institutional inflows in 2010 (2009: £556 million). These were offset by £2.1 billion of outflows (2009: £1.4 billion inflows) in low margin money market funds where sales and redemptions tend to be highly volatile. It is encouraging to note that we continue to grow our balance sheet with shareholderbacked policyholder liabilities up by 22 per cent to £122 billion, benefiting from both net inflows and investment market movements. We continue to see positive net inflows into our life businesses, with a net £9.7 billion being received in 2010, an increase from the net £7.2 billion received in 2009. In asset management our Group net inflows as a percentage of opening external funds under management stands at 9.9 per cent for 2010. Both measures emphasise the significant organic growth we are delivering across the Group. In addition, the returns we expect to generate on the capital we invest in writing life new business have also reached a new high. For every £1 we invested in new business strain in 2010 we expect to generate £2.2 of post-tax new business profit and our initial capital investment is expected to be paid back within two years.

Trends and Forces

Growth in Asia

At the centre of our strategy is the acceleration of our profitable growth in Asia, which offers many of the highest growth and return opportunities. The emerging markets of South-East Asia – such as Indonesia, Malaysia, Vietnam, the Philippines and Thailand, together with Hong Kong and Singapore – are particularly attractive. They remain the priority destination for our new capital investment. With our compelling platform of distribution, brand and product development capabilities in the high growth markets of Asia, we believe we are particularly well positioned to take advantage of the considerable opportunity that the region offers.

In 2010, in line with our strategy, our core investment was in the fast growing and highly profitable markets of South-East Asia and Hong Kong and Singapore. Due to the long-term structural changes taking place in these economies, we continue to believe they offer the most attractive opportunity in the global life insurance market today. Distribution remains critical to our business in Asia, and our unique combination of proprietary agency distribution and bank partnerships continues to deliver excellent results. Agency will remain the dominant and most profitable channel in Asia for many years to come. It is clear that Prudential’s agency distribution platform compares favourably to our peer group, whether in terms of scale, training or productivity. In addition, we will continue developing our presence in the bancassurance channel. The performance of our new partnership with UOB reinforces our view that the bancassurance channel will be increasingly important as Asian middle classes become wealthier and increasingly use banks and their services. This, together with our strategy of growing health and protection business, has been central to increasing our profitability and margins. Our financial performance in Asia will continue to be based on three principal drivers. First, as a result of our strong new business growth, and its contribution to the increase in our in-force policies book, net inflows will be a major contributor to our IFRS earnings. Second, there will continue to be a contribution from investment returns, which will increase as the business grows. Third, as the scale of the business increases, our profitability will continue to benefit from the efficiency of our Asian platform, with revenues growing faster than our cost base. These three drivers support our confidence in our ability to double our 2009 IFRS profits by 2013.

Baby boomer generation

Regarding Western economies, we continue to be more cautious about the outlook, with some clear differences between the US and Europe. The US economy is recovering, and the combination of the transition of 78 million ‘baby boomers’ into retirement, and our skill base and products, creates a unique and exciting opportunity for us.

Competition

• Prudential Public Limited Company (PUK)
• Aviva (AV)
• Aegon (AMS:AGN)
• Manulife Financial (MFC)
• Ingaing Groep N.V.
• MetLife (MET)
• Prudential Financial (PRU)
• Lloyds Banking Group (LYG)
• Sun Life Financial (SLF)
• AXA (AXA)

References

1. ↑ ^{1.0 1.1 1.2 1.3} Google Finance: LON: PRU

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