Prudential reported first quarter annual premium equivalent (APE) sales of $1.7bn, up 4% ignoring currency moves. New business profit rose 12% to $608mn, driven by volumes and a 2 percentage points higher margin of 36%.
Funds under management at asset manager Eastspring fell slightly in the period, down from $258bn to $256bn.
Prudential is currently involved in a legal battle in Malaysia, with today’s update detailing new claims brought against the businesses relating to an alleged $813mn in missed dividend payments to a partner in the region.
Plans to list the Indian asset management business are still underway, with any proceeds expected to be returned to shareholders. Over the quarter, $442mn worth of shares were repurchased from the ongoing $2bn buyback.
The shares fell 2.9% in early trading.
Our view
Prudential’s started the year with some good momentum, as new business profit growth tracked ahead of the group’s 10% target. Ongoing legal battles in Malaysia stopped shares from benefiting from the strong quarter.
Despite the Asian focus, trade and tariff uncertainty won’t have a direct impact on the business, but it’s not immune to an economic slowdown. That said, management put forward a confident tone about the future.
The business offers life and health insurance, as well as asset management, across a range of Asian countries. Hong Kong operations boast a market-leading position for products aimed at visitors from mainland China. We’re pleased to see last year’s strong growth continue. Price increases seem to have landed without too much disruption, volumes are moving up, and the combination has been positive for margins.
Medium-term initiatives are evolution rather than revolution and include investment across several core areas, including technology, and creating a more joined-up customer approach across the product ranges.
Looking further ahead, the broader Asian and Indian regions should benefit from long-term economic development. Insurance uptake is also low in areas like Asia, and in many cases, state provisions for pensions and social security are limited. India offers lots of potential in the health insurance space, with a huge population and around half of all health expenses being covered by disposable cash. We see several longer-term opportunities in many of these underpenetrated markets.
China is a challenging market, where Prudential mainly operates through joint ventures. Interest rates and government bond yields impact performance, and while other regions have benefited of late from rising yields, China’s have been falling. That challenging environment is expected to continue into 2025.
Prudential also has a big asset management business, Eastspring, which manages nearly $260bn of assets. It offers a host of investment solutions as well as managing premiums generated from the life insurance business. Improving market dynamics mean retail investors are moving back to higher margin equity funds.
Capital levels are strong, and the group’s committed to increasing the dividend by 10% over the next year, as well as accelerating the pace of its ongoing buyback. But this isn't a high yielder like some of its UK-listed peers and nothing is guaranteed.
The refreshed strategy brings with it some bold goals, and progress looks good. We think Prudential's Asian focus and higher growth opportunities give a different option for a UK investor. The key challenge comes from China, where uncertain economic conditions continue to add risk.
Environmental, social and governance (ESG) risk
The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security is also an increasingly important risk for banks and diversified financial firms. Business ethics, ESG integration and labour relations are also worth monitoring.
According to Sustainalytics, Prudential’s management of material ESG issues is strong.
Prudential trains sales employees annually on responsible marketing and has strong policies for data privacy and security. The company invests in digital products to enhance customer experience but does not disclose customer complaint details. While it offers thorough training on ethics and corruption, and also provides whistleblower protections, Prudential lacks ethical risk assessments in investment and product development.
Developments in Malaysia are worth keeping an eye on, legal and regulatory hurdles have raised the region’s risk profile.
Prudential key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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