Prudential: FY05 new business

4:37 a.m. Thu 26 Jan 2006

Life assurer, Prudential reported that total group insurance sales (on an APE basis) rose to £2.15bn in the year to December 2005, 15% ahead of last year, just ahead of consensus estimates. This compares to a 27% growth in sales seen in the nine months to September 2005.

On an APE basis sales in Q4 declined by 8% compared to last year, mainly due to a 32% decline in UK and European sales. The worst performer was the UK where sales fell by 33% in the last quarter due to a 92% decline in sales of bulk annuities. For the year as a whole, UK & European APE sales were £900m, just 10% ahead of last year.

Sales of bulk annuities have fuelled much of Prudential’s growth in the UK this year (boosted by the acquisition of the in-force pension annuities book from Phoenix Life & Pensions in June 2005) and a slowing in sales in Q4 was widely expected. Prospects for bulk annuity sales next year look weaker with as many as five new players expected to enter the field, squeezing margins and volumes.

Proposals by the Pensions Commission on a National Pensions Savings Scheme (NPSS) could also affect sales, although it is too early to say by how much. The NPSS would be funded by contributions by workers and employers. (The report of the commission in available here)

The company’s generally strong performance overseas continued although there were signs of a slowing in the pace of growth in Q4. For the year, sales in Asia rose 23% (compared to 27% at the nine month stage) and US sales rose 13% (compared to 17% at the nine month stage).

The company’s strong presence in America and Asia has lead to speculation of a possible takeover bid, although the CEO, Mark Tucker has claimed that Prudential would remain independent.

On the whole, the long term insurance industry now seems firmly on the path to recovery and growth prospects look reasonable. A takeover bid (Aviva and the French insurer AXA are believed to be possible candidates) could provide further short term upside.

The share trades at 553p, on a prospective PE (2006 earnings) of 13.2x with a yield of 3%.