Prudential’s outgoing chief executive, Tidjane Thiam, warned about the impact of low, long-term interest rates, as the insurer’s investment returns were hit in the UK and US, despite strong growth in Asia.
Britain’s biggest insurer reported a 6% drop in new business profits in the first quarter as double-digit growth in Asia was offset by declines in the UK and the US. This reflected the impact of UK pension reform and reduced interest rates. Interest rates in the UK and the US have been near zero for years.
Thiam said: “Very low long-term interest rates weigh on long-term investment,” warning of a downward “spiral of low income and lower growth”. He added: “We are not the only ones who hope that there will be a normalisation of the yield curve.”
Thiam, who leaves at the end of this month to run Credit Suisse, made Asia’s rapidly growing markets Prudential’s main focus during his six years at the helm.
Mike Wells, who replaces Thiam on 1 June and has been running Prudential’s Jackson business in the US, said he saw no need to make any material changes to the business.
The company posted new business profits of £496m in the three months to March, down from £526m a year earlier. Asia saw a 27% increase to £309m, while the UK was down 61% and the US fell 22%.
Like other UK insurers, Prudential sold fewer individual annuities after changes to UK pension rules, but this was partly offset by increased investment product sales including bonds, individual pensions and income drawdown. It wrote no new bulk annuities in the quarter but has since written one bulk scheme. Insurers hope bulk annuities, which transfer the risk of final-salary pension schemes from companies to insurers, will make up for falling individual annuity sales.
City analysts were upbeat about Prudential’s long-term prospects. Panmure Gordon analyst Barrie Cornes said: “The combination of a growing middle class in Asia, retiring baby boomers in the US and a need for retirement solutions in the UK combine to create a great opportunity to grow in its chosen markets.”
Kathy Fear at Citi said: “Overall numbers continue to demonstrate the strength of Prudential’s strategy and we would not expect any material changes to this post Mike Wells appointment as CEO in the nearer term. Capital remains robust and the Asian franchise remains best in class within the European insurance peer group.”
