China’s growing middle class has helped profits increase for British insurer Prudential, but the company’s strong results were overshadowed by large withdrawals at its UK fund management arm.
Prudential has for years focused on selling insurance and savings products to Asia, where sales rose by 20% in the third quarter. The insurer said Hong Kong’s strong performance continued between July and September, and sales were up 73% in the first nine months of the year. More than half of sales in the territory are made to customers from mainland China.
The company says its regular premium savings product remains popular with young customers in their 20s and 30s in Hong Kong, who want to save for the future in times of stock market turmoil. On the other hand, luxury goods companies such as Burberry and LVMH have been hit by a slowdown in Chinese spending.
Prudential’s chief executive, Mike Wells, who took over from Tidjane Thiam in June, has stuck to his predecessor’s Asian strategy. “You could be excused for assuming that we might have been hit by the rollercoaster ride we’ve seen in the Chinese equity markets,” he said. But he added that the long-term prospects in China remained good.
“In Asia, we continue to target the huge opportunity offered by the growth of the middle class … Many people have – wrongly, in my view – been looking at the Shanghai Composite Index as the barometer of the health of the Chinese economy. There are better metrics to measure the Chinese economy,” Wells said.
He pointed to the expansion of China’s middle class. It has reached 109 million adults this year, outnumbering for the first time the US, with 92 million, according to Credit Suisse’s annual wealth report last month.
Despite wild swings in China’s stock markets over the summer, Asia remained Prudential’s main growth engine. Profit from new business rose by 24% to £976m in the first nine months of the year, with sales up 27% to just over £2bn. The company’s overall new business profit increased by 13% to £1.76bn.
Mainland China posted a 4% fall in sales in the third quarter, owing to lower demand for single-premium products amid the stock market turmoil. Regular premium sales, however, were up 23%. Over the first nine months, sales in China rose by 32%. South Korea, the Philippines and Thailand were also strong, offsetting declining sales in Indonesia and Singapore.
Prudential’s shares fell nearly 4% on Tuesday to £15. Investors pulled nearly £4bn of funds from its UK asset management arm M&G amid worries about fixed income markets. This was offset partly by new investments, resulting in net fund outflows of £2.7bn.
Its US business, Jackson, posted a 4% decline in new business profit to £557m in the first nine months of the year. In the UK, profit rose by 16% to £231m, despite a 50% fall in individual annuity sales following pension changes, which also led to more interest in savings products.
