The image of the “man from the Pru” — the insurance agent selling life policies door-to-door — is embedded in Britain’s national consciousness.
But insurance in the UK has become increasingly less important to Prudential, as the country’s largest insurer by market value has aggressively pursued faster-growing markets, notably in Southeast Asia.
Recent management upheaval has cast a spotlight on the future of the Prudential in the UK, where its history stretches back almost 170 years.
Jackie Hunt, who ran the UK life operation for little more than two years, left the company last week. Mike Wells, the American who replaced Tidjane Thiam as Prudential’s group chief executive five months ago, wanted someone else for the job.
Prudential has repeatedly threatened to uproot its headquarters from London to escape looming EU capital requirements. Some investors are asking more fundamental questions about the Pru’s UK presence.
“It isn’t immediately clear that there’s a need for the business to be together any more,” says Rob James at Old Mutual, which owns £180m worth of Prudential shares. “In the past there was a very clear need.”
When Ms Hunt defected from Standard Life to join Prudential, it was already clear that the UK insurance division was no longer the focus of the group’s expansion plans.
It played an important, but unexciting, role as a reliable source of cash, generated mainly from annuities and “with profits” policies sold in previous years. The group reinvested these funds in its Asia powerhouse.
The status of the UK business was reinforced at Prudential’s annual conference in London soon after Ms Hunt joined. Investors had to sit through six hours of presentations from executives running more fast-paced parts of the company before the newly arrived UK chief had a chance to set out her plans.
Those who stuck around were surprised by what she had to say. While making clear the operation would remain disciplined, Ms Hunt saw potential to expand. “There are areas where we can drive harder,” she said.
Barrie Cornes, an insurance analyst at Panmure Gordon, recalls: “We looked at each other and thought, ‘She’s really got a mandate to grow the business like that — that’s a bit of a departure.’”
The reality was rather different — partly because an overhaul of the UK retirement system brought in this year, which abolished a requirement for pensioners to in effect buy annuities, forced her to rethink the strategy.
The UK business, which has about 7m customers, has so far been resilient. Although sales of annuities to consumers fell by more than half in the first half of this year, “bulk” deals with corporate pension schemes helped offset the decline.
Prudential says demand for its “with profits” offerings, branded “PruFund”, has picked up since the pension reforms. The company is among a small number of operators that still sells these.
Still, between 2010 and 2014, operating profits from the UK insurance unit ticked up just 2 per cent. Across the wider group, which includes the London-based asset manager M&G, the US life arm Jackson, and Asia, they raced ahead by 75 per cent.
Alan Devlin, analyst at Barclays, says of Ms Hunt’s tenure: “She tried her best to grow it, but from the corporate perspective the UK never had the full support of the group. Asia and the US were much more attractive.”
Third-quarter results on Tuesday are expected to show the UK generated about 13 per cent of Prudential’s new business profits in the period.
For some investors the case for keeping the group intact has diminished since the Asia business has recently become self-funding. It is no longer reliant on cash produced in Britain.
Before Mr Thiam left he recognised this meant Prudential had “optionality” over what to do with its conglomerate structure, although he argued the arrangement retained important advantages. The UK business supports Prudential’s group-wide credit rating and underpins its dividend.
Mr James says: “While there’s less of a case for it to be together than there was 10 years ago, I’m still not sure there’s a clear case to break it up.”
Mr Wells appears to agree, saying he will pursue “our current strategy-plus”. Yet whether he can do so depends partly on how onerous the new Solvency II capital requirements, due to begin in January, will be. A harsh outcome could force the group to seriously consider a restructuring.
Also near the top of his mounting in-tray is finding a replacement for Ms Hunt. Some shareholders say her successor could do more to make Prudential work better in the UK — such as by integrating the insurance operation more closely with M&G. The government reforms have blurred the line between pensions and fund management.
Still, given the strong returns Prudential has generated in recent years, many are hoping for nothing more drastic.
“There have been personnel issues recently,” says a fund manager at one of Prudential’s 10 largest shareholders. “They just need to demonstrate that it’s business as usual.”
Financial Times
