Prudential switches from Europe to thriving Asia and Africa
SPREADING old-fashioned European values of thrift and prudence to people who in the past were too poor to learn about such things has been the challenge of a number of traditional businesses, not least the insurance sector.
Now it is taking the expansive Asian market and the virtually untapped African market more seriously than ever before. Unsurprisingly the legendary British outfit, Prudential Insurance is out there leading the pack.
In the 165 years since it started the Prudential has explored all the avenues of insurance and investment and is as 'blue chip' as it is possible to be, covering life insurance, accident, health, and property and casualty insurance plus fixed and variable annuities. Its finance and investment services include personal and group pensions.
Today Prudential has a significant 23 million customers worldwide with big operations in the USA, Asia and the UK. The company has four main businesses; Prudential UK which includes Europe; Hong Kong-based Prudential Asia has operations in most of the major countries in South East Asia; Its US business is Jackson Life Insurance acquired in 1987. Meanwhile the London based M & G investments is Prudential's investment arm.
Asia is a significant and attractive opportunity for the group with its 12 million customers. The company provides health and protection products to families at an affordable price in markets where the social safety net is limited particularly South East Asia.
It has sales/distribution agreements with Standard Chartered Bank (for eleven Asian countries) United Overseas Bank (Singapore), Thanachartas Bank (Thailand) and Alceda Bank (Cambodia).
The potential in Asia is enormous as the middle class population is forecast to double by 2020 and will then represent half the global middle class. Interestingly the company has only joint ventures in both India and China citing them as challenging for non-domestic insurance companies.
Prudential USA has four million customers and accounts for the largest operating profit in the group at £1.2bn. It caters for the financial needs of the 'baby boomers' as they transition to retirement.
The US baby boomer generation is the wealthiest demographic in the global economy. Over the next twenty years they will be retiring at the rate of 10,000 per day creating significant demand for Prudential products.
In the UK, Prudential has seven million customers providing savings, retirement income, and private health care. The market is getting old with the concentration of wealth in the 50-plus age group. To this segment of the population Prudential is marketing the idea of converting this wealth into sustainable lifetime income. Recently the UK life and pensions industry underwent regulatory change and not surprisingly new business was down 3pc.
M & G, acquired in 1999, has been investing money for individual and institutional clients for over 80 years becoming one of Europe's largest investment company. Its activities include fund management, property finance and the management of Prudential's property assets.
The company is valued at £34bn, has 22,300 employees and sales of £30bn worldwide. Last year group operating profits increased by 17pc to £3bn, the main contributors being the USA at £1.2bn a bumper increase of 30pc and Asia at £1bn thanks to double digit growth from its four large Asian operations of Hong Kong, Singapore, Indonesia and Malaysia.
UK operating profits were £700m in line with the previous year. M & G delivered operating profits of £400m.
Prudential's plan 2014/17 promises a mixture of cash and growth targets. It anticipates its Asian business will increase by a cumulative 15pc. Surprisingly the only non Asian target is a cash surplus of £10bn over the course of the plan.
The company's shares trade at £13.40 just below its ten year high of £14.40 but way ahead of its low of £2 some five years ago.
Prudential has strong cash generation and the scope to recycle its cash at attractive returns.
It is well positioned with exposure to most of the world's significant markets, has a valuable Asian franchise and a profitable US operation.
Recently Prudential invested in Ghana, as 'this is the century for Africa' according to the CEO Tidjane Thiam and he could be right.