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Anil Wadhwani, the new chief executive of Prudential, has promised to “do things differently”. He also says the UK-listed insurer will focus on Asia and on paying dividends. This hardly represents a break from the past: insurers tend to be yield stocks and Pru has long prioritised Asia.
More usefully, Wadhwani set a numeric target. He pledged 15 to 20 per cent compound annual growth in new business profit, a measure of predicted earnings from products sold, between 2022 and 2027.
Hitting these numbers will require a concerted effort. Local rival AIA, which Pru contemplated buying in 2010, is a tough competitor.
Wadhwani, who took control of Pru in February, got a credibility boost from strong first-half results. He has China to thank for a 3.6 per cent rise in operating profits. Mainland Chinese travellers have returned to Hong Kong and some are buying insurance there. New business profits rose 39 per cent to $1.5bn.
At the current rate, Wadhwani’s targets look achievable. In Hong Kong, annualised premium equivalent sales, a key performance measure, rose more than four times to $1bn in the first half.
Many mainland Chinese prefer Hong Kong’s health service. Prudential’s new business profit growth in this segment has been brisk. Moreover, Chinese investors are using insurance to diversify assets.
But caution is warranted. This year’s jump in insurance sales reflects the end of pandemic-era travel restrictions. Meanwhile, Chinese wealth is slipping. Real estate values have dropped and the economy is slowing.
There is another factor. Until a few years ago, Hong Kong did not impose capital controls. So mainland Chinese investors bought insurance policies to take money offshore. But Beijing has been stepping up capital account controls in the city since 2017.
AIA meanwhile has a sales edge. It received central government approval in 2020 to put mainland branches under the umbrella of a wholly owned local subsidiary. In contrast, Pru operates in mainland China via a 50 per cent stake in a local joint venture.
On a forward earnings basis, Prudential trades at a discount to AIA and has done so for over a decade. Despite upbeat results, shares of Prudential are down more than a quarter since a January high, a bigger decline than peer AIA over the same period.
Wadhwani will have his work cut out to beat his targets when the surge in post-lockdown business abates.
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