Will Annuity Scrap Damage Prudential?

The UK's 1.2 million pensioners no longer have to purchase annuities. As a result, Prudential’s annuity sales fell 35% year over year to £36 million

Vincent Lui, CFA 14 May, 2014 | 9:54AM
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Prudential (PRU) is off to a good start in 2014, with 13% growth in new business. However, we think the U.K. insurer is facing increasing headwinds in the rest of the year due to intensified competition in Asia and budgetary changes in the U.K. While our long-term view for the company remains positive, we think top-line growth for this year is constrained to 3%-4%, given our forecast for more sluggish sales in Asia and Europe. We will maintain our fair value estimate and no-moat rating for the company.

Asia’s new sales grew 2% from last year’s levels to £507 million. Almost all Asian markets experienced a slowdown in sales in the January quarter, except for Hong Kong and Singapore, thanks to a new 15-year agreement with Standard Chartered that allows Prudential to distribute its products through 1,700 branches in the region. However, as margins tend to be lower for bank channel products (as they are more plain vanilla) than for products sold through an agent, we expect new sales profit to grow only modestly this year.

Separately, inclement weather did play a role in poor agent sales, with new business sales falling 33% from last year’s levels.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Prudential PLC1,427.50 GBX-0.52Rating

About Author

Vincent Lui, CFA  Vincent Lui, CFA is an equity analyst for Morningstar, covering life insurance companies.

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