Pru ‘is strong enough to withstand downturns’

Oct 22 2008 by Iain Laing, The Journal

INSURER Prudential has said it is strong enough to withstand much heavier downturns in stock markets and the economy as it seeks to soothe investor nerves.

Concerns have mounted that insurers’ capital strength could be whittled away by tumbling share prices, but the Pru’s own buffer stood at £1.2bn at the end of September.

This is down from £1.4bn at the end of June, but is enough to “remain resilient to a significant further deterioration” in markets and the economy, it said.

A further 40% slide in share prices from mid-October would wipe just £250m off its capital surplus, the insurer added.

The Pru’s own shares have fallen by more than a third in the past month, but chief executive Mark Tucker stressed the firm’s position was “robust”.

Although the group’s overall insurance sales rose 15% to £2.3bn during the third quarter of 2008, the company’s fast-growing Asian business has been set back by the recent turmoil.

Mr Tucker had hoped to achieve the group’s target of doubling profits from the region by 2009 a year ahead of schedule, although this is now unlikely.

But Prudential remains upbeat about longer-term prospects in the region and has been linked with a possible £8.7bn deal to buy the Asian arm of US insurance giant AIG, which was nationalised by the US government in September.

The group said its debt portfolio had “performed well in difficult economic circumstances” – but recorded losses totalling £293m during the period. This includes hits of £107m and £86m respectively on the collapse of US banks Lehman Brothers and Washington Mutual. But the continued recovery of Prudential’s previously struggling UK business saw total third-quarter sales up 38% to £732m, maintaining the strong performance seen in the first half of the year.

Sales of its with-profits bonds almost trebled to £74m.

The Prudential remains resilient to a significant further deterioration in markets and the economy