Buoyant Prudential committed to growth

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The Independent Online
Prudential yesterday renewed its long-term commitment to expansion by acquisition in its key UK market, as it announced an 8.6 per cent increase in total operating profits to pounds 873m in 1996.

But Sir Peter Davis, the company's group chief executive dampened down hopes of an imminent takeover raid on a building society, arguing: "We can't see value in that from a shareholder perspective."

The company said its total profits before tax were pounds 1.6bn last year, up from pounds 1.04bn in 1995. The Pru's profits rise was boosted by pounds 766m realised by the sale of its reinsurance arm, Mercantile & General, to Swiss Re last year.

Sir Peter said yesterday the disposal of Mercantile & General, plus the launch of a banking arm, meant the Pru was focusing even more on markets it believed were crucial to its long-term success. This included an acquisition strategy in areas reflecting its long-term ambitions in the market.

Sir Peter said: "We have recently submitted an offer for Scottish Amicable. This company has a respected brand name and significant presence in the independent financial adviser [IFA] market in the UK and, if successful, the acquisition would enhance our core UK operations."

He refused to comment on further targets, especially in the building society sector.

"We said 18 months ago that we wanted to buy a life company with an IFA presence. We indicated 12 months ago that we might be interested in adding a branch network alongside our new banking operation. But at the moment we are concentrating on shareholder value. The time is not right."

Prudential's continuing growth came as the company announced that it is currently processing more than pounds 100m in mortgage applications for its new home loans and banking subsidiary, launched in October, which has also taken pounds 98m in deposits.

Sir Peter said the seemingly slow start lay in the Pru's unwillingness to roll out its products across the entire salesforce until they are fully trained.

Jackson National Life, the Pru's US subsidiary, recorded operating profits up 35 per cent to $512m (pounds 350m), achieved through diversification both of its product range and distribution network. The Prudential also announced that it is paying a record pounds 1.8bn in bonuses on its UK with-profits policies. For 10-year policies with monthly payments of pounds 50, payouts of pounds 9,274 involve a drop in returns from 8.9 per cent last year to 8.4 per cent in 1997. However, maturing 25-year policies with the same premium will pay pounds 101,215, a 13.1 per cent rate of return, up from 13 per cent in 1996.

Jim Sutcliffe, chief executive of Prudential UK, said: "We have increased payouts for the majority of our customers and maintained the payouts for many others."

The company added that negotiations with the Department of Trade and Industry (DTI) over the ownership of so-called orphan assets, announced last year, were continuing.

Analysts have claimed the Pru could release between pounds 500m and pounds 3bn to shareholders from its orphan assets.