Prudential slashes payout to cope with 'harsh' UK market

Prudential yesterday slashed its dividend by 40 per cent, the first time it has cut shareholder payout since 1914, after enduring the "harshest environment for life insurers in a long time".

Jonathan Bloomer, the chief executive, yesterday revealed first-half profits fell 27 per cent to £397m, while sales were flat at £15.5bn, as investors shied away from stock markets.

Pru plunged its dividend policy into uncertainty in February, saying market volatility made its current rate of growth "imprudent". Reducing the dividend to 5.3p a share, with an expected total dividend of 16p a share, will save the company £200m a year.

"We had to strike the appropriate balance between the cash generated by the company and what we wanted to invest across the group for growth," Mr Bloomer said. A number of Pru's rivals have already cut their dividends to conserve capital, namely Aviva, and Royal & SunAlliance.

Mr Bloomer yesterday painted a very gloomy picture of the UK savings and investment market. Sales of with-profit bonds, one of Prudential's core products, have fallen 75 per cent in the past six months. This led to a 48 per cent fall in profits in the UK and Europe to £174m.

"The UK is the most challenging market we operate in," Mr Bloomer said. "Volatile equity markets and low interest rates have caused consumers' appetite for savings to remain weak. It will take time for consumer confidence to return, but we believe the demographics for the UK market are very attractive."

Mr Bloomer predicted a period of intense consolidation in the UK life insurance sector, with many more insurers closing their doors to new business. "In the next couple of years, the top five players will control around 80 per cent of the market," he said.

Prudential yesterday refused to give its backing to the new range of low-cost, over-the-counter savings and investment products planned by the Government. "I will not sell business that is not profitable," Mr Bloomer said, saying his support would depend on the level of price cap given to the products.

Asia was once again the area of growth for the group, with new business in the region contributing more than a third of the group's profits despite uncertainty from the outbreak of the Sars virus. Its operations there, however, are still without a head following the surprise resignation of Mark Tucker earlier this year.