Pru ready to cut bonuses again

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The Independent Online
PRUDENTIAL Corporation, Britain's biggest life insurer, expects to have to cut the bonuses it pays to policyholders for the third year in succession.

The insurer's results yesterday included a provision of undisclosed size to take account of the bonus cut. This will have the effect of reducing the fixed proportion of income that the company declares as its profits.

Prudential's move reflects the widely shared view among insurers that they cannot sustain the rates of bonus now paid on with- profits policies. Reduced inflation has made it much harder for insurers to earn the necessary rates of investment return.

The Pru increased pre-tax profits for the first six months of the year by 46 per cent to pounds 249m. This record interim profit was at the top end of City expectations, prompting analysts to raise full- year forecasts to pounds 450m- pounds 480m. The shares rose 6p to 236p.

The company benefited from a recovery in its general insurance business, which reduced its loss from pounds 54m to pounds 14m, and from a windfall gain of pounds 52m from switching pounds 120m of its shareholders' funds into German mark bonds.

The main life insurance business increased its profit from pounds 190m to pounds 199m. This includes an increased pounds 32m profit (pounds 24m) from the Mercantile and General Reinsurance arm.

Mick Newmarch, chief executive, said the company would reveal in November the impact of reporting its 1991 results on the so-called accruals basis. Accruals accounting arguably provides a truer picture of the profitability of life insurance companies.

Mr Newmarch said reorganisation of the management of the Pru's field force into fewer but larger branches and regions had enhanced sales effectiveness and would save pounds 15m a year.

Prudential was recapturing market share in its traditional market. It has also secured a 4.5 per cent share of the independent financial adviser market.