The Prudential's chief executive Jonathon Bloomer tried to reassure investors yesterday that the UK's second-largest insurer was strong enough to withstand any further slumps in equity markets.
Despite reporting a 15 per cent fall in interim profits, as the Pru booked a £71m charge for losses on bonds, Mr Bloomer insisted the group had foreseen the recent falls in equity markets and was well prepared for them. The Pru had also been keeping bonuses on with-profits policies at prudent levels and, unlike its rival Aviva, was not planning to cut payouts.
"The life fund remains very strong through the strategic and tactical allocation of assets," Mr Bloomer said. "This market is not a surprise for us this is what we thought it would look like. We haven't been forced sellers and we can withstand significant shocks."
The company made a move into fixed-interest securities in 1999 and has only 51 per cent of its £65bn with-profits fund in equities.
But the Pru was not able to escape bond defaults in America and reported a £71m charge, with WorldCom accounting for half of the loss. Its US subsidiary Jackson National Life, which has suffered $228m-worth of writeoffs on its bond portfolio, will need a cash injection of £300m in the second half.
Prudential yesterday said it had a free asset ratio the amount of capital it has over and above what it needs to meet its liabilities of 11 per cent, making it one of the strongest companies in the sector. Despite fears that many insurers are seeing this cushion disappear as equity markets fall, Prudential's free asset ratio was down only 1.2 per cent from December.
Group operating profits for the half-year were down 15 per cent to £543m from £642m, but profits on new business were up 16 per cent to £397m. Total sales grew by 36 per cent to £13.7bn in the six months to 30 June, mainly due to growth in Asia.
The interim dividend was increased 2.3 per cent to 8.9p. A cost-savings target originally set at £175m has now been increased to £200m.
Roman Cizdyn, an analyst at Commerzbank, said if anyone can survive the continued tough conditions, it is likely to be Prudential. "Prudential's new business profits show it is trading profitably. The overall message was that it is on top of its portfolio of business," he said.
The group also announced it was scaling back its operations in Europe in favour of sales through its fund manager M&G and the online bank Egg.
Shares in Prudential closed down 5.5p at 414.5p, down just 1 per cent in a falling market.
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