Prudential’s UK life business delivered an operating profit before tax of £374m in the first half of this year, up 10 per cent cent on 2013, as sales of with-profits bonds and bulk annuities offset a sizable decline in annuity sales following the Budget.
Pru’s 2014 half year results, published today (12 August), revealed a 45 per cent jump in new business profit at £145m. UK life new business sales grew by 22 per cent to £433m, on the back of a 25 per cent surge in with-profit bond sales and in spite of a 43 per cent drop in individual annuities.
In the first half of this year, Pru’s four new bulk annuity deals generated new sales of £104m and new business profit of £69m. There were no bulk annuity transactions in the first half of last year.
In March, FTAdviser reported that Prudential was planning to increase its emphasis on bulk deals this year in the wake of the radical pension reforms, after it signed up £600m from a £3.6bn contract to provide annuity cover for members of the ICI Pension Fund.
At the time a spokesperson for Prudential said: “We are confident that the level of activity across the market is going to increase and we... would expect to be at the forefront of activity in this market in 2014.”
This morning Pru said its approach to bulk transactions within the UK will continue to be a focus, “looking for situations where we can both bring significant value to our customers and meet our demanding shareholder return hurdles”.
The insurance giant added this is largely due to the “considerable disruption” to industry sales of individual annuities brought on by this year’s Budget, as the government, pension providers, advisers and consumers work through the implications of these changes.
Pru added that in the transitional period created by the Budget, there has been an increase in the number of customers who have deferred converting their pension savings into retirement income. Cash remitted to the group increased to £246m, compared to £226m in the first half of 2013.
Tidjane Thiam, group chief executive, described the 10 per cent rise in UK life’s operating profit as a “strong performance in a market undergoing significant regulatory change”.
He said: “In this uncertain new regulatory landscape, we focused on developing existing product propositions to meet customers’ evolving needs.
“Our UK team was able to complete sales of £104m of bulk annuity transactions above our hurdle rate (no bulk annuity transactions in the first half of 2013) and to significantly increase sales of with-profits bonds by 25 per cent as retail annuity sales decreased by 43 per cent.
“We are making progress towards our 2017 growth and cash objectives, which we set out at the December 2013 investor day in London.”
