Asia's middle class could help the Pru meet its ambitious targets
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Version 0 of 1. For its next trick, Prudential intends to generate £10bn of cash over the next four years, equivalent to one-third of the insurer's current market capitalisation. It is a striking figure, one of three new "growth and cash" objectives unveiled on Tuesday. To the sceptics who say such medium-term ambitions should be taken with a pinch of salt, especially when they rely on continued strong growth in already-strong Asia, the Pru could make two counter-arguments. First, that the last set of comparable targets, which covered 2011-13, have been met, or are being met. The group has achieved five and the sixth should be secured this financial year. What's more, none looked to be a breeze back in December 2010, when its chief executive, Tidjane Thiam, was obliged to woo shareholders with a decent self-improvement story after they gave a thumbs-down to his £24bn pursuit of the AIA group. The share price has almost doubled since then. Second, the Pru, as ever, is making the case that investors should study the fundamentals of the high-growth Asian markets. Thiam's now-familiar charts on the growth of the middle-class in Asia tell the tale: this body of people numbered 525 million in 2009 and the projections are for 1.74 billion by 2020 and 3.23 billion by 2030. Their governments, by outsourcing large chunks of health and pension provision to the private sector, in effect demand that their citizens buy the financial products that the Pru and others sell. Thus the savings ratio in Singapore is 46%, in Indonesia it is 33% and in Thailand 30%. By contrast, the ratios in the UK and US are 7% and 6% respectively. In the insurance game, chasing growth requires capital, of course. But the £10bn figure is for "cumulative group underlying free surplus generation". The Pru is saying it is now well past the point where its Asian operations are a consumer of cash from the UK and the US. The division generated £484m of cash last year; the new plan aims for £900m-£1.1bn in 2017. That's the bull case. The more bearish view would note that even emerging-markets bank Standard Chartered, after a decade of rising revenues and profits, has hit a bump in the form of a setback in South Korea and weakness in its financial market business. If you're an optimist, though, insurance in Asia is a more promising prospect than banking. That's a reasonable view. The Pru, a decade after cutting its dividend for the only time since 1914, now looks to be a formidable cash machine. Our editors' picks for the day's top news and commentary delivered to your inbox each morning. |