Prudential Asia to Self-Fund by 2013 Creating Options

Prudential Plc (PRU), the U.K.’s biggest insurer by market value, said its Asian business is on course to become self-financing by the end of 2013, which would give the insurer the option of selling any of its four divisions.

“We are firmly on track for Asia to be significantly cash generative by 2013 and in a good position to continue to grow,” Chief Executive Officer Tidjane Thiam said today on a conference call with reporters. “If a business can survive on its own then it becomes an option to separate it from the group.”

Prudential uses profits from the U.K., U.S. and fund management divisions to fund operations in Asia, which account for almost half of the company’s sales. The insurer plans to double 2009 profits from Asia by the end of 2013, which would provide the unit with enough cash to fund itself, Thiam said. At that point, the firm would be able to separate the businesses.

“By 2013 the company will have optionality to ensure that a realistic valuation is placed on all four major business operations,” Barrie Cornes, a London-based analyst at Panmure Gordon & Co. with a buy rating on the stock, wrote in a note to clients today.

Sale Difficult

Of its four businesses, the U.S. division is “most likely” to be sold, according to Edward Houghton, a London- based analyst at Sanford C. Bernstein with a buy rating on the stock. The U.K. unit is more difficult to sell as there isn’t an obvious buyer for its book of old policies, while the Asian division is essential to the company’s strategy to retain, he said.

Even so, interest rates in the U.S. need to rise, and therefore increase the insurer’s investment returns, for Prudential to get the best price, Houghton said.

The stock rose 0.6 percent to 871 pence in London trading, valuing the company at 22.3 billion pounds. The shares have gained about 36 percent this year.

Prudential’s sales rose 14 percent to 3.08 billion pounds ($4.9 billion) in the nine months to Sept. 30 from the year- earlier period, as revenue climbed in south-east Asia and the U.S., the London-based insurer said today in a statement. That beat the 3.04 billion-pound average estimate of 18 analysts surveyed by the company.

‘Sweet Spot’

Prudential is focused on countries such as Indonesia, Malaysia, Singapore and the Philippines, which Thiam calls the “sweet spot” of the region because of their fast-growing economies, large populations and low levels of life insurance. The company agreed to pay as much as 368 million pounds for Bangkok-based Thanachart Bank Pcl’s life insurance unit this month to build on its operations in Thailand.

Profit from new business increased 13 percent to 1.74 billion pounds, beating the 1.68 billion pounds estimated by the analysts. Sales in Asia rose 16 percent to 1.33 billion pounds while revenue from the U.S. climbed 15 percent to 1.13 billion pounds. Margins on new business dropped 1 percentage point to 56 percent, the company said.

“Even Prudential is not immune from the macroeconomic environment,” Houghton said.

Thiam, 50, threatened to quit the U.K. earlier this year saying that if new European capital rules were implemented as planned, they would make Jackson National Life, Prudential’s U.S. business, uncompetitive. The insurer’s shares are already listed in Hong Kong and Singapore.

The domicile review is “ongoing” while the Solvency II regulations are still being negotiated, Thiam said today.

Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc.

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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