Prudential hit by China’s zero-Covid policy

Prudential reported that its Hong Kong division suffered a steep fall in new business profits in the first half of the year because of China’s strict zero-Covid policy, as the insurer warned of “challenging” and “complex” market conditions for the rest of 2022.

The FTSE 100 group announced its global half-year results from Hong Kong for the first time on Wednesday. It said Hong Kong new business profits, a critical measure of predicted earnings on newly sold products, fell 31 per cent in the first six months of the year to $211mn.

Profits from new mainland Chinese customers that cross the border to buy insurance policies in Hong Kong were $694mn before the pandemic in 2019, but fell to almost nothing this year, the Asia-focused insurer said.

Prudential warned that there was “prolonged uncertainty” about when the border between Hong Kong and China, which has been closed for more than two years because of the pandemic, would be reopened.

Interim chief executive Mark FitzPatrick said he wanted to “reaffirm” Prudential’s commitment to Hong Kong and connect with potential investors in Asia. He said Prudential chose to report its results from the city to “indicate that we have pivoted, not just physically, but emotionally, to Asia”.

Prudential’s share price fell 1.3 per cent in Hong Kong. Its London-listed shares have lost a quarter of their value this year.

Prudential has undergone a radical transformation in recent years, leaving it solely focused on insurance products in Asia and Africa — but with a UK domicile and primary listings in London and Hong Kong. It split from its UK business, M&G, in 2019 and its US operation, Jackson, two years later.

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The group’s incoming chief executive, Anil Wadhwani, will be the first to be based in Asia in Prudential’s 174-year history. Wadhwani will join the company in Hong Kong in February 2023.

Prudential said on Wednesday that 2022 “is the first year in which the group is focused entirely on the long-term opportunities we have identified in Asia and Africa across life insurance and asset management”.

Overall new business profits were $1.1bn for the first half of the year, which was 7 per cent lower than the same period last year, but beat analysts’ expectations of $1.07bn. Its performance was hit by higher interest rates and lower sales in Hong Kong, which suffered from a large coronavirus outbreak and strict pandemic containment measures earlier this year. The group said adjusted operating profit grew 6 per cent to $1.7bn.

Of its five cornerstone markets — Hong Kong, mainland China, Indonesia, Malaysia and Singapore — new business profits increased only in Singapore during the first half of the year. Its growth markets, which include Taiwan, India, Vietnam and Africa, saw a combined increase in new business profits of 18 per cent to $304mn.

FitzPatrick, who took over as interim chief in March, said: “Although there are signs that Covid-19-related impacts in many of our markets are stabilising, over the remainder of the year we expect that operating conditions may continue to be challenging.” The company also warned that the “complexity of the macroeconomic, geopolitical and regulatory” environments would probably increase.

FitzPatrick also signalled that the life insurer wanted to increase its 50 per cent ownership of its mainland China joint venture with Chinese bank Citic. Regulators in Beijing have relaxed foreign ownership limits in the insurance, asset management and securities sectors.

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Prudential continues to rebalance staffing levels between London and Hong Kong, with about 60 per cent of head office staff now based in the Chinese territory and fewer than 200 employees in the UK capital.

The insurer has come under pressure from activist shareholder Third Point to change its UK domicile as part of its demerger from the UK and US businesses. Mike Wells, its previous chief executive, previously said the group had no plans to ditch its London base.