Prudential reported that its Hong Kong division suffered a sharp drop in new business profits in the first half due to China’s strict zero-Covid policy, as the insurer warned of harsh market conditions “difficult” and “complex” for the remainder of 2022.
The FTSE 100 group reported its global Hong Kong half-year results on Wednesday for the first time. He said Hong Kong new business profits, a key measure of expected profits on newly sold products, fell 31% in the first six months of the year to $211 million.
Profits from new mainland Chinese customers crossing the border to buy insurance policies in Hong Kong were $694 million before the pandemic in 2019 but have fallen to almost nothing this year, the insurance-focused insurer said. ‘Asia.
Prudential warned there was “prolonged uncertainty” over when the border between Hong Kong and China, closed for more than two years due to the pandemic, would reopen.
Acting 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% 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, focusing solely on insurance products in Asia and Africa, but with a UK domicile and main listings in London and Hong Kong. It split from its UK business, M&G, in 2019 and its US business, Jackson, two years later.
The new group 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 fully focused on the long-term opportunities we have identified in Asia and Africa in life insurance and asset management.”
Overall new business earnings were $1.1 billion for the first half of the year, down 7% from the same period last year, but beat analysts’ expectations by 1. 07 billion dollars. Its performance was hurt by higher interest rates and a drop in sales in Hong Kong, which suffered from a major coronavirus outbreak and strict pandemic containment measures earlier this year. The group said adjusted operating profit rose 6% to $1.7 billion.
In its five flagship markets – Hong Kong, mainland China, Indonesia, Malaysia and Singapore – new business profits rose only in Singapore in 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% to $304 million.
FitzPatrick, who took over as interim chief in March, said: “While there are signs that Covid-19 related impacts on many of our markets are stabilizing, we expect operating conditions will continue to be difficult for the rest of the year. The company also warned that the “complexity of macroeconomic, geopolitical and regulatory environments” is likely to increase.
FitzPatrick also reported that the life insurer wants to increase its 50% stake in its mainland China joint venture with Chinese bank Citic. Beijing regulators have relaxed foreign ownership limits in the insurance, asset management and securities sectors.
Prudential continues to rebalance the workforce between London and Hong Kong, with around 60% of head office staff now based in China and less than 200 staff in the UK capital.
The insurer has come under pressure from activist shareholder Third Point to change its UK domicile as part of its split of UK and US operations. Mike Wells, its former chief executive, had previously said the group had no intention of abandoning its London base.