Prudential SWOT & PESTLE Analysis

Strength

1. Strong Footing in international markets: Prudential reported 22% growth in US on actual exchange basis due to increased fee income on the higher variable annuity account balances. China & Hong Kong’s operating profits grew from 17% in 2016 to 23% in 2017. IFRS operating profits grew by 29% in Indonesia & 20% in Singapore on actual exchange basis. Overall, Asia’s operating profit grew to £953 million which was 31% more on actual exchange rate basis. Life insurance and asset management products offered by Eastspring Investments also showed strong growth. The group also holds a good market share in US retirement market.

2. Healthy Financials: IFRS operating profit accruing from M&G recorded 10% growth to £248 million & 20% growth in Eastspring Investments to £83 million. This increased IFRS operating profit is due to the high fee revenues. The underlying free surplus generated was up by 14% which reflects strong in force book of business & good returns from the new businesses which have a small payback time. Life and asset management businesses’ underlying free surplus rose by 6% to £1,845 million. Shareholders’ Solvency II capital surplus was a significant £12.9 billion as on 30 June 2017.

3. Specific products & services in Asia aiding in higher market penetration: Prudential offers products that meet the needs for saving, health and protection as per the demands of the Asian population. They offer broad based portfolio to avail of opportunities in local markets to different asset classes . In Hong Kong , they have emerged as the front runner in critical illness protection segment & have introduced new lump sum health insurance policy . Long term joint venture partnership with CITIC in China has helped Prudential expand its consumer base & has thus made China third largest contributor to new business sales in Asia. Eastspring also won its second Asia Fund House of the Year award in just three years.

4. Strong brand position in domestic markets: HY 2017 showed growth in net inflows which was driven by their strong footing in the competitive products & their distribution and service. Asset value grew in UK because of the benign investment sentiments . Highest growth in new business profits was recorded by UK. Portfolio efficiency ameliorated which resulted in combined profits of £188 million as compared to £140 million in 2016. The total operating profit from UK market was of £497 million in HY2017.

5. Growth in new Life insurance products sales: The addition of long term, high quality new business to Asia is increasing the scale of Prudential's in force portfolio . It is therefore, driving the present growth and security in current and future earnings and cash generation in the continent. New business profit was 33 per cent on an actual exchange rate basis with some countries recording double digit percentage growth & even higher in eight countries in HY 2017. Prudential's new business profit in UK life operations rose by 29 per cent which was driven by the popular PruFund investment option. Thus, economic returns from the new business portfolio are growing.

Weakness

This section is available only in the Complete report on purchase.

Opportunity

This section is available only in the Complete report on purchase.

Threat

This section is available only in the Complete report on purchase.

Political

Economic

1. Favourable currency movements: The uncertainty in UK markets due to general elections strengthened sterling against majority of the currencies in Prudential's major international markets but still was lower than 2016's rates. This translated into positive effects from non -sterling operations. In 2017, all of Prudential's key performance metrics showed growth which were driven by favourable currency effects. In 2017 investment segment's growth was supported by stability in currency markets which was more prominent than 2016 currency rates. Foreign currency translation impacts in HY2017 was £0.5 billion and £0.9 billion in 2016. M&G's investments is subject to currency markets as well. Thus, currency movements have significant on Prudential's operations worldwide.

2. Volatility in interest rate affecting operations: Volatility in equity prices, interest rates, foreign exchange rates and property prices adversely affects fees valuation from fee-earning products as they are sensitive to these factors. Incorrect valuation of investments affects insurance and asset management business. Due to underlying guarantees in fee of its products sensitivity to interest rates, the business with profits is affected. The cost of guarantees in these products is affected especially in US markets as a dip in interest rates increases the cost of guarantees.

Social

1. Increased savings and post retirement services demand by ageing population: A large proportion of population in US will in the next 10 years. This creates more opportunities to expand its post retirement income based products. Similarly, headcount of elderly is growing in China.. be reaching retirement age . It can further increase the sale of its post retirement services. This also drives the growth prospects in asset accumulation and retirement income products for the aging baby boomers globally.

2. Growing working age population in Asia: A growing cohort of the Asian population is entering the working age population which helps Prudential in increasing its pan regional insurance customer bases . Their retention rate is 90% . In 2016 , renewal premium grew by 20% to £9.1 billion. It also increases the scale of their operations in insurance & asset management segments. Through Eastspring , it is meeting the increased demand for the retail mutual funds markets . This will further push up revenue from Asian market.

Technological

This section is available only in the Complete report on purchase.

Legal

This section is available only in the Complete report on purchase.

Environmental

This section is available only in the Complete report on purchase.