SOURCE: Prudential plc

April 19, 2007 02:03 ET

Prudential PLC announces First Quarter Results

LONDON, UK -- (MARKET WIRE) -- April 19, 2007 --

Embargo: 07.00am Thursday 19 April 2007

PRUDENTIAL PLC FIRST QUARTER 2007 NEW BUSINESS RESULTS

All figures compared to 2006 at constant exchange rates unless stated

                        APE             Growth   PVNBP              Growth



Total Group Insurance   GBP640 million  8%       GBP4,775 million   1%

Total Group Retail      GBP592 million  25%      GBP4,295 million   22%
Insurance

UK retail               GBP181 million  16%      GBP1,508 million   13%


Total UK                GBP183 million  (23)%    GBP1,521 million   (29)%


US                      GBP180 million  21%      GBP1,796 million   21%


Asia                    GBP277 million  34%      GBP1,458 million   33%


Asia Fund Management    Net fund inflows of GBP0.6 billion, up 18%
                        External funds under management of GBP12.8 billion

M&G                     Net fund inflows of GBP1.4 billion, down 22%
                        External funds under management of GBP46.1 billion

Mark Tucker, Group Chief Executive said:

"I am delighted by the excellent start the Group has made to the year, building on the strong momentum established in 2005 and 2006.

"We have continued to pursue our growth and value agenda and worldwide retail new business APE increased by 25% to GBP592 million over the same quarter last year with strong performances in all regions.

"In our asset management businesses M&G had net fund inflows of GBP1.4bn, the second highest quarter on record, and in Asia we had a record start to the year with net inflows of GBP0.6 billion ahead 18%.

"We continue to see excellent prospects across the Group and we will pursue these opportunities aggressively with a clear focus on value creation."

Commentary on First Quarter 2007 New Business Results

UK insurance operations

Prudential's focus in the UK continues to be on those areas of its retail and wholesale business which can generate attractive returns. Overall retail APE sales were up 16 per cent year-on-year to GBP181 million driven by growth in individual annuities, with-profits bonds and corporate pensions.

Within its wholesale business, in the first quarter Prudential announced that it had reached agreement in principle to acquire Equitable Life's portfolio of in-force with-profits annuities. The transaction is expected to generate premium income of approximately GBP180 million on an APE basis and will be recognised once it completes, which is expected to be in the fourth quarter of 2007.

Total UK APE sales in the first quarter were GBP183 million, a decrease of 23 per cent on the same period last year. However, the first quarter of 2006 included a single bulk annuity of APE GBP66 million and GBP15 million of credit life sales under a contract with Lloyds TSB that has not been renewed for 2007. On a PVNBP basis, total UK sales for the first quarter of 2007 were GBP1.5 billion, compared with GBP2.1 billion in the same period last year.

Retail Retirement APE sales of GBP125 million increased 29 per cent on 2006, reflecting strong growth in individual annuities, corporate pensions, equity release and with-profit bonds.

Individual annuity sales for the first quarter of 2007 were up 35 per cent on the first quarter of 2006 to GBP66 million. This growth was driven by the continued strength of internal vestings, up 32 per cent to GBP33 million, together with increased partnership sales, up 110 per cent to GBP21 million which reflected the growing momentum of partnership deals, including Openwork and St James's Place Capital.

In the first quarter of 2007, sales of with-profit annuities increased by 43 per cent over the same period last year due to continuing strong demand and sales from the recently signed single-tie arrangement with Openwork. Prudential enhanced its with-profits annuity offering in February 2007, adding the facility to accept Protected Rights monies (those contracted out of the State Earnings Related Pension Scheme which was replaced by the second state pension), which is a first in the with-profits annuity market and allows customers to combine 100 per cent of their pension into a with-profits annuity.

Corporate pensions delivered strong sales during the first quarter with APE of GBP27 million, up 170 per cent on the same period in 2006. These results include strong sales in the new Fund Delivery Service proposition, which contributed over GBP10 million in new APE sales.

Currently an estimated GBP1.1 billion of property assets enter the equity release market each year and this is predicted to grow to GBP2 billion by the end of 2008. From a standing start in October 2005 the UK business now has over GBP120 million of mortgage assets. New loans advances for the first quarter of 2007 were GBP34 million, compared with GBP9 million for the first quarter last year.

With-profits bond sales continued the momentum shown throughout last year, with sales of GBP6 million in the first quarter of 2007 double the first quarter of 2006. This was driven by the continued strong investment returns generated from the life fund. Prudential also signed a single tie distribution agreement in the first quarter with Openwork for PruFund, Prudential's unitised and smoothed investment plan.

Offshore bond sales generated from Europe grew 66 per cent to GBP9 million during the first quarter, reflecting the continued appetite in Continental Europe for Prudential's with-profits bond, and its strengthened distribution. This was offset by lower offshore sales into the UK through intermediaries, which reduced by 27 per cent to GBP5 million reflecting Prudential's emphasis on value, not volume in this market.

Prudential also recently launched two multi-asset funds using the with-profits investment capability into the Collectives market and within offshore bonds.

Prudential launched its Flexible Protection Plan nationally in February 2007. The product has been introduced to over 2000 advisers and Prudential has secured panel placements with a number of firms who account for a significant proportion of the intermediary distribution landscape in the UK. Prudential withdrew from the commoditised protection market in the first quarter of 2007.

PruHealth's business is not included in total APE sales numbers. It continued to grow strongly in the first quarter of 2007 with Gross Written Premiums of GBP16 million, 100 per cent up on the GBP8 million achieved in the same period last year. For the first time the number of lives covered exceeded 100,000 in February, with 108,000 lives covered at the end of the quarter. PruHealth has entered into an exclusive arrangement with Boots the Chemist to promote PMI as part of its Health Club launch from 25th April. PruHealth has also launched new Trust and Self-Insured scheme products from April to strengthen its position in the Corporate market.

Within the Mature Life and Pensions business total APE sales of GBP56 million were 5 per cent lower than for the first quarter of 2006 reflecting lower DWP rebates business, down 19 per cent.

Prudential's progress in this quarter is consistent with the strategy outlined on 15th March and continues the strong retail growth seen in 2006. Prudential UK will continue to focus on profitable opportunities which deliver capital efficient returns in its chosen product areas and distribution channels.

US insurance operations

Jackson, Prudential's US insurance business, delivered APE sales of GBP180 million in the first three months of 2007, representing a 21 per cent increase over the same period in 2006, driven by continued growth in sales of variable annuities. On a PVNBP basis, new business sales were GBP1.8 billion. Retail APE sales of GBP134 million were up 23 per cent.

Jackson delivered record variable annuity sales of GBP1.1 billion in the first quarter of 2007, up 31 per cent on the corresponding period last year. For the full year 2006, Jackson increased its variable annuity market share to 4.6 per cent, up from 3.6 per cent for full year 2005, and maintained its ranking as the 12th leading variable annuity provider during the full year 2006. This impressive growth trend in variable annuity sales continued in the first quarter of 2007, driven by Jackson's distinct competitive advantages of an innovative product offering, an efficient and flexible technology platform, a relationship-driven distribution model and award winning customer service. In particular, Jackson's distribution model successfully supports the ability of Jackson's wholesalers to use a sophisticated sales process in order to forge productive, long-term relationships with advisers.

Fixed annuity APE sales of GBP13 million were in line with sales in the same period of 2006 at CER. Entry spreads for fixed annuities continued to be challenging in the first quarter of 2007 as the current interest rate environment, characterised by an inverted yield curve, limits the crediting rates that can be offered on the products and therefore diminishes their attractiveness to customers.

Fixed index annuity sales continued to be affected by the uncertain regulatory environment in the US. APE sales of GBP11 million were 8 per cent down on the same period in 2006.

Institutional APE sales of GBP47 million were up 15 per cent on the same period in 2006, as Jackson continues to participate in this market on an opportunistic basis.

In the first quarter of 2007, Jackson continued its track record of product innovation by launching a new line of retail mutual funds and a simplified variable annuity, and by adding new fund options and features to its existing variable annuity offering.

Curian Capital, a specialised asset management company that provides innovative fee-based separately managed accounts, continues to build its position in the US retail asset management market with total assets under management at the end of March 2007 of GBP1.4 billion ($2.7 billion) compared with GBP1.2 billion at CER ($2.4 billion) at the end of December 2006. Curian generated record deposits in the first quarter of 2007 of GBP150 million, up 38 per cent on the same period in 2006.

Jackson has made a strong start to the year, focusing on value-driven growth in its key product offering and it continues to be well positioned to take advantage of the growing opportunities in the US retirement market.

Asia insurance operations

Prudential's Asian life operations delivered new business APE of GBP277 million representing growth of 34 per cent over the first quarter 2006 and reflecting the excellent momentum of the business. On the PVNBP basis sales for first quarter 2007 of GBP1.5 billion are 33 per cent higher than the same period last year.

Prudential's focus continues to be investing to strengthen and diversify its Asian platform to maximise shareholder returns from the existing business and explore new profitable growth opportunities. Agency growth and productivity improvements remain core drivers with agent numbers at 31 March 2007 of 335,000. This was driven primarily by India up 214 per cent on the same quarter last year, together with China and Indonesia up 43 per cent and 20 per cent respectively. As our bank and broker distribution channels continue to strengthen, the proportion of new business from traditional agency distribution was 67 per cent compared to 71 per cent last year. Unit-linked business represented 67 per cent of new business for the quarter.

In China, CITIC Prudential is now operating in 16 cities with APE sales of GBP12 million, an increase of 100 per cent compared to the first quarter of 2006. Guangzhou, Beijing and Shanghai account for 60 per cent of the first quarter APE.

Prudential's joint venture with ICICI in India continued to perform very strongly during the first quarter, the final quarter of the Indian fiscal year, and traditionally the busiest time of year. First quarter APE of GBP57 million was an increase of 90 per cent on the same quarter in 2006. The operation continues to lead the private sector by a clear margin and as announced recently by ICICI, its shareholding will be transferred to an ICICI holding company with a view to an IPO. This will not affect the operation of the business or Prudential's 26 per cent stake.

Prudential's life business in Indonesia continues to go from strength to strength with APE sales of GBP22 million, 69 per cent up on the same period last year, driven by increased agent numbers. This business is predominantly unit-linked. Work is progressing with Citibank on establishing bancassurance distribution in Indonesia.

In Hong Kong, Prudential continues to make excellent progress through both agency distribution and bancassurance with Standard Chartered Bank. New business APE at GBP36 million is up 57 per cent on last year. The business mix also includes a higher proportion of unit-linked products.

Prudential's Singapore life business produced a 19 per cent increase in APE for the first quarter and finished 2006 with market leading share for APE. In Malaysia, industry sales remain depressed following regulatory changes last year. However, our sales were the same as those achieved in the first quarter of 2006. The Takaful joint venture with Bank Simpanan Nasional (BSN) continues to perform well.

Prudential's Korean life business, with APE of GBP55 million, increased by 6 per cent compared to the first quarter of 2006. This reflects a market slowdown in variable unit-linked products, increased competition in the general agent channel and lower agent recruitment. The outlook remains positive, particularly with new distribution agreements with Industrial Bank of Korea and Korea Bank getting underway in the second quarter.

In Taiwan, first quarter APE at GBP37 million is 8 per cent lower than the equivalent very strong quarter last year. The proportion of higher margin unit-linked remains high at 61 per cent.

Good progress is being made in Japan where new business APE is GBP10 million. This is a combination of the award by Fitch of an A- credit rating for PCA Life Japan in February and an increase in sales ahead of an anticipated change in local tax regulations, which could reduce the tax benefit provided by the Increasing Term Life product.

Prudential has an excellent track record of building profitable businesses in Asia and its focus continues to be on profitable and sustainable long-term growth.

Asset Management

M&G

M&G made a solid start to the year, delivering gross fund inflows of GBP3.3 billion, a 13 per cent increase on the previous record-breaking first quarter last year. This reflects the strengths of M&G's diversified product offering in the areas of retail fund management, institutional fixed income, pooled life and pension funds, property and private finance.

Net fund inflows were the second highest ever achieved at GBP1.4 billion, but were 22 per cent down on last year. This was mainly due to asset allocation shifts by retail investors in Europe and lower flows into segregated bond funds, typically lower margin institutional business. External funds under management grew to GBP46 billion.

Gross inflows into retail funds increased by 20 per cent to GBP1.9 billion during the first quarter. Net retail fund inflows were down by a third to GBP573 million, due to increased redemptions in Europe as a result of asset allocation shifts by investors in the wake of equity market falls in late February.

Strong retail sales momentum continued in the UK, with gross fund inflows increasing by 56 per cent and net inflows up 49 per cent compared with the same period last year. Over the past two years, UK net fund inflows have increased sixfold. Asian markets, where M&G distributes funds in partnership with Prudential Corporation Asia (PCA), also saw strong growth with net inflows tripling in the first quarter compared to 2006.

M&G's institutional businesses delivered gross fund inflows of GBP1.3 billion during the first quarter, in line with the same period last year. Net fund inflows fell 14 per cent to GBP794 million, largely due to a fall in lower margin business such as traditional segregated bond funds.

M&G's institutional strategy has been to utilise the skills developed primarily for internal funds to build new, higher margin business streams and diversify revenues, and in the first quarter these more profitable areas grew significantly. Gross fund inflows into higher margin areas, such as leveraged loans, collateralised debt obligations (CDOs), infrastructure finance and the Episode global macro hedge fund increased threefold during the first quarter and represented half of all institutional flows. Net fund inflows into these areas more than tripled in the first quarter of 2007, compared to the same period last year, producing a more profitable sales mix.

Asian Fund Management Business

The Asian Fund Management business made a record start to the year, delivering its highest first quarter third party net inflows since the business was launched in 1998.

Net inflows of GBP0.6 billion were up 18 per cent against the same period in 2006. Of the GBP0.6 billion in net flows, 93 per cent were in longer-term equity and fixed income products with 7 per cent in shorter-term money market funds. India and Japan recorded the strongest inflows.

Total third party funds under management were GBP12.8 billion, an increase of 5 per cent compared to the fourth quarter in 2006. India, Japan and Korea continue to be the main drivers of growth due to their innovative product strategy, expanded distribution channels and good fund performance.

In Taiwan, during the first quarter of 2007, PCA Securities Investment Trust (PSIT) was selected as a fund manager for The Public Service Pension Fund mandate.

The Asian Fund Management business continued to grow its institutional business and during the first quarter of 2007 it was awarded investment mandates of GBP200 million from a number of Asian government related entities.

Prudential remains confident that its fund management businesses in Asia are in an ideal position to achieve strong and profitable growth.

ENDS

Enquiries:

Media                                     Investors/Analysts     
Jon Bunn                 020 7548 3559    James Matthews     020 7548 3561
William Baldwin-Charles  020 7548 3719    Valerie Pariente   020 7548 3511

Notes to Editor:

1. Annual premium equivalent (APE) sales comprise regular premium sales plus one-tenth of single premium insurance sales and are subject to rounding.

2. Present Value of New Business Premiums (PVNBP) are calculated as equalling single premiums plus the present value of expected new business premiums of regular premium business, allowing for lapses and other assumptions made in determining the EEV new business contribution.

3. UK Retail sales include all products except bulk annuities and credit life sales.

4. There will be a conference call today for wire services at 7.30am hosted by Mark Tucker, Group Chief Executive, and Philip Broadley, Group Finance Director. Dial in telephone number: +44 (0)20 8609 0205. Pin number: 155439#

5. There will be a conference call for investors and analysts at 10:00am hosted by Mark Tucker, Group Chief Executive, and Philip Broadley, Group Finance Director. From the UK please call +44 (0)20 8609 0793 and from the US 1 866 793 4279. Pin number 487687#. A recording of this call will be available for replay for one week by dialling: +44 (0)20 8609 0289 from the UK or 1 866 676 5865 from the US. The conference reference number is 169904#.

6. High resolution photographs are available to the media free of charge at www.newscast.co.uk (+44 (0) 207 608 1000).

7. Sales for overseas operations have been reported using average exchange rates as shown in the attached schedules. Commentary is given on the results on a constant exchange rate basis. The two bases are compared in the table below.

                        Annual Premium Equivalent Sales
           Actual Exchange Rates             Constant Exchange Rates
           2007        2006     +/- (%)       2007        2006     +/- (%)

            GBPm        GBPm                   GBPm        GBPm
UK           183         238      (23)%         183         238      (23)%
US           180         167         8%         180         149        21%
Asia         277         226        23%         277         207        34%
          ______      ______     ______      ______      ______     ______
Total        640         631         1%         640         594         8%

                                 Gross Inflows
           Actual Exchange Rates             Constant Exchange Rates
           2007        2006     +/- (%)       2007        2006     +/- (%)

            GBPm        GBPm                   GBPm        GBPm
M&G        3,283       2,915        13%       3,283       2,915        13%
US             4           0                      4           0
Asia       7,155       4,407        62%       7,155       4,003        79%
          ______      ______     ______      ______      ______     ______
Total     10,442       7,322        43%      10,442       6,918        51%

                  Total Insurance and Investment New Business
           Actual Exchange Rates             Constant Exchange Rates
           2007        2006     +/- (%)       2007        2006     +/- (%)

             GBPm       GBPm                   GBPm        GBPm
Insurance   3,725      4,128      (10)%       3,725       3,921       (5)%
Investment 10,442      7,322        43%      10,442       6,918        51%
           ______     ______     ______      ______      ______     ______
Total      14,167     11,450        24%      14,167      10,839        31%

8. For Jackson, market share data is provided for the full year of 2006, being the latest available. Variable annuity data is sourced from VARDS, fixed annuity data is sourced from LIMRA and fixed index annuities data is sourced from LIMRA and The Advantage Group.

9. Financial Calendar 2006 - 2007:

AGM                                                        17 May 2007

Interim Results                                            1  August 2007

Q3 New Business Figures                                    18 October 2007

*Prudential plc is a company incorporated and with its principal place of business in England, and its affiliated companies constitute one of the world's leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world. It has been in existence for over 150 years and has GBP250.7 billion in assets under management as at 31 December 2006. Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America.

Forward-Looking Statements

This statement may contain certain "forward-looking statements" with respect to certain of Prudential's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words "believes", "intends", "expects", "plans", " seeks" and "anticipates", and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Prudential's control including among other things, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of regulatory authorities, the impact of competition, inflation, and deflation; experience in particular with regard to mortality and morbidity trends, lapse rates and policy renewal rates; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which Prudential and its affiliates operate. This may for example result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits. As a result, Prudential's actual future financial condition, performance and results may differ materially from the plans, goals, and expectations set forth in Prudential's forward-looking statements. Prudential undertakes no obligation to update the forward-looking statements contained in this statement or any other forward-looking statements it may make.

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