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There Is ‘Infinite Demand’ in Asia: Prudential CEO

The insurance industry is seeing strong growth in Asia and the only limiting factor is product distribution, according to Prudential CEO Tidjane Thiam.

A pedestrian passes the Prudential Plc company logo, on display outside the company's headquarters in London, U.K., on Wednesday, Aug. 3, 2011.
Chris Ratcliffe | Bloomberg | Getty Images
A pedestrian passes the Prudential Plc company logo, on display outside the company's headquarters in London, U.K., on Wednesday, Aug. 3, 2011.

“Asia is central to our growth,” he told CNBC Friday. “We’ve continued to make progress across the countries in the region: Indonesia, Malaysia, Hong Kong and Singapore”.

“The main constraint to our growth is our ability to put our product out there, because demand is infinite.”

Britain’s biggest insurer has reported half-year profits which show an increase of 13 percent. It made an operating profit of 1.16 billion pounds ($1.81 billion) for the period, beating expectations.

The company has used funds from its U.K. operations to lead expansion in the economies of southeast Asia.

“As the middle class develops, their appetite to protect their assets, their family, their health grows and they’re very happy to buy the products we offer,” he said.

“Penetration in Indonesia is just 1 percent, in Vietnam 0.7 percent. So your growth is determined by your ability to distribute.”

He explained that the strong growth didn’t necessarily mean that profit margins were reducing.

“We have two distribution channels, agency and bank, and the banking channel is less profitable than agency but it’s still very, very profitable by any measures. So as the bank channel grows faster, mechanically margins are decreasing, but that doesn’t worry us at all,” he said.

With low interest rates around the globe Thiam highlighted that it was a challenging period for insurance companies with Prudential combating this by pricing its products aggressively.

The insurance industry is seeing strong growth in Asia and the only limiting factor is product distribution, according to Prudential CEO Tidjane Thiam.

The company has also transformed the way it makes money by concentrating on underwriting profits (the profit after paying all claims), rather than conventional margin income which is dependent on markets.

Thiam also believes that insurance companies are a stabilizing factor for the economy and were wrongly tarred during the financial crisis by the near collapse of AIG.

“We are long term investors, we are buy and hold investors and actually in terms of market turmoil we continue to reduce volatility, not increase it,” he said.

Thiam is positive on the issue of solvency for insurers. The Solvency II Framework, which is due to be passed through the European Parliament, is looking at creating “countercyclical” measures – which aren’t affected as much by economic fluctuations.

“The industry used to have very disparate views on that, but now we have converged,” he said.

“There is a lot of discussion on how these measures can be implemented, so that’s step in the right direction.”