Prudential CEO: We Can Withstand Two 1930s Depressions

Reuters with CNBC.com
Prudential CEO: We Could Withstand Two 1930s Depressions

Tidjane Thiam, the CEO of Britain's largest insurer Prudential told CNBC on Wednesday that continued strong profits and credit reserves would enable the company to withstand two severe depressions.

"We have a 2.1 billion pounds credit reserve against the annuity book in the U.K. which means we could withstand two 1930's type depressions in terms of losses," he said.

Thiam however added that the company would not release there serves even though there were zero defaults in 2012 because "that cannot continue."

The CEO said the group will continue to exploit the potential of Asian markets, which have helped boost the company's earnings.

"To be number one is seven Asian countries is a fantastic position to be in. We have the right strategy and it is working. We have a fantastic product for the middle class in Asia, given there is no state funded welfare system, so by definition our target market is the middle class and it sells at good margins," Thiam said.

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Prudential raised its dividend by a bigger-than-expected 16 percent on Wednesday after strong growth in its Asian operations drove a forecast-beating jump in profit. The company's 2012 operating profit jumped 25 percent to 2.53 billion pounds ($3.77 billion), ahead of the 2.33 billion forecast by analysts.

The bigger payout also contrasts with dividend cuts from British rivals Aviva and RSA, whose shares have tumbled in recent weeks.

Thiam said Prudential could afford to pay a higher dividend on the back of the group's performance in Asia as "cash generative growth provided a virtuous circle."

The company, founded 165 years ago in London, has avoided the economic turbulence afflicting its European competitors thanks to a strong focus on Asia, the source of nearly half its sales. But Thiam dismissed suggestions that the London-listed insurer could shift its headquarters to Asia.

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Shares in Prudential have risen 43 percent in the past year,more than double the 21 percent gain achieved by the wider European sector. The stock was up 0.7 percent at 1,036 pence on Wednesday.

"We had six targets for 2013 and we hit two of them in 2012 we wanted to double profits in Asia in four years and we did it in three, we wanted to generate 30 million pounds of cash in Asia by 2013 which we did in 2012 – making Asia the company's largest cash contributor for the first time,"Thiam said.

The company now has 13 million customers in Asia with Thiam adding that "90 percent of the increase of the global middle class by 2030 will be in Asia."

We're seeing products for which there is very strong demand.In most of our markets we will continue with discipline and getting ahead of our guns – it's more of the same, we're very tactical and opportunistic.Profits have continued to double every three to five years for some time now,"he said.

Thiam has dealt with his fair share of criticism as just months into his tenure at Prudential's helm he dealt with a barrage of criticism over his handling of the deal to acquire American International Group's Asian life-insurance business in 2010. Vindicated by the pace of growth in the Asian business Thiam said any bad sentiment was "in the past."