Will Prudential shares benefit from its Asia pivot?

The 175-year-old UK insurance business Prudential has pivoted to focus on Asian markets in recent years but has met its share of challenges along the way. However, as Asia’s middle classes grow and the pandemic subsides, its share price might reap the rewards post full-year 2022 earnings.

- Analysts forecast a modest 6.7% revenue rise in Prudential’s fiscal year 2022.

- Middle classes in Asia are growing, which could be a tailwind for the UK insurer.

- Prudential is the fifth-largest holding in the iShares STOXX Europe 600 Insurance UCITS ETF.

UK insurer Prudential [PRU.L] is set to release its full-year 2022 earnings on Wednesday, 15 March. According to Refinitiv data, analyst consensus estimates are predicting revenue of £25.8bn for the fiscal year 2022, which would reflect an increase of 6.7% year-over-year.

Year-to-date, the Prudential share price is up 2.8% after closing at 1,159.00p on 13 March. The stock climbed as high as 1,371.50p on 26 January – marking a 21.6% year-to-date rise – as China opened up post-pandemic. Since reaching that high, however, Prudential’s share price has slumped 15.5%.

Prudential was once a key name in the UK insurance industry, but in recent years has shifted its focus to Asian and African markets. However, it is still domiciled in the UK, retaining a London listing as well as its Hong Kong listing [2378.HK]. Last year, Prudential reported that its Hong Kong division saw a steep fall in profits as a result of strict zero-Covid policies.

While new business profits declined by 5% in its half-year 2022 results to reach $1.1bn, its operations in Asia were overall robust. CEO Mark FitzPatrick said in August last year that Prudential’s “well-diversified franchise across the Asia region” had helped it retain annualised premium equivalent (APE) sales growth. Sales were up 9% to $2.2bn, which it said reflected a broader geographic footprint and product mix for the company.

Middle-class growth in Asia

Prudential’s shift to Asia partly aims to capitalise on the region’s growing middle class. McKinsey’s Global Insurance Report 2023 on the future of life insurance indicated that: “In China, India and Southeast Asia, the middle-class population is projected to grow to 1.2 billion people by 2030 and make up nearly 14% of the total global population.”

 However, as well as geopolitical factors and pandemic fallout, McKinsey says challenges for life insurers include the fact that “economies grew faster than insurance premiums” over the past 20 years.

Prudential has some stiff competition in the Asian insurance market, including from AIA [1299.HK], the largest publicly listed life insurance company globally as of October 2022, according to Statista.

AIA has a presence in 18 Asia Pacific markets, including China, Thailand and Indonesia. Its profits have held steady despite the effects of Covid. On 10 March, the company reported its full-year 2022 earnings, posting positive new business growth of 6% in the second half of the year.

Ping An Insurance [2318.HK], the second-largest insurer globally, presents further Asian competition for Prudential. Ping An last reported earnings in October, when it posted growth of 3.8% in operating profits for the first nine months of the year. Ping An is due to report its next earnings on Thursday.

Funds in focus: iShares STOXX Europe 600 Insurance UCITS ETF

The iShares STOXX Europe 600 Insurance UCITS ETF [EXH5.DE] offers exposure to the European insurance market. As of 10 March, Prudential is the fifth-largest holding in the fund, with a 7.25% weighting in the portfolio. Other insurance names in the ETF include France-based Agence AXA [CS.PA] and Germany-based Allianz [ALV.DE]. The fund is down 4% in the past month and up 0.5% year-to-date.

The Invesco STOXX Europe 600 Optimised Insurance UCITS ETF Acc [SC0Y.DE] also offers exposure to European life insurance companies. Prudential has the fifth-largest weighting in the fund, with a 6.32% weighting as of 3 March. The fund is down 4.6% over the past month and flat year-to-date.

Meanwhile, the iShares MSCI Emerging Markets Asia ETF [EEMA] offers limited exposure to a number of insurance companies in Asia, including China Life Insurance [2628.HK] and China Pacific Insurance [2601.HK]. The fund is down 6.5% in the past month and up 0.9% year-to-date.

Of 16 analysts providing 12-month price targets on Prudential shares to Refinitiv, a median forecast of $1,502.10 represents 29.6% upside on the most recent closing price.