Prudential PLC - CGS-CIMB Research 2023-03-16: Pain From IFRS 17 & European Embedded Value

• Prudential Plc (SGX:K6S)'s key FY22 operating metrics of operating profit, dividend and embedded values were largely in line with both our and Bloomberg consensus forecasts, except new business profits (NBP) which missed our forecast by 6%. This was due to higher rates and hence changed actuarial assumptions hurting NBP more than we expected. This especially hurt Hong Kong and Singapore. See Prudential Plc's announcement dated 15 Mar 2022.
• Read this at SGinvestors.io -
• Read this at SGinvestors.io -
• Prudential Plc (SGX:K6S)'s key FY22 operating metrics of operating profit, dividend and embedded values were largely in line with both our and Bloomberg consensus forecasts, except new business profits (NBP) which missed our forecast by 6%. This was due to higher rates and hence changed actuarial assumptions hurting NBP more than we expected. This especially hurt Hong Kong and Singapore. See Prudential Plc's announcement dated 15 Mar 2022.
• Forecasting was complicated by the lack of disclosure about these regions’ NBP sensitivities to higher rates. Prudential’s disclosed NBP sensitivities (1% pt higher rates led to 6.1% higher NBP in FY22, which is more than double FY21’s sensitivity of 2.8%) are only at a group level. We believe this is one reason why Asia-based investors find it hard to understand its European Embedded Value (EEV).
• The biggest surprise from Prudential's results was how much operating profit was hurt by IFRS 17 adoption. While we had previously flagged IFRS 17 implementation as an investment risk for Prudential (see Prudential PLC - CGS=CIMB Research 2022-12-30: Unleashed Spare Capacity To Drive Growth), its impact on near-term net profits has exceeded our expectations.
  • Read more at SGinvestors.io.

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