£1.5bn wiped from Prudential's market value

Insurance giant Prudential saw nearly £1.5bn (€2.1bn) wiped from its market value today on fears it would slash its dividend payout to shareholders as it battles against tough market conditions.

The slump came as Prudential gave further woe to policyholders by cutting bonus payments to customers of its with-profits saving and investment products.

The insurance industry has been battered by three years of stockmarket declines, causing firms to slash bonus payments and dividend payouts.

Today’s disappointing news from Prudential sent a shock wave through the sector and pulled the whole stock market lower.

By lunchtime, shares in the group were 19% lower, down 73.25p to 319.75p, valuing it at just £6.4bn (€9.3bn).

Chief executive Jonathan Bloomer said: “2002 was a tough year, with market confidence being adversely affected by increased political risk and a deteriorating economic outlook.

“Eight weeks into this year, it is clear that stock markets around the world continue to be volatile and consumer confidence has deteriorated.”

He made the comments as Prudential said operating profits rose 2% to £1.13bn (€1.6bn) during 2002.

The group, which generates more than 70% of sales outside the UK, said total group insurance and investment sales during the year were £27.6bn (€40.2bn), up 29% on 2001.

New business profits grew 15% during the year to £774m (€1.12bn) while margins for new business also improved.

However, when including the impact of falling investments returns, pre-tax losses came in at £483m (€704m), against losses of £455m (€663m).

The group’s figures were in line with market expectations but shares tumbled as Prudential failed to reassure on whether it would pay a dividend this year.

For 2002, it is paying shareholders a total dividend of 26p, up from 24.5p the previous year.

Mr Bloomer said it was “inappropriate” to set out the dividend policy for 2003 at the current time amid the uncertain market conditions.

“We think it is inappropriate to set down what the dividend policy will be for 2003. It is nothing more or less than we will make the decision when we get to it.”

Analysts said the remarks triggered concerns Prudential would slash the payout.

One analyst said: “The results were not bad under the circumstances and this year’s dividend was in line with what the market was looking for – but it is the hint about a dividend cut that has worried the market.”

In addition to shareholder woes, policyholders were also suffering as Prudential cut its bonus rates to with-profits investors.

The group said bond-holders would receive a regular bonus of 3.25% this year, compared with 4% in 2002, while personal pension customers would receive 3.5%, compared with 4.5%.

Final bonuses have also been reduced, and Prudential said claim values, compared with a year ago, would be down by “no more than 12% for pensions and 10% for other products”.

David Belsham, appointed actuary of Prudential Assurance, said: “Although claim values have fallen this year, the returns on policies will, in general, still exceed those achieved on deposit-based products and will be significantly in excess of those achieved on alternative exposed investment products.”

Prudential has 2.1 million with-profits customers.