Prudential's Bloomer warns of tough times ahead

Prudential, the second-largest insurer in the UK, posted a 7 per cent fall in first-quarter sales yesterday as customers shunned equity investments in the face of the prolonged bear market.

Jonathan Bloomer, the chief executive, said the drop was mainly driven by a slump in with-profit bond sales in the UK. The product has historically been a best-seller and analysts were concerned yesterday to see such a fall-off in what is high revenue business for Prudential. "Bonus cuts on policies in the UK have worried people, and saving for the long term is something they are putting into the 'This looks too difficult to do now' box," Mr Bloomer said.

Prudential's group sales were again buoyed by huge growth in Asia. Sales were up 39 per cent to £133m in the first quarter. This is now under threat, however, from the outbreak of severe acute respiratory syndrome (Sars). Mr Bloomer said the Asian market was bound to be challenging, although the impact of the Sars virus was as yet unclear. "We are yet to see any real impact on our business from Sars but we are being cautious, as there are still too many unknowns surrounding it," Mr Bloomer said.

He warned that the 90,000 agents that sell its products will be reluctant to have face-to-face meetings while the outbreak persists, but Mr Bloomer is confident this will be offset by an increased demand for insurance cover. One of the company's agents has been infected with the disease.

The company believes the UK will remain its toughest market this year, where sales took a 14 per cent hit in the first quarter. Mr Bloomer believes the volatility in the equity market will persist, but Prudential is planning to launch new savings products that are more directly linked to the stock market and demand less capital to support.

Prudential also revealed it had joined rivals including Legal & General and Aviva in receiving a waiver from the regulator on its statutory solvency margin. The Financial Services Authority is allowing companies that can demonstrate they have a strong balance sheet to temporarily bend their solvency rules to prevent them from being forced to sell equities to protect their assets.

Prudential is taking steps to preserve capital by restricting sales of guaranteed products through its Jackson National Life subsidiary in the US. These products require substantial reserving and have lower profit margins than savings products sold to individual investors. Sales in the US fell 22 per cent in the quarter as a result of the move.

Yesterday's figures do not bode well for Prudential's dividend. In February the company abandoned its pledge to raise its dividend this year on market uncertainty, and analysts are expecting up to a 40 per cent cut.