The Pru’s shareholders can “breathe again”, said The Guardian’s Nils Pratley. “There were no nasties” in the group’s third-quarter update and the capital surplus of £1.2bn comfortably met expectations. So talk of a rights issue to shore up the balance sheet is wide of the mark. A Goldman note last week, suggesting insurers might have to raise fresh capital, sent Prudential’s (LON:PRU) shares into a tailspin.
But Pru’s balance sheet seems to be “rock solid”, and the shares have perked up. What’s more, sales have risen by 15% this year in what chief executive Mark Tucker called a “flight to quality”. “The noises coming from our large insurance companies ought to be reassuring”, said the Evening Standard’s Simon English. Yet this is similar to what the banks were saying before it became clear they “were in serious trouble”. In the 2000-03 bear market, the insurer insisted it wouldn’t need to rattle the tin for more money and that it wouldn’t cut the dividend. But then it did both.
Meanwhile, the firm is eyeing up AIG cast-offs, particularly in Asia. Yet as Lex points out in the FT, “gaping corporate spreads – a sign of poor liquidity and rising default risk – remain a concern in a portfolio heavy with bonds”, said Lex. No insurer “is out of the woods yet”. Given the uncertain outlook over insurers’ capital, said English, “it does not feel like the time for fancy adventures abroad”.