WorldCom hit holes Prudential

A £77m writedown from its exposure to failed US telecoms group WorldCom has helped cut interim underlying profit at insurance giant Prudential by 15% to £543m.

Chief executive Jonathan Bloomer said Prudential had written down the value of its WorldCom bonds to just 25 cents in the dollar. This had combined with falling stock markets to slash pre-tax profits to £166m for the six months ended June, from £364m a year earlier.

But he played down market fears that stock markets' troubles would force life insurers to sell shares to maintain adequate solvency ratios, saying Prudential had not reduced its equity exposure and he did not believe it would have to.

Bloomer said 51% of Prudential's investments were in shares, a level that had not changed since June last year. The group's free asset ratio, a key indicator of its underlying strength, had fallen from 12.2% to 11% in the period but this was still a 'strong' position.

Total funds under management were down from £163bn to £159bn. 'We don't think this concept of forced selling is right,' he said. 'We are comfortable with our position where it is.'

Bloomer also confirmed that Prudential was 'reviewing' payouts on its with-profits policies in the wake of plunging share prices. But he added that 'it was too early' to say if it would follow Norwich Union, which on Tuesday said it would slash payouts by 5%.

'We have inevitably been affected by capital markets and our results reflect the impact of falls in equity markets around the world and the difficulties and write-offs in bond markets,' he said. 'But despite the sharp fall in share prices over recent weeks, Prudential remains one of the strongest companies in the life insurance sector and the long term fund remains well capitalised.'

However, there was better news on the trading front, with total sales of insurance and investment products rising 36% to £13.7bn. Much of the growth came from investment sales in Asia, though underlying insurance sales across the group were just 2% higher at £926m.

Prudential said it had lifted its annual savings target from £175m to £200m by 2004, contributing an extra £10m to profits. The dividend is up 2.3% at 8.9p a share and the shares rose 8 1/2p to 428 1/2p.