Outsourcing helps Prudential raise operating profits

Pensions and insurance provider Prudential PLC has announced that its operating profit for 2007 was up by 25 percent. In the same week as similar good news from Standard Life, the Prudential said its European Embedded Value (EEV) opertaing profit for 2007 was £2,542 million. The company has outsourced large parts of its IT and administration operations to Capita.

Prudential said in its 2007 Full Year Results that its EEV operating profit had doubled over the past three years. UK retail new business saw profits up by 17 percent. Total new business profits for the organisation were up by four percent at £277 million. “These outstanding results, with new business profit up by 22 percent to £1,215 million, demonstrates excellent and continued momentum in the successful delivery of the Group’s retirement led strategy,” said Mark Tucker, group chief executive.

Prudential wasn’t shy to admit that the retirement market is in rude health, describing it as offering “significant long-term sustainable growth opportunitues”. In puts this down to significant social changes across the world, which is seeing an aging population causing: “the biggest demographic wave [western workers] in history transitions out of the workforce and into retirement.” Last year the UK division focussed on the retirement income market as well as developing a lifetime mortgage market.

In November 2007 Prudential signed a 15 year outsourcing deal with services company Capita worth £722 million. This deal is expected to deliver annual savings of £60 million by 2010. Capita has taken over the administration of seven million mature life and pension policies, group and individual pensions, investment bonds and endowments. Capita provides Prudential with customer service, policy administration, new business processing and IT support as part of the deal.

Prudental said in its results that it had achieved £115 million of the cost savings target of £195 million and it has plans to make additional savings of £80 million. It described the Capita deal as “a key milestone…to outsource a large proportion of its back book and new business policy administration.” Adding, “the outsourcing agreement will allow us to remove fixed costs from our operations and to achieve significant operating efficiencies with an expected positive effect on embedded value estimated at £60 million by 2011.”

Prudential also sold off the Egg internet banking operation last year for £527 million.

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