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Cost-cutting strategy lifts share price

Prudential’s share price rose by 4 per cent following the news last week of a massive overhaul of its UK business and its 2006 full-year results.

The company responded to shareholder pressure to sell or break up its UK arm by unveiling a range of initiatives, including job cuts, stepping back from initial commission-led products and the acquisition of Equitable Life’s £1.8bn book of with-profits annuities.

The market also responded positively to the news that Pru is to try to unlock the £9bn inherited estate on its with-profits fund and focus mainly on the annuity market. It is also looking to cut annual costs by £195m by 2010 at a cost of £165m by outsourcing back-office roles and offshoring jobs, putting 3,000 jobs at risk.

Pru group results for last year show new business profits up by 20 per cent on 2005, breaking through the £1bn barrier for the first time.

But UK total sales on an annual premium equivalent rose by just 1 per cent from £892m to £900m.

Individual annuity sales were boosted by sales of with-profits annuities and more than doubled to £37m.

Corporate pension APE sales increased by 23 per cent from £170m in 2005 to £216m last year, which Pru says is due in part to the continuing shift from defined-benefit to defined-contribution pension schemes and the impact of A-Day.

Pru saw surrenders within its personal pension business run ahead of assumptions following A-Day, which resulted in a £9m negative persistency charge but the firm says it will not be adjusting its assumptions.

Managing director of life and pensions Gary Shaughnessy says: “We are not in a position where we think it is an ongoing issue and £9m in the scale of the fund is relatively tiny.”

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