March 10, 2020 / 7:34 AM / 22 days ago

UPDATE 2-Coronavirus brings uncertainty for insurer, asset manager M&G

* Operating profit 1.15 bln stg

* Solvency ratio drops to 166% at March 6

* Company pays special demerger dividend

* Shares up 1.16% (Adds CEO, CFO comments, shares, analyst)

By Carolyn Cohn

LONDON, March 10 (Reuters) - British insurer and asset manager M&G said on Tuesday it was facing uncertainty from the coronavirus outbreak as it recorded in-line 2019 operating profit in its first set of results after splitting from parent Prudential last year.

M&G, the former British and European arm of Prudential, saw net client outflows of 1.3 billion pounds in its savings and asset management division last year, with outflows from asset management outweighing savings inflows.

Sharp market moves in the past few weeks have knocked 10 percentage points off M&G’s solvency ratio, while it lost a further four to five percentage points on Monday, Chief Financial Officer Clare Bousfield told Reuters by phone.

Analysts expect the fallout from the coronavirus outbreak to have a greater impact on insurers’ investment positions than on the number of claims.

“We do not know what this virus could throw at us,” Chief Executive John Foley said on the call, adding that the firm was preparing for the possibility of remote working in Britain, while its Milan office was closed following a government lockdown.

M&G’s Solvency II ratio, a key measure of its capital strength, dropped to 166% at March 6, compared to 176% at end-Dec, though Bousfield said the firm’s balance sheet was resilient. A solvency level below 100% indicates inadequate capital reserves, though regulators prefer to see a higher number.

M&G’s shares were up 1.4% at 174.8 pence at 0838 GMT, against a 2.3% rise in the FTSE 100.

JPMorgan analysts described the results as “mixed”, but retained their overweight rating on the stock.

Asset managers have been buffeted by a number of factors in the past year, including Brexit uncertainty, U.S.-China trade tensions, competition from cheaper index-tracking funds and most recently, the coronavirus.

Rival Standard Life Aberdeen recorded a 10% drop in pre-tax profit on Tuesday, hit by the impact of lower revenues as investors continued to pull money from its funds.

M&G’s adjusted operating profit fell 29% to 1.15 billion pounds, partly from a change in longevity assumptions, but the result was in line with forecasts from a company-supplied consensus poll.

Assets under management and administration (AUMA) totalled 352 billion pounds, a 10% rise mainly reflecting strong investment returns.

The company said it would pay an ordinary dividend of 11.92 pence per share, as well as a special demerger dividend of 3.85 pence.

$1 = 0.7680 pounds Reporting by Carolyn Cohn, editing by Sinead Cruise, Kirsten Donovan

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