The best time to hold out the begging bowl to existing shareholders througha 1-for-6 rights issue is: a) when the share price has spent 18 monthstrying to recover, b) when the industry globally is being hammered byinvestigations into kickbacks to brokers, or c) when new regulations areabout to change the way products are distributed.
Clearly, Pru's timing on its rights issue announced yesterday could havecome a better time.
However, what is done is done, and the analysis must therefore focus onthe reasons for the action and whether this says anything about the state ofthe insurance sector in general.
Competitors are not about to admit that Pru's actions have any impact ontheir daily business decisions.
Yet it is interesting, for example, that the references to newEuropean-implemented rules on capital adequacy are not ruffling morefeathers.
Coupled with the fact we have yet to see, for example, a full year'sworth of realistic reporting figures from all players in the industry, thenthe regulatory pressures putting money aside for a rainy day are yet to befully understood by those on the outside looking in through publishedcompany accounts.
Every player is talking about increasing market share to offset astagnant domestic market, yet the regulations imposed are supposed to ensurethat no player ever goes to the wall because of the new cushions againstbusiness shocks put in place.
Thus, the circle does not square with market realities that companies inany industry do and should go bust, and regularly at that.
And so to the latest crusade against US-based financial servicescompanies duping customers.
Insurers getting caught out in the blame-game following revelations thathundreds of millions of dollars were paid to insurance brokers as part of atradition of "commissions" to ensure customers were turned their way aremostly US ones.
However, given the exposure to foreign markets that most major UKinsurers have, it may be the case - although there certainly does not seemto be any evidence so far, and there is no suggestion of such - that somefallout hits this side of the Pond.
Traditionally, when such sums are involved, it only takes a few rottenapples to spoil a good brand name.
Shareholders, those oft-forgotten people in the interaction betweenindependent distributors and providers of insurance products and services,are chafing at the bit considering the latest scandal.
In the UK particularly, these people have lost the ability to rely oninsurers as safe cash-generating holdings because of well-publiciseddividend cuts in the past couple of years, blamed on the bear market inequities.
Having already in many cases lent an additional helping hand bysupporting rights issues or issuance of new debt, shareholders areincreasingly likely to ask themselves when they should call management'slatest bluff, given the solidity of the UK economy, which technically neverwent into recession like most of the rest of the developed world, and whichis set for another strong year of GDP growth - tax grabs by governmentnotwithstanding.
Thus, these people, especially in institutional guise, should not becounted out in terms of future management decisions, which could also affectstrategic plans for distribution post-depolarisation.IFAonline
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