INSURER Prudential has confirmed plans for its first dividend cut since 1914 as the group tries to conserve cash amid gruelling trading conditions.

The Pru, which reported a 27 per cent drop in half year operating profits to £397m, estimated a 40 per cent fall in its annual payout to 16p a share.

The move is likely to release about £200m, which the company said would enable it to retain the financial flexibility needed for future growth.

Pru directors warned shareholders earlier this year that the company's dividend was at risk after a 26p-a-share payout last year.

The decision, which will see the interim dividend also reduced by 40 per cent to 5.3p a share, follows a cut in bonus payments in February to customers of with-profits saving and investment products.

Chief executive Jonathan Bloomer said: ''The first half of 2003 has been the harshest operating environment for life insurers for a long time.''

He described the company's results for the first half of the year as solid, and said it showed the benefits of its diverse international operations.

He blamed volatile equity markets, low interest rates and the ongoing debate on the future of savings products for the weak demand.

Despite this, the company said it had seen strong growth in sales of corporate pensions and individual annuities.

Mr Bloomer warned that the remainder of the year would be challenging, although he said the company was well placed to lift market share once confidence returned.