Prudential, the UK's largest insurer by market worth, yesterday unveiled a drop in its full-year pre-tax profits, knocked off-kilter by lacklustre short-term investment returns amid highly- volatile global financial markets.

However, at the operating level - when the insurance giant's investment returns are not taken into account - the jump in new business profit at the Pru's fast-growing Asian arm raised operating profits by 25% to £2.54bn.

Mark Tucker, chief executive of Prudential, insisted the group's prospects for the year ahead remained "positive".

In the UK, Prudential said retail new business profit rose 17%, with total profits from sales up 4% at £277m.

Nonetheless, pre-tax profits tumbled to £1.17bn in 2007, compared with £1.4m the year before.

At the same time, the group said it would continue its strategy of competing in those areas of retirement and savings where it was able to generate the most attractive returns.

The Pru's cost-cutting drive to revive its UK arm will also see it outsource nearly 2000 jobs as it seeks to save £195m a year.

In November last year, it confirmed the transfer of 1000 jobs at Craigforth near Stirling to Capita as part of a major outsourcing exercise. A further 1400 are still employed there directly.

The Pru yesterday said its controversial deal with Capita would provide a £60m boost by 2011.

It also said that while the UK and US were set to suffer amid an economic slowdown, the growth drivers were still "powerful" in Asia, where it has a strong presence with life insurance operations in 12 markets.

Tucker said: "There is significant volatility and nervousness in markets and it seems clear that there will be a period of less-attractive economic growth trends in the US and in the UK than we have seen in recent years.

"Notwithstanding this, we believe that our strategy and our business model are very robust and will continue to deliver sustainable value."

Pru's Asian division, which now accounts for more than half of the group's new business profits, reported operating profit up nearly 28%, breaking the £1bn barrier for the first time.

The Asian operation is being closely watched amid speculation that some of China's biggest insurers are looking for UK investment.

Ping An Insurance was reported in January to be interested in a stake in Pru, with suggestions that the group may be looking to use £11bn of fund-raising to invest in the firm.

The Pru also said it was confident that its 2007 margins in Asia - about 50%, down from 54% the year before - would remain steady in 2008.

Tucker added: "We remain confident that they will be at or around current levels."

He also said the group's dividend cover should reach the target of double in 2008, compared with 1.9 times in 2007.

Shares in Prudential yesterday gave up 4%, or 26.5p, to 627.5p.