Cash, capital and earnings. Nic Nicandrou Chief Financial Officer

Transcription

1 Cash, capital and earnings Nic Nicandrou Chief Financial Officer

2 surplus generation A key area of management focus 2008 FY results presentation 1

3 surplus generation A strong track record of delivery Net free surplus generated 1, bn Cash remittances, bn surplus, bn 6.9 Cover: 185% 197% x Objective 2010 HY13 Actual Objective 2010 HY13 Actual 1 Jan Jun expected profits from in-force and asset management, capital released, operational variances and changes in assumptions, less investment in new business 2

4 Growth in net free surplus generated Broad-based growth has driven free surplus generation Net free surplus generated 1, m CAGR CAGR 24% 1,714 1, , % M&G 2 1, % UK (37) % US 42% 1 expected profits from in-force and asset management, capital released, operational variances and changes in assumptions, less investment in new business 2 including Prudential Capital 3

5 Growth in cash remittances Driven by increase in free surplus generation Net free surplus generated 1 and cash remittances, m 1,714 1,983 2,082 CAGR % Net free surplus generation 1 1,414 1,105 1, % Cash remittances Net free surplus generated 1 expected profits from in-force and asset management, capital released, operational variances and changes in assumptions, less investment in new business Cash remittances 4

6 Growth in in-force portfolio New business contribution building in-force portfolio Prudential value of Life in-force business (VIF) Cumulative (indexed, 100 = 10.3 bn) Prudential vs UK life peers Cumulative (indexed) (43) New business contribution = 118% of in-force extraction 65 Opening VIF at Jan 2010 New business contribution to VIF Existing business - transfer from VIF to net worth Expected return on existing business Operating assumptions and experience nonoperating Closing VIF at Dec 2012 Prudential Company A Company B New business contribution to VIF Existing business transfer from VIF to net worth 5

7 Life free surplus generation High quality new business enhances future generation Group expected Life free surplus generation, , bn (undiscounted, before investment in new business) expected free surplus from 2009 in-force bn New business written (2010, 2011, 2012) Management of in-force for value IRR > 20% = payback period of 2 years new business strain 1.8bn expected free surplus from 2012 in-force bn 1 expected profits from in-force and capital released, before investment in new business, excludes asset management 6

8 Group free surplus generation High capital velocity Cumulative net free surplus generated HY, m Net free surplus generated 1, m Expected free surplus from 2009 in-force New business strain Expected free surplus from new business 4,821 - (2,192) 1,510 1,714 1, , Positive experience Investment return on free surplus 1, ,627 1,307 1,279 1,216 Asset management 1,311 = Net free surplus generation 6,931 FY10 FY11 FY12 FY13 1 FY13 new business strain, return on net worth, assumptions / experience and asset management reflect annualised HY13 numbers 7

9 Group free surplus generation Group cumulative objective Net free surplus generated Cumulative objective 1, m Net free surplus generated, m ILLUSTRATIVE NOT TO SCALE Expected free surplus from 2012 in-force 6,962 New business strain ( ) Expected free surplus from new business ( ) - /- Experience result Investment return on free surplus 1,816 1,788 1,687 1,671 Asset management = Net free surplus generation at least 10bn FY14 FY15 FY16 FY17 1 The objectives assume current exchange rates and economic assumptions made by Prudential in calculating the EEV basis supplementary information for the half year ended 30 June 2013, and are based on current regulatory and solvency regimes applicable across the Group. The objectives assume that the current EEV, and methodology will be applicable over the period 8

10 free surplus generation Strong growth with high returns and fast payback cumulative net free surplus generated HY, m net free surplus generated 1, m Expected free surplus from 2009 in-force New business strain Expected free surplus from new business Positive experience Investment return on free capital Asset management Net free surplus generation 1,522 - (1,034) = 1, FY10 FY11 FY12 FY13 1 FY13 new business strain, return on net worth, assumptions / experience and asset management reflect annualised HY13 numbers. FY12 includes the one-off gain on sale of our stake in China Life of Taiwan of 51 million. 9

11 free surplus generation 2017 objective net free surplus generated 2017 objective 1, m net free surplus generated, m ILLUSTRATIVE NOT TO SCALE Expected free surplus from 2012 in-force 654 New business strain ( ) Expected free surplus from new business ( ) - /- Experience result Investment return on free capital 654 Asset management = Net free surplus generation 0.9bn to 1.1bn FY13 FY17 1 The objectives assume current exchange rates and economic assumptions made by Prudential in calculating the EEV basis supplementary information for the half year ended 30 June 2013, and are based on current regulatory and solvency regimes applicable across the Group. The objectives assume that the current EEV, and methodology will be applicable over the period 10

12 surplus and cash Enhancing our financial flexibility Cumulative HY Cumulative At least 10bn (-) ILLUSTRATIVE NOT TO SCALE % (1.2) (1.6) 4.1 (1.1) Dividends paid Centrally funded deals Net free surplus generated 1 Market / other movements surplus retained Remittances to Group Central needs Deployed / returned to shareholders Net free surplus generated 1 Market / other movements surplus retained Remittances to Group Central needs Available to deploy / return to shareholders 1 expected profits from in-force and asset management, capital released, operational variances and changes in assumptions, less investment in new business 2 The objectives assume current exchange rates and economic assumptions made by Prudential in calculating the EEV basis supplementary information for the half year ended 30 June 2013, and are based on current regulatory and solvency regimes applicable across the Group. The objectives assume that the current EEV, and methodology will be applicable over the period 11

13 net flows Net flows underpin profits Life net policyholder liabilities 1, 2010 to 2012, m % opening liabilities 10% 10% 11% 21,213 3,044 1,982 13,050 1,298 1,839 14,028 Unit-linked 9,717 Non-linked 3,333 7,185 Opening liabilities, 2010 Net inflows 2010 Net inflows 2011 Net inflows 2012 Market / other movements Closing liabilities, Shareholder-backed business. Net inflows are defined as movements in shareholder-backed policyholder liabilities arising from premiums (net of upfront charges), surrenders, maturities and deaths 12

14 Life operating profit Growing revenues while controlling costs Life operating profit 1, m % 19% 22% 855 CAGR ,344 25% Revenue 1,214 Expenses (916) (19%) (14%) (18%) (1,473) 17% 2009 operating profit operating profit Revenue / Increase in revenue 1,2, 2012 vs 2009 Expenses / Increase in expenses 2, 2012 vs 2009 DAC 1 operating profit restated for the retrospective application of new and amended accounting standards and excludes Japan excludes the gain on sale of stake in China Life of Taiwan of 51 million. 2 Revenue comprises technical and other margin, fee income, spread income, with-profits income and expected returns on shareholder assets. Expenses comprise administration expenses, acquisition costs, excluding DAC. 13

15 Life and Asset Management operating profit Objective CAGR of at least 15% to Life and Asset Management pre-tax operating profit 1, m CAGR of at least 15% 2 Growth in net flows and stock of policyholder liabilities Increasing new business volumes Strong persistency management High regular premium content Operational leverage Scalable platform Cross-sell and up-sell opportunities Life revenue Asset Management revenue Life expenses Asset Management expenses 1 operating profit restated for the retrospective application of new and amended accounting standards and excludes Japan excludes the gain on sale of stake in China Life of Taiwan of 51 million 2 The objectives assume current exchange rates and economic assumptions made by Prudential in calculating the EEV basis supplementary information for the half year ended 30 June 2013, and are based on current regulatory and solvency regimes applicable across the Group. The objectives assume that the current EEV, and methodology will be applicable over the period 14

16 New business profit Remains a useful metric, but more sophisticated alternatives exist Group new business profit, m ,619 Volume, mix, pricing, other 2012 before economic effect Economic effect 1,139 (306) 2,758 CAGR 19% - Captures both volume and value of new business added Sensitive to changes in economic conditions negative impact of 306m (4ppts of growth) ,452 CAGR 15% - Does not demonstrate the timing of earnings emergence 15

17 US cash generation Strong record of cash remittances to Group US net remittances, $m US net remittances % capital generation, $bn $1.5 billion 2010 to Net remittances Net operating free surplus generation Net remittances % surplus / capital generation 1 31% 125 Net remittances Total change in free surplus % Net remittances Statutory capital generation % 1 before remittances 16

18 Reporting considerations Presentation changes to EEV reporting Report on post-tax basis with effect from 2014 No changes for the 2013 preliminary results Solvency II Estimate based on Prudential internal model to be published with 2013 preliminary results 2013 results based on: US equivalence (250% RBC ratio) UK annuity credit allowance benchmarked to ICA and QIS5 No artificial restrictions on overseas surplus To be updated on an annual basis through formal adoption in 2016 reflecting: matching adjustment for UK annuities as detailed calibration develops impact of transitional arrangements evolving Level 2 requirements and feedback from regulator 17