Delivering Shareholder Value Adrian O Connor Chief Financial Officer Prudential Corporation Asia 16 November 2011 1
Asia is Delivering across All Key Metrics New Business Profit 1 ( m) IFRS Operating Profit 2 ( m) Cash remittance ( m) 21x 396 465 295 367 105 142 200 234 296 286 120 93 75 101 228 5 16 11 21 67 2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011 (22) 2005 2006 2007 2008 2009 2010 2011 1. Excludes Taiwan agency business (sold in Q1 2009) and Japan Life (ceased writing new business in Q1 2010) 2. In respect of Insurance (excludes Taiwan agency, 2005-07 exclude Taiwan) and asset management operations only. Net of development expenses 2
Content New Business Quality Product Profit Profiles EEV Robustness Free Surplus Generation, IFRS and Cash 3
Embedded Value Embedded Value has increased by 5.8bn or almost 4-fold since 2005 Embedded Value ( m, AER) Net Worth Value of In-Force (VIF) 1,988 762 2,548 920 1,226 1,628 3,726 956 2,770 5,264 1,549 3,715 5,781 1,386 4,395 7,445 7,825 1,835 1,895 5,610 5,930 2005 2006 2007 2008 2009 2010 2011 4
Value of In-Force Overall proportion of with-profits is low, but significant in certain key markets Value of In-Force by Business Mix ( m, AER) With-profits 1 business (2005-10 CAGR = 11%) Shareholder-backed business (2005-10 CAGR = 44%) 2,770 674 1,628 1,226 449 427 2,095 798 1,179 3,715 653 3,061 4,395 629 3,766 5,930 5,610 701 708 4,902 5,229 2005 2006 2007 2008 2009 2010 2011 1. Traditional UK style with-profits business only 5
VIF Monetization With-profits monetizes more slowly and is more back-end weighted Cumulative % Monetized Profiles of Monetization 1 Rate from 2010 Life In-force 100% 80% 60% 40% 20% 38% 23% 61% 43% 74% 58% 83% 71% 100% Shareholder-backed business (total VIF 2 : 5,607m) With-profits 3 business (total VIF 2 : 722m) 0% 1-5 yrs 1-10 yrs 1-15 yrs 1-20 yrs 1-20+ yrs 1. Discounted 2. Total discounted value of 2010 in-force business and required capital 3. Traditional UK style with-profits business only 6
Value of In-Force New Business is our key growth driver. Preservation and monetization of VIF underpins profit and cash delivery m, AER 2005 Closing VIF 1,226 + New Business Contribution 3,878 + In-Force Business Contribution 5,104 1,702 Transfer to Net Worth 4,875 1,931 + Exchange movements of Asian currencies relative to 4,875 941 + Others 1 5,816 114 2011 Closing VIF 5,930 1. Include non-operating variances, divestment (Taiwan agency), acquisition (UOB Life), intra-group dividends and other transfers from net worth 7
Content New Business Quality Product Profit Profiles EEV Robustness Free Surplus Generation, IFRS and Cash 8
Highly Capital Efficient More than 2 new business value for every 1 invested, reflecting continued value over volume discipline m, AER Post-tax new business profit 1 473 545 672 298 350 Free surplus invested in new business 1 NBP generated for every 1 invested 2 (212) (231) (278) (123) (129) 2.24 2.36 2.42 2.42 2.71 2008 2009 2010 2010 2011 1. Excludes Taiwan agency business (sold in Q1 2009) and Japan Life (ceased writing new business in Q1 2010) 2. Calculated as post-tax new business profits divided by free surplus invested in new business (post-tax) 9
Good Capital Velocity We continue to recycle capital quickly with proactive management of product mix Monetization Profile from 2010 New Business Monetization Profile from 2011 New Business Discounted Undiscounted Discounted Undiscounted NB Investment = 123m 1 NB Investment = 129m 194 247 87 174 158 155 52 34 64 197 250 103 197 178 160 63 41 84 1-5 yrs 6-10 yrs 11-15 yrs 16-20 yrs 20+ yrs 1-5 yrs 6-10 yrs 11-15 yrs 16-20 yrs 20+ yrs 1. Excludes Japan which ceased writing new business in Q1 2010 10
Content New Business Quality Product Profit Profiles EEV Robustness Free Surplus Generation, IFRS and Cash 11
Product Mix Two broad product groupings affect our financials at the macro level 2010 New Business Mix 2011 New Business Mix 17% Withprofits 1 business 22% Withprofits 1 business Shareholderbacked business 83% Shareholderbacked business 78% Total APE: 713m 2 Total APE: 743m 1. Traditional UK style with-profits business only 2. Excludes Japan which ceased writing new business in Q1 2010 12
Profit Profile of Cohort of Typical Unit-linked with Riders Insurance margin makes up two-thirds of the profits Discounted Profits as % of Present Value of Future Premiums 1.2% 0.8% 0.4% 0.0% -0.4% Insurance Margin Investment Margin Premium & Expense Margins -0.8% Policy Year 5 10 15 20 25+ 13
Profit Profile of Cohort of Typical With-Profits Policy Profit emerges more slowly than the unit-linked counterpart Discounted Profits as % of Present Value of Future Premiums 1.2% 0.8% 0.4% Transfer to Shareholder (Reversionary Bonus) Transfer to Shareholder (Terminal Bonus) 0.0% Policy Year 5 10 15 20 25+ 14
Content New Business Quality Product Profit Profiles EEV Robustness Free Surplus Generation, IFRS and Cash 15
In-Force Business Contribution In-force business has contributed 2.5bn in operating profit (2006-2011), including 139m experience variances and basis changes History of In-Force Business EEV Operating Profit ( m, AER) In-Force Business EEV Operating Profit 2,537m Unwind and Expected Return 2,398m 254 340 409 489 573 333 315 393 579 392 549 309 2006 2007 2008 2009 2010 2011 Experience Variances and Basis Changes 139m 61 53 170 2006 2007 2008 2009 2010 2011 (97) (24) (24) 16
Operating Experience Operating experience variances and basis changes averaged only 0.5% of opening EEV (2006-2011) Operating Experience Variances and Basis Changes relative to Embedded Value ( m, AER) 7,445 5,264 5,781 Opening Embedded Value Experience variances and basis changes (2006 2011: 139m) Experience variances and basis changes as % of opening EEV 1,988 2,548 3,726 61 53 170 (97) (24) (24) 2006 2007 2008 2009 2010 2011 3.1% 2.1% 4.6% (1.8)% (0.4)% (0.3)% Average: 0.5% as % of opening EEV 2008 experience variances and basis changes exclude Taiwan agency business (sold in Q1 2009) 17
Non-operating Experience MSCI Asia Impact of short term fluctuations has been relatively small, even in volatile market conditions Short Term Fluctuations in Investment Returns and Effect of Changes in Economic Assumptions Relative to Embedded Value ( m, AER) Opening Embedded Value Short term fluctuations in investment returns and effect of changes in economic assumptions (2006 2011: 257m) Short term fluctuations in investment returns and effect of changes in economic assumptions as % of opening EEV 751 974 1,988 2,548 168 436 490 3,726 2008 short term fluctuations in investment returns and effect of changes in economic assumptions exclude Taiwan agency business (sold in Q1 2009) 770 866 5,264 5,781 263 216 7,445 (746) (80) 2006 2007 2008 2009 2010 2011 Average: 1.0% as % of opening EEV 876 8.5% 17.1% (20.0)% 5.0% 3.7% (1.1)% 18
Equity Market Exposure Limited shareholder exposure to equity markets Funds Under Management by Business Type ( m, AER) Other (shareholder-backed) Unit-linked/separate account assets With-profits 30,709 31,944 5,602 6,050 12,956 13,375 12,152 12,520 2010 2011 Shareholder-backed Business by Asset Type ( m, AER) Others (deposits, mortgage loan, policy loan, etc.) Equity Bond 6,050 5,602 875 868 328 405 4,322 4,854 2010 2011 Shareholder-backed business as % of total Life FUM Equity as % of shareholder-backed business FUM 18.2% 18.9% 7.2% 5.4% In respect of Life insurance operations only 19
Credit Exposure Limited shareholder exposure to credit risks Bond Portfolio by Rating in Shareholder-backed Business ( m, AER) Others Locally rated investment-grade corporate bonds Government bonds of non investment-grade countries Government bonds of investment-grade countries (S&P, Moody s, Fitch) BBB (S&P, Moody s, Fitch) A (S&P, Moody s, Fitch) AA (S&P, Moody s, Fitch) AAA 4,322 4,854 191 86 626 666 554 609 379 340 218 195 902 706 1,319 1,451 399 534 2010 2011 In respect of Life insurance operations only 20
Content New Business Quality Product Profit Profiles EEV Robustness Free Surplus Generation, IFRS and Cash 21
Free Surplus Generation Expected VIF monetization provides guidance on quantum of operating free surplus generation of in-force book Expected 2011 transfer to free surplus 1, m 635 1 From Expected Transfer to Operating Free Surplus Generation 2011 ( m) 58 129 (7) 265 316 187 Expected transfer to free surplus 2 Operating + variance & Return on + assumption net worth = change 3 In-force business operating free surplus generation Investment in New = Business Operating free surplus generation 1. Transfer of value of in-force (VIF) and required capital to free surplus expected to emerge in 2011 (page 71 of Annual Report 2010) 2. Net of one-off adjustments to required capital 3. Exclude one-off items associated with changes in required capital 22
IFRS Operating Profit Operating free surplus generation from in-force book is approximately 90% of in-force IFRS operating profit From In-Force Business Operating Free Surplus Generation 1 to IFRS Operating Profit 2 ( m) 32 51 (42) 316 316 348 348 357 357 In-force business operating free surplus generation Change in + Tax required = Change in Net Accounting Worth + + gross-up differences = capital In-force business IFRS Operating Profit 1. Post-tax 2. Pre-tax 23
IFRS Operating Profit Impact of writing new business smoothed over time under IFRS From Free Surplus invested in New Business 1 to IFRS New Business Strain 2 ( m) Free Surplus invested in New Business Change in + Tax required = Change in Accounting Net Worth + + gross-up differences = capital IFRS New Business Strain (31) (31) (80) (80) (80) (129) 64 49 (15) 1. Post-tax 2. Pre-tax 24
Cash Remittance Insurance operations are key driver of Asia cash remittance. 43% of operating free surplus remitted in 2011, 41% invested to write new business Operating Free Surplus Generation (OFSG) 2011 from Insurance Operations Asia Net Cash Remittance 2011 ( m) Net Cash Remittance Investment in New Business Retained 52m (16%) 129m (41%) 135m (43%) Total In-force Insurance OFSG = 316m 17 135 135 Insurance Net Cash Remittance Net Cash Remittance from other operations 47 105 105 Funding for overheads 1 Asia Net Cash Remittance 1. Regional Head Office costs were 30m in the first half of 2011 25
Summary Insurance operations have generated 1.9bn operating free surplus from in-force book and invested 1.2bn (63%) to write 3.0bn new business profit Operating Free Surplus Generation from In-Force Business 1 1,897m 157 183 270 365 606 2006 2007 2008 2009 2010 2011 Asia Net Cash Remittance to Group 2 318m 28 37 5 40 103 105 2006 2007 2008 2009 2010 2011 278 316 Free Surplus Invested in New Business 1 1,197m 280 105 194 243 246 125 129 2006 2007 2008 2009 2010 2011 New Business Contribution 1 (post tax) 2,957m 373 480 550 533 671 297 350 2006 2007 2008 2009 2010 2011 1. As published. In respect of insurance operations only 2. Includes net cash remittance from other operations and funding for overheads. 103m in 2010 excludes a one-off remittance of 130m from Malaysia 26
Appendix 27
New Business Contribution Impact of writing new business smoothed over time under IFRS New Business EEV Profit 1,2 ( m, AER) 3,712m New Business APE 1 ( m, AER) 6,485m 1,501 449 531 639 725 902 396 465 2006 2007 2008 2009 2010 2011 1,044 1,174 1,209 814 713 743 2006 2007 2008 2009 2010 2011 1. Excludes Taiwan agency business (sold in Q1 2009) and Japan Life (ceased writing new business in Q1 2010) 2. Pre-tax 28
New Business Strain and Deferred Acquisition Costs New Business Strain and DAC as percentage of APE have been relatively stable Free Surplus Invested in New Business 1,2 ( m, AER) IFRS New Business Deferred Acquisition Costs 1,3 ( m, AER) Change in net worth (cash and reserving strain) Change in required capital (capital strain) 278 212 231 194 171 162 123 129 84 80 41 69 84 39 49 2008 2009 2010 2010 2011 As % of APE 1 18.1% 19.1% 18.5% 17.3% 17.4% 92 111 108 60 67 2008 2009 2010 2010 2011 As % of APE 1 7.8% 9.2% 7.2% 8.4% 9.0% 1. Excludes Taiwan agency business (sold in Q1 2009) and Japan Life (ceased writing new business in Q1 2010) 2. Post-tax 3. Pre-tax 29
Value of In-Force A portfolio fuelled by new business and will continue to grow Value of In-Force by Country ( m, AER) 5,610 5,930 4,395 1,046 1,064 3,715 778 891 979 2,770 418 979 1,011 281 469 1,226 1,628 450 629 687 134 1,270 1,375 548 50 82 1,223 957 394 442 813 499 570 562 627 824 1,165 1,303 1,536 1,589 (278) (93) 2005 2006 2007 2008 2009 2010 2011 2005-10 CAGR Others Indonesia 1 : 73% Malaysia 2 : 20% Hong Kong: 21% Singapore: 22% 1. Indonesia's VIF in 2007 has been adjusted for a one-off item of 8m 2. Includes Takaful life operation in Malaysia. Takaful was previously included in the Others category 30
Renewal Premiums Robust momentum in renewal premiums, reflecting policyholders continued belief in the preservation of their insurance contracts with Prudential Renewal Premiums ( m, AER) 3,803 1,456 1,729 2,283 2,805 1,782 2,116 2006 2007 2008 2009 2010 2011 Exclude Taiwan agency business (sold in Q1 2009) and Japan Life (ceased writing new business in Q1 2010) 31
2011 Opening Embedded 2011 Opening Sensitivities to Market Movements Guidance on EEV sensitivities to market movements provided annually 7,445 Sensitivity of EEV to Market Movements ( m) Embedded Value 1 Value 1 Sensitivity of results to alternative economic assumptions 2 1% increase in interest rates 1% decrease in interest rates 1% rise in equity/property yields 176 308 10% fall in equity/property market values (220) (174) Impact as % of Opening EEV 1 (3.0)% 2.4% 4.1% (2.3)% 1. Embedded Value at 31 December 2010 2. Sensitivity analysis from page 423 of Annual Report 2010 32