Nic Nicandrou Group
Drivers of high quality earnings, resilient capital and robust balance sheet Growing and resilient earnings drivers Capital is strong and highly accretive Defensive and robust balance sheet Growing Asia premium base Solvency II surplus 11.5bn Conservative asset portfolio 31 October 2016 30 September 2016 In-force 4.1 4.6 5.4 6.3 7.2 189% New 1.4 1.6 1.9 2.2 2.8 2011 2012 2013 2014 2015 Growing asset base in UK and US Capital velocity FY15 2,938 Years 6-10 ~98% Sovereign or Investment Grade 59 134 2011 2015 US separate account assets ($bn) 142 165 2011 2015 UK life invested assets ( bn) 92 126 2011 2015 M&G external FUM ( bn) 745 Free surplus invested in new business 2,617 New business profit 310 288 452 Free surplus emergence (undiscounted) Year 5 Year 4 Year 3 Year 2 Year 1 Holding company cash 30 June 2016 Credit facilities (undrawn) 30 June 2016 2.5bn 2.6bn
New business profit driven by higher volume and improved mix New business profit (post-tax) m 3Q16 vs 3Q15 3Q16 3Q15 AER 1 CER 1 Movement in new business profit (post-tax) 3Q16 vs 3Q15 Asia 1,306 976 +34% +23% Volume + 149m +8% Jackson 485 557 (13)% (21)% Economics (68)m (4)% UK Retail 179 127 +41% +41% Mix / pricing / other + 88m +5% Total 2 1,970 1,660 +19% +9% CER 1 change + 169m +9% 1. AER: actual exchange rates. CER: constant exchange rates 2. Growth rates based on 2015 comparatives excluding UK bulks which contributed new business profit of 104 million in the first nine months of 2015
Asia Structural drivers of demand and new business performance intact New business profit m Regular premium APE sales, m Agency APE sales, m Health and protection new business profit, m +23% AER +34% AER +28% AER +31% +18% +21% +27% AER +38% 1,061 1,306 2,005 2,367 1,298 1,571 688 872 3Q 2015 (CER) 3Q 2016 3Q 2015 (CER) 3Q 2016 3Q 2015 (CER) 3Q 2016 3Q 2015 (CER) 3Q 2016
US Continued separate account asset growth despite sales disruption Separate account assets US$bn 134.2 10.4 (5.8) +8% 4.6 6.8 145.6 Variable annuity sales in line with HY16 and sector trends Net flows remain positive despite lower sales Continue to benefit from positive market effects 1 Jan 2016 New premiums Outflows Net inflows Markets / Other 30 Sep 2016
UK life Improved asset gathering capability UK life flows bn Claims Premiums 2.3 (0.8) 1.6 (7.2) 2.2 (3.0) 3.7 (0.9) 1.2 (6.1) 2.7 (3.1) 6.1 (1.2) 1.2 (6.6) 2.0 (3.2) 6.7 (1.2) 0.8 0.4 (5.1) (2.4) With-profits 30 September 2016 Shareholder backed 30 September 2016 116bn invested assets 64bn invested assets Change +11% +6% 2013 2014 2015 3Q 2016 Retail Growth products 1 Legacy products 2 Annuities 3 1. Includes investment bonds, individual pensions, drawdown and PruFund ISA 2. Includes corporate pensions and other 3. Includes retail and bulk annuities
Asset management Improved third quarter flows and growing asset base M&G External assets under management, bn Eastspring Assets under management, bn +8% Total External 126.4 136.2 +29% +23% Retail 60.8 (4.1) (2.0) (1.1) 8.4 62.0 +2% 89.1 0.2 4.2 21.8 115.3 71.2 0.8 9.5 Life / Internal 52.8 Institutional 65.6 (1.6) (0.1) 74.2 +13% External 30.3 36.5 MMF 6.0 7.6 31 Dec 2015 1Q 2Q 3Q 2016 net flows Markets / Other 30 Sep 2016 31 Dec 2015 External Life Markets / Other 1 2016 net flows 30 Sep 2016 1 Includes movement in money market funds of 1.6 billion, comprising net inflows of 0.5 billion, currency movements of 0.9 billion and market movements of 0.2 billion
Robust capital position Solvency II capital position 1 31 October 2016, bn Movement in Solvency II capital 1 30 June to 31 October 2016, bn Solvency cover 175% 189% 31 December 2015 3 9.7 Surplus 9.1bn 11.5bn 30 June 2016 2 9.1 Dividends paid (0.3) Operating experience 4 0.9 21.1 24.5 Market effects 0.7 12.0 13.0 Currency movements 0.6 30 June 2016 2 Own Funds 31 October 2016 (estimated) SCR Sub-debt issuance 31 October 2016 (estimated) 0.5 11.5 1 The Group Shareholder position excludes the contribution to the Group SCR and Own Funds of ring fenced With-Profit Funds and staff pension schemes in surplus 2 Before allowing for 2016 first interim ordinary dividend 3 Before allowing for 2015 second interim ordinary and special dividends 4 Includes 0.2 billion from specific asset and liability management actions taken in the third quarter of 2016 to improve the solvency position of our UK life businesses and further mitigate market risks
Disciplined capital allocation, directed to highest return opportunities Free surplus invested in new business m Undiscounted free surplus generation from new business Years 1-30, m CAGR 5,847 553 CAGR +8% 637 29 745 65 UK 3,983 512 +10% 4,833 567 1,515 696 2,011 UK 54 267 US 1,253 298 US 202 Asia 297 310 413 Asia 2,218 2,751 3,140 2011 2013 2015 2011 2013 2015
with fast capital payback Free surplus invested in new business m Undiscounted free surplus generation from new business Years 1-30, m 5,847 500 UK 553 54 637 29 745 65 267 Year of emergence 26-30 21-25 16-20 3,983 306 400 504 4,833 440 513 621 818 558 773 1,078 US 202 298 11-15 6-10 694 885 1,084 1,382 Asia 297 310 413 1-5 1,194 1,357 1,556 2011 2013 2015 2011 2013 2015
Life free capital generation prospects improve with new business 2.7 Group expected life free surplus generation, 2016 2025, bn (undiscounted, before investment in new business) 2.5 2.4 2.3 2.3 2.2 2.2 2.1 2.0 1.9 1.4 1.3 1.3 1.2 1.2 1.1 1.1 1.0 1.0 1.0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 From 2010 yearend in-force New business contribution 2011 2012 2013 2014 2015
Growing life in-force underpins Group cash generation prospects Group expected life free surplus generation, 2012 2015, bn (undiscounted, before investment in new business) 2.2 2.4 2.5 Assumption changes and experience 9.0 1.9 Free surplus 3.4bn 6.8bn 1 Jan 2012 31 Dec 2015 Central cash 1.2bn 2.2bn 1.9 1.9 Asset management 1.9 Retained 1.9 1.6 1.6 1.4 1.4 Expected life free surplus generation New business investment 9.0 (2.6) 5.6 Remittances to Group (1.3) Group centre 1 Retained 3.3 Dividends (paid in year) Markets / other (1.2) 2011 2012 2013 2014 2015 From 2010 yearend in-force New business contribution 2011 2012 2013 2014 Net free surplus generated after markets / other 2012-2015 Remittances to Group 5.6bn 3.2bn 2012-2015 2008-2011 Dividends (paid in year) 3.3bn 1.7bn 1 Group movements include interest and central costs (net of tax), corporate transactions, issue and repayment of subordinated debt, currency movements and other non-operating movements
Capital dynamics and dividend philosophy are unchanged Asia US UK M&G Remittances Central costs Capital-light growth in unitlinked and protection Reliable capital generation from high-return fast payback business Capital efficient growth through with-profits Minimal capital requirement Dividends to shareholders Capital generation Fast payback of invested capital from attractive earnings profile Economic risks hedged well into tail Stable generation from seasoned annuity and withprofits portfolios Cash-like earnings Corporate actions Capital hurdle Buffer over local required capital after 1/25 stress Minimum RBC ratio and target AA credit rating SII target range Minimum CRD III cover Remittances to Group Opening central cash Closing central cash > 1bn
Dividend policy The Board will maintain its focus on delivering a growing ordinary dividend. In line with this policy, Prudential aims to grow the ordinary dividend by 5 per cent per annum. The potential for additional distributions will continue to be determined after taking into account the Group s financial flexibility across a broad range of financial metrics and our assessment of opportunities to generate attractive returns by investing in specific areas of the business Assessment of dividend affordability unchanged grow the ordinary dividend by 5 per cent per annum potential for additional distributions Range of financial metrics IFRS earnings Free surplus generation Holding company cash Free surplus stock Solvency II surplus Local solvency surplus Financial strength ratings Stress tested 1/25 year stress on financial KPIs 1 Country level cash Group liquidity Buffer for regulatory change and shocks Competing use of capital Investment in growth Funding corporate activity 1 1/25 year stress is equivalent to a Group-wide scenario with movements in all risks including a 30% to 50% fall in equity levels, a 0.5% to 3.0% fall in long-term interest rates and spreads widening by 140p in A-rated credit and 210p in BBB-rated credit.
Balance sheet remains defensively positioned UK shareholder credit portfolio 1 30 Sep 2016 Jackson shareholder portfolio 2 30 Sep 2016 Asia shareholder portfolio 1 30 Sep 2016 Investment grade 98% BBB 16% <BBB 2% 98% Investment Grade AAA 12% AA 35% Average corporate holding 1 $49m Cash / Treasury / Agency 31 Dec 2008 2% 30 Sep 2016 14% <BBB 3% 97% Sovereign or Investment Grade Sovereign debt 41% A 35% Investment grade corporate 50% 59% Investment grade corporate debt 56% High yield / RMBS 3 14% <4% 1 Based on IFRS accounting market value 2 Based on Statutory accounting book value 3 Excludes Agency RMBS, which represented 1% of the portfolio at 30 September 2016 and 7% of the portfolio at 31 December 2008
Summary Q3 life performance extends first half progress Led by double-digit growth in Asia Asia new business profit US separate account AUM +23% growth to 1.3bn +8% growth to $145.6bn Continued net inflows in US VA Improved asset gathering capability in UK UK PruFund AUM +38% growth to 22.8bn More positive quarter for asset management Balance sheet and solvency robust M&G external AUM Eastspring total AUM +8% growth to 136.2bn +29% growth to 115.3bn 1 Estimated as at 31 October 2016 Dividend philosophy unchanged Solvency II capital 1 2.1bn operating capital generation 11.5bn surplus 189% surplus cover