Delivering Shareholder Value Adrian O Connor Chief Financial Officer Prudential Corporation Asia 10 December 2013
Delivering shareholder value Value - Profits - Cash Life Cycle New business contribution Required capital Conversion to IFRS profit Value creation Investment in new business Value of in-force Accounting differences IFRS profit Free surplus generation Retained in business Surplus cash Cash remitted to group 2
Large and growing book of business 4.6bn growth in in-force book in three and a half years Embedded value, m 20% CAGR 10,921 4,980m 5,781 801 585 4,395 7,445 1,045 790 5,610 8,510 1,067 860 6,583 9,462 974 970 7,518 1,359 1,049 8,513 9,562m 2009 2010 2011 2012 HY2013 Value of in-force Required capital Free surplus 3
Growth in in-force portfolio New business contribution building in-force portfolio In-force portfolio growth analysis, m 2010 Opening VIF & required capital 4,980 New business contribution 4,000 Change in In-force 1 2,000 Actual transfer to free surplus (2,259) Exchange movement Others 2 540 301 HY2013 Closing VIF & required capital 9,562 1. Change in in-force comprises + 1.5bn unwind and + 0.4bn from change in economic assumptions. 2. Others comprise repayment of funding contingent on future profits for Hong Kong and acquisition of in-force business from UOB and Thanachart Bank. 4
Contribution to new business All markets contributing to growth in shareholder value creation Cumulative new business contribution (2010 HY2013), m 611 202 172 138 106 101 75 50 4,000 687 792 1,066 PCA Indonesia Hong Kong Singapore Malaysia Taiwan India Korea China Vietnam Philippines Thailand 5
Rapid capital payback Quality new business enhances future profit and surplus generation Expected transfer to free surplus profile from different new business tranches, m Investment in new business: 1,034m (2010 - HY2013) 800 2010 2011 2012 HY2013 400 400 200 93 106 132 99 91 78 79 80 79 74 104 123120 92 91 84 86 87 81 83 105 129129 99 98 86 91 94 89 95 62 65 83 56 52 47 49 52 48 51 0 0 (400) (280) 0 5 10 (297) 0 5 10 (292) 0 5 10 (200) (165) 0 5 10 Investment in new business Undiscounted Cumulative 6
Portfolio effect underpins our surplus generative characteristics Capital consumption and return profiles vary by product Expected transfer to free surplus (cumulative) per 100 APE, Expected transfer to free surplus by product, m 160 HY2013 Linked protection 100 HY2013 120 Health & Protection 50 80 40 Non-par Linked savings Par 0 100 10 20 Par Non-Par 0-40 10 20 200 Health & Protection Linked protection Linked savings 7
Surplus generation to IFRS profit IFRS profits emerge more quickly than free surplus New business strain (2010 HY2013), m In-force profit (2010 HY2013), m Tax gross-up Investment in new business Tax gross-up In-force free surplus generation (1,174) (140) 335 497 3,061 552 (14) (488) 111 2,670 (1,034) 152 (190) 2,509 Investment in new business + Change in required capital + Deferred acquisition costs + Asset/liability valuation differences = IFRS new business strain 1 In-force free surplus generation + Change in required capital + Deferred acquisition costs + Asset/liability valuation differences = IFRS in-force operating profit 1 1. Both IFRS new business strain and in-force operating profit exclude non-recurrent items. 8
Strong growth in IFRS profits Increasing contribution from other markets Long-term business IFRS operating profit by markets 1, m 906 704 234 China 59% India 61% 410 83 48 65 112 102 80% 532 98 51 97 129 157 152 69 104 167 212 88 118 206 260 474 109 51 73 104 137 77% CAGR (2009 2012) 2 Others: 41% Hong Kong: 22% Malaysia: 22% Singapore: 23% Indonesia: 37% Korea 39% Philippines 96% Vietnam -6% Thailand ( 1m) + 7m Taiwan ( 7m) + 18m 2009 2010 2011 2012 HY2013 1. IFRS results for 2012 and HY13 have been prepared under new joint venture accounting standards and exclude Japan life operating profit. 2009 and 2010 comparatives have not been adjusted for the change of DAC policy in 2012. 2. Others also include non-recurrent items and development costs. 9
Resilient IFRS earnings Insurance margin contributes two third of profits Long-term business IFRS operating profit by source of earnings 1,2, m 905 481 6% 12% 17% 66% 635 5% 14% 19% 62% 760 5% 15% 17% 63% 4% 15% 16% 65% 489 4% 17% 16% 62% With profits Spread income/return on Shareholder assets Fee income Insurance margin 2009 2010 2011 2012 HY2013 1. IFRS results for 2012 and HY13 have been prepared under new joint venture accounting standards and exclude Japan life operating profit. 2012 source of earnings also excludes 51m gain from disposal of China Life (Taiwan). 2. Excludes margin on revenue, acquisition and administration expenses and DAC amortisation. 10
Free surplus generation Actual transfers higher than expectation In-force free surplus generation - 2,718m Actual transfer to free surplus - 2,259m Opening free surplus stock 2010 962m + Expected transfer to free surplus 2,005m + Op. variances & changes in assumptions 254m + Return on free surplus 250m +/- Marketrelated movements (100)m = Closing Free free surplus surplus stock stock available for use 3,580m + Eastspring Investments 209m 11
Utilisation of free surplus stock 1.6bn of surplus capital in excess of target at HY 2013 Free surplus utilisation 264% 1 250% 1 In-force free surplus Investment in new business generation Opening free surplus stock 2,718 m + = Closing Free surplus free surplus stock available stock for use (1,034)m - + = Closing free surplus stock 2010 962m Marketrelated movements 3,580m Cash remitted to group HY2013 1,576m (100)m (970)m 1. Free surplus coverage ratio is defined as net worth divided by required capital. 12
Delivering shareholder value Value - Profits - Cash Life Cycle New business contribution Required capital Conversion to IFRS profit Value creation Investment in new business Value of in-force Accounting differences IFRS profit Free surplus generation Retained in business Surplus cash Cash remitted to group 13
Key messages In-force book has 10bn of future cash flow expectation Quality new business is key in adding to that expectation Managing persistency, claim and expenses has and continues to turn expectation into reality Resulting in delivery of resilient and growing IFRS and free surplus 14
Appendix 15
Operating experience Small operating experience variances and basis changes relative to opening EEV Operating Experience Variances and Basis Changes relative to Embedded Value, m Opening Embedded Value 7,445 8,510 9,462 Experience variances and basis changes (2008-HY2013: 241m) 5,264 5,781 Experience variances and basis changes as % of opening EEV 3,726 170 (24) (97) 75 97 20 1 2008 2009 2010 2011 2012 HY2013 4.6% (1.8)% (0.4)% 1.0% 1.1% 0.2% Average: 0.6% as % of opening EEV 1. 2008 experience variances and basis changes exclude Taiwan agency business (sold in Q1 2009). 16
Non-operating experience Impact of short term fluctuations has been relatively small, even in volatile market conditions MSCI Asia 770 866 738 490 Opening Embedded Value Short term fluctuations in investment returns and effect of changes in economic assumptions relative to embedded value, m Short term fluctuations in investment returns and effect of changes in economic assumptions (2008 H1 2013: 134m) Short term fluctuations in investment returns and effect of changes in economic assumptions as % of opening EEV 3,726 5,264 5,781 (746) 1 2008 2009 2010 7,445 (20.0)% 5.0% 3.7% 1.7% 2.7% 0.5% Average: 0.3% as % of opening EEV 8,510 899 824 9,462 263 215 124 227 51 2011 2012 HY2013 1. 2008 short term fluctuations in investment returns and effect of changes in economic assumptions exclude Taiwan agency business (sold in Q1 2009). 17
Renewal premiums Robust momentum in renewal premiums, reflecting policyholders continued belief in the preservation of their insurance contracts with Prudential Renewal premiums, m 3,803 4,359 4,955 4,955 2,283 2,805 2,331 2,843 1 2008 2009 2010 2011 2012 HY 2012 HY 2013 1. Exclude Taiwan agency business (sold in Q1 2009) and Japan Life (ceased writing new business in Q1 2010). 18
Delivering growth and cash New business profit 1, m EEV operating profit 1,2, m 713 901 1,076 1,266 828 990 1,105 1,450 1,764 1,960 1,079 874 2009 2010 2011 2012 9m2012 9m2013 2009 2010 2011 2012 HY2012 HY2013 1. Results for 9m 2013, 9m 2012, HY13 and HY12 exclude Japan Life. 2. Long-term business operating profit before tax and development costs. 19
Delivering growth and cash IFRS operating profit 1, m Operating free surplus 1, m Long-term business Eastspring Investments 784 988 75 473 537 465 55 410 604 72 532 80 704 913 435 32 403 512 38 474 162 383 201 292 2009 2010 2011 2012 HY2012 HY2013 2009 2010 2011 2012 HY2012 HY2013 1. HY13 IFRS result and operating free surplus generation have been prepared under new joint venture accounting standards and exclude Japan life operating profit following reclassification as held for sale. HY 2012 comparatives have been adjusted on a comparable basis. 20