Prudential UK & Europe Jackie Hunt, Aki Hussain
Agenda Strategy and business overview Market developments and business lines Financial performance Summary and outlook 2
Agenda Strategy and business overview Market developments and business lines Financial performance Summary and outlook 3
Drivers of Our Strategy Growth Opportunities Broaden risk managed products and retirement solutions Enhance distribution Selective Participation Disciplined and active management of our product portfolio and routes to market Cash Generation Sustainable cash generation Delivering the EV of the in-force book through cost and persistency management Capital Discipline Rigorous approach to new business pricing Capital strength supports group balance sheet 4
Our Business and Capabilities Customers 7.7m policies Brand Leading retirement brand Financial Strength Strong shareholder capital and WP Fund Leading UK retirement and savings franchise Customer Propositions Retirement solutions & investments Distribution Diversified Investment Management Excellent performance track record 5
Our Core Product Lines Investments 1 (APE; m) Retail Annuities (APE; m) Bulk Annuities (APE; m) 38% 278 202 161 (47%) 141 86 840% 15 Note: 1. Investments include with profits bonds, unit linked bonds, offshore bonds, individual pensions and drawdown. 6
Agenda Strategy and business overview Market developments and business lines Financial performance Summary and outlook 7
Budget 2014: Merging of Accumulation and Decumulation Work Retirement The Past (Typical) Save for retirement Pension (DB & DC) Take income in retirement Annuities Accumulate Decumulate The Future (Likely) Save for retirement Pension (DC) Greater use of other vehicles Increasing Flexibility Drawdown Bonds ISAs Annuities Property Long Term Care Increased attractiveness of pension & ISA Increased range of options and solutions Our product set and balance sheet strength positions us well for the change 8
Annuities: Impact of Consumer Reaction 21% Destination of Maturing Pension Funds by Value 1% 4% 2% 39% 46% 7% 25% 30% 25% Q3 2013 Q3 2014 Go elsewhere Annuities Transfer to Other Prudential Products Deferral Triviality 9
Annuities: Our Response Increase in Drawdown (APE; m) Initiatives Flexible drawdown 23 To be launched December 2014 with further development 128% PruFund ISA 10 To be launched early 2015 Value of PruFund to advisers as an attractive accumulation and decumulation proposition Successful growth in PFP drawdown sales in 2014 10
Investments: Strong Growth Across Product Lines Onshore Bonds (APE; m) Offshore Bonds (APE; m) Individual Pensions (APE; m) Dynamic Portfolios (AUM; m) 29% 162 21% 782 126 646 29 56% 45 37 31% 49 11
Investments: PruFund A Market Leading Proposition 100% 80% Leading Investment Performance PruFund Growth Fund Fund Comparator 1 +90% Strong Growth in AUM ( bn) 125 142 159 60% +52% 98 40% 75 20% 0% -20% 2004 2006 2008 2010 2012 2014 3 6 0.1 0.3 20 0.9 44 2.5 4.1 5.4 7.5 9.1 10.9 2006 2007 2008 2009 2010 2011 2012 2013 3Q 2014 AUM # Policies, 000s Note: 1. ABI Mixed Investment 20%-60% Shrs TR 12
Bulks: The Opportunity and Our Approach UK Market by Scheme Size 1 A Highly Disciplined Approach Total Market Size: c 1.8tn > 250m and < 500m > 100m and < 250m 200 Scheme size < 100m 80 182 Minimum return requirements Cashflow / payback periods EV margin 1,364 > 500m IFRS profit margin Note: 1. KPMG high-level analysis based on Purple Book 2013 13
Bulks: Margin and Capital Efficiency Enhancements 2008 (Full Year; m) 2014 (Year to Sept; m) 142 33 141 88 2.7x profit margin (1) (23) (112) 4.8x capital efficiency (2) APE NBS NBP APE NBS NBP Note: 1. NBP as a percentage of APE (23.2% in 2008 compared to 62.4% for Year to September 2014); 2. Capital efficiency is NBS as a percentage of APE (78.9% in 2008 compared to 16.3% for Year to September 2014). 14
Other Business Lines Corporate Pensions (APE; m) Protection Poland (APE; m) 138 (15%) 117 Exit on attractive terms ( 155m) Full strategic flexibility to reenter market retained 111% 1.9 Use of Prudential brand by Discovery for marketing terminates at end Q2 2015 0.9 15
Distribution: Diversified Capability Sales by channel (Year to Sept 2014, APE m) APE Via Retail Financial Advisers ( m) Ave. New PruFund Policy Size per Adviser 5 ( 000s) Other Mature Life & Pensions 2 20% 275 14% 59 Bulks 19 230 52 141 JV 3 PFP 4 20 31 45 275 Intermediaries 1 Internal Vestings 117 Corporate Pensions 2013 9M 2014 Note: 1. Includes intermediaries and PIA; 2. Includes partnership annuities, Poland, franchise and business development; 3. Includes PruHealth and PruProtect; 4. PFP pilot launched in 2010 and full operations started in December 2011; 5. Average case size covers all with-profit intermediated sales of which PruFund comprises c85%. 16
Strong Momentum and Ongoing Development Recent Awards Ongoing Proposition and Distribution Enhancement 2014 2015-16 Onshore bond launched on two 3 rd party platforms Flexible drawdown launch PruFund ISA Onshore bond launch on up to 10 3 rd party platforms (over 2015) Ongoing investment in digital (customer and adviser) Flexible drawdown - enhancement 17
Agenda Strategy and business overview Market developments and business lines Financial performance Summary and outlook 18
Summary of Financial Performance Robust New Business performance Sustained profitability Predictable Free Surplus and Cash Generation 19
Robust New Business Performance APE ( m) New Business EEV Profit (Net) ( m) New Business Margin (%) 20% 648 540 30% +2% 32% 163 28% 209 20
Sustained Profitability Strong IFRS Generation from In-Force, Resilient over the Medium Term 1 EEV Operating Profit (Net of Tax; m) 854 IFRS Operating Profits (before Restructuring & SII Cost ( m)) 719 723 736 735 657 124 113 100 105 75 582 595 610 636 630 386 356 35 77 321 309 EEV Operating Profit ( m) 716 674 642 661 241 166 266 195 476 466 475 408 237 617 397 315 145 100 215 252 2009 2010 2011 2012 2013 H1 13 H1 14 In-force Business New Business 2009 2010 2011 2012 2013 H1 13 H1 14 In force New business Note: 1. The IFRS segmental analysis is an internal analysis and is not externally audited. The splits are net of exceptional costs. In-force includes 100% of the profit from the with-profits business. 21
Predictable Free Surplus and Cash Generation Operating Free Surplus Generated ( m) Cash Remittances to Group ( m) 562 497 478 487 673 284 261 434 420 297 313 355 226 22 37 33 29 25 246 628 529 503 507 680 11 9 293 294 150 120 98 74 97 149 284 20 53 202 223 216 206 206 193 H2 H2 (103) (65) (54) (45) (29) (20) (42) 2009 2010 2011 2012 2013 H1 13 H1 14 General insurance New business contribution Underlying free surplus generated from in-force life business 2009 2010 2011 2012 2013 H1 13 H1 14 PAC shareholder transfer Shareholder surplus generated One-off 22
Agenda Strategy and business overview Market developments and business lines Financial performance Summary and outlook 23
Summary and Outlook Competitively advantaged Highly disciplined in everything we do Our product set positions us well for the market changes Our product and distribution developments will enhance our position further Our financial performance remains robust Long-term outlook for Prudential in the UK retirement market remains positive 24