Prudential Plc · LSE:PRU
Prudential — H1 2010 Earnings Presentation
87 slides from Prudential's earnings presentation, Aug 12, 2010
Slide 1: Prudential plc 2010 Half Year Results
Prudential plc 2010 Half Year Results 12 August 2010
Slide 2: Forward-looking statements
This statement may contain certain “forward-looking statements” with respect to certain of Prudential's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words “believes”, “intends”, “expe
Slide 3: Agenda
Prudential plc 2010 Half Year Results Agenda Introduction Harvey McGrath Business Review Tidjane Thiam Financial Review Nic Nicandrou Outlook and Q&A Tidjane Thiam 3
Slide 4: Agenda: Business Review
Prudential plc 2010 Half Year Results Agenda Introduction Harvey McGrath Business Review Tidjane Thiam Financial Review Nic Nicandrou Outlook and Q&A Tidjane Thiam 4
Slide 5: HY 2010 Financial Headlines
HY 2010 Financial Headlines New business • Group life new business sales1 up 28% to £1.7 billion APE • Group APE margin1 54% (HY 2009: 54%) • Group new business profit1 up 27% to £892 million • Life IFRS net flows £4.4 billion (HY 2009: £2.2 billion) • Asset Management net inflows £4.4 billion (HY 2
Slide 6: Group KPIs
Group KPIs Strategy has delivered sustained strong performance New business profit1, £m IFRS operating profit, £m CAGR CAGR +17% 892 +15%2 968 700 123 562 647 688 472 486 573 488 845 HY06 HY07 HY08 HY09 HY10 HY06 HY07 HY08 HY09 HY10 Underlying free surplus generation3 , £m CAGR 947 +40% 581 493 441
Slide 7: Total shareholder return
Total shareholder return Prudential total shareholder return relative to European peer group1 37% 31% 9% 5% 2000 - 20102 2000 - 20052 2005 - 20083 2008 - 20103 1. Peer group: Aegon, Allianz, Aviva, Axa, Generali, ING, Legal & General, Standard Life, Zurich. Average based on listed 7 companies displa
Slide 8: Strategy re-inforced by operating principles
Strategy re-inforced by operating principles Strategy Operating Principles Use of Disciplined •Accelerate Asia balanced capital metrics allocation •Build on US strength •Selective participation in UK •Optimise Asset Management Proactive risk management 8
Slide 9: Use of balanced metrics to measure performance
Use of balanced metrics to measure performance EEV, IFRS and cash • Company historically EV-focussed • Asian IFRS in particular Incentives aligned to match focus • IFRS and cash given greater weighting • Different in each BU, aligned to strategy • No volume targets Disclosures enhanced • IFRS source
Slide 10: Efficient allocation of capital
Efficient allocation of capital APE sales, new business profit and Actions taken strain1, £m Asia 1.4x • Closed Japan to new business (H1 10) 1655 • Re-focused product set in Korea (H2 09) 1173 1.9x US 892 1.0x • Ceased writing wholesale business (H1 09) 472 • Limited appetite for FAs (H1 09) 340 33
Slide 11: Increasing returns on new business investment
Leading to increasing returns on new business investment Controlling investment and focusing on the highest returns Post-tax new business profit per £ of new business strain1 1.9 1.5 1.4 1.2 1.0 0.8 HY05 HY06 HY07 HY08 HY09 HY10 11 1. Free surplus invested in new business Note: Excludes Japan
Slide 12: Improving efficiency of new business investment
Improving efficiency of new business investment New business strain1, £m New business profit, £m +59% 892 135 700 562 122 -1% 361 UK 129 292 339 319 337 US 137 UK 35 93 45 179 396 US 157 168 Asia 296 286 Asia 89 106 123 HY 2008 HY 2009 HY 2010 HY 2008 HY 2009 HY 2010 12 1. Free surplus invested in n
Slide 13: Risk & capital management
Risk & capital management IGD surplus, £bn • Grew IGD position through crisis – Sale of Taiwan 152% 283% 270% – Hybrid debt 3.4 3.4 – Recognition of future WP transfers • Effective hedging in US 1.5 • Sustainable dividend policy 1 • De-risking debt portfolio FY2008 FY2009 HY2010 est Solvency Ratio 1
Slide 14: Accelerating Asia
Accelerating Asia Historical strengths Moving to the next level • Significant participation in 12 • Focus on highest return growth markets markets • Proprietary agency channel • Broaden distribution • Highly trusted brand • Increase penetration of Health & Protection (H&P) products • Strong EV & NBP
Slide 15: Asia Life: Sales and IFRS profits growing strongly
Asia Life Sales and IFRS profits growing strongly Prudential Asia APE1, £m Asia IFRS operating profit, £m 713 262 622 212 524 472 379 126 257 78 75 184 147 158 133 48 67 HY00 HY01 HY02 HY03 HY04 HY05 HY06 HY07 HY08 HY09 HY10 HY05 HY06 HY07 HY08 HY09 HY10 15 1. Excludes Japan
Slide 16: Asia Life: Strong sales growth in high profitability markets
Asia Life Strong sales growth in high profitability markets APE HY 2010, £m New business profit HY 2010, £m APE growth, HY10 vs HY09 NBP margin, % of APE +46% -2% +29% +57% 72% 29% 44% 20% 452 327 115 119 27 33 24 12 SE Asia & HK Korea & China India SE Asia & HK Korea & China India Taiwan Taiwan 16
Slide 17: Build on US strength
Build on US strength Long-term strategy Benefitting from dislocation • Value over volume • Increasing distribution strength • Consistent pricing • Record in-flows at higher margin and returns • Effective hedging • Growing IFRS earnings • World-class service • Opportunistic growth to continue • Effic
Slide 18: US Life: VA charging discipline maintained
US Life VA charging discipline maintained Charge (single option) April 2008 – July 2010 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Jackson Average of top 15 competitors 18
Slide 19: Selective participation in UK
Selective participation in UK Selective Delivering value Culture of Strong cash participation to customers cost control generation • Incentives now aligned to • Strong performing With- • £195m p.a. delivered • With-Profits highly cash strategy Profits fund generative • Further savings to be • Relent
Slide 20: UK Life: Focus on cash delivered to Group
UK Life Focus on cash delivered to Group Cash transfer to Group, £m Shareholder Business Total 61 268 263 237 192 -16 -42 -69 70 -147 HY06 HY07 HY08 HY09 HY10 HY06 HY07 HY08 HY09 HY10 20
Slide 21: M&G: Sustained strong retail sales growth
Optimise Asset Management - M&G Sustained strong retail sales growth Average monthly gross and net retail sales, £m 1400 1200 1000 800 600 400 200 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD Gross sales Net sales 21
Slide 22: M&G: Retail flows across all asset classes
Optimise Asset Management - M&G Retail flows across all asset classes Retail net inflows, £m Equity Fixed income Property 31 185 227 271 1923 686 1430 662 565 1071 826 882 870 435 514 235 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 22
Slide 23: Asset Management Asia: significant potential
Optimise Asset Management – Asia Asia has significant potential Funds Under Management, £bn 46 Material growth opportunity – Rising affluence 42 4 – Higher margin, higher ROE 37 37 4 – Developed and developing markets 31 5 7 22 Significant areas of untapped potential 6 19 – Institutional – High Net
Slide 24: Summary
Summary • High-performing, high-return businesses • Exposure to growth markets • Proactive approach to risk and capital management • Focus on realising profit from the back-book • Generate a growing dividend 24
Slide 25: Agenda: Financial Review
Prudential plc 2010 Half Year Results Agenda Introduction Harvey McGrath Business Review Tidjane Thiam Financial Review Nic Nicandrou Outlook and Q&A Tidjane Thiam 25
Slide 26: Group KPI Overview
Balance Cash & Overview EEV IFRS Sheet Group KPI Overview Free surplus Summary Balanced approach to performance management EEV operating profit, £m IFRS operating profit, £m 1,677 968 +35% 123 1,246 688 845 711 +19% (23) HY 2009 HY 2010 HY 2009 HY 2010 Net equity hedge gain / (loss) New business pro
Slide 27: Delivering growth in value and volume
Balance Cash & Overview EEV IFRS Sheet Delivering growth in value and volume Free surplus Summary Balancing capital consumption and value optimisation NBP, £m NBP margin - % Group1 700 +27% 892 54% 54% IRR: >20% 396 +38% 286 Payback: 3 years Asia Life1 55% 56% IRR: >20% 361 292 +24% Payback: 2 years
Slide 28: US – New Business Margin
Balance Cash & Overview EEV IFRS Sheet US – New Business Margin Free surplus Summary VA margins remain high, fixed margins normalising New business margin – % APE 85% • Variable Annuities 77% – Continuing ‘Flight to quality’ creating 71% 71% demand pull – Higher penetration of GMWB options – Pro-act
Slide 29: EEV Operating Profit – Group
Balance Cash & Overview EEV IFRS Sheet EEV Operating Profit – Group Free surplus Summary EEV operating profit, £m Group 1,677 +35% 1,246 x HY 2009 HY 2010 29
Slide 30: EEV Operating Profit – Group
Balance Cash & Overview EEV IFRS Sheet EEV Operating Profit – Group Free surplus Summary EEV operating profit, £m 1,749 34% HY 09 HY 10 Unwind £681m £773m 1,303 858 Experience Variances & Assumption Group In-Force 612 Changes £(64)m £88m Life Development £(5)m £(3)m costs 1,677 business 35% NBP 1,24
Slide 31: EEV Operating Profit – Group
Balance Cash & Overview EEV IFRS Sheet EEV Operating Profit – Group Free surplus Summary EEV operating profit, £m 1,749 34% 449 1,303 11% 406 UK Group 667 US Life Asia 33% 501 1,677 business 35% 633 1,246 396 60% HY 2009 HY 2010 HY 2009 HY 2010 31
Slide 32: EEV Operating Profit – Group
Balance Cash & Overview EEV IFRS Sheet EEV Operating Profit – Group Free surplus Summary EEV operating profit, £m 1,749 34% 1,303 Life In-Force business Group NBP HY 2009 HY 2010 1,677 35% HY 2009 HY 2010 1,246 Asset 43% M&G £102m £143m management 152 217 Asia AM £21m £36m and other UK business GI £
Slide 33: EEV Operating Profit – Group
Balance Cash & Overview EEV IFRS Sheet EEV Operating Profit – Group Free surplus Summary EEV operating profit, £m 1,749 34% 1,303 Life In-Force business Group NBP HY 2009 HY 2010 1,677 35% 1,246 Asset 43% management 152 217 and other business HY 2009 HY 2010 HY 2009 HY 2010 HY 2009 HY 2010 HY 2009 H
Slide 34: EEV Operating Profit – Life In-Force Business
Balance Cash & Overview EEV IFRS Sheet EEV Operating Profit – Life In-Force Business Free surplus Summary Asia Asia experience variances and assumption changes, £m HY 2009 HY 2010 Unwind 248 300 Persistency Other Items Experience variances (60) (45) (10) (17) Assumption (49) changes (64) (14) (107)
Slide 35: EEV Operating Profit – Life In-Force Business
Balance Cash & Overview EEV IFRS Sheet EEV Operating Profit – Life In-Force Business Free surplus Summary Asia US US experience variances and assumption changes, £m HY 2009 HY 2010 HY 2009 HY 2010 Unwind 248 300 142 181 108 Experience variances (60) (45) 80 122 38 Assumption 29 (64) (14) (13) 3 17 c
Slide 36: EEV Operating Profit – Life In-Force Business
Balance Cash & Overview EEV IFRS Sheet EEV Operating Profit – Life In-Force Business Free surplus Summary UK in-force profit, £m Asia US UK HY 2009 HY 2010 HY 2009 HY 2010 HY 2009 HY 2010 Unwind 248 300 142 181 291 292 Experience variances (60) (45) 80 122 (7) 22 Assumption changes (64) (14) (13) 3
Slide 37: EEV Shareholders' Funds
Balance Cash & Overview EEV IFRS Sheet EEV Shareholders’ Funds Free surplus Summary Analysis of movement in EEV shareholders’ funds, £m Per Share = £6.03 Per Share = £6.57 +9% 1,677 (227) 16,672 (377) 107 (52) (42) 798 (25) (142) (318) 15,273 £m AIG Break Fee 153 FX Hedge cost 100 Underwriting 58 Ad
Slide 38: EEV Shareholders' Funds
Balance Cash & Overview EEV IFRS Sheet EEV Shareholders’ Funds Free surplus Summary Asia 40% of EEV and delivering high return Geographical split – 30 June 2010 EEV shareholders’ funds, £bn Group EEV growth : + 13% CAGR Asia life EEV growth : + 33% CAGR Total Group EEV = £16.7bn 16.7 Annualised ROEV
Slide 39: IFRS Operating Profit – Group
Balance Cash & Overview EEV IFRS Sheet IFRS Operating Profit – Group Free surplus Summary IFRS operating profit, £m Group 968 +41% 688 123 845 711 +19% (23) HY 2009 HY 2010 Net equity hedge gain / (loss) 39
Slide 40: IFRS Operating Profit – Group
Balance Cash & Overview EEV IFRS Sheet IFRS Operating Profit – Group Free surplus Summary IFRS operating profit , £m Jackson VA embedded derivative gains and losses, £m Group Cum- £m FY 2008 H1 2009 H2 2009 H1 2010 ulative impact 968 Derivative gains/(losses) 517 (94) (425) 440 438 +41% Change in va
Slide 41: IFRS Operating Profit – Group
Balance Cash & Overview EEV IFRS Sheet IFRS Operating Profit – Group Free surplus Summary IFRS operating profit , £m 1,016 123 727 893 Life 750 Business +19% Group (23) HY 2009 HY 2010 968 123 688 Asset management +43% 217 845 152 711 and other +19% businesses (23) HY 2009 HY 2010 HY 2009 HY 2010 HY
Slide 42: IFRS Operating Profit – Life businesses
Balance Cash & Overview EEV IFRS Sheet IFRS Operating Profit – Life businesses Free surplus Summary Life operating profit by region, £m Growth % HY 10 vs HY 09 893 Improvement in all regions +19% 750 Asia benefiting from: 307 +1% – strong net flows – lower new business strain 544 303 – richer mix of
Slide 43: Policyholder liabilities – Shareholder-Backed Business
Balance Cash & Overview EEV IFRS Sheet Policyholder liabilities – Shareholder-Backed Free surplus Summary Business Policyholder liabilities roll-forward, £m Net inflows1 £4,428m 1,205 111,173 3,471 48 464 909 5,015 105,076 100,061 Liabilities Foreign CER opening Asia US UK Acquisition of Investments
Slide 44: IFRS Profit Drivers
Balance Cash & Overview EEV IFRS Sheet IFRS Profit Drivers Free surplus Summary Sources of IFRS Operating Profit IFRS operating profit drivers1, £m Growth % HY 10 vs HY 09 1,372 +26% 1,092 980 42% +11% 47% 43% 23% +58% 23% 19% 12% +8% 14% 21% 23% +42% 20% 13% HY 2008 HY 2009 HY 2010 Insurance Income
Slide 45: IFRS Shareholders' Funds
Balance Cash & Overview EEV IFRS Sheet IFRS Shareholders’ Funds Free surplus Summary Analysis of movement in IFRS shareholders’ funds, £m Per Share = £2.48 Per Share = £2.82 +14% 968 26 (377) 7,161 419 (318) 307 40 (24) (151) 6,271 Shareholders’ Operating Short term AIA Actuarial Tax and Net Dividen
Slide 46: Free Surplus – Life & Asset Management
Balance Cash & Overview EEV IFRS Sheet Free Surplus – Life & Asset Management Free surplus Summary Evolution of free surplus, £m +28% 1,286 (339) 52 3,695 (460) 165 M&G 100 UK 386 3,235 US 494 M&G 190 2,531 Asia 306 UK 575 M&G 173 3.8 times UK 552 US 1,320 US 844 Asia 1,150 Asia 962 Free Underlying
Slide 47: Underlying free surplus generation covers dividend
Balance Cash & Overview EEV IFRS Sheet Underlying free surplus generation covers Free surplus Summary dividend Underlying free surplus generation, £m HY 2008 HY 2009 HY 2010 947 1,286 (339) UK (35) 439 581 M&G 100 US (179) 912 (331) Asia (125) (118) 843 (350) (318) UK (45) UK 386 UK (93) M&G 77 M&G
Slide 48: Holding Company Operating Cash Flows
Balance Cash & Overview EEV IFRS Sheet Holding Company Operating Cash Flows Free surplus Summary Increased cash generation to support the dividend Holding company operating cash flow, £m HY 2008 HY 2009 HY 2010 460 (173) 375 (157) 55 342 (318) 334 (166) 255 248 (226) 87 (169) 30 86 22 24 Net cash re
Slide 49: Resilient Balance Sheet
Balance Cash & Overview EEV IFRS Sheet Resilient Balance Sheet Free surplus Summary Maintained capital strength – IGD surplus £3.4bn equivalent to a cover of 270% – With-profits estate £5.9bn Strong liquidity position – Over £1.0bn of capital cash resources – £2.2bn of untapped liquidity facilities
Slide 50: Conclusions
Conclusions • Broad based profitability improvements • Strong focus on value and quality of earnings • Accelerating underlying free surplus generation • Maintained robust capital position 50
Slide 51: Agenda: Outlook and Q&A
Prudential plc 2010 Half Year Results Agenda Introduction Harvey McGrath Business Review Tidjane Thiam Financial Review Nic Nicandrou Outlook and Q&A Tidjane Thiam 51
Slide 52: Outlook
Outlook • All businesses performing well • Sound strategy, operating discipline • Material presence in most attractive markets in Asia • Generate strong growth and returns for shareholders 52
Slide 53: Q&A
O&A he PRUDENTIAL
Slide 54: Appendix
4 Appendix re PRUDENTIAL
Slide 55: Asia – New Business Margins
Asia – New Business Margins Margin by country - % APE HY09 HY10 China 8% 10% 45% 44% 22% 30% Hong Kong 76% 72% India 19% 20% Indonesia 61% 71% Korea 36% 45% Taiwan 15% 19% Others* 82% 74% Total Asia Life* 55% 56% 55 * Excludes Japan Life
Slide 56: IFRS Operating Profit – Asia Life
IFRS Operating Profit – Asia Life Breakdown of Asia life IFRS operating profit, £m HY 2009 HY 2010 In-force 196 In-force profits 305 profits New business (47) strain New business (43) strain Impact of Malaysia 63 RBC change Total 262 Total 212 56
Slide 57: Policyholder Liabilities – Asia
Policyholder Liabilities Shareholder-Backed Business – Asia Policyholder liabilities roll-forward, £m 1,588 (679) 464 (203) 15,370 1,150 14,200 13,050 Net inflows £909m 6.4% of CER opening policyholder liabilities Liabilities Foreign CER opening Premiums Maturities, Acquisition of Investment Liabili
Slide 58: Policyholder Liabilities – US
Policyholder Liabilities Shareholder-Backed Business – US Policyholder liabilities roll-forward, £m 5,656 (2,185) (424) 55,253 3,895 52,206 48,311 Net inflows £3,471m 6.6% of CER opening reserves Liabilities Foreign CER Opening Premiums Maturities, Investments Liabilities 01 Jan Exchange liabilities
Slide 59: Policyholder Liabilities – UK
Policyholder Liabilities Shareholder-Backed Business – UK Policyholder liabilities roll-forward, £m 1,735 (1,687) 1,802 40,550 38,700 Net inflows £48m 0.1% of opening reserves Liabilities Shareholders’ Shareholders’ Investments Liabilities 01 Jan Premiums maturities, and other 30 Jun deaths and surr
Slide 60: Group Net Inflows 3rd Party Asset Management
Group Net Inflows 3rd Party Asset Management Asset Management movement in 3rd party FUM, £m 1,859 96,015 4,674 (298) 94,156 89,780 Opening 3rd party M&G Asia Sub-Total Investment Closing 3rd party FUM FUM markets/other 60
Slide 61: Sources of IFRS Operating Profit
Sources of IFRS Operating Profit Total Long-Term Business IFRS Operating Profit*, £m Growth rate 1,372 1,092 42% +11% 47% 23% +58% 19% 12% +42% 14% +8% 20% 23% HY 2009 HY 2010 Insurance Income With-profits Fee income Spread * Excluding net expense margin, DAC amortization, and other items 61
Slide 62: Sources of IFRS Operating Profit – Asia
Sources of IFRS Operating Profit – Asia IFRS Operating Profit*, £m Growth rate 313 +20% 13% +53% 217 17% 5% 55% 16% 16% 5% 65% +47% 63% HY 2009 HY 2010 Insurance Income With-profits Fee income Spread * Excluding net expense margin, DAC amortization, and other items 62
Slide 63: Sources of IFRS Operating Profit – US
Sources of IFRS Operating Profit – US IFRS Operating Profit*, £m Growth rate 763 553 +28% 53% 57% 31% +69% 26% 17% 16% +25% HY 2009 HY 2010 Insurance Income Spread Fee income * Excluding net expense margin, DAC amortization, and other items 63
Slide 64: Sources of IFRS Operating Profit – UK
Sources of IFRS Operating Profit – UK IFRS Operating Profit*, £m Growth rate 322 296 51% -23% 43% 10% +7% 8% +5% 46% 52% -5% -5% N/A HY 2009 HY 2010 Insurance Income With-profits Fee income Spread * Excluding net expense margin, DAC amortization, and other items 64
Slide 65: Holding Company Operating Cash Flows
Holding Company Operating Cash Flows Increased cash generation to support the dividend Holding Company operating cash flow, £m FY 2008 FY 2009 HY 2010 688 (377) 515 (305) 460 (173) 71 382 (344) 130 340 (286) 55 342 (318) 54 38 24 Net cash remitted to Group Holding company cashflow pre dividend Corpo
Slide 66: IGD Capital
IGD Capital IGD surplus estimated at £3.4bn at 30 June IGD Surplus, £bn IGD sensitivity analysis* 283% 270% 40% fall in equity £(650)m markets 191% 152% 150bps fall in interest £(350)m 3.4 3.4 rates 1.9 10x expected defaults £(550)m 1.5 2007 2008 2009 2010HY * All sensitivities measured as at June 3
Slide 67: IGD Capital
IGD Capital IGD surplus estimated at £3.4bn at 30 June IGD Capital – Movement in H1 2010 (£bn) IGD surplus 1 Jan 3.4 Capital generated 0.8 Dividends (net of scrip) (0.3) UOB Impact (0.2) AIA transaction costs (0.3) Corporate activity (incl. interest) (0.2) FX Impact 0.2 IGD surplus 30 Jun 3.4 67
Slide 68: Invested Assets – Group Overview
Invested Assets – Group Overview Shareholder assets 30% of total group assets Breakdown of invested assets – HY 2010, £bn Total PAR Unit- Shareholders Group Funds Linked Asia Life US Life UK Life Other Total Debt securities 113.3 51.9 8.3 3.7 27.4 20.6 1.4 53.1 Equity 71.8 27.1 43.9 0.3 0.3 0.0 0.2
Slide 69: Group Shareholder Sovereign Exposures
Group Shareholder Sovereign Exposures Breakdown of the shareholder debt securities portfolio, % SH Sovereign exposures by regions & ratings – £m US Europe Asia Other Total AAA 2,796 3,554 173 5 6,528 AA-BBB - 56 1,533 20 1,609 Below BBB - - 613 - 613 Total 16% Sovereign Total 2,796 3,610 2,319 25 8,
Slide 70: Exposure to the Banking Sector
Exposure to the Banking Sector Limited exposure to Tier 1 and Tier 2 hybrid Breakdown of the shareholder debt securities portfolio, % Exposure to Tier 1 and Tier 2 Hybrid debt of banks – £m UK US Other Total Less than 1% Tier 1 114 29 246 389 Banks 6% Tier 2 831 601 1,400 2,832 Total Key Tier 1 and
Slide 71: UK Asset Quality – Credit Reserve
UK Asset Quality – Credit Reserve Enough to withstand significant default and downgrade risk UK shareholder debt securities Strength of the £1.7bn credit reserve portfolio by rating* BB or below • No defaults of shareholder backed debt BBB 3% securities AAA 17% 31% • Continued sale of financial subo
Slide 72: US Asset Quality – Corporate Debt Portfolio (1/3)
US Asset Quality – Corporate Debt Portfolio (1/3) US Shareholder Debt Securities Portfolio – Market value, £bn Corporate Bond Portfolio, % by rating £27bn Other 1 CMBS 2 BB and AAA and below AA RMBS 3 5% 4% Govt 3 HY 1 38% Total 34% A A or above £17.8bn 57% BBB Corporate 17 Bonds IG 95% Investment G
Slide 73: US Asset Quality – Corporate Debt Portfolio (2/3)
US Asset Quality – Corporate Debt Portfolio (2/3) US Shareholder Debt Securities Portfolio – Market value, £bn Investment Grade Corporate Bond Portfolio, % by sector £27bn Automotive < 1% Other 1 Banking CMBS 2 Utility Basic Industry RMBS 3 7% 16% 7% Capital Goods Telecom 4% • Portfolio Govt 3 5% Co
Slide 74: US Asset Quality – Corporate Debt Portfolio (3/3)
US Asset Quality – Corporate Debt Portfolio (3/3) US Shareholder Debt Securities Portfolio – Market value, £bn £27bn High Yield Corporate Bond Portfolio, % by sector Other 1 CMBS 2 Automotive Basic Industry Utility RMBS 3 Capital Goods 5% 10% 7% Consumer • Portfolio Govt 3 3% Cyclical spread Telecom
Slide 75: US Asset Quality – RMBS Portfolio
US Asset Quality – RMBS Portfolio US Shareholder Debt Securities Portfolio – Market value, £bn Breakdown of the RMBS portfolio – £m £27bn Other 1 3,343 2,039 FV Value Price CMBS 2 RMBS 3 2006/07 17 8 2005 13 65 Govt 3 Pre 2005 107 70 226 1 HY 195 334 412 137 Total Agency Sub-prime Senior Pre- Senior
Slide 76: US Asset Quality – CMBS Portfolio
US Asset Quality – CMBS Portfolio US Shareholder Debt Securities Portfolio – Market value, £bn CMBS portfolio, % by rating £27bn Other 1 CMBS 2 • Average credit enhancement of the BB < 1% RMBS 3 BBB portfolio is 30% • 92% of the portfolio has Govt 3 7% AAA credit enhancement of at HY 1 33% least 20%
Slide 77: US Asset Quality – Commercial Loans
US Asset Quality – Commercial Loans Commercial loans by sector - % Other Hotels 1% 10% Industrial 30% US Commercial Loans of £3.9 billion Retail 20% Portfolio performance: – No delinquent loans (90+ days) – Restructured loans £77 million – Loan in process of foreclosure £11.3m Multi-family Office 18
Slide 78: US Impairments; EEV Credit Reserve Established
US Impairments; EEV Credit Reserve Established IFRS pre-tax impairments and other US EEV credit reserve credit losses, £m 516 • US shareholder debt portfolio: £27 billion • Continue to charge Risk Margin Reserve to EEV and IFRS operating profit based on 366 applying Moody’s default experience by rat
Slide 79: Slides including Japan
Slides includ PRUDENTIAL
Slide 80: HY 2010 Financial Headlines
HY 2010 Financial Headlines New business • Group life new business sales up 26% to £1.7 billion APE • Group APE margin 54% (HY 2009: 52%) • Group new business profit up 29% to £891 million • Life IFRS net flows £4.4 billion (HY 2009: £2.2 billion) • Asset Management net inflows £4.4 billion (HY 2009
Slide 81: Group KPIs
Group KPIs Strategy has delivered sustained strong performance New business profit, £m IFRS operating profit, £m CAGR CAGR +18% 891 +15%1 968 691 123 647 688 555 467 480 573 488 845 HY06 HY07 HY08 HY09 HY10 HY06 HY07 HY08 HY09 HY10 Underlying free surplus generation2 , £m CAGR 947 +40% 581 493 441 2
Slide 82: Efficient allocation of capital
Efficient allocation of capital APE sales, new business profit and Actions taken strain1, £m Asia 1.4x – Closed Japan to new business (H1 10) 1662 – Re-focused product set in Korea (H2 09) 1176 1.9x US 891 1.0x – Ceased writing wholesale business (H1 09) 467 – Limited appetite for FAs (H1 09) 345 33
Slide 83: Increasing returns on new business investment
Leading to increasing returns on new business investment Controlling investment and focusing on the highest returns Post-tax new business profit per £ of new business strain1 1.9 1.4 1.3 1.1 0.9 0.8 HY05 HY06 HY07 HY08 HY09 HY10 83 1. Free surplus invested in new business
Slide 84: Asia Life: Sales and IFRS profits growing strongly
Asia Life Sales and IFRS profits growing strongly Prudential Asia APE, £m Asia IFRS operating profit, £m 720 262 649 212 553 488 379 126 260 78 75 179 188 166 145 48 67 HY00 HY01 HY02 HY03 HY04 HY05 HY06 HY07 HY08 HY09 HY10 HY05 HY06 HY07 HY08 HY09 HY10 84
Slide 85: Improving efficiency of new business investment
Improving efficiency of new business investment New business strain1, £m New business profit, £m +61% 891 135 691 555 122 -3% 361 UK 129 350 339 292 331 US 137 UK 93 45 35 168 179 395 US 157 Asia 289 277 Asia 100 118 125 HY 2008 HY 2009 HY 2010 HY 2008 HY 2009 HY 2010 85 1. Free surplus invested in
Slide 86: Group KPI Overview
Balance Cash & Overview EEV IFRS Sheet Group KPI Overview Free surplus Summary Balanced approach to performance management EEV operating profit, £m IFRS operating profit, £m 1,677 968 +35% 123 1,246 688 845 711 +19% (23) HY 2009 HY 2010 HY 2009 HY 2010 Net equity hedge gain / (loss) New business pro
Slide 87: Delivering growth in value and volume
Balance Cash & Overview EEV IFRS Sheet Delivering growth in value and volume Free surplus Summary Balancing capital consumption and value optimisation NBP, £m NBP margin - % Group 691 +29% 891 52% 54% IRR: >20% 395 +43% 277 Payback: 3 years Asia Life 50% 55% IRR: >20% 361 292 +24% Payback: 2 years U