Slide 1: May 2010
May 2010 47 A Chinese translation of this presentation is available for collection at 47/F, Jardine House, Central, Hong Kong. Where there are inconsistencies between the Chinese translation and the English language version of this presentation, the English language version shall prevail.
Slide 2: Advertisement notice and rights issue disclaimer
THIS PRESENTATION IS AN ADVERTISEMENT AND NOT AN OFFERING CIRCULAR NOR A PROSPECTUS AND INVESTORS SHOULD NOT ACCEPT ANY OFFER NOR ACQUIRE ANY SHARES OR OTHER SECURITIES REFERRED TO IN THIS PRESENTATION EXCEPT ON THE BASIS OF INFORMATION CONTAINED IN THE APPLICABLE PROSPECTUS PUBLISHED BY PRUDENTIAL
Slide 3: Distribution restrictions and forward-looking statements
The distribution of this presentation into jurisdictions other than the United Kingdom, Hong Kong and Singapore may be restricted by law. Persons into whose possession this presentation comes should inform themselves about and observe any such restrictions. Any failure to comply with these restricti
Slide 4: Agenda for today
Agenda for today Introduction Harvey McGrath, Chairman Strategic rationale and Tidjane Thiam, Group CEO shareholder value Financial analysis and Nic Nicandrou, Group CFO disclosures Execution Barry Stowe, Asia CEO Integration of AIA and Rob Devey, Integration leader Prudential Q&A 3
Slide 5: Agenda for today
Agenda for today Introduction Harvey McGrath, Chairman Strategic rationale and Tidjane Thiam, Group CEO shareholder value Financial analysis and Nic Nicandrou, Group CFO disclosures Execution Barry Stowe, Asia CEO Integration of AIA and Rob Devey, Integration leader Prudential Q&A 4
Slide 6: Transaction will create significant value for our shareholders
Transaction will create significant value for our shareholders 1 Keep Prudential and all the upside in our business 2 Capture the value from AIA recovery 3 Benefit from the synergies across AIA and Prudential Asia 4 Benefit from the superior growth and returns of a leadership position in Asia 5
Slide 7: Financial targets and synergies
Financial targets and synergies1 More than double combined Asian NBP to £2.8bn in 2013 Double Asian IFRS operating earnings2 to at least £3.26bn in 2013 Upstream $1bn from AIA per annum from 2011 Maintain Group dividend policy $800m NBP revenue synergies by 2013 $370m IFRS cost synergies by 2013 1 A
Slide 8: Value creation – Significant benefits and more upside
Value creation – Significant benefits and more upside The Right Markets The Right Combination 7
Slide 9: There is scope for significant value creation
Right Value creation Right markets combination There is scope for significant value creation Illustrative valuation ranges of AIA in 20132, $bn 61.9 +21% 25.8 CAGR 34.6 36.1 11.9 22.0 2.2 Purchase Nov 2009 NPV of cost EV Growth End 2013 15x Illustrative price1 EV synergies at 12% RoEV EV $1.7b targe
Slide 10: Target doubling of Asian IFRS earnings by 2013
Right Value creation Right markets combination Target doubling of Asian IFRS earnings by 2013 Targeted pre-tax IFRS operating profit, £m 2,586 • Rigorous focus on IFRS as a M&G 238 metric – Sources of earnings UK 657 – Key management KPI • Reserve growth driven by US 463 >20% strong net flows CAGR >
Slide 11: Additional upside beyond financial targets
Right Value creation Right markets combination Additional upside beyond financial targets 1 2 Portfolio Capital rationalisation management 3 Synergies 10
Slide 12: The Right Markets
Value creation The Right Markets – High growth – Sustainable profits and returns The Right Combination 11
Slide 13: Asian life insurance market has experienced very high growth over last 10 years
Right Value creation Right markets combination In line with robust wealth creation, the life insurance market in Asia has experienced very high growth over the last 10 years CAGR by region, % Multiplier over Gross life premiums1 CAGR, 1998–2008 ten years Asia ex-Japan 16 4.2x Europe 9 2.4x North Ame
Slide 14: Asia ex-Japan could contribute almost half of global GDP growth
Right Value creation Right markets combination Estimates suggest Asia ex-Japan could contribute almost half of absolute global GDP growth over the next 20 years Nominal global GDP growth from 2008-30, % Growth $152.7t $213.8t multiple 47% 38% 7.8x 53% $61.1t 62% 2.6x Asia ex-Japan 17% Rest of world
Slide 15: Key demographic group aged 40-65 expected to grow in Asia ex-Japan
Right Value creation Right markets combination Most attractive demographic group between 40-65 years expected to grow in Asia ex-Japan by ~25% to 1 billion Growth in number of individuals 40-65 years of age from 2009 to 2020 Weighted Increase in number of Growth in number of individuals, % growth1,
Slide 16: Middle class growth across Emerging Asia
Right Value creation Right markets combination Target market expected to expand across Emerging Asia, with incremental ~$190bn of wealth to tap by 2014 2009-2014 growth in number of middle class1 households Millions of households 21 2 3 16 Indonesia Thailand Philippines Total Value pool2 140 30 18 1
Slide 17: India and China new middle class households by 2014
Right Value creation Right markets combination India and China expected to produce ~240 million new middle class households by 2014 2009-2014 growth in number of middle class1 households Millions of households 238 78 160 China India Total Value pool2 2,092 795 2,887 growth, $bn 1 Middle class define
Slide 18: Robust growth in Asia ex-Japan life insurance premiums expected
Right Value creation Right markets combination Robust growth in Asia ex-Japan life insurance premiums expected x Premium multiplier from 2010 – 2020 over the next decade x Weighted penetration (GWP / GDP) 2010, % x Weighted penetration (GWP / GDP) 2020, % Expected growth in Life insurance premium, a
Slide 19: Significant headroom for growth in Hong Kong and Singapore
Right Value creation Right markets combination Significant headroom for growth in Hong Kong and Singapore Robust economic growth Nominal global GDP growth from 2008-13, % 4.6 3.5 3.0 0.5 Strong premium growth expected Sustained savings rates Premium growth 2010-2020, % x Growth multiplier Gross Nati
Slide 20: Prudential has a long track record of above-market growth
Right Value creation Right markets combination Prudential has a long track record of capturing above-market growth APE growth 2005-2009 CAGR1, % Prudential Asia APE CAGR, % Market APE CAGR, % x Prudential Asia 2009 market 17.3 share based on APE, % 39.0 13.6 21.1 16.8 11.4 9.6 9.6 7.0 Emerging -3.6
Slide 21: Profitability in Asia is structural and durable
Right Value creation Right markets combination Profitability in Asia is structural and durable Granular view of Prudential Asia ex-Japan Pre-tax new business margin1 (2009) % of APE 599 xx NBP, £m Structural drivers of profitability 78 22 Supply-driven markets 50 73 Proprietary distribution 31 32 19
Slide 22: The Right Combination
Value creation The Right Markets The Right Combination 21
Slide 23: AIA is a leading Asian franchise
Right Value creation Right markets combination AIA is a leading Asian franchise Asian EV1 2009, $bn AIA business China Life 42 • Extensive geographical presence and scale Ping An 23 • Strong brand AIA 22 • Multi-channel, proprietary CPIC 14 distribution Samsung Life 14 • Significant in-force book Pr
Slide 24: Prudential and AIA uniquely positioned to capture Asian opportunity
Right Value creation Right markets combination Prudential and AIA will be uniquely positioned to capture the Asian opportunity generating significant shareholder value Overview of major players’ regional positions Scope # top 5 positions based on 2008 life premium share (Asia ex-Japan) 10 Asia: sign
Slide 25: Combination accelerates strategy by expanding distribution
Right Value creation Right markets combination This combination accelerates our existing strategy by expanding distribution in supply-constrained markets Agents (by country) and bank branches in 2009, % increase over existing Prudential base Strong Prudential Bank Doubling-up Strong AIA presence pre
Slide 26: Profitability advantages to being number 1
Right Value creation Right markets combination There are profitability advantages to being number 1 Average2 pre-tax new New business market share across Asia business margin 2009, % APE Prudential Prudential operations AIA operations AIA Asia Combined Rank1 Rank1 Rank1 1.6x 64 powerhouse China 1 4
Slide 27: Operating model designed to maximise growth and efficiency
Right Value creation Right markets combination Operating model designed to maximise growth potential and efficiency Target operating model Leadership Country CEO Front line Banks and other Agency Agency channels Middle office • Product development • Risk management • Branding/Marketing • Customer ma
Slide 28: Prudential Asian sales strong growth in Q1 2010
Right Value creation Right markets combination Prudential’s Asian sales have shown strong growth and profitability in Q1 2010 Prudential Asia quarterly APE, £m Prudential Asia Q1 2010 APE growth, % NBP at APE at AER, £m NBM, % AER, £m China 27% Q1 Q1 % Q1 Q1 Q1 Q1 % % 2010 2009 growth 2010 2009 2010
Slide 29: AIA has reported strong Q1 results
Right Value creation Right markets combination AIA has reported strong Q1 results Comparative period-on-period sales growth1, % Q1 2010 results, $m Growth over APE Q1 2009, % 16 HK 96 +13% S’pore3 31 +48% Thailand 97 +41% Korea 76 +12% <1 China 44 +19% Malaysia 28 +22% Other 84 -8% -40 Total APE, $m
Slide 30: Short-term and long-term value creation
Right Value creation Right markets combination Short-term and long-term value creation Illustrative evolution of contribution by region to total Asian NBP over 2009-20, % HK & SG Emerging Asia1 KR, TW, JP, AU, NZ 33% 37% 7% 60% 10% 45% 43% 12% 54% 43% 13% 41% 15% 44% 44% 2009 2009-13 growth 2013 201
Slide 31: Agenda for today
Agenda for today Introduction Harvey McGrath, Chairman Strategic rationale and Tidjane Thiam, Group CEO shareholder value Financial analysis and Nic Nicandrou, Group CFO disclosures Execution Barry Stowe, Asia CEO Integration of AIA and Rob Devey, Integration leader Prudential Q&A 30
Slide 32: Overview
Overview The combined AIA in review The opportunity The deal group • Disclosure • Pro-forma • Targets • Funding • Restatement • IGD • Free surplus • Rights issue • Robust EV • Calendar • ALM Key messages 1. Restatement has improved all key metrics & EV remains conservative 2. Asia makes up over 60%
Slide 33: Prospectus disclosures
The combined AIA in review The opportunity The deal group Prospectus disclosures • AIA restated on Prudential principles • Assumptions + sensitivities for AIA by country • Analysis of AIA into free surplus, required capital, VIF by country EV • Monetisation of AIA VIF • New business strain for AIA •
Slide 34: AIA ownership structure
The combined AIA in review The opportunity The deal group AIA ownership structure Subsidiary Branch Pre-acquisition ownership structure Joint Venture AIA (Hong Kong) AIA Co (Hong Kong) AIA-B (Bermuda) PT AIA Financial Hong Kong and Singapore and AIA Malaysia (Indonesia) Macau Branch Brunei Branch (M
Slide 35: AIA 2009 embedded value and NBP adjusted to Prudential principles
The combined AIA in review The opportunity The deal group AIA 2009 embedded value and new business profit adjusted to Prudential principles 2009 embedded value1, $m 2009 new business profit post-tax, $m 21,953 610 20,965 570 AIA basis Restated AIA basis Restated March 1 basis March 1 basis • Capital
Slide 36: Conservative allowance for risk in restated Embedded Value
The combined AIA in review The opportunity The deal group Conservative allowance for risk in restated Embedded Value AIA, % Prudential Asia, % RDR Risk free rate RDR Risk free rate 8.0 3.83 Hong Kong 5.7 3.9 10.0 4.16 Thailand 13.0 6.75 7.5 2.93 Singapore 6.8 4.25 9.0 4.46 Malaysia 9.5 6.5 10.0 3.74
Slide 37: Conservative allowance for capital and costs in restated embedded value
The combined AIA in review The opportunity The deal group Conservative allowance for capital and costs in restated 2009 embedded value $m Free Required Adjusted Cost of Embedded 2009 NBP surplus capital net worth VIF capital value (post-tax) Local statutory 9,335 2,899 12,234 12,140 (1,241) 23,132 6
Slide 38: AIA asset portfolio end 2009
The combined AIA in review The opportunity The deal group AIA asset portfolio1 end 2009 Investment portfolio by asset, % Government bonds2, % Corporate bonds, % 100% = $64bn 100% = $25.3bn 100% = $25.1bn Other 1 Other 4 AAA 2 5 3 Cash 7 Indonesia 5 AA 13 Loans China 5 8 Equity Malaysia 7 South 8 Kor
Slide 39: AIA track record in delivering investment performance
The combined AIA in review The opportunity The deal group AIA has strong track record in delivering investment performance Actual performance of fixed income portfolio yields against benchmark, % Hong Kong/Macau China Singapore Malaysia Thailand Philippines 3.0 2.5 2.0 1.5 1.0 0.5 0 2006 2007 2008 3
Slide 40: AIA guaranteed products
The combined AIA in review The opportunity The deal group AIA guaranteed products Sensitivity to IFRS Country 50bp lower Guarantee reserve interest Country Reserve, $bn Product guarantees adequacy1 rates2 • Thailand 1.4 • 4-6% per product 140% 134% • China 1.2 • 1-2% par / non-par 147% 133% • 1.75%-
Slide 41: Asia 64% of combined pro-forma EEV shareholders' funds
The combined AIA in review group The opportunity The deal Asia 64%1 of combined pro-forma EEV shareholders’ funds Geographical split – 2009, $m Total Group = $46.6bn2 Hong Kong 11,104 UK 8,843 Singapore 5,435 Thailand 4,476 US 6,836 Malaysia 2,446 Asia3 31,776 Korea 2,153 M&G 2,141 Indonesia 1,439 O
Slide 42: Asia 58% of combined pro-forma new business profit
The combined AIA in review group The opportunity The deal Asia 58% of combined pro-forma new business profit (pre-tax) Geographical split – 2009, $m Total Group = $3.4bn Hong Kong 471 Singapore 347 UK 360 Malaysia 258 Indonesia 229 US 1,040 Thailand 223 Asia 1,953 Korea 186 China 107 Other 132 Note:
Slide 43: Asia 54% of combined pro-forma IFRS operating profit
The combined AIA in review group The opportunity The deal Asia 54%1 of combined pro-forma IFRS operating profit (pre-tax) Geographical split – 2009, $m Total Group = $4.0bn2 Hong Kong 773 UK 1,029 Singapore 531 US 725 Thailand 356 Asia3 2,472 Malaysia 351 M&G 373 Indonesia 216 Other4 (565) Others 24
Slide 44: Regulatory IGD position post completion
The combined AIA in review group The opportunity The deal Regulatory IGD position as of 1 July 2010 post completion Estimated IGD capital resources 1st July, £bn c. 200% 10.3 10.3 coverage (3.8) 3.8 Pru + AIA 5.2 + roll- 6.3 6.5 forward 1.4 5.1 1.1 1.1 4.0 Required Required capital 4.0 4.0 4.0 capit
Slide 45: Asia 2013 pre-tax new business profit target
The combined AIA in review group The opportunity The deal Asia 2013 pre-tax new business profit target at least £2.8bn New business profit pre-tax, £m AIA Prudential Asia Underpenetrated markets >2,800 • Strong economic growth • Demographics • Wealth creation >23% >1,400 AIA rebound CAGR • Business
Slide 46: Strong AIA post-tax new business profit growth in Q1 2010
The combined AIA in review group The opportunity The deal Strong AIA post-tax new business profit growth in Q1 2010 AIA New Business Profit (post-tax), $m 610 APE sales up 16% Rest of • Single premiums up 103% the year • Regular premiums up 14% +32% • Growth led by Singapore and Thailand 141 Post-ta
Slide 47: AIA capable of achieving $1.7bn NBP by 2013
The combined AIA in review group The opportunity The deal AIA capable of achieving $1.7bn NBP by 2013 based on moderate baseline growth assumptions and achievable revenue synergies 2013 AIA illustrative post-tax NBP under AIA post-tax NBP illustrative evolution to 2013, $m 3 potential market growth
Slide 48: Target doubling of Asian IFRS earnings by 2013
The combined AIA in review group The opportunity The deal Target doubling of Asian IFRS earnings by 2013 Pre-tax IFRS operating profit, £m AIA Prudential Asia Combined entity Increasing asset and liability values >3,260 • Strong net flows – Sales growth – Persistency >20% – High mix of regular CAGR
Slide 49: Prudential Asia liabilities roll-forward 2007–09
The combined AIA in review group The opportunity The deal Prudential Asia liabilities roll-forward 2007–09 x% Net flows as % of opening liabilities Prudential Asia liabilities1 roll-forward 2007–09, £m 13,050 788 2,055 2,114 22% 7,389 2,000 20% (3,508) 2,212 27% Opening Disposals Exchange 20072 2008
Slide 50: Sources of IFRS operating profit – Prudential Asia
The combined AIA in review group The opportunity The deal Sources of IFRS operating profit – Prudential Asia Prudential Asia IFRS operating profit breakdown1, £m 418 56 Spread 291 80 Fee income 36 29 With-profits 38 26 253 Insurance Income 191 20072 2009 1 Excluding net expense margin and other item
Slide 51: AIA liabilities roll-forward 2007–09
The combined AIA in review group The opportunity The deal AIA liabilities roll-forward 2007–09 Net flows as % of x% opening liabilities AIA liabilities1 roll-forward 2007–09, $m “AIG effect” 71,583 3,341 4,825 4,143 8.5% 6.4% 6,594 50,946 2,167 (433) 12.9% Opening Disposals Exchange 2007 2008 2009 M
Slide 52: AIA 2009 IFRS operating profit restated and adjusted
The combined AIA in review group The opportunity The deal AIA 2009 IFRS operating profit restated and adjusted for items not expected to recur Operating profit post-tax, year ended 30 November 2009, $m 1,633 31 49 72 1,481 38 1,443 Post-tax Restate- Restated Increased Strategic Increased Restated AI
Slide 53: Illustrative AIA post-tax IFRS earnings scenarios
The combined AIA in review group The opportunity The deal Illustrative AIA post-tax IFRS earnings scenarios (incl. synergies) Illustrative AIA post-tax IFRS operating profit2 after AIA post-tax operating profit 2009, $m financing costs in 2013, $m ROIE3, % 7.7 9.3 11.2 3,209 2,679 291 Fully phased 2
Slide 54: AIA free surplus emergence
The combined AIA in review group The opportunity The deal AIA free surplus emergence Expected emergence of in-force and required capital into free surplus1, $m 7,876 4,353 2,616 2,053 1,745 1,504 1,357 1,737 1,217 1,348 Years 1 2 3 4 5 1-5 6-10 11-15 16-20 20+ 1 Discounted cashflows at an average ri
Slide 55: Drive increased value and manage new business strain through product mix
The combined AIA in review group The opportunity The deal Opportunity to drive increased value and manage New Business Strain through product mix % % of APE Prudential Asia 2009, $m AIA 2009, $m 2,094 1,974 57% 47% 1,116 40% 982 837 20% 385 APE New New APE New New business business business business
Slide 56: Free surplus generation covers additional dividends and interest costs
The combined AIA in review group The opportunity The deal Underlying free surplus generation covers additional dividends and interest costs Prudential Group free surplus 2009, $m Illustrative impact of AIA, $bn Actions 3,270 (161) • Managing new business strain M&G 274 • Cost savings (510) • Active
Slide 57: Strong cash and capital flows
The combined AIA in review group The opportunity The deal Strong cash and capital flows AIA business has capacity to upstream $1bn per annum to fund additional dividend and debt cost • $4bn free surplus • Targeting remittances from AIA of at least • Significant underlying flows from in- force book $
Slide 58: Deal structured to preserve shareholders' rights
The combined AIA in review group The opportunity The deal Deal structured to preserve shareholders’ rights $34.6bn acquisition price, with funding hedged for currency exposure Funding Amount Rights issue $20.0bn1 • Maintains leverage ratios • Ensures support from Equity vendor $5.5bn2 consideration
Slide 59: Rights issue terms
The combined AIA in review group The opportunity The deal Rights issue terms Rights issue • $20bn1 rights issue, £13.8bn • 11 for 2 rights issue, resulting in 13,965m new shares issued • Theoretical ex-rights price of 171.5p Key terms • Subscription price of 104p – 39.3% discount to TERP • Theoretic
Slide 60: Key expected transaction dates
The combined AIA in review group The opportunity The deal Key expected transaction dates • IMS for Prudential Q1 20101, including AIA sales for Q1 20102, released in RNS and included in prospectus May 17 • Rights issue pricing announcement • Rights issue prospectus issued • Prudential shares list on
Slide 61: Financial summary
The combined AIA in review group The opportunity The deal Financial summary AIA • Restated AIA IFRS operating profits post tax before items not expected to recur IFRS of $1,633m • Restated AIA IFRS shareholders’ funds higher at $15.3bn • AIA restated EEV increase from $21bn to $22bn EEV • Conservati
Slide 62: Agenda for today
Agenda for today Introduction Harvey McGrath, Chairman Strategic rationale and Tidjane Thiam, Group CEO shareholder value Financial analysis and Nic Nicandrou, Group CFO disclosures Execution Barry Stowe, Asia CEO Integration of AIA and Rob Devey, Integration leader Prudential Q&A 61
Slide 63: Distribution and product strategies have delivered significant value
Proven delivery Synergies Product Distribution Prudential’s distribution and product strategies have delivered significant value Prudential Asia APE by distribution channel Profitable EV growth; exceeding commitments1 2009: £1,261m £m Direct marketing Brokers 4 More than 9 doubled NBP 713 636 532 44
Slide 64: Prudential expertise will enable us to deliver for AIA
Proven delivery Synergies Product Distribution Prudential has delivered… that same expertise and experience will enable us to deliver for AIA Pre-tax NBP Prudential’s expertise Application synergies1; $m • Product mix that adds • Reduce low margin tactical value for customers, products in AIA 450 Pr
Slide 65: Drive profit through shifting AIA product mix
Proven delivery Synergies Product Distribution Drive profit through shifting AIA product mix Changing product mix H&P mix, % of APE AIA • Return AIA’s focus to products that Prudential drive long-term shareholder value 29 • Historically AIA led market in high 24 margin Health & Protection products 2
Slide 66: Country example: Driving product synergies in AIA
Proven delivery Synergies Product Distribution Country example: Driving product synergies in AIA Changing product mix Current position (FY2009) Diagnosis % of APE AIA Prudential • AIA margin less than half H&P Prudential’s 14% 44% Others 86% 56% • Limited H&P and rider sales by AIA Market Share Link
Slide 67: Prudential has higher agency productivity
Proven delivery Synergies Product Distribution Prudential has higher agency productivity Comparison of agent productivity in 2009 Prudential AIA 3 3 Agency APE APE/agent Agency APE APE/agent Productivity 1 2 Country Total agents $m $k Total agents $m $k ratio, % China4 13,679 80.0 5.8 25,820 142.1 5
Slide 68: Agency results driven by disciplined, execution-oriented management
Proven delivery Synergies Product Distribution Prudential’s agency results driven by highly-disciplined, execution- oriented management Key drivers of agency activity Prudential’s market leading competencies • Customised initial assessment to select high Recruitment potential agents • ‘Fast Start’ p
Slide 69: Agency turnaround in Malaysia (1/2)
Proven delivery Synergies Product Distribution Delivered impressive agency turnaround in Malaysia (1/2) Prudential Malaysia was under-performing Actions to re-invigorate agency APE growth rate, % Priorities Prudential • Introduced ‘Fast Start’ programme to 20 Malaysia1 Step-up rejuvenate recruitment
Slide 70: Agency turnaround in Malaysia (2/2)
Proven delivery Synergies Product Distribution Delivered impressive agency turnaround in Malaysia (2/2) Results: Boost in recruitment, promotion, activity and productivity Reinvigorated agency Uplift in agent productivity Strong agency APE growth # of new recruits Active rate, % Prudential Malaysia
Slide 71: Unique bancassurance model drives growth and returns
Proven delivery Synergies Product Distribution Proven success with unique bancassurance model that drives growth and returns Re-invigorated bancassurance Quick results from new relationships relationship in Taiwan Bancassurance APE1 £m +76% 73 44 Rapid activation drives value: 41 25 19 31 • Deal ann
Slide 72: Country example: Applying Prudential's bancassurance model
Proven delivery Synergies Product Distribution Country example: Applying Prudential’s bancassurance model Activating bancassurance Current position (FY2009) Diagnosis AIA Prudential • AIA has an existing bank partner Applications per 6 6 with more than 700 branches active branch • Average branch pro
Slide 73: Data mining and customer management across 30m policyholders
Proven delivery Synergies Product Distribution Data mining and customer management initiatives across our combined 30m policyholders Priority actions • Accelerate deployment of customer analytics to existing customer base • Introduce performance targets for additional sales to existing customers and
Slide 74: Potential revenue dis-synergies are limited
Proven delivery Synergies Product Distribution Potential revenue dis-synergies are limited Source of dis-synergies Mitigating dis-synergies • Agency attrition • Existing AIA incentive schemes Agency force management • Slow • Prudential products and tools, transformation and agent training programmes
Slide 75: Action plans to deliver $800m pre-tax NBP synergy benefits
Proven delivery Synergies Product Distribution Clearly defined action plans in place to deliver expected $800m pre-tax NBP synergy benefits Expected pre-tax NBP synergy benefits during 20131 $m Distribution 800 204 Product 189 82 159 86 57 101 76 71 48 122 103 102 44 34 53 37 32 Hong Malaysia Singa-
Slide 76: Ability to drive material value from combination with AIA
Prudential has the ability to drive material value from its combination with AIA Track record of outperformance in diverse Asian markets AIA plans based on actions already delivering results for Prudential Near-term value predominantly from Hong Kong, Singapore and Malaysia Additional upside over lo
Slide 77: Agenda for today
Agenda for today Introduction Harvey McGrath, Chairman Strategic rationale and Tidjane Thiam, Group CEO shareholder value Financial analysis and Nic Nicandrou, Group CFO disclosures Execution Barry Stowe, Asia CEO Integration of AIA and Rob Devey, Integration leader Prudential Q&A 76
Slide 78: Our guiding principles for integration
Our guiding principles for integration Our objectives Achieve more than just a combination: create one winning organisation Protect current business momentum – while focusing on long-term value creation and synergies Maintain and grow both the Prudential Asia and AIA brands Focus on selecting and re
Slide 79: Run rate cost synergies of $370m pre-tax by end 2013
Run rate cost synergies of $370m pre-tax by end 2013 xx Cost pre-tax savings, $m2 Cost synergies, $m Major cost synergy levers Full run rate during 2013 • Merger of management teams and elimination of duplication 140 People cost resulting in savings across functional areas at Regional Head Office, S
Slide 80: Cost synergies represent 17% of combined expense base
Cost synergies represent 17% of combined expenses base2 driving pro-forma expense ratio to 9.1% We are targeting 23% of the addressable cost base . . . 2009 Gross expenses1, $m Expense ratio3, % Prudential 10.7% Asia AIA Combined Cost synergies2 • Regional Head Office & 198 297 495 (200) Shared Serv
Slide 81: Ramping up collaboration with AIA
We are ramping up very strong collaboration with AIA Early interaction between Prudential and AIA to establish synergy potential Ramping up significant • Information and data collaboration on integration exchange for transaction planning Joint leadership and staffing • Using ‘clean teams’ for • AIA
Slide 82: Integration planning underway; Anti-Trust and Regulatory filings progress
Integration planning is underway and significant progress made with Anti-Trust and Regulatory filings Clearance received Overview of progress on Anti-Trust and Regulatory filings Submitted Clearance Submitted Clearance We have performed UK Multiple Ireland 31st March pre-completion Japan To be filed
Slide 83: Integration structure agreed and being mobilised
Our integration structure is agreed and being mobilised Prudential Board • Direct reporting to, and oversight from, plc Board Integration Steering • Overall responsibility for Committee integration delivery Integration Leader • Drive and coordinate overall process of all workstreams Programme Appoin
Slide 84: Integration approach differs by head office and country
The integration approach will be different at the regional head office level and in individual countries Approach over 2010-11 Hong Kong headquarters ‘Merger of equals’ countries • Build a strong regional centre, • Keep separate agency forces & combining the best of Prudential & brands AIA talent •
Slide 85: Operating model designed to maximise growth and efficiency
Our operating model is designed to maximise growth potential and efficiency Target operating model Leadership Country CEO Front line Banks and other Agency Agency channels Middle office • Product development • Risk management • Branding/Marketing • Customer management Back office • HR • Risk • IT •
Slide 86: Integration risks are real but manageable
Integration risks are real but manageable Risks Mitigating actions Size • Regional head offices under 1,500 FTE • 10 in-market consolidations • Strong local market understanding Complexity • Proactive regulatory outreach Regulatory • Depth of local understanding • Recent transformation experience in
Slide 87: 2010 focused on appointments, design and planning
2010 is focused on appointments, detailed design and planning, plus early delivery of synergy quick wins Expected 2010 2011 timetable Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Appointment of key business leaders Integration planning Enabling Develop detailed plans Synergy delivery Appointments Bus
Slide 88: Q&A
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Slide 89: Appendix
APPENDIX 88
Slide 90: Savings rates in Asia are 2-3x that of developed Western markets
Savings rates in Asia are 2-3x that of developed Western markets and are expected to remain at that level Gross National Savings, % of GDP 2000 2008 2014 China 37.0 53.2 48.9 Power house Asian India 22.2 32.5 29.9 Mal 35.9 36.7 31.9 Viet 33.2 29.2 42.5 Emerging Asia Thai 30.4 28.8 33.1 Indo 27.1 27.
Slide 91: Significant upside in underpenetrated markets even in 2020
Significant upside in markets that are underpenetrated even in 2020 Gross life premium penetration1 Penetration Penetration Premium Growth, 2010, % 2020, % 2010-2020, % Power house 3.8 Asian India 5.3 15.0 China 2.4 3.7 15.4 Thai 2.8 3.7 9.5 Mal 2.7 3.3 9.8 Emerging Asia Indo 1.4 2.1 14.1 Phil 0.9 1
Slide 92: Country information
Country information Hong Kong Singapore Thailand Malaysia China Korea 91
Slide 93: Hong Kong: Prudential Asia and AIA statistics for FY 2009
Hong Kong: Prudential Asia and AIA statistics for FY 2009 Prudential Asia AIA Proforma Combined Entity APE, $m 378 4862 864 APE Regular Premium, % 96% 87% 91% Unit linked, 4 10 % 26 19 Product 22 24 Mix A&H1, % (% of APE) Par/Non- 74 55 66 par/Other, % Agency, % 60 ~70 Distri- ~80 Bution Banks, % 5
Slide 94: Hong Kong: Key macroeconomic indicators (1/2)
Hong Kong: Key macroeconomic indicators (1/2) Nominal GDP growth CAGR, % Population, millions of people x Growth multiplier 5.6 6.0 7.0 7.5 7.9 4.7 6.7 2002 - 2008 2008 - 2013F 2008 - 2020F 2000 2010F 2020F 2030F 1.3x 1.3x 2.0x Savings rate as % of GDP, % Life Insurance penetration, % of GDP x GDP p
Slide 95: Hong Kong: Key macroeconomic indicators (2/2)
Hong Kong : Key macroeconomic indicators (2/2) Demographic profile, millions of people Middle class growth, millions of households x Median age 100% = 7.1 7.3 6.2 100% = 2.2 2.3 2.5 Above 65 46% 39% 31% 40 - 65 29% > $25k 1.3 1.5 1.6 41% 42% Below 40 19% 39% 13% $5 - 25 k 0.7 0.8 0.8 2009 2020F 2050
Slide 96: Hong Kong: Life industry overview
Hong Kong : Life industry overview Life insurance premium, $m 2008 Net insurance liabilities by product, % x Penetration as % of GDP, % Whole Life Endowment 45,436 7 Term Life Linked 20,816 37 14,755 29 Others 5,970 2000 2005 2010F 2020F 0 3.7% 8.3% 9.2% 10.2% 26 Distribution: split of new Life busi
Slide 97: Country information
Country information Hong Kong Singapore Thailand Malaysia China Korea 96
Slide 98: Singapore: Prudential Asia and AIA statistics for FY 2009
Singapore: Prudential Asia and AIA statistics for FY 2009 Prudential Asia AIA Proforma Combined Entity APE, $m 200 1692 369 APE Regular 77% 76% 76% Premium, % Unit linked, 0 % 27 16 22 25 Product 30 Mix A&H1, % (% of APE) Par/Non- 78 43 59 par/Other, % Agency, % Distri- 80 ~80 ~80 Bution 0 Banks, %
Slide 99: Singapore: Key macroeconomic indicators (1/2)
Singapore: Key macroeconomic indicators (1/2) Nominal GDP growth CAGR, % Population, millions of people x Growth multiplier 12.8 5.2 5.5 4.8 4.0 5.5 5.5 2002 - 2008 2008 - 2013F 2008 - 2020F 2000 2010F 2020F 2030F 2.1x 1.4x 1.4x Savings rate as % of GDP, % Life Insurance penetration as % of GDP, % x
Slide 100: Singapore: Key macroeconomic indicators (2/2)
Singapore: Key macroeconomic indicators (2/2) Demographic profile, millions of people Middle class growth, millions of households x Median age 100% = 4.7 5.0 4.6 100% = 1.0 1.1 1.1 Above 65 9% 15% 37% 39% 43% 40 - 65 31% > $25k 0.8 0.9 1.1 Below 40 52% 42% 32% $5 - 25 k 2009 2020F 2050F < $5k 0.2 <0
Slide 101: Singapore: Life industry overview
Singapore: Life industry overview Life insurance premium, $m 2008 in-force premium mix, % x Penetration as % of GDP, % Whole Life Endowment 30,453 17 Term 6 36 A&H 11,261 4,777 6,562 2000 2005 2010F 2020F 41 3.2% 5.6% 5.8% 8.9% 2009 APE distribution split, % Players share of APE in 2009, % Agency Pr
Slide 102: Country information
Country information Hong Kong Singapore Thailand Malaysia China Korea 101
Slide 103: Thailand: Prudential Asia and AIA statistics for FY 2009
Thailand: Prudential Asia and AIA statistics for FY 2009 Prudential Asia AIA Proforma Combined Entity APE, $m 24 389 413 APE Regular 91% 97% 96% Premium, % Unit linked, % 26 Product 8 9 Mix A&H1, % 0 0 0 (% of 92 91 APE) Par/Non- 74 par/Other, % Agency, % 45 Distri- ~85 Bution 9 ~85 Banks, % ~5 (% o
Slide 104: Thailand: Key macroeconomic indicators (1/2)
Thailand: Key macroeconomic indicators (1/2) Nominal GDP growth CAGR, % Population, millions of people x Growth multiplier 13.6 68.1 71.4 73.5 62.3 6.0 6.1 2002 - 2008 2008 - 2013F 2008 - 2020F 2000 2010F 2020F 2030F 2.2x 1.4x 1.4x Savings rate as % of GDP, % Life Insurance penetration as % of GDP,
Slide 105: Thailand: Key macroeconomic indicators (2/2)
Thailand: Key macroeconomic indicators (2/2) Demographic profile, millions of people Middle class growth, millions of households x Median age 100% = 66.0 69.7 69.8 100% = 16.9 18.3 19.7 Above 65 9% 12% 26% 0.3 0.5 0.9 > $25k 30% 35% 5.4 40 - 65 31% $5 - 25 k 8.5 11.0 Below 40 61% 53% 43% < $5k 11.2
Slide 106: Thailand: Life industry overview
Thailand: Life industry overview Life insurance premium, $m 2008 Life insurance premium mix, % x Penetration as % of GDP, % Whole Life Endowment 19,535 17 Term 28 Industrial 5 7,863 1,476 3,518 2000 2005 2010F 2020F 49 1.4% 2.0% 2.8% 3.7% 2009 APE distribution split, % Players share of APE in 2009,
Slide 107: Country information
Country information Hong Kong Singapore Thailand Malaysia China Korea 106
Slide 108: Malaysia: Prudential Asia and AIA statistics for FY 2009
Malaysia: Prudential Asia and AIA statistics for FY 2009 Prudential Asia AIA Proforma Combined Entity APE, $m 230 112 342 APE Regular 96% 97% 96% Premium, % Unit linked, 43 20 35 % Product 18 Mix A&H1, % (% of 10 38 APE) Par/Non- 47 27 62 par/Other, % Agency, % Distri- ~85 ~90 Bution 93 Banks, % 2 ~
Slide 109: Malaysia: Key macroeconomic indicators (1/2)
Malaysia: Key macroeconomic indicators (1/2) Nominal GDP growth CAGR, % Population, millions of people x Growth multiplier 14.0 32.0 35.3 27.9 23.3 6.8 5.0 2002 - 2008 2008 - 2013F 2008 - 2020F 2000 2010F 2020F 2030F 2.2x 1.3x 1.5x Savings rate as % of GDP, % Life Insurance penetration as % of GDP,
Slide 110: Malaysia: Key macroeconomic indicators (2/2)
Malaysia: Key macroeconomic indicators (2/2) Demographic profile, millions of people Middle class growth, millions of households x Median age 100% = 25.7 30.8 43.2 100% = 5.5 6.0 6.4 Above 65 23% 5% 25% 7% 14% > $25k 0.5 0.9 29% 2.1 40 - 65 72% 68% $5 - 25 k 3.3 Below 40 58% 3.9 3.8 2009 2020F 2050F
Slide 111: Malaysia: Life industry overview
Malaysia: Life industry overview Life insurance premium, $m 2007 in-force premium, % x Penetration as % of GDP, % Whole Life Endowment 16,207 3 14 Investment linked 34 6,349 Others 4,487 2,369 Temporary 30 2000 2005 2010F 2020F 19 2.9% 3.4% 2.7% 3.3% 2007 APE distribution split, % Players share of A
Slide 112: Country information
Country information Hong Kong Singapore Thailand Malaysia China Korea 111
Slide 113: China: Prudential Asia and AIA statistics for FY 2009
China: Prudential Asia and AIA statistics for FY 2009 Prudential Asia AIA Proforma Combined Entity APE, $m 71 188 259 APE Regular 84% 91% 89% Premium, % Unit linked, % 31 18 Product 21 16 10 Mix A&H1, % 2 (% of 82 APE) Par/Non- 73 par/Other, % 48 Agency, % 56 Distri- ~76 ~70 Bution Banks, % 1 (% of
Slide 114: China: Key macroeconomic indicators (1/2)
China: Key macroeconomic indicators (1/2) Nominal GDP growth CAGR, % Population, millions of people x Growth multiplier 20.8 1,345 1,421 1,452 1,267 14.0 13.3 2002 - 2008 2008 - 2013F 2008 - 2020F 2000 2010F 2020F 2030F 3.1x 2.2x 2.1x Savings rate as % of GDP, % Life Insurance penetration as % of GD
Slide 115: China: Key macroeconomic indicators (2/2)
China: Key macroeconomic indicators (2/2) Demographic profile, millions of people Middle class growth, millions of households x Median age 100% = 1,324 1,385 1,304 100% = 368 397 430 8% 12% 24 1 4 18 Above 65 27% > $25k 32% 36% 149 40 - 65 33% $5 - 25 k 60% 309 Below 40 52% 40% < $5k 343 244 2009 20
Slide 116: China: Life industry overview
China: Life industry overview Life insurance premium, $m 2008 Ordinary premium mix, % x Penetration as % of GDP, % Participating 7 Universal 540,986 14 Traditional Investment linked 129,148 57 10,282 39,601 22 2000 2005 2010F 2020F 1.0% 1.8% 2.4% 3.7% 2009 APE distribution split1, % Players share of
Slide 117: Country information
Country information Hong Kong Singapore Thailand Malaysia China Korea 116
Slide 118: Korea: Prudential Asia and AIA statistics for FY 2009
Korea: Prudential Asia and AIA statistics for FY 2009 Prudential Asia AIA Proforma Combined Entity APE, $m 191 375 566 APE Regular 97% 100% 99% Premium, % Unit linked, 46 54 % 71 Product Mix A&H1, % (% of 17 15 15 APE) Par/Non- 40 12 31 par/Other2, % Agency, % 60 ~53 ~55 Distri- Bution Banks, % (% o
Slide 119: Korea: Key macroeconomic indicators (1/2)
Korea: Key macroeconomic indicators (1/2) Nominal GDP growth CAGR, % Population, millions of people x Growth multiplier 9.4 46.4 48.5 49.5 49.1 8.3 7.2 2002 - 2008 2008 - 2013F 2008 - 2020F 2000 2010F 2020F 2030F 1.6x 1.7x 1.5x Savings rate as % of GDP, % Life Insurance penetration as % of GDP, % x
Slide 120: Korea: Key macroeconomic indicators (2/2)
Korea: Key macroeconomic indicators (2/2) Demographic profile, millions of people Middle class growth, millions of households x Median age 100% = 48.5 49.4 43.4 100% = 17.0 18.2 19.1 Above 65 11% 16% 36% 34% 39% > $25k 6.1 6.7 40 - 65 32% 12.6 Below 40 55% 45% 32% $5 - 25 k 10.9 11.5 2009 2020F 2050
Slide 121: Korea: Life industry overview
Korea: Life industry overview Life insurance premium, $m 2008 General account product mix, % x Penetration as % of GDP, % Term 2 Endowment 127,200 Pure 27 endowment 60,683 65,500 44,272 Group 58 2000 2005 2010F 2020F 13 9.9% 6.9% 6.3% 6.5% Players share of New business premiums 2008 APE distribution