Slide 1: Prudential plc Capital Markets Update March 2018
Prudential plc Capital Markets Update March 2018 1
Slide 2: Forward-looking statements
This document may contain ‘forward-looking statements’ with respect to certain of Prudential's plans and its goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements that are not historical facts, including statements about Prudenti
Slide 3: Agenda
Agenda FY 17 Results Strategic Update Appendix 3
Slide 4: FY17 results: key financial highlights
Group FY17 results Key financial highlights FY17 vs FY16 £m FY16 FY17 AER1 CER1 IFRS operating profit 4,256 4,699 +10% +6% Growth New business profit 3,088 3,616 +17% +12% EEV operating profit 5,497 6,598 +20% +15% Free surplus generation 3,566 3,640 +2% (1)% Cash Remittances 1,718 1,788 +4% n/a Ord
Slide 5: Group financial objectives: all 2017 objectives achieved
Group financial objectives All 2017 objectives achieved Asia free surplus1, Asia IFRS operating profit1, Group cumulative free £m £m surplus2, £bn 1,029 1,855 12.8 +16% 2.8 CAGR 454 884 10.0 468 1,078 909 1,975 2012 2017 2012 2017 2014-17 Free surplus of £0.9bn to £1.1bn P At least 15% CAGR P >£10bn
Slide 6: Group financial performance: long-term track record
Group financial performance Long-term track record IFRS operating profit1,2, £m New business profit1,2, £m Free surplus generation1,2,3,4, £m 4.4x 5.8x 5.5x 4,699 3,616 3,640 CAGR CAGR CAGR +14% +17% +17% 1,077 623 656 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2008 2009 2
Slide 7: Key drivers of earnings momentum
Group IFRS Key drivers of earnings momentum Group IFRS operating profit Group IFRS operating profit £m £m Change FY16 (CER) 4,429 FY161 FY17 (CER) Asia 255 Asia 1,644 1,975 +15% US fee business3 187 UK&E core life and 71 US 2,048 2,224 +3% asset management UK&E other4 54 UK&E 1,253 1,378 +10% US oth
Slide 8: Growing high quality sources of earnings
Group IFRS Growing high quality sources of earnings Sources of IFRS operating income1,2,3,4, £m 8,136 7,386 6,814 1,108 6,140 5,762 1,171 4,891 1,153 2,271 79% 1,129 4,296 1,071 1,991 3,891 1,671 1,061 1,393 3,019 1,329 1,578 2,743 1,049 998 1,000 1,511 1,564 722 1,497 750 574 1,466 537 1,242 294 43
Slide 9: Free surplus generation
Group free surplus generation Growing contributions from in-force life portfolios and asset management Operating free surplus generation, £m (CER) +9% Variances (1)% £m FY16 FY17 vs FY16 3,995 3,770 US reserve financing2 247 - 3,640 Other variances 632 635 UK&E 1,122 (913) (942) 3,082 635 (77) UK&E
Slide 10: Holding company cash
Holding company cash Free surplus generation underpins cash to centre Movement in life free surplus, £m Movement in holding company cash, £m FY16 FY17 Asia 516 645 US 420 475 (913) UK&E 590 643 Other 192 25 3,417 (265) (1,361) 427 1,361 (470) (1,159) 6,242 5,364 (521) 2,626 2,264 1 Jan 17 Expected I
Slide 11: Growing cash remittances from business units
Group cash Growing cash remittances from business units Business unit net remittances2, £m 1,788 1,718 25 1,625 1,482 85 192 1,341 57 643 1,200 57 1,105 603 590 91 610 935 67 590 52 475 519 688 510 470 420 515 82 570 415 294 61 249 527 322 305 645 80 4671 516 341 400 400 144 39 233 206 5 40 2008 200
Slide 12: Strong solvency capital position
Group Solvency II Strong solvency capital position Group Shareholder Solvency II capital position1, £bn Local solvency capital position 2016 2017 Surplus £12.5bn £13.3bn Solvency II 201% 202% Asia4 251% 244% cover Local regulatory basis US5 485% 409% Risk Based Capital excl Permitted Practice 524% 4
Slide 13: Underpinned by organic capital generation
Group Solvency II Underpinned by organic capital generation FY17 movement in Solvency II capital1, £bn Solvency II surplus estimated sensitivities1,3,5 Impact on SII Impact on coverage ratio solvency 31 December 20162 12.5 ratio FY17 estimated surplus £13.3bn 202% Operating experience 3.2 ~23pts Man
Slide 14: Capital quality
Group Solvency II Capital quality Solvency II Own Funds by capital tier1,2,3 Share of Solvency II Own Funds by capital tier1,2,3 26.4 FY17, 100% = £26.4bn 0.0 Tier 3 – deferred tax Tier 3 5.0 Tier 2 – sub debt Tier 2 0.8 Tier 1 – hybrid capital 0% 19% Tier 1 = Tier 1 – core capital Tier 1 = 81% of O
Slide 15: Group debt maturity profile
Group Click to debt maturity edit Master profile title style Click No to edit Master refinancing title pressure style in BAU Group debt maturity profile (As at 31 December 2017) £bn 3.1 Subordinated (perpetual) Subordinated (next call date) Subordinated (bullet maturity) Senior (maturity) Bank loan
Slide 16: Operating profit remains key driver of growth
Group equity shareholders’ funds Operating profit remains key driver of growth IFRS IFRS EEV £m Pre-tax Post-tax Operating profit • Includes M&G Prudential merger and transformation costs of £44m Operating profit 4,699 6,598 • Debt costs up £65m due to debt issued in 2016 and FX effects Investment v
Slide 17: Agenda
Agenda FY 17 Results Strategic Update Appendix 17
Slide 18: Continued transformation of Group portfolio
Group Continued transformation of Group portfolio Evolution of mix EEV shareholders’ funds1, % International 28% International 26% 49% 72% 44% 51% £15bn £45bn 23% 28% 2017 2007 International focus Leading Pan-regional Asia business delivering expansive growth UK centric with 15m Life customers E
Slide 19: Intention to demerge M&G Prudential from Prudential plc
Group Intention to demerge M&G Prudential from Prudential plc Value creation Enhancing long-term value Enhanced execution Greater agility & increased speed in execution Better alignment Different investment opportunities 19
Slide 20: Target structure: two separately listed companies
Group Target structure: two separately listed companies Prudential plc M&G Prudential Prudential Prudential Assurance Prudential Africa Jackson National M&G Investments Corporation Asia Company CEO: Mike Wells CEO: John Foley HQ: London HQ: London Premium Listing: LSE Premium Listing: LSE Other List
Slide 21: Target structure: two separately listed companies
Group Target structure: two separately listed companies Prudential plc M&G Prudential Market leading franchises, in world’s largest insurance Market leading insurance and asset management and savings markets business, two regulated entities. Sustainable competitive advantages in markets with long- S
Slide 22: Ratings
Ratings Very strong credit and financial strength maintained Financial strength AA- Aa3 AA- Prudential plc Senior unsecured (LT/ST) A / A-1 A2 / P-1 A- / F1 Prudential Assurance Financial strength A+ Aa3 AA- Company **All ratings on stable outlook** 22
Slide 23: M&G Prudential demerger: separation process next steps
M&G Prudential demerger Separation process – next steps Unwind inter-group Shareholder linkages and Debt including Hong- regulatory management Kong transfer approvals P Identify operating Finalise and implement Part VII structure to capture operating models transfer of UK long term growth annuity op
Slide 24: Summary
Summary Continued delivery of growth and cash Sustained momentum in earnings drivers underpins positive outlook Well capitalised with defensive balance sheet Demerging M&G Prudential from a position of financial strength 24
Slide 25: Appendix contents
US Jackson National Contents: Group overview 26 2017 Results 27 M&G Prudential 32 Appendix Prudential Plc 37 Balance sheet information 47 Currency sensitivities 50 25
Slide 26: History
Group History Providing financial security since 1848 Life insurance customers worldwide 26 m Total funds under management 669 £ bn Prudential enters its first African life insurance market 2014 The first UK life insurer to enter the China market 2000 Prudential acquires M&G , founded in 1931 1999 P
Slide 27: Disciplined capital allocation to high-return new business
Group Disciplined capital allocation to high-return new business New business strain1,3, £m New business profit2,3, £m 3,616 342 +348% 3,088 268 2,609 906 +19% 318 790 903 913 2,057 2,104 767 1,776 237 259 718 129 175 809 638 624 598 623 583 65 1,415 1,506 241 UK 293 539 298 195 706 694 103 65 45 29
Slide 28: Asia IFRS: strong and consistent growth
Asia IFRS Strong and consistent growth Life Asset management IFRS operating profit IFRS operating profit £m £m +15% +18% Renewal Average premiums +22% AUM1 +20% £11.6bn £128bn 1,571 1,799 176 Insurance 149 External net income +21% inflows £3.1bn £1.3bn vs £1.8bn FY16 FY17 FY16 FY17 2016 (CER) (CER)
Slide 29: US IFRS: driven by fee earnings from VA business
US IFRS Driven by fee earnings from VA business Fee-based1 Spread-based2 IFRS operating profit IFRS operating profit £m £m +12% Av. separate account AUM +17% (6)% £125bn Spread 1,788 1,601 margin (24)bp Fee 339 317 margin (3)bp 193bp 187bp FY16 FY17 FY16 FY17 (CER) (CER) Higher separate account as
Slide 30: Impact of US tax reform
US Impact of US tax reform Net positive long-term impact Materially lower US corporate effective tax rate expected to enhance Jackson’s future earnings and capital generation from 2018 US effective tax rate expected to be c.18% compared to c.28% previously Group effective tax rate expected to
Slide 31: UK & Europe IFRS
UK & Europe IFRS Stable core life profits and strong asset management growth Insurance Asset management IFRS operating profit IFRS operating profit £m £m +6% +18% Core1 Average 828 878 earnings (1)% external AUM3 +15% £597m £144bn Other 227 281 With With profits External net 269 288 500 profits tran
Slide 32: M&G Prudential: creating a market leading savings and investments business
M&G Prudential Creating a market leading savings and investments business Opportunity1,2,3 Other4 Private Equity4 Wholesale/direct Better Accelerate current initiatives; Commercial property4 UK AUM1 +£ 0.9tn alignment P better placed to capture distinct by 2023 opportunity sets £ 7 tn 2015-16 Instit
Slide 33: M&G Prudential: attracting strong net flows
M&G Prudential Attracting strong net flows M&G Prudential PruFund growth investment Wholesale/direct: Funds under management (£bn) performance3, % Net flows £11bn +80% **RECORD YEAR ** 64% wholesale and direct funds above median2 Net flows £9bn Institutional: **RECORD YEAR ** +53% ABI sector Net flo
Slide 34: Broad UK distribution mix
M&G Prudential Broad UK distribution mix Distribution channel Channel Mix (UK Customers) (UK Customers, 31 December 2017) Other Direct 2% 1% Intermediated Advisers via platforms, 57% Individual funds within Wholesale wealth managers and adviser portfolios banks Wholesale 32% Customer solutions for W
Slide 35: Diversified products and customers
M&G Prudential Diversified products and customers AUM Customers 31 December 2017 Top 5 in UK retail funds1 UK Active management offering with strong performance Investment Funds £36bn 186k Distributed through wholesale channels Range of consumer-focused retirement/savings wrappers PruFund investment
Slide 36: De-risking shareholder annuity exposure through partial sale
M&G Prudential De-risking shareholder annuity exposure through partial sale Estimated proforma shareholder Solvency II impact on PAC Ltd1 UK IFRS annuity liabilities Own Funds £0.2bn • Premium > SII BEL Sale of £12.0bn UK annuity liabilities to Rothesay SCR £1.3bn • Portfolio de-risking 37% of U
Slide 37: A pre-eminent global insurer, capturing structural growth
Prudential plc A pre-eminent global insurer, capturing structural growth Complementary operating markets, with Asian growth Better P ability to leverage experience and expertise +1 million alignment Diversification across risk characteristics - People entering the working population P mortality, spr
Slide 38: Prudential plc - Asia: significant long term growth opportunity
Prudential plc - Asia Significant long term growth opportunity 1. United Nations, Department of Economic and Social Affairs, Population Division (2015). World Population Prospects: The 2015 Revision, DVD Edition.15 2. Working age population: 15-64 years 3. Source BCG Global Wealth 2017. Navigating t
Slide 39: Asia regional footprint
Prudential plc - Asia Regional footprint Access to: 15m 3.3billion Pru life customers Population Top 3 Position in 9 of 12 life markets1 #1 Asian Retail Fund Manager As at June 20174 1. Source: Based on formal (competitors’ results release, local regulators and insurance associations) and informal (
Slide 40: Asia: high quality, diversified growth
Prudential plc - Asia High quality, diversified growth IFRS NBP Eighth consecutive 8 NBP year of double-digit growth Countries with at least double digit growth (ex HK)1 + 20 % 4 Countries generating >£150m IFRS New business + 12 % Eastspring IFRS >£150m H&P NBP1 + 26 % profit1 Health & Protection
Slide 41: US retirement opportunity
Prudential plc - US US retirement opportunity Retirement wave Under-saved Baby Boomer population by age1 Median Net Worth2 ($ thousands) 5.0 Baby Boom Generation (1946-1964) 4.5 ~75 million 187.3 Jackson National Life Turned 65 in 2016 4.0 124.2 3.5 3.0 2.5 2.0 Market Leading retirement income provi
Slide 42: US: superior customer proposition, generating high quality earnings
Prudential plc - US Superior customer proposition, generating high quality earnings Movement in separate account Quality sources of income ($bn) + 15% £ 2.3bn FY17 Increase in fee income (CER) 4.5 6.0 Superior customer proposition 12.1 13.1 176.6 Jackson LGWB funds with 7% or 12.4 12.5 42 greater 3
Slide 43: US: delivery and resilience
Prudential plc - US Delivery and resilience 438% 417% 483% 429% 423% 450% 456% 481% 485% 409% RBC Ratio RBC remains resilient Cash remitted > 400% $4.4bn Since 2008 Tax reform provides long- term economic tailwind Protected against downside risks Cumulative cash remittances $bn 2008 2009 2010 2011 2
Slide 44: US: strong statutory capital position
Prudential plc - US Strong statutory capital position Jackson total adjusted capital US$bn Hedging programme continues to effectively mitigate risks 31 December 2016 5.3 Earned guarantee fees of 126 bps per annum Operating profit 1.1 Equity allocations remain below our 83% pricing assumption Dividen
Slide 45: Unhedged economic profile of GMWB guarantees
Prudential plc - US Unhedged economic profile of GMWB guarantees Jackson unhedged GMWB cash flow exposure, as at 31 December 2017 45
Slide 46: Africa regional footprint
Prudential plc - Africa Regional footprint Ghana 2014 Acquisition of Express Life 1 billion people 2015: Distribution partnership with Societe Generale 2015: Distribution partnership with Fidelity Bank Population of Sub-Saharan Africa1 2016: Distribution partnership with CAL Bank Kenya 2014 Acquisit
Slide 47: Group invested assets: asset portfolio
Group invested assets Asset portfolio Breakdown of invested assets1, FY17, £bn Shareholder debt portfolio, FY17, £bn Shareholder-backed Holding by issuer Portfolio No. Av. Max High yield % Total PAR Unit Asia US UK £bn issuers £m £m debt portfolio Group funds linked Life Life Life Other Total Debt 1
Slide 48: Shareholder total debt securities by credit rating
Group invested assets Shareholder total debt securities By credit rating US UK Asia 4%5% 2% 14% 15% 7% 12% 18% 23% 40% 35% 30% 37% 33% 25% Rating: AAA AA Total £35bn Total £35bn Total £13bn A BBB <BBB Note: Pie charts exclude other operations totalling £2.3bn, of which 32% AAA, 55% AA, 8% A, 3% BBB
Slide 49: SII treatment of hybrid capital classification
Group Solvency II SII treatment of hybrid capital classification Hybrid capital outstanding, 31 December 2017 Issue Date Amount Coupon Maturity Date 1st Call Date SII Classification 19-Dec-01 GBP 435m 6.125% 19-Dec-31 None Tier 2* 10-Jul-03 EUR 20m 20 yr CMS rate 10-Jul-23 None Tier 2* 30-Jul-04 USD
Slide 50: Currency mix: translation sensitivities
Group currency mix Translation sensitivities IFRS operating profit, £m New business profit, £m 2017 as 2017 as 4,699 US 3,616 US reported reported Asia Asia Impact of translating results (105) Impact of translating results (43) at 31 December 2017 spot at 31 December 2017 spot rate rate (60) (97) 20