Prudential Plc · LSE:PRU
Prudential — Non-Deal Roadshow (October 2019)
111 slides from Prudential's roadshow presentation, October 2019
Slide 1: Jackson Roadshow Pack Fall 2019
Jackson Roadshow Pack Fall 2019
Slide 2: Materials
Materials Tab 1 – Jackson Slides from September Webinar Presentation Tab 2 – Jackson Slides from Prudential plc’s Half-Year 2019 Results Tab 3 – Jackson Slides from Singapore Investor Conference November 2018 Tab 4 – Appendix – Distribution and Regulatory Slides Page 4
Slide 3: Tab 1: Jackson Webinar Presentation from September
TAB 1 Jackson Webinar Presentation from September
Slide 4: Prudential plc Investor and Analyst presentation
Prudential plc Investor and Analyst presentation Post-Demerger Prudential plc business 26 September 2019 1
Slide 5: 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, operating environment, strategy and objectives. Statements that are not historical facts, including st
Slide 6: Jackson enhancing cash generation through accelerated diversification
US Jackson enhancing cash generation through accelerated diversification Grow cash remittances and preserve capital cover across market scenarios Jackson Accelerate diversification Grow cash and preserve capital cover Accelerate diversification Long record of cash generation and resilience More
Slide 7: Active portfolio management and capital allocation
Group Active portfolio management approach with a record of effective capital allocation Asia Focus on health and protection business ` De-emphasis of Universal Life in Singapore Capital allocation to Asia Investment in new business US Products (cumulative HY09-HY19)2 Launch fee based VAs 3.6 Divers
Slide 8: Jackson
Jackson INVESTOR AND ANALYST PRESENTATION SEPTEMBER 2019 39
Slide 9: Jackson: Overview of business
Jackson Overview of business The leading retirement accumulator in the US generating predictable and sustainable cash flow Best in-class franchise Key financial highlights Leading position in the annuity industry £m HY19 HY18 % CER Best in-class cost base & industry leading platform IFRS operati
Slide 10: Market dynamics
Jackson Market dynamics Meeting the needs of retiring Americans in world’s Significant and growing gap largest market through best in-class products Retirement wave & asset pool1 72 57 % Coverage gap Not enough Americans Without private %pension coverage 2 Generatio have private pension coverage nY
Slide 11: Focused goals and strategy
Jackson Focused goals and strategy Grow cash remittances & preserve capital cover across market scenarios Accelerate diversification financed by third parties and reinsurance INVESTOR AND ANALYST PRESENTATION SEPTEMBER 2019 42
Slide 12: Preserve and grow cash remittances to group
Jackson Preserve and grow cash remittances to group Consistent remittances over time 710 680 Consistent delivery of remittances, including during 600 challenging economic conditions & after impacts of 550 525 tax reform & regulatory change 470 450 400 $400m $4.4 billion remittances 2012-HY19 C
Slide 13: Using selective diversification to build remittances
Jackson Using selective diversification to build remittances Principles Levers Examples • Scale benefits: Life of Georgia Reduction in admin expenses (2004) Diversification • Reserve efficiencies: Actuarial reviews REALIC (2012) Stat. Remittances • DTA: For every $1 of capital, capital recognise add
Slide 14: REALIC case study (2012)
Jackson REALIC case study (2012) Diversified book while providing excellent financial outcomes Value levers $0.6bn purchase price – funded from RBC remained above 420% at • Value emerged through the internal Jackson resources – upfront year-end 2012 following levers: capital strain reduced by $0.5bn
Slide 15: Proven risk management over cycle with strong cash returns
Jackson Proven risk management over cycle with strong cash returns on capital 710 Tax Reform total impact of 110 RBC points • Despite market and regulatory headwinds, Jackson has reported a Jackson did not receive any capital support during RBC ratio above 400% over the last the financial crisis REA
Slide 16: Key products and underlying customer needs
Jackson Key products and underlying customer needs High quality VA book unmatched in the industry Key consideration for Fixed Fixed Index Variable Retirement Investor Annuity Annuity Annuity Diversified book across sales vintages 2018, 2008 & 2017, 7% prior, 20% Guaranteed lifetime income 8% √ √ (wi
Slide 17: Dominant VA distribution platform
Jackson Dominant VA distribution platform Jackson is the clear leader in each distribution channel 2018 VA sales by channel, % Total VA sales, $bn VA sales - independent BDs, $bn Regional Direct, 16.7 11.8 BDs, 6% 3% Wirehouses, 10.2 9.9 9.1 7% 7.8 5.9 3.9 2.8 2.2 Banks, 9% Captives, Jackson Peer A
Slide 18: Distribution strength helped facilitate rapid FIA/FA growth
Jackson Distribution strength helped facilitate rapid FIA/FA growth Jackson total FIA/FA market share up to 1.8% at HY19 (0.6% at HY18) HY19 Industry FIA/FA sales by channel, % Independent BD Market Share Bank Market Share 2.0% 5.8% Full Service National BDs, 14% 1.5% 0.2% Career, HY 2018 HY 2019 HY
Slide 19: HY19 financial performance: sales shift in 1H 2019
Jackson HY19 financial performance: sales shift in 1H 2019 Sales and deposits, $bn • FA/FIA sales up to $1.4bn in 1H 2019 90% VA 68% VA 87% VA 83% VA 68% VA 66% VA ($0.4bn in 1H 2018) 6.3 5.7 • Overall sales of $10.8bn in 1H 2019 4.9 1.8 4.7 4.7 5.1 0.9 0.3 ($11.2bn in 1H 2018) 0.2 0.2 0.4 0.2 0.6 0
Slide 20: HY19 financial performance: income measures
Jackson HY19 financial performance: income measures IFRS pre-tax operating profit Statutory operating income and EEV post-tax net profit and and after-tax net profit1, £bn remittances1, £bn shareholder funds1, £bn £4.9bn £5.6bn £6.7bn £3.5bn £4.3bn £3.9bn £14.1bn £15.3bn 0.6 4 0.9 0.9 1.2 0.5 1.1 1.
Slide 21: HY19 financial performance: Statutory capital
Jackson HY19 financial performance: Statutory capital 6 months ended 1H 2019 Proforma 9 months ended 1H 2019 Jackson total Jackson total adjusted adjusted capital capital US$bn US$bn 31 Dec 2018 5.5 30 Sep 2018 (ex-Permitted Practice1) 4.6 Operating profit 0.8* Operating profit 1.2* Reserves net of
Slide 22: Tab 2: Jackson Slides from Half-Year 2019 Results
TAB 2 Jackson Slides from Prudential plc’s Half-Year 2019 Results
Slide 23: Prudential plc 2019 Half Year Results
Prudential plc 2019 Half Year Results 14 August 2019 1
Slide 24: Introduction
Jackson Introduction Strategic assessment • Strength of the business • Market outlook • Future direction HY19 financial performance • Sales • Income measures Roadmap 2019 HALF YEAR RESULTS 20
Slide 25: Strategic assessment: Strength of business
Jackson Strategic assessment Industry annuity sales & Jackson VA market share (LIMRA)1, $bn 1 Strength of business • Proven commercial capability • Formidable record of gathering assets in a disrupted segment • Broad capabilities across all annuity segments • Market leading customer outcomes & servi
Slide 26: Strategic assessment: Market outlook
Jackson Strategic assessment Jackson fee based annuity sales, $m 1.2 Market outlook 400 • Improving: 300 Regulatory trajectory 200 Media coverage Distribution expansion 100 - Technology driven capabilities 0 1H 2017 2H 2017 1H2018 2H2018 1H2019 - Advice driven model evolution - Pension market opport
Slide 27: Strategic assessment: Develop a more diversified book
Jackson Strategic assessment RBC ratio and statutory admitted assets, $bn 3 Develop a more diversified book • Deploy capital to grow non VA book • Diversification reduces statutory capital volatility • Allows for more efficient hedging • Release additional shareholder value & enhance cash generation
Slide 28: HY19 financial performance: sales shift in 1H 2019
Jackson HY19 financial performance: sales shift in 1H 2019 Sales and deposits, $bn 90% VA 68% VA 87% VA 83% VA 68% VA 66% VA • FA/FIA sales up to $1.4bn in 1H 2019 ($0.4bn 6.3 in 1H 2018) 5.7 4.9 1.8 5.1 4.7 4.7 0.9 0.3 • Overall sales of $10.8bn in 1H 2019 ($11.2bn 0.2 0.2 0.4 0.2 0.6 0.2 1.2 1.0 0
Slide 29: HY19 financial performance: income measures
Jackson HY19 financial performance: income measures IFRS pre-tax operating profit Statutory operating income and EEV post-tax net profit and and after-tax net profit1, £bn remittances1, £bn shareholder funds1, £bn £4.9bn £5.6bn £6.7bn £3.5bn £4.3bn £3.9bn £14.1bn £15.3bn 4 0.6 0.9 0.9 1.2 0.5 1.1 1.
Slide 30: Roadmap - Conclusion
Jackson Roadmap - Conclusion • Good commercial performance in 1H 2019 - Increased sales of FIA/FA - Broadened product range and distribution - Maintained operating efficiency • Well positioned with improving growth prospects over time • Appropriately capitalised with effective financial and risk man
Slide 31: Key features
US Key features Opportunity for diversification Record of cash generation US financial performance, £m Leading position in the annuity industry1 HY19 HY18 % FY18 Best in class cost base & industry leading platform CER CER Best in class Successful track record of risk management APE 831 868 (4)% 1,59
Slide 32: HY19 financial performance: Statutory capital
Jackson HY19 financial performance: Statutory capital 6 months ended 1H 2019 Proforma 9 months ended 1H 2019 Jackson total Jackson total adjusted adjusted capital capital US$bn US$bn 31 Dec 2018 5.5 30 Sep 2018 (ex-Permitted Practice1) 4.6 Operating profit 0.8* Operating profit 1.2* Reserves net of
Slide 33: Unhedged economic profile of GMWB guarantees
US Unhedged economic profile of GMWB guarantees Jackson unhedged GMWB cash flow exposure, 30 June 2019 $m S&P @ 6/30 = 2,942 • Includes guarantee fees only Guarantee Fees Base, 5% Gross Return • Uses prudent best estimate assumptions (AG43, C3P2) PV Future Guarantee Fees 12,625 Benefits • 5% gross r
Slide 34: Economic value of VA book has improved over time
US Economic value of VA book has improved over time Time Period PV of Fees PV of Benefits Net PV 2011 $3.0bn ($0.5bn) $2.5bn 2012 $4.3bn ($0.4bn) $3.9bn 2013 $5.8bn ($0.4bn) $5.4bn 2014 $7.3bn ($0.7bn) $6.6bn 2015 $9.8bn ($2.3bn) $7.5bn 2016 $10.3bn ($2.4bn) $7.9bn Guarantee Fees Benefits 2017 $11.5
Slide 35: IFRS - variable annuity DAC mean reversion
US IFRS - variable annuity DAC mean reversion Drivers of VA DAC acceleration/deceleration Market growth < MR Market growth > MR leads to in current period AGP and future EGP leads to in current period AGP and future EGP Current period market return buffered by an in MR, subject to 15% cap buffered b
Slide 36: IFRS - HY19 hedge results
US IFRS - HY19 hedge results IFRS impact ‘below-the-line’ (£bn, pre-tax, post-DAC)1 0.5 1.5 • 1H 2019 IFRS hedge results (net of DAC) of £(1.5)bn 0.4 (1.5) • Risk management effectiveness maintained in period & continues in H2 (1.4) (2.6) • Equity markets up 17% & interest rates down meaningfully (6
Slide 37: Statutory reserves
US Statutory reserves Statutory reserves by product type, % 2007 ($71bn) 1H 2018 ($233bn) 1H 2019 ($245bn) 10% 5% 5% 5% 1% 5% 5% 3% 12% 5% 40% 7% 6% 2% 3% 54% 3% 7% 53% 8% 8% 12% 25% 4% 12% VA Separate Account – With For-Life GMW B VA Separate Account – Other non-Elite Access VA Separate Account – E
Slide 38: Key features of VA product (GMWB)
US Key features of VA product (GMWB) Key features Simplified illustration of benefit mechanics (Assumes immediate utilisation and 0% market return) Customer benefits • Customers remain owners of underlying Grey shading represents account value – until account investments value is exhausted the incom
Slide 39: Conservative return assumptions in VA reserves
US Conservative return assumptions in VA reserves IFRS mean return vs S&P historical 10 • All accounting bases assume 20-year equity market returns 9 well below the mean returns posted by the S&P 500 8 • IFRS return assumptions are especially punitive. There has 7 never been a 20-year period for the
Slide 40: Group invested assets: total debt securities by asset type
Group invested assets, continuing operations Shareholder-backed total debt securities By asset type1,2, 30 June 2019 US Asia Supranational, 0% Corporate debt portfolio ABS, 2% CMBS, 6% Sovereign¹, 10% Investment grade Quasi Sovereign • Significant weighting towards investment grade Corporate RMBS, 2
Slide 41: Group invested assets: corporate debt exposures by sector
Group invested assets, continuing operations Shareholder-backed corporate debt exposures By sector1, 30 June 2019 US Asia Technology, 3% Materials, 1% Materials, 5% Diversified, 1% Government, 2% Consumer, Cyclical, 5% Technology, 2% Communications, Other, 1% 6% Financial, 24% Industrial, 6% Consume
Slide 42: Group invested assets: debt securities by credit rating
Group invested assets, continuing operations Shareholder-backed total debt securities By credit rating1,2,3, 30 June 2019 US Asia 4% 6% 6% 15% 18% 25% 39% 27% 33% 27% Rating: AAA AA Total £45bn A Total £17bn BBB <BBB 1 Pie charts exclude other operations totalling £2bn, of which 27% AAA, 62% AA, 7%
Slide 43: Tab 3: Slides from Singapore Investor Conference November 2018
TAB 3 Jackson’s Slides from Singapore Investor Conference – November 2018
Slide 44: US Introduction
US Introduction Barry Stowe Chairman and Chief Executive Officer North American Business Unit 212
Slide 45: Who is Jackson?
Who is Jackson? Prudential U.S. Operations US Life Insurance Asset Management Leadership position in annuities market PPM America, Inc. manages $112bn AUM as of 6/30/18: Producer-focused distribution model: – 59% on behalf of Jackson Largest wholesaling network – 26% on behalf of Pru UK clients Best
Slide 46: Track Record of Success
Track Record of Success Jackson’s long-term performance is strong and consistent Separate Account Assets ($bn) VA Fee Revenue ($bn) Remittances ($m) 5.1 177 600 250 30 0.7 2018 INVESTOR CONFERENCE 214
Slide 47: Agenda
Agenda Brad Harris Steve Binioris Chad Myers Overview of risk Product and risk Product economics framework overview and accounting dynamics Equity and credit Product design risk limits and pricing Statutory deep dive Assumptions Fund selection Sources of latent review update capital Health of book C
Slide 48: US Risk Management Framework
US Risk Management Framework Brad Harris Senior Vice President, Chief Risk Officer Jackson National Life Insurance Company 216
Slide 49: Topics
Topics Overview of risk framework Equity and credit risk limits Assumptions review update 2018 INVESTOR CONFERENCE 217
Slide 50: North American Risk Framework
North American Risk Framework Holistic risk framework Three Lines of Defense Model Governance 1st Line owns and manages risk Board with independent directors 2nd Line provides independent oversight Fully independent Audit and Risk Committees membership 3rd Line provides assurance Holistic Board Comm
Slide 51: Equity Risk Limit
Equity Risk Limit The amount of equity risk allowed is largely unchanged since the crisis Equity Risk Limit Jackson’s equity risk limit is based on the % of capital that can be put at risk Because the capital level has remained flat over the last decade, the dollar amount of risk limit is largely un
Slide 52: Credit Risk Limit
Credit Risk Limit The amount of credit risk allowed is lower than pre-crisis Credit Risk Limit Jackson’s credit risk limit is also based on the % of capital that can be put at risk Because the capital level has remained flat over the last decade, the dollar amount of risk limit is largely unchanged
Slide 53: Key Risk Oversight – Credit
Key Risk Oversight – Credit Materially de-risked investment portfolio since the financial crisis 2007 ($44.9 billion) Q2 2018 ($58.7 billion) +30% 0.5% 1.2% 0.9% 3.4% 3.7% 2.2% 9.6% 12.3% 14.2% 7.4% 52.0% 25.2% 2.2% 60.1% 5.1% 2018 INVESTOR CONFERENCE 221
Slide 54: Key Risk Oversight – Credit: BBB exposure
Key Risk Oversight – Credit Jackson’s BBB exposure is stable while the investment grade market has moved toward BBB 2018 INVESTOR CONFERENCE 222
Slide 55: Key Risk Oversight – Policyholder Behaviour
Key Risk Oversight – Policyholder Behaviour Jackson Assumption Setting Process Internal Review and Experience Approval^ Studies Independent Expert ASSUMPTION SETTING ASSUMPTION SETTING Risk Opinion Judgment GOVERNANCE INPUTS Assumption External Working Group Benchmarking 2018 INVESTOR ^ Review by As
Slide 56: Assumptions Update
Assumptions Update Modest impacts similar to recent years Magnitude of changes in underlying assumptions are modest Experience trends for Variable Annuities Slightly lower lapses, potentially due to lack of attractive alternatives & regulatory uncertainty Slight overall increase in GMWB utilization
Slide 57: North American Risk: Key Takeaways
North American Risk Key Takeaways Jackson has a holistic risk framework Absolute size of equity risk limit roughly unchanged compared to pre-crisis Absolute size of credit risk limit slightly down compared to pre-crisis Materially de-risked investment portfolio since the financial crisis Robust assu
Slide 58: US Pricing and ALM
US Pricing and ALM Steve Binioris Senior Vice President, Asset Liability Management Jackson National Life Insurance Company 226
Slide 59: Topics
Topics Product and risk overview Product design and pricing Fund selection Health of book Hedging strategy 2018 INVESTOR CONFERENCE 227
Slide 60: Diversified Portfolio With Complementary Risk Profile
Diversified Portfolio With Complementary Risk Profile Product Risks Exposure as of Product Mortality / September 30, 2018 Equity Interest Rate Credit Longevity Low Rates (Min Guarantee) Fixed Annuities $25bn reserves High Rates (Incr Surrenders) Fixed Indexed $11bn reserves Higher Markets Annuities
Slide 61: Key features of Guarantee Minimum Withdrawal Benefit (GMWB)
Key features of Guarantee Minimum Withdrawal Benefit (GMWB) Key features Simplified Illustration of Benefit Mechanics (Assumes immediate utilization and 0% market return) Typical customer. Looking to manage retirement income needs. Gray shading represents account value – until account value is exhau
Slide 62: Pricing Approach and Methodology
Pricing Approach and Methodology Identify Concept & Initiate a Risk/Regulatory Review Set Assumptions Risk Adjusted Stochastic Pricing Disciplined Pricing Process Holistic and Formal Approach 2018 INVESTOR CONFERENCE 230
Slide 63: Guaranteed Withdrawal Benefit Pricing
Guaranteed Withdrawal Benefit Pricing Jackson prices its benefits conservatively PV Unhedged Profit by Percentile Text GMWB benefit is profitable at the historical mean and well into the tails Pricing Level Jackson prices far enough out in the tails to provide enough revenue to hedge PV of Profits t
Slide 64: Investment Freedom Has Led to Upside For Policyholders
Investment Freedom Has Led to Upside For Policyholders Account value upside while equity allocation remains within assumptions In-Force Allocation of VA Account Values Jackson offers full investment freedom, meaning no restrictions on asset allocation Policyholders’ risk tolerance objectives are ali
Slide 65: Reallocation History
Reallocation History Policyholders have not reallocated in reaction to market movements Policyholders have not made large reallocations to their portfolios This has been true even during large market moves The equity uptrend in the prior slide has been primarily due to equity growth over time Q2 200
Slide 66: Fund Manager Selection
Fund Manager Selection Disciplined and robust process Before a fund is offered on Jackson’s VA platform, it must pass a rigorous evaluation process Detailed review of fund history to demonstrate its trackability Breakouts of all individual holdings to assess any concentration issues Must have access
Slide 67: Diversified Separate Account
Diversified Separate Account Jackson Top 10 Funds Offer wide array of managers with no material concentration (131 funds account for 65% of our SA holdings) Several balanced funds in the top 10, limiting equity market exposure by default Jackson monitors individual holdings in each fund to detect co
Slide 68: Unhedged GMWB Cash Flow Exposure
Unhedged GMWB Cash Flow Exposure $millions S&P @ 9/30 = 2,914 Includes guarantee fees only Base, 5% Gross Return Guarantee Fees Uses prudent best estimate assumptions (AG43, C3P2) PV Future Guarantee Fees 12,272 Benefits PV Benefits (2,182) 5% gross return is well below historical average market ret
Slide 69: GMWB Unhedged Cash Flows
GMWB Unhedged Cash Flows Jackson’s block is in a very strong position Time PV of PV of Period Fees Benefits Net PV 2011 $3.0bn ($0.5bn) $2.5bn Guarantee Fees (excludes base contract fees) 2012 $4.3bn ($0.4bn) $3.9bn Benefits 2013 $5.8bn ($0.4bn) $5.4bn 2014 $7.3bn ($0.7bn) $6.6bn 2015 $9.8bn ($2.3bn
Slide 70: Cohort Analysis
Cohort Analysis Jackson has a strong VA back book, both pre and post crisis GMDB Policy Count (000s) GMWB Policy Count (000s) 19% OTM 2% ITM 931 809 6% OTM 7% OTM 103 38 Pre 3/31/07 Cohort Post 3/31/07 Cohort Pre 3/31/07 Cohort Post 3/31/07 Cohort Pre March 2007 block still solidly profitable due to
Slide 71: Hedging Philosophy
Hedging Philosophy Hedging recognizes natural offsets Manage risks within tolerances Not an immunization strategy High level of hedge effectiveness (90%+ for large market moves) Tail risks must be within risk appetite without benefit of rebalancing Requires significant portion of hedges to be option
Slide 72: Hedging Philosophy: methods updated over time
Hedging Philosophy Strategy unchanged, but methods are updated over time 2008 2018 Hedging Payoffs in Down 40% ~$1 billion ~$15 billion Equity Shock Put Options Short Futures, Call Options Primary Hedging Instruments Short Futures Put Options Counterparty Risk Emergence Down Markets Up Markets Count
Slide 73: Hedging Illustration
Hedging Illustration Ability to match economic profile, but counterparty risk is diminished Counterparty risk occurs when markets are down 2008 Vanilla Put Short Futures Vanilla Call Synthetic Put 2018 Counterparty risk occurs when markets are up 2018 INVESTOR CONFERENCE 241
Slide 74: Economic Profile of VA Guarantees
Economic Profile of VA Guarantees Jackson focuses its hedging on the protection of the economics Change in Unhedged Liability Line represents the unhedged economic liability profile for the guarantee only There is upside benefit, but this is limited due to step-ups However there would be significant
Slide 75: Economic Profile of VA Guarantees: statutory
Economic Profile of VA Guarantees Statutory accounting will not always match the economics Change in Unhedged Liability Line represents the unhedged economic liability profile for statutory as it stands 30 September 2018 Because the reserves are floored out, there are no reserves to release in up ma
Slide 76: Economic Profile of VA Guarantees: layered view
Economic Profile of VA Guarantees Jackson focuses its hedging on the protection of the economics Change in Unhedged Liability Layering the economic profile (orange line) with the 30 September 2018 statutory profile (brown line) illustrates the following: The economic gain on the upside will not be c
Slide 77: Takeaways
Takeaways Jackson has a long history of strong risk management Disciplined approach to product design, fund selection, and pricing In-force book remains strong Hedging has adapted to different conditions, but strategy is unchanged Defensively positioned for market downturns 2018 INVESTOR CONFERENCE
Slide 78: US Economics and Capital
US Economics and Capital Chad Myers Executive Vice President, Chief Financial Officer Jackson National Life Insurance Company 246
Slide 79: Topics
Topics Product economics and accounting dynamics Statutory deep dive Sources of latent capital Capital generation history and current regulatory headwinds 2018 INVESTOR CONFERENCE 247
Slide 80: Economics of Jackson's Business
Economics of Jackson’s Business What drives the economics of the business lines? Fee Spread Life Revenues Base Contract Fees Investment Income Premiums Collected Guarantee Fees Investment Income Asset Management Fees Expenses Commissions Commissions Commissions Hedging Interest Credited Interest Cre
Slide 81: Accounting Frameworks
Accounting Frameworks Accounting regimes have different objectives U.S. Statutory Designed with the protection of policyholder interests and long-term solvency of a company as the priority Therefore it is generally more conservative than other bases Faster amortization of acquisition expenses (CARVM
Slide 82: Statutory Reserve Dynamics For VA Guarantees
Statutory Reserve Dynamics For VA Guarantees Statutory reflects all relevant cash flows In statutory accounting, variable annuity reserves are reported according to AG43 The stochastic scenario for statutory reserves reflects cash flows under the worst 30% of outcomes (CTE 70) This includes all cont
Slide 83: Statutory Reserve Dynamics
Statutory Reserve Dynamics Comparison of two similar sized, hypothetical VA blocks Scenario #1 – Reserves above CSV The required reserve using the PV of cash flows exceeds the Excess cash surrender value over CSV This requires booking a reserve for the amount above the CSV floor Scenario #2 – Reserv
Slide 84: Statutory Reserve Dynamics: equity market gain
Statutory Reserve Dynamics Assume the two blocks experience a meaningful gain in equity markets Scenario #1 – Reserves above CSV The required reserve using the PV of cash flows will continue to Smaller exceed the cash surrender value, but because of the improved gap Partial state of the block, the e
Slide 85: Statutory Reserve Dynamics: equity market decline
Statutory Reserve Dynamics Assume the two blocks experience a meaningful equity market decline Scenario #1 – Reserves above CSV The required reserve using the PV of cash flows will continue to exceed the cash surrender value, but because of the weaker state of the block, the excess will be larger th
Slide 86: Jackson's Required Reserves Under Statutory are Floored
Jackson’s Required Reserves Under Statutory are Floored This indicates a strong liability profile Statutory Reserves Statutory VA guaranteed benefit reserves reflect the economic value of the future cash flows expected to be generated by the block High reserve levels relative to the balance sheet ar
Slide 87: Impact of Floored out Reserves
Impact of Floored out Reserves Change in Unhedged Liability As stated in the preceding examples, when reserves are floored out, further up moves in equity markets will cause a build up of “latent capital” This is illustrated by the growing gap between the two lines as we move to the right However, t
Slide 88: Additional Hedge Spend Requirement
Additional Hedge Spend Requirement Floored out reserves have led to additional call option spend Incremental Hedge Spend to Protect Statutory Capital in Up Markets ($m) In recent years, the flooring out of statutory reserves has meant that there was little or no reserve offset for hedging losses in
Slide 89: Statutory Deferred Tax Asset
Statutory Deferred Tax Asset Non-admitted DTAs represent unrecognized economic value Non-Admitted Deferred Tax Asset ($m) Under statutory accounting, DTAs will be included in capital to the extent that they are deemed to be “admitted” by various tests In recent years, Jackson’s admitted DTA has been
Slide 90: Divergence of Statutory and IFRS Operating
Divergence of Statutory and IFRS Operating IFRS operating income has grown while statutory operating has been flat Statutory and IFRS Operating Income* ($bn) In recent years, IFRS operating income growth has been strong, while stat operating capital generation has been mostly flat While the differen
Slide 91: Guarantee Fee Recognition
Guarantee Fee Recognition As the VA block has grown, guarantee fees have grown as well Guarantee Fee Recognition ($bn) The reported statutory operating capital generation removes all guarantee fees collected and moves them to “Reserves net of hedging” IFRS reserving methods incorporate the value of
Slide 92: Acquisition Cost Treatment
Acquisition Cost Treatment Statutory is conservative in its amortization of acquisition expense Pattern of Acquisition Cost Recognition Jackson Total Annuity Sales ($bn) Commission expenses are paid at issue, but these will be largely offset by the deferral of DAC/CARVM After the surrender charge pe
Slide 93: Impact of Acquisition Cost Differential
Impact of Acquisition Cost Differential Strong 2011-2015 sales led to a drag on statutory compared to IFRS Impact of Acquisition Cost Treatment ($bn) As explained in an earlier slide, under IFRS, DAC is amortized based on the expected gross profits over the life of the policy. Amortization moves wit
Slide 94: Capital History
Capital History Despite headwinds, Jackson has generated significant capital in the last decade Capital Development Since 2007 ($bn) Jackson’s business continues to be capital generative The reported capital and RBC levels have been roughly flat however, as the cash flows have largely funded: Cumula
Slide 95: Regulatory Update
Regulatory Update Jackson is successfully navigating meaningful capital headwinds 2017 1H18 2019-2020 Began year at 485% Began year at 409% C-1 Factor Update RBC Ratio RBC Ratio Estimated 30-40 RBC point impact 75 RBC point DTA impact 35 RBC point impact from tax reform from tax factors NAIC VA Fram
Slide 96: Takeaways
Takeaways Continued track record of delivering cash to Group despite volatile markets and regulatory headwinds Continue to drive significant value creation through a market leading position in the highest return segment of the market The economic profile of the VA book continues to improve, but stat
Slide 97: US Strategic Outlook
US Strategic Outlook Barry Stowe Chairman and Chief Executive Officer North American Business Unit 265
Slide 98: Market Leadership
Market Leadership Leading individual annuity seller in the US Strong growth in balance sheet and earnings Industry leading operating return on equity A long, durable track record of financial success for consumers and shareholders …no large write-offs, write-downs, impairments or charges taken 2018
Slide 99: The Future
The Future Strategic initiatives designed to expand reach New products for fee-based advisors Changing the narrative Technology integration Traditional channels continue to lead 2018 INVESTOR CONFERENCE 267
Slide 100: Product Launches
Product Launches Long-time leader in the commission annuity market Launched fee based versions of guaranteed VA, investment only VA, and FIA Trend in financial services has been toward fee-based for some time Wealth Management Revenue1 2018 INVESTOR CONFERENCE 1Source: PriceMetrix/McKinsey. Fee % is
Slide 101: Changing the Narrative
Changing the Narrative Demonstrating the unique value proposition of annuities to all stakeholders Regulators Investors Policyholders Influential industry voices 2018 INVESTOR CONFERENCE 269
Slide 102: Technology Integration
Technology Integration Announced collaboration in September 2018 Jackson’s variable annuity as well as fixed/index annuities will be available on the Envestnet Insurance Exchange Both commission and advisory versions will be offered Envestnet connects to over 90,000 advisors with roughly $2.3T asset
Slide 103: Traditional Channels
Traditional Channels Jackson has a market leading distribution footprint: Top VA seller in Independent B/D, Bank, and Wirehouse channels Largest and most productive wholesaling force 627 selling agreements Key development - announced distribution partnership with State Farm in October Jackson’s vari
Slide 104: Tab 4: Appendix – Distribution and Regulatory Slides
TAB 4 Appendix – Distribution and Regulatory Slides
Slide 105: Legislative and Regulatory Developments
Legislative and Regulatory Developments Legislative SECURE Act Federal and state data privacy laws Regulatory SEC Regulation Best Interest Rule NAIC Annuity Suitability Model Regulation State Standards of Conduct DOL Fiduciary Rule modifications IRS Treatment of fee-based annuities Pag
Slide 106: Industry Annuity Sales Trends – 2Q19
Industry Annuity Sales Trends – 2Q19 YTD 2Q19 Total Annuity sales increased 11% driven by continued strong sales in Fixed Indexed Annuities and Fixed Annuities. VA sales increased 13% quarter-over-quarter Observations but remain down 4% vs YTD 2Q18. YTD 2Q19 total annuity sales were up 11% ($124.8B)
Slide 107: Industry Market Share Trends
Industry Market Share Trends Jackson 1H 2019 YTD total annuity market share has declined while other carriers focus on fixed annuities Top Companies for Total Annuity Sales Then and Now Market Share Source: LIMRA / SRI Page 3
Slide 108: Industry Annuity Product Mix Trends
Industry Annuity Product Mix Trends 1H2019 Jackson continues to have a high sales allocation to Variable Annuities; however 1H sales in indexed annuities has improved product line diversification Observations AIG maintains the top rank by total annuity sales in 1H19. VA represented 27% of overall
Slide 109: Industry Advisory VA Sales by Quarter
Industry Advisory VA Sales by Quarter Observations Total fee-based VA YTD-over-YTD sales decreased Industry ($M) Jackson ($M) 17% while total VA sales decreased 4% Fee-based VA Sales by Year 2016: $4.5B 2017: $5.8B 2018: $6.9B 1H 2019: $2.9B % of Direct Response Sold Advisory Annuity B
Slide 110: JNLD is Driving Channel Diversity
JNLD is Driving Channel Diversity • Announced collaboration September 2018 • Jackson’s annuities will be available on Envestnet Insurance Exchange • Connects to over 99k advisors with roughly $3.3T assets under advisement • Announced distribution partnership in October 2018 • 10,000 authorized agent
Slide 111: JNLD is Actively Engaging FinTech Partners
JNLD is Actively Engaging FinTech Partners Consumer Version *FA Version of RISE will be available soon. What it is: Retirement Income Security Evaluation (RISE) Score is an educational and awareness-building tool for consumers and advisors, designed by the Alliance for Lifetime Income CONSUMERS What