Prudential Plc · LSE:PRU
Prudential — Investor Presentation (July 2023)
28 slides from Prudential's investor presentation, Jul 20, 2023
Slide 1: IFRS17 briefing
IFRS17 briefing 20 July 2023 2378.HK PRU.L
Slide 2: Forward-looking statements
Forward-looking statements This presentation contains 'forward-looking statements' with respect to certain of Prudential's (and its wholly and jointly owned businesses’) plans and its goals and expectations relating to future financial condition, performance, results, strategy and objectives. Statem
Slide 3: IFRS17 at Prudential: Key messages
IFRS17 at Prudential: Key messages • IFRS17 is a new accounting framework. No change to the economics or attractive fundamentals of our business • IFRS17 opening 2022 equity & 2022 adjusted operating profit consistent with guidance • Adjusted operating profit growth is driven by Contractual Service
Slide 4: IFRS17 does not change the attractive fundamentals of our business
IFRS17 does not change the attractive fundamentals of our business Leading positions Diversified model Digitally enabled Highly engaged people Iconic brand with 175 in Asia & Africa providing multiple distribution platform with an established years of history sources of resilient across agency & ban
Slide 5: Application of IFRS17 at Prudential
Application of IFRS17 at Prudential Transition approach c80% retrospective1 Non-economic assumptions Consistent with EEV Investment returns All via income statement CSM measurement model c70% VFA/c30% GMM2 1. 69% and 10% of CSM at transition applied the fully retrospective approach and the modified
Slide 6: Transition to IFRS17 consistent with guidance
Transition to IFRS17 consistent with guidance Operating profit diversified Consistent with disclosures in March 2023 across segments Shareholders’ equity, IFRS4 to IFRS17 Operating profit, IFRS4 to IFRS17 Operating profit, IFRS4 vs IFRS17 1 January 2022, US$bn FY22, US$bn by segment FY22, US$bn +1.8
Slide 7: CSM & RA represent a significant stock of future profit
CSM & RA represent a significant stock of future profit IFRS17 Gross/Net CSM & RA At transition, 1 January 2022, US$bn at transition, 1 January 2022, US$bn 188.2 188.2 BEL RA CSM Total (Re)insurance contract 4.0 assets Shareholders’ (Re)insurance contract liabilities 127.9 1.6 21.5 151.0 10.3 18.9 e
Slide 8: New business is the core driver of structural CSM growth
New business is the core driver of structural CSM growth CSM movement, net of reinsurance FY22, US$bn Structural growth in CSM 0.5 2.1 (4.4) (10)% +$2.6bn (2.2) 26.8 27.3 24.7 24.7 22.9 22.9 (0.7) 20.7 20.0 20.0 1 Jan. 2022 New business 1 Unwinding based CSM before Economic & other Balance before Re
Slide 9: CSM release drives IFRS17 insurance adjusted operating profit
CSM release drives IFRS17 insurance adjusted operating profit Adjusted operating profit, insurance business FY22, US$bn (0.2) Release from CSM 1.3 0.2 (0.2) (0.1) 3.3 3.3 2.3 2.3 2.4 2.2 2.2 2.2 Release of CSM 1 Release of RA Experience Other insurance Adjusted Net investment Other insurance Adjuste
Slide 10: Compounding effect of new business added to CSM supports growth in insurance profit over time
Compounding effect of new business added to CSM supports growth in insurance profit over time New business key to sustainable Compounding new business supports growth in CSM growth in insurance profit CSM movement, net of reinsurance Illustrative, US$bn FY22, US$bn 0.5 Illustrative increment to 2.1
Slide 11: IFRS17: Group adjusted operating profit remains a KPI
IFRS17: Group adjusted operating profit remains a KPI Total comprehensive income (loss) FY22, US$bn 0.3 (0.8) All investment returns pass through the income statement: 3.3 3.3 3.5 Limited use of OCI 2.7 2.7 (3.4) (3.4) (0.6) (1.0) (1.0) (0.4) (1.6) (1.8) (0.6) (0.2) Adjusted Eastspring Total segment
Slide 12: EEV vs IFRS17: Key difference economic assumptions
EEV vs IFRS17: Key difference economic assumptions EEV vs IFRS17 Adjusted Equity 31 December 2022, US$bn ‘Real-world’ economic assumptions based on the expected returns on the actual assets held with Assumptions IFRS17 EEV an allowance for risk in the risk discount rate. Updated at every reporting p
Slide 13: History of materially positive EEV operating and economic variances
History of materially positive EEV operating and economic variances Operating experience & Economic experience2 assumption changes1 as % of opening EV as % of opening EV 2011 1.1% 2011 1.2% 2012 1.1% 2012 2.4% 2013 0.9% 2013 -0.5% 2014 0.9% 2014 1.7% 2015 0.7% 2015 -2.8% 2016 1.2% 2016 -0.2% 2017 1.
Slide 14: EEV NBP vs New business CSM: Key difference economic assumptions
EEV NBP vs New business CSM: Key difference economic assumptions EEV NBP vs IFRS17 New business CSM FY22, US$bn Assumptions IFRS17 EEV Risk Real Economic neutral1 world1 Non-economic Aligned3 2.2 New 0.1 riders2 (0.4) 1.8 0.4 0.1 2.2 2.1 NB CSM 1.8 1.7 1.7 EEV NBP Economic, NB CSM + new riders, Rela
Slide 15: Key takeaways
Key takeaways 1 IFRS17 is a new accounting framework. No change to the economics or attractive fundamentals of our business 2 CSM release is the main driver of adjusted operating profit, which remains a KPI 3 Compounding growth from new business CSM will support growth in IFRS17 adjusted operating p
Slide 16: Introduction to IFRS17
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Slide 17: IFRS17: No change to the economics of our business
IFRS17: No change to the economics of our business • EEV new business profit (NBP) and Embedded Value • Capital generation and cash remittances No change • Regulatory capital position • Capital management, including dividend policy • IFRS accounting for investments (maintain the use of fair value th
Slide 18: A new accounting framework for insurance contracts
A new accounting framework for insurance contracts IFRS17 measurement when contract sold IFRS17 uses: Best estimate liabilities (BEL)1 • Probability weighted best estimate of future premiums, claims & expenses (entity specific) Time value • Risk neutral investment returns and discount rates (market
Slide 19: CSM measurement models reflect our business mix
CSM measurement models reflect our business mix CSM Balance1,2 At transition, 1 Jan. 2022 Model Variable Fee Approach (VFA) General Measurement Model (GMM) • With-profits • Standalone protection • Unit-linked with low proportion of • Unit-linked with high proportion of protection Business protection
Slide 20: Operating and non-operating profit under IFRS17
Operating and non-operating profit under IFRS17 Insurance segmental income statement Economic experience (Illustrative: not to scale) VFA business CSM amortisation Market movements smoothed over time via CSM release RA release Variances & other GMM business o/w Expected long-term spread1 Adjusted in
Slide 21: 2022: Effects of market movements under IFRS17
2022: Effects of market movements under IFRS17 Equities: Rates: Spreads: CSM Operating profit Non-operating Current Future VFA n/a (c70% CSM1) Impact of 2022 Smoothed over time via lower CSM release Business market movements type GMM n/a Based on long-term assumed spreads (c30% CSM1) Difference long
Slide 22: Appendix
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Slide 23: Application of IFRS17 at Prudential
Application of IFRS17 at Prudential • c80% retrospective approaches1 Transition approach • Consistent treatment of in-force & new business profitability • Similar allowance for non-market risk Non-market assumptions • Alignment of non-market assumptions with very limited non-attributable expenses. M
Slide 24: IFRS17 opening balance sheet: investments unchanged, liabilities remeasured
IFRS17 opening balance sheet: investments unchanged, liabilities remeasured Transparent fair-value measurement of assets continues Total Assets Total Equity & Liabilities At transition, 1 January 2022, US$bn At transition, 1 January 2022, US$bn 199.1 199.1 (Re)insurance contract 9.8 188.2 Shareholde
Slide 25: 2022: Pre-tax profit IFRS4 vs IFRS17
2022: Pre-tax profit IFRS4 vs IFRS17 Pre-tax income IFRS4 vs IFRS17 FY22, US$bn (0.7) 1.5 (0.7) (0.7) (0.6) Profit before tax, IFRS4 Difference in IFRS4/17 HK RBC effect in IFRS4 Difference in IFRS4/17 Profit (loss) before tax, IFRS17 Profit before tax, IFRS4 Difference–inOperating IFRS4/17 -profit
Slide 26: FY22 equity development reflects loss after tax, FX and dividends paid
FY22 equity development reflects loss after tax, FX and dividends paid IFRS17 equity roll-forward FY22, US$bn • FY22 IFRS17 adjusted operating RoE 12%1 0.1 • Continue to focus on Moody’s Total Leverage Ratio2 (1.0) (0.8) (0.5) – 20% (31 December 2022, proforma3) – 14% (31 December 2022, proforma3, a
Slide 27: Prudential NBP generation 2011-1Q23
Prudential NBP generation 2011-1Q23 EEV NBP1, 2011-1Q23 (AER2) US$bn 3.5 2.2 1.3 0.7 0.6 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Column2 1Q22 1Q23 1. Continuing insurance operations. Comparatives are adjusted for new and amended accounting standards and exclude PCA Korea Life, Ja
Slide 28: Glossary
Glossary Item Description Item Description BEL Best Estimate of Liabilities NB New Business NBP New Business Profit CSM Contractual Service Margin OCI Other Comprehensive Income EEV European Embedded Value PH Policyholders GMM General Measurement Model RA Risk Adjustment IFRS International Financial