Slide 1: 2019 Full Year Results
Prudential plc 2019 Full Year Results 11 March 2020 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: Mike Wells, Group CEO
Mike Wells Group CEO 2019 FULL YEAR RESULTS 3
Slide 4: Agenda
Group Agenda Strategic overview Mike Wells Group CEO Financial update Mark FitzPatrick Group CFO & COO Closing remarks Mike Wells Group CEO Q&A 2019 FULL YEAR RESULTS 4
Slide 5: Financial highlights: consistent compounding value in volatile markets
Group Financial highlights: consistent compounding value in volatile markets Asia APE sales Earnings LCSM surplus2,3 4 + % Asia total +17% Asia ex HK + 20% $ 9.5bn Growth on prior year IFRS FY2019 APE vs FY2018 CER1 Coverage ratio: 309% operating profit1 to $5.3bn Asia NBP RoE Asia investment 2 + %
Slide 6: Active portfolio manager – c.$7bn invested in Asia since 2013
Group Active portfolio manager – c.$7bn invested in Asia since 20131 2013 Capital allocated to highest value opportunities Strategic exits Investments Renewal of SCB2 banca Entered Africa Acceleration in investment Japan sale # of businesses7 with 1,311 4 8 profits >$150m Entered Laos Stopped writin
Slide 7: Asia Overview
Asia Overview ` ` ` Growth Diversification Resilience 2019 FULL YEAR RESULTS 7
Slide 8: Strategic priorities
Asia ` ` ` Strategy Growth Diversification Resilience Strategic priorities ` • Reboot of Indonesian distribution and product set • Leader in banca1 – enhanced with UOB (APE +24%)2 & SeABank (20Y exclusive)3 Enhance the core • Broadening product offering: developed >160 products, contributing c.16% o
Slide 9: Structural demand drivers
Asia ` ` ` Key success factors driving growth Growth Diversification Resilience Capabilities/Competitive advantages ` ` ` ` Low insurance Par Fund1 Eastspring3 China & mutual fund Large UK-style with profits funds penetration 1st 2 branches 8.0 8.2 $241bn of AUM Access to: 6.8 6.7 c.80% contributing
Slide 10: Diversified high quality portfolio
Asia ` ` ` Diversified high quality portfolio Growth Diversification Resilience Diversified High quality Other Hong Kong +24% Banca Agency Indonesia (3)% 93% 45% FY19 Singapore +14% Channel (% APE) $3,276m Regular premium Repeat sales as % of APE Linked +14% Eastspring +18% H&P Malaysia +10% Non Par
Slide 11: Resilient and compounding business
Asia ` ` ` Resilient and compounding business Growth Diversification Resilience Compounding1,2,3 Resilient growth in earnings & cash1,2,3 4x 18% 2,993 CAGR 23,845 CAGR 10% ` 2018 to 2019 13% YoY growth, % IFRS operating New business profit, $m 14% 16% 583 Renewal premium 2009 2019 21% 1,522 CAGR ` F
Slide 12: Asia – market highlights: Hong Kong
Asia – market highlights Hong Kong: Resilient earnings • Continuing to invest in an attractive & resilient business • Near term sales environment impacted by social unrest and coronavirus containment measures • Track record of recovery from periods of disruption underpinned by structural trends & at
Slide 13: China and Indonesia
Asia – market highlights China and Indonesia ` ` China Post-tax Indonesia 41% 38% 20% 39% (3)% 262 219 227 190 182 163 559 540 2018 CER 2019 2018 CER 2019 2018 CER 2019 2018 CER 2019 New business profit, $m IFRS operating profit, $m New business profit, $m IFRS operating profit, $m ✓ APE +53% & NBP
Slide 14: Coronavirus update
Asia Coronavirus update Staff & Customers Society agents • Enhanced benefits and extra • Focused on supporting the welfare of our • Established Incident Management coverage across markets colleagues, their families and their local Teams at regional and local levels; communities monitor situation ver
Slide 15: 2019 sales and distribution highlights
US 2019 sales and distribution highlights Sales and deposits, $bn Successful sales diversification • 8% YoY growth, with strong 2H sales 8% • FA/FIA sales grown 6x, representing 23% of total sales (2018: 4%) 22.2 • VA sales down 12%; industry core VA sales down 5% whilst 20.6 2.5 total industry sale
Slide 16: Execution progress
US Execution progress • Enhance statutory capital generation and cash returns over time • Preserve balance sheet resilience Objectives • Accelerate new business diversification • More balanced mix of policyholder liabilities • Remittance of $525m - maintained long term track record of delivery • Ear
Slide 17: Key take-aways
Group Key take-aways • Strong performance in volatile and uncertain environment • Asia focused on high quality profitable growth; significant investment continues • Jackson demonstrating resilience and organic diversification • Active capital allocation, Jackson IPO preparation commenced • Well posi
Slide 18: Mark FitzPatrick, Group CFO & COO
Mark FitzPatrick Group CFO & COO 2019 FULL YEAR RESULTS 18
Slide 19: Selected performance metrics: continuing operations
Group Selected performance metrics: continuing operations $m FY18 (CER1) FY19 Change % New business profit 3,460 3,522 2% EEV operating profit2 6,052 6,138 1% Operating FSG2 1,567 1,772 13% Asia Embedded Value 32,0083 39,235 23% Adjusted IFRS operating profit2 2,872 3,276 14% Remittances3 450 525 17
Slide 20: High quality, diverse portfolio supports new business
Asia High quality, diverse portfolio supports new business APE sales, $bn New business profit, $bn Growth1 in APE • China +53% • Laos +43% 5.0 5.2 +4% • Philippines +34% 3.5 3.5 +2% Asia • Indonesia +23% Asia 2.7 1.2 1.5 +29% 3.2 +17% ex HK ex HK • Taiwan +21% • Vietnam +12% Hong (12)% Hong • Malays
Slide 21: Compounding new business profit drives growth in EEV
Asia Compounding new business profit drives growth in EEV Movement in embedded value, $bn 39.2 0.3 2.1 (1.0) 2.3 3.5 32.0 • Regular premium focused EEV Operating return $6.1bn, RoEV 19%2 • H&P and capital-efficient UK style with-profit funds 1 FY18 closing NBP In-force return Asset Net remittances N
Slide 22: Eastspring: delivering profitable growth
Asia Eastspring: delivering profitable growth External net flows, $bn1 Operating leverage, $m Equity 19% Cost/ income ratio7 55% 52% +14% 8.9 Bonds 4.0 2.3 81% +8% -2.1 557 636 304 329 2016 2017 2018 2019 FY18 (CER) FY19 Income ex PRF Operating expenses FUM movement FY192, $bn IFRS operating profit,
Slide 23: Resilient in-force growth drives IFRS operating profit
Asia Resilient in-force growth drives IFRS operating profit Renewal premiums, $bn IFRS operating profit, $bn Insurance margin & fees drive IFRS income1 5% 8% 25% +12% +14% 59% 3.3 3% 19.0 2.9 0.3 +18% Eastspring 0.2 Spread Fee With-profits Ins. Margin Return SH assets 17.0 Strong market contribution
Slide 24: US IFRS result
US IFRS result US IFRS result, $m Key drivers FY18 FY19 Fee income +0.8% YoY Fee 3,265 3,292 Average separate account balance +1.6%, average fee margin 182bps (2018: 183bps) Spread 778 642 Spread margin 112bps (2018: 155bps) Lower core spread & reduced income from swaps held for duration management
Slide 25: Evolution of RBC over 2019
US Evolution of RBC over 2019 US statutory surplus & RBC ratio development1, 2019 ($m/%) 458% (75)%p 141%p (37)%p (76)%p (28)%p (17)%p 366% • RBC ratio at 31 December 2019: 366% (50)%p net hedge losses (26)%p increased non-admitted DTA • Early adoption of NAIC framework2, impacted RBC ratio by (17)%
Slide 26: Central cost base to improve by c.$180 million post demerger
Group Central cost base to improve by c.$180 million post demerger Group IFRS result, $m FY18 FY19 Change % (CER) Asia 2,872 3,276 14 US 2,563 3,070 20 Total segment profit continuing operations 5,435 6,346 17 Asia and US segment profit up 17%. No demerger impact Other income & expenditure, restruct
Slide 27: Robust and resilient LCSM capital generation supporting investment in growth
Group Robust and resilient LCSM capital generation supporting investment in growth FY19 movement in estimated LCSM shareholder LCSM shareholder surplus estimated sensitivities1,5 capital surplus1, $bn Cover ratio Impact on solvency 2 356% ratio 1 January 2019 9.7 1,4 FY19 estimated surplus $9.5bn 30
Slide 28: Strong liquidity position post demerger
Group Strong liquidity position post demerger Movement in holding company cash $m FY19 Hold co. cash period start 4,121 Net remittance to Group • High 2019 opening cash balance held in preparation for demerger Asia 950 • Post demerger, a lower level of liquidity held centrally US1 509 • YE19 core st
Slide 29: Dividend policy
Group Dividend policy • Progressive dividend policy • Level of dividend growth will take into account: ➢ Investment opportunities ➢ Capital generation capacity ➢ Financial prospects ➢ Market conditions • Will be applied to the 2019 post demerger base dividend of 36.84 cents per share • Dividend will
Slide 30: Key take-aways
Group Key take-aways • Asia execution and diversification driving strong financial outcomes • US: First steps in execution of new strategy • Strong operational delivery, continual focus on discipline in central expenses • Resilient balance sheet, appropriate capital management policy to support grow
Slide 31: Mike Wells, Group CEO
Mike Wells Group CEO 2019 FULL YEAR RESULTS 31
Slide 32: Investment case: Focused on structural growth markets in Asia
Group Investment case: Focused on structural growth markets in Asia 1 A leading Asian franchise operating in markets forecast to continue growing at 10%1 2 Active portfolio management approach with a record of effective capital allocation 3 Building long-term shareholder value 1 Source: Allianz Rese
Slide 33: Q&A
‘ZA PRUDENTIAL Q&A 2019 FULL YEAR RESULTS 33
Slide 34: Closing statement
Closing statement ` ` ` Growth Diversification Resilience 2019 FULL YEAR RESULTS 34
Slide 35: Appendix contents
Contents: Asia 36 Appendix US Africa 51 65 Group 68 2019 Full Year Results 2019 FULL YEAR RESULTS 35
Slide 36: Asia
Asia 2019 FULL YEAR RESULTS 36
Slide 37: Quality execution: Consistent and resilient growth across cycles
Asia Quality execution: Consistent and resilient growth across cycles IFRS operating profit1, $m 24% CAGR • Asian Financial • 9-11 Terrorist Attack • China & India grow • Global Financial • Eurozone slowdown • Further US • Brexit (2016) • Lower interest rates Crisis (1997- (2001) as world Financial
Slide 38: Leading pan-regional franchise
Asia Leading pan-regional franchise Life China9 Pru Asia footprint1 >600k Eastspring Japan Agents 1,434m P P 127m P >300 India Korea Life & asset management Taiwan12 distribution partnerships 1,366m Top 3 Top 10 51m P 24m P P 1.4m Myanmar New Pru life customers7 P Hong Kong Top 3 54m Laos 7m Top 3 T
Slide 39: Development of PCA in the last years
Asia Development of PCA in the last 10 years APE Channel mix APE Retention Product split Single vs regular Ratio APE Channel Mix NBP Channel Mix 7% 4% H&P 27% 14% Single 6% Savings 33% 29% c.90% Par 2009 64% 82% Regular 94% Linked 36% Other 4% $1.5bn1,2 $0.7 bn1,2,3,4 APE Channel Mix NBP Channel Mix
Slide 40: Life in-force underpins cash generation prospects
Asia Life in-force underpins cash generation prospects Movement in undiscounted expected life Movement in life free surplus, $m free surplus, $m +$ 7m (1,987) 7,723 (3,280) (619) 63,023 1,994 (950) 850 60,567 147 3,624 2018 New Amounts Other2 2019 2,202 expected business expected expected free free
Slide 41: PCA value in Prudential joint ventures
Asia PCA value in Prudential joint ventures ` ` CITIC PRU Partner ICICI Bank CITIC Corporation Prudential Share 22% 50% Market Value $ 8.9 bn ₹ 639.31bn1,6 N/A EV $ 2.6 bn ₹ 226.8 bn2,6 Not disclosed IFRS NAV $ 0.8 bn ₹ 75 bn3,6 Not disclosed GWP $ 4.11 bn ₹ 309.3 bn4,6 $ 2.4 bn RMB 21.3 bn6 Pre-tax
Slide 42: Market highlights – Hong Kong
Asia Market highlights – Hong Kong ` Domestic Mainland ` Resilient performance Ageing population Attractiveness of HK policies Execution6 supported by structural Significant protection gap Government initiatives: Greater Bay Area demand drivers Government initiatives: QDAP3 and VHIS4 APE -11% to $2,
Slide 43: Market highlights – China
Asia Market highlights – China ` ` Faster growth in GDP than advanced economies1 Structural demand drivers Execution7 Significant protection gap2 remain intact 350million3 entrants into the middle class will be in China APE (@ 50%) ` Operationalised Hunan, established 20th branch Shaanxi +53% to $59
Slide 44: China - Broadening and deepening presence
Asia China - Broadening and deepening presence 2018 2019 CPL Penetration Industry GWP by Province (RMB,m) CPL GWP by Province MS% (RHS) Year Change 400,000 5% (% GWP) No Branch 350,000 4% Established 2018 2019 Y-Y (bps) 300,000 4% 1 Guangdong 2000 1.5% 1.6% 10 3% 2 Beijing 2003 3.4% 3.9% 54 250,000
Slide 45: Market highlights – Indonesia
Asia Market highlights – Indonesia ` Enhancing distribution Agency APE +25%; highest sales since 2015 Execution8 capabilities – Quality and Elite agents growing sales by +57%, contributing 25% of agency APE APE sustainable delivery MDRT +31% to 1,061 qualifiers; largest in Indonesia + 23% to $390m 1
Slide 46: Market highlights – Singapore, Malaysia and Eastspring
Asia Market highlights – Singapore, Malaysia and Eastspring ` ` ` Singapore Malaysia Eastspring Strong market positioning Strong market positioning Strong market positioning • Top 3 market share & in regular premium • #1 market share in conventional & takaful • Top 10 in 7 out of 11 markets • Best e
Slide 47: Business highlights - Other markets
Asia Business highlights - Other markets India Vietnam Thailand Pivot to H&P Enhancing distribution capabilities Enhancing distribution capabilities • Product mix shift to H&P +5ppts to 15% • 20-year exclusive partnership with SeABank • Thanachart Bank APE: +22% • NBP margin up 2ppts to 19% • Strong
Slide 48: Unlocking new customer segments
Asia Unlocking new customer segments ` ` SME HNW Structural drivers Operational execution Structural drivers Operational execution • c.60m SMEs making up 97% of • Developed PRUworks – a Asia Pacific expected to contribute • OPUS in Singapore total enterprises replicable and scalable model 57% of wor
Slide 49: Asia invested assets
Asia invested assets Asset portfolio Breakdown of Asia invested assets1,2, FY19 $bn Shareholder debt portfolio, FY19 $bn Shareholder-backed Holding by issuer Par funds Unit linked Total Asia Life Portfolio No. Av. Max <BBB $bn Issuers $m $m Debt 44.8 5.2 24.6 74.6 Sovereign debt 3 10.4 12 866.7 2,90
Slide 50: Shareholder-backed debt exposures
Asia invested assets Shareholder-backed debt exposures By asset type1,2, 31 Dec 2019 By sector1, 31 Dec 2019 Corporate debt exposures Government Diversified 3% ABS Basic 1% 1% Materials Technology 2% 3% Financial Corporate Consumer, Cyclical 39% Bonds 3% 48% Sovereign 45% Industrial 11% Energy 10% C
Slide 51: US
‘ZA PRUDENTIAL US 2019 FULL YEAR RESULTS 51
Slide 52: Statutory reserves and sales developments
US Statutory reserves and sales developments Statutory reserves by product type, % Sales and deposits, $bn VA % of retail sales 95% 96% 96% 95% 89% 79% 65% 70% 2007 ($71bn) 2019 ($256bn) 90% 68% 87% 83% 68% 66% 61% 70% VA % of total sales 10% 5% 4% Variable Annuities Fixed and Fixed Indexed Annuitie
Slide 53: Unhedged economic profile of GMWB guarantees
US Unhedged economic profile of GMWB guarantees Jackson unhedged GMWB cash flow exposure, 31 December 2019 $m S&P @ 12/31 = 3,231 • Includes guarantee fees only Base, 5% Gross Return Guarantee Fees • Uses prudent best estimate assumptions (AG43, C3P2) PV Future Guarantee Fees 12,504 Benefits PV Bene
Slide 54: Conservative return assumptions in VA reserves
3.5 US 3 Conservative return assumptions in VA reserves 2.5 2 IFRS mean return vs S&P historical 1.5 Chart Title 1 10 10 10 10 Chart Title Chart Title • All accounting bases assume 20-year equity market returns 4.59999 Chart Title 0.5 well below the mean returns posted by the S&P 500 4.5 4.5 484.5 8
Slide 55: IFRS - variable annuity DAC mean reversion
US IFRS - variable annuity DAC mean reversion Drivers of VA DAC acceleration/deceleration Market growth < MR Market growth > MR leads to ↓ in current period AGP and future EGP leads to ↑ in current period AGP and future EGP Current period market return buffered by an ↑ in MR, subject to 15% cap buff
Slide 56: Additional Hedge Spend Requirement
Additional Hedge Spend Requirement In recent years, accounting/regulatory issues have led to additional hedging spend Incremental Hedge Spend to Protect Statutory Capital ($m) 550 500 500 • Statutory reserves will be no less than the cash surrender value of the underlying policies • In recent years,
Slide 57: Statutory Deferred Tax Asset
Statutory Deferred Tax Asset Non-admitted DTAs represent unrecognised economic value • Under statutory accounting, DTAs will be included in capital to the extent that they are deemed to be “admitted” by various Non-Admitted Deferred Tax Asset ($bn) tests • In recent years, Jackson’s admitted DTA has
Slide 58: Divergence of Statutory and IFRS Operating Profit
Divergence of Statutory and IFRS Operating Profit IFRS operating income has grown while statutory operating has been flat Statutory and IFRS Operating Profit1 ($bn) • In recent years, IFRS operating profit growth has been 2.4 strong, while stat operating capital generation has been mostly flat 2.0 1
Slide 59: Guarantee Fee Recognition
Guarantee Fee Recognition As the VA block has grown, guarantee fees have grown as well Guarantee Fee Recognition ($bn) • The reported statutory operating capital generation removes all guarantee fees collected and moves them to “Reserves net 0.7 0.7 of hedging” 0.7 0.7 0.6 0.6 • IFRS reserving metho
Slide 60: Impact of Acquisition Cost Treatment
Impact of Acquisition Cost Treatment 2011-2015 sales impact on statutory compared to IFRS Impact of Acquisition Cost Treatment ($bn) 0.2 0.2 0.2 0.2 0.2 0.2 • Under IFRS, DAC is amortised based on the expected gross profits 0.1 0.1 over the life of the policy. Amortisation moves with the market 0.1
Slide 61: Pattern of Acquisition Cost Treatment
Pattern of Acquisition Cost Treatment Statutory basis conservatism in its amortisation of acquisition expense Pattern of Acquisition Cost Recognition Jackson Total Annuity Sales ($bn)1 $30 Commission expenses are paid at issue, but these will be largely offset by the deferral of DAC/CARVM $20 After
Slide 62: US Capital generation
US Capital generation Statutory capital generation and EEV OFSG FY19 statutory surplus operating generation, $m1 FY19 life EEV OFSG, $m3 Projected in-force free surplus generation, $m4 (Required capital = 100% CAL) (Required capital: regulatory constraint, 250% CAL) (Required capital: regulatory con
Slide 63: US invested assets
US invested assets Asset portfolio Breakdown of US invested assets, FY19 $bn Shareholder debt portfolio, FY19 Shareholder-backed Holding by issuer Portfolio No. Av. Max US life <BBB $bn Issuers $m $m Debt 58.5 Sovereign debt 6.2 3 2,066.7 6,137.2 0.0% Other debt 51.1 1,280 39.9 308.9 1.8% Equity 0.2
Slide 64: Shareholder-backed debt exposures
US invested assets Shareholder-backed debt exposures ` By asset type1,2, 31 Dec 2019 By sector1,2, 31 Dec 2019 Corporate debt exposures Corporate debt portfolio3 Technology Investment grade Quasi 3% • Significant weighting towards investment grade Other Public Sector Sovereign Basic Materials Other
Slide 65: Africa
Africa 2019 FULL YEAR RESULTS 65
Slide 66: Regional footprint
Africa Regional footprint Ghana 2014 Acquisition of Express Life Population of Africa1 2015: Distribution partnership with Société Générale 1.3 bn 2.3 bn 2015: Distribution partnership with Fidelity Bank 2016: Distribution partnership with CAL Bank 2019 2045 2018: Distribution partnership with Stand
Slide 67: 2019 Business highlights
Africa 2019 Business highlights $82 million of APE sales Agency Bancassurance +70% 9,000+ agents +256% APE sales growth Distribution +76% APE sales growth 4 countries with Optimising strategic partnerships APE growth1 MDRT agents 1st in 5 markets Digital client onboarding Products to launch ‘never l
Slide 68: Group
Group 2019 FULL YEAR RESULTS 68
Slide 69: Medium term bond maturity profile
Group Medium term bond maturity profile EEV, IFRS Equity & Debt at amortised cost, $bn Group bond maturity profile2,3, $m (As at 31 Dec 2019) (As at 31 Dec 2019) 3,725 4.6 54.7 22 576 19.5 331 250 0.7 397 EEV Equity IFRS Equity Debt at amortised cost1 2023 2027 2029 2031 Perpetual Senior Senior Subo
Slide 70: Capital generation
Capital generation Comparison of Group LCSM with EEV Free Surplus generation FY19 movement in estimated LCSM capital surplus1, $bn FY19 movement in EEV free surplus6,7, $bn Required capital = Group Minimum Capital Requirement (GMCR) Required capital set to satisfy regulatory constraints 1 January 20
Slide 71: Prudential plc 2019 Full Year Results
Prudential plc 2019 Full Year Results 11 March 2020 71