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PRUDENTIAL PLC JONATHAN BLOOMER GROUP CHIEF EXECUTIVE MERRILL LYNCH CONFERENCE 10 OCTOBER 2002. Strength & Opportunity Through Diversity. AN INDUSTRY WITH COMPELLING DEMOGRAPHICS. Western Markets. Increased longevity: male life expectancy 66 years in 1950, 75 year in 2000 - PowerPoint PPT Presentation
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PRUDENTIAL PLCJONATHAN BLOOMER
GROUP CHIEF EXECUTIVE
MERRILL LYNCH CONFERENCE
10 OCTOBER 2002
Strength & Opportunity Through Diversity
AN INDUSTRY WITH COMPELLING DEMOGRAPHICS
•Increased longevity: male life expectancy 66 years in 1950, 75 year in 2000
• Ageing populations: median age 38 years in 2000, rising to 45 years in 2030
• Large baby boomer generations: percentage of elderly in United States will increase to 20% by 2010
•Increased affluence
Western Markets
Source: “An Ageing World”, US Census Bureau, November 2001
Funding for retirement is a growing issue
AN INDUSTRY WITH COMPELLING DEMOGRAPHICS
Population (m)
China 1,266India 1,007Indonesia 210Japan 127Vietnam 78Philippines 81Thailand 63S Korea 47Malaysia 23Taiwan 22Hong Kong 7Singapore ___4Total 2,935
• High savings rates
• Increasing urbanisation
• Improving education standards
• Rapidly-growing middle classes
• Young populations: median age 27 years in 2000, rising to 37 years in 2030
Emerging Markets
Source: “An Ageing World”, US Census Bureau, November 2001
Funding for retirement is a growing issue
PRUDENTIAL PLC GROUP OVERVIEW
Focus on medium and long term savings
A leading international retail financial services player:
- UK/Europe
- US
- Asia
Scale and resources for future growth
Balancing short-term and long-term strategies to deliver value to our shareholders
CLEAR BENEFIT FROM STRONG POSITIONS IN INTERNATIONAL MARKETS
2002 H1
1999 H1
44.4%
32.1%
23.4%£927m
36.5%
29.5%
34.0%
£397m
£778m £275m
63.8%
27.9%
8.3%
52.7%34.9%
12.4%
APE sales by region NBAP by region
UK & Europe US Asia
FUNDAMENTALS
Financially sound, with AAA ratings from S&P and Moody’s
Inevitable beneficiary of the “flight to quality”
Outstanding international portfolio of businesses
Long-term industry demographics are compelling
Underlying performance of the business remains strong
DESPITE DIFFICULT EQUITY MARKET CONDITIONS
BUSINESS MODEL
Scale presence
Product expansion
Multi-channel distribution
Low cost base/scale economics
Balance of growth and return on capital
IN EVERY MARKET WHERE WE OPERATE
GROUP STRUCTURE
UK & Europe USA Asia
UK OPERATIONS
UK & Europe USA Asia
Medium and long term savings
Focus on pensions, annuities, with-profit bonds
7 million customers
Excellence in fund management
Fixed income; retail mutual funds
550,000 retail customers
World’s largest digital bank
2.3 million customers
UK MARKET: INDUSTRY DYNAMICS
£27BN ANNUAL SAVINGS SHORTFALL
Focus on high-growth medium to long term savings
Leading positions in key profitable product areas
Continuing to diversify distribution channels
Reinvesting in the UK’s leading life insurance brand
Transformation of cost base
UK LIFE INSURANCE OPERATIONS: STRATEGY
Form 9 ratio of 11%* at 30 June 2002
No use of- future profits- subordinated debt- contingent loans- financial reinsurance
Resilience scenario- fall in equity values 17%- fall in property values of 20%- rise in bond values of 8%
ONE OF THE STRONGEST LIFE FUNDS IN THE UK
* incorporating FSA resilience rules of 28.6.02.
36.0%
14.8%15.6%
2.0%
29.4%
2.2%
UK equities International equitiesProperty Other assets
Fixed interest Cash
Asset mix at 30th June 2002
Total annual savings of £200m from 2004
One-off cost of c£170m
£65m positive impact on new business achieved profit by 2004
(100)
(50)
0
150
200
2001 2003 2004
Tran
sition
C
osts
50
100
2002
*Measured in 2001 £
£m*
(40)
85
(40) (40)
145
200175
(90)
An
nu
al S
avin
gs
10m
100
165
(90)
(40)
LOW COST BASE ESSENTIAL TO COMPETE PROFITABLY
November 2001 target
Revised June 2002 target
Source: The Research Department - group weighted performance over rolling periods (M&G unit trusts)
ABOVE AVERAGE PERFORMANCE IN DIFFICULT CONDITIONS
M&G's position out of top 40 fund managers
M&G: SUSTAINING GOOD FUND MANAGEMENT PERFORMANCE
Life fund out-performance is key competitive advantage
Solid 2 year records established and maintained
Building on this base to improve key 3 year positions
Strong individual performers within the fund range
0
5
10
15
20
25
30
35
40Dec-99
Mar-00
Jun-00
Sep-00
Dec-00
Mar-01
Jun-01
Sep-01
Dec-01
Mar-02
Jun-02
Rolling 2 years Rolling 3 years
EGG: SUSTAINABLE PROFITABILITY
Total customers up to 2.31 million
Acquisition costs fallingRevenue per customer continues to grow - up
10% in the half year
customer growth
0
500
1,000
1,500
2,000
2,500
Jan Mar May Jul Sep Nov
eg
g u
niq
ue
cu
sto
me
rs (
00
0's
)
1998 1999 2000 2001 20020
20
40
60
80
100
120
140
160
2000 2001 2002qu
arte
rly a
nnua
lised
reve
nue
per c
usto
mer
(£)
customer profitability
US OPERATIONS
UK & Europe USA Asia
70% of the world’s retirement assets
Demographics remain very attractive- 102% increase in elderly population from 2000 to 2030- life expectancy is increasing- workers are retiring younger
Traditional retirement funding is disappearing- future retirees unlikely to receive Social Security- retirement plans moving from Defined Benefit to Defined Contribution
US MARKET DYNAMICS
Sources: “An Aging World”, US Census Bureau, November 2001; The White House
Leading player in annuities market
Successfully diversified product lines to suit different economic environments
Access to strong and growing distribution channels
Competitive advantage through low cost structure
Growth organically and by selected acquisitions
JACKSON NATIONAL LIFE: STRATEGY
SCALE PLAYER IN CHOSEN SEGMENTS
STRONG SALES IN A DIFFICULT ENVIRONMENT
$0
$50
$100
$150
$200
Jan
Feb
Mar Apr
May Jun Jul
Aug Sep Oct
Nov
Dec
Sale
s ($
mill
ions
)
2001 2002
VARIABLE ANNUITIESSuccessful launch of Perspective II
$0
$100
$200
$300
$400
Jan
Feb
Mar
Apr
May Jun
Jul
Aug Sep Oct
Nov
Dec
Sale
s ($
mill
ions
)
2001 2002
FIXED ANNUITIESContinued strong growth
ASIAN OPERATIONS
UK & Europe USA Asia
Regional economies showing signs of recovery
- structurally stronger than 97/98 crisis
Compelling demographics remain
- vast populations with emerging middle classes
- low levels of state-sponsored benefits
- increasing urbanisation
TREMENDOUS LONG-TERM POTENTIAL IN ASIA
Life Penetration
1. Source: Swiss Re; 2. Source: CIA
S KoreaJapan
Taiwan
Hong Kong
ChinaIndia
Philippines IndonesiaThailand
Vietnam
MalaysiaSingapore
0%
2%
4%
6%
8%
10%
12%
1,000 10,000 100,000
Penetration, 19991
Per Capita GDP2, US$ (log scale)
= $1bn in new business premiums
The opportunity:
- existing levels of wealth
- strong long-term economic growth projections
- high personal savings rates
- affinity for deposits now changing
UNIQUE OPPORTUNITY FOR MEDIUM AND LONG TERM SAVINGS
Percent of holdings by asset class
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
HK Mal Sing Indi Jap Taiw Kor Thai Chin Phil Indo US
Average Income per household (US$k)
Mutual Funds
Equities
Fixed Income Securities
Pensions
Life Insurance
Cash/Deposits
Other/Misc
44 8 22 5 63 35 26 3 3 4 1 50
Source: Central Banks, World Bank, SEC Division of Investment Management
ASIAN OPERATIONS
AIG
Manulife Allianz
NY Life ING
Cathay Life
Aegon Aviva Mass Mutual US Prudential RSA Sun Life
Zurich Axa
4-5
2-3
0-1
1-2 3-6 7-8
Number of market presences/licences
9+
Number of markets with top 5 position
6-8Prudential
Source: PCA analysis
LEADING REGIONAL LIFE INSURANCE PLAYER
Great Eastern
Established markets continuing strong growth
Increasing scale in vast markets of North Asia and Greater China
Rapidly building greenfield operations
Building on bancassurance success and continuing to diversify distribution
Increasing scale and profitability of mutual fund operations
Managing life portfolio for sustained profitability
STRONG TRACK RECORD OF DELIVERING VALUE
Total net capital 1994 to
1H02: £723m
£100-150m per annum
expected going forward
More mature businesses
increasingly repatriating
capital
(1) 22 7 11
158
76
144
274
NET CAPITAL FLOWS
32
ASIA: MODEST CAPITAL REQUIREMENT
36% increase in total sales of £13.7bn
- 2% increase in APE insurance sales to £926m
- 50% increase in net sales of investment products to £826m
16% increase in new business achieved profits to £397m
Group margin increased to 43%, from 38% at 2001 year-end
Dividend increased 2.3% to 8.9p
Strong free asset ratio of 11%
2002 INTERIM RESULTS HIGHLIGHTS
Internationally-diversified retail financial services group
AAA financial strength
Resources to deliver continued growth in sales and profits
Focus on profitability and return on capital
Good start towards doubling the value of the group
DRIVING THE BUSINESS FORWARD
QUESTIONS