Generating Cash through Focused Participation UK & Europe
Agenda
Current strategy and key financials
External outlook and industry trends
Strengthening our position
Looking towards the long term
2
Agenda
Current strategy and key financials
External outlook and industry trends
Strengthening our position
Looking towards the long term
3
Current strategy
Rigorous approach to new business pricing
Capital strength supports group balance sheet
Sustainable cash generation
Delivering the embedded value of the in-force book through cost and persistency
management
Disciplined and active management of our product portfolio and routes to market
Focus on annuities and With-Profits
Selective
participation
Capital
discipline
Cash
generation
4
223 257
231
274
7
108
29
39
2009 2010 2011 2012
Retail
New business EEV profit, £m
Wholesale1
32%
45%
35% 37%
2009 2010 2011 20122
Sustained performance
5
New business margin, %
Note: 1. Wholesale includes bulks and credit life; 2. The peak during 2010 is due to the profitable bulk annuity business written in the last quarter of 2010
284 202 216
98 74 97
150 120
223
2009 2010 2011 2012
Notes: 1. Includes net impact of restructuring costs; 2. One-offs include net impact of financing arrangements
434 420 297 313
Stable IFRS profit and strong cash delivery
6
Cash remittances to Group1, £m IFRS operating profit, £m
657 656700 705
6323 31
2009 2010 2011 2012
Retail
Bulks
PAC shareholder transfer Shareholder surplus
generated
One-off2
184 57
15
12
6
39
241
338
189
21 6 41
836 Total 313 Total
Delivered through a range of products
Investments
Annuities
Corporate
Pensions
Protection
and Health
Bulk Annuities Others
Investments
Corporate
Pensions
Protection
and Health
Others
Annuities
362
241
33
39 30
31
736 Total
Investments
Corporate
Pensions
GI, Protection
and Health
Bulk Annuities Others
Annuities
Note: The EEV & IFRS segmental analysis is an internal analysis and is not externally audited. Investments includes with profits bonds, unit linked bonds, offshore bonds and individual pensions; Protection and Health includes PruHealth and PruProtect; Others (sales/NBP) includes Credit Life, lifetime mortgages, Poland; Others
(IFRS) includes Credit Life, lifetime mortgages, Poland, various legacy entities, service and other companies.
7
2012 New Business EEV Profit by
product, £m 2012 Sales by product, APE £m 2012 IFRS Profit by product, £m
Bulk Annuities
Agenda
8
Current strategy and key financials
External outlook and industry trends
Strengthening our position
Looking towards the long term
0
25
50
75
100
125
Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13
(20)%
(15)%
(10)%
(5)%
0%
5%
10%
15%
20%
25%
0
50
100
150
200
250
300
3Q07 3Q08 3Q09 3Q10 3Q11 3Q12
(2.0)%
0.5%
3.0%
5.5%
8.0%
10.5%
13.0%
(4.5)%
(3.5)%(2.5)%
(1.5)%
(0.5)%0.5%
1.5%
2.5%3.5%
4.5%
3Q07 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13
0.5
1.5
2.5
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13
BoE Base Rate
Consumer Price
Inflation, % p.a.
Change in house prices (line), % p.a.
New mortgage approvals (bar), 000s
Household savings ratio (line), %
Household total gross disposable income (bar), £m
Total unemployed (line), m
Quarterly GDP growth (bar), %
Interest rates and inflation Consumer confidence House prices
GDP and unemployment Household income and savings FTSE100
0%
1%
2%
3%
4%
5%
6%
7%
Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13
Source: ONS, HM Treasury, Bank of England, GfK.
-40
-35
-30
-25
-20
-15
-10
-5
0
Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13
Economic outlook remains cautious with recent positive signs
9
Liquid assets3,4 by age
31% 30% 31% 32% 35%
37% 40%
45%
49% 51%
53% 55%
Old age dependency ratio1,2
Total
Ageing population with 57% of liquid assets held by over 55s
10
Sources and notes: 1. UN Population Statistics, Prudential analysis; 2. Old Age Dependency Ratio = (Population Above the Age of 65)/(Population within the age bracket of 15-64)*100; 3. HMRC UK Personal Wealth Statistics based on 2008-2010 ONS Wealth and Asset Survey WAVE 2, and ONS Population data statistics;
4. Liquid wealth consists of the wealth held in cash, banks, building societies or shares; the 18-54 segment also includes liquid wealth not attributed to any particular age bracket
c£1tn
55+ 18-54
The environment has changed significantly
Increased pace of regulatory change
Evolution of intermediary market post RDR
Rapid growth of enhanced annuities
Consolidation in corporate pensions
Shift towards a platform world
11
Prudential Regulation
Authority
Financial stability
Policyholder protection
Financial Conduct
Authority
Consumer protection
Integrity
Competition
Thematic reviews
International Regulatory
Standards
Solvency II
IFRS 4 Phase II
G-SII
Increased pace of regulatory change
12
Several banks have quit mass market advice
Restricted advice models expected to grow
Significant increase of non–advised models
Evolution of intermediary market post RDR
Source: 1. 2013 ABI data
13
ABI UK life and pensions sales by channel1, % of APE
79%
65%
9%
9%
12%
26%
H1 2012 H1 2013
Independent
advice
Restricted
advice
Non-advised
Annuity market remains attractive
Rapid growth of enhanced annuities
Current volumes impacted by the low
interest rate environment
Market expected to grow due to an
ageing population
Growth of annuities
Source: 1. 2013 ABI data, Internal analysis
Total annuities sales1, £bn
0.5 0.6
0.6 0.8
2009 2012
Enhanced annuities as a proportion of external annuities1, %
33
55
2009 2012
External
Internal
Total 1.1 1.4
14
Strong regulatory and competitive pressure driving
down revenue
Those who remain in the market compete
aggressively on price to build scale
As a consequence the market has witnessed
significant consolidation over the last few years
Consolidation in corporate pensions
Source: 1. 2013 ABI data
15
UK Corporate Pensions APE sales1, % of market
38 30 25
55 64 71
7 6 4
2008 2010 2012
Other
Top 5
players
Prudential
74
109
149 176
224
2008 2009 2010 2011 2012
Platforms gaining significant traction
Success built on achieving scale
RDR impacting advisors behaviour
Shift towards a platform world
Source: 1. Platforum data
16
Platform AuM1, £bn
Agenda
Current strategy and key financials
External outlook and industry trends
Strengthening our position
Looking towards the long term
17
Large customer franchise and valuable brand
18
Measure Prudential
Average of the other Top 5
UK Insurance Brands
Gap
Spontaneous awareness 28% 22% +6%
Happy to place long term investments with
62% 55% +7%
Delivers good returns to customers 43% 35% +8%
Is a leader in the retirement market 50% 35% +15%
Cares about its customers 47% 39% +8%
Prudential policies by product line1 Strong brand recognition2
Note: 1. Source: FSA returns 2012, exclude Industrial Branch policies, health insurance as per number of PruHealth lives reported in Discovery 2013 annual report, GI customer at January 2013; 2. Source: Prudential Brand Tracker (September 2013) provided by Opinion Leader Research. Base – Measures 1-4: all respondents, aged 45+.
(1153) Measures 5-10: respondents aged 45+ who know a moderate amount or more about each company (68-271). Data is weighted to be representative of age, gender, SEG and Prudential customer.
1.3m
0.3m 0.4m 0.4m
1.4m
2.1m
0.6m
Annuitie
s
Savings
& In
vestm
ent
Individu
al P
ension
Gro
up P
ension
Prote
ction
(includ
ing
PruPro
tect)
Gen
eral In
sura
nce
Hea
lth In
sura
nce
Corporate
pensions
Investments
Strengthening our position
Bulks
Protection
and health
Poland
Retail
Annuities
Focus on cash
and capital
efficiency
19
Comprehensive product proposition
– Income Choice Annuity provides flexibility in a
low interest rate environment
– Competitive severe medical condition
enhanced proposition
Strong customer and IFA relationships
Source: 1. EEV modelling based on year-end 2012 in-force and latest Business Plan sales. 2016 sales are assumed to repeat for subsequent years.
Existing strength in annuities
20
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2014 2016 2018 2020 2022 2024
Maturities from in-force at year end 2012
Maturities from new pensions
business written from 2013 onwards
YE 2012 Pension maturity profile projections, £bn1
Growing contribution by enhanced annuities
Existing capabilities in enhanced annuities
On-going effort to increase presence in this space
Combining strength of Income Choice Annuity with
enhanced proposition
6 7 8
7 8
19
2010 2011 2012
Enhanced annuities APE sales, £m and %
Conventional
Enhanced
Income
Choice
Enhanced
% of retail
annuity sales 6% 8% 11%
2x
21
Total 13 15 27
Move to individual underwriting
Explore dynamic pricing capabilities
Consider refining investment strategy
Evolution of our retail annuities offering
22
Corporate
pensions
Investments
Strengthening our position
Bulks
Protection
and health
Bulks
Focus on cash
and capital
efficiency
Retail
Annuities
Poland
23
Selective approach to bulk annuities
Significant proportion of £1tn de-risking market is within our target range
Financial strength, recognised market brand and deal execution capability
The extent and type of selection could vary as market characteristics evolve
Continue to explore opportunities which meet our strict hurdle rate
Bulk annuity transactions in 2013 generated £19m of APE sales1
24
Note: 1. Bulk annuity sales are as per November YTD data
Evolution of our bulks approach
Source: 1. Purple Book 2012 produced by the Pensions Regulator covering information on 6,316 schemes
25
Market size in Prudential space, £bn Investment strategy of underlying assets
Certain
Uncertain
Liquid Illiquid
Currently
utilised assets
Assets universe
0
200
400
600
800
1,000
Total market size
based on assets
Potential market
segments
Current target market1
Further assets for potential use
Corporate
pensions
Investments
Strengthening our position
Bulks
Protection
and health
Focus on cash
and capital
efficiency
Investments
Retail
Annuities
Poland
26
Market opportunity
Increasing need for lower risk products
Growing collectives investment market
Increasing flow of funds into online platforms
Prudential capability
Large, well-capitalised with-profits fund
Strong track-record of performance
Valuable consumer brand
Diverse distribution
Differentiated smoothed / guaranteed investment
solutions
Core set of competitive advantages to compete in the fast-growing investment market
27
Source: 1. EEV projections. Note: 1. UK only, projections show the shareholder transfer (i.e. after tax) in the year paid (transfers are paid annually in arrears)
Substantial With-Profits cash-flow
Meets customer needs and delivers value to
policyholders
AA PAC rating and strong inherited estate
Hong Kong domestication on track
0
50
100
150
200
2012 2014 2016 2018 2020 2022
Cash flow from New Business
written from 2013 onwards
Cash flow from in-force at year end 2012
With-Profits remains core to our offering
UK With-Profits cash generation projection, £m1
28
WP fund outperforming competitors Pru propositions appealing to the older segments
Share of new Prudential bonds policy holders, %
100
80
60
40
20
0
65+
55-64
45-54
2012
46
33
10
2010
46
40
11
2006
40
43
13
4
2002
34
41
17
6
2000
30
38
22
7
Sources: 1. Financial express. Notes: 1. WP gross performance is gross of tax, charges and effects of smoothing. Cumulative returns for Company A, B and C have been calculated internally based on annual returns gathered from publicly available sources; these may differ from figures quoted by
the company
5, 10 and 15 year cumulative return to end 20121 , %
11%
19%
13%
21%
93%
95%
110%
132%
132%
124%
129%
142%
107%
184%
15%
Company C WP
Company B WP
Company A WP
FTSE All-Share
index
Prudential WP
Compelling proposition
29
10 years
5 yrs
15 years
54
Deploy PruFund range of funds into tax wrappers (eg ISA)
Expand our on-shore bonds proposition
Enhance the range of features of our product proposition (meeting customer and advisor needs)
Evolution of our investments offering
30
Corporate
pensions
Investments
Strengthening our position
Bulks
Protection
and health
Corporate
pensions
Focus on cash
and capital
efficiency
Retail
Annuities
Poland
31
Strong contribution across almost all schemes
Strategic platform which largely supports AE already in place – enabling retention opportunity
Small investment in propositions and team enables value maximising strategy
Market opportunity Prudential capability
Positive contribution from corporate pensions
32
Maintain market-leading presence in Public Sector through AVCs
Maximise cross-selling opportunities
Not actively seeking to compete with large scale providers for new schemes
Maintain current approach
Growth in market due to auto-enrolment, shift from DB to DC, and asset growth
Leading providers are focused on large employer segment
Certain providers developing self-service propositions for SMEs
Corporate
pensions
Investments
Strengthening our position
Bulks
Poland
Focus on cash
and capital
efficiency
Retail
Annuities
Protection
and health
33
Successfully entered protection and health in recent years
Note: 1. As reported in Discovery annual report and converted in GBP according to the exchange rate reported by Discovery. 2. New business annualised premium income (API) is calculated at 12 times the monthly premium for new recurring premium policies and 10% of the value of new single premium 3. 2012 sales as reported by
Discovery in annual report. 2012 comparative increased from £46m to £47m in 2013 to reflect a change in basis.
34
8
20 27
36 42
2009 2010 2011 2012 2013
44 36
56
46
61
2009 2010 2011 2012 2013
PruProtect
Material and growing API1,2 sales, £m (Pru share is 25%)
PruHealth
Sizeable scale player, API sales1,2,3, £m (Pru share is 25%)
Corporate
pensions
Investments
Strengthening our position
Bulks
Protection
and health
Others Poland
Focus on cash
and capital
efficiency
Retail
Annuities
35
Strong start of Prudential Polska
12 branches active as of November 2013
Agents' recruitment and training is ahead of Plan
Sales ahead of Plan
36
Corporate
pensions
Investments
Focus on cash
and capital
efficiency
Strengthening our position
Bulks
Protection
and health
Retail
Annuities
Poland
37
Largest contributor of assets to M&G
UKIO total investments at 30 June 2013 = £152bn
96% of assets managed by Prudential Group
Majority of funds invested via M&G
Pru UK assets represent over 50% of Group
investments and approximately 50% of M&G’s
total FUM
38
Prudential assets managed internally and externally, £bn
4%
75%
21%
External M&G Other Group Asset Managers
Corporate
pensions
Investments
Strengthening our position
Bulks
Protection
and health
Focus on cash
and capital
efficiency
Retail
Annuities
Poland
39
Existing strong focus on customer services
Continued investment in advisors support
Exploring digital opportunities
Evolution of our customer services capability
40
Corporate
pensions
Retail
Annuities
Investments
Focus on cash
and capital
efficiency
Broadening our approach and optimising our capabilities
Bulks
Protection
and health
Poland
Individual underwriting
Dynamic pricing
Refine investment strategy
Market segments
Investment strategy
Focus on AVCs
Continue to contribute to M&G
Tax wrappers
Product features
Poland growth
Maximise value
of our 25% share
Continued investment
41
Agenda
Current strategy and key financials
External outlook and industry trends
Strengthening our position
Looking towards the long term
42
Delivering profitable growth
Continue to develop the business from a position of strength
Robust balance sheet and valuable franchise
Clear focus on execution of identified opportunities
On-going emphasis on generating cash and creating shareholder value
43