generating cash through focused participation/media/files/p... · corporate pensions protection and...

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





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





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


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%


Source: ONS, HM Treasury, Bank of England, GfK.

-40

-35

-30

-25

-20

-15

-10

-5

0


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





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


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


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


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


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


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


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


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


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





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

generating cash through focused participation/media/files/p... · corporate pensions protection and...

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