Prudential Plc · LSE:PRU
Prudential — H1 2012 Earnings Presentation
111 slides from Prudential's earnings presentation, Aug 10, 2012
Slide 1: Prudential plc 2012 Half Year Results
Prudential plc 2012 Half Year Results Delivering ‘Growth and Cash’ 10 August 2012 2012 HALF YEAR RESULTS
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: Agenda
Prudential plc 2012 half year results Agenda Business Review Tidjane Thiam • Overview of results • Business update Financial Review Nic Nicandrou Outlook and Q&A Tidjane Thiam 3 2012 HALF YEAR RESULTS
Slide 4: 2012 half year financial headlines
2012 half year financial headlines Overview Business update A strong performance Growth • Group new business profit £1,141m (H1 2011: £1,069m) • Asset Management net inflows £5.4bn (H1 2011: £2.9bn) Profitability • IFRS operating profit £1,162m (H1 2011: £1,028m) • EEV operating profit £2,109m (H1 2
Slide 5: Group KPIs
Group KPIs Overview Business update A long-term track record of growth across our key metrics New business profit1, £m IFRS operating profit2, £m CAGR CAGR +19% 1,141 1,162 1,069 +17% 1,028 892 821 700 688 562 608 486 532 HY 2007 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 HY 2007 HY 2008 HY 2009 HY 201
Slide 6: Macroeconomic environment
Macroeconomic environment Overview Business update Managing through a challenging context • Maintaining high IRR and payback period hurdles Low interest rates & • Managing the risks within the in-force book flat yield curve • Diversifying the earnings sources (insurance income) • Putting Asia at the
Slide 7: Returns on capital invested
Returns on capital invested Overview Business update Continuing disciplined capital allocation New business strain1,2, £m New business profit2, £m +103% 1,141 1,069 152 146 892 135 700 442 +7% 458 562 122 361 UK 129 364 292 339 319 337 297 22 US 137 35 UK 93 45 33 547 180 465 168 179 135 396 US 157
Slide 8: 2013 Growth objectives: On track to double Asia
2013 Growth and Cash objectives Overview Business update Growth – On track to ‘Double Asia’ CAGR +19% 930 784 Doubling Asia Life and 604 Asset Management IFRS operating profit1,2, £m 465 417 1 309 H2 237 367 440 228 295 H1 2009 2010 2011 2012 2013 Objective +20% CAGR +19% 1,426 Doubling Asia value o
Slide 9: 2013 Cash objectives
2013 Growth and Cash objectives Overview Business update Cash – On track to deliver 2013 objectives 2013 Cash objectives, £m 2009 2013 HY 2012 £m Objective1 Asia Net Remittance 40 300 126 3 Jackson Net Remittance 39 2602 247 4 Cash UK Net Remittance 4343 350 230 5 Group Net Remittance (cumulative) -
Slide 10: Continuing to execute the Group strategy
Strategy Overview Business update Continuing to execute the Group strategy Asia • Driving growth in agency and bancassurance • Greenfield entry into Cambodia US ASIA US Accelerate Build on Strength • Maintaining pricing, reserving and hedging conservatism • Financially attractive bolt-on acquisition
Slide 11: Asia: Growing across all key metrics
Asia Overview Business update Growing across ALL our key metrics New business profit1, £m Life IFRS operating profit2, £m 2.3x 547 465 9.7x 396 406 296 322 286 259 234 207 42 72 HY 2007 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 HY 2007 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 Net remittances, £m 126 7.
Slide 12: Asia: Delivering our strategy
Asia Overview Business update Delivering our strategy • Building out broad-based distribution • Investing in our brand across the region • Managing our product suite • Maintaining financial and capital discipline • Nurturing Government and regulatory relationships 12 2012 HALF YEAR RESULTS
Slide 13: Asia: Key initiatives across agency channel
Asia Overview Business update Key initiatives across our agency channel Indonesia Hong Kong • Expansion outside Jakarta: non-Jakarta • ‘PRUmyhealth’ campaign to drive critical now 50% illness sales • Recruitment seminars: 30 cities, 30 times / • Launched ‘Elite’ recruitment campaign month • Reactiva
Slide 14: Asia: Progress in bancassurance
Asia Overview Business update Continued progress in bancassurance Bancassurance partners • Deep penetration through over 14,500 branches • Multiple partners, accessing all socio- economic classes (77 partners in total) • Leveraging best practices across partnerships SCB: 42% growth. Philippines and
Slide 15: Asia: Delivering new business profit
Asia Overview Business update Delivering new business profit New business profit – HY 20091, £m New business profit – HY 20121, £m UK 122 UK 152 Asia 286 Asia 547 Indonesia 50 Indonesia 179 1 Excludes Japan and Taiwan agency 15 2012 HALF YEAR RESULTS
Slide 16: Asia: Delivering IFRS operating profit
Asia Overview Business update Delivering IFRS operating profit Life IFRS operating profit – HY 20091, £m Life IFRS operating profit – HY 20121, £m UK 303 UK 336 Asia 207 Asia 406 Indonesia 42 Indonesia 123 1 Net of development costs 16 2012 HALF YEAR RESULTS
Slide 17: Asia: Delivering cash
Asia Overview Business update Delivering cash Cash remittances – HY 2009, £m Cash remittances – HY 2012, £m UK 268 UK 230 Asia 21 Asia 126 17 2012 HALF YEAR RESULTS
Slide 18: Asia: Long term opportunity
Asia Overview Business update Long term opportunity Evolution of US GDP per capita, 1990 US$1 35,000 US GDP per capita 30,000 25,000 20,000 15,000 10,000 5,000 0 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 1 Geary-Khamis dollar, based on purcha
Slide 19: Asia: Long term opportunity (China)
Asia Overview Business update Long term opportunity Evolution of China GDP per capita 1980 - 2010, against the US GDP per capita,1990 US$1 35,000 US GDP per capita 30,000 25,000 20,000 15,000 China 10,000 2010 China China 2000 5,000 China 1990 1980 0 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910
Slide 20: Asia: Long term opportunity (Indonesia)
Asia Overview Business update Long term opportunity Evolution of Indonesia GDP per capita 1980 - 2010, against the US GDP per capita,1990 US$1 35,000 US GDP per capita 30,000 25,000 20,000 15,000 10,000 IDN IDN 2010 IDN 5,000 IDN 2000 1990 1980 0 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 192
Slide 21: Asia: Long term opportunity (Malaysia)
Asia Overview Business update Long term opportunity Evolution of Malaysia GDP per capita 1980 - 2010, against the US GDP per capita,1990 US$1 35,000 US GDP per capita 30,000 25,000 20,000 15,000 Malaysia 2010 Malaysia 10,000 2000 Malaysia Malaysia 1990 5,000 1980 0 1820 1830 1840 1850 1860 1870 1880
Slide 22: Asia: Long term opportunity (Singapore)
Asia Overview Business update Long term opportunity Evolution of Singapore GDP per capita 1980 - 2010, against the US GDP per capita,1990 US$1 35,000 Singapore US GDP 2010 per capita 30,000 25,000 Singapore 2000 20,000 Singapore 1990 15,000 Singapore 1980 10,000 5,000 0 1820 1830 1840 1850 1860 1870
Slide 23: Asia: Long term opportunity (GDP per capita)
Asia Overview Business update Long term opportunity GDP per capita in 2010, against the US GDP per capita,1990 US$1 35,000 US GDP Hong Kong per capita 30,000 Singapore 25,000 Taiwan Korea 20,000 15,000 Malaysia 10,000 Thailand China Vietnam Indonesia 5,000 India Philippines 0 1820 1830 1840 1850 186
Slide 24: Jackson: Value over volume approach in VAs
Jackson Overview Business update Value over volume approach in managing VAs Variable Annuities NBP, £m Variable Annuities sales, APE £m 611 589 432 402 447 316 252 179 HY 2009 HY 2010 HY 2011 HY 2012 HY 2009 HY 2010 HY 2011 HY 2012 24 2012 HALF YEAR RESULTS
Slide 25: Jackson: Delivering on 2013 Cash objectives
Jackson Overview Business update Delivering on our 2013 ‘Cash’ objectives Net remittances, £m 322 247 144 122 80 39 2007 2008 2009 2010 2011 HY 2012 25 2012 HALF YEAR RESULTS
Slide 26: Jackson: Bolt-on acquisition of REALIC
Jackson Overview Business update Bolt-on acquisition of REALIC • Transaction IRR of over 20% and short payback period Financially • Immediate accretion to IFRS earnings per share attractive • Immediate uplift to EEV per share • Scope for additional synergies as REALIC is transitioned to Jackson plat
Slide 27: UK: Delivering on 2013 Cash objectives
UK Overview Business update Delivering on our 2013 ‘Cash’ objectives Selective participation1 Robust balance sheet strength New business profit, £m Inherited estate, £bn HY 2009 (44) 122 6.8 6.4 6.1 6.1 HY 2010 (35) 134 HY 2011 (25) 123 HY 2012 (20) 130 2009 2010 2011 HY 2012 New business strain New
Slide 28: Asset Management: M&G #1 in UK retail
Asset Management Overview Business update M&G achieved #1 position in UK retail UK retail FUM1, £bn IFRS operating profit2, £m 38.7 39.3 172 175 122 108 113 19.8 20.1 17.7 18.6 15.6 75 15.3 12.7 13.8 HY 2007 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 60% 58% 63% 60% 55% 53% xx% Cost / income ratio 1 As
Slide 29: Resilient and growing dividend
Dividend Overview Business update Resilient and growing dividend Dividend, pence per share +5.6% 25.19 23.85 +20% +5% 19.85 Total dividend +5% 18.90 18.00 17.24 17.24 13.56 Final dividend 12.30 12.91 +5.7% 7.95 8.40 Interim dividend 5.70 5.99 6.29 6.61 2007 2008 2009 2010 2011 HY 2012 29 2012 HALF Y
Slide 30: Agenda
Prudential plc 2012 half year results Agenda Business Review Tidjane Thiam Financial Review Nic Nicandrou Outlook and Q&A Tidjane Thiam 30 2012 HALF YEAR RESULTS
Slide 31: HY 2012 builds on recent strong performance
Delivering ‘Growth and Cash’ Overview Growth & Profitability Cash & Capital HY 2012 builds on recent strong performance HY 12 £m HY 12 HY 11 vs. HY 11 New business profit 1,141 1,069 +7% IFRS operating profit1 1,162 1,028 +13% Growth EEV operating profit 2,109 2,147 -2% EEV per share (pence) 806 745
Slide 32: Balancing value creation and capital consumption
Growth in value and volume Overview Growth & Profitability Cash & Capital Balancing value creation and capital consumption NBP, £m NBP margin, % 1,141 Group Life +7% 59% 56% IRR: >20% 1,069 547 465 +18% Payback: 4 years 63% 61% Asia Life IRR: >20% 458 -3% 442 Payback: 2 years 68% 61% US Life IRR: >2
Slide 33: New business profit: Strong underlying progress
New business profit Overview Growth & Profitability Cash & Capital Strong underlying progress New business profit, £m New business margin, % HY 11 1,069 HY 11 59% Economic (116) Effect (6%) Economic Effect 57 Mix/Pricing Mix/Pricing 3% Volume 131 1,141 56% HY 12 HY 12 33 2012 HALF YEAR RESULTS
Slide 34: Profitability – IFRS: profits up 13%
Profitability – IFRS Overview Growth & Profitability Cash & Capital IFRS profits up 13% IFRS operating profit1, £m +19% 1,184 994 Life Group HY 2011 HY 2012 1,162 +13% 1,028 HY 2011 HY 2012 1 HY 2011 adjusted for the retrospective application of the new DAC policy. 34 2012 HALF YEAR RESULTS
Slide 35: Diversified Life earnings – Asia up 26%
Profitability – IFRS Overview Growth & Profitability Cash & Capital Diversified Life earnings – Asia up 26% Life operating profit by region, £m 1,184 US operating profit, £m +19% 442 Operating profits 994 340 336 +1% UK 332 703 ‘Gross profits’ 661 +6% 442 +30% US 340 Decelerated DAC 25 Accelerated (
Slide 36: Diversified and resilient Life earnings
Profitability – IFRS Overview Growth & Profitability Cash & Capital Diversified and resilient Life earnings IFRS operating income1, £m Growth % HY 12 vs. HY 11 1,759 1,603 7% (1)% 8% 9% (4)% 11% 31% +1% 33% 29% +20% 26% 22% 24% +22% HY 2011 HY 2012 Insurance margin Fee income Spread income With-prof
Slide 37: Source of earnings: Life insurance - Asia
IFRS operating profit – source of earnings Overview Growth & Profitability Cash & Capital Life insurance - Asia Total operating profit1 HY 12 HY 11 +/- £m except reserves £bn 406 322 26% = Total Life income Admin Expenses Acquisition Costs DAC adjustments - - +/- 1,051 926 13% (250) (242) (3%) (428)
Slide 38: Source of earnings: Life insurance - US
IFRS operating profit – source of earnings Overview Growth & Profitability Cash & Capital Life insurance - US Total operating profit1 HY 12 HY 11 +/- £m except reserves £bn 442 340 30% = Total Life income Total Life expenses 2011 Expense deferrals - + 945 856 10% (722) (680) (6%) 398 405 (2%) - Spre
Slide 39: Source of earnings: Life insurance - UK
IFRS operating profit – source of earnings Overview Growth & Profitability Cash & Capital Life insurance - UK Total operating profit HY 12 HY 11 +/- £m except reserves £bn 336 332 1% = Total Life income Total Life expenses DAC adjustments - +/- 467 459 2% (127) (126) (1%) (4) (1) nm Spread Technical
Slide 40: Profitability – IFRS: Asset management and other
Profitability – IFRS Overview Growth & Profitability Cash & Capital IFRS profits up 13% IFRS operating profit1, £m +19% 1,184 994 Life Group HY 2011 HY 2012 HY 11 HY 12 M&G 172 175 1,162 280 267 1,028 +13% Asset -5% PruCap 27 24 Management Eastspring 43 34 and Other businesses HY 2011 HY 2012 US AM
Slide 41: Source of earnings: Asset management
IFRS operating profit – source of earnings Overview Growth & Profitability Cash & Capital Asset management Asset management HY 12 HY 11 +/- £m except reserves £bn operating profit1 209 215 (3%) M&G operating Eastspring profit Investments 175 172 2% 34 43 (21%) Underlying income Other income2 Total e
Slide 42: Profitability – IFRS: Other income and expenses
Profitability – IFRS Overview Growth & Profitability Cash & Capital IFRS profits up 13% IFRS operating profit1, £m +19% 1,184 994 Life Group HY 2011 HY 2012 HY 11 HY 12 M&G 172 175 1,162 280 267 1,028 +13% Asset -5% PruCap 27 24 Management Eastspring 43 34 and Other businesses HY 2011 HY 2012 US AM
Slide 43: Profitability – EEV: Return on Embedded Value of 16%
Profitability – EEV Overview Growth & Profitability Cash & Capital Return on Embedded Value of 16% In-force1, £m HY 11 HY 12 Experience 206 192 variance Life business, £m -4% Assumption 42 70 1,071 1,023 changes Variances 246 /Other 259 Dev costs (2) (3) 2,140 +1% 2,164 -9% 490 Unwind 825 764 UK 537
Slide 44: Equity shareholders’ funds: Resilient and growing
Equity shareholders’ funds Overview Growth & Profitability Cash & Capital Resilient and growing IFRS Equity1 EEV Equity £bn EPS (p) £bn EPS (p) After-tax operating profit 0.9 35 1.5 61 Investment variance2 0.1 3 (0.1) (4) Profit for the period 1.0 38 1.4 57 Unrealised gain on AFS3 0.2 8 0.0 0 Foreig
Slide 45: EEV per share
Equity shareholders’ funds Overview Growth & Profitability Cash & Capital Resilient and growing EEV (per share)1, pence CAGR CAGR +16% 866 806 60 60 771 715 +38% 116 116 112 603 108 135 142 142 +8% 79 134 118 806 524 548 548 +13% 473 406 2 2009 2010 2011 HY 12 Dividends Total 2 In-Force Required Cap
Slide 46: Cash and capital generation: Free surplus stock
Cash and capital generation Overview Growth & Profitability Cash & Capital Free surplus stock Evolution of free surplus, £m x% Free surplus cover +22% 1,403 M&G 150 UK 291 4,175 199% (364) 195% US 591 (129)2 (156) 3,421 Asia 371 3,449 M&G 229 M&G 348 (726) UK 581 Reinvestment Rate = 26% UK 515 Under
Slide 47: Net remittances: 73% of Group objectives achieved
Cash and capital generation Overview Growth & Profitability Cash & Capital Net remittances: 73% of Group objectives achieved Group objectives 2010-13, £bn Remittance ratio >55% HY 09 HY 10 HY 11 HY 12 £m £m £m £m £6.5bn UK with-profit 284 202 223 216 UK shareholder- (16) 61 42 14 £3.8bn backed US -
Slide 48: Balance sheet: Defensive positioning maintained
Balance sheet Overview Growth & Profitability Cash & Capital Defensive positioning maintained Maintained capital strength • IGD surplus £4.2bn equivalent to a cover of c270% • With-profits estate £6.1bn Credit position improved • UK: £2.1bn default provision maintained • Unrealised gains on US debt
Slide 49: Jackson: Capital, hedging and policyholder behaviour
Jackson Overview Growth & Profitability Cash & Capital Capital, hedging and policyholder behaviour • Impact of market movements offset by hedging program • Total adjusted capital excludes gains on interest rate Total adjusted swaps: $649m at Jun 2012 (Dec 2011: $474m) Capital • Earned guarantee fees
Slide 50: Total PIIGS sovereign and bank debt of only £344m
Balance sheet Overview Growth & Profitability Cash & Capital Total PIIGS sovereign and bank debt of only £344m Breakdown of the shareholder Shareholder invested assets – PIIGS countries debt securities portfolio, % as at 30 June 2012, £m PIIGS sovereign & bank debt Sovereign Bank debt <1% Institutio
Slide 51: Agenda
Prudential plc 2012 half year results Agenda Business Review Tidjane Thiam Financial Review Nic Nicandrou Outlook and Q&A Tidjane Thiam 51 2012 HALF YEAR RESULTS
Slide 52: Outlook
Outlook 2012 HALF YEAR RESULTS
Slide 53: Q&A
Q&A 2012 HALF YEAR RESULTS
Slide 54: Venue: Trump Soho
Venue: Trump Soho New York, USA 28-29 November 2012
Slide 55: Appendix
Appendix 2012 HALF YEAR RESULTS
Slide 56: Interim dividend increased by 5.7%
Dividend Interim dividend increased by 5.7% Dividend, pence per share Total dividend • Interim dividend increased by 5.7 per cent to 8.40 pence per share Final dividend • Ex-dividend date: 22 August 2012 • Record date: 24 August 2012 +5.7% Interim dividend • Payment of dividend: 27 September 2012 56
Slide 57: Net cash remittances: Group
Net cash remittances Group Business unit net remittances, £m 726 +5% 690 123 M&G (incl PruCap) 460 247 US 375 334 283 230 UK 126 Asia HY 2007 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 57 2012 HALF YEAR RESULTS
Slide 58: Net cash remittances: UK and other
Net cash remittances UK and other Business unit net remittances, £m Non UK-Life CAGR +40% 496 425 268 263 265 237 230 192 197 91 97 107 HY 2007 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 UK Life Other 58 2012 HALF YEAR RESULTS
Slide 59: New business growth: Group life APE
New business growth Group life APE Life APE1, £m +11% H1 10: £1,655m H2 10: £1,830m H1 11: £1,824m H2 11: £1,857m H1 12: £2,030m 1,066 1,021 977 964 936 888 880 848 807 809 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 1 Excluding Japan. 59 2012 HALF YEAR RESULTS
Slide 60: New business growth: Group life new business profit
New business growth Group life new business profit Life new business profit1, £m +7% H1 10: £892m H2 10: £1,136m H1 11: £1,069m H2 11: £1,082m H1 12: £1,141m 683 616 605 571 536 498 465 453 466 427 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 1 Excluding Japan. 60 2012 HALF YEAR RESUL
Slide 61: Group life returns on new business investment
New business growth Group life returns on new business investment Post-tax new business profit per £ of new business strain1 1 Free surplus invested in new business; excludes Japan. 61 2012 HALF YEAR RESULTS
Slide 62: Asia Life: APE by quarter
Asia Life APE by quarter Asia APE1 trend by quarter, £m 2008 2009 2010 2011 HY 2012 1,174 1,209 1,501 1,660 899 1 Excludes Japan and Taiwan agency; prepared on an AER basis. 62 2012 HALF YEAR RESULTS
Slide 63: Asia Life: APE by market
Asia Life APE by market Asia APE by market, £m +30% +17% +37% +8% +49% +13% -18% -6% -5% +50% +73% Indonesia Hong Kong Singapore Malaysia1 Taiwan India 26%2 Korea China 50%3 Vietnam Philippines Thailand 1st 4th 1st 1st 11th 1st 19th 3rd 1st 1st 11th Ranking HY 2011 HY 2012 1 Includes Takaful sales @
Slide 64: Asia Life: APE sales by product
Asia Life APE sales by product - % 3 3 3 4 2 2 4 3 4 5 3 3 3 3 3 5 4 5 6 5 7 7 14 18 19 21 17 19 20 23 26 26 27 29 30 30 28 25 33 33 33 33 35 34 18 17 18 20 20 19 22 30 24 27 27 24 25 30 27 31 29 32 24 34 30 33 62 65 60 57 59 59 55 44 46 43 44 44 42 38 39 37 36 34 31 28 29 28 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Slide 65: Asia Life: New business margins
Asia Life New business margins New business margin by Analysis of movement in Asia country as % of APE New business profit margin, % 62.6% HY 2011 HY 2012 +0.9% 60.9% China 40% 41% -0.2% -2.4% Hong Kong 72% 57% India 21% 19% Indonesia 76% 87% Korea 41% 43% Taiwan 26% 19% Others 73% 70% HY 2011 Econo
Slide 66: Asia Life: Net inflows and persistency
Asia Life Net inflows and persistency Asia Life inflows1, £bn Asia Life inflows (ex-India)1, £bn 2.0 1.9 1.9 1.8 1.7 1.7 1.7 1.6 1.5 1.5 1.3 1.2 6.2% 6.4% 5.9% 6.0% 5.2% 5.5% 5.1% 4.8% 4.8% 4.4% 4.5% 2.2% H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 H1 12 H1 10 H2 10 H1 11 H2 11 H1 12 Surrenders/withdrawals
Slide 67: Asia Life: APE and NBP margin
Asia Life APE and NBP margin APE HY 2012, £m New business profit HY 2012, £m APE growth, HY 2012 vs. HY 2011 NBP margin, % of APE +24% +17% -6% +13% 72% 27% 41% 19% 680 487 133 33 53 36 14 10 SE Asia & HK Korea & China India SE Asia & HK Korea & China India Taiwan Taiwan 67 2012 HALF YEAR RESULTS
Slide 68: US retail sales and deposits
US retail sales and deposits HY 2012 Retail sales and deposits, $m HY 2011 = $11,988m HY 2012 = $12,278m $371 $493 $24 $17 $1,396 $1,333 $671 $794 $218 $9,526 $9,423 Fixed Annuities Elite Access Life insurance Variable Annuities Index Annuities Curian 68 2012 HALF YEAR RESULTS
Slide 69: US Life: Variable annuities volumes
US Life Variable annuities volumes VA volumes by quarter, sales US$m 42% 43% 81% 72% 69% YTD 66% 5,258 4,974 4,553 •‘Features War’ 4,383 4,176 4,212 3,686 3,756 3,658 3,335 3,134 2,909 2,368 2,370 2,324 2,250 2,052 1,780 1,769 1,505 1,412 1,508 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q
Slide 70: US Life: New business margin
US Life New business margin New business margin – % APE 73% 71% 66% 45% 37% 34% 31% 25% 20% Variable Annuities Fixed Annuities Fixed-Index Annuities HY 2010 HY 2011 HY 2012 70 2012 HALF YEAR RESULTS
Slide 71: US Life: Variable annuity distribution
US Life Variable annuity distribution Variable annuity sales by distribution channel, US$bn HY 2012 includes $0.2bn of ‘Elite Access’ sales 9.6 9.5 +1% IBD: Independent Broker/Dealer, RBD: Regional Broker Dealer. 71 2012 HALF YEAR RESULTS
Slide 72: US IFRS profit: DAC impact on results
US IFRS profit DAC impact on results Impact on results of DAC amortisation, £m 2011 HY 2011 HY 2012 Gross profits1 1,313 661 703 New business strain2 (156) (80) (82) DAC Amortisation - Core (316) (175) (204) - (acceleration) / deceleration (190) (66) 25 Operating result 651 340 442 Core as % of Gros
Slide 73: US Life: Policyholder behaviour
US Life Policyholder behaviour Optional benefits elected, % of initial benefits elected (New business) No benefit GMWB (for life) 73 2012 HALF YEAR RESULTS
Slide 74: US Life: Asset growth
US Life Asset growth Growth in statutory admitted assets, US$bn 117.1 107.6 97.5 81.0 76.7 68.4 69.3 70.9 58.7 48.9 62.8 55.6 30.0 33.3 22.3 20.9 50.9 14.7 46.6 43.0 10.4 40.2 7.1 4.4 5.1 5.6 45.2 48.1 47.1 46.7 50.0 47.7 48.6 48.9 48.7 42.2 43.8 34.6 37.9 2000 2001 2002 2003 2004 2005 2006 2007 200
Slide 75: Life IFRS operating profit: Source of earnings
Life IFRS operating profit Source of earnings Technical and other Spread income Fee income With-profits margin The net investment The fees net of Profits derived from Our share of bonus return we make investment expenses the insurance risks of declared by the with- primarily on annuity charged on ou
Slide 76: Life IFRS operating profit: Source of earnings
Life IFRS operating profit Source of earnings Technical and other Spread income Fee income With-profits INCOME margin LIFE Expected return on shareholder assets - +/- EXPENSES LIFE Acquisition Administration DAC Other costs expenses adjustments adjustments = LIFE OPERATING PROFIT 76 2012 HALF YEAR R
Slide 77: Source of earnings – Group (1/3)
Life IFRS operating profit Source of earnings – Group (1/3) Source HY 2012 HY 2011 +/- INCOME Total Life income £m LIFE 2,463 2,241 10% - +/- EXPENSES Total Life expenses DAC adjustments1 LIFE (1,527) (1,397) (9)% 248 150 65% = Total Life operating profit 1,184 994 19% 1 HY 2011 restated for DAC acc
Slide 78: Source of earnings – Group (2/3)
Life IFRS operating profit Source of earnings – Group (2/3) Source HY 2012 HY 2011 +/- £m Total Life income Total Life expenses DAC adjustments1 - +/- 2,463 2,241 10% (1,527) (1,397) (9)% 248 150 65% Technical and Spread income Fee income With-profits other margin 536 533 1% 509 423 20% 1,124 983 14
Slide 79: Source of earnings – Group (3/3)
Life IFRS operating profit Source of earnings – Group (3/3) Source HY 2012 HY 2011 +/- £m Total Life expenses (1,527) (1,397) (9)% Administration Acquisition costs1 expenses1 (972) (900) (8)% (555) (497) (12)% Admin expense APE2 2,030 1,824 11% ratio (bps) 82 80 2 Acquisition cost Average reserves 4
Slide 80: Life IFRS operating income – Asia
Life IFRS operating income – Asia Sources of income Asia IFRS operating income1, £m Growth % HY 2012 vs. HY 2011 415 366 5% +82% 4% +6% 3% 5% 13% +20% 13% 16% (1)% 18% 61% 62% +14% HY 2011 HY 2012 Insurance margin Fee income Spread income With-profits Expected return on shareholder assets 1 Excludes
Slide 81: Life IFRS operating income – US
Life IFRS operating income – US Sources of income US IFRS operating income1, £m Growth % HY 2012 vs. HY 2011 856 945 4% (31)% 6% 37% (4)% 43% 43% +25% 38% 16% +35% 13% HY 2011 HY 2012 Insurance margin Fee income Spread income Expected return on shareholder assets 1 Excludes margin on revenues, acqui
Slide 82: Life IFRS operating income – UK
Life IFRS operating income – UK Sources of income UK IFRS operating income1, £m Growth % HY 2012 vs. HY 2011 399 381 18% +9% 18% 40% 37% (5)% 33% +8% 32% 9% +21% 8%2% 3% +57% HY 2011 HY 2012 Insurance margin Fee income Spread income With-profits Expected return on shareholder assets 1 Excludes margi
Slide 83: Policyholder liabilities: Group
Policyholder liabilities Shareholder backed business – Group Policyholder liabilities1 roll-forward, £bn 3.9 141.8 4.8 (0.5) 133.5 (0.8) 0.9 132.7 Net inflows2 £5.2bn 4% of CER opening reserves of which: unit linked & separate account £3.8bn; other reserves £1.4bn Liabilities Foreign CER Asia US UK
Slide 84: Policyholder liabilities: Asia
Policyholder liabilities Shareholder backed business – Asia Policyholder liabilities roll-forward, £m 1,938 497 19,424 18,269 18,036 (1,047) (233) Net inflows1 £891m 5% of CER opening policyholder liabilities Liabilities Foreign CER opening Premiums Maturities, Investment Liabilities 30 1 Jan 2012 E
Slide 85: Policyholder liabilities: US
Policyholder liabilities Shareholder backed business – US Policyholder liabilities roll-forward, £m 7,303 1,906 75,264 69,189 68,589 (2,534) (600) Net inflows1 £4,769m 7.0% of CER opening reserves Liabilities Foreign CER Opening Premiums Maturities, Investment Liabilities 30 1 Jan 2012 Exchange liab
Slide 86: Policyholder liabilities: UK
Policyholder liabilities Shareholder backed business – UK Policyholder liabilities roll-forward1, £m 2,018 1,507 47,096 46,048 (2,477) Net inflows1 £(459)m -1% of opening reserves Liabilities Shareholders’ Shareholders’ Investment Liabilities 30 1 Jan 2012 Premiums maturities, deaths related and Jun
Slide 87: Asset management: Group 3rd party net inflows
Asset management Group 3rd party net-inflows Asset Management movement in 3rd party FUM1, £m 4,941 426 112,351 110,204 (2,147) 106,984 Opening 3rd M&G Asia1 Sub-Total Investment Closing 3rd party FUM net flows markets/other party FUM 1 Excludes Asia MMF and PPMSA. 87 2012 HALF YEAR RESULTS
Slide 88: M&G net retail sales
Asset Management M&G net retail sales Average monthly gross and net retail sales, £m 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 HY 2012 Gross sales Net sales 88 2012 HALF YEAR RESULTS
Slide 89: IFRS shareholders’ funds: HY 2012 movement
IFRS shareholders’ funds HY 2012 movement Analysis of movement in IFRS shareholders’ funds, £m +14% 1,162 87 42 196 74 9,732 9,292 (32) (54) 8,564 (307) (440) Shareholders’ Operating Short term Actuarial Gain on Tax and Net FX impact Other Sub-total Dividend Shareholders’ funds profit fluctuations l
Slide 90: EEV operating profits: Life operating variances – Group
EEV operating profits Life operating variances – Group Group Life operating variances, £m % of experience variances and assumption changes over opening EEV1 0.8% 0.1% 1.1% 0.5% (0.4)% 0.6% 1.4% 1.3% Unwind Experience variances and assumption changes 1 Opening EEV of Life operations, excluding goodwi
Slide 91: EEV operating profit: Life operating variances – Asia
EEV operating profit Life operating variances – Asia Asia Life operating variances, £m Experience variances and assumption changes as a % of opening EEV1 0.3% (0.6)% 1.9% (0.3)% (2.4)% (1.0)% (0.3)% 0.0% Unwind Experience variances and assumption changes 1 Opening EEV of Life operations, excluding g
Slide 92: EEV operating profit: In-force performance
EEV operating profit In-force performance Asia in-force1, £m US in-force, £m UK in-force, £m (up 5% to £322m) (down 3% to £363m) (down 14% to £338m) 19 (10) (18) (16) Persistency & Mortality / Spread Other items UK Other items withdrawals Morbidity and Corporation Other items1 tax change HY 2011 HY
Slide 93: EEV shareholders’ funds: Geographic split
EEV shareholders’ funds Geographic split Geographical split June 2012, £bn EEV shareholders’ funds, £bn Total Group EEV = 20.6 20.6 19.0 ROEV1 16.7 Asia 16% 14.0 13.3 13.7 US 22% 10.9 UK 13% 45% M&G2 8.3 44% 9.3 7.2 43% 29% 5.4 39% 24% 4.0 2.3 21% 3.2 Central HY 2006 HY 2007 HY 2008 HY 2009 HY 2010
Slide 94: EEV shareholders’ funds: HY 2012 movement
EEV shareholders’ funds HY 2012 movement Analysis of movement in EEV shareholders’ funds, £m +7% 2,109 225 103 42 92 21,045 (371) (113) 20,605 (554) (125) (440) 19,637 Shareholders’ Operating Short term Economic Mark to Actuarial Gain on Tax and FX impact Other Sub-total Dividend Shareholders’ funds
Slide 95: IGD capital: Base and sensitivities
IGD capital Base and sensitivities IGD surplus, £bn IGD sensitivity analysis1 20% fall in equity markets £(550)m 40% fall in equity markets £(750)m 152% 283% 305% 275% 270% 10x expected defaults £(650)m 4.3 4.2 4.0 100bps fall in interest rates 3.4 With Permitted Practice2 Without Permitted Practice
Slide 96: IGD capital: Movement during the period
IGD capital Movement during the period IGD capital – movement in 2012 (£bn) IGD surplus 31 December 2011 4.0 Net capital generation 0.9 Market movement impact (0.1) 2011 Dividend payment (final) (0.4) External financing and other central costs (net of tax) (0.2) IGD surplus 30 June 2012 4.2 96 2012
Slide 97: Invested assets: Group overview
Invested assets Group overview Breakdown of invested assets – HY 2012, £bn Total PAR Unit- Shareholders Group Funds Linked Asia Life US Life UK Life Other Total Debt securities 128.3 58.9 9.1 6.0 27.1 25.3 1.9 60.3 Equity 90.5 23.4 66.0 0.8 0.3 0.0 0.0 1.1 Property Investments 10.8 8.6 0.7 0.0 0.0 1
Slide 98: Group shareholder exposures – Sovereign debt
Invested assets Group shareholder exposures – Sovereign debt Breakdown of the shareholder SH sovereign exposures by regions & ratings1, £m debt securities portfolio, % US UK Europe Asia Other Total AAA - 3,323 463 144 - 3,930 AA-BBB 2,365 - 103 1,942 24 4,434 Below BBB - - - 774 4 778 Total 2,365 3,
Slide 99: Group shareholder exposures – hybrid bank debt
Invested assets Group shareholder exposures – hybrid bank debt Breakdown of the shareholder debt securities portfolio, % Exposure to Tier 1 and Tier 2 hybrid bank debt, £m Banks 3% US UK France Germany “PIIGS” Other Other Total Eurozone Total Tier 1 1 101 30 - 3 66 229 430 £60.3bn Tier 2 382 618 58
Slide 100: UK asset quality – credit reserve
Invested assets UK asset quality – credit reserve UK shareholder debt securities Strength of the £2.1bn credit reserve portfolio by rating1 BB or below • No defaults of shareholder-backed debt securities BBB 2% AAA • Continued sale of financial subordinated debt 22% 26% holdings • Allowance for cred
Slide 101: US asset quality – corporate debt portfolio (1/3)
Invested assets US asset quality – corporate debt portfolio (1/3) US Shareholder Debt Securities Portfolio Market value, £bn £27.0bn Other 1 Corporate Bond Portfolio, % by rating CMBS 2 BB and AAA and RMBS 2 below AA Govt 2 HY 1 5% 3% Total A 43% 40% A or £20.0bn above 52% Corporate IG 19 BBB Bonds
Slide 102: US asset quality – corporate debt portfolio (2/3)
Invested assets US asset quality – corporate debt portfolio (2/3) US Shareholder Debt Securities Portfolio Market value, £bn £27.0bn Other 1 Investment Grade Corporate Bond Portfolio, % by sector CMBS 2 Automotive 2% RMBS 2 Banking Govt 2 Utility Basic HY 1 Industry • Portfolio spread 14% 5% over 57
Slide 103: US asset quality – corporate debt portfolio (3/3)
Invested assets US asset quality – corporate debt portfolio (3/3) US Shareholder Debt Securities Portfolio Market value, £bn £27.0bn Other 1 High Yield Corporate Bond Portfolio, % by sector CMBS 2 RMBS 2 Automotive Govt 2 Utility Basic HY 1 Industry • Portfolio spread 9% 3% across 129 Telecom 20% is
Slide 104: US asset quality – RMBS portfolio
Invested assets US asset quality – RMBS portfolio US Shareholder Debt Securities Portfolio Market value, £bn Breakdown of the RMBS portfolio – £bn £27.0bn Other 1 Market Value £m FV Price CMBS 2 2006/07 5 51 RMBS 2 2005 3 50 Govt 2 2.3 1.4 Pre 2005 73 86 HY 1 0.2 0.1 0.2 0.3 0.1 Total Agency Su Seni
Slide 105: US asset quality – CMBS portfolio
Invested assets US asset quality – CMBS portfolio US Shareholder Debt Securities Portfolio Market value, £bn CMBS portfolio, % by rating £27.0bn Other 1 CMBS 2 BB and RMBS 2 lower = 2% Govt 2 BBB • Average credit enhancement of the portfolio is 31% HY 1 8% AAA • 77% of the portfolio is super 36% sen
Slide 106: US asset quality – commercial mortgage loan portfolio
Invested assets US asset quality – commercial mortgage loan portfolio Breakdown by property type, % • High level of diversification Hotels – Average loan size of £6.6m Industrial – Spread across property type 11% – Geographic diversification 27% • Strong underwriting discipline Retail 19% Total – Po
Slide 107: Cash and capital: Underlying free surplus
Cash and capital Underlying free surplus Underlying free surplus generation, £m HY 2010 HY 2011 HY 2012 1,093 1,039 947 1,390 (297) 1,403 (364) 1,286 (339) UK (33) UK (22) M&G 160 US (135) 2.2x M&G 150 UK (35) US (180) 2.6x 2.0x M&G 100 US (179) Asia (129) (141) Asia (162) (148) Asia (125) (118) UK
Slide 108: Cash and capital: Free surplus generation
Cash and capital Free surplus generation Free surplus and dividend, £m 2.4x Reinvestment Reinvestment rate 21% rate 26% Reinvestment rate 26% 297 364 339 Reinvestment Reinvestment rate 36% rate 42% Reinvestment rate 37% 331 Reinvestment 1,390 1,403 rate 58% 350 1,286 260 1,093 141 1,039 148 912 947
Slide 109: Cash and capital: Central cash resources
Cash and capital Central cash resources Development of central cash resources, £m FY 2010 FY 2011 HY 2012 935 1,105 (226) 726 (296) 1,486 (449) (148) 1,232 1,232 1,222 (642) 1,200 1,200 (440) (514)1 (199) (116) Operating holding co cashflow +£260m Operating holding co cashflow +£167m Operating holdi
Slide 110: Cash and capital: Net remittances (1/2)
Cash and capital Net remittances (1/2) Group objectives 2010-13, £bn HY Remittance ratio >55% 2009 2010 2011 Target 2012 2013 £m £m £m £m UK with-profit 284 202 223 216 £6.5bn 350 UK shareholder- 150 218 74 14 backed1 £3.8bn US 39 80 322 247 2004 Asia2 40 233 206 126 300 £4.7bn 73% M&G3 175 202 280
Slide 111: Cash and capital: Net remittances (2/2)
Cash and capital Net remittances (2/2) Group objectives 2010-13, £bn £m HY 09 HY 10 HY 11 HY 12 Remittance ratio >55% Actual free surplus 792 882 935 1,028 £6.5bn Operating variances (37) 171 159 132 Expected return on free assets 47 79 75 52 £3.8bn Asset management profits 110 154 221 191 Investmen