Prudential : Earnings Document

Prudential plc 2022 Half Year

Results Live Q&A

Wednesday, 10th August 2022

Prudential plc 2022 Half Year Results

Wednesday, 10th August 2022

2022 Half Year Results Highlights

Mark FitzPatrick

Group Chief Executive, Prudential plc

Welcome

Welcome everyone to our 2022 half year presentation from our offices here in Hong Kong. I am Mark FitzPatrick and I am joined by here in person by several members of our leadership team and by a number of our Hong Kong based analysts. From the Prudential team we have James Turner our Group CFO and Avnish Kalra our Group Chief Risk Officer and Compliance Officer. We also have the Managing Directors of our three strategic business groups. Here with us in the room is Lilian Ng responsible for Chinese Mainland, Hong Kong, and Taiwan, as well as overall Distribution capabilities. Then joining us remotely from Singapore is Dennis Tan who heads up Singapore, Thailand, and Vietnam, Solmaz Altin who is responsible for the remaining country markets including Indonesia, Malaysia, and the Philippines, who also has a responsibility for our Digital and Technology functions, and Seck Wai-Kwong Chief Executive of Eastspring.

I appreciate this is a very busy day for many of you and we will close the session just before top of the hour. But very briefly, before we go into Q&A just a couple of key points I would like to highlight from the half year.

Resilient performance

Firstly it was a resilient set of results. APE sales were up 9% to $2.2 billion reflecting diverse source of growth due to our geographic footprint, product mix and distribution channels. APE sales in Southeast Asia and in Greater China are now both at about $1 billion. New business profit was flat year-on-year when you exclude economic effects and it was down 5% to $1.1 billion following differences in country and channel mix and the impact of higher interest rates. The jaws could be attributed approximately a third to each of those factors. IFRS group operating profit was up 8% to $1.7 billion. Our resilient operational performance is testament to our multi-channel digitally enhanced distribution platform and our strong franchise across Asia and Africa where we are a top-three player in 11 Asian life markets. The quality of our business is strong as evidenced by the high customer retention rate that we published today.

Management priorities

We are looking to drive growth through a focus on operational delivery, writing quality health and protection business and by investment in people. Therefore our management priorities are around distribution, digital, business quality and people. In distribution it means we are expanding our distribution channels and driving higher productivity across both our agency and banca channels. In digital we are embedding digital into our sales and servicing process to deliver a superior customer experience and to enhance operational delivery. We are focused on maintaining the quality of our business and we continue to build leadership bench strength and building capabilities of our people through ongoing training and development. We are also very pleased to announce two new non-executive directors today as well.

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Prudential plc 2022 Half Year Results

Wednesday, 10th August 2022

Confident of future growth

We are confident of continued growth. Customer demand continues to be strong. Our indexed monthly sales were up 13% in July this year and our latest Hong Kong border survey which is included in the appendix to the slides continue to show very high intention to purchase insurance. Importantly we see that long-term structural growth drivers remain intact driven by urbanisation, growth in middle class and their corresponding wealth, and rising demand for health and protection. We remain confident that Prudential has the financial resilience, capital strength and capability to meet the growing health and saving needs of our customers in Asia and Africa.

With that let us start the Q&A session with questions in the room in the first instance please.

Q&A

Michael Chang (CGS-CIMB): I have got two questions. Firstly on the China business, it is definitely better than expected first half and NBP is only down 4.0% off an extremely difficult base for last year. Could you shed some light on your view of the operating environment? Maybe you can give some figures on trends of Q1 and Q2. As China exits the outbreaks how is July doing on that front? What are you doing to continue to outgrow the industry? Secondly on the Hong Kong business in terms of the fifth wave obviously a very tough 1Q but since then things have improved in terms of Covid cases. How is the business momentum of the domestic segment since then?

Mark FitzPatrick: Michael thank you for that question. Let me start off and then Lilian I will hand over to you for a little bit of extra colour please. In terms of our business in China we are very pleased with how we have performed this half. A key differentiator in our performance was undoubtedly the multichannel distribution that we have. We had strength in agency, we see strength in bancassurance but also the very broad footprint we have in Chinese Mainland. In terms of 99 cities, in terms of 6,000 outlets which meant most of the business could continue performing even if some cities were in various stages of lockdown or restricted movements. That undoubtedly was a very important component. I think we have also been very focused on the quality of our agents in terms of additional training and we have seen significant improvements in terms of the number of cases that each agent is working through and a significant increase in terms of health and protection policies that we have seen coming through. We think these are important drivers and important competitive advantages because it takes time to build up bancassurance relationships and we think we have those and we have them in abundance throughout China.

Lilian do you have any further comments on Chinese Mainland and then maybe a little bit on Hong Kong domestic please?

Lilian Ng (Managing Director Strategic Business Group, Prudential plc): Thanks Mark and thanks for the question. Obviously on the Chinese Mainland I think the reason why we can continue to outperform is a combination of our wide geographic footprint as well as the multichannel distribution. Basically we are where the customers are and we can serve them the way that they want to be served, whether it is through our agency or our bancassurance channel. To touch a little bit on our agency capacity and capabilities as people are aware the regulator is focusing more on sales practices and I think there is now a draft in place in terms

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Prudential plc 2022 Half Year Results

Wednesday, 10th August 2022

of looking at how does an insurance company and sales intermediaries drive consumer conduct. You will be very happy to hear for a CPL agency force we are already impacting on that role that they play. We are very selective in who we recruit as well as how we equip them to actually do the right thing for our customers. As a result we have been able to see an increase in what we call the productive and the elite agents month-on-month. Since the beginning of this year as you appreciate Covid has been impacting on our recruitment momentum but we have seen that quality coming up.

On the bancassurance side the beauty of our bancassurance platform other than our capabilities is I believe in terms of our digital technology platform that we can actually hook up with a bank partner quickly and also address the double recording which is coming through in terms of financial advice. You have to do a video and sound recording. These are capabilities that we have and as a result we can onboard a bank partner and the branches quickly. On top of that obviously continually evolve our product offering. Overall we do see a lot of opportunities in China and we believe we have the capabilities and continue to refine in that area.

Onto Hong Kong on the domestic segment, obviously Hong Kong is a very resilient place and I think there are two things that we need to recognise in Hong Kong. This is promoted by the new administration, the Hong Kong government as well as from the Chinese Mainland government, which is it continues to be seen as an international financial centre. One thing that we need to recall is that Hong Kong is also seen as an international healthcare centre and these are the two reasons why we can actually continue to grow in the domestic market and when the border opens we continue to believe there will be a lot of appetite or pent-up demand from MCV customers coming through.

On the domestic front the purpose we are doing is we are driving more health and protection through our agency force and we can see in some of our data that we are now driving our product mix in an area where the product mix alone is adding 11 points to the new business margin for the agency product mix. On our banca piece we continue to have a very good partnership with Standard Chartered Bank and I have to say one of the only ones who continues to offer a whole range of products including savings and protection. Whereas we know a lot of our bank partnerships are purely saving or spread products. That is an area that we continue to work on.

Thomas Wang (Goldman Sachs): A couple of questions. If I can follow on that China question, in terms of distribution we have seen struggles among the Chinese insurers on the agency side how - and then Pru did a lot of new bancassurance relationships. I wanted to know how you think about medium-to-long term how that dynamic or balance between the two channels developing. The second question if I can ask on the capital side could we have some update on the IFRS 17 implementation, how potentially that impacts our financials for next year?

Mark FitzPatrick: Thomas thank you. In terms of distribution on the Chinese Mainland I think what we have seen is a real shift towards quality. You have seen the number of agents in the market come down, a real focus in terms of quality and you are seeing the regulatory direction from CBIRC focusing on quality of agents as well. That plays to our strength and we think that that supports who we have been and the space in the market that we play in. We do think that banca is going to continue to be a very important part of distribution as well in

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Prudential plc 2022 Half Year Results

Wednesday, 10th August 2022

Chinese Mainland and we have developed it in such a way that the margin is very respectable at about 40-41%. Therefore it is a meaningful contributor and as Lilian says we have the wherewithal to be able to link up with new banking relationships very significantly. In Chinese Mainland we have 55 banca partners and we have access to over 6,100 bank outlets. It is a capability and a strength of scale and of size as well, which is important. Both banca and agency will be important. I think the whole industry will shift towards a more professional agency force and that is very much in line with where we are at.

James Turner (Group Chief Financial Officer, Prudential plc): Thomas thank you and thank you for my first question as CFO. In terms of IFRS 17 we have given you a slide in the deck which sets out the timetable and some of the key points. However, in terms of impact really the key issue is that the methodology is still being defined in a number of areas. What we will do is we will do a market update in Q2 2023 where we will go through the impact of IFRS 17 and bridge between IFRS 4 and the new accounting basis. Really the important thing to remember is this is an accounting basis. It does not change the economics of our business. It does not change our strategy, our dividend, our cash generative basis or indeed our capital strength. It is clearly important. It is front of my mind in terms of ensuring we get an optimal outcome but the key underlying economics of this business are not impacted by IFRS 17.

Edwin Liu (CLSA): If I can switch gear to non-China markets, my first question is on Singapore. I noted that last year and actually for the first half of this year the Singapore business performed quite well and the momentum seems to be much better than your peers. I wonder could you share some colour behind the strong momentum for your Singapore business and should we expect such momentum to continue in the second half? The other question is going back a little bit to the Hong Kong business. I understand the economic assumption may have some impact on the new business profit for Hong Kong in the first half. Is it possible to share with us if such economic assumptions change what would be the new business profit change for the Hong Kong market in the first half? Thank you.

Mark FitzPatrick: Edwin thank you. I will start off on the Singapore and then Dennis I will hand over to you for a little bit of extra colour seeing as you are on the ground in Singapore. Then maybe James you could cover the Hong Kong NBP margin excluding economics, thank you. In terms of Singapore I think the team have continued to do fantastically well. The agency has performed well. We have got nearly 20% of our agency base as MDRT. That is continuing to do well and I think with the banca channel and the customer appetite over the course of the last six months banca has come through very strongly and we have seen a real appetite from high net worth clients for long-term policies that really look at savings and legacy protection. Maybe Dennis I could hand over to you for a little bit of extra colour please.

Dennis Tan (CEO, Prudential Assurance Company Singapore): Thank you Mark. I think in the Singapore context given the reopening and things being more endemic in nature now there has been a lot more activities on the ground. We see that a lot more in the second quarter of this year as compared to the first quarter. In that regard, a lot more customer engagement, a lot more face-to-faceactivities are being rolled out both in the bank channel as well as through our large agency force. That continues to support a lot more of the business generation here. The other item is actually with the pandemic there has been a

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