Prudential Plc Q4 FY2020 earnings call

Management Statement and Operational Highlights

• Jackson Demerger Progress: Secured bank financing, appointed new leadership team (Laura Prieskorn as CEO, Marcia Wadsten as CFO), with regulatory filings and approvals ongoing, expected to trade on NYSE in Q2 2021.
• Asia Business Achievements: Strong financial performance despite COVID-19, 13% growth in Asia Embedded Value, 13% growth in IFRS operating profits, 8% increase in operating free surplus. Diversified distribution channels (agency, bancassurance, digital), Pulse digital app with 20 million downloads, 2.2 million leads generated for agents.
• Group Results: Segment profits from continuing operations 2% higher IFRS basis, central overhead expenses down 20%, delivered $180 million cost reduction target, considering equity raise to enhance financial flexibility.

Segment Performance

• Asia Business: In 2020, renewal premiums increased 6% to $20 billion. Health and protection renewal premiums were up 8%. Insurance margin grew 19% to $2.6 billion. Asia Embedded Value grew 13% to $44 billion, doubling over the last 5 years. Eastspring's fund under management was $248 billion. New sales were down 28% overall, but ex-Hong Kong, down 6%, with APE sales rebounding in the second half. Africa businesses had APE up 51% to $112 million.
• U.S. Business (Jackson): New sales influenced by pricing actions and core VA business. U.S. operating profit down 9%. Jackson's RBC expected to be above 450% target on demerger with committed bank financing.

Guidance

• Jackson Demerger: Expected to complete in Q2 2021 subject to shareholder and regulatory approvals.
• Prudential Outlook: Focus on sustained double-digit growth in EEV per share, considering equity raise of $2.5 billion to $3 billion post-demerger to enhance financial flexibility and delever balance sheet.
• Asia and Africa: Continued growth in health and protection products, digital initiatives, and market expansion in key regions.

Risks

• COVID-19 Impact: Ongoing uncertainty in equity, foreign exchange, bond markets, and operational impacts from COVID-19 could affect future performance.
• Regulatory Changes: Transition to new regulatory frameworks (e.g., Hong Kong RBC regime) could introduce uncertainties and require adjustments.
• Market Volatility: Fluctuations in interest rates, equity markets, and geopolitical factors could impact financial results.

Question and Answer

Q: Thoughts on Jackson's capital return policy and Pulse's P&L contribution?

A: Laura Prieskorn mentioned Jackson's strong in-force book and history of capital generation, with more details in SEC filings. Nic Nicandrou stated Pulse costs are included in current numbers, with economics contributing to top line and new business value, but contribution to IFRS lags like a start-up.

Q: Mainland China regulatory developments impact?

A: Nic Nicandrou noted regulatory announcements on opening capital account are positive, but ownership of JV with CITIC is 50-50, with no immediate plans for majority control change.

Q: Indonesia health and protection mix?

A: Nic Nicandrou explained Indonesia saw increased sales of pure protection products (38% of sales vs 8% prior year), driven by pandemic demand for lower-ticket size, pure protection policies, and growth in Sharia-compliant products.

Q: LCSM capital ratio and inorganic growth?

A: Mark FitzPatrick stated LCSM ratio is comfortable, enabling inorganic growth within risk appetite, with GWS framework expected to settle positively, enhancing capital ratio.

Q: Holdco cash and equity raise?

A: Mark FitzPatrick mentioned Holdco cash is comfortable, with plans to use equity raise post-demerger to reduce debt and enhance financial flexibility for growth opportunities.