Prudential plc – HY22 Results – Business Review

10 August 2022

PRUDENTIAL PLC HALF YEAR 2022 RESULTS

PRUDENTIAL CONTINUES TO DELIVER RESILIENT OPERATIONAL PERFORMANCE AMIDST MARKET VOLATILITY

Performance highlights for the continuing business¹ on a constant (and actual) exchange rate basis²

• APE sales³up 9 per cent (6 per cent) to $2,213 million reflecting diversified geographic footprint, product mix and distribution channels
• New business profit⁴fell by (5) per cent ((7) per cent) to $1,098 million following the impact of higher interest rates and differences in geographical and channel mix
• Adjusted operating profit⁵up 8 per cent (6 per cent) to $1,661 million
• Shareholder GWS capital surplus over GMCR, following Hong Kong and China regulatory changes, remains strong and resilient with a coverage ratio of 548 per cent⁶. Shareholder GWS capital surplus over GPCR was $16.2 billion⁷, equivalent to a coverage ratio of 317 per cent⁸

Mark FitzPatrick, Group Chief Executive, said: “Our resilient operational performance demonstrates the strength of our well positioned and well diversified franchise across the Asia region, driven by our multi-channel, digitally enhanced distribution platform. This enabled us to maintain APE sales growth over the first quarter, despite considerable Covid-19-related disruption in many markets. We achieved stronger APE sales growth in the second quarter as conditions started to normalise in most markets. New business profit was (5) per cent⁹ lower as the benefit of higher APE sales was offset by the impact of higher interest rates under our EEV methodology, lower sales in Hong Kong, where margins have traditionally been higher, and an increase in bancassurance sales. Excluding the effects of interest rates and other economic changes, new business profit was broadly flat when compared with the corresponding period in 2021.

“The Group's adjusted operating profit was up 8 per cent⁹, driven by a 6 per cent⁹ increase in life and asset management adjusted operating profit combined with a 32 per cent⁹ reduction in central costs, as interest costs fell following our $2.25 billion debt redemption programme that completed in January 2022. We are on track to deliver a $70 million¹⁰ reduction in head office costs by the start of 2023 in addition to the $180 million saving achieved following the demerger of the UK business. The first 2022 interim dividend is 5.74 cents per share, up 7 per cent¹¹, equating to one third of the prior year full-year dividend of 17.23 cents per share.

“We continue to invest in the business including extending Pulse beyond a consumer app so that it covers Prudential's key business processes, from enabling agents by using tools designed to enhance productivity, to fulfilment of policy sales and servicing. Ultimately we believe this will help drive greater customer centricity and efficiency. In addition, via the Pulse platform, we are able to add additional distribution capability, allowing access to new channels and new customer segments which extend beyond our existing distribution footprint.

“Our Group-wide Supervision Framework (GWS) capital position is strong and resilient. The Hong Kong Insurance Authority (IA) approved our application to early adopt the RBC framework in Hong Kong, and this is incorporated within our GWS position at 30 June 2022. The Group's shareholder surplus above the Group Minimum Capital Requirement (GMCR) was $19.4 billion¹², representing a cover ratio of 548 per cent⁶. The Group aligns its established EEV and free surplus framework with the Group's Prescribed Capital Requirement (GPCR). At 30 June 2022, our shareholder surplus above the GPCR was $16.2 billion⁷ and results in a coverage ratio of 317 per cent⁸.

“The first half of the year saw considerable macroeconomic volatility, characterised in many markets by lower equity index levels, material increases in government bond yields and widening corporate bond spreads. The combined impact of these factors on our balance sheet, with the fall in investments exceeding the reduction in liabilities, led to a significant fall in IFRS profit after tax for continuing operations from $1,070 million¹¹ in the first half of 2021 to $106 million in the first half of 2022 and also led to a reduction in EEV under our active economic methodology.

“Our Moody's total leverage ratio at 30 June 2022 was estimated to be 22 per cent, well within our target range of 20-25 per cent, demonstrating our financial flexibility following recent actions.

“From a leadership perspective, as previously announced, we are delighted that Anil Wadhwani will join Prudential as Group CEO in February 2023. He will join a growth business, with a multi-channel distribution model and a distinctive geographic footprint, combined with the agility to grow and serve its customers even against the backdrop of the challenges of the Covid-19 pandemic. Although there are signs that Covid-19-related impacts in many of our markets are stabilising, over the remainder of the year we expect that operating conditions may continue to be challenging. We remain confident that Prudential has the financial resilience, capital strength and capability to meet the growing health and savings needs of our customers in Asia and Africa. By doing so, we believe we will deliver on our purpose to help people get the most out of life and also build value for our shareholders over the long-term.”

Notes

1  Continuing operations represents the Asia, Africa and head office functions of the Group following the demerger of Jackson.

2  Further information on actual and constant exchange rate bases is set out in note A1 of the IFRS financial results.

3  APE sales is a measure of new business activity that comprises the aggregate of annualised regular premiums and one-tenth of single premiums on new business written during the period for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4. It is not representative of premium income recorded in the IFRS financial statements. See note II of the Additional financial information for further explanation.

4  New business profit, on a post-tax basis, on business sold in the period, calculated in accordance with EEV Principles.

5  In this press release 'adjusted operating profit' refers to adjusted IFRS operating profit based on longer-term investment returns from continuing operations. This alternative performance measure is reconciled to IFRS profit for the period in note B1.1 of the IFRS financial results.

6  GWS coverage ratio of capital resources over Group minimum capital requirement attributable to the shareholder business.

7  GWS capital resources in excess of the Group prescribed capital requirement attributable to the shareholder business, before allowing for the 2022 first cash interim dividend. The shareholder position excludes the contribution to Group eligible capital resources and the Group prescribed capital requirements from participating business in Hong Kong, Singapore and Malaysia. Under the GWS Framework, all debt instruments (senior and subordinated) issued by Prudential plc at 30 June 2022, except the $350 million senior debt issued in the first half of 2022, are included as GWS eligible group capital resources.

8  GWS coverage ratio of capital resources over Group prescribed capital requirement attributable to the shareholder business. Prescribed capital requirements are set at the level at which the local regulator of a given entity can impose penalties, sanctions or intervention measures. The GWS group capital adequacy requirements require that total eligible group capital resources are not less than the Group Prescribed Capital Requirements (GPCR) and that GWS Tier 1 group capital resources are not less than the Group Minimum Capital Requirements (GMCR).

9  On a constant exchange rate basis.

10  Annual saving from full year 2021 costs, based on full year 2021 exchange rates.

11  On an actual exchange rate basis.

12  GWS capital resources in excess of the Group minimum capital requirement attributable to the shareholder business, before allowing for the 2022 first cash interim dividend. The shareholder position excludes the contribution to Group eligible capital resources and Group minimum capital requirement of participating business in Hong Kong, Singapore and Malaysia. Under the GWS Framework, all debt instruments (senior and subordinated) issued by Prudential plc at 30 June 2022, except the $350 million senior debt issued in the first half of 2022, are included as GWS eligible group capital resources.

13  Operating free surplus generated from insurance and asset management operations before restructuring costs. For insurance operations, operating free surplus generated represents amounts emerging from the in-force business during the period net of amounts reinvested in writing new business and excludes non-operating items. For asset management businesses, it equates to post-tax operating profit for the period. Restructuring costs are presented separately from the business unit amount. Further information is set out in 'movement in Group free surplus' of the EEV financial results.