Prudential Plc Half Year 2023 Results: Delivering A Strong Performance And Strategic Update

• New business profit² up 39 per cent (36 per cent) to $1,489 million, with 17 of our life markets delivering growth³, 16 of which by double digits. Excluding the effect of interest rate and other economic movements, new business profit was up 52 per cent (48 per cent)
• APE sales⁴ up 42 per cent (37 per cent) to $3,027 million
• Adjusted operating profit⁵ up 6 per cent (4 per cent) to $1,462 million
• Operating free surplus generated from in-force insurance and asset management business⁶ down (2) per cent ((4) per cent) to $1,438 million
• EEV operating profit⁷ up 22 per cent (19 per cent) to $2,155 million. EEV shareholders equity is $43.7 billion, equivalent to 1,588 cents per share
• GWS shareholder capital surplus over GPCR of $15.5 billion⁸, equivalent to a cover ratio of 295 per cent⁸ (31 December 2022: 307 per cent)
• Adjusted IFRS equity⁹ of $36.4 billion, up 4 per cent¹⁰ from 31 December 2022, equivalent to 1,324 cents per share. Annualised Contractual Service Margin¹¹ growth of 8 per cent.
• First interim dividend of 6.26 cents per share, up 9 per cent¹⁰ with guidance for 2023 and 2024 of expected annual growth between 7-9 per cent

Strategic update

Alongside interim results, CEO Anil Wadhwani announced a new purpose and strategy following the completion of his strategic and operational review.

Prudential’s new purpose statement – For Every Life, For Every Future – reflects its mission to be the most trusted partner and protector for this generation and generations to come, by providing simple and accessible financial and health solutions.

Prudential’s new strategy will build a sustainable growth platform, through targeted investment in structural growth markets across Asia and Africa by:

• Enhancing customer experiences to drive higher acquisition and loyalty for lifetime value creation;
• Technology-powered distribution with a focus on agency and bancassurance productivity and activation;
• Unlocking the health opportunity by disciplined implementation of best practices across all our markets;
• More consistent execution across each of our markets, driven through changes in our organisational model and technology platform; and
• Prioritising value creation, focusing on the generation of free surplus that can be used to invest in new business at attractive returns, core capabilities and strategic opportunities, as well as return capital to shareholders via dividends.

We believe our new strategy will accelerate value creation for all our stakeholders through operational and financial discipline, with two key financial objectives:

• Growing New Business Profit at 15-20 per cent compound annual growth between 2022 and 2027¹²;
• Achieving double-digit compound annual growth in operating free surplus generated from in-force insurance and asset management business between 2022 and 2027¹².

Commenting on his first Interim results and strategic update, CEO Anil Wadhwani, said: “The interim results demonstrate the power of our multi-engine, multi-channel business model across Asia and Africa. The business performed strongly in the first half of 2023, with new business profit up 39 per cent¹⁴. (up 52 per cent¹⁴ on an ex-economics basis – i.e. excluding the effect of interest rates). APE sales were up 42 per cent¹⁴ to $3,027 million and this sales momentum continues into the current third quarter.

“Our agency channel has rebounded strongly in all segments as Covid restrictions ended, reporting 89 per cent¹⁴ growth in new business profit on an ex-economics basis. The bancassurance channel maintained margins (on an ex-economics basis) despite lower sales in Singapore, Vietnam and the Chinese Mainland.

“13 of 22 life markets³ recorded positive Health & Protection new business profit growth. We continue to see increased agency adoption of digital tools. In 2022 agents using PRULeads, our activity and leads management engine, were 30 per cent more productive¹⁵.

“Prudential has a great franchise with 175 years of history, top three positions¹⁶ in 12 of our 14 Asia life markets and 4 of our 8 Africa life markets, scale in both agency and bancassurance, and more importantly the trust of our 18 million customers. We also have in-house investment capabilities with Eastspring managing over $220 billion of assets.

“We have today announced that we will do things differently in the way we run Prudential. With a clear strategy, operational and capital allocation priorities, we are focused on delivering sustainable value for all our stakeholders: employees, customers, shareholders and our communities.

“We are excited to write the next chapter of growth at Prudential.”

Market overview and outlook

In the first half of 2023, in Hong Kong, both domestic and Chinese Mainland Visitor segments performed particularly well. APE sales from the Domestic segment grew 68 per cent and the Chinese Mainland Visitor segment has seen a significant increase in sales following the opening of the border with the mainland in February 2023. Prudential increased market share across segments and achieved the number one position in both the offshore business and in the agency channel¹⁷. Demand for savings products across the Hong Kong business continues to be strong with volumes reflecting increased savings case sizes compared to 2019. Product mix in terms of new policy count has started to normalise. Customer experience improvements in digital onboarding and underwriting and enhanced multi-currency options have improved both health and protection and savings offerings. In Macau, the recruitment of agents has commenced, following the opening of the branch. The new licence completes Prudential’s footprint in all 11 cities in the Greater Bay Area, which has a population of over 85 million¹⁸.

In the Chinese Mainland, the company’s focus in the first half of 2023 was taking decisive steps to drive a more balanced product mix. At the start of the second quarter we actively withdrew certain guaranteed savings product from both agency and bancassurance channels. As a consequence, both agency and bancassurance channels reduced the proportion of short-term pay non-participating products sold in favour of higher quality and higher margin annuity and longer premium payment term products, particularly affecting volumes in the bancassurance channel in the second quarter. Agency still performed very strongly with APE sales up 25 per cent¹⁴ and productivity¹⁸ up 53 per cent. Overall, new business profit was marginally down by (3) percentage points¹⁴ on an ex-economics basis. Margins for both agency and bancassurance improved, and in aggregate rose by 7 percentage points, on an ex-economics basis. In Taiwan, APE sales grew by 28 per cent¹⁴ and new business profit increased with good performances from both existing and new bank partners. Participating products and tailored customer segmentation led to the business significantly outperforming the market.

Our businesses in ASEAN reflect our leading positions and the strength of our diversified multi-channel distribution franchise in this region.

• Malaysia grew APE sales by 12 per cent¹⁴ and new business profit by 11 per cent¹⁴ and had a leading net promoter score in both conventional and Takaful business.
• Indonesia APE sales grew 42 per cent¹⁴ and new business profit grew 22 per cent¹⁴ – with agency APE up particularly strongly at 51 per cent¹⁴ and with new business profit per active agent in the period up 77 per cent. Customer medical benefits were upgraded contributing to margins reducing by 6 percentage points.
• The Philippines delivered 13 per cent¹⁴ growth in new APE sales, with strong growth in active agents and new business profit. In Q1 2023, it was the number one player by sales in the market¹⁹.
• Singapore showed a resilient performance with APE sales down (3) per cent¹⁴ and new business profit down (20) per cent¹⁴ as we maintained market positioning, despite challenging operating conditions.
• In Vietnam, industry sales fell 31 per cent largely due to weakness in the bancassurance channel²⁰. We outperformed the market, reporting APE sales down (18) per cent¹⁴, with agency APE sales up 34 per cent¹⁴. New business profit was down overall.

In India, there was continued strong momentum and high quality growth: new business profit was up in the first half, reflecting APE sales growth of 15 per cent¹⁴ and an improvement of margin. Agency APE Sales grew 29 per cent¹⁴, with over 17,000 new agent recruits and over 100 new distribution partners secured.

In Africa, we delivered a strong performance with new business profit up reflecting broad based growth across all channels and all eight African markets recorded double digit¹³ APE sales growth. Overall Africa saw 31 per cent¹⁴ APE sales growth and an 18 per cent increase in the number of active agents since the equivalent period in the prior year. It had over 220 members qualifying for ‘million dollar round table’ status in 2022.

At Eastspring, funds under management increased to $228 billion, reflecting net inflows of $3.3 billion (excluding money market funds and net redemptions from funds managed on behalf of M&G plc) and positive market movements. Operating profits were up 14 per cent¹⁴ to $146 million.

Consumers in Asia remain resilient despite the challenging environment. While the outlook for Asian markets is mixed, our momentum in the first half has continued into the third quarter. This underscores the strength of our multi-market growth engine backed by our diversified channel mix, which is key to driving sustainable value in the long term.

Notes
1 Further information on actual and constant exchange rate bases is set out in note A1 of the IFRS financial statement. All results are presented in US dollars.

2 New business profit, on a post-tax basis, on business sold in the period, calculated in accordance with EEV Principles. See the basis of preparation to the EEV basis results for further explanation.

3 Of our 14 Asia life markets and 8 Africa life markets

4 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 year for all insurance products, including premiums for contracts designated as investment contracts under IFRS. It is not representative of premium income recorded in the IFRS financial statements. See note II of the Additional financial information for further explanation.

5 ‘Adjusted IFRS operating profit’ refers to adjusted IFRS operating profit based on longer-term investment returns from continuing operations and is stated after excluding the effect of short-term fluctuations in investment returns against long-term assumptions and other corporate transactions. This alternative performance measure is reconciled to IFRS profit for the period of $947 million (2022: $(1,505)million) in note B1.1 of the IFRS financial results.

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

7 EEV operating profit is based on longer-term investment returns and is stated after excluding the effect of short-term fluctuations in investment returns and other corporate transactions, and excludes the effect of changes in economic assumptions and the mark-to-market value movement on core borrowings.

8 Estimated GWS capital position reflects eligible Group capital resources in excess of the Group prescribed capital requirements (GPCR) attributable to the shareholder business, before allowing for the 2023 first cash interim dividend. Further detail on the estimated GWS capital position, including the basis of preparation, is included in note I(i) of the Additional financial information.

9 IFRS shareholders equity plus contractual service margin net of reinsurance and related tax adjustments. See note C3.1 in the IFRS financial results for further information.

10 On an actual exchange rate basis.

11 Net of reinsurance.

12 The objectives assume exchange rates at December 2022 and economic assumptions made by Prudential in calculating the EEV basis supplementary information for the year ended 31 December 2022, and are based on regulatory and solvency regimes applicable across the Group at the time the objectives were set. The objectives assume that the existing EEV and Free Surplus methodology at December 2022 will be applicable over the period.

13 Operating free surplus generated from insurance and asset management operations after investment in new business but before restructuring costs. Definition and further information is set out in ‘Movement in Group free surplus’ of the EEV basis results.

14 On a constant exchange rate basis.

15 Measured by cases per agent

16 As reported at full year 2022 unless specified. Sources include formal (e.g. competitors results release, local regulators and insurance association) and informal (industry exchange) market share. Ranking based on new business (APE sales, weighted full year premium or full year premium depending on availability of data) or total weighted revenue premiums, except for Hong Kong based on in-force premiums. Ranking for FY2020 for Cameroon.

17 Source: HKMA Q1 2023 market statistics.

18 Source: The Guangdong-Hong Kong-Macao Greater Bay Area Development Office.

19 Q1-2023 based on Weighted First Year Premium, Philippines Insurance Commission.

20 H1 2023 Vietnam Actuarial Network.