Embargo: 07:01am Friday 20 February 2009
PRUDENTIAL PLC FULL YEAR 2008 NEW BUSINESS RESULTS
STRONG GROUP CAPITAL POSITION - ESTIMATED IGD SURPLUS GBP1.7BN
WE SEPARATELY ANNOUNCE TODAY THE TRANSFER OF THE LEGACY AGENCY BOOK
IN TAIWAN AND THE TAIWAN AGENCY FORCE TO CHINA LIFE INSURANCE COMPANY
LTD (TAIWAN) WHICH WILL INCREASE THE IGD SURPLUS TO APPROXIMATELY
GBP2.5BN
TOTAL GROUP INSURANCE SALES UP FIVE PER CENT
TOTAL ASSET MANAGEMENT NET INFLOWS OF GBP4.3BN
APE Growth in Sterling Growth in Local
Currency
Total Group GBP3,024m 5% 1%
Insurance
Asia GBP1,362m 6% (1)%
US GBP716m 7% (1)%
UK Retail GBP803m 10% 10%
UK Total GBP947m 4% 4%
Asia Asset Net inflows of (71)% (75%)
Management GBP0.9bn
M&G Net inflows of (31)% (31)%
GBP3.4bn
Mark Tucker, Group Chief Executive said: "Prudential has delivered a very
good sales performance with
overall Group Insurance new business up five per cent in
a really challenging environment.
Our retirement led strategy, underpinned by our international presence,
product and distribution capabilities and brands, has resulted in
strong performance across the Group, with each of the businesses
demonstrating positive momentum in exceptionally volatile and turbulent
conditions and benefiting overall from a flight to quality.
Our sales in Asia were up six per cent, we achieved record sales in
the US, which were up seven per cent and our UK business continues to
demonstrate its ability to attract profitable business with retail
sales up 10 per cent and overall sales up four per cent. Our asset
management businesses have produced an excellent performance; M&G
achieved net inflows of GBP3.4bn and the Asia asset management business
recorded net inflows of GBP0.9bn.
Our capital position is strong and robust, driven by our prudent and
proactive risk management. Our Insurance Groups Directive (IGD) capital
surplus is estimated at GBP1.7bn before allowing for the 2008 final
dividend giving a solvency ratio of 160 per cent. This is composed of
our IGD surplus at 31 December 2008 which is estimated at GBP1.4bn and
of an additional GBP0.3bn which the FSA has allowed us to include in our
IGD surplus going forward, as a result of an innovative structure we
have entered into.
The GBP0.3bn of additional IGD capital reflects our ability to realise a
portion of the shareholders' economic interest in the future transfers
from the UK With-Profits Fund, which in total was worth GBP1.7bn at 31
December 2008. Going forward, there is the opportunity to develop
similar transactions which may allow us to access more of the residual
GBP1.4bn if required.
In addition to this strong capital position, the total credit
reserve for the UK shareholder annuity funds was GBP1.4bn at the end of
the year.
Today we entered into an agreement to transfer the assets and
liabilities of our agency distribution business in Taiwan to China Life
Insurance Company Ltd (Taiwan). The business to be transferred includes
Prudential's legacy interest rate products in Taiwan. This agreement is
significantly value enhancing for the Group. As a result of the
transfer and on completion, there will be a net increase in the Group's
IGD surplus of approximately GBP800 million further strengthening our
already robust capital position. Embedded value will increase by
approximately GBP90m after restructuring costs.
These factors together with the Group's strong underlying earnings
capacity, our hedging programmes and additional areas of
flexibility, position the Group to withstand significant further
deterioration in market conditions should they occur. For instance, an
instantaneous further decrease of 40 per cent in equity markets
levels from 31 December 2008 would reduce our IGD surplus by GBP350m.
We expect 2009 to be a challenging year and for global financial
markets to remain difficult. In this environment we have taken a
prudent approach to our 2009 plans, balancing new business with cash
generation and capital conservation as our key drivers.
We will continue to position ourselves to take advantage of any upturn
in the market and, with a clear focus on the
interests of our shareholders, we will evaluate carefully any strategic
opportunities that arise from market dislocation.
We firmly believe that our combination of financial strength and
focused strategy will enable us to out-perform our competition over the
economic and financial cycle. We remain firmly committed to our current
dividend policy."
Financial Management
We entered 2008 in a defensive position and have remained focused on
prudent and proactive management of our balance sheet and risk
profile, as illustrated by our decision taken in June 2008 not to
proceed with the re-attribution of the PAC inherited
estate. Throughout the year, our capital position remained
resilient and we have maintained liquidity at robust levels.
We continue to impose stringent stress testing on our key capital
measures to ensure we can withstand, both in the short and medium
term, further very significant market shocks.
Capital Management
The Group's risk appetite framework sets out our tolerance to risk
exposures, our approach to risk management and return optimisation. The
risk profile of the Group is continuously monitored against agreed
limits and key risk mitigation strategies include asset liability
management, the use of derivatives to hedge relevant market risks, as
well as reinsurance and corporate insurance programmes.
Our capital position is strong and robust, driven by our prudent and
proactive risk management. Our Insurance Groups Directive (IGD) capital
surplus is estimated at GBP1.7bn before allowing for the 2008 final
dividend giving a solvency ratio of 160 per cent. This is composed of
our IGD surplus at 31 December 2008 which is estimated at GBP1.4bn and
of an additional GBP0.3bn which the FSA has subsequently allowed us to
include in our IGD surplus going forward, as a result of an
innovative structure we have entered into. The IGD capital surplus on a
consistent basis (i.e. before allowing for a dividend) at the end of
2007 and at the end of the third quarter 2008 was GBP1.9bn and GBP1.4bn
respectively.
The GBP0.3bn additional IGD capital reflects our ability to realise a
portion of the shareholders' economic interest in the future transfers
from the UK With-Profits Fund, which in total was worth GBP1.7bn at 31
December 2008. Going forward, there is the opportunity to develop
similar transactions which may allow us to access more of the residual
GBP1.4bn if required.
In addition to this strong capital position, the total credit
reserve for the UK shareholder annuity funds was GBP1.4bn at the end of
the year. We have increased this credit reserve by GBP0.8bn in 2008
and it is equivalent to 80bps per annum over the lifetime of the
assets. This reserve would allow us to withstand a repeat of the
average Moody's default experience from the Great Depression, occurring
every year for the life of the book.
Today we entered into an agreement to transfer the assets and
liabilities of our agency distribution business in Taiwan to China Life
Insurance Company Ltd (Taiwan) The business to be transferred includes
Prudential's legacy interest rate products in Taiwan. This agreement is
significantly value enhancing for the Group. As a result of the
transfer and on completion, there will be a net increase in the Group's
IGD surplus of approximately GBP800 million, still further strengthening
our already robust capital position. Embedded value will increase by
approximately GBP90m after restructuring costs.
These factors together with the Group's strong underlying earnings
capacity, our established hedging programmes and additional areas of
flexibility position the Group to withstand significant further
deterioration in market conditions should they occur.
- An instantaneous further 40 per cent fall in equity markets from
31 December 2008 levels would reduce the IGD surplus by GBP350m
- A 150bps reduction in interest rates from 31 December 2008 would
reduce the IGD surplus by GBP300m. This should be further reduced
post the completion of the sale of our Taiwan legacy agency book.
A wide range of capital management initiatives and risk mitigation
options remain available to the Group to manage the IGD capital
position. They include the use of reinsurance and similar structures to
crystallise the value of future cash flows, the implementation of
further hedging strategies and actions to conserve and/or release
capital.
Equity Risk
In our UK business, most of our equity exposure is incurred in the
With-Profits Fund. The large inherited estate estimated at GBP5.4bn at
31 December 2008 provides us with a cushion against direct shareholder
exposure. The inherited estate itself is partially protected against
falls in equity markets through an active hedging policy.
In Asia, a high proportion of our in-force book is made up of
unit-linked products with limited shareholder exposure to equities. We
have minimised the sensitivity of our IGD position to Asian equity
market levels by selling down the equity holdings outside our
unit-linked holdings.
In the US, where we are a leading variable annuity provider, there
are well understood risks associated with the guarantees embedded in
our products. We provide guarantees for minimum death benefit (GMDB) on
all policies in this class, minimum withdrawal benefits (GMWB)
on 67 per cent of the book and minimum income benefits (GMIB) on
only 11 per cent. To protect the shareholder against the volatility
induced by these embedded options we use both a comprehensive hedging
programme and reinsurance.
Variable annuity sales are focused on meeting the needs of conservative
and risk averse customers seeking reliable income in retirement, who
display little tendency to arbitrage their guarantees. They select
conservative investment options and importantly, buy fewer guarantee
products, compared to the industry as a whole. This is because our
operational platform allows us to tailor more than 3,000 product
combinations, which means customers are not sold guarantees that they
do not need. This enables us to be price competitive whilst not
over-exposing the Company to guarantee risk. The conservative and
straightforward nature of our investment options makes hedging
a more straightforward process.
We do not compete on price: our individual guarantees tend to be more
expensive than the average because we want to sell at a price where we
can hedge or reinsure our risks. However many of our competitors
offer"bundled" products where the customer pays for guarantees that they do
not require. Our more tailored offering allows us to remain price
competitive whilst pricing the guarantees appropriately.
We do not actively market GMIB and where it is selected we reinsure.
Reinsurance covers both the in-force book and new business for the life
of the policy; if reinsurance were not to be available we would not
sell this option.
We take a macro approach to hedging that covers all the equity risk in
the US business, including all exposure to GMDB and GMWB
guarantees. Within our macro approach we utilise the natural offsets
that exist between the variable annuity guarantees and the
fixed-indexed annuity book and then use a combination of OTC options
and futures to hedge the residual risk allowing for significant
market shocks and limiting the amount of capital we are putting at
risk. The hedging programme covers both the in-force book and new
business for the 'greeks' i.e. changes in equity market levels, the
rate of change in market levels and equity market volatility as well as
interest rate movements. In addition we hedge the fees on variable
annuity guarantees.
Due to the Company's sales approach, disciplined pricing and dynamic
hedging of its variable annuity guarantees, Jackson's equity hedging
gains offset the effect of the 38.5 per cent drop experienced in US
equity markets in 2008 on a statutory capital basis, an excellent
outcome. Jackson was one of very few US life insurance companies to
achieve this level of success with its variable annuity hedging
programme in 2008.
Interest Rate Risk
As previously indicated, interest rates primarily impact our Asia and
US businesses. In Asia, our exposure will be reduced following the
agreement with China Life Insurance Company Ltd (Taiwan) to transfer
the agency based business in Taiwan, which includes Prudential's legacy
interest rate products. The remaining exposure in Asia is mainly from
guarantees on traditional shareholder-backed life products and
asset-liability mismatches, primarily in Japan and Korea. This exposure
is within our risk appetite and is managed carefully on an ongoing
basis. We have a range of risk mitigation options available to us if we
wish to reduce this exposure. In certain territories interest rates are
at historically low levels which reduces our downside risk.
In the US, there is interest rate risk across the portfolio.
Fixed annuity interest rate exposure is managed through a combination
of interest rate swaps and interest rate options, to protect capital
against rates rising quickly, and through the contractual ability to
annually reset crediting rates. The average traditional fixed
annuity crediting rate is 91bps above the guaranteed crediting rate.
Historically we have had a significant IGD sensitivity relating to the
mark to market accounting of interest rate derivatives. During the
quarter we have worked with the US regulator to recognise the
effectiveness of interest rate hedging and the statutory valuation now
accounts for hedges and the hedged items on a consistent basis.
In the UK at very low interest rates there is some exposure to asset
liability mismatches in the shareholder annuity fund.
Credit
2008 has been a period without precedent for the global debt markets
with illiquidity and credit spreads reaching all time highs. The
Group's debt portfolio on an IFRS basis is estimated at GBP95bn at 31
December 2008 excluding holdings attributable to external unit holders.
Of this total, GBP59bn is in the UK of which GBP38bn is within the UK
With-Profits fund where protection is primarily provided by the
inherited estate. Outside the With-Profits fund there is GBP4bn held in
unit linked funds where the shareholder risk is limited and there is
GBP17bn backing the shareholder annuity business and other non-linked
business of which GBP13bn relates to corporate bonds and GBP4bn is in
government securities.
Within the UK shareholder annuity funds, we have built up a significant
credit reserve of GBP1.4bn to allow for future defaults. This reserve
can withstand the equivalent of the average default experience during
the Great Depression occurring every year over the life of the
portfolio. In 2008, we have experienced credit defaults of GBP93m that
relate to shareholder funds 0.5 per cent of the portfolio.
Asia's debt portfolio totals GBP11bn, approximately 64 per cent is
invested in Unit-Linked and With-Profits funds with minimal shareholder
risk. For Asia, the portfolio has performed very well
with 2008 defaults totalling only GBP20m.
The final and most significant area of exposure to credit risk for the
shareholder is Jackson. Jackson's fixed income portfolio is estimated
at GBP24bn and comprises Corporate Debt GBP16bn, Commercial Mortgage
Backed Securities (CMBS) GBP2bn, Residential Mortgage Backed Securities
(RMBS) GBP4bn and others GBP2bn. We entered the cycle in a defensive
position and the portfolio is managed rigorously.
The US Corporate Debt portfolio of GBP16bn is 92 per cent investment
grade. Concentration risk is low with the top ten holdings accounting
for only five per cent of the portfolio. The high yield portfolio
is also well diversified with an average holding of GBP8m. Our single
largest sector exposure in the investment grade portfolio
is Utilities at 13 per cent. We actively manage the portfolio and
will sell exposure as events dictate; for example we reduced our
holding in both Lehman and Washington Mutual early in 2008.
Within the RMBS portfolio of GBP4bn, the Agency guaranteed portion is 50
per cent. Another 25 per cent of the portfolio relates to investments
pre-2006/2007 vintages where experience has been much more positive
than later vintages. Our exposure to the 2006/2007 vintages is GBP946m
of which GBP617m is invested in the senior part of the capital
structure, therefore significantly reducing the risk of defaults and
the magnitude of loss if a shortfall does occur. The actual exposure to
non-senior 2006/2007 Prime and Alt-A RMBS is only GBP329m.
The CMBS GBP2bn portfolio is performing strongly, 85 per cent of the
portfolio is AAA and only one per cent is below investment grade. We
materially reduced non-AAA purchases after 2004 given the significant
deterioration in underwriting standards observed in the market and in
line with rating agencies' guidelines. The entire portfolio has
an average credit enhancement level of 30 per cent which provides
significant protection i.e. the bond has to incur a 30 per cent
loss, net of recoveries, before we are at risk.
In 2008, Jackson's total defaults were GBP78m of which GBP5m were
incurred in the fourth quarter. As part of our active management of the
book we incurred net losses on sale of impaired bonds of GBP127m of
which GBP67m happened in the fourth quarter of 2008.
IFRS write downs excluding defaults for the year were GBP419m, an
increase of GBP228m in the fourth quarter of 2008.
The impairment process reflects a rigorous review of every single bond
and security in our portfolio. We believe that the accounting rules for
impairments are necessarily conservative and not always consistent with
economic losses and although the accounting requires us to book them as
losses through our income statement, we would expect only a portion of
these impairments to eventually turn into defaults and a proportion of
these impaired securities to recover in price over time.
In considering potential future losses for Jackson, it is essential to
examine the key components of the debt portfolio. As at 31 December
2008, 93 per cent of Jackson's total debt portfolio of GBP24bn consisted
of investment grade securities and seven per cent were high
yield. Historically, the highest global default rates during a
recession have averaged 1.6 per cent for investment grade and 15.4 per
cent for high yield, although not necessarily in the same year (Source:
Moody's Global Corporate Finance - February 2008). Applying
these historically high default rates to our portfolio would generate
losses which can be absorbed within our IGD surplus.
Unrealised Losses
The entire market for fixed income securities has been re-priced
downward from historically tight spreads of approximately 100 bps
during the first half of 2007 to historically wide spreads of over
640 bps on investment grade paper at the end of 2008. Wider credit and
liquidity spreads are causing the average investment grade security to
trade around the mid to high 80's. It is important to keep in mind that
we have the intent and ability to hold these fixed income securities to
maturity which in economic terms limits the impact of the current
market dislocation.
Jackson's unrealised losses across the whole portfolio for the year
are estimated at GBP3.2bn or 12 per cent of the portfolio and rose in
the fourth quarter by GBP1.3bn as credit spreads moved to all time
highs and bond prices to all time lows. Unrealised losses on securities
priced at less than 80 per cent of face value were GBP1.9bn at 31
December 2008. We believe that the accounting impact of these
unrealised losses significantly overstates the risk of economic losses
on our portfolio at current price levels.
Liquidity
The Group remains comfortable with its liquidity position at holding
and subsidiary company level. The holding company has significant
internal sources of liquidity which are sufficient to meet all of our
requirements for the foreseeable future without having to utilise
external funding. In aggregate the Group has GBP2.1bn of undrawn
committed facilities and has recently renewed its GBP1.4bn undrawn
syndicated committed banking facility for a further three years and
renewed its GBP500m securities lending back-up facility.
Business Review
Asia insurance operations
Prudential Corporation Asia had a strong fourth quarter, the second
most productive fourth quarter in its history and an excellent
performance relative to the market. Although official market statistics
are not yet available, we believe we are the leading foreign company or
joint venture in seven of our twelve life markets and the overall
market leader in four of these. This demonstrates the resilience of our
strategy, with its emphasis on agency led distribution and regular
premium business.
We have seen growth in regular premium business of 10 per cent during
2008 which compares favourably to a decline of 19 per cent in single
premium business due to continued market volatility and regulatory
changes in Singapore.
Sales in the fourth quarter of GBP329m were up eight per cent compared
to the third quarter. On a constant exchange rate basis sales
declined 11 per cent. This was largely due to the impact of unfolding
economic events in October and November and their negative impact on
customer sentiment. However, there was a strong bounce back in December
as initiatives and incentives, including the promotion of the
with-profits and protection business, started to have an impact. Sales
in December were GBP140m only three per cent lower than December 2007,
which was Prudential Corporation Asia's highest sales month on
record. APE for health and protection product lines was GBP325m in 2008,
representing a very strong 34 per cent growth over 2007, reflecting the
inherent strength of these products despite market dislocation and also
the focused execution of our Health product strategy.
Our agency force, which is the largest in the region, grew three per
cent in 2008 to 420,000 agents. Average agency activity during 2008, in
terms of cases per agent, has remained broadly in line with 2007.
However, average case sizes have declined reflecting lower single
premium business and an increased proportion of lower premium, but
higher margin, protection business.
New business through Prudential's successful bank distribution network
was 38 per cent higher than in 2007 and generated 19 per cent of total
APE, up from 15 per cent. In July 2008, Prudential and Standard
Chartered Bank announced the renewal and extension of their original
bank distribution agreement covering Hong Kong, Singapore and Malaysia
and the inclusion of Japan and Thailand within this master agreement
for the first time. This complemented the previously announced
agreement for Taiwan in September 2007. With the addition of Vietnam in
January 2009 Prudential products are now sold through Standard
Chartered Bank branches in nine markets across the region.
In summary for full year 2008, APE sales of GBP1,362m were six per cent
higher than 2007 and only one per cent lower than 2007 on a constant
exchange rate basis, an excellent result for the year given market
conditions in the second half.
Looking at each of the major markets in more detail:
In China fourth quarter sales of GBP11m were 22 per cent above the third
quarter. New business sales for the year of GBP38m were 31 per cent
higher than 2007 which reflects the improved sales results through
the bancassurance channel where we are taking advantage of the large
customer base and the distribution infrastructure of our partners. In
2008, CITIC Prudential Life remained the second largest foreign
provider of individual life new business on an APE basis and the
largest joint venture company.
In Hong Kong, fourth quarter sales of GBP46m were in line with the third
quarter but 35 per cent lower in local currency reflecting the general
climate and local issues relating to Lehman Brothers that were
particularly significant in the bank channel. However, there was a
strong recovery in December with agency production up 97 per cent over
November. For the full year 2008, Hong Kong was 23 per cent higher than
2007 and up 13 per cent on a local currency basis reflecting the
notably successful launch of PRUlink Wealth Builder, the first regular
premium back-end loaded linked product and also the on-going success of
our retirement planning and protection product campaigns. We expect to
have increased new business market share in Hong Kong during the year
and to have moved up to second place.
India had a very challenging fourth quarter with a sharp decline in
Indian equity markets as well as the impact of the Mumbai terrorist
attacks. New business APE of GBP35m was down 26 per cent on the third
quarter. The full year in India started very strongly as the investment
in new branches and the development of alternative distribution
channels during 2007 continued to deliver. New business for the year of
GBP208m was 16 per cent higher than 2007 and 12 per cent higher on a
local currency basis. This growth was primarily driven by regular
premium business which grew 14 per cent during 2008. The business
retains its position as the leading foreign joint venture in terms of
new business market share.
Prudential's business in Indonesia continues to perform very strongly
with sales of GBP47m in the fourth quarter up 12 per cent on the third
quarter. Sales growth rates did slow in September and October as the
global economic crisis unsettled the market but Prudential finished
with a new record sales month in December. Sales for the full year of
GBP176m are up 45 per cent driven by the continuing successful expansion
of distribution. The agency force grew by 21 per cent in 2008 and now
totals 60,000 agents making it our second largest agency force in the
region. Additionally, a new agency segmentation programme has also
enabled us to target development resources more effectively. Indonesia
has the world's largest Muslim population and Prudential launched very
popular Shariah compliant Takaful products in the first quarter. We are
confident we outgrew the market and built upon our market leading
position.
Market conditions in Korea have been challenging during the whole of
2008 with the Korean economy under considerable pressure and the
bancassurance market evolving for foreign players into more of an open
architecture format, with tough competition for distribution.
Prudential saw new business volumes of GBP219m decline nine per cent on
a local currency basis. The general agency (broker) channel has seen a
marked shift away from variable unit linked products in favour of risk
based and interest sensitive products. We have concerns over the long
term profitability of these products and in line with our value over
volume imperative, we are not competing in this sector. We expect to
have gained market share relative to other foreign competitors in the
market during the second half of 2008.
Our business in Malaysia launched an agency transformation programme in
early 2008 and this has driven a significant increase in agency
activity and resulted in our Malaysian operations' highest ever month
for new business in December 2008. As elsewhere, October and November
were depressed, but the fourth quarter 2008 sales of GBP36m were up 33
per cent over the third quarter. Total new business in 2008 of GBP102m
was 24 per cent higher than 2007 and up 11 per cent on a local currency
basis. This includes Prudential's share of its joint venture with BSN
in Malaysia for Takaful business. In total, Takaful now represents
around 21 per cent of new business. We expect Prudential Malaysia to
have increased its market share during 2008 and that we are now the
market leader in terms of new business APE.
With its economy particularly dependent on inter-regional trade and
financial services, Singapore has been particularly badly affected by
the economic crisis and sales dipped markedly in October and November.
However, there were encouraging rebounds in new business in December,
with volumes almost double November's. Singapore's fourth quarter of
GBP26m was up 18 per cent over the third quarter and flat in local
currency terms. Changes to the Central Provident Fund rules in
Singapore drove a surge in single premium business in the first quarter
but for the remainder of the period Prudential's emphasis has been on
regular premium business, up 17 per cent for the year and protection,
up 33 per cent; strong results given the market conditions. With total
new business for 2008 of GBP112m we expect to have retained our market
leading position in Singapore with a significantly higher proportion of
higher margin protection products.
The economy in Taiwan is also suffering from the impact of the economic
crisis. The market has been challenging for us as competitors have been
offering short term and interest sensitive products that are
unappealing from a shareholder value perspective. However, in November
and December there was an encouraging surge in bancassurance reflecting
the agreement we signed with Standard Chartered Bank in 2007 and a new
sales methodology with E.Sun - our other major bancassurance partner
in Taiwan. Agency sales also recovered strongly in December,
collectively making this the third highest month ever for new business
for Prudential in Taiwan, behind May and June 2007. The fourth quarter
of GBP71m was 97 per cent higher than the third quarter of 2008. The
full year of GBP204m was 12 per cent lower than 2007 where the second
quarter in 2007 included the exceptionally successful variable unit
linked product and retirement campaign launch. We expect to have
increased market share in the fourth quarter in Taiwan.
In the Philippines, Thailand and Vietnam, new business growth has also
reflected the general market conditions. Japan has been affected
adversely by the regulatory driven changes to an increasing term life
product effective from the second quarter. In Vietnam we remain the
market leader.
US insurance operations
Jackson delivered record total APE sales of GBP716m in 2008,
representing a seven per cent increase over 2007 in a year when the
industry faced numerous challenges. Whilst aided this year by exchange
rate movements, APE retail sales in 2008 were GBP596m, representing the
highest level of retail sales in the company's history. This
achievement demonstrates the resilience of Jackson's business model and
the importance of the diversification of its product portfolio.
In the first three quarters of 2008, Jackson ranked fourth in variable
annuity net flows and experienced a very low level of outflows as a
percentage of inflows, compared to the rest of the industry. Jackson
ranked sixth in sales of traditional deferred fixed annuities during
the first three quarters of 2008, up from tenth as at year end 2007,
with a market share of five per cent.
Variable annuity APE sales of GBP349m in 2008 were down 23 per cent from
2007 as a result of continued volatility in US equity markets and our
determination to place value ahead of volume or market share. Whereas
some competitors were engaging in price competition, Jackson maintained
its disciplined approach to the pricing of its variable annuities. In
the fourth quarter, Jackson's variable annuity sales declined six
per cent in local currency (up 13 per cent at AER) compared with the
third quarter due to particularly severe equity market
disruption. However this represents a relative out-performance of the
industry, which is estimated to have declined by 14 per cent
(Morningstar, Inc.).
Fixed annuity APE sales of GBP172m were up 202 per cent up on 2007,
reflecting Jackson's ability to meet changing customer demands through
its diversified product range.
Fixed index annuity APE sales of GBP50m in 2008 were up 11 per
cent over 2007. Jackson introduced new products that were very well
received by advisors and helped drive the company's year-on-year
increase in sales.
Jackson's retail annuity net flows were up six per cent from 2007,
reflecting continued low levels of surrender activity.
Institutional APE sales of GBP120m in 2008 were up 28 per cent on
2007. Jackson continues to participate in this market on an
opportunistic basis when margins are attractive.
Curian Capital, a specialised asset management company that provides
innovative fee-based separately managed accounts, had total assets
under management of GBP1.8bn at the end of 2008 compared with GBP1.7bn
at the end of 2007. Curian generated deposits of GBP591m in 2008,
down 11 per cent on 2007.
UK insurance operations
Total APE sales for Prudential UK in 2008 of GBP947m were four per cent
higher than those achieved in 2007. Retail sales of APE GBP803m were up
10 per cent year-on-year, benefiting from very strong growth in sales
of with-profits bonds.
Individual annuity sales of GBP280m were in line with those achieved in
2007, despite the volatile market conditions experienced throughout
much of the year. This reflects the continued strong performance from
Prudential UK's internal vestings book where sales rose 14 per cent to
GBP160m. However, sales through partnerships and intermediaries declined
slightly, reflecting the competitive market environment and the
decision by some customers to delay purchasing an annuity due to
investment market losses which have led to decreases in the value of
their pension funds.
Sales of with-profits bonds were GBP98m, an increase of 139 per cent on
2007. This strong sales growth reflects the strength of Prudential
UK's with-profits offering and a growing demand for this type of
product as consumers are increasingly looking to protect themselvesfrom
market downturns, especially when invested in an actively-managed,
well-run and financially strong fund.
Total with-profits bonds sales include PruFund, Prudential UK's
unitised and smoothed investment plan. PruFund sales were particularly
strong during the year at APE GBP70m, an increase of 273 per cent. Since
October 2008, PruFund has been available across Prudential UK's range
of tax wrappers including individual pensions, income drawdown,
onshore and offshore bonds and is now panelled across almost all the
major UK retail banks. Prudential UK also launched its new PruSelect
range of unit-linked funds across its pensions and investments
products, more than doubling the number of funds available.
Lifetime mortgage sales of GBP24m were 50 per cent higher than those
achieved in 2007, despite only modest growth in the overall size of the
lifetime mortgage market. In an environment of falling house prices and
the associated increased risk of negative equity, Prudential UK
maintained pricing discipline and reduced its loan to value ratio which
has had a negative impact on the latter part of 2008. Prudential
remains one of the leaders in this market in 2008 with a 23 per cent
market share.
Income drawdown sales of GBP8m were up 167 per cent year-on-year. Income
drawdown allows customers to take a flexible income from their pension
fund, while keeping the balance of the fund fully invested, until an
annuity is purchased. The product provides a bridge between the
pensions and annuities products and allows Prudential to offer a
complete portfolio of retirement savings options.
Individual pensions sales of GBP38m were six per cent higher than 2007.
Sales of the Flexible Retirement Plan, Prudential UK's
factory-gate priced individual pension product, have grown strongly
with sales in 2008 of APE GBP11m up 123 per cent.
Offshore sales in the year were up 26 per cent on 2007 at GBP59m,
driven by strong sales of the new open architecture Portfolio Account
launched in March 2008.
PruHealth, which is included in our new business for the first
time, continues to grow strongly and covered 187,000 lives at the end
of 2008, an increase of 32 per cent over the year. APE sales of GBP16m
were up 23 per cent.
Corporate pension sales of GBP249m were up one per cent year-on-year,
benefiting from strong sales from existing schemes. This result
included securing Nationwide's deposit based Additional Voluntary
Contribution business, confirming Prudential UK's status as the leading
provider in this market.
Prudential UK maintained its focus on value in the bulk annuity and
back-book markets in 2008, completing transactions totalling APE
GBP142m. This compared with the GBP180m written in 2007 which included
the significant with-profits annuity book transaction with Equitable
Life.
The transactions completed in 2008 included the bulk annuity buy-in
agreements with Goldman Sachs for the reinsurance of APE GBP30m of
Rothesay Life's non-profit annuity business and with the Trustee of the
Cable & Wireless Superannuation Fund for the reinsurance of APE
GBP106m of liabilities relating to the scheme's pensions in payment.
Asset Management
M&G
M&G had a very strong year in 2008 posting record gross fund inflows of
GBP16.2bn, an increase of 10 per cent on 2007. Despite the backdrop of
extremely difficult markets, M&G delivered GBP3.4bn of net fund
inflows. This was 31 per cent lower than in 2007 but nonetheless
compared favourably with an industry where many competitors saw net
redemptions. M&G's total funds under management were GBP141bn at 31
December 2008 (of which GBP94bn related to funds managed on behalf of
Prudential Group companies), down 15 per cent on 2007. Investment
performance remained extremely robust with 35 per cent of retail funds
in the top quartile.
The Retail business has been particularly resilient, recording
a four per cent year-on-year increase in gross sales to GBP9bn. M&G's
market-leading bond and equity products attracted net sales of GBP2.1bn,
23 per cent lower than 2007, largely due to weaker international sales.
The UK business saw a 62 per cent jump in net inflows to GBP1.9bn from
GBP1.2bn in 2007. By contrast, net sales across the UK industry dropped
57 per cent to GBP4.1bn (source: IMA,12 months to end 2008).
For the final quarter, Retail gross sales were up 23 per cent to
GBP2.6bn, while net inflows were more than double those in the same
quarter in 2007 at GBP0.7bn (GBP0.3bn). December proved a record month
for net inflows, a trend that has continued in January 2009.
Annual gross sales in the Institutional business also rose,
showing a 17 per cent increase to GBP7.1bn. The business continued to
enjoy net inflows which at GBP1.3bn were 41 per cent lower than in 2007,
principally due to the long expected loss of a single fixed-income
mandate. There were also redemptions from M&G's Macro Investment Fund.
As a consequence, the institutional business saw net outflows of
GBP1.4bn in the final quarter of 2008 (2007: GBP1.1bn inflow). Gross
inflows for the quarter were also lower, down 21 per cent over the same
period in 2007 at GBP1.4bn.
Asia
The Asia Asset Management business recorded GBP0.9bn of net inflows in
2008. These were 71 per cent lower than in the same period in
2007. There were net outflows of GBP0.1bn in the fourth
quarter. India has seen redemptions in equity and bond funds in the
fourth quarter, offsetting net inflows from Taiwan's money market
funds. Of the net inflows of GBP0.9bn, GBP0.6bn (66 per cent) were flows
into longer term equity and fixed income products, and GBP0.3bn (34 per
cent) were flows into money market funds.
Total third party funds under management amounted to GBP15.2bn, a
decrease of 12 per cent compared with 2007. Korea and Japan were the
main contributors to the decline, with funds under management
decreasing by 31 per cent and 26 per cent respectively.
ENDS
Enquiries:
Media Investors/Analysts
Jon Bunn 020 7548 3559 James Matthews 020 7548 3561
Ed Brewster 020 7548 3719 Jessica Stalley 020 7548 3511
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