Prudential PLC (PUK) 2003 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Prudential new business conference. I would like turn over to your chairperson, Rebecca Burris (ph). Please go ahead. And I'll just (ph) stand by for questions.

Jonathan Bloomer and Philip Broadley are both here. Jonathan's going to run through some key points from today's announcement, but then we'd like to spend the rest of the time answering your questions. Over to Jonathan.

Thanks, Rebecca, and good afternoon.

I think the first quarter numbers show very much the strategy we're pursuing, the benefits of our international reach and focusing on product lines where we get most value and where we can most effectively use our capital. We also see in these numbers the flow through in terms of the business from the comments we made at the prelims in terms of where we're going to use our capital, and that's mostly perhaps in the U.S.

Total sales 7.7 billion, in line with the first quarter of last year. On an AP basis, group insurance failed at 424, down seven percent from the first quarter of last year. Now, one of the things that - has come through more strongly in the long while, and again reflecting the international nature of the business, was the impact of foreign exchange on that first quarter. Given the scale of our business now outside and the weaker dollar and Asian currencies, I've stripped the effects (ph) element out. It would've been down about one percent on last year.

Just running around the world, our territories in the U.K., U.K. sales on the we presented basis, 185, down 14 percent. Difficult market conditions in the U.K., long-term sales I think a difficult area, with profit bond sales fell 50 percent to the market as a whole last year. The isa (ph) season in February and March of this year very weak and certainly on the long term life products weaker. Annuities, a strong area for us and they continue strong in the first quarter of this year. And I think our focus on the annuity side, corporate pensions the right reflection in this marketplace.

Long term funds we've moved now onto the realistic basis. The solvency reporting very much after we managed the fund has done for a long time, so we don't expect to see that change anything in the we actually deal with the fund and its asset allocation. But it remains very strong, and particularly on a realistic basis.

M&G had a very good quarter. Both the gross and net weaker from inflows and a 29 percent increase in their share of the total retail (ph) market to the end of February based on the IMA data. Also strong start with institutional business, with gross from the (ph) inflows of just under 900 million in the first quarter.

Going to the states, Jackson on the retail sales a billion pounds, some 50 percent higher than last year. We didn't sell any of the wholesale business, Gicks (ph) or MTNs in the first quarter, very much as we said at prelims, that we'd focus on the retail business rather than the wholesale. We will sell some element of wholesale during the year, but it's a quite lumpy business and there's none (ph) in the first quarter.

On the retail side good progress in both the variable and the fixed annuity sales. But again, to some degree you can see our emphasis on variable rather (ph) than (ph) fixed (ph) and the emphasis on Jackson within running within its capital sustained within its own self-generated capital. But the absolute volumes that we're pushing through the distribution network's still very good and very good compared to last year.

Lastly, Asia, a record first quarter for life new business premiums, with an increase of 39 percent to 133 million in the first quarter of Asia. Good progress across the region as a whole. Hong Kong the only one slightly suffering given the economy in Hong Kong on regular premiums, but even their single premiums were good. A real benefit to that presence in 12 countries and building on newer markets particularly with good growth in the region.

As to SARS and the impact of SARS on the region, let's face (ph), since we're in 12 countries it affects mostly Southern China and Hong Kong. Most of the other territories are much less affected. And in Hong Kong we're not seeing any impact on our business -- any real impact on our business. People aren't flying. People aren't going to restaurants, but they're still going about daily business -- turning up at the office, getting on with their lives. And so, we're not seeing any real impact at present. Impact in the future very much depend on the course of the disease. Does it stabilize? Does it suddenly take off and get worse or which happened? How much effect will it eventually have on particularly perhaps the Hong Kong and Southern Chinese economies? Impossible to tell at this point.

But coming back to the group as a whole, good results, as I say, in difficult markets around the world, very much an endorsement of the strategy we've pursued, both abroad and now internationally, and focus on products, which maximize our returns on capital and value. I think we do expect markets around the world to remain volatile and challenging as we go through this year, but the benefits are international reach, financial strength and continuing to focus on running the business for value will position us to deliver sustainable and profitable growth over the longer term.

But with that, let me throw it open for questions.

Thank you. Ladies and gentlemen, if you do have a question, please press number one on your telephone keypad, or hash the pound key to counsel.

Our first question is coming from Art Capla (ph). Please go ahead.

Good morning. I was curious about the nature of the variable annuity and fixed annuity sales in the U.S. at Jackson National. I was hoping you could elaborate on the type of variable annuity sales in terms of perhaps features that were attractive to the marketplace this quarter.

And then separately, just give some color on the fixed annuity side in terms of -- if you give us some color on new money rates, new credited rates on the products and perhaps where you're seeing investment opportunities in terms of the assets you're putting to work.

Thank you.

Some more color on all of that. On the VA side, the product selling is the one that we introduced about a year ago perspective to very much an unbundled product. Features remaining about as they have done, to my knowledge, which is pretty close to about a third of the product is sold vanilla. About 30 percent of people take the GMIB option, which is all reinsured, as it always has been for this product. We don't take the risk on it. But otherwise no material change. About 60 percent of sales going into fixed buckets on the VA, which again is not a significant change from where it has been. So, there's no sudden shift there, certainly in the first quarter.

On the fixed annuity side we've been reducing crediting rates, as we said we would, to increase the spread and part of this biasing of business towards VA rather than the fixed. And you will see us continue to do that and also look at the distribution side on it. Crediting rates very -- off the top of my head, I don't know the current new money rate. We can come back to you with the new -- the current new money rate, but we just -- given the changes we've been making, I don't want to guess at where we've ended up following recent changes. But, as I say, very much in line with what we said we'd do back in February.

OK. Thank you.

The last one was in the investment side. Another great thing we're probably slightly more overweight cash than we would generally be on the investment side in the U.S., but broadly spread. But we -- our investment profile wouldn't be very different to the industry as a whole in the U.S. at the moment.

OK. Just one quick follow-up on the fixed side. Do you have a sense for what portion of your fixed annuity reserves were at the state minimum levels?

Tiny. Tiny. Most of our business has crediting rates above the state minimum levels.

Great. Thanks very much.

Thanks.

Thank you. Ladies and gentlemen, once again, it's number one to register a question, or hash the pound key to counsel.

Our next question is from James Pierce (ph). Please go ahead and announce your company name.

Yes. Good afternoon, everybody. It's James Pierce from Deutsche Bank. I was just wondering if you could clarify on the U.K. annuity sales, both individual and bulk. What percentage of sales this time round were written in shareholder rather than policyholder funds? And how does that compare to this time last year, please?

Hello, James, it's Philip. We have not generally disclosed the percentages between our business written between pal (ph) and pril (ph). And -- but I can say that there is no significant change in the relative proportion written between shareholder and business pril (ph) and the life fund pal (ph) in this quarter compared to the quarter one last year.

So, if I can come back, does that mean that it's going to change in subsequent quarters? Because I think at prelims you said you plan to increase the amount in the profit fund.

Jonathan can talk about what he said at prelims. But I was simply limiting myself to a statement of what we had -- of what we've actually sold in this quarter.

Yes. I think going forward it depends on headroom in the life fund, demand in both businesses around actual levels of business and so forth. We're writing annuity business at pretty good spreads at the moment. We have been able to increase pricing and have the market follow us. And because of the way of reserving and the capital we have to put up for annuity business the better spreads we write up the more efficient use of the capital. So, there's a number of moving parts effectively as to how we'll handle it going forward. The key thing is we have the option to write more in the life fund if we want to do that. But the number of moving parts is to how much we'll end up there over the year.

OK, thanks.

Thank you. Our next question is from Marcus Bernard (ph). Please go ahead and announce your company name.

Good afternoon. It's Marcus Bernard from HSBC. You mentioned something about your realistic solvency in the statement. I wonder if you can give us a few more details on that, like the amount of the excess assets that you had on a realistic basis versus a statutory basis.

Yes. Well, what we've sent out in the press releases was simply to confirm that following the letter that was written to chief executives at insurance companies to them back on the 10th of March. And we applied for waivers in certain rules, which was basically the mechanistic process to be followed, and those who will be able to adopt realistic solvency. I suppose about nine months earlier it would have otherwise have been the case. And really that simply brings the regulatory reporting in line with the way that we ourselves have managed the funds for a period of quite some years now. So, the investment mix and the way in which we look at the solvency of the fund internally have been on a realistic basis using our own scholastic (ph) models for about 10 years.

So, in terms of the actual solvency we're not providing an update on the position at the end of the quarter, but I'd refer you back to what we said at prelims, which is that we estimate the estate in the fund to have been about five billion at the end of the year.

OK. I've also got another question on -- with profits bonds. I think we've seen quite a bit drop in Q1 on the sales with profits bond. Is this something you've been leading or do you think it's just nervousness in the market in reaction to bonus cuts across the industry, or is it more a feature of the economy in general? I mean, how do you see this panning out? Can we expect with profit bond sales to pick up later in the year? Or any thoughts you got on that.

I think it's actually all of the above really.

Sure.

I think with profit bond sales were falling steadily from the second quarter of last year and have been -- so have been for some time now. And it reflects concern over bonus levels, particularly some -- for the market as a whole -- inevitably low (ph). We're the market leader and probably retained or taken a bigger share. We can't insulate our felts (ph) from the effect of the market as a whole. And the levels of cuts -- the very sharp level of cuts, particularly by some companies, have raised questions about cuts going forward. It's part of the view of long term saving that I think isn't only with profit bonds, but is also in unit trust, ices (ph) and so on, where individuals are nervous about savings for the longer term presently, perhaps more happy to keep things in cash. There may be some elements to do with just general consumer confidence, economic environment. The people want to tie their money up for longer term as well. And there's some elements that are due to government reviews and should I wait until I see a standard right (ph) product or what have you. And I don't -- it's not any one of those factors, but they produce a backlog that I think is causing people to defer decisions on longer term investing.

OK. But it's not that you've been standing back from that market.

No. No, it's not us standing back from it.

OK. Brilliant. Thank you for that.

Thanks.

Thank you. If you do have further questions, please press the number one. Our next question is from Roger Hill (ph). Please go ahead and announce your company name.

It's Roger Hill at UBS Warburg. A couple of questions. Firstly, just sticking with profit bonds, I wonder if you can give us some indication about what might have been happening in terms of things like surrenders, whether we're actually seeing net ons and net offs in the book overall. And you set out a strategy a year or so ago, which was going to focus on limiting the number of product ranges. And I wondered if with profits were going to remain -- with profit bonds remain one of those focused products, or will you actually add to -- look to add another product in at this stage?

And the next question is somewhat unrelated. But I wonder if you could give some color on the products that have been sold in Taiwan that has sold so well. What kind of crediting rate you're giving on new money, for instance?

Hi, Roger, it's Philip. With profit bonds we have nothing further to say that's new from the comments we made at our prelims. The changes to market value adjusters that we made as part of the interim bonus reductions last year we think have had the effect of them returning surrender to -- in line with longer term assumptions.

Yes. What else on with profit bonds, Roger?

Whether it was going to stay one of the core focused products going forward.

I think it will. As we've said, I think with profit bonds, although sales levels have been dropping, a lot of people still want them either because they don't want a fully exposed product or as part of the broader portfolio. You'd still -- if you held one of our profit bonds the last 10 years have a better return than if you'd have it an average market unit trust. So, I think it'll continue. It might change somewhat as we make it more and more transparent in its nature. But the smooth product will continue, but we'll also introduce other products over the next 12 months or so as we develop outside of other areas, because I think we will see different products coming to the market. We may see more demand for guaranteed products at different types. I think we'll see a trend to more exposed products as well in some areas. So, we'll introduce new products over the next 12 months.

Something else that's worth commenting, Roger, that there was some concern from lend (ph) in some quarters that the tax treatment with profit bonds would be changed. That wasn't a part of the budget last week, indeed, and that they suggested there (ph) will be a broader review of the tax and long term savings. One might expect there is a tax feature with profit bonds to be around for a while yet.

In Taiwan part of the difference, and apparent uplift, is actually reflects lower levels of sales last year when we were retraining most of the sales force to sell unit link product. So, there's a favorable comparison there quarter on quarter because of that depressed level last year. Other than that, we're selling a mix of unit link in more traditional product. I don't know that the crediting rate on the -- off the top of my head on the traditional product. I know we find (ph) during the last year or so of change the minimum crediting rates in there they're actually somewhat lower now than they used to be. But I don't know -- off the top of my head I don't know what it is. We can come back to you with them.

I'll be grateful. Thank you.

OK, thanks.

Thank you. Our further question is coming from James Pierce. Please go ahead.

Yes. I wonder if I could ask you to clarify something on their (ph) annuities, which showed very strong momentum quarter on quarter last year, but Q1 seems to be down on Q4. In some instance I guess you have swimming against the tide to fesbee (ph) last year. Why has that momentum changed? Is it because of demand issues or just to hide fixed content, which I must admit I haven't appreciated until today, meaning that their renewed (ph) is also subject to capital rationing that the reason choosed (ph)? Thanks.

The fund -- I think it's a combination of factors. I mean, the U.S. stock market went through a couple of weaker periods in the first quarter, and that has some inevitable element, as you say. To some extent, we're swimming against the tide with the VA product. But in periods when the U.S. market has shown some weakness and some uncertainty, that does have an effect. And I think that's part of the effect there. Part is also the way that we do and have -- as Philip said earlier, there's no real change from year to year on the fixed bucket, but we do tend to ration that a little bit the distribution network. And the third element is some element of seasonality in the product because of the tax share. It is a tax-driven product. There's a number of things playing into that slightly lower number in the first quarter.

OK, thanks.

Thank you. We appear to have no further questions. I will hand the conference back to you.

OK. Thanks very much for dialing in. If you've got any other questions, please feel free to give me a call. Thanks.

Many thanks. Thank you.

Thanks. Bye.

Thank you. Ladies and gentlemen, that concludes today's conference. You may now disconnect your lines.