Prudential PLC (PUK) 2006 Q1 法說會逐字稿

Welcome to today’s 2006 quarter one new business figures call. Today, I’m pleased to present Mark Tucker.

For the first part of this call all participants will be in listen-only mode and afterwards there will be a question and answer session.

Mr. Tucker, please begin.

Thank you [Hugh]. Good morning everyone and welcome to our first quarterly business teleconference. I’m joined as ever this morning by Philip Broadley. And Philip and I will -- well, I’ll certainly make a few comments and then hand over to you guys for questions. And Philip and I will be happy to deal with them.

Let me just spend a couple of seconds just setting the context. And I think as you’ve seen from the announcement this morning, our overall insurance new business on an APE basis was 27% ahead of the same quarter last year. And this has really continued the momentum that we’d built, and particularly during the second half of 2005.

Growth was particularly strong in Asia, up 47%. And U.S. retail sales were up 31%. And the U.K. was up 17%.

All of that was on the life side. On the asset management side the business has again performed well. And in the U.K. and Asia we saw continuing strong external net new flows of £2.3b in total. And that’s up over 50%.

Just spending a couple of seconds on each of the businesses, in the U.K. we had already announced the bulk annuity transaction with Royal London that we completed in the first quarter. And the APE for this deal was around £66m.

Outside of this, opportunities were limited for both large and medium sized transactions with the market being influenced by the low bond rates in the first quarter. And I think, as I say, the basis and to probably answer before it starts any questions that may arise, the fall in yield in the first quarter and really the lack of availability of inflation in assets in the U.K. with most pension -- U.K. pension funds having inflation-linked liabilities. The current situation has led companies in the market to defer their buyout of their liabilities as they look expensive. And they’re delaying the buyouts until the situation improves.

The pipeline that we have is strong. I think you know the gestation period is also longer. And we are exceptionally well placed in that market and remain committed and excited about it.

In terms of the low bond rates and the individual annuity business, and particularly in the IFA channel, that was in the main competitive in the quarter. However, we did see sales through the partnership channel more than double, as we saw -- as we did with profit annuity new business, where we continued to increase our focus. We’ve got a tremendous track record there, an excellent product and the with-profit annuity side we see as a great product in the current environment.

We saw, overall, a healthy growth in bond sales in the quarter with strong growth in offshore bonds offsetting lower unit-linked sales.

And on the unit-linked side we really chose not to -- deliberately chose not to respond to a continuing pricing competition. And there were a large number of special offers in the market during the first quarter, which again we decided economically not to respond to.

On the DWP side, they did have some rebates which, I think as you know, are strongly weighted to the first quarter. They were lower this year as expected. In the first quarter of last year, as we said to you before, we wrote to all our customers who have contracted out. And as a result about 30% of them have contracted back in.

Interest in our recently launched lifetime mortgage product remains encouraging. And the addition PruHealth has had a good quarter. And as we said at the prelims just four or five weeks ago, the -- we’re only offering PruHealth to [red] customers.

We expect the U.K. market to remain competitive through 2006. And in this environment we will -- we remain as committed as ever to the main product lines that we’re in. But our main emphasis and our focus will continue to be on margins and on returns on capital rather than volume.

In the U.S., growth was driven by record levels of variable annuity sales. However, $1.5b in the quarter, more than 60% ahead of the first quarter last year. We continue to make significant gains in the variable annuity market share, building on the advantage position which -- that we spent a long time talking about and taking you through, and supported by additional new products launched in the period.

The VA market in the first two months of 2006 grew by 17% compared to the same period last year. And you can see from that we are continuing to take profitable market share.

In aggregates, our other U.S. product lines, we’re broadly in line with the quarter one last year. We expect to build on this, but aim to gain further market share during 2006, in particular in our target variable annuity market.

In Asia we grew by 47% compared to a relatively slower first quarter in 2005 with strong growth in all our major markets. Korea was the largest contributor to new business in the region, up 77%, continuing the very strong growth we have seen over the past two years.

Taiwan was up 73% against a slower first quarter in 2005. But growth was supported by increased Asian numbers and an increased contribution from our partnerships. Sales of the unit-linked retirement product, launched in the second half of 2005, continued to be strong.

And I think it’s worth emphasizing that the unit-linked sales and the efficiency of products across all our markets in Asia continues to be the focus. And, therefore, we can continue to grow it at high rates without any additional capital needs. I think we remain comfortable, even at these growth levels, to be able to fulfill our promise of cash positive this year.

India and China continued their momentum, up 65% and 50% respectively. In India APE sales at 100% level were £125m in the quarter, which gives you some sense of the scale of the business we’ve built with ICI in this major market. No changes there to legislation in terms of potential acquisition of the -- or moving up the position from 26% to 49% ownership. It remains in our view, and I think in a number of others, at least 12 months away. And we’ll continue to look at how we position ourselves for that. But there’s clearly no change from previous comments.

And Singapore has continued to benefit from the launch in the second half of last year of a number of new investment-linked funds. And the Singapore business has also had a very strong start to the year.

As I said at the prelims a few weeks ago, our priorities in Asia remain to build on our proprietary and distribution -- our propriety agency force and to really work on further improving productivity here. Also, to materially develop the bank channel and build access to direct and broker channels as they develop. And our focus remains on capital efficient, high return [premium] products and that’s continued to be delivered in the first quarter.

Just spending a couple of seconds on asset management, M&G has made a very strong start to the year with total gross flows 39% ahead and net flows 38% ahead, with gross retail flows at record levels. M&G’s international business more than doubled gross flows and they also launched into the Spanish market in the quarter.

In Asia net inflows were around £500m, up almost 150% with continuing strong flows in Korea and the improved performance in both Taiwan and India.

And I think it is worth just reminding you guys that we do have a presentation on our asset management businesses. And we’ll talk about M&G. And we’ll talk about BPM America, our U.S. asset management. And we’ll talk about the asset management business in Asia. And we’ll talk about how we’re working together at a presentation that we’re making to you on the morning of the May 19, so in a month or so’s time.

In summary, I think just to say that the Group continues to build strong momentum. We’ve got excellent prospects for profitable growth. And we’re growing with tremendous scope to deliver increasing value to shareholders. These numbers are strong numbers. They have not been brought about by changing commission levels. They’ve not been brought about, manufactured for a certain external event. They are a strong set of figures in their own right. And I think just indicate the progress that we’re making and the momentum behind the business.

So that’s really all I wanted to say. And I’m very happy to -- for Philip and I to take any questions.

Okay. We will now begin the question and answer portion of the call. [OPERATOR INSTRUCTIONS]. So, the first question if from Farooq Hanif of Credit Suisse. Farooq, please go ahead with your question.

Good morning. Just three quick questions. Firstly the individual annuity market in the U.K., to what extent do you think that’s going to be affected by A Day and the ability to be more flexible about how you draw down your income?

And in the U.S., you seem to be doing very well in the VA market. I was wondering if you could just talk a little bit more again about what’s driving that. And also, if you’re going to grow market share, if you were number 12 on gross sales at the end of ’05, what’s the chance you’re going to be top 10 in gross terms in the near term?

And the last question is on the point you make about distribution in Asia. Could you just talk about the developments there, both with your existing bank partners? And what timeline we could expect to get the interesting opportunities for further alternative distribution in the region?

Okay. So, I counted four questions, but I don’t think the others [will be happy with that].

In terms of the -- let Philip take the annuity in the U.K. and let me attempt the others.

On the individual annuities, Farooq, I think it’s important to recognize that the rules, as they’ve existed for some time, have permitted people to defer annuitization until the age of 75. In fact, there’s very few of our customers who have the luxury to be able to do that.

I think, of course, they recognize that the changes in the rules will impact the very top end of the market for whom retirement income is of lesser importance. And they have got a wide choice for things like the AFP that’s being introduced. The benefit of that is for a relatively, I think, small number of people.

So, our expectation is that it will be as we’ve seen over a long period of time with the average size of capital that is annuitized for us being around £30,000, something of that order. Our annuity customers do need income in retirement and they will -- we expect them to continue to look for that.

On -- dealing with the U.S., I think the second and third question. I think the -- well, what’s driving the -- what’s happened there I think the -- what’s driving it fundamentally I think is a number of factors. I think the flexibility of JNL’s flagship product, the variable annuity Perspective II makes that product really highly appealing to both customers and advisors.

And with Perspective II clients work with advisors really to customize that -- the annuity to their unique financial needs. And they really -- I think as we’ve said before, they customize by really choosing and paying for only those options and benefits they desire. And really the design of the product encourages advisors to add value to the sales process, and positions them as financial planning experts really in front of their clients. The fastest growing channel in the U.S. is the advice channel. And Jackson is superbly placed there.

And I think we continue to enhance Perspective II. In January ’06 we added five new sub funds. And our speed at bringing new products and features to the market I think is an important competitive advantage. And it allows us really to respond quickly and well to consumer demands.

The design itself of Perspective II and I think the value that Jackson’s wholesalers provide in terms of the whole -- the Company’s relationship-based distribution model, and the fact that JNL has award winning service, really continue to attract more sales in the market.

And the fact is then we have also the fifth largest broker dealer network, which we own. And I think the combination of product, distribution, service and clearly the attractiveness of the advice proposition, all of that I think gives us a sense of not one factor that Jackson’s depended upon. It’s -- it is at times -- it’s a model, an operating and business model, which is clearly exceptionally effective.

In terms of market share, I think you know our events. We don’t make forecasts. But we’ve been continuing to take market share and I am expecting to do that. And inevitably in taking market share, providing we do that at a greater rate than those people ahead of us, then clearly we will mathematically move up those league tables. So, I think -- I can’t be any specific -- more specific than that. But I am not sure if you would expect me to be.

Last but not least on distribution in Asia, I think we spoke and I think it is worth mentioning, it was four weeks ago, in terms of the prelims. What we said I think and what I said was in looking at the development we have 40 -- 30 plus banking relationships in Asia. We’re continuing to look to develop those.

There are a lot of initiatives going on, discussions taking place. We can’t go into any depth. But I think over time you’ll continue to see I think the share of wholesaler distribution increase. But I think at the same point in time you’ll -- if we can get the productivity gains which we’re focusing on in -- on the agency channel, that side will increase as well.

And this is -- these are pieces of work that have been going on for a while. We saw overall productivity in Asia last year, the agency side going up by about 3%. And I think we’ll -- particularly if you look at pushing those gains forward. We had -- the last figure we gave you was about 170,000 agents in Asia. So, it’s an immensely powerful proprietary distribution force across the region. But I think we have the expertise, the agents and experience, the depth and the breadth of the knowledge, and we have the proprietary agency tools as well that I think put us in a strong position in terms of pushing those home.

So, this is an ongoing process. I think the -- by any measure I think the figures for Asia for the first quarter are very, very strong.

Thanks.

Very good.

The next question is from Bernard -- Marcus Barnard of Societe Generale. Marcus, please go ahead with your question.

Yes, morning all. I’ve got a couple of questions if I may. Firstly, on seasonality in Asia, we’ve always seen in the past a drop in sales from Q4 to Q1 with the end of the tax year. And we can still see this in Hong Kong, Singapore, but really you’ve grown sales Q1 over Q4, which is impressive. Is this just the strength of the underlying growth coming from Korea, India, Taiwan, etc? Or is it the move in the tax year in those markets that’s just going to defer the seasonality effect from Q1 to Q2? That’s the first question.

And secondly, in the U.K. or in your unit-linked sales, which were down 28% I believe. Unit-linked has been a big growth driver for the Pru and you’ve been very successful in growing that. I’m quite surprised to see your sales down so much there. Could you explain what’s going on? I understand you’re being more disciplined in your writing. But you’ve grown your corporate pensions, which don’t have a particularly high margin and you’ve stood back from your unit-linked bonds, which do have a higher margin. Can you just explain that? Thanks.

Sure. We have -- just -- I think let me take the first one, and then Philip and I between us will take the second, give some feedback. Okay?

Right, it’s not me, I’m muted.

Okay. Okay, in terms of seasonality in Asia, I think there’s clearly I think, particularly in India and Korea and Asia, a tax season effect. But that’s to an extent counterbalanced by the Chinese New Year across Hong Kong and across the mainland China. And there’s an element of seasonality there.

I think the other element you’ll continue to see in quarter four again, we’ll continue to see strong quarter four on the basis of the way that we run the agency. The agency is by and large run to calendar year end. So, for persistency bonus or persistency modifiers, etc. we would do it on the annual basis. And, therefore, you would see -- we will continue -- as we continue to have the strong agency force you will continue to see a strong quarter four.

Is there a potential quarter two effect moving across? I think the answer’s probably yes. I think on the basis of the really very, very strong Indian and Korean growth we’ve seen continue. I think if you look at the figures for last year and I think look at the general seasonality over the last two years, I think it will be more muted than the previous quarter four / quarter one effect. But I think there will be an element of seasonality there.

But I think the -- there is tremendous strength throughout the region in underlying growth. And I think even -- you saw in Japan overall the level of sales that I think you saw for the first time single premium business up at 100%, which I think is a progress. And we expect that -- our new model there to begin to kick in.

On the unit-linked side it is down, as you say. I think I alluded in my words earlier to some comments about the competitors in the market, the immensely high levels of commission. We’re talking between 7 and 8% commissions on those products. And on top of that what we saw in the first quarter was a lot of companies with special promotions, which boosted on top of that. And it came to a level where we felt it was uneconomic and not the right place to play. And, therefore, we held back. We remain committed to that market place and we continue to look at opportunities to grow that business.

Philip, how would you add to that?

Marcus, I just really emphasize the point that we make in the release about our emphasis in the U.K. having been and continuing to be over the year on margins and return on capital. And given what we saw in the unit-linked market, we were prepared to see lower sales rather than see [silly [expletive] who fell on] capital [road].

Okay, that’s fantastic.

Thanks Marcus.

The next question is from Craig Bourke of Exane. Craig, please go ahead with your question.

Morning.

Morning Craig.

Morning. I have questions on the U.K. if I may. First of all, on the bulk annuity business, your major competitor in this area tends to more focus on smaller mandates, which I think gives them a bit of a steadier flow. Is that positioning -- your positioning more towards the large side, is that something you’re happy with? Or can you see some venture to stabilize the flow from the bulk annuity business coming through on the business to business side?

And the second question is on the competitive environment in the U.K. You’re obviously talking about -- here about some slower growth coming from your reaction to competitive environment. Given that the growth in Q1 seems -- this withdrawal seems a little bit more than we’ve seen over the last -- the second half of last year, is that -- are we supposed to take that as a reflection of the competitive environment from your point of view has intensified in Q1 in the U.K. market there?

And finally, I’m wondering if you can just comment a bit more on your comment about the impact of A Day on pensions volumes. Your comment that you seem to be seeing disruption to the mandate is quite simply different from your competitors also in the corporate pensions area, who have been saying that they don’t see any disruption to any mandates coming from A Day.

Okay, I think with regard to the bulk purchase annuity side, I think our positioning continues that we will play in the small, medium and super bulk part of that market place. And I think we will -- we are and we -- I think we believe competitive in all different elements.

And I think is there a focus on ensuring that there’s a stable play coming in? Absolutely, I think the guidance itself overall is very slow. And I think for the whole industry in the first quarter I think for the very -- for the reasons we spoke about, the volume of [pensioned] assets, etc, I think [pensioned] assets. I think the whole basis there is, as I say is, not moving forward.

But I think our mandate's, we're not just looking and I will give you a guide at the top end, we're looking throughout small, medium and large.

On the competitive environment in the U.K. I think, again across the board has it intensified in the first quarter? I think in some elements in some areas, yes. I think as we discussed on unit-linked funds, it has. On the annuities side, there as we said I think the flow is stable, the flow will come through, we have absolutely no doubt there will be a flow there. We're superbly well positioned for that.

Has just been -- beginning to change their positioning and [look at] pricing etc [we’re well placed] to that. But I think it's -- in terms of overall intensity of the market place I think it's in a different segment and different sectors. It's intensified but I think it's difficult to make a broad overall statement.

And in terms of the pensions volumes, I think as you said, I think we don't believe that there may be some disruption from A Day. A Day for us has been around compliance, has been around communication on the corporate pension side. And I think that has gone as smoothly as we could hope. Though there were some late changes, I think you know, from the late technical changes coming in from the Government that we had to make at the last minute. Again that has gone pretty much, pretty well and pretty much without hitch. So I think we're not seeing any significant disruption.

And I'd say that the first quarter to us around A Day has been fundamentally about making sure that we have our schemes, and we have 20% of the FTSE 350, our schemes are compliant and the members in those schemes have been communicated with.

Thank you.

The next question is from Jon Hocking of Morgan Stanley. Jon, please go ahead with your question.

Morning everyone.

Good morning.

I just had a couple of questions on the U.K. First thing was DWP rebates. To what extent will there be a tail impact there? Have you had responses of some kind from all of the policyholders that you mailed?

And secondly, could you just give us some idea about underlying trends in persistency you've seen so far year to date, particularly on the with-profit bond book?

Okay. I think on the DWP rebates, is there a tail impact? I think we wrote to something like 440,000 members, around 30%, as I said earlier came back to us to contract back into the state scheme. It is a fundamentally, Jon, a first quarter effect, there may be some stragglers along the way but it will not be material.

Okay, thanks.

Underlying trends in persistency, I think I’ll let Philip not tell you very much probably.

Thanks for qualifying my answer before I give it Mark. Morning Jon. At this stage in the year persistency is running in line with where we would expect it best to be. As Mark already noted, it's only four weeks since we spoke to you last on the subject but we've certainly come forward where things are at the moment.

So not seeing anything Jon, we're not seeing any significant changes from Philip's and my previous statements.

Excellent, thank you.

The next question is from Andrew Crean of Citigroup. Andrew, please go ahead.

Good morning, a couple of questions. One, could you just outline what you think are the main trends in the creditor market, which is quite an important market for you at the moment?

And secondly on a broader front, just looking at the rights money which you raised a couple of years ago or 18 months ago. Now that the U.K. does not seem to be growing in the pattern that you’d envisaged at that time, what are your plans for that money?

Okay, I think the main change in the creditor market, I think as you've been reading, and I think as is clear in that market, I think the pricing of the entire loan product, rescue and loan product, and the value of that loan product and the value of the creditor product is under severe pressure. I think the basis of what we're seeing in the industry, and I had a – clearly I’m not going to quote about our specific performance, but I think where the industry is that the -- it's been a tough first quarter. And I think the trend there in terms of the loan tranches that have been sold.

And in terms of the TPI, the protection insurance, how long it's sustainable at the levels that they currently are at is I think is under constant and consistent review by all of us. And I think it clearly is a -- it's a debate that is in the process of happening, Andrew.

Just following on from that, how much of your Life Other is actually creditor? Is the bulk of it?

I think yes. The large percentage of that is, yes you're right.

In terms of the second question of the rights issue moneys, I think we are in the early days in the process. I think this is the first quarter of 2006, and what we said is that we would be -- very financially difficult, we're looking to focus on maintaining our margins and returns on capital. And that's the element, I think our shareholders in conversations we've had with them, want us to [continue to] use the money effectively and efficiently, and not just use it on the basis of spending it because of our previous statements.

We are committed to the U.K., we continue to build a strong shareholder-backed business in the U.K. And I think the elements of what we said is, we said specifically we would spend up to £220m in the U.K. this year, and it's up to £220m. We clearly see what opportunities there are and what the mix is, but that's still our intent.

I think the other important thing, Andrew, is I think the rights issue money were raised for three things not just for one. It was clearly to build the shareholder-backed business in the U.K., to look at -- if the situation changed and there was liberalization in India, we can use our 26% up to [39%] to be able to support the financing of that. And last but not least for a certain amount of regulatory buffer. And I think the latter two clearly remain in place.

And then as I say we remain committed on the path that we are, as Philip said earlier, very clear and very focused on spending in the right way.

Great, thank very much.

Pleasure.

The next question is from James Pearce of Cazenove. James, please go ahead.

Good morning. I just wanted to ask about the Asian volume figures, and whether you view them as consistent with your aspiration to be cash generative? I think the wording is by the end of the year. If I could ask, are you cash generative as of now, please?

You can ask, James, but I have no intention of answering. I think I'm not changing the commitment we have, we will be cash positive by the end of this year. And we may be cash positive before that. But I think that position hasn't changed.

And the Asian volume, I think the important thing to note, and I think it’s critically important to note, is the capital efficiency here. We're selling the significant and large majority of capital efficient unit-linked products and the traditional financing of old style products, where reserves in need are probably up to 10 times the size of the current levels of reserve in unit-linked products, giving a situation where we can continue to grow the Asian business strongly, and still remain cash generative.

Thanks very much.

Pleasure.

The next question is from Trevor Moss of Man Securities. Trevor, please go ahead.

Hello, good morning gentlemen.

Welcome.

Morning.

A couple of things. Just on Japan, obviously you've re-engineered the business model there. Could you just give some -- a little bit of a view on the outlook for the year, or perhaps for the next two years? And how you think that's going to grow over the course of that time?

The second thing, I was hoping you might give us the latest update on the regulatory position in fixed index annuities in the U.S. You're pretty well positioned there, given the regulatory changes I think, and I just wondered when you may be expecting a rebound in sales from that product. And when the regulatory position eases up.

That's it, thank you.

Sure, okay Trevor. Now let me take the Japan part and pass you to Philip for the [position]. But I think you answered your own question there pretty effectively.

In terms of Japan, again from memory [inaudible] sales last year were around £7m. The position in Japan is that the re-engineered business -- what we've done is effectively closed down, in the fourth quarter of 2005, the financial advisor model that we had in place. The model was not going to be successful, our level of Asian retention, our level of our productivity was not -- never what we expected to get. And we took a hard decision that it wasn't making economic sense. We needed scale, we didn't have the scale there. And it was sensible to therefore close that down.

The channels we have been working on there includes the parallel process over the last six, nine months is on the banking side. And we've got a number of banking relationships there which are beginning to take off. I think if you look at the position in Japan it is a -- it's -- the sales that we're seeing are coming from the single premium side. We begin to see a pick-up, it's 100% [unit-linked] coming off a low base and therefore that is -- it's not a particularly meaningful figure.

But I think I've said before, it might be -- the only way in Japan is up. It's difficult for us to be selling less business. And I don’t want that to come back and haunt me, but genuinely I think it's £7m APE, it's totally inadequate and we need to push up. And it's just a question of positioning ourselves right, looking at other opportunities in that market place. It’s a market place we do want to be in, it’s a market place we are very successful in on the mutual fund side. We drive the business from greenfield to £6 or £7b U.S. under management [inaudible] over the last four years or so.

And it's a market we know well, a market we can be effective in. I think this model that we have on the Life side is the right model for this time and I think we'll continue to see as we go through the year improvements. And as you know I have a -- I don't like giving forecasts, but I would be immensely disappointed, and I'd probably have to shoot somebody, if production is less than it was last year.

And on the fixed index annuity in U.S. I think you probably know from comments and presentations in the past, that this is -- it's a market in the U.S. which we feel has not benefited actually from the strongest of regulation that it probably ought to deserve. We've always seen the FIA as security-type product and required the people that sell it to be specifically trained in the range of products that we have and their features.

So we actually welcome the regulatory attention that it's getting and have filed all of our marketing materials for the products with the NASD. The first quarter is traditionally the slowest quarter for that FIA product and [in fact] we would hope to see some recovery, as your question suggested, from the sales we saw in the first quarter.

But just on that, Philip, given that the majority of your fixed index annuity sales were from properly regulated advisors, I'm just trying to understand why the market, why your market for fixed index annuities slowed. I can understand why others might of slowed more, but is it because of attention being given to it in say the U.S. media? Or is there just too much regulatory attention and the advisors are backing off a bit for the time being? Is that what's happening?

No, I think we're firstly getting or continuing to get a positive response from our broker/dealers who are selling the FIA product. And but also I think, in this quarter, you think also with the strongest equities -- underlying equities market performance as well, I think actually you might also have seen some sales that -- switching from the fixed product actually to direct purchases of their annuity. And the customer's more willing to or more interested in getting direct exposure into the equity market.

[inaudible] certainly from the conversations, and from being in the U.S. a couple of weeks ago, we didn't sense there is any over-publicity or over-emphasis on that from the teams and from our people who we spoke to. I think the basis is we're having to put a service in rising equity markets. The [guys] are productive, it's clearly immensely attractive and the product that we have. I don't think there's too -- I don't think there's anything material at this point to read into, from our point of view, into the that are there from any of the FIA side.

Okay, thanks very much.

Okay.

The next question is another one from Farooq Hanif of Credit Suisse. Farooq, please go ahead.

Hi there, sorry to be so greedy. I just wanted to tie up --

[inaudible] greedy or not.

I just wanted to tie up some of the questions asked earlier by James and Andrew.

Yes.

It seems like there's been really strong growth in Asia and I guess some of it have been just good market growth because of the Asian consumer etc, etc.

Yes.

To what extent have you found with that, with the U.S. market as well, that you're having to ration capital in the Group? So you sit back and you say, well, actually the U.K. just seems much less attractive than we thought two or three years ago, let's just hold back and reinvest it in those other markets. To what extent are you actively doing that? Or is it just wherever the sales come you just take those sales. Can you give a bit of color on that?

I think we -- it's certainly more the latter than the former, but I think it's very well disciplined in the latter. I think it's -- I think you know the capital efficiency of the variable annuity product is strong and I think the capital we produced last year both [profit] and release of capital due to the -- vis-a-vis the product was somewhere in the region of 600m.

And when you look at the gap in efficiency of the unit-linked business in Asia, again you eventually dominate the sales that are made there well within the limit. And we [inaudible] 220m in U.K. The discipline across the Group in terms of the returns, and there's no limitation at this point, and there's no limitation foreseen, as to the need to ration capital on the basis of the sales levels. We can grow within these means organically very comfortably.

Thank you.

Okay, the next question is from Roger Hill of UBS. Roger, please go ahead.

Morning, a couple of questions. Firstly just on the U.K., the unit-linked single premium bonds. I wondered if you could compare your internal rate of return targets with those of your competitors. I just wonder whether you feel that they are appropriate targets to set, especially as the actual returns you'll get are very volume-dependent.

And the second question is just really on Korea, where you've produced some stellar growth. It's more of a broker-driven than agent-driven market. I just wondered what you were doing there to attract the brokers to sell your products and what the market share -- what your market share's been doing, what’s the evolution of the market overall. Can you just give some more color on Korea, basically?

I think -- let me give you some more color on Korea, and we'll come back on the unit-linked single premium bond and the [IRR] comparisons etc.

[Last year] we've seen sales up 77%. I think what you said I think is not quite accurate in the sense of Korea is not [a broker] market either. It is very much a multi-channel distribution market. We have general agents who are essentially brokers. We have an in-house consultant force, we have direct marketing, we have bancassurance, a number of bancassurance partners as well.

And I think you know what [inaudible] there where [regulatory caps] on the business volumes of banks in Korea. And therefore they maxed out. Any bank can only sell 25% of any one insurance company’s products so you have plenty of scope of opportunity there. So the model there is multi-distribution. We have a variable unit-linked product which continues to be very popular. But it's fundamentally we do have sort of an advice base selling through these different channels. And that’s proved enormously effective.

Let Philip talk to you about unit-linked single premium bonds.

Yes, morning Roger. I'm not -- I think I can help you compare our attitude to IRR to our competitors, rather than seek to do that myself. You'll recall the target we set was, for the unit-linked bonds, was an IRR of 8% by 2007. You're right that that is volume-dependent, part of what we said was as we grew that unit-linked business [inaudible] for so we would benefit from a rising IRR. But we regard that as effectively as a minimum acceptable return on capital for that product and certainly, no, not revising our -- we'll not revise our targets downward.

So it's really [that’s what is] behind our thinking in terms our willingness to compete in any given quarter if we see commission levels affecting profitability and affecting returns to a level where we don't want to participate.

And do you think that's a fair competitive market if the opposition decide 12%'s a good number?

Sorry, help me again, the 12% being --?

Well, if they decide that -- if they go for an internal rate of return target below yours and they scoop up the volume, I'm just wondering how that competitive position stands up in the longer term.

Well, I think our view again, following on from what Mark's been saying about our approach to capital around the Group, is that there are alternative bases to which we can put capital to work. And we will not lower our criteria for an overall return on capital deployed in the U.K. If others are prepared to accept lower returns, and to participate in the market in a different way, that's obviously their choice. We will remain distant.

Okay, thank you.

Okay, the last question at the moment is from Gordon Aitken of JP Morgan. Gordon.

Good morning, it's Gordon Aitken here. Just a couple of questions. Firstly, in '04 you talked about the opportunity for multi-ties in the U.K. Just wondering what, in APE terms, what volume sales came from multi-ties in Q1? And are you paying higher commission to these distributors?

And the second question is about Asia. And you mentioned when you were talking there a focus on productivity. Just wondering how you measure productivity, and will you be trying to lower your commission rates you're paying to those agents in Asia?

I think the -- with regard to multi-ties in the U.K. I think the first quarter sales for multi-ties have been I think fairly small. I think last year the figures we gave were about, almost 30% -- 25, 30% of sales were through IFAs last year. The number has come down significantly in the first quarter. The majority -- the dominant channel for us in the first quarter is on the partnership side.

With regard to our productivity in Asia. It's nothing to do with commissions. [Happily] commission is a separate issue, dictated by market circumstances in each individual country. And the local CEOs there make their decisions with their pricing actuaries and the productivity of products. So there's no – there’s absolutely –- we’ve done that for 15 years, so there absolutely no change in the -- in policy there.

In terms of measuring productivity, what we do is we look at a number of dimensions on productivity, we look at case size, we look at case counts, we look at case productivity [inaudible] persistency. And we do this by agent, we do this by unit, we do this by region, and we do this -- we slice and dice this in many different ways to give us an overall sense. But I don't – parts of this -- when we talk about a simple measure it would either case size or case count.

Thanks very much.

Pleasure.

Okay, at this present stage there are no further questions. Can I pass it back to you for closing comments?

Sure [inaudible] I think as we've said, I think it has been -- the consistent message is that we've given over the last year, we've -- what you see in the first quarter is building on a strong momentum we established in the second half of 2005. And the Group, in all of our views, continues to have excellent prospects for possible growth. And we're very much focused, and we believe there is tremendous scope to deliver increasing value to shareholders. I think our focus has been on delivery from day one and that continues to be the name of the game for us.

But thanks for listening and good morning to you all.

This now concludes our conference call. Thank you all very much for attending.