Prudential PLC (PUK) 2014 Q4 法說會逐字稿

Good morning, and thank you for coming to our investor presentation this morning. You will have seen the announcement we made this morning alongside our annual results for 2014 and the announcement made by Credit Suisse.

Of course, the Board is sorry to lose Tidjane as Group CEO, but understands his desire to take on a new challenge in a new environment after seven very successful years at Prudential. He's made an outstanding contribution to the success of this Group in recent years, and that can be seen in today's results.

We are fortunate to have a strong management team beyond Tidjane. The Board also has a rigorous succession planning process and that is now being implemented. We believe we'll be in a position to announce the name of the new CEO very shortly. You will, of course, be aware that the appointment is subject to regulatory approval.

That's all I'm going to say. I'm going to pass over to Tidjane. Thank you very much.

Thank you, Paul. Good morning all of you. Thank you for being here. Those of you who know me know that I will not miss an opportunity to point out that I am -- today is kind of a [tail] event because we are the day after Arsenal beat Man U at Old Trafford (laughter). So that puts me in a -- yes, thank you -- particularly good mood. It doesn't happen very often.

So anyway, again, good morning. We've had a broad-based performance in 2014, a really good year. And if you look back to what we said in 2010, growth and cash, I believe it's the fifth consecutive year where we have delivered on both commitments.

So what I intend to do in my section is to give you the highlights of our financial performance in 2014. I will also cover the usual BU by BU overview. Then Nic will take you through the financials and I will come back towards the end for the outlook before we move to Q&A.

So if we begin with 2014 and the performance, you've seen the numbers this morning. We have made good progress across our key metrics. And if we start with growth and IFRS profit, IFRS profits are up 14%, and very fundamentally, over five years doubled for the Group as a whole; but also doubled for each of Asia, M&G and Jackson, which is really underlying this good performance.

New business profit, which is something we've always looked at more closely than [APE], is up 10% at GBP2,126 million, and we are satisfied with this number, given the low interest rate environment and long-term interest rates going down in 2014. And also, as you know, the fact that in Jackson we will have a sales cap, a self-imposed sales cap. So in that context, to grow at 10% is very pleasing.

And the third thing we'd encourage you to follow and judge us on is really cash for free surplus generation, which is part of our 2017 objectives and which is up 9% at GBP2.5 billion. It's a number I'll come back to. For me, it's fundamental that this Group in the way it operates generates in excess of GBP2 billion every year, and that is core to our strategy.

And finally, we've been able to increase tangible returns for shareholders. By that I mean the dividend, which is rebased upwards by 10% to be at 36.93p. That said, we reiterate that our dividend policy hasn't changed. I'm sure we'll come back to it in Q&A, but it's always the same. And this rebase has only been decided by the Board because of the strong operating and financial performance of the Group.

And if we move to capital, whether it's on the -- almost in its last year, the old regime, the IGD regime, we have a cover of 2.4 times at GBP4.7 billion after a number of, if you wish, IGD costly moves in 2014 that Nic will come back to from the SGB deal to repaying the hybrid debt.

And on an economic basis, on the same basis we presented it last year, we are on 218% solvency from 257%.

We believe that these numbers are the translation of our strategy which has been unchanged. You've heard us say the same things for a number of years. And we believe the strategy is robust, works across the cycle and delivers good results. And 2014 is a good illustration of that because if you look at the backdrop of 2014, it hasn't been without its challenges.

Certainly, in my years here, I don't remember a quiet year. We can go around the globe, from challenges in Asia from the umbrella movement, the Hong Kong protests which worried a lot of you, the coup in Thailand, Indonesia with the flooding at the beginning of the year, the election that had a huge impact on consumer confidence in Indonesia. You have the FX depreciation across the board in excess of 20%. These are very significant market moves.

You've had in Europe, closer to us here, everybody has forgotten it but the Scottish independence vote and the uncertainty induced by that. You've had the budget reform and the disruption to the annuity market. And you have more global trends or phenomena such as the commodity price fall or the oil price fall which has an impact in the markets we operate; in the question of the normalization of the US monetary policy with the end of QE3, or in Europe, in the Eurozone, a new QE and lower interest rate in the fight against deflation or threat of deflation, and as Mr. Draghi would say, to avoid an embedding in the expectations of deflation.

So it was not an easy year, and this makes us reasonably happy with the numbers we have been able to deliver. Our job as management is to try and deliver for shareholders a good result, even against headwinds. And if you look at the progression by BU in 2014,you see that Asia IFRS is up 17%, and eight of 11 business units in Asia had double-digit growth in IFRS profit.

If you look at the US, it's again a really bright spot with a record remittance, $680 million, or GBP415 million. To put this in context, in 2006, the total remittances from all the businesses in the UK -- sorry, into Prudential in the UK into the center were GBP99 million. So that gives you a sense of the scale of the transformation and the performance of Jackson there.

So 2014 was 45% up on 2013, and 2013 was 17.5% up on 2012. So it's been really over three years a very, very, strong progression. And you know that we believe that the proof of the pudding is in the eating and cash is the ultimate measure for everything we do, and by that metric, we've done very well.

If you look closer to home here in the UK PruFund, which is really our with-profits product, very strong progression in 2014; plus 27% in funds under management, reached almost GBP12 billion, GBP11.6 billion, for a single fund. In the retail UK market, that's an amazing performance.

And M&G up 13% in profits, GBP446 million for M&G. Again, if you look back a few years ago, you'll see that the entire Prudential used to make GBP600 million or GBP700 million a year. So M&G has become almost as big as Pru used to be.

So this validates, we believe, our strategy, and I think it's an illustration that the strategy we put in place works. One thing we've talked to you about for many, many years, I remember when we started doing this there was just one bar in 2008, the first time we did this disclosure which is the sources of earnings. And we told you that we would work hard to correlate the extent possible our earnings from interest rates, and that's what we've done.

With the emphasis on fee income, the emphasis on insurance income, the sum of the two have gone from about 50% of the initial 2008 total to 74% today. And the total bar has more than doubled in the process. So a CAGR of 19% over eight years; so the two together is very, very significant and it has really transformed the nature of our earnings.

We don't really like spread income because we think that it is risky, often underlying that our products have interest rate guarantee, guaranteed returns, capital intensive, and it's very exposed to the economic cycle and the interest rate cycle. And we [do] emphasize it. And actually, when we write that type of business, as you know, we tend to put it in the with-profits fund where we have a comfortable capital buffer.

So this is really underlying if you have a valuation multiple, spread income is on a relatively low multiple. And a lot of the rerating of the [stock] has been in the ability to deliver this profile and this changing profile which makes us believe quite different from most companies in the sector which have anywhere from 50% to 80% of their earnings from spread income. And the lucky part is that we've done that at the time when interest rates went to one of the lowest points ever. So it certainly has increased the distance between us and others.

But it's really with this consistency in the direction of the journey and in performance that supports our confidence that we are going to achieve our 2017 objectives. Showing about it as a 10 half-year period, we've done four, so we're not even half way. But we think that we are tracking well and it's encouraging.

So moving on to something I know which is on your mind, which is really capital and solvency. The first thing I'd like to say is that the first source of capital in business is to operate profitably and in a cash-generative manner. All our efforts in terms of running the Company, the strategy, the business model, is to make sure that we deliver every year positive cash generation. We had GBP2.5 billion in 2014.

We actually believe that that will allow us to grow our way out of any capital challenge, because when you're progressing at that pace, and again Nic will give you more color on that, you can't really get in insolvency trouble. And we believe that whatever [lens] you adopt for solvency, that strength will come through. Cash is cash and [cash is capital], and that's that. So we have designed the model.

And that's why we're so relaxed about it and quite confident because we know we can operate at that level and think that there's plenty of upside there. This is with interest rates, long-term interest rates at a very, very, low level. We can generate GBP2.5 billion of cash.

So Solvency II is an interesting measure. You know that we have had reservations about it. We have always been very clear about what they are, essentially two. One is around market consistency as a way to assess liabilities across the economic cycle. We do not think it works. I think we were vindicated in 2008/2009. We don't think it works at all times in the cycle. There are moments where it's fine, but there are moments where it's not.

And the other one is really when you evaluate risk, which we believe is incorrect because insurance companies are resolved as the liabilities become due, and that's not one year. And the one-year metric, which is of the banking origin, is inappropriate and inadequate in the case of long-term liabilities like we have in the lifecycle.

So what the structural deficiencies of the framework? And you see that a lot of the discussion and lobbying has been actually on mitigating either through counter-cyclical buffers, matching [investment] to others, is to mitigate at the extreme of the cycle the impact of that approach.

So accepting that, we were also very pragmatic. Even if we were not convinced that it's the right way to look at it, it is going to be implemented on January 1, 2016. So we do not have a choice. But we believe, even taking into account that there are still some areas under discussion with the regulator, and I have to stress it's a positive and a constructive dialog; we're very happy with the engagement we have with the regulator on that.

And there are mainly two issues there. One is around the recognition of the Asian surpluses. We are a very Asian company. We produce very significant material surpluses in Asia. And the regulator must make a determination on how much of the surpluses it's going to recognize.

Our view on that, again from an economic value perspective, is that those surpluses exist in absolute terms and they belong 100% to the shareholders. The debate on how much of it is recognized here in London is not economic and it won't change the economic reality.

So we have said that there is a discussion on that, but we're saying it doesn't affect the underlying economy. The surpluses are sitting where they are sitting and they're accruing to the shareholder through the share price. You can see it in the share price. You can see it in the valuation of our Asian business. Those surpluses are real.

And the other discussions are on the calibration really of things like credit and longevity, and they're ongoing. But the message, the key takeaway on that is we're running a highly capital-generative strategy and business model, and we think that the result will be manageable.

That's a word we want to put to you; manageable, i.e., without major consequences on the way we run the Group, our strategy, or our ability to reward shareholders. And Nic will come back to that and give you a sensitivity, more numbers.

So that's all I wanted to say at a Group level. So if we move to the business units, it's another chart that you've seen over the years. It's a quarter by quarter.

Sales in Asia. Again, when we started it, there weren't many bars, and now quite a few. We've had 20 quarters of growth above 16% in Asia last five years, and to us, that's really the power of the story. And it illustrates very much the power of the platform and the diversification we have in Asia, because if we wanted to make a very busy chart, we could have put all the challenges we've had over the years from the Indian market in 2010, from (inaudible) in Korea, from Indonesia this year.

I don't remember in my time in the Company a quiet year in Asia, and Barry and his team have been able to deliver for you a straight line through that. And really, that's just diversification and the quality of the platform and the quality of the distribution force which has allowed us, if you look at the numbers, to double basically the sales between 2009 and 2014, and the profits in the same period of effectively more than double.

Focusing on Q4, you can see the size of that bar. As you know, very strong rebound in our numbers in Q4 in Asia, and I think that came through in the results you saw this morning. And I'd like to give you a bit color on how it happened looking at some of our key markets, starting with Hong Kong.

We have many discussions about Hong Kong being a mature market. Well, it was up 39% for us this year, year on year. And more pleasing inside that is that H&P has taken off, health and protection. It's something we've always wanted to do. You know that our profile in Hong Kong is very effective. The fact that we have with-profits fund, the profit [emergence] is slow, and we always had as an ambition to inject more health and protection in there.

Barry has launched two products. It is PRUmyhealth crisis multi-care, and PRUmyhealth crisis lifelong care, which have been very successful. And actually, H&P sales were up 56% year on year in Hong Kong. When you see the size of Hong Kong, it's actually our largest business. To grow your largest business by 39% and 56% is quite an achievement.

Singapore -- we have a very large business in Asia -- did well. Agency APE is up 16%. But actually, the market grew less than that, so we've gained market share in Singapore. And within that, SCB had a very good year also, up 12%. So we are, again, pleased with our performance in Singapore, which is growing very nicely double digit and very profitable.

And Indonesia, always a lot of focus on that country. We told you things as they were, as the year unfolded, Q1, Q2, Q3. Q4 was very strong. Q4 was up 53% on Q3. And we see absolutely Indonesia returning to growth, and I'm sure we'll have a chance to talk about it Q1 in May. But we're confident.

So those are three biggest units, but we also have a range of smaller units that are coming up.

China. China has made it on this chart because growing at 30% per annum for a number of years will take you to a good place. IFRS was up 30%. APE was up 35%. And again here, the H&P, health and protection theme is there, with health and protection a very helpful bottom line, up 43% in China.

The interesting thing about China is we disclosed only our 49% holding. If you put China on a 100% basis, it's my pleasure to tell you that China is now our fourth largest business in Asia so it's taken over Malaysia. This is a major development for us. And it's continuing to grow very, very strongly. So the patience I think we have displayed there by not selling down and continuing is starting to pay off, starting to have a material presence on our scale in China, and that's going to continue to grow.

The Philippines is our little darling in the region. You know that. It's a great economy. Over the next three years, they have the best expected economic growth, GDP growth in Asia. Earnings up 75%, and you know we've focused on growing our regular premium and health and protection sales in that market with (inaudible). 30% up regular premiums with great promise of future profit; and health and protection up 36% [again].

And finally, Thailand. We had our first full year with Standard Chartered, so 12 months with Standard Chartered. APE is up 36% and IFRS earnings up 10%.

So [Asia] is the first division doing very well, and the second division below smaller but growing faster and catching up. And we always believe that in the end they're all going to end up in first division, we hope.

Maybe just a zoom on SCB, a topic of interest. We spent shareholder money in that distribution so it's very important for us that we produce the returns. And the year-on-year progression, second half/second half 2013/2014, 33%. And that is really broad based, very strong performance in Hong Kong and elsewhere in Asia, the new markets we activated. So when you talk about activating, we see this as a new relationship. We're very, very pleased with this progression.

But Asia is not just life. All I've said up to here is about the life business. It's also Eastspring. And Eastspring has had simply its best year ever. GBP5.4 billion of net flows, external net flows. That's almost on the scale of M&G. It's remarkable. And you see the funds under management going up 28%, GBP77 billion. And behind that, the profit going up 32%, so a very -- getting close to GBP100 million. It's material for a business we built over the years and started from over -- from nothing. Actually, Eastspring is now the largest onshore Guy and the team have done a great job on this.

Now where I say on [that scenario], don't get carried away. We know it's a cyclical and volatile business and it's very much driven by markets, so we always have a word of caution there against projecting those trends as they are, but it's still a very, very pleasing result.

So if you look at Asia as a whole, again, IFRS profit is now -- it's comfortably above GBP1 billion, GBP1.1 billion. Again, a few years ago, the Group was making GBP600 million or GBP700 million as a whole. But again, a remarkable transformation of Asia, and cash generating, with almost GBP600 million of cash; GBP592 million, up 15%.

So a really good year, strong delivery in 2014 in Asia in a challenging context. I'll remind you, all these numbers were produced against all the headwinds we talked about in the region last year. Disciplined execution by the team; high quality Pan-Asian platform. And we believe the business remains well positioned to deliver long-term, high quality profitable growth.

So moving on to the US. Now I'll go back to a chart we've been using now for two or three years, but the good thing is that we're building more data points.

The evolution of VA sales in the US has been nothing short of remarkable, very, very strong. We went from $6 billion six years ago to about $23 billion this year, but the true story is inside those numbers.

If you look at the gray chart [that comes] first, these are for GMWB, so the VAs with living benefit. We keep emphasizing that, actually, since 2011, they have been flat, and that's deliberate; moving up and down, $15.1 billion in 2014.

But this is a point on which we're a bit sensitive. We believe that we're controlling that volume of sales. Mike and his team are well in control of that. They're very proactive about it. They have a budget every year and they deliver on that budget. And we think that it's absolutely supported by the data.

But they haven't [just] on that. They've been innovative. They've created Elite Access. Elite Access $5.1 billion this year of sales. Since it started three years ago, we've sold now $10 billion of this product. And I've said like they've created a market because it's -- actually, VA is the number 4 product on a standalone basis across the US market, Elite Access alone. That is a commercial success. That is a testament of product development skills and the distribution power that Jackson has.

And finally, you have the VAs without any living benefits in dark blue. So we've been able to pull this trick of combining a controlled risk consumption with a continued increase in the top line, and that's what drives the economic performance of the business.

And if you look at the non-living benefit VAs have gone from 11% three years ago to 34% now. That's a very, very good development. It's also as a whole a more capital-efficient mix, and you will see that when Nic talks about the new business strength.

So low interest rates, of course, is always a discussion. So we've given you the US 10-year treasury yield here in blue and we've put that against the fee income. And again there, if you look at the 2006 numbers, GBP177 million of fee income, GBP1.4 billion this year, it's a remarkable performance.

And the fact that we have driven both the volume and the product characteristics to generate this type of profitability in the low interest rate environment, it's one of the things that gives us confidence that this is a robust business model that can survive and do well across the cycle.

And no better proof of that than my favorite chart, the cash remittances from Jackson. There's nowhere to hide. At the end of the day, we've told you [generous] on the cash generation. These transfers have been made with a strong RBC. We're at 450%/456%, at the end of the year 450%, and $680 million of transfers. Don't have anything to add to that. That's a remarkable performance.

Moving on to the UK. Jackie and the team have had a challenging year. You've seen what happened in the market with the budget announcement. So in that context, we are really pleased with the performance. IFRS profit up 7% (sic - see slide 24, "6%").

We've put in gray there with the in-force, because it's obvious, and you all know this, but we just repeat the importance of in-force in the profitability of a company like ours.

Yes. There is a lot of focus on new business, and that's what generally is commented upon, but really, most of the value is in managing the in-force and the business is very good at doing that. And that only happens as a result of good discipline, cost discipline, [excess] management, lapse management. That's what drives these numbers. So we're very pleased with that GBP614 million.

At the top you see what happens. The decrease in the retail annuities' profitability from GBP110 million to GBP57 million and the very strong activity we've had in both, and I will again insist one didn't drive the other. This was just a very good year for both. If the conditions for writing profitable business had not been there, we would not have written that business. We didn't write it to make up for the fall in annuities. We wrote it because there was very strong demand for both.

Jackie has one of the best teams in the market and there are customers who will pay a premium for the safety of Prudential and for the name of Prudential. And that's where we like to play in the very big schemes where people understand the value they are buying and are willing to pay a premium price, but then meet our hurdle rate in terms of capital allocation and [deal] and trade [results]. So it's been a really good story.

The other bright spot really in the UK is the with-profits. I know we keep surprising by talking up the with-profits, but we have no reason not to talk it up.

If you look at the -- what does it do? Delivers controlled volatility and returns. That's that red curve, and that red curve is against the fund comparator that's really [hard] and you can see we outperform it. We've outperformed the FTSE.

And, of course, investment performance in the retail market driving net flows. The net flows have been very, very strong. We were just two years before at GBP7.5 billion. We're at GBP11.6 billion. We did plus 21% followed by plus 27%.

And this is where we think actually the reform is driving increased savings. We think that is linked to the environment where consumers are actually incentivized to save more, and we have a great engine, a great vehicle for the savings that we wrap in different wrappers but fundamentally delivers good investment performance and, therefore, [cash flows].

So that's part of our answer to the regulatory change for which we're preparing in the UK. If you look at the retirement space, we've been able to come up with a drawdown. That has been launched in December very successfully. We're also developing a more flexible investment product giving more choice to investors, and that's doing very well.

If you move to the savings space, we told you we would develop a PruFund ISA, so put the with-profits in an ISA. That has been done. And the indications I have from the business is that the applications are very, very strong, ahead of April 6.

We're only going to put it through after April 6, and it's very strong, very strong pipeline. And Jackie can give you more color on that. So stronger presence in the retirement space, better savings offering and stronger distribution.

We have now developed a bond that can go on platforms and we are actively promoting it with more platforms. And that also contributes to the increase in sales.

Actually, if you look at the PruFund increase, quite a bit of that is increased distribution. We just have been able to put the product on the shelves of more distributors with very good results.

So the UK for us is always UK Life but also M&G. If you look at M&G, this chart is familiar. If you look at the -- only in red, it's the external funds under management. We went from GBP70 billion in 2009 to GBP137 billion in 2014, so it's more than doubled.

And in the same time, Michael and his team have grown profits. You can see on the next slide progression in IFRS profit. We have more than doubled between 2009 and 2014 to arrive above GBP400 million.

So bringing all this together, just want to look at our three usual metrics, IFRS, NBP and cash. But at the Group level, we are pleased with this performance. It's been over a long period of time, I think, which is really the main thing. It's possible to do one or two years, but this now can be called a long track record of very strong performance. Profits have trebled since 2006. IFRS went from GBP1 billion to GBP3 billion.

And we insist again on the consistency of the strategy. We've been quite boringly telling you about the same thing, and I'm afraid we will continue to do so.

New business profit, same thing; more than 3 times increase between 2006 and 2014.

And finally, free surplus generation, which we have really emphasized the cash generation from GBP0.5 billion to GBP2.5 billion, which we believe is a very natural evolution. So you start with NBP. It goes into IFRS; goes into cash, if you are disciplined and if you execute well, which is what we believe we have done.

So with this, I'm going to stop and I'm going to let Nic take you through the financials.

Okay. Thank you, Tidjane, and good morning, everyone. In my presentation, I will provide you with a detailed look at the drivers of our performance in 2014 and give you an update on our capital position and on our balance sheet.

So starting with the -- can we go back? Starting with the financial headlines, the Group delivered a strong performance in 2014 with good progress across all of our key growth and cash financial measures. We achieved this against a backdrop of lower global yields and continued volatility in currency markets.

Operationally, we faced a number of country specific challenges in Asia and unprecedented levels of regulatory change in the UK life market.

Despite these headwinds and after allowing for the currency translation effect, IFRS operating profit increased by 14% to GBP3.2 billion. Free surplus generation was up 9% to GBP2.6 billion. Post-tax new business profit rose 10% to GBP2.1 billion. And embedded value operating profit, also on a post-tax basis, rose by 4% at GBP4.1 billion.

Both new business profit and EEV operating profit were adversely impacted by the decline in yields, absent which the year-on-year improvement in these performance metrics would have been 14% for NBP and 11% for EEV total.

Foreign exchange has been a feature in our headline results during 2014 when reporting the performance of those businesses that generate earnings in US dollars or in various Asian currencies. Collectively, these businesses now produce most of our earnings.

The effect of reporting these overseas results using the stronger average sterling rate during 2014 is shown in the red bars on the right. As we have said before, this effect is purely translational, because in all cases, we run local currency business where assets and liabilities are currency matched and we have no transactional cross-currency exposure.

So in line with the approach that I adopted at the interims and for the purposes of today's presentation, I have re-expressed the 2013 comparatives on a constant exchange rate basis.

This slide summarizes the effect of [this re-translation] on the four financial metrics that I'm about to cover, with the impact coming from Jackson shown in dark blue and that coming from Asia in light blue. With this covered, we can now focus on the underlying drivers of our performance.

Turning to the contribution of our four business to each financial metric, you can see on this slide that the improvement in performance was broad based.

Asia delivered an excellent trading performance with strong growth across all measures, particularly IFRS operating profit and free surplus generation, the two metrics that form part of our 2017 financial objectives.

In the US, the benefits of our disciplined approach to managing the balance between growth risk and capital were evident in the strong improvement in the IFRS operating profit and free surplus generation.

The two EEV based metrics also improved, despite the self-imposed sales cap on certain products and the drag from lower US treasury rates.

In a year of considerable market disruption, our UK Life business delivered a resilient performance, achieving the highest levels of new business and IFRS operating profits since the 2008 financial crisis.

Finally, M&G reached new highs for both funds under management and IFRS profit.

So this 2014 broad-based delivery demonstrates Prudential's ongoing ability to generate both growth and cash, a distinctive feature within our industry.

I would now like to look at each financial measure in more detail.

Starting with IFRS, total operating profit increased by 14% to GBP3,186 million, which represents a 26% return on equity. As you can see on the right, most of this increase came from our preferred sources of fee income and insurance, or technical income. The rise in fee income was driven by growth in Jackson separate account balances, as well as the increase in funds managed by M&G and Eastspring.

The improvement in technical income reflected another year of strong health and protection growth in Asia and a higher contribution from REALIC. Spread income grew at a more modest rate as we seek to reduce the weight of this interest rate sensitive source.

Operating costs have also increased but at a lower run rate than total income, demonstrating once again the operational leverage in our business.

So in 2014, we increased both the scale and the quality of our IFRS operating profit.

Turning to the IFRS results for each business and starting with Asia, our overall profit was up 17% with strong underlying performances in both life and asset management. Higher life profits of GBP1,050 million reflected the increase in the scale of our operations across the region and our focus on regular premium protection oriented solutions that address the needs of Asia's growing middle class.

We measure the scale of our business by reference to policyholder liabilities, which as you can see in the top right-hand box, increased by 20% to GBP26.4 billion as we added another cohort of regular premium new business. As a result, total income across the region grew by 10%, which outpaced the 6% increase in costs.

So the dynamic that we have talked about before of adding high quality new regular premium business to a large profitable and sticky existing book, all processed through a scalable platform, remains a powerful underpin of our earnings momentum in Asia.

In 2014, Eastspring attracted a record GBP10.4 billion of third-party and [internal net] flows, which together with positive market movements drove assets under management to a new high of GBP77 billion.

Fee income increased by 20% in line with the growth in average AUM. And with costs rising at a slower rate the overall IFRS profit was 32% higher at GBP90 million.

In the US, IFRS profit was up strongly at GBP1,443 million, driven by a 21% increase in Jackson's life results. The improvement in Jackson's profitability has been accompanied by a positive evolution in the sources of earnings, with fee and technical income growing strongly, as shown in the chart in the top right.

Spread income is only marginally up on last year, with reductions in crediting rates broadly matching the decline in yields. As the headroom between current and guaranteed crediting rate levels is now small, a lower for longer interest rate scenario will see spread margins decline towards the 200 basis point level in the next two or three years.

Technical income benefited from an increased contribution from REALIC of GBP216 million, up from GBP178 million in the previous year. REALIC is now equivalent to one-third of the technical income block shown in blue.

Jackson's fastest growing source was fee income, driven by the growth in separate account balances, which is illustrated in the chart in the bottom right. As you can see, the increase to $127 billion was mainly due to $12 billion of business inflows. Elite Access contributed $5 billion of this $12 billion and represented just over 8% of the separate account assets at the end of 2014.

Finally, the profits from other US operations is lower at GBP12 million, reflecting the fee refunds in Curian which we covered at the interim.

Turning to the UK, the improved performance was driven by the life result which increased by 7% to GBP752 million. This result was underpinned by a resilient contribution from our two core sources of with-profits and in-force annuities, which were not impacted by the UK market reforms.

Alongside the rest of the market, sales of new from GBP110 million to GBP57 million. Bulks, written on attractive economics, added GBP105 million to the total. We remain selective in our approach to the bulk annuity market, and we will only write the business where returns are sufficiently attractive.

So as we move forward, we think about the profitability of our UK life business in three blocks. The first relates to the season and relatively stable results from with-profits and in-force annuity. The second relates to the contribution from new individual annuity business whose size will ultimately depend on how consumer demand for this product develops after April this year. And the third represents the profit from bulks, which will vary depending on the ongoing availability of sufficiently attractive deals.

Staying in the UK and turning to M&G, IFRS operating profit was 13% higher at GBP446 million, reflecting the growing scale of the business. As you can see in the box in the bottom right, assets under management increased to GBP264 billion, driven by strong inflows and positive market movement.

Within this total, retail AUM grew faster at 11%, reflecting M&G's success in Europe, where it secured record net inflows of GBP8.1 billion in 2014.

The higher overall level of AUM and the positive shift in business mix towards retail drove an 11% increase in fee income, which you can see in the box in the top right.

M&G continues to invest in people and infrastructure to support the growth that we have seen in recent years. In 2014, the rise in costs was outpaced by the higher level of fee revenues, driving a small improvement in the cost income ratio to 58%. The rate of investment will continue for the foreseeable future, which will mean that this ratio could rise in the coming years.

I will now move to free surplus, the primary measure of cash generation of our business.

As you can see on the left, free surplus generation after investment in new business increased by 9% to GBP2,579 million. The key component of this was the return from life in-force book, which was 19% higher at GBP2,276 million. This strong increase reflects the dynamic of adding another cohort of high return fast payback new business on an already sizable back book.

The GBP314 million positive experience result reflected our ongoing success in managing the existing business for value. As I said last year, the comparative benefited from higher assumption changes, producing a result which was well above the run rate that we typically achieve.

In the top right, you can see that all three businesses are making significant contributions to the life in-force total, with a strong uplift in both Asia and Jackson, with a high-return [fast] paper dynamic, is most evident.

The UK free surplus is lower, as 2013 included GBP78 million of positive longevity assumption change, which has not recurred.

Total new business strain was broadly unchanged at GBP606 million. As you can see in the bottom right, Asia strain increased, reflecting higher sales volumes and changes in country mix.

In the US, strain benefited from proactive action on commissions and favorable changes in product mix; higher Elite Access, for example.

The UK's total new business strain includes GBP31 million for bulks, which represents part of the extra investment that we said we would make in the UK.

This next slide shows how the 2014 free surplus flow has impacted free surplus stock on the left; and cash on the right. As you can see in the chart on the left, after deducting remittances the overall stock is up, at around GBP5 billion. However, as our business is now bigger, the level of cover that this stock represents is broadly unchanged.

Once again, remittances have been strong across all businesses. The impact of sterling strength against Asian currencies is now beginning to come through in the remittances from Asia, and you should expect this effect to carry through into 2015.

Jackson's record remittance of GBP415 million was a result of its disciplined approach to managing the balance between growth, value, risk and capital.

M&G's higher remittance reflected growth in its overall earnings base. As previously flagged, the small decline in the UK remittance is due to the extra investment that we're making in response to the UK market reforms, which will continue through to [2016].

As you are aware, remittances from our UK life businesses are subject to regulatory approval. And notwithstanding the capital-generative nature of this business, I anticipate that securing approval will be more protracted this year as we transition from the old -- from the existing regulatory regime into the new one.

Finally on the right, you can see that after paying a high dividend, funding the upfront fee for the renewal of the SCB distribution agreement, and repaying $750 million dollar-denominated hybrid debt, we closed the year with GBP1.5 billion of central cash, a very comfortable position.

Before leaving this topic, I wanted to re-emphasize the reliability of our future cash generation by reference to the updated, undiscounted [VIF] monetization profile of our life business.

The dark-blue bars in the top chart represent the end-2013 life in-force book monetization profile, as we reported a year ago. The light-blue bars represent the updated profile of this block one year later. These bars are now higher than before, reflecting positive experience in the effect of the stronger US dollar, which taken together have offset the impact of lower yields between the two periods.

When we add the cash flows from the 2014 new business [core book], shown in red, we have an overall profile that is higher than the one we started with, evidence of the power pull -- of the powerful capital, [velocity] capital dynamics of our business. We remain on track to deliver the GBP10 billion cumulative free surplus objective after financing new business over the 2014 to 2017 [four-year] period.

I will now briefly cover the EEV results before turning to capital.

On this basis, total operating profit was 4% higher at GBP4,096 million, equivalent to a return on embedded value of 16%. As shown on the left, the result is driven by our combined life operations, where profits were up at GBP4,174 million led by Asia. The bar chart on the right analyzes the contribution to the life total from new business, which was up 10%; and from in-force, which was flat.

As I mentioned at the start of my presentation, the decline in long-term yields during 2014 dampened both new and in-force EEV results by an estimated GBP90 million for new business, and GBP187 million for in-force. And this effect masks a strongly positive underlying trend.

Experience profits, shown in the break-out box on the right, remained a prominent feature of our results, totaling GBP470 million; while assumption changes were also positive at GBP138 million. The fact that experience and assumption changes are positive in each of our three main businesses confirms the high quality of our franchise.

New business profit, shown on this next slide, increased by 10% to GBP2,126 million, with all three businesses posting year-on-year improvement. You can see in the table on the right that this improvement is primarily driven by sales growth, offset by the adverse impact of lower interest rates.

All three regions continued to write new business at very attractive internal rates of return of more than 20%, and short payback periods.

In Asia, new business profit increased by 13% to GBP1,162 million, driven by the higher volumes from our expanding distribution capability. Our NBP performance in the region is both robust and resilient, underpinned by 16% NBP increase from our South-East Asia sweet spot, and a 19% NBP increase from health and protection.

In the US, new business profit increased in line with sales. Product and pricing actions have defended our new business economics, which remain close to all-time high, despite the drag from the lower interest rate environment.

UK NBP was 14% higher at GBP270 million, supported by a strong contribution from bulk transactions in the year.

Retail NBP was 23% lower due to a reduction in individual annuity sales, mitigated in part by a higher NBP contribution from with-profits bonds.

Moving now to the rest of the profit and loss account, which is summarized here for both reporting bases.

In 2014, the impact of higher equity markets and lower long-term yields produced a number of offsetting effects within the IFRS investment variance line, which came to a negative GBP0.3 billion. The most significant component in this line relates to Jackson.

For the reasons that we have set out previously, the different accounting treatment on the movements in the valuation of derivatives and the corresponding guarantee reserves produced a net negative result. This has been a recurring feature of Jackson's results on this basis, reflecting imperfect IFRS accounting. We continue to hedge the risks of this business on an economic basis, and accept the accounting volatility that ensues.

As we move down the table, we see a positive GBP0.6 billion effect, reflecting unrealized gains on Jackson's fixed income securities following the decline in yields. The stronger US dollar at the end of 2014 also contributed positively. So after the payment of dividends, total IFRS net assets increased to GBP11.6 billion, up 22% in the year.

On an EEV basis, which does not suffer from the same limitations as IFRS in reflecting the full economic substance of market movement on our US business, the overall investment variances were positive, GBP0.2 billion. Therefore, under this basis, the strength of our operating performance, together with positive foreign exchange effects net of dividends, produced a 17% increase in EEV net assets to GBP29.2 billion, equivalent to an uplift of 165p to 1,136p per share.

The next few slides cover the Group's economic capital position and our preparation for the implementation of Solvency II. We are now less than a year away from having to adopt Solvency II. However, there remain significant areas where policy clarifications are needed. We intend to apply for a full internal model in June, and we will seek to incorporate Jackson, using the equivalence provision.

PRA internal model review, feedback and final approval, is not expected until later this year, which means that we will only have full clarity on this topic once this entire process is completed.

We have updated the Group's economic capital results, which are based on outputs from our internal model. Other than replacing the liquidity premium approach with the matching adjustment principles for UK annuities, these results have been produced using broadly the same methodology and assumptions as last year.

So we continue to assume US equivalent and have included Jackson's excess surplus above the 250% RBC level. Our methodology recognizes fully the value of overseas economic capital, and incorporates a risk margin in line with the Solvency II requirement.

Now based on this methodology and assumption, our economic capital at the end of 2014 was GBP9.7 billion, equivalent to a healthy cover of 218%.

As you can see on the right, our business operation delivered GBP1.8 billion of economic capital in the year, equivalent to around 25 points of cover. As this capital measure is more market sensitive, the impact of the decline in UK interest rates is more pronounced, contributing to a negative movement of GBP0.9 billion.

So before capital actions, and notwithstanding the adverse market effect, our business performance drove an overall increase in economic capital.

The remaining items, shown in light blue, reflect the impact of deploying our economic capital to renew our distribution agreement with SCB, repay hybrid debt, domesticate the Hong Kong business, and pay the external dividend. The negative GBP0.3 billion for model changes is mainly due to the impact of adopting the matching adjustment principles.

So the key messages here are: 1, that we are capital generative on this risk-sensitive metric, reaffirming the positive cash and capital dynamics of our business; 2, that the overall reduction in the level of capital was principally driven by deliberate action in pursuit of our strategy; and 3, that our yearend position remains strong, even in this historically low-yield environment.

We have updated the analysis of the economic risk profile of the business, which is broadly unchanged from last year, and is not highly concentrated to any particular risk type. We have also updated the sensitivity of the end 2014 economic capital position through a range of market shocks, shown before the impact of potential management action, and that's important.

Even though the financial impact of these sensitivities is a little higher than the previous year, which is due to the lower end 2014 interest rate levels, the overall effect of these market stresses is manageable, reaffirming the resilience of our business model.

Before leaving this topic, I would reiterate that these results should not be interpreted as representing our Solvency II capital position. As I have already mentioned, the policy remains unclear in a number of areas, while in others, it is ultimately subject to regulatory interpretation and supervisory judgment.

We have provided you with some indicative sensitivities in your pack on three key areas under discussion, based on completely, and I stress completely hypothetical assumptions. These are: 1, the impact of an artificial haircut to Asia's economic capital contribution to the Group total under the Solvency II fungibility test, which as Tidjane has said, would not represent economic reality; 2, the impact of calibrating UK credit and longevity one-year stresses above levels that we would deem appropriate; and lastly, the offsetting effect of applying transitional relief in the UK for differences between the economic capital under Solvency I [relative] position.

While we would expect the Solvency II result to be lower than the GBP9.7 billion of economic capital, our starting point is strong and our business remains highly capital-generative in nature. This fundamental feature of our business is unaffected by Solvency II and underpins our confidence in the overall capital dynamics and capital position of the Group.

I have provided on this next slide the usual update on balance sheet. In summary, we remain well capitalized and defensively positioned. The Group's IGD surplus at the end of the year is estimated at GBP4.7 billion, and this is after deducting in aggregate GBP1.3 billion for the full upfront fee for renewing the SCB agreement, the hybrid debt repayment and other corporate activities.

The financial strength of the UK with-profits estate remains a core part of our product offering, and this stood at GBP7.2 billion at the end of 2014, up from GBP6.8 billion at the start of the year.

The US RBC ratio has improved to 456% after covering the record cash remittance, underlying Jackson's disciplined approach to risk management. On this basis, the hedge program was essentially break even, as movements in hedge assets and guarantee reserves broadly offset.

And finally, in response to your request, we have provided you with some additional disclosure on our exposure to oil and gas, which in overview is well contained, are properly diversified, and focused on a high quality names. For further details, please refer to the appendix slides.

So to summarize, we delivered a strong broad-based performance in 2014 against the challenging backdrop. The Group remains highly cash generative, driven by the predictable generation of free surplus from our growing life in-force book. Our capital position and conservative balance sheet remains a source of strength for our business and adds to our resilience. And finally, we're positive on the financial outlook of our business and have signaled our confidence in our future prospects through the 10% rebate in our full-year dividend.

I will now pass you back to Tidjane.

Okay. Well, thanks a lot, Nic. I'm now going to talk to you about the final part of this presentation, our outlook. It's positive and confident. And I'll start really with the basics. Where do we compete; where are we?

We think that we have an attractive footprint. As you know, we have 24 million customers across regions, and our footprint is really Asia, the US, the UK. And [you can see two spots in Africa there] just starting.

But we think that the point about this is if you look at new growth, not just stock of assets but new growth where we are representing [53%] of GDP growth expected in the new five years, and that's a great place to be, but presence alone is not a guarantee of success. It's a function of your capabilities and having the right strategy.

And we believe we have the right strategy in those geographic areas we're focused on the right opportunity. It's the emerging middle class in Asia; and it's savings and investment needs -- sorry, savings and protection needs; the US baby boomers and transitioning into retirement; and the UK, which is a very attractive asset management and savings market.

So if you look at the scale of those opportunities, there's many, many assessments of the middle class in Asia, but in our sweet spot, so just the sweet spot countries, Hong Kong, Singapore, Vietnam, Thailand, Philippines, Malaysia and Indonesia, we expect the middle class to grow by more than 100 million in the decade between 2010 and 2020. That is more than the entire population of the UK. And we have 8 million customers in that space. So we think that the headroom is very, very significant.

Look at the US. We expect [16] million more retirees in that same decade, and that's more business for us. And if you look at the UK, we expect the assets under management to increase by -- to more than GBP1 trillion over the same decade. And again, it's the second largest market in the world.

So with our massive opportunities, we have the capability and the execution to capture them, and that's really the next slide where we just give you the progression in our health and protection sales.

In Asia in six years, we have more than doubled. If you look at the US, again more than doubled in terms of sales and deposit by products. But you can also see by the makeup has been transformed. VAs, which were smaller than fixed annuities in the dark blue in 2008 are now more like 3 times the volume of fixed annuities, and that's again a transformation. And I could also talk about M&G and its success in the retail asset management market.

But all that, if it doesn't translate into tangible returns, it's not really meaningful. The good news is we have been able through disciplined execution to grow that red bar, which is really for free surplus generation, to keep the blue bar going down the new business strain under control as the Group gets bigger. In absolute terms, it hasn't really moved. Which means that the light-blue bar, so cash generated after new business strain, has been growing very nicely, which has allowed us, and that's really my final slide, to have a very nice slope in the dividend and take it above the pre-crisis level, which for a financial services company is a good performance.

So to summarize and close and conclude, we are in the right places. We have the right strategy. The execution is good. 2014 was a good year. We have no intention to change the strategy. It's served us very well. There's plenty of headroom.

And Asia is at the center of all this for very obvious reasons. It's more than half the world's population. It continues to grow. Even if the absolute growth rate may slow down on a relative basis, it's a very, very high growth area. And we are uniquely positioned in Asia with our distribution platform, our capabilities and our team to do well.

Of course, we don't ignore the clouds on the horizon; certainly lower for longer. The low long-term interest rate is a particular challenge for the industry, but we think that we have effective responses for that.

We have a strong balance sheet. Nic and I have spent a lot of time talking to you about the cash-generative nature of our business model and how that allows us to deal with the challenges of new Solvency models. And, again, we believe that that strong balance sheet leaves us well positioned to deliver long-term shareholder value.

So with that, I will stop. I will ask my executive director colleagues to join us on the podium here and we will start taking your questions.

The usual drill, please. State your name and your firm's name before asking the questions, and there are mics going around.

Jon Hocking, Morgan Stanley. I've got three questions on capital, please. Just on the point about the overseas surpluses, are you including any surplus above 100% of local? Or are those numbers the same numbers as you've got in the free surplus (inaudible)?

Second question. Presumably this doesn't impact remittances at all; this is purely an aggregation impact at Group. So you might end up with a lower Group number than we might have hoped, but from a business point of view, it has no impact.

And then thirdly on the credit longevity point you mentioned, is that purely a UK issue? So it's a UK annuity book issue?

And actually, if I tack on a fourth one, you presumably have got quite a lot of debt capacity. So if you did end up with a low ratio, there's a very easy solution to resolve this.

The easiest is the credit longevity, so I'll take that. That's the UK, specifically the UK. Nic, do you want to take the overseas surpluses; [where] we take them (multiple speakers)?

Sure. The overseas surplus [and solvency] is a completely different calculation. So what we do for our own free surplus calculations is we look at tangible assets and the extent to which those exceed more about -- on average, about 130% of local [units]. That's the definition of free surplus, and the 130% is what we think across the region we need to hold relative to local units.

Solvency II. Just, look, to completely -- it's a completely different calculation. It allows you to put a realistic value on your reserves. And candidly, when you're talking about a lot of health and protection business, that realistic value uplift is significant, and it throws away the local requirements for an uplift on those and replaces them by a 1 in 200 stress, which we then calibrate taking each risk and modeling that out and applying diversification benefits.

So net-net, Solvency II gives a answer that is bigger in terms of available capital or surplus in Asia than either taking 100% or the level that we apply.

In reality, it doesn't change, the distributions from Asia one jot. Why? Because those distributions will be determined by reference to the local regulatory regime.

The Solvency II is interesting and it's relevant for Asia, but doesn't change the way we think about that business, or indeed, what capital can be remitted from that business. So, therefore, whether there is a haircut or not against that doesn't affect it. That's why we said it's uneconomic.

And that's a central point really. So the remittances are driven by local solvency. We spent a lot of time building the local solvency to a level where capital can flow freely and it's not a constraint. So there is no connection there.

Here's the follow-up. In terms of the -- you mentioned there's a sensitivity in the press release, though I haven't had chance to dig through the press release yet. So you're saying that even those these aren't equivalent regimes in Asia, your economic capital number recast on an economic basis, you're effectively including a larger economic solvency than might be there on a local regulatory basis?

Yes. They're not equivalent [this year]. We've had to look through all of that and redo a calculation at this stage. There may become equivalent regimes in the future if the local regime resolves in some way. And as we saw at the visit in Asia earlier, we are -- there are one or two steps in that way over the next five or so years. So, no, what we're bringing in is a completely different model.

You asked a question on debt capacity. Yes. With the repayment of debt and, of course, the increase in our IFRS in embedded value, if you like, a gearing ratio, whichever way you may want to calculate it, has reduced. Yes. We have capacity to increase that. And we have done from time to time just to increase the flexibility that we have at the Group.

It's another lever that we have. It's a great position to be in. If you have a growing business that throws out capital, yes, we can borrow against that. So we make those decisions as and when, as necessary.

Thank you.

Blair Stewart, BofA Merrill; a couple of questions, please. On the fungibility issues, I think you give us 20% sensitivity in the pack. I just wonder if that's how we should read that 20% number. And wouldn't one answer to the fungibility concerns from the regulator be to change your policy and the way that you remit capital and just remit as much as you possibly can rather than just what you need, just to prove the point on that issue?

And your sensitivities on economic capital to interest rates have broadly doubled, I think. Could you talk a little bit about that? Is it just a function of where rates are? Have you changed the methodology there at all, please?

And I guess, Tidjane, I'll probably ask the inevitable question, why -- because I'll be asking this question lots of time over the next few months, but why are you leaving a big company like Pru to join a relatively small company like CS?

Okay. Thank you, Blair. Fungibility, do you -- and the sensitivity we gave?

I wanted to stress that they were completely hypothetical. Candidly, until we go through the discussions, until we formally apply for the internal model, I will mislead you if I've said anything other than the fact that it's completely hypothetical.

I want to reiterate that this is purely -- I hesitate to -- it's the fungibility test in Solvency II that you must demonstrate somehow that you can remit this capital within a nine-month period, and it's quite an onerous test now. There's ways in which you can do that.

Clearly, if you brought the money back, you'd avoid that. But candidly, we need the money there to take advantage of the opportunities that exist in those markets. So that wouldn't be a smart thing to do given the opportunities that are there to create value and generate more capital in the future.

But on that, we have a [debtor] point and we keep referring to it, which is the 2008/2009 crisis. So what Solvency II does, it's trying to mimic what would happen under stress. And we got absolutely all the dividends we wanted out of Asia in 2008/2009. This was a single dividend payment at the worst possible time.

So this gives us high confidence that, actually, that capital is accessible even under stress. But the problem here is that we were simulating a hypothetical event, and then it's easy to make extreme assumptions. But in a real-life case, the capital has proven to be very fungible, even under stress.

The sensitivities we're talking about -- we're talking about onerous sensitivity here. So just to give you an example, 40% [shock on] on market, that's 40% on top of [1 in 200]. That's a 70% market decline. That's just to put a sense of perspective as to what these things represent. Interest rates is entirely -- yes, the 50 basis point sensitivity we give on interest rates, particularly say in the UK, that's up to 130 basis points reduction.

Where the effect is most significant at those levels of interest is the value of the future with profit transfers, and that's what's driving the additional volatility there.

But notwithstanding, the point that I made earlier, and I'll reiterate now, is that even -- we've taken further reductions in yields from this very historically low interest rate environment, the overall [positioning, say].

Okay. The next one was for me. Okay. Where do I start? I know that Africans have a bad reputation, but I -- pardon me for making that joke. I never had an ambition of being CEO for life and we have presidents for life in Africa (laughter). So I was always going to leave -- so let's start with that -- someday.

So the question becomes: When? When you're CEO, it's something -- probably one of the most difficult calls you have to make knowing when to leave. And for me, when to leave is the time when everything's going well. Okay?

You don't want to leave when there are issues to solve, especially to restructure, things to deal with, because that is what I think unsettles the market the least and leads to the least suspicion. I'm leaving after our best year ever, and I will be here to talk about Q1 and you'll be able to see the business is going sideways or slowing down, and I can tell you it's not.

So that is really the best moment to leave if you're a CEO and if you want to -- not for a hospital pass, which is an expression that I've learned in the UK -- to your successor. So that's one.

Two, I've always had -- someone on my team was reminding that I've still got five years. I really think that's a very natural cycle. It's just not good; it's not healthy.

Sorry. I'm going to come back to my favorite topic, Arsenal. It's not healthy to stay too long (laughter). It doesn't matter how successful you've been. I was going to say that always, because this is just stuck in my throat, when you're [19] of Mr. Le Roux, so that's not the model to follow. So you have to know when to gracefully bow and move on to something else.

So that is really the core of the answer. Then where I go is a function of [the possibilities], etc. I'm not going to talk about Credit Suisse on this stage because I'm paid by the Pru and I'm here as CEO of the Pru and it would be inappropriate.

But I can answer the first half a question which is why leave now when I have built a good team. It takes a few years; I think five/six years. [That was] announced in March 2009 and you were here six years ago. I think I'm leaving a great team behind, and I'm very confident in the prospects of the Company.

I've never believed that I was irreplaceable. We say in French cemeteries are full with irreplaceable people. So I will be replaced and very well replaced. Right?

(inaudible). Congratulations on your performance the last few years. I know we've bounced heads back and forth a few times, but I think it's been very successful, so well done.

Thank you.

Just three questions. One is DBS coming for renewal this year. I just wonder if you want to talk about your appetite for big bulk deals, distribution deals in Asia.

Second thing: Just in terms of Standard Charter, the new deal, I was wondering if we're up at the terminal run rate now. In other words, you've rolled out in all the regions, or is there still some [tucker] coming through in the next few months as you fully bed down that deal? I'm just trying to understand where we are in the trajectory.

And in terms of the US remittances, if I recall, there was some issue around business mix, VA versus fixed annuities and the rating agencies, and that was more of a concern in Solvency II and the local [stat], and whatever. I just wonder if you can talk about the prospects for remittances and how it fits in the context of the rating agency model.

I'm sorry, and this is not a question just a clarification, Nic. When you were talking about that 130 times local, were you talking about the IGD basis or your economic model?

The free surplus basis.

So that's what you're currently using in your eco capital model?

Yes.

Right. Cool.

Thank you, [Graham]. I'm glad you didn't take personally my constant teasing of you over the years. So that's for forgiveness.

But DBS, you know we never comment on M&A situations, whatever. We never confirm or deny or say anything. So we won't say anything specific about DBS. But the general appetite for deals and SCB, Barry, you want to take that?

Sure. One of our strengths obviously is that we have the largest most productive and most diverse distribution platform in Asia, in the industry in Asia. Obviously, our intention is to continue to build upon that existing strength and make it stronger and stronger still.

So do we want distribution deals? Of course we want distribution deals. Do we need them? We do not. We've already got a market-leading position in terms of scale and quality.

So what that means is getting a deal, any particular deal, or not getting that deal is not existential to us. We will continue to do well no matter what. And therefore, it comes down to economics where the economics are rational, where the partner gets a sense that based upon our track record of success that we'd be the best partner. And the chemistry's right between the two partners, that's a perfect combination, and we usually get those deals and we usually do well with those deals.

The best evidence of that is SCB which continues to go from strength to strength. As we've told you, the half-year point, the [7:1] reboot of that relationship for another 15 years was really a pivotal moment because it re-energized both teams and the level of cooperation has been extraordinary. The chemistry between the teams, both at a global and at a local level, which has always been good, is even better. Ideas that have been talked about for the last few years is interesting; ideas in terms of how to expand the business for the bank and for us, are now being put into action.

So I think the simple answer to your question is you should expect to continue to see very good performance out of SCB. I'm very optimistic.

I think there was a question on the run rate. Do you feel that you have some headroom [of your reach] for stable run rates on SCB?

I thought I answered that. No?

Well, I'm coming back for more.

Oh, you're [Greig]. I know Greig.

(inaudible - microphone inaccessible).

There's more new initiatives underway, so I think you should be optimistic, as I am.

I just wanted to get you onto a hook.

Thanks.

Anyway, it's mixed. VA, [FA], between Mike or Nic.

I think that it matters by rating agencies, for one. They have different views of it. And they look at now -- the dialog we have with them is the various risk levels and the various types of VA we've written. So I think it's a little different discussion for us [and a carrier] with a single product when they go in.

I think the rating agencies are certainly more conservative post-crisis. The process has changed. It's much more scripted and structured. They have less latitude, I think, for judgment. So there is a little bit more of a formula, but I think we're fine.

That wouldn't be a remittance issue for us. That remittance discussion will be with the regulators at state level [in Michigan].

You notice I'm not answering that (laughter) (multiple speakers). You see the recurring nature of the revenue. The question is what we do in country -- all the normal variables we'd look at in a given year. But the resilience of Jackson's earnings is clearly there.

Absolutely. Okay.

Lance Burbidge, Autonomous. Two questions, first one for Mike. I just wondered if you might comment on what the White House has been saying on purchase of retirement products in the past couple of weeks.

And secondly for Barry on Indonesia. Indonesia obviously had a very good December. Is there any idea you can give us in terms of how active your agency force is at that point and how much capacity you have to see that growing rapidly?

Okay. So, Mike, you go on the --

This is actually an issue in the Department of Labor about, I think, 2.5 years ago it first arose. And I think the -- and the White House now has the documents. So what we're understanding is somewhere in the next 50 to 90 days they'll release the comments, [ops measure], budget; [they'll do] a financial impact on the normal commentary, the normalcy we have.

It is -- I think the academic work that was done to support the argument that something's not -- that there's not value to the advice is always difficult because how invested would those -- what percentage of equities would those clients have had if they'd made the choices by themselves? And I can tell you we're dealing with advisors every month. What they would tell you as they get clients to invest when they want and they get them to sell when they want.

And it's not -- that's not a new concept. That's the same thing you'd see with advice in Asia, the UK or anyplace else. They get clients to manage risk globals prudently.

I don't think the work that was published shows that. I think it shows if you bought a fund, perfectly (inaudible) purchase versus bought a [load] fund with advice, it's the net difference. So that's the mistake in the core (inaudible) [selling].

But you also see the [FCC] pushing back on -- they see it as their enforcement jurisdiction and I don't think they share the mandate at this point.

So I think we're going to see a lot of comment on it, a lot of discussion. I think the counter is going to be it's a very well governed market, heavy disclosure. You'll probably get a little tightening of the movement from suitability, which is the US standard towards best advice, which is more what you used to see here; I would say the reasons why letters and things. There isn't that concept really in the States.

You see it with the FCC advisors a bit, but you'll probably see more of a hybrid of the two, and if I was guessing, that's where it will land. But it will be an industry issue for six to nine months at least.

But just one thing. There's a bit of good news that we know these (inaudible) and we met some of the White House people. They have examined commissions and decided not to touch that. And they mentioned [RDR] as something they looked at and thought that was not a success that they didn't want to [imitate].

The early draft of the language, as we understood it, would have bought all commissions on retirement products. And again, they would have allowed advisory [teams].

So this -- the details on this will matter, and I would tell you from Jackson's point of view if it requires a change in product or structure or distribution, I think we're better situated than any of our competitors to address that quickly and effectively. And I think you're going to need systems capability, you're going to need sophisticated delivery, or whatever. The restructure is technology, etc., and we have those capabilities.

Thank you, Mike. Barry, Indonesia activity.

The short answer is that December was a great month and, obviously, the number of active agents spiked a bit, so that was very important. We couldn't have produced those numbers without that having happened.

The dynamic that's been happening throughout the year is, last year, as we had this consumer uncertainty and the natural disaster issue with the flooding and so forth as well, is really that we were taking longer to activate new agents. And as you know, the agency model there, a lot of the production, a material part of the production is dependent upon our ability to quickly activate new agents who are being recruited. And that's really the metric where we were struggling. that it slowed down and that did hiccup significantly in December.

So I don't think we're at a point where we can declare victory. Obviously, Tidjane alluded to the political environment there. It is -- people are more optimistic, I think, generally speaking, based on what [Jakholi] has been able to accomplish so far. He's taken the hard decisions, as he said he would. So that's, I think, a cause for optimism. But I don't think we're in a position where we can declare victory, but we're hopeful about 2015.

Gordon Aitken, RBC; a couple of questions for Mike and one for Jackie. Mike, you were very open about your desire for M&A within Jackson, and you said back in December the market was quite tough in terms of [PE] having a low hurdle rate. Can you just update us on the market? I'm not asking about specifics but the market there.

And secondly, and it's related, why do you need to acquire? If Jackson remains within the Pru Group, you have lots of diversity. Admittedly, if Jackson stand alone it does look exposed to VAs.

And then third question for Jackie is: You had a competitor saying in bulks they were quoting on [10 billion] of bulks at this current time. What's your expectation for the market this year? We've got -- some people are saying it's a 10 billion market, that's the new norm. Other people are saying 100 billion over five years. What do you think?

Mike, do you want to start?

Gordon on the M&A, I think the market remains competitive. The participants are -- a number of US insurers and foreign insurers said they'd like to buy something.

You have private equity that's opportunistic where you just want to do a single transaction and hand it to a third party administrator to run, and they see it as -- they tend to like the annuity deals because they see those fixed annuities as levered plan bonds, the model being strip the capital out and run up the risk in the portfolio and just about everything the regulator doesn't want to hear.

And the third is now you have private equity firms that have actually built platforms in the US where they're building competitive insurance companies to consolidate.

So those are the three types of buyers. You have your hybrids of that, (inaudible) and things. So that's the competitive landscape.

It's a great point, the diversification globally. We absolutely have that as part of the Group. But there's actually pretty good opportunity for shareholders when we do these purchases. We can take a lot of the expenses out of a competing life company and get materially higher returns than if we wrote a life policy individually. And it's also, I think, a lower risk transaction; you get away from some of the first and second-year risks writing a life policy in the States.

But the actual returns we've got on the life blocks we've done have been excellent for shareholders. It goes to our expense base, it goes to the technology, it goes to the service model, it's all scalable. And as shareholders, you own capacity in the States and we're just utilizing some of that. So I think that's the other reason to do it.

And on the bulk pipeline, we continue to see it as an attractive market. Overall, we think it's about [GBP1.8 trillion] of liabilities looking for a home. If you look at the pipeline coming into this year, it has been incredibly strong, certainly stronger than I've ever seen it.

We will, however, continue to be selective. We've talked about being disciplined and we genuinely are disciplined. We look at the opportunities, not just in terms of the financial hurdle rates and the return in that way, but also the amount of capital consumed on various bases.

So you should expect to see us active in the market but very selective about the deals that we choose to undertake.

Oliver Steel, Deutsche Bank; three questions. The first is Elite Access has seen quite a lot of localized competitors, so I'm wondering what the competitive landscape is there and what advantage you still have over the competitors.

Secondly, I wonder if you could just give us a bit more insight into where the SCB premium increases come through. Hong Kong fairly obviously, but perhaps you could talk about the other countries as well and where the opportunities still are.

And then thirdly, Nic talked about the UK regulator taking a bit longer to agree to any cash transfer from the UK business. I was just wondering what the issues were in that regard.

Okay. Thank you, Oliver. Competition for Elite Access, Mike? Perhaps you can give a short answer.

The short answer, there's a dozen or more. I think there's two more files. With our GBP5 billion in [change of sales] last year, I think the most successful number 2 product was in the 200s, with 70% of their sales being in their own agency [force] in country.

One of the things I'm most proud of with Elite Access is if you were trying to measure Jackson's capabilities, I think it's an excellent example. You need product alignment, the design, the training. Jackson was named yesterday in one of the industry trades, BlackRock, us, and -- I apologize. One other firm is providing the best training to advisors in the [alt] space, period, not just the VA space.

And I think the formula behind it of building a good product, understanding the client, etc., and being able to help the advisor work it into their business model, that last piece is incredibly difficult. And I think that's where the competitors are having the most trouble. They're building -- well, the category is called IOVAs now, investment-only Vas. So they're immediately adding guarantees to them. And so they're no longer -- so they're IOVAs with guarantees now, I guess.

This is just going to continue to go the industry's default high commission, throw-a-guarantee-on-it model. We're not -- and it's a good investment product. And if you think of the alt returns expectations you would have, this is not a product that can support a super-heavy fee load. It doesn't have the S&P kind of upside to it so you've got to -- I think the industry has got to be careful here not to commission themselves into a product that doesn't work for the consumers.

And that's the short answer, because really, Mike is being modest, but the level of success achieved by Jackson, at least compared to the competition, is extremely impressive. GBP5 [billion] to GBP200 million, impressive.

Standard Chartered, where did the growth come from?

If you look at just what happened in the second half of the year, particularly towards the end of the year, it's actually quite broad-based. Hong Kong, which has always been the largest market, did really well. The relationship in Hong Kong in December, to give you an idea, was up 37%. You might be shocked to hear the Korea has done really well. In fact, and I'm almost reluctant to give you this number, in December, Korea was up 633% for SCB.

It's probably from a low base.

Yes, it's a relatively low base; I think 600 policies versus the one we sold last year (laughter).

And Taiwan has done well. Now Taiwan and Korea are lumpy because it's really -- the bank market in those two countries features a lot of hot money product, which we won't do. And so generally what happens is our sales in Taiwan, and particularly in Korea, tend to spike when all of the local competitors who manufacture the hot money products have run out of capital and there's nowhere else to go. And t5hen they come to us and sell them a sensible product, so it's a little bit lumpy.

But the Hong Kong story is a strong and continuing endurable story, as is the story in Singapore. We're making good traction in markets where [banking] is still not as big, like Malaysia is an example.

One of the real shining stars post renewal of the SCB deal, however, is really India where we did not have a relationship until we signed the new agreement which was effective on July 1. They were fully active on July 1. They've got into every branch and have just done an amazing job of specific products that are very appealing using technology. It's 100% paperless process. It's all done on iPads; it's really quite clever. And interestingly, from a standing start, India went from zero to our number 4 market within the context of SCB, so a very strong start there.

UK dividends?

The simple answer is that there is still too much up in the air. I can give you some examples around that. Matching adjustment is a completely new set of -- a new approach. You're having to think through eligibility; you have to think through cost of defaults, cost if migration in relation to downgrades. IOPA guidance in terms of debate has only emerged in the last week, and every week that goes by you see some more guidance emerge laterally around some of the criteria around that as liability matching, and so on and so forth.

All of that is to play out. We're participating in the pre-application process and matching adjustment and we will hear in the second quarter.

Longevity. In longevity, we're moving away from a [runoff] test, which is the way in which ICA has been underpinned, to a one-year test, and you're trying to effectively establish a capital amount that says: How would you change your longevity reserves based on any information that might evolve in the year? And then, how do you apply a 1 in 200 stress on that? So it's a completely new way of looking at things with no precedent in a one-year context.

And then lastly, the application of a risk margin is quite onerous. Again, just to give you an example, if you took at the end of 2014 interest rates, if you took the combined effect of risk margin and SCR, that would be equivalent to around 15% of annuity reserves. That is much higher than what you currently require to do under ICA, which brings transitionals straight into scope. They were designed exactly to do that, to give you relief where Solvency still comes up with an answer that is different to ICA. This whole process about how you go about securing transitional relief is still up in the air.

So all I was flagging is there is a lot up in the air and it would be wrong of me to sit here and say in a year of transition, with so many questions outstanding, I'd be wrong not to flag a risk that the discussions will take longer.

Now the key point is that the business is throwing out capital. Okay? So that's key. And it's the same across all of the businesses.

And if I can just add to that, that if you step back, what I want to put on the record, I said it in my notes, is that the dialog with the regulator is good and constructive. At least on that we found a very receptive regulator and we're engaged in -- Paul and I went to see them and all the issues are on the table and we're all working towards a solution. That's one.

Two, again, back to a capital-generative comment and stress testing the dividend. We always tell you we stress test the dividend, the Group dividend. One of the scenarios we look at is: What if the UK didn't pay any dividend for three years or four years? And I can tell you the dividend is sustainable and can continue to grow at 5%, even under those scenarios. And part of why we're always so cautious, and when we rebase, for example, we look at all those scenarios and we give you an upward rebase that is robust and that will basically survive under any scenario. That's really important.

And the final point on the remittances is they're not actually that important, because as Nic said, if a business is cash generative, if for any reason you stop paying, from any business, you're building up very quickly a position of that business after two or three years, the capital starts to flow again, because whatever [punctual] tension there is is resolved. And that's why the system is very safe as a whole.

And if you're running four cash-generative businesses, you can't ever really get in trouble. All you have are timing differences. I will insist on that. And that's why we feel so confident in the Group dividend. It's just a timing difference, nothing more.

Next question maybe?

Final question?

Just a couple of questions. First of all, on your economic required capital movement, what actually drove the GBP1 billion increase? I guess it's not the US rates because you're treating US only [through Alan] so it should not really impact the required capital. So what really moved that? That's the first thing.

And secondly, you [showed] GBP1.8 billion of capital generation on an economic capital basis. Again, can we get more color on how much of that is coming out of the US? Because as the US is on the equivalence basis, how does that move? Should we think about EV basis of economic capital generation, or it's a different metric altogether?

Thank you.

Okay. Thanks, Ashik. Nic, I think they're both for you. You put up the slide?

Not on the -- yes, you're absolutely right. The required capital increase GBP7.2 billion to GBP8.2 billion. One-third of that, roughly one-third is the model changes. The matching adjustment, for example, goes straight to the delta, the GBP0.3 billion that I referenced goes straight to the denominator. One-third of that comes from literally business growth. As you put more business onto your book, then it requires you to put some capital. And the other one-third comes roughly from FX. A lot of the required capital sits outside the UK and, therefore, when the currency moves, that has an impact. Yes, there is some market effect, but that's relatively de minimis.

The GBP1.8 billion, we bring in the US on effectively the local RBC above the [250%]. I don't have the math in my head but we do give you a slide that shows you the movement in the available capital in the US, but that's (inaudible) open [cash] position, [plus] generation, albeit with market effects less dividend. I think you can use that to broadly calculate it, but that's a good way of bringing that in. But of course, that capital generation [excess 100], not (inaudible).

Okay. Very good. Well, I think this brings this morning to a close. I think this is probably the last time I do this. If you will allow me to make a few closing remarks.

Mike reminded me that he served under five CEOs at the Pru and that I'm the longest serving, so I'm quite pleased for all the questions (laughter).

So anyway, I'm quite pleased about that, to all the questions on why now. It's been a real privilege and honor to lead this Company. It's a great company and we have a great team; I've said that several times today. I took -- I think the day I was appointed we closed at 252p. I don't know where we are today, but it starts with a [16]. So I won't claim the credit for that because a lot of that -- I talked about hospital pass but I was appointed at an interesting time. So some of that is just the crisis being resolved, but some of that is really the merit of this team and it's been a great ride.

So I just want to thank all of you. I know that over the years we've had many, many meetings, many discussions, so I -- we wouldn't have gotten where we are without your support, your interest in the Company and your understanding.

There's two more points. One, it may surprise you, but I want to on record acknowledge someone who is a fierce competitor of ours, but it's not [Tucker], who gave me a great opportunity here, and I want to put it on record and express my gratitude to him. It's something I owe him.

And finally, just to say that you should stop loving the Pru. It's a great company and it has a (inaudible), so thank you very much.

Ladies and gentlemen, thank you for joining today's Prudential 2014 full-year results. You may now disconnect your lines.