Prudential PLC (PUK) 2015 Q4 法說會逐字稿

Morning, everybody. Thank you for joining us for our 2015 results. We're doing a little different format today. I'm going give you just a couple of quick comments, turn it over to Nic to do the financial overview, then I'm going to come back to give you context, and address some key points about various businesses and some of the challenges we have, and some indication where we are, heading into 2016.

So with that, we think the performance was strong and broad based; obviously, all the business units contributing effectively. If you look at the balance sheet, I think it's in great shape, defensive, well capitalized.

The operating performance again underpinning the shareholder dividend. This was something we talked about in January. We're earning it first, we're stressing it, we're paying it. You see that as well with the extraordinary dividend.

I got asked this morning on the investor call, the first one since 1970, for those of you that are into Prudential history. So if you would like a context for the last extraordinary dividend.

Execution, the key to what we're doing, the strategy is holding obviously, very well. Opportunity is there; it's our responsibility to turn that opportunity into tangible results for you. So we'll talk about that in detail today. And then again, our relative position to peers in the marketplace, to potential challenges, etc., we think is in very, very good shape.

I'm going to turn over to Nic now to give you a granular look at the financials, and then I'm going to come back after and put some color and context around where we are as a business unit. Nic?

Thank you, Mike, and good morning, everyone. In my presentation, I will firstly run through our full-year results and highlight the drivers of our performance for 2015. And then, as usual, I will go on to cover the Group's capital position and the balance sheet.

So starting with our financial headlines; at a time when companies in many sectors are having to choose between growth or cash, Prudential has been able to deliver both in tandem, yet again. All of the Group's key profitability and cash generation measures have improved by 15% or more, making 2015 our most successful year ever. We achieved this by making the most of our structural advantages in the markets that we operate, and by executing with discipline and with focus.

The 22% increase in our IFRS profit to GBP4 billion was broad based, as Mike said, and is underpinned by a large portfolio of in-force business. To this, we continue to add valuable new business flows, up 20% in NBP terms, to over GBP2.6 billion, and this metric is led by Asia.

Our capital disciplines ensure that sales translate to profit, and then to cash, relatively quickly, across all our businesses. The success of this approach generated over GBP3 billion of free surplus, up 15%, year on year.

Operating profitably is the first and most important source of capital. Our performance in 2015 has increased our Solvency II surplus to GBP9.7 billion, and have added to our EEV shareholders' capital, which was up 11%, and is equivalent to GBP12.58 per share.

Our enhanced financial resources are a source of strength and resilience, and provide additional headroom to weather the effects of the market volatility that we have seen in the early part of this year. They have also allowed us to increase the full-year ordinary dividend by 5% [to] 38.78p per share, and declare a special dividend of 10p per share.

Turning to the detailed financials, and starting with IFRS operating profit; the Group picture reflects our focus on diversified high quality growth that lends both resilience and stability to our financial performance. All four businesses contributed significantly to our profits, with Asia, the US and the UK growing at double-digit rates, while M&G maintains its profitability, despite the adverse impact of the retail flows that we've seen in the year.

Our IFRS profit growth is predominantly led by insurance margin and fee income, with low exposure to rates. These two sources now account for 76% of our income, which represents a healthy evolution in the overall shape of our earnings.

I now want to take each business in turn, starting with Asia. Our momentum in the region remains strong, with all of our key financial metrics growing between 16% and 28%. Our life operations had a strong finish to the year, achieving record sales in the fourth quarter, with December being our best ever month.

Our focus on quality delivered a 30% increase in regular premium new business, which represented 93% of APE. This result was underpinned by the strength and diversity of our distribution, where agency sales grew by 29%, and were complemented by a 16% increase in sales, through our regional partnership with SCB.

Our long-established and diverse new business franchise in Asia provides a high level of consistency, when aggregated to the regional level. This consistency affords us the flexibility to take value-based decisions, which prioritize future performance, of the near-term sales headlines.

In line with this discipline, we took a deliberate decision in Indonesia to limit sales incentives, to prioritize quality in the current soft environment. In Singapore, we withdrew from universal life, which provided poor returns in the current low interest environment, and redirected our focus towards health and protection, and this will pay dividends as we move forward.

Notwithstanding these deliberate actions, our overall sales increased by 26%, with seven countries reporting APE growth of more than 15%. New business profitability increased at a faster rate of 28%, supported by a strong rise from health and protection, which now accounts for 62% of Asia's NBP.

Our health and protection regular premium orientation also underpins the growth in both IFRS operating profit and free surplus generation. Eastspring's contribution here is now meaningful, after reporting a 26% increase in profits to GBP115 million on the back of record flows in the year.

I would like to take a few minutes to explain why we are confident about our earning prospects in Asia. As you know, our life book in the region is predominantly regular premium business. The power of this can only be truly appreciated by looking at the impact that this has over a longer time period.

Mike first showed you this slide in January, which depicts the growth in the premium base of our Asian businesses over the last 10 years. It confirms both the consistency of our execution and the power of compounding, with every year's new regular premiums adding to a growing in-force base which now exceeds GBP7 billion. The GBP2.8 billion added by new business in 2015 will further augment this premium base as we move forward.

Therefore, when we look at growth, what matters most is the movement in the total premium stock, as this is what drives earnings. We said in January that earnings can sustain a double-digit growth, even if new business levels are flat. The part of the chart that covers the 2007 to 2010 period is proof of this. What it shows is that, despite the flat sales shown in blue in 2007, 2008 and 2009, in-force premiums, shown in red, rose strongly from GBP2.1 billion in 2007 to GBP3.6 billion in 2010.

Now, the benefit of the increasing scale of our in-force premium base is evident in the rising levels of earnings. In 2015, our Asia business generated nearly GBP1.2 billion of profit from in-force, reflecting the compounding effect that I've just referenced of regular premium sales and strong customer retention.

Almost two-thirds of these profits come from our health and protection book, a source that is uncorrelated to investment markets. Growth here reflects the consistent addition of new business cohorts each year underpinned by a strong and enduring level of consumer demand, high levels of persistency, given the limited social welfare provision in the region, and positive claims experience supported by our ability to reprice when necessary.

Therefore, what we have in Asia is a high quality earnings base, one that is defensive in times of volatility, and one that offers a secure platform for future growth.

So our confidence in the future earnings prospect of our Asian business reflects the powerful contribution from our in-force book, which, in 2015, as you can see, increased by 14%, the growing contribution from our health and protection business, which was up 17% to GBP783 million, and the benefit of operating a diverse portfolio across the region where our most developed businesses are pushing forward their structural advantages, and where newer businesses are making more sizeable contributions than before and compounding nicely.

Moving to the US; Jackson's results reflect its disciplined value-based approach to managing the business, which has driven growth in earnings and cash.

New business APE rose by 3% as we continued to manage the volumes and mix of variable annuities to match our annual risk appetite. Sales of VAs with no living benefits were 33% of the total, reflecting the continued success of Elite Access. Here, sales levels were slightly lower than last year, but we have seen a positive migration towards non-qualified accounts, which represent 69% of the Elite Access total, up from 66% a year ago.

The 9% increase in IFRS profit to GBP1,702 million reflected the growth in fee income on the separate account assets, which more than offset the decline in spread income. As I have previously flagged, yield compression has reduced spread margin on the fixed annuity book to 241 basis points, and I repeat my guidance that this will trend down over the next couple of years to around 200 basis points.

Capital formation remained strong in 2015, reflecting both Jackson's operating performance and its disciplined approach to managing the market risks in the portfolio. This, in turn, enabled Jackson to make a sizeable remittance to Group for a second year running.

Fee income on variable annuity business, which grew by 11% in 2015, remains the dominant component of Jackson's earnings.

The economics of this growth continue to be very favorable. The business earns 192 basis points in fees and is serviced by a highly cost effective platform. Growth in fee income is, therefore, directly correlated to the growth in the asset base.

As you can see in the chart on the right, the increase in the separate account assets is primarily driven by the additions of new premiums each year. These continue to exceed outflows, creating a positive jaws effect, a feature that will endure for some time.

While there is a clearly a cyclical nature of this income source, market effects are dampened by the lower beta of our separate account assets and the positive expense leverage of our operation.

Our UK life business continues to build on the appeal of its extended retail offering. Retail APE and NBP both increased by over 30%, driven by the popularity of PruFund, which is available through a wider range of drawdown, pensions, bonds and ISA wrappers.

IFRS operating profit increased to GBP1,195 million, driven by an improvement in the life result, which is analyzed in the table on the right.

The profit from new annuity business of GBP123 million is lower than last year's GBP162 million, reflecting a continued decline in retail sales and lower contribution from bulks.

As I said in January, the onerous Solvency II capital requirements with effect of January 1, 2016, have reduced our appetite for annuities and you should expect to see a very modest contribution to our profit from this line, going forward.

The step-up in our UK life result has been driven by a GBP339 profit from one-off management action taken in the second half of 2015 to position our balance sheet more efficiently under Solvency II. These actions included the extension of our longevity reinsurance program, which now covers GBP8.7 billion of the GBP31 billion annuity reserves, and the impact of various asset switches within the credit portfolio in order to optimize the matching adjustment benefit.

I do not anticipate that these actions will recur, although, of course, they remain available.

The core profit from in-force annuities and with-profits business were GBP644 million, and this will be the main driver of the UK life result, going forward. These are seasoned portfolios which should sustain a healthy contribution to earnings from the UK for some time, supported by the sizeable addition of new with-profits business.

Finally, on a point of detail for your forecasts, the longevity reinsurance that we completed last year will create an annual earnings drag of around GBP25 million against this core in-force result.

M&G experience GBP10.9 billion of outflows from its retail funds, in part reflecting a market-wide change in investor sentiment away from fixed income. Retail outflows totaled GBP3.5 billion in the fourth quarter, a run rate that has continued in the first two months of 2016.

These retail outflows have more than offset the positive picture on the institutional side where we saw net inflows of GBP3.9 billion, reflecting M&G's success in the specialist fixed income market. The outlook here is positive, underpinned by a strong pipeline of committed capital.

Despite these outflows, revenues were broadly maintained as the average AuM in 2015 were similar to 2014. By taking action on costs, M&G contained its cost income ratio at 57%, and delivered a broadly unchanged IFRS profit for the year at GBP442 million. The 18% decline in retail AuM at end 2015 will have a direct impact on retail revenues, which account for 60% of the M&G total.

While related variable costs will cushion the impact on profit, everything else being equal you should expect the overall cost income ratio to drift higher in 2016 towards the 60% level.

Having covered growth, I now want to turn to cash, free surplus, which is the primary measure of cash generation in our business, increased by 15% to GBP3,050 million.

The improved money is underpinned by the expected returns from life in-force business, and continues to be augmented by positive experience, which in 2015 included GBP223 million from the non-recurring actions I described earlier. In the top right, you can see that all three businesses are making significant contributions to the life in-force result, reflecting business growth.

We remain disciplined in the redeployment of our capital, increasing new business strain to GBP745 million. The components of this investment are analyzed in the bottom right. In Asia and the UK, strain declined by slowly than sales, reflecting favorable product mix. The increased strain in the US was also impacted by changes in mix, and was principally driven by a higher proportion of new VA premiums being directed to the fixed account option. Jackson's business remain highly capital efficient with IRRs well in excess of 20% and short payback period.

This next slide provides the usual chart, which shows you how the annual generation of free surplus has impacted stock, on the left, and central cash on the right. As you can see, our operating performance has driven our free surplus stock higher. This has, in turn, enabled our businesses to increase remittances to over GBP1.6 billion, while retaining sufficient buffers to fund growth and to absorb market shocks.

The Asia remittance includes the GBP42 million proceeds from the sale of our Japanese life business. We continue to moderate up-streaming from Asia, given the current FX rates and the strong levels of central liquidity, which, at the end of the year, stood at nearly GBP2.2 billion.

Before leaving this topic, I want to update you on the evolution of our free cash generation profiles from our life in-force business. As normal, we start with the expected profile at the end of 2014, in dark blue, which a year later is broadly unchanged, as shown in the light blue, reflecting [experience] changes to market experience, changes to market assumptions and currency movements.

Adding the free surplus from the 2015 new business, in red, produces, as always, an improved profile, evidence of the powerful capital dynamics of our book of business. This analysis is prepared on a Solvency I basis. While it remains appropriate for our businesses in Asia and the US, the profile of our UK life business will change under Solvency II.

As I indicated in January, we have reworked the UK life in-force profile to allow for Solvency II and updated it for the 2015 yearend position. This slide summarizes the output of this work on the right and compares it to the profile under Solvency I on the left.

The updated analysis confirms the conclusion from my January presentation, that the annual release of higher Solvency II SCR and risk margin more than offset the effect of the transitional amortization and other impacts to produce a broadly unchanged profile.

Incorporating this new UK profile into the overall Group picture, now shown in the white bars, confirms that Solvency II has not fundamentally altered the overall cash dynamics of our Group.

So having covered the operating results for the year, I want to reemphasize our commitment to the 2017 financial objectives.

On Asia, we are ahead of the 15% IFRS profit compound growth rate, as measured on the original objective definition using December 2013 exchange rates. The Asia fee surpluses objective is on the same basis, on the same basis is a stretch, which was always the intention.

Finally, at Group we remain on track, having delivered GBP5.6 billion of cumulative free surplus across the Group at the half-year point.

On the back of another strong performance, the Board has approved a 5% increase in the 2015 full-year ordinary dividend to 38.78p per share, in line with our progressive dividend policy. The Board also decided to utilize the additional headroom created by management actions to award a special dividend of 10p per share.

We remain focused on growing the dividend, given its importance to our shareholders, and, in doing so, we aim to strike the right balance between funding our long-term growth, which as you can see is intact, maintaining appropriate buffers for uncertainty, and increasing payouts.

Every dividend decision is subjected to severe market stresses to ensure that we can continue to grow it safely, even under challenging market conditions. Our conservative approach to dividends is a signal of good capital discipline.

I will now turn to the balance sheet and the capital position. On both reporting bases, we have seen the strong operating performance in the year flow into the closing shareholders' equity position. As a result, IFRS equity was up 10%, while EEV equity increased by 11% to GBP32.4 billion.

We continued to manage our balance sheet conservatively, our credit portfolio remains defensively positioned and performed well in 2015, with no defaults and minimal impairments. Specifically in Jackson, impairments for the full year we [$58 million, $31 million] of which was booked in the fourth quarter.

While our balance sheet is sensitive to markets, it is more resilient than you might think, reflecting our scale, our conservative approach to risk management, our currency mix, and the natural offsets that exist within our business portfolios. The best way to illustrate this is by reference to the position in February where we estimate that, despite the falls in a number of market indicators, indices, IFRS shareholders' equity was up at GBP14 billion and our EEV equity was just over GBP34 billion, equivalent to GBP13.25 per share.

Having provided you with a detailed run through of Solvency II only a few weeks ago, I will focus my comments on the end 2015 position. Our Solvency II surplus at the end of last year was GBP9.7 billion, which was up on the half-year number. This is despite the more adverse market conditions in the second half, which turned what was a positive GBP0.5 billion market effect at the half-year into the negative GBP0.6 billion market effect that you see in the chart on the right.

The strength of our operating experience of GBP2 billion, which is roughly equivalent to 20 points on the Solvency, and the impact of management actions of GBP0.4 billion, have mitigated the negative GBP1.6 billion model approval effect bringing the overall surplus back to where we started the year.

The composition of our available resources is dominated by high quality Tier 1 capital, which represents 82% of owned funds and is equivalent to 159% of the SCR. Since our current utilization of the capital tiers are well within the prescribed limit, we retained significant headroom to increase the capital stack through the issue of qualifying debt.

The updated sensitivities to market shocks are included in your packs and are largely unchanged from those at the half-year. Using these sensitivities, we estimate that our Solvency II position on March 1 was around GBP8.6 billion, equivalent to a cover ratio of roughly 180%.

I would remind you that the Solvency II surplus underplays the true economic capital position of the Group. This is because it excludes around GBP2 billion of economic diversification benefit between the US and the rest of the Group. It does not recognize GBP1.4 billion of Asian surplus; it excludes shareholders' share of the estate of GBP0.7 billion; it does not capture the surplus of the ring-fenced with-profit fund.

It excludes the full value of the swaps programs in the US of just over [GBP0.2 billion], consistent with the treatment under RBC, and it incorporates no benefit for a volatility adjustment as we have yet to apply to this. In summary, we're comfortable with our overall Solvency II surplus.

The local capital position of our main businesses, which remain the primary binding constraint, confirm the overall Group picture. The contribution of our Asia operations under Solvency II has increased to GBP5.2 billion; however, it is the locally driven free surplus position of GBP1.5 billion that remains the relevant measure for cash and local capital.

The US RBC ratio has increased to 481%, reflecting the strong capital formation that I referenced earlier. In the UK, the shareholders' Solvency II surplus is broadly unchanged from the half-year. The position of the UK with-profits fund is lower, despite the higher estate value, as we decided to utilize the capital headroom to increase the equity backing ratio of the fund.

In my final slide on the topic of capital, I have summarized the capital generation ability of our business model using three different lenses; IFRS, free surplus and Solvency II. As you can see in the top part of the slide, our annual operating generation is sizeable on all three bases, supported by a large in-force book. We ensure that dividends are well covered, with the balance adding to our capital stock, as shown in the bottom part of the slide.

We look to hold a stock of capital that is sufficiently large to cushion the effects of markets and to absorb the impact of any new capital regulation. It is this discipline that underpins the resilience of our business model and enhances our ability to weather financial storms.

Before I sum up, I wanted to update you on our credit position at the year end, which I know is an area of focus. Shareholders' exposure to credit is concentrated in the UK annuity portfolio and the US general account. These portfolios are actively managed and remain high quality with a defensive stance, as evidenced by the fact that 95% is held in investment grade bonds.

Credit exposure is well diversified across 1,800 names, and we operate strong risk management controls and concentration risk, with strict limits by geography, by sector and individual security. We have updated the disclosures on our exposure to oil and gas, including the additional information on the energy and the mining sector provided by Chad at the January Investor Day. All of these are included in the appendix to your pack.

In these two particular sectors, our debt holdings are centered on high quality names and our high yield exposures were small at end 2015 and, in fact, have remained small since then.

To summarize, 2015 was a year when all of our growth and cash metrics improved by 15% or more, as we made the most of our structural advantages and executed with discipline.

Our strong operating performance, and conservative stance on risk, has also enhanced our Group capital and solvency levels, improved our resilience, and translated into higher cash returns to our shareholders.

Thank you. I will now hand you back to Mike.

So looking at the Group, and nine months into the role, I think there's a couple of points I'd like to make today. One is, I think we are showing that we can compound a business [that has] scale, at rates that you'd see of a much smaller company. And I think one of our goals as a management team is to continue that trend.

I think the other couple of points I want to make and delve into a bit is the quality of the delivery. As Nic mentioned, it's extremely consistent across all key metrics and there's a lot of good reasons for that.

The resilience of the sales model I think is misaligned with some perceptions externally, and particularly in the fact that we're selling low beta products into high beta markets, if you think about it. That misalignment creates tremendous opportunity for us and the macro noise actually creates demand for us in a lot of markets. I'll come back to that a bit.

And then finally, the dividend reflects a view on discipline that we'll earn it, stress it and pay it in the context of what our various options are as far as growth. We'll balance that growth and income agenda. There's no other message beyond that. There's a lot of comments this morning if it was too high or too low. Is it too confident, are our growth opportunities, too low?

We have plenty of growth opportunities. We actually have more than we have capital, at attractive returns. There's no message in that either. It's a great place to be as a business and we're going to execute it efficiently with what we have. So let me dive a little deeper.

Our strategy; this is well rehearsed in this room and it's no reason to get in too much detail on it, but the idea that it is working effectively I think is well proven in the 2015 results. Two things going on.

Again, the global stress, the global high level metrics, are creating demand for us in the [risk-off] transactions. That, in one sense, is a good thing; whichever way these trends occur, we have part of our business that benefits. But the idea that there is a growing tension on the investment climate actually puts clients more open to some of the propositions we have that derisk their portfolios, their wealth, their health, etc.

And the second trend that's clearly global as you travel, the markets we do business in, is the expectation that consumers are self-reliant. It's true in the West; it's clearly true in our Asian markets. We don't do business anywhere where the consumer doesn't believe they are personally responsible for their future, be it health, wealth, protection or both.

So if the opportunity is there, do we have the franchise and the markets to capitalize? We think we're in the right marketplaces. We've talked a lot, over the years, of the quality of our businesses. Clearly, our Asian business has no equal; its capabilities continue to grow. We'll get into some of the details about it, but it clearly has the scale and the footprint in the marketplace that's second to none.

The disciplined approach to the US, its operational and distribution effectiveness, its capabilities to adjust fast and be an innovator are unique in the marketplace in the broadest definition of financial services, not just in the insurance sector.

And then the brands we have in the UK, M&G and PRU UK, their strength, the number of solutions, the quality of the products, their capabilities, we can compete with anybody here domestically. As you see from the results out of the UK business, these are trusted brands with long track records of servicing the clients effectively.

So when you look at that from the Group, what conclusion, what summary do you get from the three? There's two things. It's what I mentioned earlier, there's competition for capital. The capital doesn't have [citizenry] here; we don't allocate it by percentage to market, by country. It's most competitive return for shareholders. We look at payback, cash flow signatures, all those elements and we have these discussions strategically.

Second, we can disciplined, and this is not a trivial issue. We have the ability to back off in a market or a product. We're not dependent on making any one part of this work at any point in the cycle. Some of you I've known most of my 21 years here, and when we backed off in the US, we had lots of discussions in the hallway if we were doing it at the right time or the wrong time.

It is a luxury, I can tell you, having run a business unit. It's certainly a luxury as CEO of a Group to not be dependent on any one market, any one product, at any one point in time. If you look at what Tony and Lilian's team are doing in Singapore, they're backing off the [yuan] market, because we don't like the economics.

If that was our only business in Asia, that would be a difficult decision because you'd be worried about the overall performance of your region. So, again, the breadth of the footprint, the scale of these operations, give us optionality that few competitors have.

Right, let's take them region by region. Again, the footprint in Asia is outstanding. When I look at this, what I'm looking for is how do we look across the spectrum? Because, again, you're looking for attributes of scale that we can capitalize, that we can produce higher returns for you than another player.

So that means, do we have diversification by country; do we have diversification by product; and, most importantly, do we have diversification by distribution? Are we in the right channels; are we in the right markets; can we capture this Asian opportunity? It's structural, it's measurable, okay, but do we have the breadth and depth to get there?

I would say on the life side, absolutely. I would say on the asset management side, Guy's here if you want to talk to him about Eastspring, they are there and growing. They continue to grow in front of the consumer demand which, again, will be rapid, and there's definitely a challenge to stay with the consumer demand for asset management in Asia, but we have all the capability to do that.

If we have the distribution, if we have the reach, do we have what the consumers want? Is the pricing right? Are we at the right point in the cycle? Let me just pick one market, let's take Indonesia. Health and production product in a market, effectively, with no government support or services for retirement or health protection, minimal. So the product demand is there.

Can they afford it? Our base product costs roughly what two cups of coffee a week in a major coffee shop. That's about the entry level. So we can provide the service to consumers. Clearly, what insurance does best; take large pools of consumers, derisk their individual position by dividing that over a large consumer base, allow them to move from cash into investments, or into something else they want to do with the money, because they give that risk to a trusted entity, service provider, us.

But the transaction size we can do is incredible. I was teasing a guy; somebody gave me a penny and this is from when we were founded, which I think is really -- and you guys know I like history, it's really interesting, and you may not know, this was how Prudential started. It was industrial policies that were actually paid for with a penny, a very common way of collecting.

And one of the things that, when I travel, I ask our colleagues and I ask people I interact with, how do you pay for coffee? And obviously, I know how we collect premium. The answer varies. It's mobile pay in some markets; it's Apple pay in some markets; it's Union pay in Hong Kong, in China in general; it is cash in some markets; and it's credit cards in some markets.

We talked to bank partners about when they introduced some of these new technologies what does it do to ATM use and things. The consumers drive that preference and, at our size, our job is to align with that. Let me give you -- we are collecting -- we're using mobile pay as collection in Asia. We are paying with phone minutes. We have 1.1 million clients in Africa that pay for their insurance with phone minutes. We collect cash.

We're capable of being as innovative as any disruptor in the space and it's a prerequisite for us to succeed. We have to stay with the consumer and we're fully capable of that and doing it across the pitch.

So another piece on that; if we have a product the client wants, can they afford it? Headline noise would suggest, GDP would suggest, some of the clients are in a rough state. GDP is too high level a metric for our consumers, and it is directionally interesting and it's important for us to look at, but it's not a predictive indicator for us.

One of the things, meeting with some of you individually at various events last year and we couldn't talk about where were in the second half of the year, when traveling around Asia, these airlines, these airports are packed, these flights are sold out, the hotels are booked; it didn't feel like what I would read when I was in the US or the UK in particular on some of the metrics.

So if you take a look at things like what is personal -- these were clearly -- these markets were chosen on purpose because these are markets we have large exposure and where there's been a lot of noise. But if you look at China, Malaysia and Indonesia personal disposable income, these growth rates are not only material, they're consistent. The middle class is faring better than the tails.

Now again, if you're a politician and responsible for the overall society, there's some challenges embedded in that. For us, there are such a large middle class and they're doing fine, this measures our opportunity.

Do they have money in their pocket? Are they buying things? I chose airlines just because of my time in airports, it just felt like an appropriate and kind of personal one, but we could have done telecom here, you guys all have capability to see this, we could have done telecom, we could have done department store sales, grocery store sales, all those metrics look relatively similar in these markets. The average consumer is still buying, still has disposable income, and those numbers exceed the GDP numbers you're seeing. So they're very resilient.

Now again, that doesn't mean that if we were selling luxury goods in Chengdu that our market isn't changing, or if we were an oil and gas company in the suburbs of the Philippines, outside of major cities, but that's not our business. Again, our ability to do transactions at varying sizes allows us to reach a very large definition of the emerging middle class.

So if they have money, the demand's there, what are we doing about it? One of the things I'd like to do, going forward at these events, is give you a slide of what you paid for over the year, some of the tangible deliverables year over year from an operational point of view, because we have internal objectives to make the Company better every single quarter, and I want to make sure we give you some context for what we're doing with your funds.

Scale of distribution, speed, quality, all are up. Let's stay on Asia for a minute. You're well north of 500,000 agents; these are managed very effectively. This is growth in quality not just growth in quantity.

You're seeing innovation. 25% of the sales have come from products that we didn't have 24 months ago. So again, we're innovating; we keep coming out with new things that are good for the consumer and good for you as shareholders.

And we're getting better at the boring but absolutely critical operational, IT touch points with the clients; 5 million-plus interactions with the clients in Asia last year.

If we're going to grow at these rates, we have to have scalable, high quality platforms to keep those recurring earnings. Those recurring earnings are people. They're people who care about their relationship with us, about how they're treated, about how well the products work, about how good our service is. So you'll see us continuing to improve that side of our back book because it's critical again to our recurring earnings.

Relative scale to peers. We are competing with AIA, Mark Tucker, our old colleagues and his crew, and we're competing with local national champions. The balance of the players, as you can see, sell in a year what we sell in a quarter on a good year.

That is not where our challenge is coming from. When we're looking at the marketplace, we're looking at typically what in-market major competitors are doing, we keep an eye on AIA, we look at disruptors or innovators and see if there's anything interesting.

But we're not looking to the right side of this scale. We have a scale advantage and in a business based on the law of large numbers, this is not a trivial issue. We have proper exposure to markets. We can afford to make proper investments in markets, be that technology, risk, people. All these elements require an element of scale and so we have that scale advantage relative to our peers and, again, it allows discipline.

Correlation to markets. IRR returns, we've shown you this slide before, but I think, given last year's performance in markets, you had equities down in Asia 12%. You had recurring premium up 30%; Nic walked through it. This is disconnected by nature of the transaction with the client, by the client demand and, again, it's being counter-correlated to headline news. We have a material disconnect between our opportunity and the equity markets in region.

That obviously should translate, if you have premium growth, into earnings and cash and again today, you've seen that. [Disproportionate] amount of that comes from taking care of and doing the right thing for existing clients and then adding additional cohort after additional cohort, vintages as we call them in the States, of clients on top of that. And that part of our model is succeeding and we're very, very pleased with the performance there and, again, highly predictable.

So fair question; you're the market leader, you've done well, good growth rates, etc., is there any room left? A couple of things. Our penetration level in our most established markets, so Singapore, Malaysia, Indonesia, Hong Kong is still low. We have great market share in each of these markets, but there's still a very large unserviced population there for us. And, again, this is without even expanding our product portfolio.

But our other markets, our nascent markets, are growing exceptionally well. We've shown you a couple of times on slides that where they were relative to some of our large markets 10 years ago, but the reality is they're growing at very high rates, very high quality. And what you're seeing the team do when you're there on the ground is you're seeing them take the lessons from previous markets, previous experiences, and Lillian and Tony and the team dropping those into these newer markets.

We don't use all of them. We may skip a generation of tools if we think the market's moved past that. But at the end of the day, we can deploy people who've done it before for us in a market, they've done a startup.

I was in Cambodia with our team, Phnom Penh, we're a new player, we're one of two major new players there. We have the bank distribution relationship, so exceptionally well done by the team there, but what you're seeing is what we know in region applied in a new market.

There are new challenges, and those come with the local granular on the ground things. And you see that same thing in Africa and you see the same thing in a rural part of the Philippines. But we take what we know, we take people that are a part of our culture, know our tools, and we drop them in and you get a similar result to what we had in other markets faster. There's less of a learning curve.

And that's a critical element and, again, it comes back to our scale and our footprint. So there's a tremendous amount of upside in these markets for us, and I would argue with you that the bulk of our growth in Asia is ahead of us.

There is no less demand in some of these other markets than we see in Hong Kong or Singapore. Our penetration in China has -- the China team's done a great job. We've got a very good partner there, up 28% year over year. But we're a fraction of that market and it's a market where the country has targets on insurance penetration. We're a trusted brand. The concept with British rule of law is a very trusted cultural element of who we are, and we can do a lot more. So, again, growth is ahead of us in this marketplace.

All right, on to the US. I think we spent a lot of time on the US in January, so I don't want to spend too much time here, but I think the key argument I'd make is, this is a unique business in its space. It is a fraction of the cost of the competitors, has better technology, better operations, better distribution, has a track record of innovation, has a track record of bringing products to market faster and more effectively than peers.

You want a simple measurement of that? Look at the Elite Access launch relative to the 12 or so clones of that. The sales of that product still exceed the cumulative sales of the rest of the industry attempting to copy it, even at lower prices, even with more incentives, even with guarantees on products that probably shouldn't have a guarantee on to begin with. This is a Group with the ability to execute at a very, very high level.

The other piece as we go into the changes in the US and that really the DoL being the key, is the structural demand in the US hasn't changed. If the Department of Labor in some way with their new regs changes access to advice, cost of advice, or access to the products or the configuration of products, the consumer still wants some level of protection on their retirement assets.

The consumer still wants good balanced portfolios and, again, this is no different than we see in the UK. So the question becomes the attributes of the competitors. They said in January, I think a major disruption -- first off, to be clear, I think a major disruption is not arguably bad for the consumer, but that doesn't necessarily mean it's bad for us. And those both can be true at once.

We can build whatever product the rules and regulations allow to get the most benefit to the consumer at the highest returns for the shareholder. We can balance those stakeholders; we can do it faster than peers; we're quite a way into our contingency planning for this, so we sort of planned for the worst, know what we'll do if that's the case. And then we'll see, when this gets dropped on us, what the period is, on when its effective, what the grandfather period is, if there is, the transition on sales.

All those dynamics will navigate us well as anybody, and I think arguably better than most in that space. And it does, if it's at the extreme end of the deal or proposal, it does reshuffle the position of providers of financial services and providers of advice. And when that happens there will be winners and losers and I would argue with you, Jackson has the attributes to be one of the winners.

In a market where we could prove that to be true would be the UK; our UK business had a record year. This includes pre-RDR; this includes the changes to annuities. The team's doing a great job. Why? Again, trusted brand, good product, product innovation, all the things -- doing the right thing for the consumer and doing it at a pricing and level that gets the shareholders a good return.

M&G then gives us the capability on the asset management side, combined with our UK business, to compete with anybody in this space domestically. You will see more changes; that's the nature of our market, that's the nature of all of our markets. Regulatory changes are a part of the business.

Let's look at changes in a little broader context; we've used this slide with you -- we've always had something going on. In 21 years here, as you guys know, I don't ever remember a year when we sat around in December and went, that was an easy one. There was nothing to work on. There's always something, and this Firm's resilience is measurable.

I think there is an element of our history, it's a part of our DNA and the culture of the firm and again, we're ready for more. But I think the UK business is a good example of a disruption in a marketplace on advice and product creates opportunity. And I think that's similar to what you'll see in the US.

Let's get to shareholder centric metrics for a second. The earnings are high quality, measured how? Well, by source, by currency, and mix of the customer base they come from so, again, not a single dimensional look. Whatever stress you want to throw at this, there are different ways to look at it.

So what if US dollar rate policy changes the value of the dollar, well, we have a lot of earnings in dollars. Rates go up, we can benefit from that. Again, most financial metrics moving we have benefit on both sides and risk management on both sides. So I think we're very well positioned with the shape of earnings, the source and the relationships at the consumer level [for them to be] predictable and strong.

This all sums up on one of my favorite slides. Two things I'd ask you to take away from this; these should grow in tandem. If you're squeezing a business there will be a misalignment of these metrics, so if you're looking at us versus competitors, in this slide, side by side, there should be a similar nature. It doesn't have to be a perfect correlation, but these should grow in a similar fashion to businesses.

It tells you that you're consistently adding profitable business, managing capital correctly, etc. And there's one other take-away I'd like you to look at is, look at where we were pre-crisis in terms of our operating income, new business profits, free surplus generation. Look at the change in order of magnitude of where we are now.

We had a good crisis; we were fine last time. We are three times stronger and more capable and have more recurring earnings and have more client relationships than we had last crisis. Again, that's not a forecast of a bad market crisis, but I heard this morning we're at the seven-year anniversary of this market going up. We're well positioned for market changes and we're well positioned for resilience across a variety of climates.

Again, that translates into cash for our shareholders. I said this earlier; it's a disciplined dividend policy. Earn it first, stress it second, pay it. If we have extraordinary capital or pull forward earnings, it's yours. You see the special dividend today reflecting our view on that.

So there's no other message in that. It's not a lack of confidence in our growth; we have plenty of capital to grow in 2016 and beyond. It's not a reflection in the market climate, but we are a bigger Company. We have grown in size and scale and again, with that, we should have the reserves and the opportunity to be countercyclical that goes with that.

And finally, we're a growth stock as well. You've seen increase in value. I think the metric that has to jump off this page is a 30% growth in revenue in Q4. Think of the noise around Q4. I just don't believe that's what people thought was going on. It was very frustrating to see this in our business units and just by law, we can't share that with you in the quarter we're talking, but the strength of this business and again, the attributes are how it relates to clients, it does very well in rough markets.

But the value creation and the investment at returns that are competitive, I think with any industry, are key to our growth story, and we think the opportunity is there.

Lastly on 2016, it feels roughly like 2015. We see double-digit increases year to date in the life business, same net outflow challenges on the retail side at M&G, same success on the institutional side, and Asia again having a very, very good start to the year.

So that's where I think we are. I think it was strong performance; I think the franchises we have are best in class. I think they're measurable in how they can and did execute and what their capabilities are. I think we're innovating at levels again that will keep us competitive with natural competitors and disruptors. And I think our superior long-term position gives a recurring value to this, a predictability to this that's unique, given our size and scope. And we hope to keep demonstrating the benefit of that to you.

So with that, what I'd like to do is ask the team to come on up and join me and we'll go to Q&A. If you want to lead the festivities.

(inaudible - microphone inaccessible) raise your hand, then once the mic finds its way to you, please do state your name, your firm's name, and then ask your questions.

Blair Stewart, BofA Merrill. Two questions, please. On the dividend, Nic, you talked earlier this year about performing a 1 in 25 year stress on profits and looking at how the cover looks. I wonder if you could provide a little bit more detail around that. Everything about the Company is growing at double digit, yet there's a 5% base growth in the dividend and you talk about 2 times cover. There's maybe some mixed messages around the dividend, so just any color you can give on the stress aspect of that would be really helpful.

And secondly, I guess also for you, Nic, can you give us an indication of what you think the organic Solvency II available capital generation is for the business? So that's everything including in-force, creation, etc. What's the organic Solvency II available capital generation of the business? Thank you.

Okay. What the dividend cover is, once you take the special dividend into consideration, is around 2.5 times. That's where we've ended the year. As you say, and I've said this before, that there are a number of things that we take into consideration is what happens in the stress, and also what are the prospects, going forward, in terms of how much capital we're going to need.

We think 5% is a very good rate to continue to compound. I've said before that that is -- we're looking to grow it at 5% no matter what, and that's really important because, even in a downturn, or even if something doesn't go quite to plan, then we look to our shareholders to feel confident that we can sustain that level.

On the organic generation, the GBP2 billion that I have referenced, unless I've misunderstood your question, is what the Company was able to throw out in this year. That's roughly [GBP2.4 billion] on own funds and negative [GBP0.4 billion] on the SCR. I am not sure if that is addressing your question.

Clearly, that GBP2.4 billion on own funds, it comprises a big block that it relates to the in-force. Why? Because we bring everything effectively in on an MCV basis and then margins unwind and, of course, we deliver the equity and the risk premium that is available there.

And a good chunk of it also comes from new business which we also generate organically. So the entire GBP2 billion or GBP2.4 billion enumerator is organic, unless I've misunderstood your question.

Jon Hocking, Morgan Stanley. I've got three questions, please. Just to come back on the dividend, I know it seems a little bit churlish, given it's a special, but what should we be looking for in terms of the triggers to understand when that cover starts coming in? Because the stress element, I guess, is related more to what you've earned in the year relative to the prospective use. Is it actually that just the outlook in terms of visibility that we need to see clear before cover starts coming in, because you've been talking about this for two or three years now in terms of the cover?

Second point, on DoL, could you talk a little bit about where we are on the politics? Is there anything that could happen to actually derail the whole rule change? And if you could give us some color on where your base case is for the change, that would be helpful.

And then just finally, there's a couple of minor regulatory issues, I think. One with the PRA on the back books and, secondly, with CRIC in China. Just wondered if you could comment on those, please. Thank you.

I'll start with the cover. When I covered this in January, I said that, whilst our dividend policy is anchored on IFRS cover, we use a number of other metrics to assess that. Candidly, if you're a growing company and the assets and liabilities that you write grow as well, you need to put risk capital aside. And [our] IFRS is imperfect in terms of capturing that, which is why we use free surplus as well, which is something else that we assess cover against, and it's something else that we stress. Of course now, we do have the Solvency II and a number of other metrics, [capital ratings capital], for example.

So we take the full suite of capital metrics, and I wish it was as simple as managing this business by reference to one metric, it would make my job a lot easier. Unfortunately, it's not; we have to balance all these things. And interestingly, the slide I've put up, the operating formation of capital is different numbers under different bases. There's different mechanics under each. We have to take all of that into consideration.

Most of these KPIs we are covered strongly but, of course, stress will come off a little [wrap]. The way we make the decisions is that, in a stress, we can sustain the growth of the dividend at 5%. That's what we judge, alongside the growth prospects. And as you've heard today, those are intact and particularly in Asia, we're seeing great opportunities for growth; that ultimately needs financing as well.

DoL, Barry, you want to give us some color on -- you're closest to the politics.

Yes, with respect to the politics, in some respect the politics of it is kind of scaling back and it's more focused on implementation, which doesn't mean to say that there's not still some politics at play. Right now, the rules sitting with the Office of Management and Budgets, they are tasked with trying to measure the cost, the economic impact of the implementation of the rule change.

Now there is the prospect that OMB would come back to Department of Labor and say, you massively underestimated the cost of doing this and the economic disruption will be created by this, the odds of that happening are approximately zero, because basically, it's run by political appointees and so they're going to come back and say the rule is fine. So they're going to publish, I would guess, within the next 30 days at the outside, probably less than that, whatever they're going to publish.

We try from every source to get a sneak preview of where it's landed. It's very difficult to do. The ranking minority member, the ranking Democrat on house labor committee demanded basically, from Secretary Perez, that he be allowed to see the Bill, or the rule change, before it was issued. They refused to share that with him. Their alternative was to go to Capitol Hill and brief the opposing Democrats, principally because about 100 Democrats on Capitol Hill that are opposed to the change, or at least have some level of concern about the change.

The briefing, as far as we can tell, consisted of; don't worry, this is going to be very consumer-centric, it's going to ensure that people get better than advice than they've been getting in the past so you should be for this. And some Democrats have come back, concerned that they didn't really get any meat, if you will, in that briefing, and others have said, well, they've satisfied me. So if they said it's going to be good, so it must be good.

We will see what it looks like when we get it. If they land in a sensible place, the prospect is that companies will try to adapt to it. As Mike has said, and I would reiterate, we are prepared for this, from both a product perspective and a process perspective, so don't be concerned about that. We do have a track record in the Group, and within Jackson specifically, of using disruption of this sort to our commercial advantage.

So without disclosing things we can't talk about around product changes and so forth, I'd say everything I can possibly say to allay your concerns that we'll be able to deal with this. If it goes too far, if they do things like not grandfathering, then the politics again becomes very real. And my suggestion to you would be that if they win -- as far as that, so you've got to repaper the whole industry, you'd probably get a stay of implementation in the courts.

You will have lawsuits anyway. There's a number of trade oriented groups, as well as the potential for other regulators to come in and go to the federal courts and immediately ask for a stay of implementation, while they work out the legal matters, and so forth.

So it's still a very messy process and it really just all depends on what the rule says, and we're not going to know for a few weeks. I wish I could tell you more about that. But I would, again, close by emphasizing that we're prepared for any [contentions there].

There was two other questions, and they're both regulatory. Tony, do you want to comment on the -- I assume (inaudible) CIRC, do you want to take the [union peg]?

[Cause and action], they were looking at admin issues or something.

Yes. No, understood. We'll come back to the (multiple speakers).

CIRC. Yes, okay. So I think maybe this is what you're referring to. CIRC conducts a review or inspection of the life companies operating in China every five years. Recently went through that, not only for us, for the entire sector and the results of that get published. That's a good thing, I think.

Broadly, the results, the findings, no material issues, just some tightening up of certain controls within the Company. It ties in nicely, though, with all the work being done and the implementation, effective January 1, of China Solvency II [steer off]. So it like ties into the operational side of that.

Worth noting, we were in Beijing last month, I think, with the Chairman of CIRC. And having dealt with these folks for many, many years now, they consistently hold us out as the gold standard of operating environment and controls within the China insurance sector. So yes, no major concerns about --

And John, do you want to -- there's very little to be said about the PRA. I'm sorry, at the [PRU FCA].

Yes. I assume you're talking about the FCA recent press release on the review into longstanding customers. There's not much we can say. We are, obviously, working very closely with them. We take it very seriously. But it's [gone to] enforcement, so they're using their enforcement powers to conduct a further review. This has been going on for nearly two years now, so it will go on for a while longer.

I think in their press release, they have said that they will make no further comment, and they expect us to make no further comment either, because it's gone through the enforcement route, so there's nothing more we can say.

Greig Paterson, KBW. Three questions. One is, just in terms of Indonesia, in January you spoke about consumer confidence and other leading indicators. This is an oil and energy poor country; you must be benefiting from lower oil price, etc. Just wondered if you could give us some feel for the outlook for Indonesia.

In terms of the US, you mentioned impairments, but I'm saying, what were the costs of downgrades in terms of 2015, so we can get a feel for the total cost of the wider spreads and the downgrade theme?

And then, Nic, just in terms of this 180% coverage you mentioned, I think you said on March 6, I wonder if you can give us a bit of waterfall. Is that ex the dividend? Have you just marked to market as including operating elements, etc.? Investors want to know why there's been a reduction.

Tony, do you want to start with Indonesia, and maybe absolute level of sales and earnings?

Sure. While the business did [de-grow] slightly in 2015, it was still a very good year for new business, generating, essentially, one-third of GBP1 billion of new APE sales, at about 70% margin; IFRS around one-third of GBP1 billion as well.

So highlights were good. There's been a lot of economic headwinds there but notwithstanding that, we have been pushing forward with the expansion of the business. We opened 25 new branches, we call them GAs. We recruited right around 10,000 new agents every month. We on-boarded 410,000 new customers in the year; that's 1,100 customers per day. So pretty vibrant growth in the business.

Where we are today, it does look like there might be some signs of economic turnaround there. The JCI is up, I think, about 4%, 5% year to date. The rupiah seems to be stabilizing. We are pushing forward with all our activities. One example is, last month, we were in 30 cities in 30 days, in front of 50,000 of our top agents. And let me just say, morale is quite good, and yes, feel pretty good.

Downgrades? Okay. Just to give you some stats for 2015. In the UK, the annuity book, we had GBP2.4 billion of various securities being downgraded, and we had GBP0.9 billion being upgraded. In the US, we had, across our portfolio, $4.7 billion downgraded, and $3 billion upgraded. Those are the numbers that are flowing through our accounts today.

Now, clearly, the impact that that has on capital and earnings has been captured in the ratios that we put out today. So the 481% for RBC clearly fully factors the impact on that. And the GBP3.3 billion on the shareholder account in the UK, under Solvency II, also captures the effect of those.

I was asked in January, what is the sensitivity to the downgrades on the UK ratios. We've added some additional sensitivity in the appendices. You now have that, so hopefully, that answers that question.

On the 180%, what's driven that, predominantly, is the drop in yields, and, to a certain extent, a drop in the equity market. That does impact, if you like, the transfers that come out from the profits, because bonuses are ultimately linked to that. So that's had an impact on that. And, of course, it's had an impact in one or two other places where we have interest rate risk.

Offsetting that was a positive FX effect. So the 180% or the GBP8.6 billion reflects that. It is before the dividend, because the dividend will come through the numbers at the point at which it's effectively declared. And the impact of that is 7 points on the -- it's GBP900-odd-million. So 7 points on the final, and another couple of points on the special.

(inaudible - microphone inaccessible).

Not one quarter, it includes two months.

Lance Burbidge, Autonomous. A couple of questions. Firstly, on Asia, Hong Kong is, obviously, a crucial part of the business. I just wondered if you'd seen any impact in terms of capital flight from China coming through, in terms of explaining why the sales are so strong.

And then, on China, your new business margin is actually pretty low, compared to some of your peers. I wonder if you might talk about that.

And then, I'm afraid I'm going to go back to the dividend again. You do talk, obviously, about moving towards that 2 times cover. And on 2015, taking out the special, taking out your one-offs, you're 3 times covered on the ordinary dividend, and you're certainly 3 times covered, I think, on underlying free surplus generation.

And you talk about, obviously, through your presentation, how defensive your earnings are. And I guess even the fee income on Jackson, a lot of it's based on the guarantee account value, not on the account value. So I suppose, what is the actual stress that can come through in terms of getting you to the point where you feel uncomfortable with that 5% growth?

So, first one, Asia, Hong Kong and China. Tony, do you want to grab those two?

Sure. I think, as you'll note from the results, Hong Kong had a fairly respectable year in terms of new business. About 50% of the new business is coming from Mainland Chinese who buy in Hong Kong. As, I think, we've mentioned before, this is, in no way, a new phenomenon. We started selling to Mainland Chinese in Hong Kong over a decade ago and have built infrastructure, Mandarin-speaking capabilities, simplified Chinese, etc., to deal with these customers. And I think we have a bit of a first mover advantage there.

A lot of the growth in that business can actually be fairly well correlated with the growth in the agency force. Now, the agency force, I think, in the last, I'm looking at Lilian, I think in the last three or four years has almost doubled. We're now at about 14 -- close to 14,000 agents in Hong Kong and we continue to recruit and license new agents and we continue to on-board new customers, both domestically and from the Mainland.

It's worth noting that the business in 2015 from, let's call it domestic, with Hong Kong people buying in Hong Kong, also grew by about 35% to 40% for domestic growth and also, then, coming through with the Mainland piece. And, again, business continues to do well in that regard.

In China, I think we had a fairly respectable year. The business grew by about 28% in terms of top line APE. The NBP grew slightly higher, not as significantly as maybe some of our competitors, and the growth in that margin came from two things; a shift in distribution and, within the shift in distribution, a shift in product.

We have deliberately grown our agency force. I think we have pretty good intellectual property when it comes to building agency force, and our CEO in China, Mr. [Jao Jojo Feng], has spent a lot of time in other countries studying the Prudential agency model, has taken that back to China and we've been building out the agency force very strongly. We're now at record levels.

I think we're over 20,000 in terms of China agencies; small by China terms, so there's a lot of headroom. And the agency force has been selling more health and protection, and that has increased the margin. We're very happy with the quality, direction, the growth of that business.

And dividend, I'm not sure if there's more to say. I think his last answer was pretty thorough.

Maybe just to -- you're right that the potential for earnings growth in Asia is robust. I would agree with that. Your point on the US, just to correct maybe one statement that you made. You're right, the fees, some of the fees, are linked to the guaranteed asset base, but that's a component of the fees that pays for the guarantee. So the 192 basis points doesn't include any of that. That's utilized, if you like, to the hedge and it's reported with the hedge results and in the UK and M&G, so I guided you down.

I don't know how else to answer the question. It's a reflection of discipline; it's a reflection of the opportunities that we have elsewhere to direct the money. In the end, the payment that we made is a 40% payout. Yes, we haven't used the special dividend mechanic before, but it's a tool that we've decided to use this time and we may well use, going forward.

Oliver Steel, Deutsche Bank. Two questions. The first is, I was a bit surprised to see that health and protection new business profits in Asia were up only, I say only, 20% against the 28% increase across the whole of Asia. So what was growing by more than that?

And I supposed linked to that question is, if it's the par with-profit -- if it's the with-profit new business profits, how does that link through, then, to IFRS, because historically, the with-profit funds in Asia have not actually driven much in the way of IFRS earnings? So that's question one and a half.

The second question is, if you do see a slowdown in new business, or even a fall in new business sales in the States over the next year or so, what are you going to do? The free capital generation of that business is then going to look pretty impressive over the next year or two. What are you going to do with that free cash that develops?

Do you want to strip earnings out, Asia [you know what it's like, those signatures]?

20% is a pretty good number for the health and protection growth when I look at how hard the team has to work to deliver that. We've cautioned you a little about the susceptibility of the NBP of health and protection to interest rates. I know it's a discussion that Adrian and I have constantly. If only we were on stable assumptions, like some of our competitors, you'd be able to see the underlying growth without, if you like, the noise that comes through from that; [we're on active].

If you want us to change the [pathway], we're happy to do that. But what's held it, working against that agency total was a near 100 basis points increase in interest rates in Indonesia, and a lot of H&P comes from there. It's 60-odd-% of the sales. There was also an increase in interest rates between start and end of the year in Singapore of 32% basis points.

Again, with the reorientation of the focus of our Singapore sales force into H&P, the economics worked against that underlying growth. And, of course, in Malaysia is the third place we sell a lot of H&P and interest rates were up there as well by 10 basis points. So that's what's held it back and it's only 20%. Some of it is optical because of that particular mechanics.

Now, free surplus generation, yes, that's a nice problem to have. If and when we -- if it turns out as you predict and then we'll decide how we use it at that point.

Cool.

Andy Hughes, Macquarie. Three questions, if I could? The first one is on the UK. Obviously, you've got GBP170 million benefit from longevity reinsurance on GBP8 billion of liabilities, but you still have GBP22 billion of liabilities which is still on CMI 2014. If you move to CMI 2015 at the end of the year, which is quite a lot lower in terms of improvements, presumably you'll get a big IFRS benefit then as well. So how should we think about that?

Second, I've just got a follow-up question on the FCA investigation and work you're doing there. If there was any compensation to be paid, would a large proportion of that come out of the estates? Could you just confirm that?

A general question on Asia; I guess the commentary you were giving us on Asia is that it's had a very strong start to the year. December was the strongest period you've had for a long time. It all seems very positive. Are there any numbers you can put around this, or is that just as far as you can go in terms of how Asia is performing in the current market?

And the final question on M&G; obviously, you were talking about institutional pipeline of inflows, is that not enough to offset the continuing outflows from the [overall] income? And on the cost income ratio guided up, are the cost savings embedded in that, or is that's something you'll consider? Thank you.

So Andy, on Asia, that was my decision. No, that's about as much detail as we can get. And it's a similar answer on the FCA. There's zero upside, and that's commenting about a regulatory process. We have an ex-regulator in the front row nodding his head, going, yes, Mike, stop talking now. We take it very seriously.

We interact with the regulators in all our markets frequently. This was an industry-wide look. The underlying product has done extremely well for the client, one, three, five, 10, so we will do everything we need to do to work with the regulator to get this through, but publicly commenting on the process is something they asked us not to do. So that's as far as we can go.

You asked about, there was one other I missed there, CMI and change of assumptions too.

Okay. CMI 2014/CMI 2015, there are many in the industry that believe that CMI 2014 and CMI 2015 are aberrations and do not reflect a true underlying trend.

Changes on longevity --

Improvements in the, or rather reductions in the rate of improvement of which longevity is increasing. There are many in the industry that believe 2014 and 2015 are aberrations as opposed to a signaling, if you like, a true change in the life expectancy or the improvement in the life expectancy of people.

Our reserving last year was on CMI 2012, we looked at CMI 2014. We will move, we have moved to CMI 2014, but we did it in a, if I could describe a CMI 2014 minus/minus basis. Because in line with that conservatism, and the caution you would have heard from us throughout the whole presentation, we want more data before we can declare victory on that particular point. So there is a small benefit coming through the numbers, but it's not significant.

We'll see. If there are more studies and they confirm the trends, then we will move our assumptions, but we haven't moved them -- we've moved them modestly at the moment.

As regards extrapolating from the GBP8.7 billion of reinsurance that we've done to the GBP31 billion of liabilities, look, it's not -- there were very specific circumstances why we did this in the course of 2015. Clearly, you only do transactions where they add value, and that's a prerequisite; we wouldn't do something that it is bad for value.

But the circumstances were that we had the uncertainty surrounding Solvency II. We were only going to know for sure in December. Candidly, if at that point we had a negative surprise, then there would have been no time to react. So you do the responsible thing on behalf of your shareholders, which talks to discipline to try and pull those levers, to try and optimize the position, in the event that you have to rely on them.

As it happened, the outcome was fine. I wish I could turn back the clock and unwind those, but it's not possible. So we did it, they were a good value. We have no plans to repeat that, of course, other than to say if we ever needed to we would, the market is there. And, of course, there is a trade off, ultimately, by how much you can bring upfront versus this is ultimately what you lose in profits, going forward.

Those were the circumstances; they were unique, i.e., as I said, there's no plans, necessarily, to repeat that, which is why I guided you to look at that core line in the UK result and project from there.

Cost income ratio, no, I was very specific in my words; I said everything else being equal. So to the degree that there are further cost actions we can take, or management actions we can take on the cost basis, those are not [captured in this ratio].

Farooq, Citigroup. Can you just give a little bit more guidance on what you mean by the contingency plans at the Department of Labor? You talked a little bit about product, and I know you don't want to share your full economics and planned strategy, but just to give us a bit more comfort.

And secondly if, in the US, we moved to a lower churn type of model in the VA market, so we have more stable AuM and in the UK it looks like we're going to have potentially net out flows unless you really ramp up in the bulk market, are we ever going to move to a situation where you see better remittance ratios in both of those two markets? So it's a way of growing remittance above surplus capital generation.

And lastly, very quickly, do you have an updated view on the forthcoming RBC changes for credit risk in the US?

On the US regulation, it's a bit of the same answer on some other questions. We can't discuss product filings, for both approval reasons and competitive reasons; we're not looking to coach competitors on the direction they should go at this point.

But I think it's, from the worst case DoL proposal, we backed into what would be effective strategies and how do you get those to market. I think the piece that's key in this, when you think of our US platform, is one of the absolute critical elements will be who is going to help -- the most heavily and in a worst case, as written DoL implementation, no softening whatsoever, broker dealers really get hit hardest. Their business models take the biggest hit and they bear a disproportionate amount of the IT and the biggest change in their role and position with the consumer.

So there will be a need for someone to get those advisers in those firms technically up to speed and have systems and products that are compliant, etc.; that's something we're very good at. The planning is operational as well as product, as well as training. It's multidimensional but, again, no desire to give competitors a view candidly on where that's going. And regulators don't allow us to comment on filings in the US, as they wouldn't here either.

So the comment on churn, I'm not sure where you're going there. The VA products in the United States, Jackson is the net sales, to be very clear. If you look at net sales tables, it's us. So we don't have a retention of consumer issue with Jackson; I think that goes to quality of product it goes to who you do business with.

It goes to the returns, the policyholders have been able to receive by not capping the structure of the product with an unnecessary volatility adjustment, or a fee structure that portfolios can't support. So the quality of the underlying product, this is true in the UK, this is true in Asia, gets you better attention.

There is no way we win, in this room of shareholders, if the client doesn't win. So the US product is very good, it is by far immeasurably the best in the industry. We don't have a hype; we're not trying to chase our own outflows in the book. We used to hear, well, that's because you're a new entrant, and all that.

We've led the net sales league tables since we started. It's not just that. We now have a book at scale; we now have distribution at scale; we have all the elements that any of our peers do, and we still have positive net inflows. And that's how you're getting earnings growth with us managing the total risk exposure to absolute sales.

Now we're looking at that again, taking a lot more sophisticated look at our risk appetite in the US, and we'll keep you informed on that, but not all sales have the same risk. One has a 3% guarantee and one has a 5%, that's two different risks as shareholders. So again, we'll look at that. I'm not sure I understand to the nuance of the churn.

I think the point Farooq was making, if there are less moving parts, would there be more stability in free surplus or profit and, therefore, can there be higher remittance ratios? That was the question.

Well, I admire your optimism; I hope you're right. Yes, there may be less moving parts, but there's still a lot moving parts, which is why, in the past, we've resisted from giving you targets, financial objectives for any parts of our UK business, because there we're selective, or any parts of our US business because it's cyclical.

So yes, all we promise is that to do the best in the circumstances as we find them. And as I said a minute ago, there are still many moving parts that could influence those KPIs.

Now, as it relates to the remittance ratios, they're not the top numbers that they can be; we've never said that that's the case. We have them in a place where it's comfortable in order to leave enough capital behind to buffer any market events. And they're also informed by what we actually need at the center.

So if you like, they're not indicative of the best percentage that, at any given point in time, we can deliver. They've gone up and down; they've been higher, actually, at a time of crisis which is exactly what you want, you want that flexibility at that point.

On RBC, Chad, I don't know if you have --

The changes on RBC?

Yes, the changes on RBC, they're still not defined at this point, so [the only issue] is a slow-moving entity. So I think we don't know yet exactly what they're going to do; it's going to take typically a few years to implement.

Generally speaking, the direction they're heading would tend to, across the industry, move RBC a little bit lower, it really depends on how they shake out. There's some differences between what's in the investment grade/non-investment grade world too, so they're just making it more granular.

I think, wherever it shakes out, it's going to be similar to what we've seen in the past which is, if RBC becomes -- if the charges become more onerous and RBC drops, the industry will adjust and I think the rating agencies will adjust to the new normal there. It shouldn't really change anything in the long run.

Gordon Aitken, RBC. Just on the reinsuring of annuities; you've reinsured some in-force annuities there, I just wonder what the difference is with reinsuring new business because obviously you've said you've stepped away from that.

And the second question is on, just if I can understand the thought process behind the special because it's quite unusual for you to do this. If it's a one-off gain then, yes, pay a special but this is a little bit different, in that, I sense you're giving some profit away to the reinsurers and it's a change in shape of the cash flows, so it's more upfront, and you mention a GBP25 million drag. So is it to do with this, or is it just a signal that our balance sheet is [strong enough]?

Let me address the one-off and then cover the reinsurance in-force. I think the discussion around the Boardroom is, as Nic said, the reinsurance was precautionary going into Solvency II; this was a work-in-progress until approval. And so, that being the motivation for this piece, it effectively, to your point, pulled forward earnings; earnings belong to the shareholder, [if you look you] adjust for tax, and they've been paid out.

It also goes to the general view, though, if we have excess capital, if we've earned it, we're open to paying it out. But, again, it's earning it first, it's having it in-house first and then paying it. No, I've not seen a piece on risk-adjusted dividends; I think it will be an interesting -- somebody's bored on a Sunday, it will be an interesting work stream.

But, I think, as long as we make our earnings from -- our earnings driving dividend and, again, cash is driving dividend, we have a highly sustainable dividend relative to peers and we're doing that while we're growing the Company at the numbers we're seeing. That balance is critical, but the first piece -- I've been here when we had an unsustainable dividend, so part of that's personal experience. We want you to be able to count on that.

So there's an element of -- you keep hearing this conservative coming up, conservatism, it's real, but we also understand at a point it's unnecessary. So there's a balance in here and we'll keep working to that, but if we have excess earnings, we'll pay them out.

And I don't think -- there's multiple mechanisms that we could have used; the US there would have been a share buyback, that drives other metrics that may or may not be things you want to move. Cash is a simple, clear message. As your earnings [pull forward], there you go.

And then on the reinsurance (multiple speakers)

On the reinsurance, post January 1, given that we cannot use -- we don't have the benefit of a transitional, the capital that has to be priced into -- actually, utilized and then priced into an annuity contract going forward is very, very onerous. Where the interest rates were at the end of last year, it would have been somewhere between 20% and 25% of premium. Where interest rates are today, it's greater than that.

Now, in order to get the thing to work, even if you wanted to deploy the capital, you're reliant on huge increases in price, and you're reliant on quite a lot of engineering, both in terms of removing parts of the risk margin through longevity and reinsurance, or asset side engineering as well.

Candidly, I think there are easier ways for us to deploy our capital than to enter into that particular race, and that's why we haven't done it. On the back book, candidly, it was to increase -- clearly, if you pass all the -- there are many factors, the fees will attract it; the tradeoff between the fee that we ended up paying through the reinsurer, and if you like, the [paths] that were released under the various capital bases, were sufficiently attractive. At the same time, it increased our resilience.

Part of the reason that the sensitivity, when interest rates are a lot lower in the UK, the sensitivity is unchanged in the UK, is because having pulled the levers, we've muted that sensitivity to the impacts of the market effects. And that's part of the reason why, at the end of February, we will only down less than -- about GBP1 billion.

So you take all that into consideration. We think it was the right thing to do for the back book, but for the front book there are easier ways of using our capital than generating return. And that's what underpins out stance in that particular space.

Abid Hussain, SocGen. Two questions, if I can? Firstly, on China and Hong Kong, is there a risk the Hong Kong business is cannibalizing the JV in China, especially if I can just jump on a plane and go across the border and the trust in the rule of law is higher across the border? That's the first question.

And then secondly, on the US, what is the minimum crediting rate on the fixed annuity back book? Or put it another way, where would US long-term rates need to be before you start making a loss on that book?

[John, do you want to take Hong Kong?]

Yes, is there a risk that Hong Kong's cannibalizing China; with 1.3 billion people there I'm not sure there is at this stage. I think it's probably worth noting that the Mainland Chinese consumers who were purchasing products in Hong Kong are slightly different. The lion's share of them come from Guangdong Province, which is the neighboring province, formerly Canton, where the JV, most of the business is actually coming from the eastern seaboard, Shanghai, Beijing; we just opened a new branch in Hunan. And so actually, it's a different geography and it's also slightly different socioeconomic. So don't see any cannibalization at this stage.

On crediting rates, two or three things to say on that. Firstly, in relation to the proportion of the VA premium that goes into the fixed account option, that goes in at a 1% guarantee. Okay, so the guarantee level is modest there, and we're able to effectively back it with assets that yield comfortably in excess of that.

In relation to the in-force book and, again, it's difficult to generalize, but on average, the guarantees are around the 3% level. The assets backing, there is around -- the crediting rates, on average, have about 20 to 25 basis points headroom against that guarantee level. And they're backed by assets that deliver 240-odd basis points on top of that, which is ultimately what drives after an RMR deduction.

It would only be an issue -- and of course, they are backed by securities that are where you do -- that produce that, and there is a good level of cash flow matching [their own] duration. The only issue would be if, for whatever reason, all these holders decided to extend well beyond the point at which we hold the assets. There are trades that we do to lengthen the duration of that, and we've done that in the past where we needed to.

So no, we're a long way away from that being a problem. I don't know, Chad, if you want to add to that? Actually people save for a reason; they don't save -- they can't extend ultimately forever.

Alan Devlin, Barclays. Just one question on the Department of Labor. I know nobody knows what's going to happen to [steals], but have you got any concerns on the in-force? You mentioned grandfathering, because that would materially impact earnings. Thanks.

There's no clarity on it, but if you think about, earlier in a previous life, actually around retirement services for one of the brokers from (inaudible), you had art, antique cars, people's mortgages, oil and gas, some of the partnerships REITS, all these products have been allowed over the years and retirement accounts.

It is unimaginable, it's possible, but when Barry talked about a political reaction, if you said that all of these clients by yearend, whatever the timeframe is, this all has to be put into a fee-based asset management relationship, the political reaction to that, [social-wise], would be severe.

And I don't think the White House is looking for -- even the most extreme advocates [are entired by its anti] active management, would see that as a good thing, but that would be the implication.

So that's the question on grandfathering, and it's clearly an issue in the market. People are very concerned about it. The single best thing with DoL now is get it out. We can deal with whatever changes they make. I hope they're more consumer-centric than the first draft. But it would be nice to know the rules and we'll go from there.

It's not helpful for the industry to be in limbo. And it's certainly not helpful politically for [house] ways and means than in finance, particularly committees to be in limbo. That's not an efficient process. So it's clearly coming to an end. But the grandfathering element would be -- I think you'd see the other Bill probably (multiple speakers).

What you'd end up with -- and this piece of legislation was introduced in December, with a broad Democratic support called [Roscom Neil]. If that legislation were passed then survive to Presidential veto, which would be almost certain, it would completely undo the rule change.

But again, the key there is that it's difficult, even with Republican majority, it's difficult to override a Presidential veto. If you had grandfathering you would probably -- the speculation is you would see Roscom Neil attached as an amendment to the Puerto Rican financial bailout, which the President cannot veto.

So basically, it would be okay, if we're going to play nuclear options here, here's the nuclear option from the other side. I don't think it'll go there. That's a very inelegant last thing to happen in the last 12 months of any presidency and I'd be surprised if they went there.

And if you think about, Alan, some of the securities that can be legally owned, it's forcing a client to sell at this point in the cycle. And some will, effectively, would be forcing into realized losses for no reason other than an arbitrary policy change.

So it's possible, but again, I think it's fairly remote, we'll see. But the best thing for us we're ready, let's get it out there, let's react. Let's get back to business, see what opportunities it creates, go from there.

Ashik Musaddi, JPMorgan. Just a couple of questions. One on UK; can you give us some thoughts about where your UK capital ratios are at the moment? You gave the Group number, 180%, but where would the UK number be? Would it still be above your comfortable level, which I think is around 130%? I think that's what you said at the Investor Day. That's number one.

Secondly, what is the fundamental spread on the UK annuities book that is currently baked in, in the Solvency II? And how does that compare to Solvency I? Just wanted to get a better sense about what the numbers are.

And thirdly is, can you give us some thoughts on where the variable annuity hedging cost are at the moment? It looks like there has been a recent spike because of lower rates and high vols. So how does that compare with the guarantee fees that you are collecting? Thank you.

On the UK, it's in our range. It's in the range that I highlighted in January. On the percentage of spread, it's 45%. That's what's coming through in the surplus. It's 58 basis points in the base. It's 172 basis points in the SCR, in the stress. So when you translate that into percentages, it's around 45% in the SCR.

What was the other question on -- the hedging costs.

[Chad], you want to give us a (multiple speakers)?

As you would expect, hedging cost has gone up a little bit for certain transactions. Nothing so significant that it's impaired our ability to put the hedges in place that we think need to be in place and the program still performs well. In terms of the scale of the increase, I don't know if it's that easy to quantify actually, but --

I guess it's two things there. On rates because we're tending to be, and have been for years, on the shorter end, call it two years [then on most of the] hedges we're buying. The fact the long rates have come down has really not affected anything. Actually, the two year rate's actually higher than it's been for a while.

So the rate side of it's been somewhat helpful. Volatility has actually been a fair bit lower than we saw last year, so it's manageable in the short-term spike and we adapt. I'd say a very minimal impact.

Okay, so with that I want to thank everybody for your time today, your questions. Appreciate your support and we'll see you in six months. Thank you.

Thank you for joining today's call, ladies and gentlemen. The call is now finished. Have a nice day.