Prudential PLC (PUK) 2023 Q4 法說會逐字稿

Hello, everyone, and welcome to Prudential's Full Year 2023 Results Q&A Event. (Operator Instructions)

I will now hand the floor over to Patrick to begin. Please go ahead.

Thank you, Sebastian, and welcome to everyone. We're going to just have a short address by Anil to start and then we'll go straight into questions and answers. Sebastian will explain to those on the call how to lob their questions.

But I'll pass over to Anil to kick off.

Thank you, Patrick. Good morning, good evening, ladies and gentlemen. Very warm welcome to the 2023 full year results for Prudential. I'm Anil Wadhwani. I'm the CEO for Prudential and it's Indeed my honor and pleasure to be welcoming you today. Earlier today we announced our results. We are delighted with the strength of our performance. I thought the results were excellent both on operational grounds as well as the financial performance that we delivered in 2023. Our sales came in at $5.9 billion for the full year, up by 37%. Our new business profits came in at $3.1 billion, up 45%. 17 out of the 22 markets were able to register new business profit growth, 12 of them on a double-digit basis. The margins held up. In fact they improved by 4 percentage points ex economics. And our IFRS earnings came in at $2.9 billion, up 8% year-on-year. So clearly, a very strong set of results.

Hong Kong led the results. A strong rebound post the borders opening up and the pleasing aspect of the Hong Kong growth was that we were able to gain market share both in domestic as well as in Mainland China's visitor segment. And again one of the other pleasing aspects of the Hong Kong results were that we gained market share in agency, which is the lifeblood of our company. In China, it was a year of transition. We pivoted to driving a different product mix in China. And as you're well aware, we took proactive steps way back in April 2023 much in advance of the regulatory guidance and in many ways, the regulatory guidance of quarter 3 ratified some of the steps that we took in terms of repricing our 3.5% guaranteed product. Our agency grew by 25% and on account of the steps that we took to reposition our bancassurance product mix, as we transition to 2024 we feel optimistic about the growth prospects in China.

And I'm sure we will talk about that as we go along. In ASEAN, again strong performances by Malaysia, delighted with the sales and the new business profit growth. Indonesia, 4 consecutive quarters of new business profit growth, early signs of the transformation work that we are leading in Indonesia. And Singapore, clearly we have a quality, quality franchise there, multidistribution channel and it underscores the strong rebound that we witnessed in Singapore in the second half of last year. So overall, as I said, very pleased with the results that we delivered in 2023. I believe that these are excellent results. We have seen sales growth in the first 2 months of 2024. March and April of 2024 will have base effects given the fact that we saw a resurgence in March 2023 and April 2023 on account of the border opening.

We are in early days of the execution of our strategy and we are already seeing some measurable progress against our strategy execution. And a combination of these factors lead us to believe that we are increasingly getting confident in terms of delivering 2 financial objectives, which is 15% to 20% growth on new business profit to 2027 and the acceleration of cash on the value that we generate. We are also increasingly confident of our strategic objectives and are effectively deploying capital to drive organic profitable growth, but at the same time looking a sharp eye out on extending and expanding our distribution footprint through partnerships. I also wanted to at this juncture thank our people, thank our agents and thank our partners. Without their dedication and commitment, these results simply would not have been possible.

So thank you very much again for joining us. I would like to now start by introducing our management team. On my right: Ben Bulmer, our Chief Financial Officer. Next to Ben, Dennis Tan; Dennis Tan manages the cluster of our ASEAN markets and is also responsible for wealth. Next to Dennis, Catherine Chia; Catherine is responsible for human resources. And at the far right is Avnish Kalra, our Chief Risk Officer. On my left, Lilian Ng; Lilian runs Greater China in customer as well as distribution for the company. Next to Lilian, Solmaz Altin. Solmaz runs again a cluster of markets in Southeast Asia and ASEAN alongside India, Africa as well as is responsible for health and technology over and above his geographic responsibility. And on the far left, Bill who we appointed as the incoming CEO of Eastspring in the middle of last year.

So on that note, back to you, Patrick.

Thank you, Anil. And we'll turn over to the Q&A in a second. Obviously proceedings are taken on the basis that you've only read the materials that have been published on the website. So please do read the rubric. Sebastian is just going to give instructions for people as to asking questions online. If you just bear with me, Michael, and then we'll come to you and Charles we'll come to you in a second. I know you're keen. Sebastian, over to you just to give the instructions for people to lob in their questions online.

(Operator Instructions)

Okay. Ready to open up. Michael did have his hands up first so he gets the microphone first.

My name is Michael Chang from CGS International. Just 2 questions first primarily on Hong Kong, China and the strength over there especially in relation to Hong Kong and it does look like 2024 has had a strong start to the tourist numbers. So extrapolating forward. Firstly, if I take a look at the 2027 new business profit targets, management did say they're increasingly confident and it does work out that 9% to 15% new business profit growth CAGR is required to achieve those targets. Now I know some people in Prudential when they talk about internal target setting, they just see preset targets to maximize their potential. And I just think that single-digit, the 9% new business profit target sounds very pedestrian.

Talk a little more in terms of updating those targets, under what conditions could those targets be a bit more aligned to your more strenuous internal targets? When would the investors look forward to such a situation? Maybe you could just elaborate on that. And then in the case of China, China agency business doing quite well. Bancassurance, as management has flagged previously, continues to be a drag. And it does look like if I take a look at Slide 27, the base effects get much easier in the second half. So could management just share some details on how much bancassurance contribution in terms of the new business profit there was in FY '23 and how confident management is about a turnaround in China and roughly when can we look forward to that?

Many questions in that. So let me try and start with the Hong Kong question and then I will turn to the 15% to 20% and then we'll come back to China. And I'll also ask Ben and Lilian to provide any additional comments that they might have. So starting with Hong Kong. Clearly in domestic as well as in the Mainland Chinese visitor segment particularly in agency, we saw some really strong performance. The momentum, as you rightly mentioned, has continued in the first 2 months. But at the same time just to remind you that we did [spend] in 2023 on account of the border opening. We believe that the growth prospects in Hong Kong continue to be solid. The government is indicating a growth of 3% to 3.5% in terms of GDP. We are also encouraged with some of the steps that the government is taking in terms of attracting further international traffic into Hong Kong.

A little bit more color on MCV. So in terms of MCV despite the strong growth that we saw, Michael, the traffic levels in 2023 were close to about 60% to 65% as compared to what we witnessed in 2019. And we don't see any fundamental impediments for the traffic to go to 2019 levels if not exceed it over a period of time. Additionally, the ticket sizes saw a surge as I mentioned in March and April and then started to normalize from May 2023 onwards. We saw the ticket sizes held up quite well in quarter 3 and quarter 4 and as we transitioned to the first 2 months of 2024. We also believe that when we talk to our customers and we do that quite often, the fundamental need for and the attraction for the Hong Kong health infrastructure alongside the products that we offer in Hong Kong, that remains pretty undiminished and if you simply look at the new to Prudential customers, in MCV they were close to 70%.

So that kind of gives us a fair amount of runway to broaden the relationship. So that hopefully kind of gives you a good sense as to why we feel optimistic about the growth prospects of our Hong Kong business. Moving to your second question. Clearly 45% new business profit growth would have prompted that. And I just want to go back to the conversation that we had when we announced our strategy, which was the late part of August last year. And what we had said is we are going to be growing all our 4 geographies; which is Greater China, ASEAN, India and Africa; and we have the capital strength and the capital flexibility to do so. Clearly having delivered what we have in 2023, you can almost infer as you rightly did as to what those growth numbers would look in '24, '25, '26 and '27. However, I do want to remind you that we don't cap our aspiration on the 15% to 20% growth target.

And just again reiterating that we do have capital strength and capital flexibility and, as you would have noticed in 2023, we have deployed that effectively to grow profitable organic growth and at the same time looking at expanding our distribution partnerships. So that is where the increasingly confident part with respect to the target comes through. In terms of China, right, so let me try and provide a little bit of color before I hand it to Ben and Lilian for any additional comments that they might have. (technical difficulty) we believe and we see this that the fundamental demand drivers in China haven't changed. The demand for long-term savings, for retirement and for protection remains highly intact. The GDP is slated to grow at 5% as China pivots to a more sustainable high quality consumption led economy. You simply have to look at the deposit velocity last year in China grew by 9%. So that illustrates the opportunity that insurance companies and specifically companies like Prudential have to be able to cater products and services to address those needs.

Yes, we took certain hard decisions on bancassurance. Our bancassurance margin on an ex economics basis increased by 8%. In combination of the regulatory guidance that we saw in the second half of the year, clearly the volumes on bancassurance got impacted, agency did quite well. But having now taken the hard measures, having pivoted to a different product mix and we're already starting to see the early progress of that in the back half of 2023 and as we transition to 2024, we believe we have poised our China business to grow both across banca and agency as we move forward. We have a strong partner, multichannel distribution. And as I said, the pivot from predominantly a savings product mix to now a much more balanced product mix now allows us and gives us, as I said, the optimism to grow our China business further. So I'm just going to stop. I'm first going to go to Ben and then see Lilian has any additional color to add.

I think you had a specific question on China banker contribution to NBP. So that was 45% in 2023 down from about 69% the year before. What you will have seen in the slides no doubt is the fruits of the labor, if you like, of repricing, shifting the product mix; and actually we were able to build our China banca margins as we moved through the year by 8 points to end in the late 30%s, early 40%s. And because those are structural changes in the mix, the sort of ending margin, if you like, of around 42% is something I'd kind of guide you to in terms of thinking about '24. Similar story really in Hong Kong, very, very pleased with the margin expansion that we saw in the second half of the year. You will have seen in the slides health and protection increasing as we move through the year in terms of number of policies. Not quite yet at sort of 2018, 2019 levels. So I think there's a bit of potential there. No doubt though you will have seen kind of rates up at the moment. So from now when you're thinking about Hong Kong margin outlook, again I'd guide you to around the 72% that we closed out for the full year.

Lilian?

Maybe just to add, Michael. When we de-emphasized the path in this product, we shifted to annuity and savings as well as longer-term payment term. So with that, annuity and savings product for our banca channel contributed to -- grew 65% in 2023 and contributed to 44% of NBP and similarly on the longer pay. Now having said that, what we are seeing is now you mentioned about the momentum in 2024 and we are seeing that distinct shift to continue to more health and protection as well as power savings longer term. So that will inform you how we're going to drive the business in 2024.

Let's go to the next question. Charles, have a go.

Charles Zhou from UBS. I also have 2 questions for you. First, let's talk about China. So as we all know, China is now facing probably a prolonged low interest rate environment. So can I ask you how are you going to cope with this environment? Maybe talk about it both from the insurance sales, about your guarantee rate, your product mix going forward and also from your investment, how you do your asset location? So this is my first question. Second question is related to the ASEAN or Indonesia, Malaysia and Singapore. If I combine those 3 markets, I think overall growth may not be as exciting as Hong Kong. So can I ask you about so how do you see the outlook for ASEAN in 2024 and also going forward?

So let me start and I'm going to ask Ben to speak to specifically the investment and the asset allocation. So notwithstanding the rate environment, the fundamental insurance needs what we are seeing and the guidance that we are getting from the regulators is more shifting towards long-term savings, towards retirement. And you can see the Pillar 3 focus that the government is employing and we are obviously crafting value propositions and products to be able to address that specifically as well as protection.

So that fundamentally does not change. To your point around the interest rates being lower, we already took those hard measures and we took those hard measures of repricing the guaranteed product much in advance of the market. And as I said, some of the regulatory guidance that came in quarter 3 in many ways ratified our decision when the rest of the market obviously made those adjustments much later in 2023. So I think the fundamental needs don't change. Significant experience in managing power business and crafting power value propositions. And we believe that as we go through 2024 and beyond, you will see the shift from non-power into power increasingly and that's really what we've been focused on. I'm going to stop and ask Ben to specifically comment on the investment and the asset allocation.

Actually I was going to say a very similar thing in terms of I think what sets us apart is our experience for longer environments and our capabilities on the profit side. When you look at CPL's portfolio, it has a diverse set of products both protection and savings. Within the savings book, 1/2 to 2/3 of the liabilities we can actually vary the benefits depending upon the investment returns so it's power, it's ILP. You've seen in 2023 management take action actually ahead of the market to lower cost of liabilities and shift mix and candidly shift mix towards power.

When I think about the yields on the assets that we're earning, we're still earning very decent spreads over and above the cost of liabilities. I'd say the repricings had the effect of lowering the cost of liabilities and actually we've lowered our fund earned rate expectations as well. In terms of the assets and there's a slide in the appendix to my slides that kind of shows you the snapshot, 70% of those banking assets, Charles, are fixed income. Significant proportion of those are government debt and other state-owned entity bonds, if you like. So I think the business is very active in managing its balance sheet and will continue to be to optimize risk/reward trade-off.

So Charles, coming to your second question on ASEAN. Clearly a very important segment for us and again we are delighted with the market positions that we have been able to establish in many of the ASEAN markets if not all the ASEAN markets. I mean you have to look at the strengths that we have for example in Malaysia across conventional and Sharia, which resulted in the growth that we witnessed which is pretty strong. In Indonesia, again strong position both again in conventional and Sharia and the early green shoots of transformation is playing out. Likewise Singapore, quality franchise. In Vietnam, despite the challenges that the market is witnessing, we were able to grow market share. It underscores and speaks to the quality of our agency and bancassurance distribution.

So we have significant market positions in a market that is home to roughly about 650 million people. So we cannot not be excited about the growth prospects. Having said which, we also have called out to deploy our capital in ASEAN specifically to expand our distribution. So we're actively looking for bank partnerships, which will then go and complement the existing bank relationships that we have, UOB and Standard Chartered, as well as the scale of agencies that we have in every single geography. So we believe that going forward ASEAN will be a bigger part of our growth story. I again want to remind you that if you look at the composition of our embedded value, ASEAN countries today contribute to 43% of that embedded value. So cannot not be excited about our position as well as the growth prospects that ASEAN has to offer.

Let's go back to 1 more question from the room and then we'll go to the phones. Edwin?

I'm Edwin Liu from CLSA. Two questions, 1 on Hong Kong and 1 on ASEAN. So on Hong Kong given the medium-term MVP outlook and just Charles' comment on ASEAN, I think the future growth will still very much rely on Hong Kong. Can we expect that the Hong Kong NBP growth will be higher than average for Prudential Group? Also in particular for MCV, should we expect high teens or even higher than that medium-term growth? And if you can provide more color just what you have observed in terms of pre-pandemic and post-pandemic behavior of your MCV customers, but also your agents where you hire agent from. What is the current Asian profile for your MCV business? Second question on ASEAN. You mentioned inorganic opportunities particularly on bancassurance. Just wonder if you can provide more color in terms of which market that you see more active opportunity in terms of bancassurance that can satisfy your IRR requirement, which market will be more competitive and more challenging to secure bancassurance deals?

Thank you for those questions. So let me start with the Hong Kong question and the growth prospects in Hong Kong and I'm going to go to Solmaz specifically on the banca question. I'll kind of tee it up and then have Solmaz provide you greater color in the way we are thinking about driving distribution in ASEAN. So firstly, as I said, you have to step back and look at the guidance that we provided in the medium term, which is 15% to 20% new business profit growth. As I mentioned earlier, as you look at our 2023 results, you can almost infer the growth rates that will get us to that range, right, to the lower versus the highest range. However, I want to underscore the point that we are not capping our growth to that guardrail. That is a guardrail.

We have the capital flexibility and strength and we demonstrated that in 2023. We will manage our market to its fullest potential. And Hong Kong being a big part of our business, you can again infer the same logic for our Hong Kong business. I've always been emphatic about the fact that, that is exactly why we are growing the multimarket growth model because what we can't control is how and at what speed some of these markets will grow out. What we can control is how we compete in those markets, how we serve our clients and how we gain market share, which is exactly what we were able to illustrate and demonstrate in 2023. And as I said, Hong Kong has solid growth potential and we'll continue to work towards expanding our footprint and expanding our market share.

In terms of ASEAN, again going back to the strategy. We had illustrated multimarket, but we will also be focused on multi-distribution and with a much more acceptable norm that we require bancassurance in all our geographies to complement the strength that we have in agency and we've always been clear that's exactly how we're going to grow. Bancassurance is lower margin as compared to agency, but it's not low margin. Even if you simply have to look at the results of 2023, the banca margin were about 37%, which I think is a very acceptable margin and we would love to do more bank partnerships if we are able to deliver that kind of margin through bank partnerships. But I'm going to stop here and I'm going to turn to Solmaz specifically to talk about how he's thinking about expanding his footprint in ASEAN.

Thanks for the question. We are always interested in expanding our banca distribution and there are a number of opportunities coming up in ASEAN countries and let me mention a few. In Indonesia, there is an opportunity in the Sharia segment. We will certainly be interested in pursuing that opportunity. We are already #1 in Indonesia by market share. We have gained 1.7% market share in 2023. So that is an opportunity we're pursuing. We are very strong in agency. As you know, Indonesia is the biggest agency for us. Now we want to also diversify Indonesia more. We already are active with SCB and UOB there, but very keen on diversifying even further. Malaysia is another good example. We have grown 36% banca last year. It's an amazing team that can do banca very well.

So again Malaysia for us is an opportunity both in the conventional and Takaful to grow our footprint. Philippines is mostly an agency channel for us. There has been little opportunity in the past in terms of banca deals, but we are working actively and also evaluating more banca opportunities in Philippines. And the same can be said for the (inaudible) where we're mostly a banca company, but we are again interested in doing more. So as you can see, we have already an amazing footprint in banca. We are well diversified, but we are typically keen on Indonesia and Malaysia and Philippines in terms of banca growth.

Just a couple of follow-up points. We were able to establish the CIMB partnership in Thailand. Again a good illustration of our intent to grow bank distribution and it allows us further diversification within the bancassurance channel in Thailand, which is again an important market for us. And I do also want to reiterate that as we think about these bank partnerships, we are also going to put this through a return lens. We are very conscious of the fact, remember we've given 2 targets; 15% to 20% new business profit growth, but also employ a discipline where we are converting this value into cash. So having strong internal hurdles and having strong return hurdles is absolutely going to be the way we are going to be evaluating these bank partnerships. I hope I was able to answer that question.

Okay. I think Michelle, just bear with us. We're going on the phones and then we'll come back to you first. Okay. Sebastian, could you just remind everyone how to lob in their questions on the phones and then go to the first caller, please?

(Operator Instructions) And our first question comes from Farooq Hanif from JPMorgan.

Firstly, Ben, it seems you're making a comment in the press release that you're looking at improving the conversion of free surplus generation to cash at the group. Could you possibly elaborate on this? And at what point do you think you'll be able to move up or away from the 7% to 9% DPS growth target? I simply ask because although you're delivering strong growth, clearly as you can see from the share price performance, I think the market's really interested in the topic. So anything you can say on that would be helpful. Secondly, on the $1 billion investment that you're making into the business, what is the first $100 million going to be spent on? Where will we see incremental change now in the investment and what are your priorities for that? And then lastly, could you comment on health proposition. So you commented a little bit about some of the markets where you're launching this proposition. But where will the big delta come from in this business in terms of earnings and sales and the numbers and by when? What's the phasing of that?

Thanks for those questions, Farooq. I'm just going to start by saying 1 thing and then I'll have Ben speak to the specific question that you asked. Returning back to the shareholder is always going to be an option in front of the Board. What we have to understand is it has to be compared with the investments that we would put out there, whether it is to drive our organic business where every dollar that we invest returns $3 to $4 back or for that matter expanding distribution capabilities because remember we're creating a business that allows us to deliver sustainable long-term value over a period of time. So I'm going to stop there and turn to Ben for his comments and then I'll come back on the health proposition. I'm sure Solmaz will have some additional comments to offer.

Farooq, thanks for your questions. Maybe if I start with sort of operating free surplus generation. Look, I mean you've seen the targets that we set out. We're absolutely focused on the acceleration of operating free surplus generation. We even set out the expected pattern of that in the slides just to remind everybody. Of course you have the effects of investment and capability program in the early years. Thereafter, you get a very rapid effect of the compounding of successive cohorts of very high quality new business coming through. In terms of bringing capital up to the holdco so in '23 we brought up $1.6 billion. That's about $300 million more than the year before and that's grown the holdco cash and our financial flexibility after repaying down debt, servicing dividends and central costs. And I think as I've said in my speech, whilst I appreciate the flexibility of having surplus in our operating entities, it gives us degree of agility to fund new business opportunities.

I also don't want to be leaving surplus capital there's no obvious use for in those entities. So increasingly we'll sort of move towards that line of thinking. In terms of the $100 million or it's actually $133 million of our $1 billion investment in capabilities, about 1/2 of that was spent on distribution in full year '23 and really around platforms and tools to enable agency productivity. So platforms like PRUForce, PRUExpert, PRULeads. We've also been funding a strategic talent sourcing program. And just to kind of give you a flavor of the value creation if I take the PRULeads example. We had issued 4 million leads last year, we saw an 8% conversion rate on that. And agents using the PRULeads platform are roughly 30% more productive than those who didn't and this is currently only available to about 40% of our agency force. So there's potential to come on that.

In terms of our professional agent or professional career switching program, we've been funding that rollout out across 7 markets and on average there, we're seeing 6x the productivity of the recruit versus our average agents. We've also spent on the customer side of things so about 40% of the $133 million I referenced that's going into platforms around CX, customer experience. A good example here is PRUServices 2.0, a much simplified customer experience and we've been able to do that on the back of looking at the drivers behind Net Promoter Scores. When that's rolled out, that will replace some 15 other apps. And finally, the balance then we spent on the health side, that's very much focused around claims management and again there's good examples there of saving hard dollars. One of which is the use of AI running across data platforms in Indonesia, detecting fraud, waste and abuse and saving dollars there.

I'm going to now shift to health. And Farooq, you're absolutely right, health is one of our strategic pillars. We have a scale business. We draw almost $2 billion in terms of health business across the 4 major markets of Hong Kong, Singapore, Indonesia and Malaysia. And Solmaz will be happy to provide you some color in terms of how we are driving that forward.

So first of all, we grew health 20% in 2023 from about $280 million to $330 million and we have set out in our health strategy explanation in August that we're going to plan to double that by 2027 and we're doing this by primarily tackling 2 strategic legs. One is really managing the health business as it deserves to be managed not just as an attachment to a life strategy, but really as a stand-alone business. Looking at metrics that net out the health business that do not necessarily net out the life business like combined ratio and loss ratios. Focusing on the imminent core value chain of the health business like underwriting, pricing, claims management. With that, and as Ben alluded to as well, we can save hard dollars and just get more profitability of our existing business. Secondly, we're certainly going to look at new value propositions of stand-alone health medical reimbursement products, medical ICI products and the like where we see a really big need and health protection gap in many of our markets.

Thirdly, as we're building up capabilities at the center and in the countries with regards to managing the health book better and more profitably. Let me remind you, as Anil said, 90% of our business currently is coming from the 4 countries; Hong Kong, Singapore, Malaysia, Indonesia. Just with these 4 countries, we have a significant potential to increase our value propositions and grow and at the same time work on our existing business to make it more profitable. On top of that, countries like Thailand, Philippines, Vietnam; highly populated countries, hundreds of millions of individuals with a high protection gap in health are just making up 10% of our book currently. So there's ample room to grow. And we certainly, as Anil said, will not hold back in exceeding that target by 2027. But as of now, we are continuing to execute on the new operating plan and we will continue to update as we move forward in the quarters.

And just 1 other call out in terms of India. We do have the opportunity, as we've kind of illustrated earlier, to be able to set up a health business which we are actively again looking at, which we can outside the joint venture that we have with ICICI. And again India is a huge opportunity when you think about it in terms of the health business.

I think we'll go back to the phones. I'm just conscious of time. So we can have quick questions and then there will be more people who get a chance. So can we go back to the phone, Sebastian?

Next question is from Kailesh Mistry from HSBC.

Three from me. First one is just going back to cash remittances. Ben indicated in his speech that the remittance ratio is around 80% in 2023 versus a medium-term average in the 60%s. What should we expect this to be going forward? Secondly, just to recap on investment spend. You said that there's $900 million left, which will be split in '24 and '25. How much of that will go through the P&L and the cash numbers? Thirdly, just coming back to Hong Kong. You talked about improving sales mix through the course of 2023. Has this continued in terms of sales mix improvement in the first couple of months? And then the top hand right side of that chart, Slide 26 I think, you talked I think the H&P contribution is a policy count basis. What is that in NBP and APE terms? And then if you could just give us a little bit more color on Hong Kong MCV. I think Anil mentioned 70% of business comes from new customers, what proportion comes from GBA or non-GBA and what is the growth in the MCV focused agents?

I am going to first ask Ben to address the cash remittance and the $900 million spend and how are we thinking about that. And then I will turn to Lilian to speak to specifically the H&P mix in terms of its contribution to NBP and the GBA versus non-GBA. Ben?

I'll be a bit quicker in my answers this time. Kailesh, thanks for the question. So in terms of the remaining $900 million, I'd guide you to around sort of $250 million, $300 million this year. Similar number in 2025. So still weighted towards the sort of beginning of the objective period split, again stick to the rule of thumb I gave I think back in August; roughly 2/3 CSM, 1/3 P&L. In terms of your cash remittance ratio, you get higher in 2023 at 80% versus the 60% kind of average over I think it's the last 5 years. There's an element of bringing up more to pay down the debt that matured. I'd look to this year as just a very rough rule of thumb around 70%. But as I said, we're actively looking at sort of uses of capital, the capital in the businesses. I do need to balance this of course against that sort of nimbleness of having that capital in country and also satisfying local stakeholders, regulators, distribution partners, rating agencies and so on. So yes.

Lilian, you want to take those 2 questions on sales mix and the GBA versus non-GBA?

Okay. On the H&P contribution to NBP in 2023, it's actually 40% in terms of NBP contribution. So on MCV customers, about 1/3 comes from GBA cities. The rest actually come from mostly Tier 1 cities such as Beijing, Shanghai, Tianjin, et cetera. In terms of our recruitment non-agency MCV agents. In the past you've heard us spoke about recruiting for what we call the ING for all the graduates in Hong Kong and we continue to do that. And what we've actually embarked on in 2023 is also recruit our MCV agents from (inaudible), which the Hong Kong government has actually promoted in 2023 and that has actually driven up or increasing MCV agents in 2023.

And Kailesh, just to add to that comment. When Ben was talking about the sustainability of margins in Hong Kong, while the policy count is about (technical difficulty) for H&P to contribute more to view the confidence that being able to sustain if not grow our margins in Hong Kong going forward.

The next question is from Andrew Sinclair of Bank of America.

Two from me. So first, just looking at $3.5 billion of holdco cash, that's about 13% of your market cap. Remittance sounds like it's going to be pretty decent going forward. Just really how much cash do you really feel you need at holding company and what are the plans for that with the shares where they are? Clearly the inorganic expenditure has a pretty high hurdle. Second point was just related to that. I mean shares are trading at about 60% of published embedded value. What are your plans and time scale for getting that PEV number consistent with your Asian peers? And then the third question was just you injected some cash into Mainland China to accelerate growth there. Are there any other markets you're looking at where you see any need to inject cash to facilitate growth plans that can be funded organically by those countries?

Andrew, thanks for those questions. I'm going to ask Ben to tee up and then I'll add my set of comments specifically on the cash infusion piece. But Ben, you want to first take the $3.5 billion and the PEV question?

Andy, thanks for those questions. Maybe I'll start with PEV. As I think I said back in August, our focus has been very much on delivering IFRS 17. We've now done that. So we are actively considering PEV whether we give that as an additional metric or an alternative. We need some time to do that work so in the meantime, please bear with us. And I'd point you to of course our adjusted IFRS 17 equity, if anyone wants to look at a risk-neutral lens and of course our PEV sensitivities. In terms of use of capital in holdco, you're right, Andy, $3.5 billion. I think we've been quite clear that where we want to build financial flexibility. In terms of the uses of capital, really it remains consistent with the principles we set out back in August. We're looking to grow organically, looking to deploy in terms of our investment and capabilities and then looking at strategic options to sort of widen that potential universe for reinvestment.

As I think Anil referred to, there's a very active pipeline of potential opportunities. We talked about distribution partnerships, health being a couple of good examples. And as we said in our speech, we'll be disciplined about that. We'll compare the economics of that versus returns of capital to shareholders. But from where we sit now, we're very much valuing that flexibility that we have to be able to grow the business. Capital infusion into, I think your question, Andy, was anywhere else. I think the majority of our businesses are self-funding, right? They're capital generative. They remit to center. It's really the smaller businesses, if you like, the sort of Laos and Myanmar, Africa that continue to require support from center. Of course that can change depending on how we deploy capital to grow the business and what opportunities there are to sort of widen distribution.

So Andrew, just a couple of comments from my side to supplement Ben's response. So firstly on the PEV question, clearly we hear the ask our focus for FY '17. We are very pleased that we've landed that quite well. We also reiterated the fact that we are focused on execution, on delivering on our 2 strategic and on our 2 financial objectives that we announced in August last year and that obviously requires financial resources as well as ensuring that we are stacking up the right quality of talent to drive that execution.

So we have to kind of weigh some of the work that will be required as well as the spend of capital that will be required to generate the PEV financials. But we hear the ask and, as Ben said, we are actively considering that. To your capital infusion, just 1 point. We like the capital flexibility and the strength. It allows us to grow and gives us optionalities to grow organic as well as look at opportunities across our geographies and across the geographies of Greater China, of ASEAN, of India and Africa. And I just wanted to reiterate that, that allows us to grow all the markets and don't have to necessarily suck out the growth of 1 market to grow the other.

Okay. Just to point on the holdco cash usage. Bancassurance, there's some payments made in bancassurance out of holdco cash as well. So that would be as a strategic transaction in the past, we've contributed central cash to facilitate that as well. Just to clarify that.

Okay. Let's go back into the room. Michelle, you've been extremely patient. The floor is yours, you'll still be allowed a slightly longer question for being indulgent with us.

My first question is about Singapore. Singapore is a region for us and the NBP growth was soft last year, but I understand that's primarily because of the first half and we are seeing some improvement in second half. But just wonder about the future growth driver for this market and would like to do some brainstorming with management team given the increasingly important role of an offshore wealth management hub internationally and given the huge success we've achieved in Hong Kong. So is it possible that we replicate the success in the Hong Kong MCV business to Singapore and what's kind of the hurdle you are seeing deterring us from doing so? So that's the first question. And the second question is about recovery because I do know I can't to this simple calculation. But if we compare NBP last year with that in the 2018 so we're about 60% of 2018, but there's a lot of economic assumption changes involved here. But just wonder if management can give us a ballpark number of what's the 2023 business level versus 2018. So what's the pace of recovery for each region?

Thanks for your question, Michelle. So I'm going to ask Dennis to talk specifically on Singapore. But just to start with the Singapore question, it is a quality franchise. It's multichannel and it was illustrated in the strong rebound that we were able to show in the second half of last year versus the first half. Remember, we took the hard steps to pivot from single premium which, as you know, was a star offering in 2022 to regular premium and we did that pretty quickly. And now the business has pivoted towards regular premium and you're starting to kind of see the growth that we were able to demonstrate in the second half. But I'm just going to stop there and have Dennis provide you some extra color.

Thanks, Michelle, for the question. So Singapore market last year, it was kind of like a tale of 2 halves. So if you look at the first half of the year, there was softening in the entire industry given the high inflation and high interest rate environment that moved really, really quickly. But the second half of the year, there was a very, very strong rebound and we saw quarter-on-quarter growth and this came across from a couple of things that we did. So firstly, it's actually a whole pivot towards the regular premium business because of the softening of the single premium, we decided to come really, really hard pivoting towards regular premium and that saw sales numbers grow 32%. In addition to that, we also launched our Prudential Financial Advisors group, which is a holistic wealth planning business. And that talks to your question in terms of what are the growth opportunities going forward as well because we feel clearly that, that will have a growth engine for us.

On top of supporting the tight agency force or open architecture bancassurance business, we decided also to invest in this open architecture financial planning unit. So we launched that in April last year and within a short 9-month period, we ended last year December with 500 wealth planning advisers in that unit and that continues the momentum in terms of recruitment going into this year. I think one final point is your point on so-called MCV, right, into Singapore in that sense. We already are doing that, right? So for these foreigners who are coming into Singapore, the first part of call tends to be the banks. They have set up their banking relationship with the local or the foreign banks in Singapore. And as you know, our 2 big bank partners; Standard Chartered Bank as well as UOB Bank; they would have not just the onshore team, but also they have the offshore desk by countries, by region. So we have been working very closely with them to kind of tap on that and that is an ongoing thing and definitely will still be a key driver going to the future as well. Back to you, Anil.

Michelle, coming to your second question, so you're absolutely right. The sales did exceed the 2019 levels, but the NBP still has a bit of a runway and even if you compare it to 2018 levels, I believe the new business profit still has some runway. Part of that is interest rates as you rightly pointed out. But it's kind of quite evident from the presentation that we've shared that in many markets, we still have an opportunity to go back to 2018, '19 levels if not exceed it including the likes of Indonesia CPL, which obviously had a challenging year in 2023. Even Hong Kong for that matter from an NBP perspective, it is still not at the levels that we've experienced in 2018. So the short answer is that opportunity exists across Greater China and across the ASEAN markets. And we haven't even spoken about India, which is now slated to be one of the fastest if not the fastest market across Asia in terms of GDP growth.

Just conscious we have 9 more questions online. There's a few that have come in online as well. We'll respond to the technical questions. There's one on IFRS yield curves, which is very technical. We'll come back to the individual on that one. But maybe we'll go back to Sebastian and we'll go back to the next caller on the line, please.

The next question is from Larissa Van Deventer from Barclays.

Two for me, please. My apologies for the voice. The first on margin expansion. You've spoken about health growing 20% year-on-year and in the rebalancing of bancassurance relative to the other portfolio. On a 4-year view to your 2027 benchmarks, do you believe that it is possible (technical difficulty) of how do you see the margin involved within that context? And the other one if I can just get back to the very first question we had on Hong Kong. We had 3 years of income savings, but arguably only 1 year of critical illness riders coming through in last year's volumes. Can you give us any sense of how much of last year's volumes were pent-up savings that are unlikely to occur?

Thanks for those questions, Larissa, and it's good to hear from you. On the margin expansion, you're absolutely right. We still believe we have runway to improve production mix. If you look at 2023, health and protection contributed to roughly about 40% of the new business profit and we grew new business profit by 34%. And as we look at some of the demand drivers not only in China and Hong Kong, but pretty much across the region, we believe that we can do more there, right? And it kind of comes down to products, it comes down to how we cross the value proposition, how we train both our agency as well as our bancassurance partners.

And you simply have to look at the pivot that we made in China and the margins on an ex economics basis due to the product mix and the protection again was a part of it did increase by 8% on an ex economic basis. On the Hong Kong part, I will turn to Lilian. Suffice to say obviously health and protection related products is a key focus area for us and we did launch a few products that Lilian can provide you greater color on to be able to deepen and broaden our relationship with customers in Hong Kong. Lilian?

Okay. Just on the pent-up demand. So if I look at 2023 in terms of the MCV case size, it was offering about over USD 20,000. But in the second half, it actually normalized to USD 18,000. So I believe that the first half, the pent-up demand is now normalized at the USD 18,000 and we are seeing that trend continue into 2024 for 2 months. So I think that's the pent-up demand and we're now seeing a normalized case size in 2024 as well. In terms of driving customer proposition, we continue to innovate our product proposition. Firstly, on critical illness. We actually innovated our critical illness products to actually deliver for the family life stages and with that, we see an increase in our health and protection growth in APE and we continue to do so as we move forward for 2024.

Just to be clear, USD 18,000. So we did see a spike in MCV in March and April of last year and then it normalized to roughly about USD 18,000 and that's what Lilian was alluding to that it continued in quarter 3, quarter 4 and into the first 2 months. And to your point on pent-up demand, our customers are largely emerging affluent and affluent. And if you then look at the savings rate in China, China has one of the highest savings rate in the [syndicate] deposit velocity growth in China last year. So we believe that's going to be the source of we being able to kind of provide a different value proposition to address those customer needs.

Let's try another one on the line. We've got a bit of an extension of time, which is a unilateral decision, but got a few queued. Sebastian, do you want to bring the next caller in, please?

The next question is from Andrew Crean from Autonomous.

Two questions, please. Firstly, your $0.7 billion in investment in new businesses I think at 100% of economic capital. 150%, which is I assume where you'd be really targeting the remittance ratio it goes from 80% to 100%, which means that everything is being paid up. Is that a fair thought and therefore, is there any ability to increase the remittance ratio above that? And secondly, your group surplus is $8.5 billion and your group cash $3.5 billion. Could you tell us how much of that is actually excess to your requirement? And also could you talk more explicitly about when you're comparing buybacks to acquisitions, what are you holding as the key comparative? Because it's all very well. You can always do a banca deal, which on a 10-year view will be more value accreting than a buyback, but that's hardly holding your feet from the flame.

Thanks for those questions, Andrew. I'm going to ask Ben to speak to economic capital and the group surplus and then I'll be happy to kind of address your question on buybacks.

Okay. Andrew, thanks for the questions. I mean I'll try and be brief. You are correct on the 150% point. We brought up some stock from the Hong Kong business and that's 1 reason why I don't think we'll be repeating the 80% I referenced earlier. And in fact you should expect a number like 70%. In terms of the surplus, the $8.5 billion free surplus you referenced. In practice I think as we talked about at the half year, roughly half of that is accessible, if you like, and ultimately deployable for use organically, inorganically and in terms of investment and capabilities. In addition to that, Andrew, as I'm sure you will have seen, we're operating at the lower end of our leverage ratio. So we have some flexibility there as well.

Specifically, Andrew, on your question on returning back to the shareholders. As I said right at the outset, that's an option that's always in front of the Board. Just to remind you that we are only in the second quarter of the execution of our strategy that we announced in August of [2023]. We believe our opportunities across not only distribution expansion or expanding our reach to bank distribution. But we spoke about technology, we are creating technology both that will help enhance customer experience, but also enhance distributor experience. And you know how important that is both to drive retention and higher stickiness with our customers. but also ensuring that becomes a huge retention tool for our high performing and active agents.

Likewise, Solmaz give you a lot of color in terms of health. We are looking at opportunities to be able to drive health partnerships. We are also looking at opportunities for example in a market like India where we can establish a health business outside the joint venture. So there are opportunities and when we look at some of those hurdles, we keep the bar really high. Again just to reiterate, every single dollar of new business profit -- sorry, every dollar of investment that we put in does generate $3 to $4 back. And that is something that, as I said, is going to be our ongoing focus. But I do want to reiterate that returning shareholder back to our investors is always an option in front of the Board.

Let's go to the next question. I think there's a couple more.

William Hawkins?

Two, I hope, brief. Can you tell us in the growth markets, what happened in Taiwan and what's the outlook there? That seems to have been a quiet success in the second half of the year and maybe if you could tell us what the new business profit was in '23 versus '22, please? And then secondly, in the narrative around Slide 29, you made reference to medical reimbursement issues, which we know is an issue in the region. Could you just tell us a little bit about the scale and the outlook for that comment so for Slide 29?

Thanks for those questions. I'll be really quick. We're pleased with the Taiwan performance. It was largely predicated on a differentiated value proposition that we had on our power offering. As both Ben and I mentioned earlier, we have significant experience on crafting and developing power products and that is something that came to the fore in Taiwan. We believe that continues to be an opportunity. But we, at the same time are also looking at diversifying our product mix, which Lilian and team are again actively working in the Taiwan market. In terms of medical reimbursement, I'm going to turn to Ben to respond to that question. But suffice to say, this is one of our big focus areas as Solmaz mentioned, right? We are looking at claims, we are looking at adopting technology, we are looking at being much more disciplined on repricing and we've again demonstrated that in our 2 larger health markets of Malaysia as well as Indonesia. Ben?

Yes. And I'll talk with a few numbers, if I may, William. So very briefly, mortality as a risk for us has been good. We've had continuously small positive variances for many years and we look to retain more and more of that risk going forward. On the morbidity side, pre-COVID typically small positives versus assumptions for us. They grew during COVID as the people deferred the kind of non-medically necessary treatment. Post-pandemic we're seeing much higher utilization rates of medical reimbursement products. This is across our 4 major medical markets and we're seeing higher medical inflation. We've got a strong U.S. dollar to contend with at the moment. A lot of health goods are effectively priced in U.S. dollars. All 4 markets have taken actions to reprice. Of course we annually reprice these products and particularly in Malaysia and Indonesia leading the way in that regard. There's a lot of claims management actions that have been put into swing. We've been prudent. We've set up a provision for around $200 million and our expectation is that, that $200 million caps the negative experience variances that we've seen.

I think we're going to squeeze in 1 more and then we'll pass over to Anil to close off. Sebastian, if you keep going.

The next question is from Dominic O'Mahony from BNP Paribas Exane.

Let me stick to 1 question. It's really for Ben. On Slide 36, I'm just looking at the OFSG trajectory and I suppose I'm just trying to work out how you can get to the $4.4 billion because it looks like it could be quite tight. Just to run through some numbers on this. You've already disclosed as of full year '23 you've got $2.3 billion expected emergence in '27. On my back of the envelope if you keep growing your new business, service generation, you can add $800-ish million to that, you might get about $300 million expected return. Let's say, I mentioned, the $300 million to $400 million. That's $3.7 billion to $3.8 billion. Which bit of the equation am I missing? Are you going to really massively increase the new business contribution in the next 3 vintages or is it action from the investment plan, which is going to revise the baseline or are you expecting operating variances to come back and turn positive by '27?

Dom, it's a great question. I think a couple of things. One in terms of business experience absolutely getting back in line with assumptions or better than. And just to remind everybody if you look back to 2010, our operating experience and assumption changes have added some $2.8 billion to our embedded value. So yes, we absolutely need to tackle that. In addition, Dom, I think we're at the very early days of course of our strategy, a couple of quarters in. I think there's a lot more we can and will do in terms of agency productivity. I think that's going to help our sort of velocity of cash flows. Equally I think there's a lot more to be done on the health side that will help. In terms of the 2023 new business cohort, I think a bit more normalization in country mix versus past years will also assist. So I think they are the points for me perhaps to factor in.

I'm going to turn back to Anil just to close off for a few seconds before we can close the call, Sebastian. So Anil first.

Thanks, Patrick. And thank you for those questions. And both Ben and I will be on the road towards the start of April in fact starting tomorrow in Asia and then into U.K. and into North America in early part of April and we'll be happy to dig deep into some of those questions. Importantly, the message that I want to leave with you is we are delighted with the 2023 performance.

It just simply underscores the underlying strength that we have with respect to our distribution, with respect to the quality of relationships that we have with our customers and importantly, the quality of talent that we have in Prudential. We are only in the second quarter of the execution of our strategy and we are also pretty pleased with the early progress that we are witnessing against the execution focus that we are employing on our strategy. And a combination of these factors gives us that additional confidence to be able to deliver the financial and the strategic objectives that we unveiled late August last year. Once again thank you for your time and we look forward to keep the communication going. Thank you very much.

This concludes the conference call. Thank you all very much for joining. You may now disconnect your lines.