Prudential PLC (PUK) 2021 Q2 法說會逐字稿

Good morning, all, and welcome to the Prudential 2021 Half Year Results Call. My name is Lydia, and I'll be coordinating your call today. (Operator Instructions)

It's my pleasure to now hand you over to your host, Mike Wells, Group Chief Executive. Mike, please go ahead when you're ready.

Thanks, Lydia. Welcome, everybody, to our conference call for our resilient 2021 interim results and the news on Jackson. I'm delighted to be joined today by several members of our leadership team, including Mark FitzPatrick, our Group CFO and COO; as well as Nic Nicandrou, CEO of Asia; Ben Bulmer, who's interim CFO of Asia; and James Turner, who's our Group Chief Risk Officer. Welcome to them all. Make some short remarks and then we'll go into Q&A.

I appreciate the sheer number of companies reporting today, so we'll try and keep this tight and then thank you for joining us again. I appreciate it.

First, I want to pay tribute to our staff and agents of the group that have -- sadly have passed as a result of COVID, including a number since the year-end and my condolences to their families and their loved ones. We're of course, taking steps, as you would expect, to support them and their families in this very difficult time. Notwithstanding that, our continued focus on our staff, their efforts to focus on customers have proved incredibly adaptable and dedicated and resilient once again.

And I think on behalf of all of us, the management team, I want to record my thanks to all of them. They've really done a phenomenal job for you. You should just see by the breadth of the results and the amount of strategic work completed in this difficult environment.

Turning to the key strategic priorities for 2021. To pursue a pace in an independent Jackson and then to enable our investors to fully benefit from the opportunities in Asia and Africa. On the first priority, we announced further substantial progress in the journey. As you know, on August 6, the Jackson Form-10 listing was declared effective. So we've now called for a general meeting on the 27th of August. And again, subject to shareholder approval of that meeting, the proposed demerger will be complete on the 13th of September.

And the second priority following the completion of the proposed merger of Jackson, will be in the final phase of our transformation of Prudential into a pure-play Asia and Africa group, which we think has exciting and substantial growth opportunities.

So let's move in a bit to the details. Firstly, the Jackson demerger process is now in the final 5 weeks or so of execution. It will come to market with the ticker JXN. And Jackson has a clear strategy to deliver shareholder returns in its first full year after the merger, and then we'll have an RBC ratio at or near the target range of 500% to 525%. The management team is starting its formal marketing engagement, and we'll host a virtual teach-in for the sell side on the 17th of August. So you'll be hearing from them directly up to and then post the day of the completion on September 13.

Secondly, our interim results. Again, another resilient result, APE of 17%; new business profits up 25%; IFRS, up profit of 19%. This continues our track record of strong growth in all of our key metrics despite the ongoing disruption in some of our markets due to COVID. I'd also point out that the growth market segment, which includes, for the first time, Africa is now making an increasingly difference in our results. I'm very pleased and proud of them.

And in terms of strategy, in our big growth markets, we continue to expand our distribution, capabilities, product set, including in digital to build out our capacity for 50 million clients. In our more developed and historic markets and those with substantial COVID disruption impact, we have to run a nimble business model and we're making changes to take into account the operating environment. This means focusing on appropriate actions on efficiency and staying close to existing customer bases, and so maintaining again that renewal premium and the associated embedded value.

Looking forward, we expect the vaccination programs being rolled out to facilitate a gradual return to normal. That includes economic patterns, although the pace and their effect are going to vary substantially, we think, by market. We expect Hong Kong and Mainland China border to remain closed at least for the balance of the year. And we also are -- we are considering still the raising about $2.5 billion to $3 billion of equity following the completion of the proposed demerger of Jackson.

In the long term, again, right business model, right markets, and we have strong diverse local management teams and dedicated staff, I think, to drive substantial growth. So further out, we're focused on those large markets with significant structural demand drivers and opportunities to strengthen our position further. This next phase of our growth is all about disciplined execution and consistency.

So let's go to the Q&A session. And I realize that several of you in Europe, you've got a lot going on today. So let's open it up for questions and see what you want to talk about.

(Operator Instructions) Our first question comes from Fulin Liang of Morgan Stanley.

So congratulations on a very good set of results. I have three questions. So the first one is, we noticed that the Singapore and China has been growingly important for the group. And I just wonder, actually, because in Hong Kong -- when Hong Kong was the most important region, you had a bit of a back-end loaded IFRS profit kind of challenge from the Hong Kong with-profit business. I just wonder whether that kind of -- we will see the same situation in Singapore and China as they are catching up. So that's the first one.

And then secondly is in Hong Kong, you're on a -- from a quarter-to-quarter basis, your new business margin actually improved despite that the U.S. yield actually went down during the quarter. I just wonder, actually, could you just give a bit more color on what have you done to improve the margin in Hong Kong?

And the last question is, again, with Hong Kong. We understand that the kind of -- because you have kind of many of the high productivity agents actually specifically aiming for the Mainland Chinese travelers to Hong Kong. I understand that they've been kind of trying to transform themselves. But as the lockdown actually extended, I just wonder whether we will see some kind of people movement for this bench of agents? Will they consider actually moving back to Mainland China or so therefore, will impact your future sales when the lockdown actually lifted?

Or the other way is -- yes, maybe another question, what kind of support are you going to give to those Mainland Chinese kind of agents in Hong Kong?

So I think there's some structural differences in what our product sets are in those markets. Mark, why don't you address the cash flow and the embedded value signatures of Singapore and China to start? And then maybe, Ben, if you talk about Q1, Q2 margins in Hong Kong and the health of agency and what we're seeing in Hong Kong itself. So Mark, why don't you take the first question?

Thank you very much. So in terms of Hong Kong, U.K. style with profit funds, we have those in Hong Kong. We have those in Singapore as well. We don't really have to do the same extent in China. So we wouldn't see that element of that kind of profile.

In Singapore as well in terms of the product mix, you'll see us actually starting to shift a little bit more towards linked products going forward and a lot of on the health and protection component. So we don't think it's the same size or same scale of back-end loading that we have in Hong Kong. So Mike, that's the response to the first question.

Okay. Ben, on margins in Hong Kong improving?

Yes. Thanks, Mike. So the key thing there really has been the pivot to domestic protection business. We've been driving the HIS sales, and that's where the government is encouraging private plans with tax concessions. So we successfully launched a very popular medical product there. And that's helped margins on the agency side of things. Equally though, on the bancassurance side, we've managed to pivot the bank to a greater concentration on health and protection offerings and trying to meet customer needs in that regard as well as savings. So a very, very strong business mix performance driving the Hong Kong margin.

Thanks, Ben. Nic, do you want to talk about health of agency in Hong Kong? And...

Sure. So I mean, a number of initiatives are ongoing. Clearly, our focus is continuing to have those agents engaged. The -- so what are the kind of things that we're doing? There's continuous training on new tools, particularly technology as we pivot some of the tools that underpin ongoing fulfillment servicing to Pulse. Ben just referenced new products. Of course, those new products are at the moment being made available to the domestic segment, but also have relevance to the MCH segment once the border reopens, so there's training on new products.

Continuing professional development and qualifications is key. Clearly, they are required to do that every year. And just as an indication, even though the deadline for completing that for 2021 is 31 October, 80% of all our Mainland China, predominantly Mainland China focused agents have already done it. So that's a signal of intention. They want to keep their contract, they want to maintain the contract with us and as we go forward.

And a large proportion I've also pivoted to starting to do a share of domestic business, led by -- or fed by the leads from Pulse. We've had 800,000 downloads, the vast majority of those are new to PRU-users. And we've been able to distribute some of them to agents that perhaps in the past have solely focused on Mainland China.

We are confident that they will return, as I said, because they continue to keep active is high. And the final point I would make is that there's still significant amounts that are being paid to them in the form of trail commission for a business that's been written effectively before the border was closed, and a significant amount that are due to them through long-term incentive plans that are -- that have been issued that come to vest in March '22, that come to vest in March '23. There's a lot of both financial incentives but also operational activity, which supports our confidence that they're engaged and they're waiting for the border to open.

And thank you for those questions. And obviously, we're pursuing in gearing to pursue some of the opportunities that come with GBA initiatives as well.

The next question comes from Kailesh Mistry of HSBC.

First one is on users value in China. Obviously, you had strong performance in the first quarter, moderated in the second quarter. But overall, it's still probably even much better than the industry. Can you provide some color on why you feel you underperformed -- sorry, outperformed on that front? Is it simply your distribution is more stable?

And outside of the first quarter in China again, are you experiencing the same customer reluctance for buying long-term protection and the move towards short-term health. So that's the first question. The second question is, again, on Pulse in China. Does the sort of development on the regulatory side with respect to data regulation into that regulation, et cetera, in any way affect your desire or ability to eventually operate in that market?

And then thirdly, once the merger is completed, what strategies can you employ to increase the stocks appeal in Hong Kong. Obviously, you've got the capital raise, which can help to improve stock liquidity. But is there anything that you can do in your power to get included in stock indices and stock events?

Yes. So -- all right. So Nic, I'm going to bring it back to you on mix in China and some of the success we're having there and why it's up -- basing the market by the level is. On -- let me address Pulse directly. The -- so with the data regulations, what you see with customer data, first of all, you comply with everyone's regulation every market you're in. There's tremendous consistency though, between what is the EU standard, we originally built our data models effectively to internally and then what the Chinese regulations are. The differences are things on reporting frequency of our cycle of a breach being immediate instead of 72 hours, things like that.

They're not materially different. And you're seeing this, I think for everybody's benefit with capital regulatory models, too, there's a convergence in principle. So no, there's nothing -- the data is country by country. So our group-wide supervisor doesn't see all the data we have in different markets. Every regulator wants that of protection locally. Clouds tend to be adjusted locally. We use this independent cloud, for example, with Ali Baba in China. There's -- so those models are national and structure for the most part, and certainly, the management of the data.

But the primary pressure on data protection is consumer. Because if you think about the -- it's a trust factor. And so our focus on that is are -- we are we protecting the consumer data, we're accessing only parts of it that a customer would be comfortable with. And as we get more and more data about customers, we discussed this a lot as a management team. We discussed it in our boardroom. We have ethics policies on AI as well as data privacy. And I think, candidly, I think they exceed the market requirements because you're dealing with a consumer relationship here that's going to be valuable to us, and we don't want to -- it's fragile if you make a mistake in that space.

So I think that's our overarching standard. But from a country-to-country point of view, there is -- I would say there's an intersect on the demands, not dissimilar to what you're seeing with the various capital models. Everyone -- every regulator we have and every market expects data privacy to be maintained and is unaccepting of a breach. And then access is hypothetical and who's going to want what and there certainly isn't anything coming out of China on insurance that's concerning to us. So no, it's not affecting our Pulse -- our view of Pulse options in China.

On that, and I'll just touch quickly on the liquidity. So liquidity on the exchange -- trading on the exchange in Hong Kong are key elements for indexation inclusion and Stock Connect. And I think our shareholders understand that, and I think the interest we're getting from investors in Asia. I think there's -- we'll see how much trade there, but the requirements are public and we know what they are. And one of the benefits, I think, of the equity raise is -- could help us approach that. We clearly see value in both those two structural changes.

And so we'd like to see them happen. But other than that, I can't comment on where people will trade, that's a shareholder decision. But as you see more coverage moving to Asia, as you see more investors coming from Asia, I think there's a natural trend towards Hong Kong liquidity. So well, hopefully, the equity raise accelerates that a bit. Nic, do you want to talk about China, the success we're having versus the market and -- and that's the first question, if you would.

Sure. Kailesh. So the good returns or the high returns that we've achieved in the half, I guess, in the second quarter was the question specifically, are really a function of the kind of products that we are pushing that are long-duration products, health and protection. And the fact that we've got both our channels, whether that's the agency channel and indeed, the bank -- the bank channel appropriately trained and equipped to continue to sell those.

And it's no more complicated than that. And that's really what's driving us retaining healthy margins in the high 70s, low 80s on agency and in the 40s on the bancassurance side. We're adding relationships. We are strict with agents in terms of the mix and the quantum of business that they write, enforcing contract maintenance rules. And we're not looking -- we have not really introduced products that are shorter in duration. So we're keeping the discipline.

Our next question is from Farooq Hanif of Credit Suisse.

Congratulations for me, too. Just on your GWS model. Can you just talk about the downward interest rate sensibility. I mean, it's really high, not that anybody is talking about lower yields anymore, but I just wanted to understand that asymmetric nature.

Secondly, also on GWS, what is the capacity of debt that could be grandfathered if you wanted to increase and how close the limits are you -- on the GWS framework?

And then thirdly, can you talk a little bit about the COVID-19 claims risk. So I mean, health and mortality claims risk in 2H going forward and whether that will become a material drag on your reported IFRS earnings?

So Farooq, thank you. Mark, I'm going to have you handle the first two and Nic, the third. But the general comment on the claims, Farooq, I think what you're seeing is still where we're 55,000 claims, both medical and depth is not a number we want to see. It's a fraction of what we'd normally see in medical claims.

So we're still running below those levels. I'll let Nic give you a little more color. And Mark, do you want to talk about GWS, the rate sensitivity and the debt structure in it, what's miscible, et cetera.

Yes, certainly. So Farooq, so in terms of the interest rate, stress, the 50 bps. A 50 bp fall in rates really would ordinarily kind of slightly increase surplus as the high asset values are kind of only partially offset by the higher liabilities. At the lower rate, effective sensitivity of the Hong Kong liabilities to change in the VIR are based on a more prudent NPV basis, resulting in a duration the kind of liabilities that's longer than the asset duration. But we're all very comfortable with that. Actually, the way it's shifted in terms of Q1 versus Q2. We're comfortable with the direction of that particular piece, that particular component. And it is a slightly larger number than some of the others.

But actually, at the level we're at, it's not something that's causing us any particular concerns at all. As regards to limit, the limits in terms of the capital structure, we're actually fine in terms of how those are positioned. In terms of the senior debt, we're very pleased that the hedge-K agreed to that and approved that component. You've seen that coming through. So we're very comfortable. We've kind of met all our tests with good headroom. So we have no concerns in terms of that particular piece.

Just following up very quickly on interest rate stress. So basically, you're saying it's complexity because of the new environment in Hong Kong on that with profit input?

Yes.

Nic, on -- do you want to give a little more color on claims, if you would?

Sure. So 55,000 claims since the start of the pandemic, just to give you maybe some additional data points, 18,000 of those were last year. And in the first half of this year, you've seen that number go up to 37,000. Of these -- so that -- yes, so there has been, if you like, an acceleration, but it's still relatively small when it comes to the totality of the business as usual type claims that we face in a normal year.

Pre-pandemic, we were paying 110,000 cases -- claims cases a month. So normal claims are still not yet back at that 110,000. They dropped to 90,000 last year, they're back up to 100,000. So that's what's we're seeing. But 90% of the COVID-related claims, if I can go back to the 50,000 come from Indonesia and India.

So Indonesia has been a market, which has borne the brunt of both hospitalization and death claims, 70% of those cases were from Indonesia. 20% of those cases were from India. The rest of the market is more modest. And with, if you like, fully jabbed proportion of the population, only 10% in both of those markets. The single jab are 10% in Indonesia -- sorry, 10% in India, 20% in Indonesia. It's still likely that we'll see some more COVID related claims, particularly in those two markets as we go into the second half of the year.

So basically, just your frequency benefit, otherwise kind of has absorbed this?

Yes, overall, we're still positive in terms of experience.

Larissa Van Deventer of Barclays has also registered a question.

I'd like to focus on the impact of COVID in the second half and growth, please. On the impact of COVID, you do mention that it is still an issue in some of your markets. Can you please give us an indication of the areas were you most concerned and the impact having on demand for products in those areas?

And then on organic growth, you mentioned that as your first priority for deploying capital. What is currently taking up most capital? And can you give us more insight as to where your preference would be to deploy, especially in light of the capital raise you plan to do later in the year?

Most certainly do that. Nic, do you want to talk about markets that are most impacted and Mark talk about the use of capital and I think the overarching comment on the capital is we fund growth. There is no market that we're restricting on organic growth. But I'll let Mark give you a little color on the deployment of that capital in just a second. Nic, do you want to do COVID impact and impact on demand and some of the product innovations and things we're doing to address that?

Okay. No. In the appendix slides that we posted up on our website, there are two, and I'll reference them now. I'll just talk you through some of the key messages that effectively speak to your question. And the Slide 30 is a normal chart that we show on the severity of otherwise by market over a time period.

And Slide 31, which is the -- define vaccination rates. So what -- and we've extended this to cover July and August. So it's up to speed. So the markets that have -- what started in India in April and May quickly transferred to other parts of Southeast Asia.

So where we are today is countries like Malaysia, Vietnam, Thailand, and the Philippines are at, if you like, the highest level of infections that we've seen pretty much through the pandemic. Indonesia come off a peak. Clearly, India has come off a peak. And only amongst our markets, the ones that are looking a little more normal are Taiwan, Singapore -- Taiwan, Singapore and Hong Kong.

Where the impact will be more noticeable, I guess, in terms of the restrictions is a combination of red color on Slide 29, which is the most severe restrictions and a low vaccination rate.

So the Philippines, Vietnam, Indonesia, Thailand, where vaccination rates are still relatively low, the double jab people are anything between mid- to low single digits to teens and a high rate or a severe rate of infection is where we're going to -- where we're seeing some challenges. Malaysia, while the challenge is a very fast vaccinating its population.

So any impact will be relatively short-lived. So that's really the picture that we're seeing now, clearly, against that backdrop and why you've seen the resilience of our performance through the second quarter where, as I said, which was probably the worst quarter so far since COVID started. What's giving us the resilience, it's new products that we've launched. And if you go back the last 18 months, we've launched more than 270 products. 180 of those are health and protection, many stand-alone protection products, much simpler products are looking to appeal to first-time buyers, particularly from the mass segment. The use of Pulse, the number of downloads and now are improved ability to convert those users into sales, 156 million through agency.

The extension of bank relationships with professionalizing of agency and also, more importantly, the use of virtual face-to-face technology. That's critical from both channels. In agency in the second quarter, nearly half the business that was -- the cases that were written were done virtually in banks, that was 26%. But if we look at June specifically, the numbers were 60% in agency and closer to 35% in bank.

So that -- the familiarity of both the distributors but also the ease with which consumers are now prepared to do business on -- through that virtual face-to-face is also giving resilience to our -- to our businesses. So that's the landscape as we see it -- as we go into the third quarter.

Is it fair to assume then that although the -- it may be going worse from an infection perspective, it is unlikely to be as bad as the first lockdowns we saw with (inaudible) sales volume?

Well, as I said, vaccination is -- vaccination rate is improving. If we look across our markets, the percentage of people that have had at least one dose at the end of the first quarter, that number was low single digit. That jumped to around 24%. This is across all our markets, right. By the time we got to the end of June, and it's now -- the very latest figure is 30%.

So again, that -- at one level, you can say that pace is increasing, and that gives more confidence at one level and another way of looking at it, 30% is still low. And as I said, for the vast majority of places still a single jab.

So I can't tell you whether it's going to be sort of worse or not. But Q2 was pretty bad. And in a number of markets, that have -- in terms of the backdrop, in a number of markets, I said Malaysia, Thailand, Indonesia, Philippines and Vietnam, the infections are still at a high level.

And Mark, do you want to talk about capital deployment?

Sure. Larissa. So in terms of capital deployment, our capital allocation framework really is kind of -- defined by the opportunities we see for profitable growth in each market. And as we've set out, we see the most significant opportunities for growth in life insurance and asset management and the four largest economies in our footprint and those as we've called out are China, Indonesia and Thailand.

And we do apply the kind of the same rigorous capital allocation and pricing disciplines to both organic and inorganic. But typically, we see higher risk-adjusted returns from the organic investments. Now vis-a-vis the equity raise that we're considering, the intention around that is to effectively to accelerate delevering which would then provide the flexibility to pursue opportunities for further growth, enable us to do more and consider more through the capital allocation framework. But the capital allocation framework is core and center to what we do, how we do it, and we spend a lot of time with the board going through that in terms of shaping our thinking.

So if you say you're looking to accelerate deleveraging, does that mean that you may consider doing early (inaudible) redemptions on your debt?

So we've highlighted that with this I think about $2.25 billion worth of debt that's passed as first call date, relatively expensive debt. So that will be the debt that we probably look to move on first. And that would bring our leverage down on a pro forma basis to low 20s, and that would save interest cost of about $125 million per annum thereabouts.

We'll now go over to Patrick Bowes, who will be reading out your questions from the webcast.

Thank you, Lydia. There are three questions, Mike. First question is from Temasek. Could you please share more color on the potential equity financing post the demerger and the targeted size range for the new issuance?

Second question is from Justin Floor at PSG in South Africa. Two questions on Pulse. What are the penetration rates you're expecting as a percentage of APE and what value of new business margin do you earn on Pulse sales in the past quarter and how are the economics evolving?

And thirdly, from credit sites in Singapore, I think it is, please confirm whether any conditions surrounding the grandfathering of debt under GWS and does the regulatory capital loss for the remaining duration of the bonds?

Okay. Mark, I'll let you discuss the credit we're getting for debt in GWS. On the equity financing, so we've said $2.5 billion to $3 billion is the target. We're staying with those comments. We think that's appropriate given the -- some of the comments Mark's made today on what we'd like to do with capital for, again, retiring debt and just increased financial flexibility.

Listen on Pulse. So it's roughly 10% of APE now in the markets it's available in. It's early days on some of the other metrics. I think there's a -- I appreciate it's a fair challenge that you value this like a insurance company or earnings or dot-com sort of metrics. But what we're seeing for sure is high interest in the platform, a decade younger consumers coming on the platform, and we have some freemium to premium services, if you will, so effectively 0 margin. But relatively low acquisition cost to clients and very effective acquisition of clients and then it's produced millions of leads for our agency channel. I think of it as -- and I think we've nodded clearly that we're looking to add wealth components to it next.

So it's the front end of Pulse, and I'd say that, and that's -- those are all consumer-facing elements of Pulse. What's definitely measurable is an absolute increase in new client count to Prudential at age brackets, we weren't seeing before or harder to get to before. And consumers definitely like some of the interactive tools on it that allow everything from symptoms checker to tell of medicine to -- in some markets, it's got digital payment capability where that's a -- if you take a market like Indonesia, that's a key element socially, not just health inclusion, but financial inclusion.

And then on the back-end side, which we don't talk about as much. There's operational efficiencies as we move more and more of the operating platforms to these more cloud-based tech light sort of product models, which should, over time, bring our operating expenses down and our ability to -- for product generation faster, marginal costs lower, all of the sorts of economies of scale you'd expect. But that's a journey we're on. We're not there yet. We're still working that hard, and that's one of our ambitions.

And I think as I've said on previous calls, an element of the service being mobile-based for -- as are just calling it digital for a second with consumers, insurers have been a little late too. There's a lot of -- there's various arguments for that. One is you often only interact with an insurer a couple of times a year. I've heard others. But we think in the very, very short-term future, very closed in. It's a client expectation and that we're seeing is much more frequent interaction with that with Pulse. So that's a good thing for the business model, and that's a good thing for us to adjust our offerings to consumers as we see what they need, and it's getting us to go into channels and partner with digital providers we haven't partnered with before to make Pulse available and our services available. So I think it's too early to draw value of new client metrics, cost I mean, some of these are -- it's blended as we're digitizing all of our channels.

So I don't want to give you a target set on them. We just know they're all growing. And they're growing by age cohort, usage, all the things that we want to see, and we'll continue to -- as we think that the stats are old enough and mature enough, we'll give them to you. But right now, I think there's just early days to get any more granular than effectively 10% of APE in the markets where we have Pulse available. And again, that's primarily through the agency channel. So that's equity, that's Pulse. Mark, do you want to talk about grandfather terms on debt structures with the regulator?

Sure. So in terms of grandfathering of debt, we have granite following for -- of the debt for 10 years and then the credit amortizes 20% per annum for the following five years. And I think if you look at the debt stack, that covers pretty much most of our -- pretty much all by one of our debt. So we have lots of opportunity to refinance it if required before grandfathering expires. But I'm very comfortable with where we are and no conditions other than that.

Patrick, any more questions? I appreciate it's a busy day for people.

No, back to Lydia.

Our next question comes from Andrew Crean of Autonomous.

I had three questions, if I could. Firstly, are you prepared to say now or perhaps in the future, the boundaries on your LCSM coverage ratio as to what you feel you're comfortable operating within?

Secondly, just coming back on this issue, I noticed that with profits is about just over half the reserves, but it only contributes about 3% of the profits, the traditional with profits. Do you think as you move into the new world that it would be worth considering closing the with-profits funds and writing shareholder-backed participating business, which has got higher and earlier cash margins.

And then thirdly, as you come down to an Asian business, what are you thinking and sharing with people about the layers of management at the top?

Okay. So at the very top, I guess, is me. So let me address the last one. And then Mark, I'll have you address the other two, if you would. So Andrew, the -- what you're going to continue to see us evolve the business model. We've got a lot and the structure of the operating model. We've got a lot of work to do still. But again, we brought down, as you watched the central cost. We have about 60% of our home office roles now in Hong Kong, the balance in London. No intent of closing London and will delayer the organization in combined roles as we've continued to do over the last few years as the structure warrants and as the workflows warrant, it's a -- we're not making any announcements on that today.

And I think it's -- you've seen us give targets on the cost side. The business model will reflect -- we think the targets we've given you give us plenty of room for an appropriate management structure for the business going forward. I just -- I would say that the needs of the business have evolved and you've seen us -- again, we spend more on digital, we spend -- how it's structured is different than some of our competitors. So the major business units that we have in Asia, we expect to run as if they were listed with no intention of listing them. So they're very well built out. And then you've seen us use the structural growth markets where we -- our home office and our teams support them more because they're earlier in their development, not necessarily early in the development of the market, but sometimes it's bad and sometimes it's our position there is newer in the case of Africa, for example. And so we're putting more resources there that would be considered (inaudible) home office.

So I think it's going to stay a dynamic model. We'll keep it fit for purpose in a number of people, including senior people, and we'll keep it fit for purpose and expenses, and we're pretty clear on our targets. Mark, do you want to talk about boundaries on LCSM and we have no intention of closing with profits, but do you want to talk about the shareholder versus with profits question?

Certainly, Andrew. So firstly, in terms of GWS, as it's now called in terms of the capital regime, it's -- that regime is now 3-months old. So I'm probably going to let you kind of marinate mature, if you will, for a little bit before we start looking at the element of any kind of boundaries or layers. We're very comfortable with the 383% and we'll continue to work with the regulator and see how the market publishes its numbers in due course. And just make sure that we're in a good place. We're very comfortable with where we are with the GWS coverage ratio. On the (inaudible)

Going to Hong Kong -- sorry, just on that, would you be going to the Hong Kong RBC early adoption of this time next year?

So Andrew, great question in terms of Hong Kong RBC. We are working closely with the Hong Kong Insurance Authority. On the RBC, we do expect Pillar 1 rules to be finalized this year. The HKIA are currently developing plans to enable early adoption, and we're working closely with them. And we are very keen to adopt an economic capital regime that's aligned to our capital allocation framework. We think that will reflect the business very well. So we are working closely with that, and we remain optimistic in terms of timing on that particular patch.

On the with-profits fund, so a couple of points. I mean, firstly, what Mike said, look, we're not looking to close the with-profits fund. It generates good shareholder IRRs, both do, both shareholder back down the with-profits fund. We have started and we started at the back end of last year shifting some of our mix more from with-profits fund to more shareholder back so exactly what it is you're saying. You've started to see that come through. You'll see that coming through as we continue more of that pivot.

We think it's good to have an appropriate balance between the with-profit fund and the shareholders' funds. The spend of the with-profits fund is an incredible competitive advantage. It gives our customers great comfort seeing the strength of that thing that cover that, that has seen the performance of that fund and seeing the element of support that it can actually give consumers. So it's good for consumers, it's good for agents in terms of selling the product. And we're looking to try and make sure we have an appropriate balance, but we are definitely looking to shift that balance to create more shareholder back. And that was one of the things that we highlighted when we spoke about the pivot about this time last year.

Our next question comes from Greig Paterson of KBW.

Can you hear me?

Yes.

Three questions. One is, it always puzzled me you've got $34 billion of Asian value of in-force. I'm sure the reinsurance companies would love to securitize that in the full financial reinsurance. Why did you not make that sort of capital as opposed to an equity raise, which typically doesn't go down so well with the shareholder base. That's question one.

Second one is in terms of China and India, and Pulse where you -- previously, you've said -- because those markets, I don't believe you have the Babylon relationship. And I think Nic said a while back that they would consider buying into Babylon relationship in those two markets. I was wondering what the sort of price tag would be on that.

And then thirdly IFRS 17, I know last time was in Hong Kong, spoke to Hong Kong players that are all concerned about the whole project of size and the implications. I wonder if you could just update us on your IFRS 17 plans and implications as it pertain to Asia?

Okay. Thanks, Greig. I'm going to let Mark let you have IFRS 17. And just for everyone on the call, the -- what we hear repeatedly is the investors are the ones that want that. So apparently, we're doing that for you. On the -- on the reinsurance first, I think, Greig, it's a hypothetical question in which would have a lower cost of capital or what the demand will be for the equity. So I think it's probably a better debate after the equity raise. We'll see how we do. We think there's a lot of interest in the company, and we think we can successfully raise equity. But again, that's to be seen. We'll -- let's debate that on the next call. I think it's probably fair.

We've not disclosed the Pulse economics. So -- and I think it's -- but we do have the option if we want to go into China and India with Pulse. There are a variety of other -- you're going to customize it for different markets, so there's different considerations in both those markets going in. And so that's a decision that I would say we're still reviewing and creating the optionality to do. Clearly, the demand for digitally supported health inclusion is there. And it's -- and we've learned a lot in the last couple of years on what -- we think it's a competitive advantage, obviously, we wouldn't have focused on it the way we have. But it's -- we have views on what you would do in the two markets.

And for just competitive reasons, I don't want to get into it, but they wouldn't be -- we've not done Pulse -- there is no one Pulse platform from the consumer end. We've adjusted it to every market we're in that's available, and that's not just language or cultural factors. That's the types of services that are more important in that market, and that could be addressing the lack or existence of say, a government program for health or retirement or that could be the existence of digital payments.

For example, in China, that's highly -- our entire business is on digital, Alipay and WeChat versus a market like Indonesia where digital payments and its infancies, but a critical element of development. So the overall relationship is very important. So we customize it in every hit. And for China and India, in particular, you would want to customize it. There is virtual doctor type services are not new to China. There's a fragmented players in India, but -- some of the AI technology we have around self-diagnosis, symptom checker, the Babylon type, some of the other features we have in it are -- would clearly be valuable in those markets. And so we're still looking hard at that. And if we do it, we want to succeed and we want to succeed at scale. So we -- post -- the contract with Babylon would not be a barrier in either market for us. but I don't want to get into the economics with them that's -- we haven't been public with that.

Mark, IFRS 17, you want to talk about the -- some of the elements around it?

Right. I'll try and keep this tight just in the interest of time. Greig, I think IFRS 17, you and I have discussed my views on it and where it's always. But generally speaking, I think we're in a good place. We're spending a lot of time on IFRS 17, it's a large-scale project. It's a complex project, but we've got great guys on the ground. We're getting great support from people and very detailed plans, and we're getting through those, and we're executing per our plans. We will look to be able to update the market at the appropriate time, and we're very keen to make sure that we give you and investors a good run into IFRS 17 in terms of shape, in terms of the decisions we've made, in terms of the impact and implications around those decisions and shape of numbers and things like that. So it is a big change. It's a big data project, firstly, and then secondly, an element of technical accounting piece. But we're making good progress on it across the patch. And as I said, we'll be able to share some stuff with you in due course.

So just one point, just on the securitization of the -- if either you traded in the markets or via reinsurance vehicle. Am I correct in this capacity to release capital from that $34 billion of VIF and it is material?

Well, Greig, we have a good VIF. We have a very strong VIF, securitization, can be -- can be expensive, can be less inclined to try and kind of flesh out an answer on a hypothetical to be honest. We've set out our store in terms of our route, what we believe we want to do. And we think the route of raising equity in the way that we're advocating is important for numerous elements, not least to be able to help address some of the focus in terms of Asia getting greater interest in Asia as regards one of the questions from one of the analysts earlier this morning, getting people more focused on it. One of the ways to do that is to raise a significant sum of money in Asia to get people to look at us and to focus on us a little bit in a different way. So I think that's kind of where our component is in terms of where we're at.

The next question comes from Blair Stewart of Bank of America.

I've got two questions. Firstly, you've talked in the past about the relationship between the recurring in-force premium base and profits growth. And indeed, the two have moved very closely together. The recurring premium base, I think, is broadly flat year-on-year in H1, and it was only up about 6% last year.

Clearly, there's been a dislocation between that and profits growth. I just wonder if you could talk about the reasons why you've managed to achieve double-digit profit growth in the first half of the year against a flat and actually slightly down recurring premium base. Is it simply the fact that, I think claims frequency Nic, you talked about was about 10% below normal levels. Is it simply that?

And secondly, just on cash. Mark, thanks for the slide on cash. I assume there was just over $1 billion of cash remitted in the first half of the year. You've made some comments around that, saying that that's possible. But more than you would normally expect. I just wondered if you can flesh out a little bit in terms of what we should expect from cash remittances as we go forward.

Thanks, Blair. Mark I guess both floor is yours.

Okay. So Blair, the element of the recurring premium component has got an element of kind of with profits and shareholder-backed component. And effective, what we have, for example, at the moment, if you strip out the with-profits component of renewal premiums, you'll see are kind of actually up 8%. So the delta with them between that and the 11% is really an element to fee income, and that helps close the gap.

And in my slides supporting my script for the set piece earlier on today, there's a bit of a bridge in terms of the IFRS earnings, and you'll see those are the key components. There was Hong Kong, there was a high 2016 sales of [5 pay] with profits component, that's kind of reached -- it's kind of -- it's a pay cycle. The policy remains in place until a lapse, but the policies that will continue to generate some IFRS profits, but no renewal premiums from that particular piece. So it really is the shareholder component. If you strip that out. You'll get renewal premiums update and therefore, that helps to bridge the gap.

On the cash piece, I think what we're looking at on the element of the cash, yes, we did bring up more in the first half then we're expecting in the second half cash outlays in the first half higher a, because of some of the bancassurance, the ad-hoc, some of the payments with UOB and with Vietnam and then also the more regular bancassurance payment tends to be more front-end loaded to the beginning of the year. So that, together with the second interim dividend for FY '20 being paid in the first half meant actually, we wanted to bring more up in this half versus next half.

So I'm expecting next half to be considerably lower. But again, my element is kind of we take up what we look at, what we need and what our requirements are. And at this stage, I'm expecting those to be significantly lower than the level we had in the first half.

Can I come back on the recurring premium points. So is the lower frequency, I think the 10% that Nic referenced, is that not a relevant factor? And secondly, with the maturing of the [5 pay] policies that you sold in 2016, did that create some additional profit as you got the bonus element of those maturities?

So on the second piece first, Blair, those policies haven't really lapsed. They kind of carry on for longer in terms of duration. So it's not that they have lapsed. So there's no like pickup in the -- from the with-profits in terms of a terminal bonus component at all on that particular piece. And then in terms of claims, as Nic said earlier on in the call, there is still an element of a kind of a tailwind from the claims level because it's still below the expected, but it's not as much as we saw last year.

If I can add maybe, Mark. Blair, it's Nic here. It's -- yes, the recurring premium if you -- I think what had Mark said, if you exclude the Par business and you look purely at the shareholder back, there is a continuation of the slope. But of course, we also make money in the first year of new business as well for health and protection products. And those have grown significantly. So on Slide 45, you'll see in the middle top, effectively a life weighted which premium for the shareholder bank business, that bridges more closely, if you like, to the IFRS progression that you referenced.

Our next question comes from Dom O'Mahony of BNP Paribas.

Three questions, if that's okay. Firstly, just coming back to the GWS capital regime. What sort of disclosure do you think we're going to get on these? Are we expecting anything equivalent to an SFCR? Is there any chance you might give us a level of (inaudible) on the components of capital and capital requirement maybe by market?

Secondly, on China, in terms of the Greater Bay Area initiative, Mark, you mentioned that earlier and the opportunity there. As you look at progress on Insure Connect? And when you look at other sort of equivalents, so for instance, Wealth Connect, what are you learning about the direction of travel there?

And then third question, in China, we're expecting (inaudible), I think, at to the beginning of next year. Some commentary in the press that's -- the industry may need to raise capital or at least the capital ratios will decline. What's your perspective on that?

Okay. So Mark, I'll let you do GWS. Ben, I'm going to have you do the CROs. But generally, the capital regimes in China have been additive to our net position. But I'll let Ben give you a little color on that. On GBA, I think that the -- so I think what you're seeing that's clear is it's a -- from Beijing down, it's held out as an important project. That's important in China just from an execution point of view because you've got endorsement from it from the top. Different than Wealth Connect. I think you're seeing, I would say, more different than Stock Connect as well. You're seeing a more move towards what will be a little more flexible architecture.

So instead of trying to build to a specific product, there's a lot of discussion around a more dynamic pipeline, if you will, for the Connect element. So we're involved in those conversations. I don't want to cross disclosure conversations with various regulators and they get them uncomfortable. But I think there's a -- we think the direction of travel is good. We've said all along that we thought service was the initial element claims, et cetera. I think that's probably still true. But again, there's a lot of support for the project. And I think it's -- my strong view is it's additive for Prudential and some of the products and services that are going to be in it are -- go to our core strengths.

So we're staying as close to it as we can. And so far, that's been -- I think we're well positioned in it. But I think there's a -- the real change, I guess, in the last few months has been a move away from trying to get it too product specific. If you think of the term insurance, right, it's a bit like when we say agent, it's -- can really have a lot of different meanings, and there's no reason the technology needs to limit that.

So I think that's probably the biggest -- how we connect, we're seeing some -- we're getting a little different perspective in. And again, we're -- we're in the midst of that. So I don't want to disclose any competitive or regulatory elements to it. But I think you'll see a more flexible pipeline than some of the previous Connect models -- sorry, for the -- dance around a bit on it, but I don't want to get into -- I'm not going to give a competitor or two ideas of what we're working on there.

On the per country, I'll get Mark, do you want to talk about the capital? And then, Ben, would you follow up, please, with the next generation of CROs and how it affects us?

Sure. So Dom, there. In terms of GWS, there will be a public document. We think it will be published in about May next year. The requirements aren't quite the same as in SFCR. There's not the same kind of detailed template that included in SFCR that you might be useful -- used to from the U.K. component. But we will be publishing something in May next year as per the GWS requirements. And therefore, that will give you a little bit of extra color in terms of some of the building blocks. Ben?

Thanks, Mark. Ben?

Thanks, Mark. Dom. So you're right. We're expecting CROs 2 to come in 1st of January '22. We're actually still awaiting the final rules to be published. But under CROs 2, what you see is capital being classified as either core or supplementary depending upon loss absorbing capacity, level of subordination and so on. And that's going to give rise to two ratios core and comprehensive. What we expect to see is the core ratio falling across the industry. And that's because CROs 2 introduces a cap on the amount of negative reserves that can be counted with core capital as core capital. Along with that fall, though, the MCR is also falling.

So based on where we are today, we see CPL, our business there, remaining very well capitalized under both core and comprehensive basis. And we're not anticipating any change in business strategy as a result of CROs 2 coming in.

Next question comes from Abid Hussain of Shore Capital.

I think I've got two questions remaining for me. Firstly, on the -- just coming back to the equity raise, can you just remind us how you arrived at the $2.5 billion to $3 billion equity raise number? I ask really because after the deleveraging, doesn't it really -- doesn't it actually leave you with much room for the inorganic opportunities that you might see in China, India, Thailand and elsewhere?

And then the second question is on Pulse. Can you just share with us what the ROI and the payback period on your investment in Pulse is? And then related to that, I know you don't have Pulse in China. Are you actually considering Pulse for China? Or are you screening competitive platforms there?

Okay. So on the equity raise, no, the intent was not to fund major inorganic. It does certainly give us room to do a lot of the small things we do with banks that would be below an equity or debt raise or in some of the digital work we're doing. So I think it does increase our financial flexibility and clearly to continue to fund organic.

So you're correct that we are not attempting to raise a war chest, if you will for some of the unique opportunities we have to deploy capital at scale, China, India, some of our JVs, et cetera, even now in Africa. So I think there's a -- that's a different consideration, different point in time, and we'll deal with those when both the regulatory and counter party and strategy and pricing all meet.

On Pulse, we would not disclose the metrics on it. So I'm not in a position to answer that today. The margin -- the products that we're selling through the agency channel are normal margins, and I guess that over -- general comment I'd tell you is relative to other metrics we're seeing in the digital space, not necessarily the insurance space, we're very happy with client acquisition costs. And I think in the early days, a key driver -- we're doing something that's efficient from a tech platform.

So we're not getting ourselves on cost of funds and things. So I think it's disciplined but I don't think -- we're not in a position yet -- where until it's a more mature model in terms of value of new clients, and we've got quarters of data instead of just a relatively short period of time here. We're holding back on disclosure on it. But the sales we're talking about are in our normal margins full channel. As far as Pulse in China and India, they're both actively under consideration. We have a variety of ways we can do that. You would customize the platform for both markets very differently. And because, again, it's -- as we customize Pulse for every market, we've rolled it out and now it's -- I think you mentioned it earlier, it's not just language or medical -- virtual medical providers, et cetera. It's also other needs in that market that you can address with this ecosystem, and that can be anything from financial inclusion to -- remember, we launched Pulse in Malaysia, with a dengue fever predictive mapping technology because that was the primary concern pre-COVID in the market.

And again, that's a -- there's markets for that as relevance, there's markets where it doesn't. We have a variety of tools and other things we can add to it that changes the shape of what's the Pulse offering. We've also noted that in a couple of our markets, you're going to see a wealth piece attached to Pulse. And the reason that we think that's logical is we always talk about this 40% of spend on health in Asia is out of pocket. And clearly, there's a high use of digital, right, by consumers in the markets and regardless of the per capita household income. When you're starting to get the consumer to say, I'm going to take -- instead of saving for health of and or retirement. I'm going to -- I'll use some of that with an insurance product, you are talking about their savings now. And so it's a logical extension for us to have, we think, some investment options, some wealth options on the platform. So when they're considering, again, derisking that cash position, maybe we can improve the return on that for them.

So that's the next iteration. But again, it will be market by market. And we're not trying -- we're very intentionally not trying to have a single Pulse platform across the region. We think that would be a little tone depth, if you will. We want to customize it for each market, and China and India would have their own -- do have their own specific requirements if we're going to succeed with the platform there. But we're not announcing a launch in either at this point. We're still looking at our options and addressing various concerns, regulatory structure, technology, et cetera before we make that decision.

Can I just quickly come back on the equity raise. So just to be clear, it seems like you would be happy to come back to the capital markets if a large inorganic opportunity did come your way?

If we thought it was the right price, the right deal, yes. But I think it's -- I think that the -- it's an interesting question, some of the options we've created. So you can look at them sort of glass half full, half empty. There's a -- I think we're unique and that we've created for our shareholders a series of what are effectively hybrid inorganic options where we can deploy capital at scale at some point in the future. The difference between these and traditional inorganic is these are businesses we know incredibly well. They're effectively integrated or partially integrated now.

So due diligence risk, execution risk, all those sorts of things are a fraction of a standard relationship that came for sale, that one of the banks on the phone was -- took the market and every insurer in the region was fighting over, and we do those too. But these are really unique execution opportunities for us at some point in the future, but we're not saying when. And it's not that we're -- there's -- the price has got to be right. The regulatory -- we've got a view or an appropriate time for all of our stakeholders. And as you see with the metrics with China sales, for example, up 29%, new business profit is 65%, it's working now.

So we're not missing anything by not executing on one of them. So I think they're a unique portfolio to deploy capital very effectively, not just efficiently in (inaudible) much lower risk than someone trying to do something cold and buying something and seeing what's in it later, which is a risk on traditional and organic. It's why a lot of M&A fails.

So I really like the options we have in front of us and these are partnerships, and we know the businesses well and we know how to integrate and all of the above. So would we come back later? Yes. Do we have any plans to do that in the near future? No. We'll just see when that is. Or we may have the capital in-house to do it at the time. We just -- that's a -- but I really like the option set that we've created over time. I think it's unique for an insurer globally.

We have two questions left today. The first question comes from Ashik Musaddi of JPMorgan.

Just a couple of questions I have is, first of all, I mean, Indonesia, I think Nic mentioned that there is definitely some sort of COVID-related impact in terms of claims. I mean, is it possible to get a bit more color as to the drop in earnings in Indonesia, how much of that is driven because of the extra claims and how much of that is driven just because of lower economic activity. Any thoughts on that would be helpful to understand a bit more underlying dynamic?

And secondly, I mean, the profitability in markets like Philippines, Thailand, have been relatively very strong. If I look at Philippines, it's up like 40%. If I look at Thailand, it's up 20%. And last year was -- as well, like last year, first half was it was strongly up as well, both these geographies. I mean what is driving such a trend? Is it like COVID is not really impacting these markets at all? Or is it any other dynamics that we should be aware of?

Thanks, Ashik. Nic, do you want to mention -- or mention, excuse me, you want to address Indonesia and maybe we'll let Ben talk about the growing value we're seeing in Philippines and Thailand. Or you guys can mix that up as you see (inaudible), I think either one of you -- fine with either question. Nic, why don't you go first in Indonesia, what all is working there and what our challenges are there.

Yes. So as I said earlier, -- of the 70% of all the claims that we saw on COVID came from Indonesia. The year-on-year impact of those claims and a lot of them were weighted the first half of this year. The year-on-year impact on those claims was of the order of USD 30 million. So that's the effect that, that's come through that particular line. I mean in relation to the other two, maybe I'll do it and I'll do it quickly.

The -- what's driving Philippines is a -- is a very disciplined operational delivery. We have the largest agency force in the market. We are increasingly selling more health and protection business. APE was up 55%. H&P within that was up by more. 96% of everything we sell in Philippines is regular premium, long duration -- long duration business and customer retention is running at 95% in the first half. So a young business in an underpenetrated market, got to #1 in the year through all the discipline that you've seen us adopt across the piece.

I mean, Thailand -- what's -- Thailand, what supported the growth and profitability of that business and remains the case is -- I mean Thailand is effectively a banker business, two relationships, Thanachart or TMB, now TTB. The profitability has been supported, again, not only by reference to regular -- regular premium business, regular premium business is 92% of our mix.

Historically, it was the credit life that we attached to anything between 80% and 90% of all the loans that Thanachart Bank was taking. Now clearly, we have a bigger platform to attach that to through -- the TTB relationships.

Of course, the number of loans at the moment in Thailand is down as people aren't focused on buying cars and motorcycles. But what's sustaining our profitability of that business is now with the extended relationship. As you would have seen at the Capital Markets Day, we've launched many other type of health and protection products, which we're selling to their customer base.

So the health and protection mix has grown in that business to around 30%. So again, normal disciplines, but through that tied relationship, a good sale of H&P.

And the last question comes from Colm Kelly of UBS.

Just firstly, on Asia growth, obviously, strong numbers today. It's clear the shift to health and protection and its growth is going to be continuing to be one of the key drivers to outperform on expectations around sales growth, margins and new business profit. For the Asia growth strategy in totality, you've identified four markets you think have the highest growth potential. I'm just wondering for the health and protection strategy, more specifically, can you highlight those specific markets where you think the highest growth potential exists to accelerate from here? The second question is related to Jackson.

So obviously, you've revalued the Jackson valuation and the embedded value to reflect more fair value, which is fairly obvious. And it's fair to say, look, that's quite a bit below the prior embedded value valuation for that business. So clearly, a disconnected and emerge between the external valuation of that business versus Prudential's own valuation for it.

So when we think about the go-forward group, this is important because embedded value is the framework you emphasized for Asia and you're also raising equity. So aside from continuing to deliver strongly on growth and operationally, what steps are being taken, be it disclosure or otherwise to increase the likelihood that investors and external participants will be more aligned to how you see the value of Asia based on that embedded value frame path?

And then just lastly, on regulatory capital changes. So between CROs and Hong Kong RBC, et cetera, there's a lot of changes going on in Asia, which is likely going to continue some time. Your experience from the U.S. and from European market suggests that moving to risk-based capital regime tends to benefit those with limited or low guarantee business. Limited ALM mismatches from an interest rate perspective and also low credit risk exposure.

They tend to be the relative winners from these type of regulatory transition. Now when I look at Prudential on all three of those metrics, the business stream, particularly well based on the work we have done or perhaps can you give a bit of commentary around that in terms of your low credit sensitivities, your ALM mismatches appear to be somewhat to be limited and the level of guarantee business in Asia is very low.

So perhaps some color from yourselves would be helpful just to contextualize how the business is positioned for the broader regulatory capital changes that are happening in Asia. And that's it for me.

Okay. So thanks for those. Nic, I'm going to come back to you in the health and protection markets you think have the most upside right now, and Mark on the Jackson embedded value. I guess I mostly agree with your comment on the regulatory. I do think it's not an accident that we're well positioned. We de-emphasize spread product, and we like the interest rate sensitivity on the health and protection as well as the profit signature of it and the other things we're doing.

I think where I disagree with you a little bit and the change in Asia is what you're actually seeing is a convergence and you -- if I get correctly, they're all going to what is effectively an RBC regime. And there's different elements, having different executions of it. But -- so I don't think you'll see -- there's always this discussion about international, capital standards in the U.S. and the Europeans, I watched this fight my whole career. They can't agree mostly because of annuities. But the -- the principals are now pretty much global. And the meeting of the regulators globally, Asia has taken a much larger role in that, and they are looking at things like if you're taking credit or liquidity risk, you need to hold more capital, if spread business has got more risk to your capital base than a unit linked product.

All the normal historical -- not normal. The historic western views are coming through. There's differences on how they look at rate, market consistency, things like that, but you can look through those pretty easily. But I think there's -- if you look at CROs, if you look at RBC and Hong Kong, there's the same fundamental message to the insurers, which is, if you're writing product that is spread-based and you're taking credit risk, reiteration risk, you're going to need to hold a lot more capital. That's a maturing of the models.

Again, that's not having -- Ben mentioned this, it's not having a lot of impact on us in any market. It's generally a tailwind for us. And I agree with you on all those [three] lenses are all the right ones, and we're very pleased, and it's intentional. We are where we are.

But I think that where I would -- begin, to finish the disagreement is I think once you get through this round of individual markets adjusting, you've got all the major markets, mostly aligned on an RBC regime. And I don't think you're going to see material changes in right is knock on wide regulatory from here.

There isn't a new Solvency II coming or anything on the horizon. But there are -- as it was referenced earlier in the call, there are material changes that an IFRS 17 project isn't small and all of these give stakeholders a different lens -- a more comparable lens on the insurers in the region, and none of them give you a single number that you can use to compare companies, right? That's always been there, I think the holy grail of some of these regulatory conferences. So they're dissimilar companies. You're going to be able to look at them individually, even with all this other -- even with the alignment of the work in markets. But that rant aside.

Nic, do you want to talk about which markets you see the greatest demand in health and protection from here? And then Mark, please, on Jackson embedded value.

Okay. Thank you, Mike. Colm, so when we look across all our markets in Asia, and we aggregate the trends that we see, you see two things. One is that health care costs, health care consumption has increased at a rate of 13% per annum over the last 10 years. And the last time it was -- the published tax were available. That was over the first -- for the first time, over $1 billion across the markets. 43% of that is out of pocket.

So when you consider the population and the consumption in India, China, Indonesia and Thailand, if you like, four of the most populous, they contribute the lion's share of the numbers that I've just quoted. So all of them have significant gaps that can be protected. What makes it more immediate in China and Thailand is the fact that this is coupled with an aging population. People are living longer. A bigger part of the population is over 65. And they have more -- they have more incidents. There's an increase in the level of communicable diseases.

So the critical illness type cover and the medical cover that is needed by the population of China and Thailand is significant. Indonesia and India, a slightly younger population. Nevertheless, the access to public health is often -- is often gated by being able to cover the incident that you're coming in. You have particularly in Indonesia, an Islamic segment that is largely underpenetrated. We're the biggest insurer of 400,000 customers.

And by a long way, #1 player in that market. So yes, so there's a huge opportunity there for any firms, particularly medical insurance. And in India, insurance is something new for consumers. And our business, our JV is the #1 writer of protection in that market on an individual basis, certainly amongst private players with a 16% market share. So we've got great capabilities and great opportunities in all four of them. And we're excited, but the opportunity to execute against those. And I could have made similar statements elsewhere, which is why it's such a priority in our business strategy historically, and also going forward.

Thanks, Nic. Mark, on embedded value?

Yes. Colm, on the U.S. piece, the U.S. discount is not pre specific. I think you'll see significant kind of industry discounts to book value and the like. So it's the way I think the market is looking at the U.S. industry as a whole.

As for the level of embedded value disclosure at the full year from March, we have increased quite significantly the level of detail and sensitivities to be able to allow investors to be able to make their own judgments in terms of embedded value and the like, and ultimately, the test as we set is what is the overall picture in terms of variances. And typically, our variances are and have been positive over the last kind of 10 years or so. But thank you for the question...

Okay. Are you anticipating further disclosure for Asia from here so there was good progress in full year? Should we still expect to see a bit more of an evolution for the next full year perhaps?

I think what we'll do is we'll continue to keep it under review, not making any firm commitments at this stage.

And we'll look to see in terms of how we may continue to evolve it as we do with the balance of our disclosures.

So Lydia, that's our last one, correct?

Yes, that was the last question. So I'll hand back over to you.

Thank you. I appreciate the help today. Well, I hope you see with these interim results and then those of you that -- participated in our virtual Investor Day that we held in June, that this year, it highlights our prospects. I think despite the complexity of the current operating environment.

You've heard about the expanding customer, focused capability, the cultural shift, the modernization of Prudential. And we're ready to be a stand-alone Asia-Africa business. And I'm confident in the long-term structural drivers we've discussed today and our strong position, again, discussed today to benefit from them.

So I appreciate your support. I appreciate your patience with the structural work. And thank you very much for your time today, and we'll sign off now.

Thank you very much for joining us today. This concludes today's call, and you may now disconnect your lines.