Prudential PLC (PUK) 2012 Q2 法說會逐字稿

Good morning. Welcome to our half-year 2012 results presentation. Seeing as I specialize in bad jokes, I'm going to start with my Olympics joke, which is that thank God there's only three million Jamaicans. I checked yesterday, it's 2.9 million; 2,889,000. Can't imagine what it would be if there more of them but, anyway, it's great.

So, Prudential has produced a strong performance during the last six months and is on track to deliver the 2013 growth and cash objectives, which we set ourselves at our first investment seminar in 2010.

I would like to begin by setting the agenda of this meeting. We will follow the usual format; I will start with the highlights of our results for the first half and will comment on a few key aspects of our strategy, with a focus on Asia. I will then hand over to Nic, who will cover our financial performance in more detail. And I'll come back at the end to talk about our outlook for the rest of the year. And we will then take you questions.

Members of our Executive team from across the world are dialed into this results presentation, Barry is on the phone, and collectively we will try to answer any questions that you may have.

So my first slide will be very the usual one, and I'll start with growth which is the first element of our growth and cash agenda. We have achieved GBP1.1 billion of new business profit, which is our key metric, as you know, for life insurance growth, and over GBP5 billion of asset management net inflows.

Moving onto our profitability, IFRS operating profit is up 13%, consistent with our continued emphasis on this metric since 2008.

EEV operating profit is flat. This is largely due to the impact of a lower interest rate environment.

Regarding cash, the other element of our growth and cash agenda, each of our businesses remitted cash to [a center] in the first half. Among those remittances, I would like to highlight a $400 million remittance from Jackson. This follows the $500 million remittance from Jackson in 2011, and is tangible evidence of the quality of the growth delivered by Jackson over the last few years.

A strong capital position with an IGD surplus of over GBP4 billion, estimated at GBP4.2 billion before dividend. And an interim dividend of 8.4p per share. This is a 5.7% increase on the prior period, and, consistent with the past, has been calculated as one-third of the prior year full dividend.

So let's now take a look at the performance over a longer period of time than six months, starting five years ago in 2007. Here, you can see our performance across our three usual metrics of new business profit; IFRS operating profit; and cash. In managing a Life business, of course there is always a degree of tension between those three metrics, and it is challenging to move all of them forward in parallel.

Over the last five years, we have grown new business profit by 19% annually; IFRS profit by 17%; and cash remittances by 21%. Such growth rates allow us to double in size every four to five years, and during the last five years NBP has increased 2.3 times; IFRS 2.2 times; and cash 2.6 times.

This performance has been delivered in a challenge economic and market environment, validating our strategy; our franchises; our geographic footprint, we've a limited exposure to the eurozone; and our focus on execution.

I would like, at this point, to make a few comments about the context in which we have been operating for a while and how we are addressing to it.

The most significant headwind that we have had to face in recent times is clearly the current level of interest rates and the shape of the yield curve. The long-term nature of our liabilities means that we naturally prefer an upwards sloping yield curve, as opposed to the current environment with a yield curve that is both at historically low levels and flat. We have been taking a number of actions in this context.

New business is important to us as a growth company, but only if it is profitable, which ultimately will be a function of two things; the terms set at the point of sale, and the quality of the management of the in-force over the life of a product. These are the two things on which we concentrate.

Regarding the terms at the point of sale, we are maintaining our discipline. We have not lowered our return or payback period hurdles for new business. We continuously and proactively address our product pricing and features to ensure we generate adequate returns on capital, and you will see examples of this during the presentation.

So true to our value-over-volume philosophy, as a result, we do not hesitate to walk away from business that does not have the right risk return profile.

As I just said, insurance is as much about managing the in-force as it is about rating new business. It is, therefore, a priority to protect the value of the existing book.

In this challenging and volatile environment, we are focused, as a result, on cash generation, and on containing downside risks. Our assets are defensively positioned. We adopt hedging strategies at a local and central level to ensure that our capital position can cope in the event of chaos scenarios.

Diversification is another effective risk management tool. We regularly talk to you about the makeup of our earnings between spread income, fee income, and underwriting, or insurance income. Since we introduced these disclosures in '08, we have continuously worked to increase our fee and insurance income, which are higher quality earnings with limited market sensitivity.

The development of our health and protection business in Asia is at the heart of that approach, as well as the highly profitable and capital-efficient growth of our Asset Management businesses. And I think we don't talk enough about that, and that's a key component of our numbers.

Moving onto US, and to give you another example, the recently launched Elite Access variable annuity, a variable annuity without guarantees, is another example of this approach. And the acquisition of REALIC from Swiss Re, which will further enhance the diversification of our earnings in the US, is inspired by the same logic.

The current interest rate environment is a direct result of the policies followed post-crisis, and of the large fiscal imbalances that can be observed across the Western world.

We have been facing, and are likely to continue to face, low economic growth in many large Western economies; the second set of challenges flagged on this slide after the interest rate environment.

In that context, Prudential benefits from a few specific factors, which have allowed us to continue to grow, albeit more slowly, in this challenging environment. The first one, what I call our first growth area, is our Asian focus, which gives us exposure to the fastest-growing part of the global economy; this on a relative basis.

The second growth area, clearly, is in the US, where we are benefiting from the demographic wave of baby boomers entering retirement.

And the third one, and this may surprise some of you, is in the UK, where I see M&G, with its leading position in the fastest-growing part of the UK savings market, as asset managers continue to generate strong net inflows, when the Life sector itself has been in negative net flows for a number of years.

These three growth areas have allowed us to continue to make progress, in spite of the weak economic growth that we have all witnessed since '08.

Finally, we are faced by the significant challenge of future regulatory change; namely, Solvency II. Much has already been said on this issue. We are lobbying hard to help deliver an outcome that is beneficial for our customers, our shareholders, and the industry in general, which plays a key role in the economy.

With a balance sheet as large as ours, we could never claim to be immune to the global economy, but we have been able to navigate through the turbulence that we have experienced thus far. We are focused on managing through the challenges described here, low interest rate, flat yield curve, weak economy growth, and regulatory uncertainty, to continue to generate adequate returns for our shareholders.

So let's move now to capital allocation. You're familiar with this slide. Since '08, we have focused on optimizing both the quantum and the composition of the capital we allocate to writing new business.

In the past four years, new business strain has increased by 7%, while new business profit has more than doubled. At the same time, we have materially rebalanced our investment away from the UK to more attractive markets, with our investment in the UK now one-fourth of what it was in 2008. And that's one of the key achievements of Rob and his team in the UK.

As we know, there are factors that impact new business strain that are outside our control across the economic cycle, and we have seen this play out in the first half of this year.

Strain has increased in both Asia and the US. This is largely due to the impact of a lower interest rate environment, which has both a mechanical impact on the strain calculation for reserves, and is also driving changes in consumer demand.

That said, we are comfortable, in this context, with the IRRs and paybacks earned on the capital invested across our chosen markets. Nic will provide you with more details on our specific IRR and paybacks in the first half for each of our businesses, and you will verify this.

So let's now look at our 2013 financial objectives, starting with Asia, because that's the only region where we set growth objectives. And the chart here has the IFRS on the top and NBP on the bottom, and half-year H1 in blue, H2 in red so you can track the evolution. And you can see that we have been able to continue to make progress towards our objective of doubling in four years; I express it simply. Year for year, for the first half, IFRS operating profit has increased by 20%, and NBP by 18%.

Moving to the cash objectives, PCA has remitted GBP126 million to Group in the first half of 2012. That's, for us, a significant milestone and will contribute another significant remittance in the second half of the year.

I've already mentioned, Jackson has delivered a net remittance to Group of GBP247 million; and Mike, this is your contribution for the full year. Not asking for more, thank you.

The UK has contributed GBP230 million in net remittances and, similarly to Asia, there will be additional contributions in the second half of the year.

And at Group level we're aiming for at least GBP3.8 billion net of -- of net remittances, cumulatively, from 2010 to 2013. And we have delivered 73% of that.

So, across the board, we are on track.

Now, I would like to use the rest of my section to talk about strategy and how it is playing out in each of our businesses.

Our Group strategy, as you know, is here. It's accelerate long-term growth in Asia by building out distribution, that's really the core of it, and investing in our brand, and operations throughout the region; manage our US business through the cycle by maintaining a disciplined approach to balance sheet and capital management; focus our UK business on the areas of competitive advantage and allocate capital only on the basis of return and payback; and driving our Asset Management businesses for growth by focusing on investment performance and distribution.

You will have noted that the profits of Eastspring, our Asian asset management business, declined in the first half of the year. This was primarily due to the particularly weak equity market in Asia in the first half; as well as investments we made in building our offshore capabilities.

And you'll see that we've been in positive net flows, but the external assets under management have decreased because of FX and investment market movement.

With growing demand form investors, both in and outside Asia, looking to access Asian growth, the long-term potential of Eastspring, we believe, remains compelling.

So let's now take a closer look at our businesses, starting with Asia. As you can see here, PC has more than doubled new business profit in five years, while multiplying IFRS profit and cash by almost 10 times and 8 times, respectively.

The IFRS profit in Asia in H1 was more than double the full-year profits in '07, with a clear and direct impact on the Group's valuation. Importantly, Asia's cash remittance in H1 was three times its 2009 remittance. So the profit signature of our Asian business has changed significantly over the last five years so that we now have a business that continues to grow, that produces profit and cash in parallel.

These results are largely explained by our focus on a few key factors; distribution, product development, brand, cash, and capital. In 2012, we have continued to build our distribution. We have grown our agency force to over 260,000, excluding India, and we are now selling insurance via over 14,000 bank branches, I think 14,500 bank branches, of our various bancassurance partners.

We have continued to invest in the brand. And our commitment to a number of corporate and social responsibilities around the core themes of financial literacy, children, and disaster relief means that we are viewed as one of the most trusted financial services companies in Asia, and our research supports that very much.

We continually addressed our product suite to meet the changes in consumer demand and the economic context. And we have continued to maintain financial and capital discipline, and the cash returns is good evidence of that. We also use reinsurance more, we are optimizing the new business trend, so all over the levels of finance and capital we've been very focused.

And finally, the long-term nature of our liabilities means that we have a natural appetite for long-term Asian assets in local currency. We are a long investor structurally and, therefore, an important player in Asian economies. We have continued to nurture our relations between governments and regulators in this context.

But these are just general principles, and I'd like to illustrate this with a few country examples. If we take our two main channels, starting with agency, and a few countries in Indonesia, we have underway a big push in the cities outside Jakarta. And you need to understand that to understand some of the numbers coming out of Indonesia.

Non-Jakarta business now accounts for around 50% of our sales, and over 70% of the new recruits. We held recruitment seminars in our 30 cities, and at least 30 times a month. As I tell, Asia, it's hard to do more; 30 times a month. This has helped drive our Indonesian headcount to 180,000 at the end of June.

If you take Hong Kong, we've been driving our new critical illness product through our [Pru main health] campaign. We're gaining good traction in cross-selling this product to our existing customers, and which generates more health and protection income. And we have also launched a new agency recruitment campaign. We've been running, in parallel, dedicated workshops to help reactivate our inactive managers and producers.

In Singapore, there is a similar focus on increasing the conversion and activation rates of agents. We have launched customer segmentation initiatives to target both lower tier and high net worth clients.

And finally, in Malaysia, we have continued to build out our Bhumi capabilities by targeting the areas traditionally operated by non-Bhumi agents, particularly the east coast of the country. At the end of the period, we have close to 7,500 Bhumi agents, and our Bhumi training initiatives are helping drive higher productivity in this important growth channel.

And we think it's important to talk about them because there is sometime a feeling that growth in Asia just happens because we're just in Asia. There is a lot of execution behind the numbers we show you, and the team has to work incredibly hard to produce them. And these are just four countries, it's for a team, so it's a lot of work behind the numbers you get.

So moving to the second channel, bancassurance, we have continued to make good progress in the first half. And we have 77 banking relationships; as I mentioned, more than 14,500 branches.

And the performance of the partnerships has been very encouraging. Sales via Standard Chartered have increased by 42%, and both [bii] and UOB more than doubled; I think they increased 129%.

New business profit from bancassurance sales has increased by approximately 25% year on year, which is a good number.

So I'd like now to step back to look at an issue which used to be much debated a few years ago. The debate around Prudential often focused then on whether and when Asia would surpass the UK in terms of contribution to the Group.

Looking at the evolution between '08 and today, so just over four years, is interesting. We can see that today Asia, in red here, contributes more NBP than the UK.

But given the growth of the business at a country level, that's a more interesting point. Within Asia, it is a matter of time before the debate shifts to focusing on which individual countries within Asia, and when, rather than the region as a whole, will surpass the contributions of some of our more established businesses.

In Indonesia, you can see here, our largest business in Asia, is now on a par with the UK in terms of new business profit. And new business profit, as we know, is a lead indicator of the direction of travel for IFRS profits, which is the next slide.

You can see IFRS profit, where Asia now generates more profit than the UK. That's a very significant milestone, the history of this Company, for a business as young as our Asian business.

And within Asia, Indonesia has made considerable progress over the last few years, and may be the first individual country in Asia surpassing the UK at some point in the future.

We know that NBP, IFRS, and cash track each other with a lag, so we believe that the same dynamics will play itself out for cash generation. And this slide shows clearly the direction of travel, with Asia remittances going from being a fraction of the UK's four year ago to now more than half the level achieved by the UK.

Before we leave Asia, I thought I would share with you an analysis which I believe captures well what is happening in the region, and that we used in our management conference in June here in London.

The powerful growth that our businesses there are [experiences] is a reflection of an historic economic transformation on a very large and unprecedented scale. What I'm showing you here is the evolution over a long period, 1820 to 2010, of the US GDP per capita in constant dollars. So there's no inflation in any of the analysis I'm going to show you.

All this analysis is adjusted, and what we're showing you are real increases in wealth. And quite striking, you see America has done something extraordinary.

So what I've done is I've put Asian countries on this. And it's very interesting because, take China, the 30 years between 1980 and 2010, the Chinese have seen the same increase in GDP per capita as in America between 1820 and 1940. In other words, the Chinese economy has delivered to its people in 30 years as much as the US economy delivered in 120 years.

In simple terms, today, GDP per capita in China is 1940-ish; Second World War America. And it's gone from 1820 to that over 30 years. That's an amazing achievement.

And we've played with this with other Asian countries. I think it's quite interesting. So if you look at Indonesia, same format, in 30 years, and they just published, I think, 6.5% GDP growth in Q2, they have done 70 years. So Indonesia is US 1910/1915, First World War.

Now, if you look at Asian countries at different starting points, in 1980 we took China as very low. Indonesia.

Let's look at Malaysia. They started from higher, wealthier. Look at what they've done in those 30 years; they've done 70 years. It's what I call the acceleration of growth in Asia, and it's quite striking.

And the last one I want to use is Singapore. You would think that once they get to a steep part of the curve the speed slows; it doesn't. There is acceleration there. Look at Singapore; 30 years, they covered 60 years of American progress.

So a lot of the belief I have in Asia is absolutely embedded in this chart. So if you bring it together in one slide, what I've done here, I've put all our countries on one slide, and I think it's a fascinating picture. I think a lot of our story in Asia, past and future, is here.

These countries will develop, these economies will grow, and their consumers will become wealthier with all the attached needs for savings and protection, which is what we sell.

And our achievement in countries with such different levels of development as Singapore, which we see at the same GDP per capita as the US, Malaysia, kind of in the middle, Indonesia coming up, Philippines, (inaudible) grew [50%], I think, the Philippines, makes us still confident that we're well positioned to continue to capture this opportunity at each stage of the development of the economies and we think, [and they believe] the growth escalator.

And if you look at where we are already investing, Thailand is an interesting one. We've said we want to invest there. But what we're doing in the Philippines and Vietnam has embedded a lot of future growth as (inaudible).

So I'll leave now Asia and move to the US. We have continued to follow a value-over-volume approach in managing our variable annuities business. Over the last few years, we have continuously made changes to our pricing and product features in order to preserve shareholder returns on our VAs throughout the period of declining interest rates. As a result, in a significantly different environment, NBP has declined, as you can see here on the left, whilst remaining at a historically high level.

Had interest rates remained flat, on the levels that they were at in 2009, our annuity new business margin, total annuity, would be 23 percentage points higher than what it is today.

Looking at sales, our VA sales, on the right here, are flattening off versus prior periods. Actually, our VA sales in dollars have gone down, from $9.5 billion to $9.4 billion, compared to the prior year. Some of what you see here is FX, and some of it is Elite Access.

And our recent launch of Elite Access has been well received by the distributors, and we are incentivizing our wholesalers to drive further sales of this product as we move through the second half of the year and beyond.

Jackson has, it's a very simple program, only one form of financial objective, and that is its cash remittance objective for 2013.

I've already mentioned the net remittance of $400 million, or GBP247 million, paid by Jackson in the first half, and the fact that it followed a remittance of over $0.5 billion last year. These large net remittances are proof, we believe, that our expansion in VAs over the last three years has been done profitably.

And our capital position remains strong after payment of the remittance. Our RBC ratio at the end of the period remained comfortably above 400%.

Following completion of the REALIC acquisition, Jackson will be able to remit even more cash to Group going forward. And we signaled that by increasing our 2013 cash objective, from GBP200 million to GBP260 million, at the time of announcing the acquisition, on which I'd like to say a few words now.

In May, May 31, we announced the acquisition of REALIC from Swiss Re for GBP398 million. We had been saying for several years that bolt-on acquisitions of blocks of life insurance business were attractive to us in the US.

The open market for life assurance business in the US is highly competitive, with a strong representation of large mutual insurers, and this makes it difficult to generate attractive returns. However, by acquiring a closed book of life insurance policies at a discount price, and by leveraging the efficiency of our scalable operating platform, we can generate attractive returns on capital from such acquisitions.

This acquisition, in particular, has been signed on very attractive terms for us. We anticipate a return on capital of over 20%, and a short payback period. This is competitive with what we generate on organic business in the US.

It is immediately accretive to IFRS earnings by around GBP100 million on a pre-tax basis; that will essentially double the amount of life insurance income that Jackson generates.

It is also immediately accretive to embedded value. EEV per share will increase by around 18p when the transaction completes.

On that basis, we've increased the cash target from GBP200 million to GBP260 million, as I just said.

A lot of these figures are pre-synergies. There is scope for additional cost synergies as we transition the policies on our platform over the next [36] months.

So, in summary, it is an acquisition in line with our strategy, which has been completed on favorable terms.

So, moving to the UK, in the first half of 2012 the UK team continued to focus on disciplined capital management, concentrating only on the lines of business that can generate high IRRs and rapid paybacks. This focus has led to a further reduction in new business strain in the first half, while new business profit remained roughly flat.

We completed, as you saw, a single large broker [annuity] deal within the first half of the year. It has been signed on very attractive terms, requiring only a small amount of capital investment and delivering a high return and a short payback period.

As you know, we compete in this market on a selective basis, and will only complete transactions when the financial returns are particularly compelling, which means that we're also comfortable letting the volume of [synergies] vary. And you've seen us sometimes; we've brought no deal for half-a-year, and that's fine.

Despite a challenging environment, we have been able to maintain a strong capital position. The strength of our with-profit fund is a key contributor to our capital position.

And at the end of the first half, the inherited estate surplus remained at a healthy level of GBP6.1 billion.

Finally, the UK remitted GBP230 million to Group; building on the strong levels of sustained cash delivery that we have seen over the last few years.

Taking Asset Management and M&G last, M&G's performance for several years now has been strong. Over the last 14 quarters, M&G has been the number one player in the UK retail market, as measured by net flows.

At the end of June, M&G have taken the number one position in the UK retail market when measured by funds under management. M&G now has GBP39.3 billion of UK retail funds under management.

If we include all retail and institutional business then M&G's total external AUM stood at almost GBP95 billion at the end of the first half; and adding in the UK Life fund takes the number to GBP204 billion. This asset growth, combined with operational leverage, has led to a significant increase in profits over the course of the last few years, as you can see on the right-hand side of the slide.

Central element of M&G's strategy has been its focus on investment performance because it is the only way to deliver significant value to its clients. At the end of June, M&G's investment performance remains strong with 63% of our funds above medium. And this bodes well for future generations of further positive net flows.

Eastspring investments, our Asian Asset Management business, also delivered positive retail and institutional net flows in the period of at least GBP426 million.

Eastspring's profits reduced in the period, as I said earlier, due to the market [context] and investments we were making. But the demand from Western and Eastern investors remains huge, and we think that our investment in Eastspring will help us maximize our long-term profit potential in the region.

So let's move now to the dividend, and that will be my last slide for this section. You can see that we've been able to increase the dividend consistently over the last few years, despite a challenging economic environment since 2008.

Our interim dividend for the first half of 2012 has been declared as 8.4p per share, which is up 5.7%. The strength of our financial performance in the first half has given us the confidence to declare this dividend increase.

So, to summarize, in the first half, our businesses have delivered profitable growth and cash. We have been, and will remain, focused on the execution of our strategy and delivering our 2013 objectives.

With that, I will now pass over to Nic.

Thank you, Tidjane. Good afternoon, everyone. My presentation will follow the now familiar theme of growth and cash, with a detailed look at the drivers of our overall profitability, before concluding with our capital position and balance sheet.

We have provided you with the usual disclosures in the pack, with the only change from last year being the retrospective adoption of the new US deferred acquisition cost rules. We trailed the effect of this change within our prelims in March, and I'm pleased to say that the impact on the half-year numbers has been in line with the guidance that we gave you at the time.

Let's start with the financial headlines for the first half of 2012, which are summarized on this slide. The strong growth in new business flows this year, and the resilient nature of our in-force book, has enabled us to maintain the positive momentum in our key financial metrics, despite the macroeconomic headwinds.

We absorbed the effects of low interest rates to record our highest ever first half results for both NBP, up 7% to GBP1,141 million; and IFRS operating profit, up 13% to 1,162 million.

The impact of lower interest rates is more pronounced on our embedded value profits. But even here, our focus on extracting greater value from our in-force book has meant that the overall profitability was broadly in line with last year at over GBP2.1 billion.

Turning to cash, net remittances to Group have increased to GBP726 million. And the free surplus generated in the period after financing growth was strong at over GBP1 billion.

This overall performance is the result of our relentless focus over the last few years on improving both the quality and the resilience of our earnings, which are now better balanced and more diversified than at any point in our history.

Let's start with new business profit, our primary measure of growth in life insurance. In the first half of 2012, we generated the highest level of sales for any six-month period, and this drove a 7% increase in new business profit to GBP1,141 million. This translates into a lower overall margin of 56%, reflecting the significant drop in long-term yields between the two periods.

Even at these low yields, all the products are written above our cost of capital, and we're generating internal rate of return comfortably above 20% in all of our businesses.

In Asia, new business profit increased by 18% to GBP547 million as we continued to prioritize capital allocations to those products and geographies with the highest returns, measured by reference to IRRs.

As we have said before, margins will fluctuate depending on the inter-play of various factors, which, for the first half of this year, have combined to produce a lower margin of 61%.

The positive effects of pricing actions and favorable product and country mix have offset the negative effects of higher proportion of sales through banks. The 2 point fall in margins is, therefore, entirely due to market effects, which are captured through our use of an active basis of setting economic assumptions.

At a product level, the economics remain extremely attractive, with high IRRs and four year payback periods.

In the US, our new business profit of GBP442 million represents a small decline of 3% compared to last year; in line with our planned slowdown in the rate of growth of variable annuities.

The combination of lower spreads and the 150 basis point drop in yields produced an 11 point drag on the margin.

Pricing actions and changes to benefit structures, introduced in August 2011, and again in April 2012, produced a 4 point improvement to deliver an overall margin of 61%.

Whilst lower than last year, with IRRs of over 20% and payback periods of two years, the overall economics of Jackson's business remain very attractive and are comfortably above historic norm.

Finally our UK business has delivered a 4% increase in NBP to GBP152 million. We wrote a single bulk in the second quarter, which met our stringent return criteria, generating wholesale NBP of GBP22 million on APE of GBP27 million.

At a retail level, NBP increased to GBP130 million, reflecting strong growth in annuity and with-profit sales. The UK delivered this result with a lower level of invested capital; improving IRRs further, and reducing payback periods to three years.

Staying with new business profit, I want to take a moment to explain the key drivers of the movement between the two periods and to illustrate the strong underlying progress that we're making on this metric.

In the chart on the left, the gray bar represents the GBP1,069 million of new business profit we reported in 2011.

The next bar down, in light blue, shows the negative impact of the drop in long-term yields, which amounts to GBP116 million. As you can see, up on the right, this is equivalent to 6 points on the Group margin.

This reduction relates, principally, to Jackson's variable annuities, but also includes smaller effects on fixed annuities, as well as with-profits in both the UK and Asia. As you can see, we have taken pricing actions on these and other products, aimed at sustaining returns above hurdle rates. These have generated an extra GBP57 million of NBP; equivalent to 3 points on the margin.

Higher sales volumes have increased NBP by a further GBP131 million, which brings us to the GBP1,141 million in 2012.

Not shown on this slide is the contribution to NBP from pure risk products, such as health and protection, which in 2012 was GBP350 million, representing 31% of the reported 2012 total; up from 26% last year.

So, in summary, we continue to drive this metric forward, whilst absorbing the market effects, and have improved its quality with a higher content from pure risk business.

Moving to IFRS, our headline operating profit increased by 13% to GBP1,162 million. Profitability on this metric remains a key focus for our business, and it is pleasing to see that it continues to move forward positively.

Underpinned -- and of course, that strong forward movement is underpinned by a 19% improvement in the Life result to GBP1,184 million.

In the next few slides, I will provide you with some more color on the drivers of the increase, which in [overview] remain the same as before, and comprise the 10% growth in overall shareholder-backed liabilities, driven by the strong Life inflows in the last 12 months; the continuing shift towards higher margin insurance business; and the ongoing widening of income versus expense jaws.

Looking at the analysis by region, and starting with Asia, shown in red, Life operating profit has increased by 26% to GBP406 million. While the majority of the growth has come from our more established operations of Singapore, Indonesia, and Hong Kong, I am pleased to report positive contributions from every one of our Asian businesses.

In the US, headline operating profit has bounced back up to GBP442 million this year, reflecting both business growth and the normalization of the DAC amortization charge, which was temporarily higher last year, for the reasons we summarized at the prelims.

The breakout box adjusts for these effects and shows, in light gray, the new business strain that is now a feature of our US results following the adoption of the new rules. After allowing for these items, Jackson's underlying profit have increased, reflecting higher fee income, which offset the expected slowdown in spread profits.

In the UK, Life operating profit is just ahead of last year at GBP336 million, which includes a contribution of GBP20 million from the bulk deal. By way of reminder, last year's bulk contributed GBP18 million to their comparative.

Turning to the sources of IFRS earnings, and starting with the overall shape on this next slide, by increasing both insurance margin and fee income by over 20%, we have made further progress in diversifying our Life income and in improving its quality.

Insurance margin, shown in red, now accounts for 24% of the total, reflecting the ongoing success of our health and protection strategy in Asia.

We regard insurance margins as a higher quality source as it is relatively new to investment markets. The closed book of term business that we acquired in the US is expected to add an extra GBP100 million to this source every year.

We have also grown the proportion that is generated by fee income to 29%, shown in the dark blue, driven by the continued growth in separate account balances in the US and our focus on unit-linked business in Asia. Fee income now contributes more to Group's earnings than at any time in the past.

Spread income, shown in the middle blue, remains important to our business. And we regard its reduced contribution to the total as a positive development as this is our most capital-intensive source.

We're pleased with the way in which the shape and the balance of our Life income is evolving. The overall quality is improving all the time, and this underlines the confidence that we have in the future prospects of our business.

Let's move to take a closer look at the sources of earnings for each Life business. And starting with Asia, you can see, in the top-left, total income has increased by 13% to GBP1,051 million.

Administration expenses have also grown in the period, but at a slower pace of 3%, highlighting the ongoing benefit we derived from operational leverage in our businesses.

Acquisitions costs, shown alongside, are up by 23%, reflecting both the growth in new business volumes and a shift in product mix.

Below, towards the bottom-right of the slide, you can see the technical and other margin remains the dominant driver of income in Asia; up 14% to GBP892 million. This category includes the profits that we make on our health and protection business, which are higher at GBP256 million due to the growth of the book, but also due to positive claims' experience.

The category also includes the margin that we make from premium deductions to cover costs, which are also higher at GBP636 million; in line with the growth in Asia's premium income.

In the US, Jackson's total Life income, on the top-left, is up 10% to GBP945 million; outpacing the 6% increase in expenses, again generating positive operational leverage. The improvement has been achieved, despite the 4% contraction in spread income to GBP349 million.

As we flagged at the prelims, the tightening of spreads and our more conservative approach to credit has reduce this spread margin from 262 basis points to 238 basis points. And if interest rates remain at these levels, the margin will continue to trend towards the 200 basis points mark over the next three to four years.

Moving along to the right, you can see that fee income has increased by 25% to GBP408 million, and is now the larges contributor to our US result. This increase reflects the growth in separate account balances, which were boosted by the very strong net inflows in the course of the last 12 months.

It also reflects higher M&A fees following product re-pricing action, which has generated the small increase that you see in the average fee to 108 basis points.

The UK result is almost unchanged between the two periods as the movement in our main sources of income of annuities and with-profits were largely offsetting.

Spread income, on the left, was up 8% at GBP132 million, driven by the uplift in average results.

Income from our with-profits business, shown in the bottom-right of this slide, declined by 5%; in line with a reduction in bonus rates declared to policyholders.

Turning to Asset Management and other businesses, where the aggregate operating profit in the first half was slightly lower at GBP267 million, here the main contributors are M&G and Eastspring Investments, whose results are analyzed in more detail on the next slide.

As you can see on the left, M&G has maintained its earnings momentum, despite the volatile market conditions, with operating profit higher at GBP175 million. The strong level of external net inflows, which in the first half of 2012 amounted to GBP4.9 billion, was a key contributing factor to this performance.

As a result, M&G's underlying income excluding profited-related fees and earnings from associates was 7% higher at GBP354 million. This increase also reflects a positive shift in mix towards the higher margin retail business, generating a 2 point uplift in average fees to 36 basis points.

Moving along to the right, you can see that our strict cost control has led to a 2 point reduction in our cost-to-income ratio to 53%.

As in previous years, we expect the cost base to show a second half bias, so bear this in mind when looking at your full-year forecasts. As a reminder, in 2011 there was a 5 point difference between the half year and the full-year ratios.

Despite attracting positive external and internal net flows in the period, Eastspring Investments reported a drop in profits to GBP34 million.

Eastspring's lower overall fee income principally reflects the effect of weak equity markets on our third party revenues. At the same time, costs have increased as we invest in building out our offshore capabilities.

As Tidjane has said, the long-term potential of the mutual funds market in Asia is considerable, so we're comfortable increasing our level of investment in order to maximize profitability over the longer term.

Finally, on IFRS, on other income and expenses, nearly all of the difference between the two periods relates to the GBP42 million one-off benefit we took last year from the RPI to CPI change for our pension schemes.

Turning to our results on an embedded value basis, as you can see from the chart on the left, total Life profit is slightly higher at GBP2,164 million; equivalent to an annualized return on opening embedded value of 16%.

Asia has become the largest contributor to this result, with EEV operating profit increasing by 13% to GBP869 million. This has offset the declines reported by our US and UK businesses on this metric, which reflect the adoption of lower economic assumptions at end June 2012.

The effect of the lower investment return assumptions on the in-force result is more clearly illustrated in the top-right chart by looking at the part of that chart that is labeled, unwind. We estimate that without the negative impact of these assumptions the GBP764 million, shown for half-year 2012, would have been GBP110 million higher, which is what you would expect as the business continues to grow.

As was the case last year, we saw a continuation of the net positive experience compared to our operating assumptions. You can see this in the breakout box on the right, which shows GBP192 million of positive experience profit in 2012, driven by gains in the US, and the net overall positive results in both the UK and Asia.

This outcome is testament and evidences our very strong ongoing focus on extracting value from our in-force book.

You can also see that we have made a number of assumption changes this half year, which generated a GBP70 million benefit. These reflect the findings of our experience reviews, completed in the second quarter Jackson, and the adoption of lower tax rates in the UK.

On this next slide, I summarize the movement in items below the operating profits line, for both IFRS and EEV.

From an IFRS standpoint, the impact of investment variances is relatively modest; a positive GBP0.1 billion post-tax. This reflects the absence of impairments on our credit portfolio, which remains defensively positioned, and our very modest direct exposure to the eurozone. It also demonstrates the ongoing effectiveness of Jackson's VA hedging strategy, and I'll come back to that in a moment.

Total IFRS profit for the period, therefore, amounted to GBP1 billion; equivalent to 38p per share.

As you can see further down this table, we benefited from unrealized gains on Jackson's fixed income portfolio of GBP0.2 billion post-tax.

And after adjusting for exchange and the payment of the 2011 final dividend, retained earnings totaled positive GBP0.7 billion, increasing our IFRS equity to GBP9.3 billion.

Switching to EEV, in the table on the right, investment variances were also relatively modest at negative GBP0.1 billion post-tax, with the adverse impact of changes in economic assumptions largely offset by unrealized gains on investment.

The total embedded value rose to GBP20.6 billion at end June 2012; equivalent to 806p per share, or 749p per share if you were to exclude goodwill.

Once again, our earnings have demonstrated resilience during a period of continued market turbulence and, as a result, our shareholder funds have moved forward positively.

Before I move onto capital, it is worth dwelling on the growth in shareholder funds for a while longer. This next slide summarizes the increase in the value that we have generated for shareholders over the last 2.5 years; growing our embedded value per share at a compound annual rate of 16%.

Breaking it down further, the red bars show that the value of our in-force book has grown by 13% on an annual basis over the period, driven by the strong addition of new business profit. The fact that this is comfortably ahead of the 8% per annum growth in required capital, in the dark blue bars, highlights our focus on delivering growth in a capital-efficient manner.

The chart also demonstrates the pace at which our business converts in-force value into free surplus, shown in the light blue bars. After adjusting for the dividends paid during this period, free surplus has grown at a much faster 38% per annum since 2009. This trend is tangible evidence of the strength of our business model, which delivers high value growth and monetizes it quickly.

I would now like to turn to cash and capital. Here, we show the evolution of free surplus, which over the course of the period has remained stable at GBP3.4 billion.

As you move from left to right on the slide, you can see the GBP1,403 million, which represents the underlying free surplus generated by our existing book, with all four businesses now making really material contributions.

The GBP1,403 million is a little ahead of last year, despite the lower investment returns; again reflecting the very strong focus that we have on extracting value for our back book.

We have used GBP364 million to write new business in the first half of 2012, which is equivalent to a reinvestment rate of 26%. We signaled last year that the 2011 new business strain was exceptionally low, so the small increase in 2012 is not unexpected.

Market effects were modest overall, which meant that our free surplus stock increased by 22% to GBP4.2 billion. This, in turn, allowed our businesses to remit GBP726 million the first half, [and still an] overall healthy level of free surplus at June 30.

As you can see, our highly capital-generative business model enables us to finance our growth and remit cash to Group. Maintaining a high level of free surplus stock is a crucial factor in satisfying regulators in the various jurisdictions that we operate that cash can flow freely, despite the continued volatility in the global investment market.

Tidjane has already updated you on the overall cash position, so I will restrict my remarks on this slide to guidance for the second half.

On UK and Asia, we highlighted, with our prelims, that these businesses are expected to repay GBP145 million between them on contingent loan financing secured in 2009 and 2010. While these repayments will inevitably impact the respective second half remittances, Group will still receive healthy underlying contributions from both businesses in 2012.

As was the case last year, Jackson made the full-year remittance in the first half so, as Tidjane has said, you should not expect anything in the second half.

Jackson will fund the acquisition of REALIC using its own resources so there will be no call on central cash for this transaction.

Finally, unlike last year, M&G has gone back to paying a first half and a second half dividend. We, therefore, expect a further remittance in the second half, which would see M&G upstream most of its post-tax earnings.

In concluding on cash and capital, we remain on track to deliver the GBP6.5 billion of cumulative free surplus and the GBP3.8 billion of cumulative remittances over the full-year period 2013.

Turning to balance sheet, the message here is simple, or remains simple; we remain well capitalized and defensively positioned. The Group's IGD surplus, which remains for now the key solvency measure, is high at GBP4.2 billion at the end of June, and is equivalent to a cover of 2.7 times.

And I would remind you that the IGD surplus is calculated after deducting GBP2.1 billion of allowances for credit defaults on fixed income assets backing our UK annuities, which have been retained in spite of no defaults in the period. It also excludes the unrealized gains on our US debt portfolio, which amounted to GBP2.5 billion at end June 2012.

Our overall direct shareholder exposure to the eurozone is low. We have remained defensive in our approach to credit risk, and have retained our conservative stance on hedging. The result of all of this is that our capital, solvency, and liquidity measures have remained robust during the first six months of 2012.

Before closing, I would like to give you an update on Jackson's capital, cost of hedging, and experience in relation to policyholder behavior. On the left, we provide a high level summary of the key movements in Jackson's total adjusted statutory capital over the period. As you can see, Jackson generated operating profits of $0.5 billion in the first half, and paid $400 million to Group.

You can also see that the line labeled reserves/hedging shows a nil movement in the period. This means that our hedging program has, once again, fully covered the movements in death and living benefits guarantee reserves.

In fact, the impact of the 8% rise in US equity markets trumped the impact of the lower interest rates to reduce the overall level of guarantee reserves. This positive effect was offset by the negative value movement on the equity hedges held to protect us from falls in the S&P 500 Index.

As a result of all these movements, total adjusted capital at June 30, was higher at $4.1 billion. We have kept in place the permitted practice, which has the effect of carrying our interest rates swaps at cost, and this means that $649 million of gains relating to these swaps are not included in the $4.1 billion amount at end June.

A word on guarantee fees and cost of hedging. In the first half of the year, fees earned from living and death benefit guarantees elected by our customers totaled almost $400 million. This equates to around 120 basis points on our average separate account assets, and remains sufficient to cover the costs of hedging the risks associated with these guarantees well into the tail.

In line with our normal practice, Jackson has conducted its annual review of policyholder behavior in the second quarter of the year. This is a highly detailed piece of analysis performed by Jackson's actuaries, and the conclusions of this most recent review have confirmed the high level of prudence that exists within our assumptions.

Touching on a couple of insights from this review, lapse experience for both in-the-money and out-the-money policies has remained stable year on year and continues to track favorably compared to our assumptions. We have, in fact, introduced further conservatism here by adopting a slightly higher lapse assumption for those policyholders that are out-the-money by more than 20%.

Furthermore, the review of withdrawal benefit utilization experience has confirmed that we remain within plus or minus 5 percentage points of our prior year assumptions across all age ranges.

The aggregate financial effect of updating the relevant assumptions to reflect our latest experience was broadly neutral. Furthermore, the overall impact on capital of a shock persistency stress for in-the-money policies is similar in magnitude to the one we published with our premiums in March.

Our experience in relation to policyholders' risk appetite, in particular their allocation of the assets to equities, remains favorable compared to our pricing.

In pricing we assume an 82% allocation to equities. In fact, 54% of new deposits and 63% of total deposits are allocated to equity funds; comfortably within our pricing assumptions.

Finally on this slide, I also highlight that at the end of June 2012, when the S&P 500 Index closed at a level of 1362, only 17% of our in-force variable annuity policies were in-the-money from issued levels. This is a very simple way of demonstrating the health of Jackson's in-force book, before even taking into account the benefits of hedging.

In my final slide, I can confirm that our shareholder exposure to peripheral eurozone sovereign and banking debt remains small at GBP344 million. Remember that most of these assets are backing UK annuity business, where, as I've already said, we continue to carry significant credit default reserves.

So, to conclude, Prudential has delivered a strong start to 2012, with our key financial metrics of NBP, IFRS, and cash moving forward positively.

We continue to improve the quality, consistency, and resilience of our earnings, and have maintained a robust capital position; all of which underpins our confidence in the future prospects of our Group.

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

Thanks, Nic. It's time now to say a word about our outlook. As you've seen, the Group has delivered a good performance in the first half of the year. However, we cannot claim to be immune to the challenging macro-economic context in which we operate.

Our track record through the crisis shows that we have managed our business so that it is resilient in terms of economic and financial market stress. The balance sheet remains robust and defensively positioned, and we continue to capitalize on the longer term growth opportunities for our business.

Growth opportunities are most evident in South East Asia, where I believe the depth and breadth of Prudential's franchise is a source of strength. Our businesses are an integral part of the economic and social transformation that has only just started in that part of the world, and we will continue to deliver profitable growth for many years to come; long after the current worries that beset the global economy have passed.

And this really comes back to the heart of why I am confident that we can continue to grow earnings long into the future and continue to create value for shareholders.

So, thank you. We are going to move to Q&A, but with just a break to allow all the [MDs] to join the stage.

Jon Hocking, Morgan Stanley. Three questions, please. Tidjane, in your presentation you mentioned you've seen an impact on new business strain from low rates, and you mentioned presumably higher day one reserves because of lower liability discount rates. You mentioned consumer behavior. I wondered if you could unpick those two things and talk a little bit about what the dominant impact was, and what you're doing to offset that. That's the first question.

The second question, on the fixed annuity business, you mentioned you're going to trend to 200 basis points of spread over time, if rates stay where they are. Would you comment where spreads are on new business you're pricing to at the moment, so what the offset is between the back book and new business?

And then just on the embedded value numbers, there seems to be more of an impact on new business from low rates than on the back book. This is lower unwind. I just wonder what you're assuming in terms of rates on the back book, and how you're going to change those assumptions. And are you assuming ultimate rates higher than current earn yields, etc.?

Thank you, Jon. New business strain, those of you who have been in various meetings with me, I used to be annoyed by that chart because I kept saying every year we can't continue to drive it down; at some point it's going to turn. And in a way, I'm glad it did because it's just a kind of reality check and we can drive it to zero.

It is dependent on the context. Yes, the lower rate increase mechanically the amount of reserves you have to hold for any kind of interest rate guaranteed product. So what we've done, particularly in Hong Kong, where you'll see, through the numbers, there's been an impact, that we re-priced the product that was concerned for the critical illness product. And we re-priced it to a level where we were perfectly happy with the performance of the product now.

And there was also a universal life product in Singapore that we have re-priced. So the action we have taken is every time to re-adjust the pricing and the guarantees in the product to be comfortable with the new environment.

So you see that, fundamentally, it shows in Asia we have been increasing the strain. And in the US too, because we've -- you say that the FA sales have increased, which are more capital in terms. So the allocation to FA has increased through VAs.

The point that Nic was making on your question to equity, which has gone down, which means the allocation to FA has gone up, and that drives the strain as well.

Plus, I don't know, Mike, if you want to comment.

Well, you've got about 18% of the funds now going to the (inaudible) cost average bucket, a little more than that on the VA. The balance between that and the number Nic referenced in equities is some form of debt instrument, typically bond fund.

So extremely conservative behavior right now by US investors; that's consistent with, again, as we talked about in Asia last year, the gross flows into the US mutual fund business. They're about the same percentages.

Crediting rates, your comment on the US, we're at one. We're as low as they can be and so there's -- spreads are holding up fine on the new sales, but it's -- the consumer, effectively, has no place to go right now for yield.

Nic, do you want to take the spread in FAs and the trends?

Yes, the spreads that we are currently securing on new fixed annuity business are around 140 basis points.

You will see that we've moved our embedded value assumptions in terms of calculating the new business profitability to that; part of that reflects the contraction in spreads; part of that reflects our what I was referring to earlier, the cautious stance. Effectively, we're investing one grade higher in terms of credit rating at the moment, and we're happy to sacrifice yield, if you like, for now to keep the balance sheet of a higher quality.

The back book, of course, is stronger and, therefore, it averages to the mid-230s, 238 basis points, that I referred to earlier.

And the third question was on EEV and the differential impact of lower rates on new business and in-force. Do you want to --

I think, candidly, that's down to mix. I think different products, different countries behave in different ways.

The movements that we've seen in equity markets, the movements that we've seen in interest rates haven't been uniform across our businesses in the first half. Some markets, even in Asia, interest rates have gone up; Indonesia, for example. So it's the interplay of all of that, that causes the trend that you've summarized.

But, look, the important issue on in-force is that the growth in the book is absorbing it. We continue to drive greater value from our, yet again, prudent operating assumptions. And on the new business, we dial up the pricing to where we've dropped below hurdle rates. So it's the behavior remains very disciplined.

Plus the impact is quite different. If you think about the with-profits, what you get is a lower transfer if you get lower rates. If you have a health and protection [deposit], you're discounting at a lower rate so the NBP goes up. So, actually, in some countries lower rates benefit us.

And what Nic was saying was even that -- it's going to be a difficult half year-to-half year or full year-to-half year. Half year-to-half year in Indonesia, for instance, rates have gone down; but full year-to-half year, they've gone up, which is a negative, if you're with me.

So the net impact is quite complicated to unpick. We toyed with doing a slide on that, but we were defeated so you don't have it. Up to yesterday, we were trying to show you how the interest rate impact the Asia numbers. It really is quite complicated.

Kevin Ryan, Investec. I've just got a question on REALIC, in the US. I think at the time of the acquisition you mentioned that the life of the book was around 10 years, could you confirm if that memory's right?

But also, related to that, could you say what we can expect in terms of the cash running off as that book runs down, and whether -- how rapidly the cash coming out is going to run down? Just give us a sense of it, please?

Mike, or Nic?

Yes, I think the duration assumption of 10 years is pretty -- we think is a conservative one, and appropriate.

I think the best way to think of a signature, not to sound indifferent to [the fact it's] clients, but it's a bit like the energy business where over time, as with a mature book, you're going to get more mortality experience. So that's where you're getting the change in -- that's what is more likely to occur in 10 years; you're going to lose more of the policyholders.

So it's not as if it goes off a cliff, so to speak, it's a gradual arc. But I think 10 years is a fair assumption.

Nick Holmes, Nomura. I wanted to ask about economic financial information. I wondered if you're thinking of giving us more economic information about capital and new business. The reason I ask this is that you are now extremely unusual in not providing economic information on either of these.

And I wondered if I could ask two specific questions which is, with economic solvency, which most other companies are focusing on, could you tell us where you think you are? And can you tell us how important the equivalence debate is for you?

And secondly, with new business, and Mike, I apologize about focusing on the US, but with the US new business value, your EEV margin is just sky high, compared to MCEV equivalent margins. Now, I wondered whether you could talk us through what you think are the main differences, and what you would look like on an MCEV basis. Thank you.

Thank you, Nick. I'll take the first part, and probably part of the second, and then, Mike, you can cover. This is a running debate between us. We don't mind being alone, as long as we are right.

So we don't believe in pro-cyclical so-called market-consistent approaches to evaluation of insurance companies and insurance income; we don't, which is why we did not move to MCEV. We were quite alone in that case. We still think we were right.

So Solvency II, the extreme versions of Solvency II, I believe personally, are completely wrong. The versions without any countercyclical premium are completely wrong.

And economic capital, it all depends on what you put in it. We would absolutely like to be able to discuss economic capital with you. We've seen in this result season -- versions of economic capital that are RBC based. So [if that were yard] stick, we think we're very comfortable with that.

I've told you the RBC of Jackson's above 400%. And if we move into a solvency regime that is RBC-based, and we call it economic, we'll give you all the disclosures you want on that. And that is not a problem. And that is our position.

We've been very clear about our belief, our theoretical belief, not this debate, where we are. And we don't believe in putting in the market numbers calculated with methodologies we do not believe in. It's very simple.

So we are not going to give you market-consistent numbers because we think solvency, to make a bad and easy analogy, is like oxygen. Yes, you can breathe with 80% of oxygen in the air; it's only when the oxygen rate drops that you feel that you are actually need oxygen.

Solvency only means anything at times of stress. The big flow of Solvency II is [there]. It was when I used to push back -- I joined this Group in '08, [I'm sure it holds true]. Yes, but it works; look at the June '07 numbers, they are fine. While solvency, in benign conditions is irrelevant. It only matters at times of stress.

And it is still my belief that at times of stress that [wouldn't] break down. So what's the point of moving into a solvency regime that's going to blow everything up and force you to sell into a depressed market when actually, historically, you've played a stabilizing role in markets by being a buy-and-hold investor.

So the whole thing doesn't -- if it's like that, it doesn't make sense. And I don't see a point in disclosing those numbers because we are in stressed market and the pure market consist approach is, personally, I believe wrong. And that's (inaudible), and that's how we design our disclosures and communication to the market.

Could I just point out on that? Not denying, Tidjane, that you may well be correct; nevertheless, what happens if Solvency II is implemented? And what is -- how does Pru respond to that?

We've been explicit about that. If it's implemented with a [good] design, we move. It's absolutely incontrovertible because (inaudible) [in English]. Yes, if it's implemented the right way, we'll be perfectly happy to operate in that framework and sell our products and continue. If it's operating in a way that for us doesn't make economic sense, we will not operate in that way.

I really think we're winning that debate. I read all the Q&As of all the peers, and I think things have moved. I think that the fact that French spreads have de-correlated from German spreads is helpful. And I think that people have thought about these issues in a very narrow way. I think that stress conditions are very hard to anticipate, and markets often move in ways that one wouldn't have expected before.

So under stress, suddenly the [count] of people who say, well, this doesn't make sense has been growing. We're very happy to give you economic capital based on RBC, if you want it; that's not difficult to do. What we can tell you is we're fine right now. RBC is above [400%].

Sorry, it's a very emotive issue for us because we've been at this for a long time. It's been at times difficult to say what we've been saying. In a way, we've been helped by events. That's one of the few ways I'm glad about the eurozone crisis because it's concentrated the minds of some of our peers, and that's good.

So, Mike, do you want to continue on MCEV and new business (laughter)?

I think the issue in the US, pro-cyclical regimes get you to the wrong thing at the wrong time. If you look at the US model and the equivalency issue, you had 40% of the capital in the US industry destroyed at the peak of the trough, if you will, the crisis. You had it all replaced 20/22 months out; you had no US defaults.

So if you're sitting in a US industry meeting, they look at, say, this model works across cycles. So they don't think they're fixing anything, and so when you get into a dialog on equivalency, you say now you need a pro-cyclical model that would assume you could raise capital at the bottom. And it doesn't sit well with the US industry folks, and I would be in that camp.

I think things are moving. Certainly, all we're being told is consistent. We're being told that there will be US equivalence; some debate on how. But at the most senior highest levels, that's what they're being told. So that's, from our perspective, positive.

Thank you very much.

I hate to follow up on this issue about capital because it's getting you hot under the collar.

Why am I not surprised?

But, honestly, to characterize Solvency II as market consistent is absurd. It's clearly not market consistent. And the two areas where you might be challenged, which are UK annuities and US annuities, you've got equivalence under one and you've got a matched premium pretty well guaranteed under the other. So I think what Nick's asking, and what we're asking, is could we have the economic capital ratio with US equivalence? Because if you don't do it, it does make us feel a bit nervous about the fact you're hiding something.

Okay, I really don't accept that it is absurd to say that Solvency II is market consistent because we are matching premium up to March 21, we were being told would not happen. So that Solvency II was kind of market consistent.

I'll accept that now we've put in countercyclical measures that would make it look different. But it is designed, it's original design, to be market consistent. So that's what Solvency II (multiple speakers). But I agree with you that if you remove that it --

I agree with that. Things have moved along and we just want to know what the situation is.

The other question I wanted to --

In due course, we will give that information. But, sorry, for the time being, our energy has been focused on getting the right answer; the design of the framework. Once that's done, we'll give you all the numbers; we'll be very happy to do so.

Two other questions I had; one is you gave us the amount of VAs which are in-the-money from the issued level. I assume that's different. And more interesting is how much is in-the-money from the current benefit base? So I wonder whether we can have that.

And then finally, could I ask, on the US fixed annuities, can you give us an idea on the in-force, and on the new business, what are the crediting rates? What are the current guarantee levels? And what are your portfolio yields? I think you've given us portfolio yields.

I'll deal with the second one, first. Roughly, in the portfolio 340/350 on the crediting rate, so you're getting down. And if you're trying to get to how close are the guarantees, which I've flagged up before, we're getting near there. There's not -- there's your 40 basis points -- 30 basis points from the guarantee threshold, so you're there.

I think, again, the other component that's probably important to add to that is you're seeing normal persistency. You're not seeing a change of withdrawals one way or the other; that helps. You're not seeing suddenly withdrawals turned off, and you're not seeing withdrawals surrenders increase. So the book is behaving as a positive or indifferent to the crediting rates currently. As the rates come down, we're not seeing any change in behavior.

I'm going to put Chad to work, since we flew him over, on the benefit base versus the in-the-money. And this is, we're assuming, half-year number?

It's a good question. What we were trying to get across there on the 17% was just really to think about the structural profitability of the contract. So the M&E fees, which is the bulk of the fees we're going to collect, are basically about pricing assumptions at this point. So that's the takeaway there.

Structurally, the way these things work, since most of them have high watermarks, you're never going to be far from out-of-the money. So virtually everything is going to be more or less out-of-the money type of guarantee. We don't have any deep out-of-the money relative to the benefit base. Does that answer your question?

You gave us a figure of 37% last year -- at the end of the year, which I thought was relative to the benefit base.

No.

It was the same number.

This was on the same basis as the 17% now.

Yes. Just the market's got better; we've written more.

Andrew, on new business, the spreads, the crediting rates on new fixed annuities are -- were reduced by 25 basis points to around 1.5%, if it's coming through as a fixed annuity. And if it's coming through the VA side of things, it's 1%.

Greig Paterson, KBW. I'll try and ask non-stressful questions. No hint of the balance sheet, or anything. The first one is there's been a lot of press about new countries or potential new initiatives, I wonder if you want to just talk about Poland, Egypt, Nigeria, Brazil, and Cambodia. What's going on there; whether you're entering, or what the plans are?

The second question is Asian persistency. I noted last year you had a negative -- if you look at expenses persistency, had a negative, I think, GBP20 million variance. You then strengthen the assumption by GBP120 million, and the run rate is now at minus GBP180 million. If you take expense and persistency and you times it by two, as minus GBP80 million, so there seems to be a significant deterioration in your Asian [expense] (inaudible) in those two items, despite assumption changes. I was just wondering what's going on there.

And then a third question, I wonder if you can just give me the statistic you used to provide, the year-on-year growth in APE per active agent; i.e., productivity and your agency thoughts.

Thank you, Greig. New countries, effectively, there's been a story in the media about Poland. If I take a step back from this, what we look at when we look to invest is the really GDP; GDP growth; demography, we like younger populations rather than older; savings behavior; savings rate, it's very important.

And if you have a market-friendly environment where you can run a business, make a profit, repatriate it, remit (inaudible) nice remittances we show you, etc., etc., the basic companies, if you apply that creed, clearly, South East Asia ranks very high.

I've referred to the past to the average age in Indonesia, 28 years old. And we see the curve [assumed] on the GDP per capita, etc. But it is not the only place around the world where there are markets that are potentially attractive to us.

So Poland is, we believe, an attractive market. The demography is positive. It's by far the youngest country in Europe. It has good economy growth; very sound economic management; good savings behavior, very good savings rate. And it's a country where the form of distribution we like, which is agency, works. So it has all those characteristics.

I'm almost tempted to say, unfortunately, it is in Europe. It doesn't look like Europe in country by most metric. [Physically], it's very responsible; a bit like the Asian countries. So in the end you're confronted with something of, well, do I want to create more value? Or do I want to stick to this notion that Pru can only do things in Asia?

I think, on balance, we believe it's a good opportunity. We believe it will create value for the shareholders. So we want to go in with a with-profit proposition, and we want to build it from the ground up. So it's never going to be material. The numbers we discuss here, it's not material. It's relatively small, but it's interesting.

And by the same token, we've talked about it at the investment seminar, we are always scanning other markets. The only method of entry we consider is organic, so it's always going to be from the ground up; it's not expensive; build an agency force.

We're sending to Poland one of our Asian leaders. He's very good, and he's going to build, I think, a very viable, profitable agency presence in that market, which is good to have.

Now, the other countries, I don't know, I think you mentioned Nigeria and a few others. Nigeria is not exactly on the radar right now. Maybe in the future, but certainly not today. Based on my own personal knowledge, it's not something I would recommend.

But we look -- we've looked at -- we've talked about North Africa in the past. We've mentioned Egypt.

We are entering Cambodia right now. That's a promising market. It's a small economy; it's 14 million people. But we're doing that from Vietnam, and incrementally from the ground up.

So, yes, we are always looking at opportunities to do more business. And I think there are some such opportunities.

Asian persistency, Nic?

Yes, I'm not sure I've brought all the numbers here, but the experience that was reported in the first half was minus [18]. Candidly, when we're talking about 13 countries, you start talking about very, very small numbers.

It continues to be slightly outside where we had moved the assumptions on Malaysia withdrawals. There's still a very active program there, but it's normalizing. But it's still -- as I indicated at the prelims, it wasn't going to revert to nil instantly. So we're seeing that come through.

And I guess from time to time we will see one or two areas. Japan, we're closed to new business. Again, we're seeing a spike in exits there as well. So on an embedded value that is now, gosh, a very, very big number. It's small.

You make a good point if you change assumptions and so on, and so forth, but I would also point you to the same trend also in the mortality and morbidity. We made positive assumption changes at the end of last year, and some of significant size, and yet you're seeing a higher mortality and morbidity profit coming through in the first year half of this year; notwithstanding moving the assumptions closer to the experience that we're seeing it.

So a number of big moving factors. We continue to monitor them and react to them, and that's really the strategic (inaudible).

You've put in your appendix the net flows. That gives you a sense of the persistency also?

Net flows is the cash side. I think that information is there; has always been there. I think Andy had a request last time to help breakout some of the items in relation to India, which we agreed. They do distort the trends; they do distort the ins and the outs. So we've added a slide in the pack just to show ex-India, and you'll get a better understanding. But that's on the net flows.

The outflows, sorry -- persistency explains the annualized running at minus [GBP80 million] in the first half. That's point one.

The second one, if you look at the unit-linked flows in Asia, annualize it as a starting point, it's minus 13% outflow on surrenders. And I think, if I'm not -- it is minus 13% if you take the surrenders, times it by two, and divide it by the starting balance on unit-linked. And in your pricing assumptions you've shown slides over the years effectively assuming that your products stay on the book for, like, 30 years and others surrender penalties and [caveting].

So I was just wondering, to me, the implication of the flows is that the duration of the book's, like, 10 years, and your modeling assumptions you're assuming 30 years. So I'm just trying to (multiple speakers).

Premiums and flows, the flows are net of expenses commissions, etc., etc., so there's always going to be a significant difference between premiums and flows.

So we can get into a detailed -- that's a fundamental thing you're dealing with. You can't just go from premiums to flows; the flows will be net of all the cash you've actually spent, and which you do spend upfront when you're growing [and if it's] significant. I think that's a big part of the answer.

I'm happy to go offline, but my overriding message is that we are, as I said in my presentation, net-net, Asia, on the experience was positive. Actually, it's the first time it's done that, albeit by a few million; it's the first time it's done that since pre-crisis. And I think that's a positive development, particularly when the size of the book in better value terms is much, much bigger than it was back in 2007.

Barry, you want to say a word? We shouldn't forget you.

Greig, you had also asked about productivity of agency in terms of measuring APE per agent, is that right? Was that the question?

Yes, that was the question.

First of all, I would say that I think measuring productivity by looking at the APE per sale or per agent is kind of a blunt instrument because it can lead you to conclusions that are not necessarily valid.

For instance, as Tidjane pointed out on one of the slides in his presentation, we've spent a lot of time and effort in Indonesia in the last year in expanding in the areas outside of Jakarta, such that half of our agents in Indonesia are now in more rural areas. And we've pretty much got what you could characterize as full geographic coverage in the country, which is quite a task when you consider thousands and thousands of islands, just the geographic logistics.

But what the result of that would also be, that those rural agents who are in less economically developed areas outside of Jakarta, will typically write a lower average premium. And it's not that it's worse business; it's just that the economic realities of Timor versus Bali, or Jakarta, are different and so you would expect people to have lower average premiums.

So if you look at it in real granular detail, you will look at spots within markets, or markets where average premiums might be going down, and other places where they're going up strongly. Overall, our agency productivity is up 12%. But it's lumpy.

And you really have to look at it with a little more precision and sit down, and I'm happy always to sit down and have a conversation about that.

That's a fantastic question because -- I don't know if can we have some slides back? Or is that not possible? Can we have the escalator slide with all the Asian countries because it's exactly what Barry said.

We've had this conversation, Greig; you need to think, when we add sales, about where they come from. And we are doing a number of things in [Asia] that will drive the APE per active agent down structurally. If the new growth is coming from Indonesia, which is poorer, if you're adding agents, it's just mechanistic; or Vietnam; or the booming population in Malaysia. It's coming in here.

So actually it's good because it's profitable, it's going to create value for the shareholder. But if you take a measure, like APE per active agent, it's going to go like that.

So when you take the Asia number, that's why you have to do it country by country.

[37 plus 12%] (inaudible) [saying it's going down, he's saying it's rising]. What is the year-on-year change in (inaudible - microphone inaccessible). I just want to know that number.

I think it's flat; I'm pretty sure it's flat. We can give you the exact number when I'm finished with --

(inaudible - microphone inaccessible).

I think he's thinking of the number of agents.

(inaudible - microphone inaccessible).

Andy Hughes, Exane BNP Paribas. A couple of questions, if I could. The first one is on Asia being on track in terms of growth. When you started the target, were you really expecting the kind of boom in bancassurance that you've seen over the last sort of -- in these set of sales we've seen here and in previous periods?

Because I'm just wondering if by market-by-market that the bancassurance bid is actually pulling up the other markets that were due to grow when, or if, the bancassurance sales normalize, does that mean you're actually below target in terms of where you were before?

And the second question was on the US. I've seen this stuff about the contingent deferred annuity working party, which I guess doesn't affect you directly. But there's some stuff in there which seems to affect you to do with the interaction of the VA [carve on], to do with the [AGE] reserves that you set, and the use of voluntary [derives], together with commentary about making sure people utilize their benefits a lot more, which I thought was a real concern.

I just wanted to know what's going on with that. It's from February this year, so I'm not sure what the progress or what the regulatory pressure on utilization of benefits in the US would be and how sensitive things would be. Thank you.

Do you want to take the second, and I'll come back to bancassurance.

I think there's two elements. The more important one to us is the state by state, so what does New York and the State of Michigan think. And theirs is more similar to an S&P or Moody's type review, which is specific contract years, clients, or assumptions aligned with the experience we've seen and the industry information they have. And from that point of view, we've seen no change.

They were focused on that before, and they're focused on that in their reviews of us now. So I don't think there's a material change there. I think there's numerous places in the industry where there's discussions about reserving, and it just has to do with some of the write-offs you've seen coming from competitors, and some of the competitive behavior from [some other] firms.

But it's not a -- we don't see it as a Jackson issue. We think we're well reserved with our products. And as we mentioned, we've just reviewed our experiences and assumptions, and we're quite pleased with them. We've got every rating agency in and the regulators in and so I'm pretty comfortable with that.

Because there were [instances] where they said [you would have to mail] (inaudible - microphone inaccessible).

Yes, there's a -- that's not -- I appreciate the point; it's a good one. Hired communication, it's a sleeping-dogs-lie argument, do you get higher or lower returns if the clients are more and more informed? Do you get higher or lower surrender charges if their more and more informed?

There's pretty robust rules now on communication with shareholders. I'd say the bigger issue for the industry in that direction right now is some of the firms trying to go back and buy back their books, or create a lower US exposure by trying to convince clients to transfer -- to sell them back a policy at some premium, or exchange.

There's a lot of discussion. That's probably the most noise in that space now, is how would you communicate that fairly, accurately? It has to be a case by case review with the broker/dealers. When do you include them, that sort of thing? And there's a lot of dialog there. But I haven't heard much, candidly, on the other topic; the buybacks have been the current noise in that space.

But remember, we price and reserve for near efficient behavior so, at the end of the day, if you have that discipline, whatever happens from a regulatory perspective, or otherwise, you are in a much stronger position.

Yes. And to be clear, the only reason we're a party to any discussion of buybacks is because we have broker/dealers that sold products. It's not that we're, as an insurer, interested in that sort of action, to be very clear.

On your first question, we should be very clear; the position we always want to be in is that all the products we write create value for all the channels.

The bancassurance business is perfectly fine. The return on capital is comfortably above the cost of capital and, in our book, that creates value for our shareholders.

So, frankly, we're not too fussed about where the growth comes from. What we've committed to you is we've taken the '09 numbers and we've told you multiply them by two, [by two] by 2013.

Now the notion that the [495 million] of IFRS profit, the Life IFRS profit, don't come from the right source, therefore, we've missed the target baffles me. So I think we grew in Asia. We grew profitably. We're hitting the numbers.

Nobody knows the future; this is exactly why I refuse to give you targets by channel or country. When we announced the target there was a lot of can we get more granularity? And we've said no because we run a large business. We are very confident we can hit those numbers, not knowing what the future macroeconomic conditions will be, because we have enough levers that we can pull at different times.

So, for me, I am not bothered that in this period we've delivered a lot of bancassurance growth. That's one.

And two, my fundamental belief. [Chance] we use too much; in the end we have to them out. But I have this chart which shows you asset ownership in the retail financial market by GDP per capita. That is the justification for doing bancassurance.

So what you see is that when you cross something like -- it depends on the region, let's say between $3,000 and $6,000 per capita, all that money that is in deposits starts flowing into financial products. And that's the point, that's what you're trying to capture. That's why bancassurance is at the core for our strategy in the region.

That's why it is going to continue structurally to grow faster than agency, because when a middle class -- and I've said it about closing in Poland, in other countries. When a middle class appears in that country, the first thing they do is get a bank account, their money starts in deposits, and as they get wealthier the bank is ideally positioned to sell them products.

This is why it's vital for us, strategically, to get inside the banks, because agency has its own growth trajectory. And you see that in Thailand, where all the growth is in the banking sector. And you're going to see that in many, many countries. Market to market, as the wealth level rises, you hit a cap, a roof on agency and this (inaudible) [growth] is going to happen in the banking sector.

So we're not surprised at all by the trends. When we did the strategy in '08/'09 we expected agency -- sorry, bank to grow two or three times faster than agencies. That is going to be the trend; it's not a surprise to us.

Ashik Musaddi, JPMorgan. A couple of questions on US. In 2011, there was a $900 million of voluntary reserving in the VAs, $900 million, so can you give some more color on what that was? And where does that sit as of first half?

Secondly, can you give some color on what's the RoE on the new business VAs that you're writing right now? And how does that compare with the back book? Basically, I am just trying to compare what MetLife has said, that their RoE is in the range of 13%, or something, on the new business VAs after re-pricing. So I'm just trying to compare with that. Thank you.

So just to explain the voluntary reserves, if you're not familiar with the way RBC works in the US, you've got -- there is a -- it's more of a factor-based approach, typically at a BBB level type of confidence interval.

If you think about the -- particular credit, that's were RBC kind of grew up in the US. And so at that level you're going to assume in the US a well capitalized insurance company's going to have, call it, 400% RBC, which is going to be basically shipping from that BBB lower threshold up to a more AA type of look.

With AG43 and C3 Phase 2, that's more of what you might consider European solvency type regime, where it's a CTE you're already in that AA type of framework. And so between --

Can I just say, for those who are not necessarily actuarial guidance, 43 is basically the 30% worse scenarios; and C3 Phase 2 is a 10% (inaudible). Is that correct?

Yes, it's 30% -- it's 70 CTE for reserving, its 90 CTE for capital. Thank you. And the interplay there is you can get a lot of volatility in that, the interaction between those two, because they're not calculated on an exact same basis.

So we and others will use voluntary reserves to effectively -- because what you're going to set is the reserve level is what it is, and then the C3 Phase 2 capital component goes into the denominator. But that's a very levered number by its nature, and so you only carry -- or you only carry capital in excess of the reserve. So what we do and what others do is use the voluntary reserves effectively to set reserves equal to capital, so you don't get the leverage effect and have the RBC moving all over the place from period to period.

So that particular part that you saw at year end, the $900 million, is now reduced to about $500 million. But it's something that -- it's really part and parcel of the same calculation. The only thing that's really moving around, in effect, you can think of the way we set reserves is at the C3 Phase 2 the 90 CTT level, and the reserve -- the AG43 70 CTE level gets to be a by-product.

And we have not given a by-vintage ROE targets out, or releases out, but generally we have hit our -- what we've said is above 20. And the -- I think from the slide we posted on embedded value, you can see that the last few years have been unusually profitable, that number.

If you took that slide back another 10 years, we're -- when we were smaller here, was more in the 40s. So post-crisis, it's gotten more profitable would be a good way to look at it.

Companies start -- have very different starting points.

Yes. (Multiple speakers). Very different expense structures, and the key in the VA is different guarantees.

Some have been starting from the low point trying to drive it up, whereas we're started from a very high point.

Ed Houghton, Sanford Bernstein. Would you accept the premise that the Group is trading at a discount to the sum of its parts? And, if so, could you set out the strategic options you've considered to unlock that value?

Thank you; that's a fantastic question. The first one is easy, yes. But dare I say no? Nice day (laughter). Yes.

No, we've considered, frankly, every option. We just had our Board strategy meeting in June. And [concerning] one rule, (inaudible) we looked at absolutely every single re-combination, reconfiguration of the Group and I can say from selling Asia, to selling the US, to selling the UK, selling M&G, selling the whole Group, everything. And the way it works is you look at that and then you look at what's left. And I think I've been open about that.

The real issue for our Group for a long time has been IFRS, so we talk about it so much. If you're going to be able to pay a dividend and service some debt you need a good IFRS cover. And the history of this Group is that it's IFRS poor. It came from a place where it was making 700 million/800 million a year of IFRS, of which 500 million/600 million came from the UK.

And the reason why we've been on this journey to build alternative sources of IFRS, and [the amounts] I've always had in my head was kind of 1 billion of IFRS out of Asia, [now it's 930 million, whatever] and it's 1 billion. And when I was saying that we were at 170 million, so people forget, but that's three/four years ago, so 1 billion seemed really out of reach. Now we're doing 400 million in a half year and on the way there.

Once you get to 1 billion then you can play with reconfiguring the Group and having something viable afterwards and have a discussion.

If you take out the UK, when you don't have enough IFRS, you take out the UK, it's a disaster because you're going to breach debt covenants. You get some proceeds which are going to go back to pay the debt, and once you have done that the Group that's left cannot re-leverage because they don't have enough IFRS and you cannot pay a dividend.

So you've been downgraded on the day of the announcement of a transaction. You announce that you won't pay a dividend any more, and that fundamentally -- I don't know. Your shareholders have to live with thin air, or whatever, so it doesn't work.

And that's why we've been saying the way to unlock value is to develop alternative source of IFRS because until and unless you have that, all that is just idle talk. And that's that.

So once you have a lot of IFRS coming from the US, and that's what we're building, a lot of IFRS coming from the Asia, that's what we're building, you still have the UK, which is good IFRS, and my goal there is pure IFRS, pure cash, fantastic capital-efficient machine, then you can think about -- yes, you know, ways to create value by breaking up the Group.

But even once you've done that, it doesn't mean necessarily that you are going to pull the trigger because it's going to depend on the market conditions, feasibility of things, etc.

But that's really the journey we've been on. We need enough cash and enough IFRS from each part of the Group to have, once you've done a transaction a viable, company. And in the history of the Pru, we have never reached that point. So I think we're getting closer to that point, and direction of travel is good, but we are still some way away from that.

James Pearce, UBS. I wanted to ask about Elite Access. Specifically, where are you getting the capacity from given a lot of publicity recently about hedge funds shutting down, giving money back, and so forth?

And also, in the scheme of things, I think at the moment about 5% of your separate account assets have no lifetime benefits on them. Have you got a target in mind? And is Elite Access intended to get that percentage of no-guarantee liabilities up to any particular level?

If you compare apples and oranges for a second, James, if you look over the last three years, because it's just a number we've just ran, and you throw [Kiri] in it, which is the disconnect, but just our initiative's to keep our -- the percentage of sales going to with-living benefit guarantees down, you have seen 20%/25% of the sales going to products that have effectively no withdrawal benefit [variable protect] guarantee.

Elite Access is clearly targeted there. The -- it's -- obviously, very pleased with the launch.

The capacity is an interesting question. We had a lot more managers apply to be in the product than we felt we could launch with. The enhancements we're making to the product initially, which are ongoing now and they're filings so I can't get too specific, could go to adding more options to the sub-divisor line-up types of options.

And it's -- what we're finding is kind of what we hoped; the consumer and the retail advisor don't see -- they're very concerned about diversifying away from highly correlated assets to equities. They feel like they've got a ton of money in US debt. I'm sure you guys all see pieces on the percentage of funds going into total return bond funds in the States, and they're looking for a alternative there.

You need -- I think it's an excellent demonstration of our distribution franchise. It's a hard product to wholesale. It's very complicated, very sophisticated. Service of those types of funds is unique. And I think there's an extension of -- for all the years we've talked about not having a brand but a business reputation, advisors clearly are comfortable with us bringing something that sophisticated, which I'm obviously very pleased with.

I think that's -- we trained our wholesalers for over a year before we launched the product on this, and our service people as well. And what we're hearing so far is the firms are extremely hungry for the training we're bringing. There's capacity issues there; there's only so much of it you can do. But it's the launch has gone very well, and the reception from the [tops] of the broker/dealers, this is what I'm hearing directly, is very good.

This is one product. It's not intended to be the new Jackson, or we're not going to -- we are -- it's intended to be another business line that we can run concurrently with everything else we're doing.

But I think for the consumer and the advisor, there's nobody in the US you think of as the leader in [all] space. Who is the fine complex that's the -- there isn't a name there. And so I think we're bringing value to the advisor, and I think it's a great product for the consumer. And that seems to be the reception so far.

It's -- the sales cycle's a little longer, get people comfortable with it, but it's been good.

I think we're probably -- because we talked about it first on a quarterly call, we probably haven't said enough about the product.

Yes.

The reason why it's called Elite Access, you correct me, Mike, it gives access to alternative asset classes, which are very hard to access for the basic investor. And also, the reason why it's without guarantee is that it eliminates the issue of [basic] risk because you don't have to hedge it.

So what we've put in Elite Access is exactly the things that would create trouble, if you wish, in our portfolio. It's very hard to hedge. So it makes perfect sense to offer that without the living benefits. It's a win-win. It's risk-reducing for us, and it gives our customers access to a product they wouldn't have otherwise. So it's been a -- and it's very hard to predict the volume, or (multiple speakers).

It is. Our wholesale isn't on board yet. We have -- they keep -- their processes are very careful now in adding new products and so we're at various firms in various stages. It's a -- no-one's ever had a variable annuity without any guarantees before to approve, so more than a few firms have told me you've given me work I -- we haven't gone down this path before. And some are a little less appreciative of that than others, candidly.

But it's a -- almost every firm it goes to their alt area, it goes to their VA area, it goes to their risk committees to get approved.

It's very difficult now, even with good relationships with the home offices, to launch a product quickly in the US. And I think that's a healthy element of the business just maturing; I think it's good that firms holistically look at products they add.

But the response to it has been good. We're obviously real pleased. And as you saw, the year-over-year growth in the VA has come from it. And that's -- and it's an early launch. We're, I would argue, weeks and couple of months into a reasonable scale of it.

The last thing I'll say about that is it's going to be additive.

Yes.

It's not cannibalization of our volume, but it's addressing a different bucket of demand. People want to invest in alt, not our usual clientele.

Okay, shall we take one last question, if there is one? No. I think the impact of the time we chose for this meeting, during the Olympics on a Friday, has worked.

Thank you very much for your patience, and I wish those of you who go on holiday a good and happy holiday. See you at our next results. Yes, sorry, we have not cancelled the investor conference; it's still happening in New York in November. I was just too hungry, so I was trying to keep this --

No, seriously, it's going to be actually a good opportunity to talk about Jackson. It's the third one we've done in London, whenever it was, two years ago. (inaudible). We did Asia, it was [KL]; a number of you were there last year. Now we're going to look to the US, and will have a really good -- keep the spotlight on Jackson. And you'll get to ask, again, as many questions as you feel like.

So, thank you, and see many of you in New York in November, hopefully. Thank you.

Ladies and gentlemen, thank you for joining today's call. You may now replace your handsets.