Prudential PLC- Business and Jackson Demerger Update for 2021 AGM
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· Asia and Africa APE sales1 up 14 per cent3 and new business profit2 up 21 per cent3 compared with Q1 2020
· Cumulative Pulse downloads of 24 million4 since launch, and associated Q1 2021 APE sales of $70 million6, which now represent 9 per cent of APE sales in the markets where Pulse is available
· Jackson's5 demerger is now expected to complete in H2 2021, subject to regulatory and shareholder approvals
· Jackson National Life continues to expect to have an RBC ratio in excess of 450 per cent at the point of demerger
· Prudential plc continues to consider raising equity of $2.5-$3bn following completion of the demerger in order to enhance financial flexibility and de-lever the balance sheet
· Estimated Group local capital summation method (LCSM) shareholder surplus, excluding Jackson, of $7.9 billion8,9 equivalent to a cover ratio of 331 per cent7,8,9. Prudential's initial analysis indicates an equivalent GWS shareholder ratio of 381 per cent7,8,9,10.
Prudential plc ("Prudential") provides a business and Jackson demerger update in advance of its Annual General Meeting, scheduled for 11.00am London time (6.00pm Hong Kong/Singapore time) today.
Mike Wells, Group Chief Executive of Prudential, said: "In the first quarter of 2021 our Asia and Africa businesses generated APE sales of $1,193 million, up 14 per cent compared with the same period in 2020, with new business profit increasing 21 per cent to $624 million. This was despite lower sales in Hong Kong, where ongoing restrictions continue to severely limit cross-border business from Mainland China. Excluding Hong Kong, APE sales were up 35 per cent and new business profit was up 64 per cent compared with first quarter of 2020. In the first quarter of 2021, our China JV was our largest business in terms of APE sales and new business profit, a result of the strong performance of its multichannel and multiproduct business model and increased penetration of its broad footprint, which covers 20 provinces and 99 cities.
"Although a number of our markets continue to experience significant Covid-related disruption, I am pleased that our Asia and Africa businesses have continued to build on the momentum established over the third and fourth quarters of 2020. First-quarter 2021 APE sales were up 4 per cent on the fourth quarter of 2020. Excluding Hong Kong, APE sales were up 14 per cent on the fourth quarter of 2020 and were also 30 per cent above pre-pandemic first quarter sales of 2019. On the same basis excluding Hong Kong, new business profit increased by 64 per cent compared with the first quarter of 2020 with higher APE sales at increased margins, reflecting positive economic effects and a favourable product and channel mix. All markets other than Hong Kong and Indonesia delivered both APE and NBP growth compared with the first quarter of 2020, and nine markets11 in Asia maintained or increased their health and protection mix. Our Chinese operations delivered APE sales growth of 70 per cent compared with the first quarter of 2020, which was impacted by Covid-related disruption. This performance was driven by expansion across distribution channels, with particularly strong growth in agency production. First-quarter 2021 sales levels in China also benefited from the timing of seasonal sales campaigns compared with the prior period. In Thailand, APE sales growth was 56 per cent, supported by the full activation of our enhanced bancassurance distribution agreement with TMB Bank from 1 January this year. In Africa, six out of eight markets delivered double-digit APE sales growth, with overall APE sales 32 per cent above the first quarter of 2020.
"Our multi-channel model continues to perform well with all channels delivering growth. APE sales through our bank partners were 18 per cent higher. We continued the build-out of our digital capabilities, led by Pulse, our health and wellness platform. In the first quarter of 2021, APE sales arising through Pulse were $70 million6, representing circa 9 per cent of aggregate APE sales in the 17 markets where Pulse is available. Pulse downloads since launch reached 24 million at the start of May 20214 up from 20 million at the end of February.
"Our US business, Jackson, remains set to become an independent, separately listed entity in 2021. Insurance regulatory approvals from the states of Michigan and New York have been received. Regulatory engagement on the review of the draft Form 10 continues, and the Form 10 will now need to be updated to include Jackson's Q1 financial information. As a result, we expect the demerger to complete in H2 2021, subject to regulatory and shareholder approvals.
" At the point of the proposed separation and subject to market conditions, Jackson National Life continues to expect to have an RBC ratio in excess of 450 per cent, after giving effect to the debt expected to be drawn down prior to demerger. Over the first quarter of 2021, Jackson's new business premiums were in line with trends seen in the second half of 2020 and sales of variable annuities were higher than the first quarter of 2020. Sales of fixed index annuities and fixed annuities in the same period remained at historically low levels following earlier pricing actions. There were no sales of institutional products in the period.
"The US demerger will complete Prudential's structural transformation into a business solely focused on the growth opportunities of Asia and Africa. In order to enhance financial flexibility and de-lever the balance sheet, as announced in January 2021, Prudential is considering raising new equity of around $2.5-3 billion following the completion of the Jackson demerger. Our preferred route is a fully marketed global offering to institutional investors concurrent with a public offering in Hong Kong to retail investors. As an Asia-focused company, the Group believes there are clear benefits from increasing both its Asian shareholder base and the liquidity of its shares in Hong Kong. The allocation of any offering will take into account a number of criteria including the interests of existing shareholders. As part of this potential raise, Prudential will also consider a possible preferential offering to Hong Kong resident eligible employees and agents.
"Prudential plans to hold a virtual Investor Conference on 2 June 2021 covering its Asia and Africa continuing operations. Prudential expects to announce its half-year results on 11 August 2021. In these results, Jackson will be recorded as a discontinued business activity.
"We continue to support all our stakeholders through what continues to be a difficult period as we enter the second year of the pandemic. I would like to thank our colleagues across the Group for all their efforts over this time.
"We expect vaccination programmes being rolled out during 2021 to trigger a gradual return to more normal economic patterns. However, the pace of these programmes and their effect is likely to vary substantially by market and gives a degree of uncertainty over the economy, and the performance of the business in the short-term.
"During the first quarter of 2021, our Asia and Africa business has maintained the momentum established over the second half of 2020, with 14 per cent growth in APE sales compared with the first quarter of 2020. This momentum is expected to continue to provide a buffer against any future resurgence in Covid-19 incidents such as the ones we are currently experiencing in India, Indonesia, Thailand and the Philippines. Given the uncertainty around potential future variants and further resurgence of Covid-19, it is unclear when the border restrictions between Hong Kong and Mainland China will be substantively lifted. However, we believe that there remains strong latent demand from Mainland Chinese customers for the Hong Kong product suite and that sales will resume once the border reopens. In the meantime, we continue to build our existing product and digitalisation capabilities to serve the domestic Hong Kong customers.
"We remain confident that our clear and focused strategy, coupled with our proven execution ability, leaves us well placed to continue to deliver value for our shareholders and all our stakeholders over the long term, with a focus on achieving sustained double-digit growth in embedded value per share."
Prudential Asia & Africa: market-by-market performance
Our China JV saw a strong performance with APE sales growth of 70 per cent compared with the first quarter of 2020. First quarter 2021 APE sales were also 38 per cent above the 2019 pre-pandemic first quarter sales levels. Our agency channel delivered particularly strong growth compared with the Covid-disrupted first quarter of 2020, alongside continuing growth in bancassurance sales, again demonstrating the value of our diversified distribution footprint. New business profit more than trebled compared with the first quarter of 2020, primarily reflecting the growth in agency APE sales and our continued focus on higher margin health, protection and traditional products during our new year sales campaign.
Hong Kong APE sales were 48 per cent below the first quarter of 2020, largely reflecting the impact on cross-border sales of the continued closure of the Mainland China border. While overall domestic APE sales were 16 per cent lower than the same period, new business profit rose by 3 per cent reflecting a higher protection mix, among other factors. In particular, sales of our VHIS products almost tripled compared with the first quarter of 2020, building on the success of our mid-tier VHIS product launched in 2020. Meanwhile, the in-force operation continued to demonstrate resilience as customer retention remained above 99 per cent and health and protection renewal premiums grew 7 per cent.
In Singapore, APE sales increased by 15 per cent and new business profit by 14 per cent, driven by strong agency momentum. In Malaysia, APE sales increased by 58 per cent and new business profit by 64 per cent, reflecting very strong growth in agency production. The Takaful business saw APE sales nearly double those of the first quarter of 2020.
In Indonesia, APE sales were down 14 per cent compared with the first quarter of 2020. The sales environment remained challenging following the re-introduction of significant Covid-related restrictions in January. Bancassurance APE sales were 7 per cent higher in the first quarter driven by new products, while the agency channel continued to diversify product offerings. Our Sharia business maintained APE sales at prior year levels, with new policies more than trebling compared with the first quarter of 2020 supported by our lower ticket size products. Meanwhile, our employee benefit insurance business recorded its highest quarter of new sales by APE in the first quarter. Overall new business profit reduced by 22 per cent, reflecting lower sales, channel mix and adverse economic effects.
In our other markets APE sales rebounded strongly by 30 per cent, with new business profit in these markets 51 per cent higher. The improvement in Thailand APE sales and new business profit (up 56 per cent and 126 per cent respectively) and in India APE sales and new business profit (up 27 per cent and 33 per cent respectively) underpinned the strong first quarter performance in these markets.
Eastspring's total funds under management were $242 billion at 31 March 2021 (31 December 2020: $248 billion) with adverse currency and market effects being partially offset by total net inflows in the period. Net inflows from life operations grew to over $3 billion. Offsetting this amount were $(0.4) billion of net outflows in the first quarter on externally managed funds (excluding both those managed on behalf of M&G plc and those related to money market funds). Institutional net in-flows of $0.4 billion were more than offset by retail net outflows. Our fixed income relative investment performance remains positive over a 3-year and 5-year horizon, while our equity value strategies have delivered significant relative outperformance on a 1 year view supporting positive relative performance over a five year basis. Assets managed on behalf of M&G plc saw net outflows of $(0.8) billion in the period resulting in assets under management of $14.9 billion at 31 March. A further $5 billion of redemptions by M&G plc are expected over the remainder of 2021.
Group Capital Position
The formal LCSM regulatory position of the Group is stated after including all the Asia with-profit funds and before allowance for the 2020 second interim dividend. At 31 March 2021 the estimated cover ratio on this basis was 343 per cent (31 December 2020: 329 per cent). The estimated Group LCSM shareholder cover ratio at 31 March 2021 was 319 per cent7,8 after allowing for the 2020 second interim dividend, which reduced the cover ratio by 6 percentage points (31 December 2020: 328 per cent7 before the 2020 second interim dividend).
The estimated Group excluding Jackson LCSM shareholder coverage ratio at 31 March 2021 was 331 per cent7,8,9 (31 December 2020: 323 per cent7,9 before allowing for the second interim dividend), with a surplus of $7.9 billion8,9 (31 December 2020: $7.8 billion9 before allowing for the second interim dividend).
This increase in surplus of $0.1 billion reflects $0.4 billion of operating capital generation offset by the allowance for the $(0.3) billion second interim dividend to be paid in May 2021.
Prudential will become subject to the Group-wide Supervision (GWS) Framework upon designation by the Hong Kong Insurance Authority (IA), which is expected to take place imminently. The Group's initial analysis is that if this framework had been applied at 31 March 2021, the Group excluding Jackson GWS shareholder cover ratio would have been 381 per cent 7,8,9,10 , 50 percentage points higher than the LCSM cover ratio at the same date. Further information is given below. This is subject to final Hong Kong IA approval.