Asia Country highlights Hong Kong 1 • Overall APE up 39% • H&P APE up 50% Singapore 1 • Agency APE up 16% • SCB APE up 12% Indonesia 1 • IFRS earnings up 27% • Q4 APE sales up 53% on prior quarter 1 Growth rates based on comparatives stated on a constant exchange rate basis. 13 13 2014 FULL YEAR RESULTS
Asia Country highlights • IFRS earnings up 30% China 1 • Overall APE up 35% • H&P APE up 43% Philippines 1 • IFRS earnings up 75% • Regular premium sales up 30% • H&P APE up 36% Thailand 1 • Overall APE up 36% • IFRS earnings up 10% 1 Growth rates based on comparatives stated on a constant exchange rate basis. 14 14 2014 FULL YEAR RESULTS
Asia Bancassurance SCB bancassurance APE 1 , £m +33% 2H 13 2H 14 1 Comparatives have been stated on a constant exchange rate basis. 15 15 2014 FULL YEAR RESULTS
Asia Eastspring Funds under management , £bn IFRS operating profit 1 , £m 90 +32% +28% 77 68 61 2013 2014 2013 2014 1 Comparatives have been stated on a constant exchange rate basis. 1 Comparatives have been stated on a constant exchange rate basis. 16 16 2014 FULL YEAR RESULTS
Asia Delivering earnings and cash IFRS operating profit 1,2 , £m Free surplus generation 2 , £m 1,140 +17% 592 +15% 516 973 2013 2014 2013 2014 1 Excludes Japan Life. 2 Comparatives have been stated on a constant exchange rate basis. 17 17 2014 FULL YEAR RESULTS
Asia Summary • Strong 2014 delivery in a challenging context • Disciplined execution • High quality Pan-Asian platform • Well positioned to deliver long-term profitable growth 18 18 2014 FULL YEAR RESULTS
Agenda 2014 Performance Asia Jackson UK Life M&G Group 19 19 2014 FULL YEAR RESULTS
US Successful diversification Jackson VA sales mix , $bn 23.1 20.9 2.8 19.7 34% 17.5 5.1 14.7 10.0 15.1 6.5 1 2009 2010 2011 2012 2013 2014 2008 VA With Living Benefit Elite Access VA Without Living Benefit 1 Values may not cast to total due to rounding. 20 20 2014 FULL YEAR RESULTS
US Proactive management Fee income 1 , £m 7.9x 1,402 1,172 875 680 US 10 year 506 Treasury yield 324 292 266 177 2006 2007 2008 2009 2010 2011 2012 2013 2014 1 Comparatives have been stated on an actual exchange rate basis 21 21 2014 FULL YEAR RESULTS
US Successful execution Cumulative cash remittances, $m $2,548m 680 530 470 400 280 125 63 1 2008 2009 2010 2011 2012 2013 2014 456% RBC Ratio 438% 417% 483% 429% 423% 450% 1 Net remittances from Jackson include $197m in 2011 representing release of excess surplus to the Group 22 22 2014 FULL YEAR RESULTS
Agenda 2014 Performance Asia Jackson UK Life M&G Group 23 23 2014 FULL YEAR RESULTS
UK Steady progress IFRS operating profit, £m +6% 776 735 Bulk annuities – new business 25 105 110 Retail annuities – new business 57 255 With Profits 251 Total Total in-force profits in-force profits 614 600 335 320 Annuities and other 1 GI 29 24 2013 2014 In-force 1 Includes PruHealth & PruProtect business sold in November 2014, IFRS profit was £23m and £11m for 2014 and 2013 respectively. 24 24 2014 FULL YEAR RESULTS
UK Strong product proposition PruFund investment performance, % PruFund FUM, £bn 1 80% PruFund Growth Fund Fund Comparator 70% +68% +27% 60% 50% +21% 40% +36% 30% 20% 11.6 9.1 10% 7.5 0% -10% -20% 0.1 -30% 2006 2012 2013 2014 2006 2008 2010 2012 2014 1 ABI Mixed Investment 20%-60% Shares TR 25 25 2014 FULL YEAR RESULTS
UK Preparing for regulatory change 2015 / 2016 2014 • Operational readiness for budget changes Strengthen our • Flexible drawdown launched in • Revamp retirement proposition retirement December proposition Protect and • PruFund now available through an ISA wrapper grow our • Enhance fund range for pension & ISA wrappers savings business Broaden our • Launched onshore bond on two 3 rd • Expand bond availability on up to ten platforms accessible party platforms markets 26 26 2014 FULL YEAR RESULTS
Agenda 2014 Performance Asia Jackson UK Life M&G Group 27 27 2014 FULL YEAR RESULTS
M&G Successful diversification Total FUM, £bn 264 244 228 201 198 1.9x 174 External Internal 2009 2010 2011 2012 2013 2014 28 28 2014 FULL YEAR RESULTS
M&G Strong track record IFRS operating profit 1 , £m 2.5x 446 395 320 301 246 177 2009 2010 2011 2012 2013 2014 1 Excludes 1 Excludes Prudential Capital. 29 29 2014 FULL YEAR RESULTS
Agenda 2014 Performance Asia Jackson UK Life M&G Group 30 30 2014 FULL YEAR RESULTS
Group Long term track record IFRS operating profit 1,2,3 , £m 3.0x 3,186 CAGR 2,954 +15% 2,520 2,017 1,823 1,444 1,244 1,168 1,062 2006 2007 2008 2009 2010 2011 2012 2013 2014 1 Comparatives have been stated on an actual exchange rate basis 2 Comparatives adjusted for new and amended accounting standards and excludes Japan and Taiwan agency. x.x 2014 multiple over 2006 3 2012 includes £51m gain from sale in China Life of Taiwan 31 31 2014 FULL YEAR RESULTS
Group Long term track record New business profit 1,2 , £m 3.1x CAGR 2,126 2,082 +15% 1,791 1,536 1,433 1,143 860 767 679 2006 2007 2008 2009 2010 2011 2012 2013 2014 1 Comparatives have been stated on an actual exchange rate basis 2 Excludes Japan Life and Taiwan agency. x.x 2014 multiple over 2006 32 32 2014 FULL YEAR RESULTS
Group Long term track record Free surplus generation 1,2,3 , £m 4.1x CAGR 2,579 2,462 +19% 2,080 1,982 1,687 1,453 901 779 629 2006 2007 2008 2009 2010 2011 2012 2013 2014 1 Comparatives have been stated on an actual exchange rate basis 2 Excludes Japan Life and Taiwan agency. x.x 2014 multiple over 2006 3 2012 includes £51m gain from sale in China Life of Taiwan 33 33 2014 FULL YEAR RESULTS
Prudential plc 2014 full year results Agenda Business Review Tidjane Thiam Financial Review Nic Nicandrou Outlook Tidjane Thiam 34 34 2014 FULL YEAR RESULTS
Key financial highlights IFRS Free surplus Other Overview operating generation items FY14 continued strong performance profit FY14 vs FY13 FY14 1 FY13 1 AER 3 CER 4 £m IFRS operating profit 3,186 2,954 8% 14% Free surplus generation 2,579 2,462 5% 9% New business profit 2 2,126 2,082 2% 10% EEV operating profit 2 4,096 4,204 (3)% 4% 1 IFRS and EEV results and free surplus generation exclude Japan Life classified as held for sale. 2 The 2014 EEV results for the Group are presented on a post-tax basis and, accordingly, the 2013 results are shown on a comparable basis. 3 Actual exchange rates. 4 Constant exchange rates. 35 35 2014 FULL YEAR RESULTS
Currency mix IFRS Free surplus Other Overview operating generation items Currency translation effect profit IFRS operating profit 1 Movement in average FX rates by currency , % FY14 UK Other Asia sterling 6% USD 18 20 (5)% Asia - US 6% 17 dollar linked HKD (5)% 45 US dollar 1% SGD (6)% Underlying free surplus generation 1 by currency , % FY14 (1)% MYR (9)% Other Asia 9 Asia - US 1% IDR dollar linked 14 UK (16)% 38 sterling (20)% (10)% 0% 10% 39 FY14 average rate vs FY14 year-end spot rate FY13 average rate vs FY14 average rate US dollar 1 IFRS operating profit and underlying free surplus generation exclude Japan Life classified as held for sale. 36 36 2014 FULL YEAR RESULTS
Currency mix IFRS Free surplus Other Overview operating generation items Currency translation effect profit IFRS operating profit 1 , £m New business profit 1,2 , £m FY13 @ FY13 av FX rate FY13 @ FY13 av FX rate 2,082 2,954 2,954 (36) (65) (2)% (2)% Impact of translating result on Impact of translating result on 2014 full year average rates 2014 full year average rates (5)% (107) (3)% (102) 1,939 FY13 @ FY14 av FX rate 2,787 FY13 @ FY14 av FX rate Underlying free surplus generation 1 , £m EEV operating profit 1,2 , £m FY13 @ FY13 av FX rate 2,462 FY13 @ FY13 av FX rate 4,204 2,462 (2)% (2)% (79) (44) Impact of translating result on Impact of translating result on 2014 full year average rates 2014 full year average rates (2)% (5)% (192) (57) 3,933 FY13 @ FY14 av FX rate 2,361 FY13 @ FY14 av FX rate Impact on Group result from US contribution Impact on Group result from Asia contribution 1 IFRS and EEV results and free surplus generation exclude Japan Life classified as held for sale. 2 The 2014 EEV results for the Group are presented on a post-tax basis and, accordingly, the 2013 results are shown on a comparable basis. 37 37 2014 FULL YEAR RESULTS
Key financial highlights IFRS Free surplus Other Overview operating generation items Broad based growth profit FY14 vs FY13 1 , constant exchange rates M&G 3 Group Asia US UK IFRS operating profit 14% 17% 17% 6% 11% Free surplus generation 9% 15% 22% (12)% 12% New business profit 2 10% 13% 4% 14% n/a EEV operating profit 2 4% 12% 3% (10)% 12% 1 IFRS and EEV results and free surplus generation exclude Japan Life classified as held for sale. 2 The 2014 EEV results for the Group are presented on a post-tax basis and, accordingly, the 2013 results are shown on a comparable basis. 3 Includes Prudential Capital. 38 38 2014 FULL YEAR RESULTS
IFRS – Group IFRS Free surplus Other Overview operating generation items Growing profit and improving quality: 26% RoE profit IFRS 1 operating profit up 14% , £m (CER 2 ) IFRS operating profit 1 , £m (CER 2 ) Operating EPS FY13 85.9p 2,787 CER 3,186 Fee income 407 2,787 Insurance 298 income Spread 102 income 14% Other 5 income Expenses 351 net of DAC Interest / 62 central costs FY13 FY14 CER 96.6p FY14 3,186 1 IFRS results exclude Japan Life classified as held for sale. 2 FY13 restated on constant exchange rate basis, reducing IFRS operating profit by £167 million 39 39 2014 FULL YEAR RESULTS
IFRS – Asia IFRS Free surplus Other Overview operating generation items Continued strong growth in Asia life profits profit Asia life 1 , sources of earnings Shareholder-backed Life operating profit, £m (CER 2 ) policyholder liabilities, £bn IFRS operating profit 1 , by business unit +191 +10% 26.4 1,050 (90) +235 (6)% 905 21.9 £m, CER 2 FY14 FY13 Change 20% Asia 1,140 973 17% 31 Dec 2013 Change in Change in 2014 31 Dec 2013 2014 revenue expenses Life 1,050 905 16% Eastspring, earnings drivers, £bn (CER 2 ) 68 32% Eastspring 90 Fee income 3 , £m Cost / income ratio 3 US 1,443 1,237 17% 240 62% 200 59% UK 776 735 6% 20% M&G 488 441 11% FY14 FY14 FY13 FY13 1 IFRS results, shareholder-backed policyholder liabilities and sources of earnings exclude Japan Life classified as held for sale. 2 FY13 restated on constant exchange rate basis, reducing Asia life IFRS operating profit by £96 million, Eastspring IFRS operating profit by £6 million and Eastspring fee income by £14 million. 3 Represents fee income before performance-related fees and excludes income from associates. 40 40 2014 FULL YEAR RESULTS
IFRS – US IFRS Free surplus Other Overview operating generation items Jackson Life growth of 21% profit Jackson, sources of income 2 , £m (CER 3 ) FY14 vs FY13 IFRS operating profit 1 , by business unit 18% 2,820 2,388 +4% 26% Spread 30% 24% +20% £m, CER 3 FY14 FY13 Change Technical 23% +26% 50% Fee 47% Asia 1,140 973 17% FY14 FY13 US 1,443 1,237 17% Jackson separate account assets, US$bn Life 1,431 1,181 21% +17% Other 12 56 (79)% 6 127 12 109 UK 776 735 6% M&G 488 441 11% 31 Dec Inflows Market / other 31 Dec 2013 movements 2014 1 IFRS results exclude Japan Life classified as held for sale. 2 Sources of income represents fee income, insurance margin and spread income (which includes the expected return on shareholder assets). 3 FY13 restated on constant exchange rate basis, reducing US Life IFRS operating profit by £62 million, US Other IFRS operating profit by £3 million and US life sources of income by £126 million. 41 41 2014 FULL YEAR RESULTS
IFRS – UK IFRS Free surplus Other Overview operating generation items UK Life growth of 7% in challenging market profit UK Life IFRS operating profit , £m IFRS operating profit 1 , by business unit £m, CER FY14 FY13 Change FY14 FY13 Annuities new business 162 135 Asia 1,140 973 17% bulk annuities 105 25 US 1,443 1,237 17% 110 individual annuities 57 UK 776 735 6% Other life 567 560 Life 752 706 7% shareholder backed 312 309 (in-force annuities and other) Other 24 29 (17)% with-profits 255 251 11 PruHealth and PruProtect 23 M&G 488 441 11% 706 752 1 IFRS results exclude Japan Life classified as held for sale. 42 42 2014 FULL YEAR RESULTS
IFRS – M&G IFRS Free surplus Other Overview operating generation items M&G IFRS profit up 13% profit M&G, earnings drivers Underlying fee income 2 , £m Cost / income ratio 2 IFRS operating profit 1 , by business unit 954 863 59% 58% 11% £m, CER FY14 FY13 Change FY14 FY14 FY13 FY13 Asia 1,140 973 17% M&G, revenue drivers, £bn Growth Mix US 1,443 1,237 17% 264.0 244.0 UK 776 735 6% 74.3 +11% 250.0 7% 67.2 Retail 233.8 M&G 488 441 11% +7% 62.7 58.8 Institutional M&G 446 395 13% +8% 127.0 Internal 118.0 PruCap 42 46 (9)% Dec 2013 Dec 2014 Closing AUM FY13 FY14 Average AUM Av. fee revenue 37 38 margin 3 (bp) 1 IFRS results exclude Japan Life classified as held for sale. 2 Represents fee income before performance-related fees and excludes income from associates. 3 Margin represents operating income before performance-related fees as a proportion of average AUM. 43 43 2014 FULL YEAR RESULTS
Net free surplus generation IFRS Free surplus Other Overview operating generation items Increasing free surplus generation profit Free surplus generation 1 , £m, (CER 2 ) Life in-force result, £m (CER 2 ) FY14 FY13 Change FY14 FY13 Change Expected return from in-force 2,276 1,912 19% Asia 860 742 16% Experience result 314 457 (31)% US 1,191 1,072 11% Investment return on free surplus 106 125 (15)% UK 645 680 (5)% Life in-force result 2,696 2,494 8% New business strain, £m (CER 2 ) Asset management and Other 489 464 5% FY14 Change FY13 Gross free surplus generation 2,958 8% 3,185 Asia 346 285 21% Less: new business strain 606 597 2% US 187 283 (34)% 2,361 9% UK 73 29 152% Net free surplus generation 2,579 1 Free surplus generation exclude Japan Life classified as held for sale. 2 FY13 restated on constant exchange rate basis, reducing net free surplus generation by £101 million, Asia life in-force result by £77 million, US life in-force result by £57 million, Asset management by £7 million, Asia new business strain by £25 million and US new business strain by £15 million. 44 44 2014 FULL YEAR RESULTS
Net free surplus generation IFRS Free surplus Other Overview operating generation items Underpinning cash to Group profit Movement in free surplus , £m Movement in central cash , £m Free surplus cover x% FY14 FY13 201% 1 6,541 211% Asia 400 400 (6) US 415 294 (1,482) 2,579 5,059 UK 325 355 M&G 3 342 292 3,968 (895) 1,482 2,230 (984) 1,480 (353) 1 Jan Market / Cash 1 Jan Corporate Net free 31 Dec Central Cash Dividends 31 Dec 2014 2 other remitted to 2014 Actions/ surplus 2014 remitted paid costs 2014 generated movements Group Other from BUs 1 As at 31 December 2013. 2 Includes £(35)m effect of domestication of Hong Kong branch. 3 Includes Prudential Capital. 45 45 2014 FULL YEAR RESULTS
Net free surplus generation IFRS Free surplus Other Overview operating generation items Increasing free surplus generation profit Expected undiscounted free surplus from life in-force 1 , £bn 7.9 9.2 7.0 8.3 5.8 6.9 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Actual From 2013 Life in-force 2013 life in-force including market effects From 2014 new business Expected undiscounted cash flows from 2014 new business, £bn 0.8 0.7 0.4 0.0 (0.4) (0.8) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 1 Free surplus generation exclude Japan Life classified as held for sale. 46 46 2014 FULL YEAR RESULTS
EEV operating profit (post-tax) IFRS Free surplus Other Overview operating items generation Operating return on EEV of 16% profit EEV operating profit 1 , by business unit EEV Life operating profit 1,2 , £m (CER 3 ) £m, CER 3 FY14 FY13 Change 4,174 3,985 FY13 FY14 Unwind 1,420 1,440 Total Life 2 3,985 5% 4,174 2,048 - Experience 2 458 In-force 470 2,046 profit 2 Asia 1,900 1,704 12% Assumption 168 138 changes US 1,528 1,449 5% UK 746 832 (10)% New 2,126 1,939 +10% business profit 470 442 6% AM Other (548) (494) (11)% FY13 FY14 CER 3,933 4% 4,096 1 EEV results excludes Japan Life classified as held for sale. 2 Net of Asia development expenses (FY13: £1m, FY14: £1m). 3 FY13 restated on constant exchange rate basis, reducing Asia Life EEV operating profit by £187 million, US Life EEV operating profit by £77 million, Asset management by £7 million, in-force profit by £121 million and new business profit by £143 million. 47 47 2014 FULL YEAR RESULTS
EEV operating profit IFRS Free surplus Other Overview operating items Value creation through increasing NBP – up 10% generation profit New business profit , £m (CER 1 ) Movement in NBP, FY14 vs FY13 Volume +9% 2,126 Bulks +4% 105 1,939 Bulks Mix / pricing / other +1% 24 165 +14% UK 213 Economic effect (excl FX) (4)% 694 CER +10% +4% US 670 IRR and payback periods 1,162 Payback 1,032 +13% Asia IRR period Asia >20% 3 years US FY13 FY14 >20% 1 year CER UK >20% 4 years 1 FY13 restated on constant exchange rate basis, reducing Asia new business profit by £107 million and US new business profit by £36 million. 48 48 2014 FULL YEAR RESULTS
Equity shareholders’ funds IFRS Free surplus Other Overview operating items generation Summary of movement profit Movement in shareholders’ funds IFRS Equity EEV Equity FY14 % vs FY14 FY14 % vs FY14 £bn FY13 per share £bn FY13 per share 2.5 6% 97 4.1 (3)% 161 After-tax operating profit (0.3) (10) 0.2 10 Investment variance and other 1 2.2 65% 87 4.3 - 171 Profit for the period Unrealised gain on AFS 2 0.6 22 0.1 3 Foreign exchange and other 3 0.2 10 0.8 26 Dividend (0.9) (35) (0.9) (35) 2.1 84 4.3 165 Retained earnings Opening shareholders’ equity 9.7 376 24.9 971 Closing shareholders’ equity 11.8 460 29.2 1136 Movement in period +22% +22% +17% +17% 1 Includes gain on sale of PruHealth and PruProtect. 2 For IFRS relates to JNL fixed income portfolio accounted as available for sale. For EEV, represents mark to market movements on JNL assets backing surplus and required capital. 3 Includes the effect of domestication of Hong Kong branch on 1 January 2014; for per share amounts includes effect of change in number of shares in issue. 49 49 2014 FULL YEAR RESULTS
Economic capital IFRS Free surplus Other Overview operating items generation Economic capital model assumptions profit Implementation of risk-sensitive capital measure • Solvency II effective from 1 Jan 2016 • Prudential to seek internal model approval • Internal model application in 2Q15 • Feedback from PRA expected in 2H15 • Significant areas of policy development and interpretation remain outstanding Prudential Economic capital result • Based on end-2013 model, with minor refinements • Main change is adoption of Matching Adjustment principles, replacing liquidity premium • Significant uncertainties still exist on final Matching Adjustment outcome (e.g. eligibility of certain assets, fundamental spread basis, diversification allowances) • Other key elements remain unchanged: • Deduction and Aggregation for US (250% of RBC) with no diversification • Full recognition of economic value of overseas surplus • Risk margin included at 6% cost of capital 50 50 2014 FULL YEAR RESULTS
Economic capital IFRS Free surplus Other Overview operating items generation Robust economic capital position profit Economic capital surplus 1 , £bn 11.3 Solvency 1 Jan 2014 257% 218% cover 1.8 Operating experience (0.9) Market / non-operating effects Surplus (0.9) Dividend Surplus Capital effects £9.7bn £11.3bn M&A / other (0.7) 18.5 17.9 HK domestication (0.3) Debt repayment (0.4) 8.2 7.2 Model changes (0.3) Currency movements 31 Dec 2013 31 Dec 2014 0.1 Available capital Required capital 31 Dec 2014 9.7 1 Our economic capital results are based on outputs from our Solvency II internal model. Although the Solvency II and Omnibus II D irectives, together with the Level 2 ‘Delegated Act’ published on 17 January 2015, provide a framework for the calculation of Solvency II results, there remain material areas of policy uncertainty and in many areas the Group’s methodology and assumpti ons are subject to review and approval by the Prudential Regulation Authority, the Group’s lead regulator. We remain on track to submit our Solvency II internal model to the Prudential Regulation Authority for approval in 2015 but given the degree of uncertainty remaining, the economic capital position disclosed should not be interpreted as output from an approved internal model. 51 51 2014 FULL YEAR RESULTS
Economic capital IFRS Free surplus Other Overview operating items generation Balanced risk exposures profit Economic capital by risk type (before diversification) 1,2 Operational/Expense Balanced risk exposures mainly arise from: Mortality/ • Credit (UK annuities and Jackson fixed annuities) 10% Morbidity Credit 6% 26% • Equity (with-profits shareholder transfers; unit linked fund charges) Longevity 11% • Interest rates (impact on guarantee costs, offset by impact on discount rate for insurance profits) • Insurance risks: lapse, longevity, mortality and morbidity (Asia Lapse 15% 16% Equity protection products, UK annuities, with-profits shareholder 12% transfers) 4% Other market • Operational and expense risks Interest rates Economic capital sensitivities , £bn 1 Impact on Economic capital surplus solvency ratio Base position (as reported) 9.7 218% 7.5 40% equity fall (23) ppts 9.1 20% equity fall (4) ppts 8.3 50bp interest rate fall (23) ppts 11.5 100bp interest rate rise +36 ppts 7.6 100bp credit spread widening 3 (28) ppts 1 There are material areas of uncertainty with regard to methodology and assumptions which remain subject to review and approval by the PRA. These estimates should not be interpreted as outputs from a PRA-approved Solvency II internal model. 2 The split by risk type includes Jackson’s risk exposures, based on 250% of the US RBC Company Action Level. 3 Stress test includes 15 per cent downgrades in the UK annuity portfolio and credit defaults of 10 times the expected level in Jackson. 52 52 2014 FULL YEAR RESULTS
Balance sheet IFRS Free surplus Other Overview operating items generation Well capitalised and defensively positioned profit Maintained capital strength • IGD surplus £4.7bn equivalent to cover of 2.4 times • With-profits estate of £7.2bn 1 (1 January 2014: £6.8bn) • Jackson RBC ratio of 456% (2013: 450%) Strong liquidity position • £1.5bn of central cash resources • £2.6bn of untapped liquidity facilities Credit position improved • UK: £2.2bn default provision • Unrealised gains on US debt securities of £1.8bn (31 December 2013: £0.8bn) • US net recoveries in 2014 of £7m (2013: impairments of £4m) Continued balance sheet conservatism • Variable annuity hedging remains robust • Conservative asset mix with 95% of credit portfolio rated investment grade 2 • Oil and gas exposure is high quality and diversified 1 1 January 2014 amount is after a £1.2 billion reduction representing the estate transfer following domestication of the Hong Kong branch of the PAC With-Profits fund. 2 Shareholder-backed business. 53 53 2014 FULL YEAR RESULTS
2014 summary IFRS Free surplus Other Overview operating items generation profit • Strong operating performance • Resilient in-force cash generation • Robust balance sheet position • Positive financial outlook 54 54 2014 FULL YEAR RESULTS
Prudential plc 2014 full year results Agenda Business Review Tidjane Thiam Financial Review Nic Nicandrou Outlook Tidjane Thiam 55 55 2014 FULL YEAR RESULTS
Group Geographic footprint Prudential footprint % of GDP growth 1 , 2014-2019, $bn 37% 63% Prudential footprint Rest of World Prudential 24m life customers Global growth $13.9 trillion 1 IMF World Economic Outlook – October 2014 56 56 2014 FULL YEAR RESULTS
Group Strategy Significant protection gap and investment needs of the Asian middle class Transition of US ‘baby - boomers’ into retirement UK ‘savings gap’ and ageing population in need of returns / income 57 57 2014 FULL YEAR RESULTS
Group Significant growth opportunities Asia US UK Sweet spot middle class 1 , m Retiree population 2 , m Assets under mgt 3 , £tn +112m 1.4x 2.0x 56.4 403 1.2 40.2 291 0.6 2010 2020 2010 2020 2010 2020 2014 Global 2nd position 1 Asian Development Bank (ADB). Key indicators for Asia and the Pacific 2010. Prudential estimates. 2 Retiree population are individuals +65 years old. Source: U.S Census Bureau population projections December 2014. 3 IMA Funds Under Management. E&Y forecasts and Prudential estimates. 58 58 2014 FULL YEAR RESULTS
Group Disciplined execution Asia US UK Health and Protection APE 1 , £m Sales and deposits by product, $bn M&G retail FUM, £bn 3.9x 2.4x 2.0x 28.3 625 74.3 5.2 32.2 5.1 14.0 262 7.5 19.1 18.0 42.1 11.9 6.5 7.2 2008 2014 2008 2014 2008 2014 Variable Annuity Bonds Elite Access Equities and Other FA, FIA and Other 1 Comparatives have been stated on an actual exchange rate basis 59 59 2014 FULL YEAR RESULTS
Group Value creation Free surplus and dividend 1 , £m 2.9x Net free surplus Reinvestment Reinvestment rate 19% rate 21% Reinvestment 606 637 Reinvestment rate 23% rate 22% Reinvestment rate 28% Reinvestment 618 rate 31% 553 643 Reinvestment 660 rate 50% Reinvestment 3,185 rate 35% 3,099 2,698 2,579 2,535 2,462 794 2,330 483 463 2,113 2,080 1,982 413 1,687 374 376 1,573 1,453 1,384 281 381 901 895 237 305 779 781 655 642 449 344 286 243 2007 2008 2009 2010 2011 2012 2013 2014 Surplus generation 2 Investment in new business 2 Central outgoings 3 Net free surplus Dividend net of scrip 1 Comparatives have been stated on an actual exchange rate basis 2 Comparatives adjusted for new and amended accounting standard and excludes Japan Life. 3 Central outgoings includes RHO costs. 60 60 2014 FULL YEAR RESULTS
Group Delivering cash Dividend, pence per share 36.93 +10.0% 33.57 +15.0% 29.19 +15.9% 25.19 +5.6% 23.85 25.74 +20.2% 23.84 19.85 18.90 +5.0% 18.00 +5.0% 20.79 17.14 +5.0% Total dividend 16.32 +5.0% 17.24 17.24 13.56 12.91 12.30 Final dividend 11.72 11.02 11.19 9.73 8.40 7.95 Interim dividend 6.61 6.29 5.99 5.70 5.30 5.42 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 61 61 2014 FULL YEAR RESULTS
Group Summary • Strong 2014 performance • Disciplined execution of clear unchanged strategy • Asia central to Group prospects • Well positioned to deliver long-term shareholder value 62 62 2014 FULL YEAR RESULTS
Appendix 63 2014 FULL YEAR RESULTS
Strategy We have a clear strategy underpinned by clear operating principles Strategy Operating Principles Balanced Metrics & Disclosures US Build on Strength ASIA Accelerate Focus on Customers and Distribution UK ASSET Proactive Disciplined Focus Risk Capital MANAGEMENT Management Allocation Optimise 64 2014 FULL YEAR RESULTS
Disciplined capital allocation New business profit growth New business strain 1,2 , £m New business profit 2,3 , £m +86% 2,126 2,082 270 237 1,791 -8% 1,536 241 1,433 660 694 706 643 637 195 618 606 29 266 553 1,143 UK 65 103 568 45 73 54 530 166 UK 298 495 187 281 300 US 202 326 432 US 1,162 1,139 982 811 346 672 310 Asia 297 292 278 545 Asia 231 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 1 Free surplus invested in new business. 2 Excludes Japan and Taiwan agency. 3 On a post-tax basis. 65 2014 FULL YEAR RESULTS
Life IFRS operating income High quality earnings “Cash profit” 1 : Income 2 – Expenses (before impact of DAC adjustment), £m 1.6x 3,468 3,467 3,232 2,956 6,424 2,805 6,083 2,616 2,536 5,336 2,104 4,589 1,784 4,047 US Life + 1,998 1,511 1,650 UK Life 1,233 1,111 990 Asia 966 958 871 Life 673 521 1 1 1 1 Expenses “Cash Expenses “Cash Expenses “Cash Expenses “Cash Life “Cash Life Life Life Life Expenses profit” profit” profit” profit” Income 1 profit” Income 1 Income 1 Income 1 Income 1 2012 3 2010 2011 2013 2014 2.0x 1 Comparatives adjusted for new and amended accounting standard and excludes Japan Life and Taiwan agency. 2 Life income is sum of spread income, fee income, technical and other margin, with-profits and expected returns. 3 2012 Life Income excludes gain on sale of China Life of Taiwan (£51m). 66 2014 FULL YEAR RESULTS
Delivering cash Cash remittances to Group Business unit net remittances, £m +11% 1,482 1,341 M&G incl 342 1,200 PruCap 292 1,105 297 935 UK 325 280 355 202 688 313 297 415 175 US 515 294 420 249 167 322 434 80 199 400 400 Asia 341 233 206 144 39 5 40 2011 2008 2009 2012 2013 2014 2010 67 2014 FULL YEAR RESULTS
Dividend Total dividend increased by 10% Dividend, pence per share 36.93 +10% Total dividend • 2014 dividend increased by 10 per cent to 33.57 36.93 pence per share • Ex-dividend date: 26 March 2015 1 25.74 Final dividend 23.84 • Record date: 27 March 2015 • Payment of dividend: 21 May 2015 2 Interim dividend 11.19 9.73 2013 2014 1 For shares listed on Singapore Exchange, 25 March 2015. 2 For shares listed on Singapore Exchange, on or about 28 May 2015; for ADR holders, on or about 29 June 2015. 68 2014 FULL YEAR RESULTS
Asia Long term opportunity GDP per capita in 2010, against the US GDP per capita,1990 US$ 1 35,000 • Pan Asian leader: #1 by NBP 2 Hong Kong Singapore 30,000 • Top 3 in 8 /11 Asian countries 3 25,000 • Market leading platform Taiwan Korea − Over 550,000 agents 20,000 − Access to 5,155 bank 15,000 branches with top 5 partners Malaysia − 13.1 million customers 10,000 Thailand China Indonesia Vietnam 5,000 India Philippines 0 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 US GDP per capita 1 Geary-Khamis dollar, based on purchasing power parities with 1990 as benchmark year - one 1990 dollar has the same purchasing power as the US dollar in 1990. Prudential estimates. 2 NBP = New Business Profit; Prudential estimates based on information disclosed in company reports. Amongst pan Asian international (private) insurers. 3 Source : based on formal (Competitors’ results release, local regulators and insurance associations) and informal (industry exchange ) market share data. Excludes Cambodia , Myanmar and Japan Market Share data as of latest; India and China ranking and market share among foreign / JV / Private only. Singapore includes onshore only. Thailand Market share is post acquisition of Thanachart Life. 69 2014 FULL YEAR RESULTS
Asia Favourable dynamics Prudential customers as a GDP 2014 GDP % of total population 2 ($bn) 2 growth (%) 2 Indonesia (1995) 1 1.0% 915 5.5 0.2% 289 6.3 Philippines (1996) Sweet Spot markets 0.9% 391 4.6 Thailand (1995) Vietnam (1999) 1.4% 180 5.6 Hong Kong (1964) 12.4% 282 3.3 6.5% 332 5.2 Malaysia (1924) Singapore (1931) 15.1% 307 3.0 India (2000) 0.3% 1,982 6.4 JV’s 0.06% 10,168 7.1 China (2000) Markets 1.0% 506 3.8 Taiwan (1999) Mature 0.6% 1,353 4.0 Korea (2002) Nascent Markets 0.1% 17 7.3 Cambodia (2013) - 62 8.5 Myanmar (2013) 1 Year in bracket denotes start of operation. 2 Source IMF. GDP in $bn for 2014 (estimated). 70 2014 FULL YEAR RESULTS
Asia Life Products meet customer needs and create shareholder value Health and Protection – Out of pocket Annual premium for a customer aged 50 medical expenses 1 (indexed) 143 123 19 117 114 100 73 Saving 100 81 27 Spend Without Basic Prudential Prudential Co. A Co. B Co. C Co. D insurance Government Protection insurance Product 1 Expenses for a male aged 50 for heart diseases and heart surgery treatment. 71 2014 FULL YEAR RESULTS
Asia Affordable products underpin consumer demand Prudential product premium 1 Developed markets health insurance spend 2 Healthcare spend as % of average annual income 2 100% = average annual income 12% 11% 11% Linked 10% 46 premium Premiums paid = 9% of average annual 5.0% income H&P 54 premium Premiums as a proportion of % of premium used Prudential US France Germany UK Example average annual income to purchase benefit 1 Average Prudential customer spend on insurance products. 2 Source: OECD, UN population stats, Prudential estimates. Premium spend includes healthcare expenditure by private and public sources except for the US. Healthcare spend data adjusted for working age population and unemployment rates. 72 2014 FULL YEAR RESULTS
Asia Growing demand for healthcare Household consumption by category 1 , % 100% = $1.3tn 6 Personal items 14 Recreation 3 Education 12 Transportation 3 Communications 5 Clothing 7 Healthcare 5 Household products 100% = $0.5tn 15 Housing 5 14 Discretionary 2 10 2 9 6 Semi-Necessities 6 13 31 Food Necessities 34 1990 2010 1 Euromonitor, McKinsey, Prudential estimates. 73 2014 FULL YEAR RESULTS
Asia distribution Wealth and financial assets ownership Breakdown of personal financial assets 12% Life 24% Non-Life 9% 39% 9% Asset Mgt 18% 24% 20% Bank 70% Deposits 21% 38% 16% Per capita Up to $2000 to $15000+ income level $2000 $15000 Source: Oliver Wyman analysis; Prudential analysis. 74 2014 FULL YEAR RESULTS
Asia Life APE by market Asia APE by market, £m (Constant Exchange Rate) +39% 645 -4% 464 +6% 399 385 357 338 +6% +13% 201 +1% 190 +16% +35% +36% 124 +6% +20% 110 113 112 109 105 94 83 78 61 61 51 51 48 India 26% 3 China 50% Hong Kong Indonesia Singapore Malaysia Taiwan Korea Thailand Vietnam Philippines 4 1 2 3 3 rd 1 st 1 st 1 st 13 th 17 th 1 st 2 nd 8 th 1 st 2 nd Ranking 2013 2014 1 Singapore includes onshore only, excluding Eldershield and DPS. 2 Includes Takaful sales @100%. 3 Ranking amongst private players. 4 Ranking amongst foreign JVs/players. Source : Based on formal (Competitors’ results release, local regulators and insurance associations) and informal (industry exchange ) market share data. Ranking based on new business (APE or weighted FYP depending on the availability of data). 75 2014 FULL YEAR RESULTS
Asia Life APE sales by product - percent Asia APE by product, % 2 2 3 3 3 3 3 3 3 3 3 4 4 4 4 5 5 5 5 5 5 6 7 7 7 7 8 8 8 9 9 9 14 19 18 19 17 21 20 23 27 26 29 28 26 30 30 25 33 33 33 33 34 34 33 35 31 34 35 18 35 38 38 38 40 17 18 20 20 19 22 30 24 27 27 24 25 30 27 31 29 24 32 30 32 34 33 29 30 34 31 30 26 27 29 28 65 62 60 59 59 57 55 46 44 44 44 43 42 39 38 37 36 34 31 31 30 30 29 28 28 28 27 27 27 26 24 23 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14 Linked Health Par Other 76 2014 FULL YEAR RESULTS
Asia Life Flows and persistency Asia Life inflows 1,2 , £bn Asia Life inflows (ex-India) 1,2 , £bn 4.5 4.4 4.8 4.7 3.8 12.6% 13.8% 4.1 3.4 3.8 3.3 2.7 10.6% 9.7% 9.6% 9.6% 10.1% 10.0% 9.2% 9.8% FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14 Surrenders/withdrawals as % of opening liabilities 1 Defined as movements in shareholder-backed policyholder liabilities arising from premiums (after deducting insurance & other margins). 2 Japan is excluded from the 2014 and 2013 flows and surrender rates. If 2012 was stated on a comparable basis, the total Asia Life inflows would be £4.1bn, and the surrender rates would be 10.6%; Asia Life inflows (ex-India) would be £3.7bn, and the surrender rates would be 9.7%. 77 2014 FULL YEAR RESULTS
US retail sales and deposits 2014 Retail sales and deposits , $m 2013 = $25,966m 2014 = $27,179m $868 $868 $2,625 $2,733 $4 $609 $1,419 $5,122 $4,045 $15,142 $14,537 $2,813 $2,360 Variable Annuities – with living benefits Variable Annuities – w/o living benefits, non EA Fixed Annuities Elite Access Fixed Index Annuities Life insurance Curian 78 2014 FULL YEAR RESULTS
US Life VA volumes VA volumes by quarter , sales US$bn 27% 28% 53% 46% 45% 42% 50% 47% 6.4 6.4 • ‘Features War’ 5.7 5.7 5.7 1.1 5.5 1.4 5.3 5.2 0.4 5.0 0.2 1.1 1.3 1.1 4.7 4.6 4.6 4.4 1.0 4.4 4.2 4.2 0.8 0.7 3.8 3.7 3.7 1.3 3.3 3.1 2.9 2.4 2.4 2.3 2.3 2.1 1.8 1.8 1.5 1.5 1.4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14 1 1 st 1 st 12 th 11 th 12 th 12 th 12 th 12 th 12 th 12 th 8 th 5 th 4 th 4 th 4 th 4 th 3 rd 3 rd 3 rd 3 rd 3 rd 3 rd 3 rd 3 rd 2 nd 2 nd 1 st 1 st 1 st 1 st 1 st 1 st FY New business margin (post tax) 2 Ranking Elite Access 1 Estimated. 2 Previously disclosed pre-tax margins have been adjusted at a notional tax rate of 35%, and are now presented as post tax. 79 2014 FULL YEAR RESULTS
US Life Variable annuity distribution Variable annuity sales by distribution channel, US$bn 2014 includes $5.1bn of Elite Access sales (2013: $4.0bn) 23.1 20.9 15.3 13.3 4.1 3.9 3.7 3.7 2013 2014 IBD RBD/Wirehouse Bank IBD: Independent Broker/Dealer, RBD: Regional Broker Dealer. 80 2014 FULL YEAR RESULTS
US Life New business margin New business margin 1 – % APE 50% 47% 42% 23% 19% 17% Variable Annuities US Other 2012 2013 2014 1 On a post-tax basis. 81 2014 FULL YEAR RESULTS
US IFRS profit DAC impact on results Impact on results of DAC amortisation, £m 2013 2014 Gross profits 1 1,716 1,944 New business strain 2 (198) (209) DAC Amortisation - Core (485) (474) - (acceleration) / deceleration 82 (13) Operating result 1,115 1,248 Core as % of Gross profits 28% 24% 1 Gross profits equals IFRS operating profit pre acquisition costs and pre DAC, excluding REALIC. 2 Represents acquisition costs no longer deferrable following the adoption of altered US GAAP principles for deferred acquisition costs. 82 2014 FULL YEAR RESULTS
US Life Policyholder behaviour Optional benefits elected , % of initial benefits elected (New business) 86% 82% 80% 79% 65% 62% 55% 42% 28% 15% 14% 11% 8% 6% 6% 5% 5% 5% 2006 2007 2008 2009 2010 2011 2012 2013 2014 No benefit GMWB (for life) 83 2014 FULL YEAR RESULTS
US Life Asset growth Growth in statutory admitted assets, US$bn 2014 v 2013 increase: $18.5bn 189.4 Net Inflows: $12.3bn 170.9 Market and other movements: $6.2bn 142.8 127.5 107.6 108.8 97.5 80.1 81.0 76.7 70.9 69.3 58.8 48.9 62.8 55.6 33.3 30.0 50.9 20.9 22.3 46.6 14.7 43.0 10.4 40.2 7.1 4.4 5.1 5.6 62.7 62.1 61.9 50.0 48.6 48.8 48.1 47.1 47.7 46.7 45.2 43.8 42.2 37.9 34.6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 General account Separate account 84 2014 FULL YEAR RESULTS
Resilient balance sheet GMWB policyholder behaviour sensitivities GMWB policyholder behaviour sensitivities, FY 2014 US$bn • Policyholder behaviour experience is continuously monitored and a comprehensive study is conducted on an annual basis 7 • For IFRS and Statutory accounting purposes, assumptions are set at the conservative end of the plausible range (i.e., best estimate with 6 an explicit margin for conservatism). For example, – Surrender -- GMWB ultimate surrender assumptions at 5 significantly ITM levels are assumed to be 33% of the base surrender assumptions 4 – Utilisation -- For-Life GMWB utilisation assumptions at attained ages 65+ are 60-80% (with special provisions for benefits with 3 incentives to delay withdrawals) • To measure the sensitivity to these assumptions, IFRS Equity and 2 Statutory Capital were computed under severe shocks to these already conservative assumptions. The shocks were as follows: 1 – Surrender – surrender rates for ITM policies were reduced to half the assumed levels. For example, ultimate surrender rates on significantly ITM policies were reduced from 33% to 17% of the 0 base surrender level, resulting in ultimate surrender rates of less Total Adjusted Capital IFRS SH equity than 2% for most plan types – Utilisation -- utilisation rates beyond the bonus period, if Total Lapse sensitivity impact applicable, were increased by an absolute 10%. For example, Utilisation sensitivity impact utilisation rates of 60-80% on For-Life contracts at attained ages 60+ were increased to 70%-90% 85 2014 FULL YEAR RESULTS
Hedging result IFRS impact ‘below -the- line’ 2014 VA hedge results, net of related DAC , £m 500 0 (500) (645) (1,000) 240 (1,251) 325 (1,500) (1,171) (2,000) Equity hedge VA reserve Interest Non-operating IFRS net instruments changes rate hedges fee income, hedge result net of claims 86 2014 FULL YEAR RESULTS
VA hedging Moving reserves to ‘fair value’ Guarantee Benefit Liability Supplemental Disclosure 1 , net of DAC , £m 1,500 299 1,000 Liabilities 803 500 0 47 Assets (500) (422) (1,571) (469) (1,000) As recorded 2 Adjustment Change in Revised liability, Volatility Hypothetical to full fees 4 rates 3 excluding volatility adjustment 5 fair value with adjustment full fees 1 A positive number indicates liability while a negative number indicates an asset. 2 GMWB and GMDB IFRS basis. 3 Application of market based (31.12.14) swap curve earned rates (2.3% representative 10 year rate) and AA corporate bond discount rates (3.5% representative 10 year rate) in place of long-term rate of 7.4% for IFRS (8.4% discount rate used for pre-2013 issues). 4 Value of fees over and above those in reserve calculations. 5 Application of market based (31.12.14) volatility curve (22% representative 5 year rate) instead of long-term 15% level for IFRS. 87 2014 FULL YEAR RESULTS
Jackson Capital, hedging and policyholder behaviour • Hedging programme continues to effectively Total adjusted mitigate risks Capital • Total adjusted capital excludes gains on interest rate US$bn swaps: $555m at Dec 2014 (Dec 2013: loss of $1m) • Earned guarantee fees of 117 bps per annum (c$1.4bn 4.8 31 Dec 2013 in 2014). Expected guarantee fees of $1.5 - 1.6bn for 2015, continue to be sufficient to cover cost of hedging 1.1 Operating profit • Equities allocations remain below our 82% pricing (0.7) Dividend assumption. Reserves net of hedging (0.3) • <1% of book ‘in the money’ from issued levels and other effects at end 2014 4.9 31 Dec 2014 88 2014 FULL YEAR RESULTS
IFRS operating profit 1 – source of earnings Life insurance - Asia Source Total operating profit FY13 +/- FY14 (CER) 905 16% 1,050 £m except reserves £bn = Total Life income Total Life expenses DAC adjustments - +/- 2,607 2,372 10% (1,649) (1,499) (10)% 92 32 188% Spread Technical and With-profits Fee income income other margin 107 17% 125 43 44 (2)% 155 140 11% 2,220 2,029 9% Spread Margin on 136 144 (8) Expected returns AMF (bps) 103 105 (2) 1,545 1,413 9% (bps) revenues Average Average Insurance 7.4 24% 9.2 64 52 23% 15.0 13.3 13% 675 616 10% reserves reserves margin Increase in technical margin Increase in spread income due to growth in H&P book. reflects the growth in Asian Higher fee income driven by Insurance margin also benefits non-linked policyholder growth in unit-linked reserves from claims controls and liabilities pricing actions 1 IFRS operating profit excludes Japan Life classified as held for sale. 89 2014 FULL YEAR RESULTS
IFRS operating profit – source of earnings Life insurance - US Source Total operating profit FY13 +/- FY14 (CER) £m except reserves £bn 1,431 1,181 21% = Total Life income Total Life expenses Expense deferrals - + 2,820 2,388 18% (1,580) (1,504) (5)% 678 680 - - Spread Fee income Expected returns income DAC amortisation 14 22 (36)% 734 694 6% 1,402 1,113 26% (487) (383) (27)% Spread Technical and 256 246 10 AMF (bps) 193 195 (2) (bps) other margin Average Average 670 559 20% 28.7 28.3 1% 72.5 57.1 27% reserves reserves Increase in technical and other margin Level of spread income Increase reflects impact of net mainly reflects higher contribution maintained as impact of lower flows (including Elite Access) from REALIC and positive net flows yields offset by reduction in and positive markets on from business with life contingent and average crediting rates separate account balances other guarantee fees 90 2014 FULL YEAR RESULTS
IFRS operating profit – source of earnings Life insurance - UK Source Total operating profit +/- FY14 FY13 752 706 7% £m except reserves £bn = Total Life income Total Life expenses DAC adjustments - - 997 954 5% (239) (234) (2)% (6) (14) 57% Spread Technical and Expected returns Fee income income other margin 137 134 2% 272 228 19% 61 65 (6)% 272 276 (1)% Spread Margin on 92 84 8 AMF (bps) 26 28 (2) 176 187 (6)% With-profits (bps) revenues Average Average Insurance 29.4 27.2 8% 23.5 22.9 3% 96 89 8% 255 251 2% reserves reserves margin Spread income increase Insurance margin increase reflects bulk annuity reflects improved profits from transactions in FY 2014 protection business 91 2014 FULL YEAR RESULTS
IFRS operating profit – source of earnings Asset management Asset management Source operating profit 1 FY 2013 FY2014 +/- (CER) 536 463 16% £m except assets £bn M&G operating Eastspring profit Investments 446 395 13% 90 68 32% Total expenses Total income 2 Total expenses Underlying income Other income 2 954 863 11% 46 37 24% (554) (505) (10)% 241 201 20% (151) (133) (14)% Average fees Cost / income Cost / income Average fees 38 37 1 35 35 - (bps) ratio 3 (bps) ratio 3 Average assets Average assets 250.0 233.8 7% 58% 59% (1)pp 68.8 58.1 18% 59% 62% (3)pp (£bn) (£bn) 1. Excludes PruCap and US asset management business. 2. Includes performance-related fees and for M&G, carried interest and its share of operating profit from PPMSA. 3. Cost/income ratio excludes performance-related fees, carried interest and profit for associate, and for Eastspring, taxes on JV operating profit. 92 2014 FULL YEAR RESULTS
Life IFRS operating income – Asia Sources of income Asia IFRS operating income 1,2 , £m Growth % 2014 vs. 2013 CER 1,062 959 +23% 6% (2)% 4% 5% +17% 5% 12% 11% +11% 15% 15% +10% 63% 64% 2013 CER 2014 Insurance margin Fee income Spread income With-profits Expected return on shareholder assets 1 Excludes margin on revenues, acquisition and administration expenses and DAC adjustments. 2 IFRS operating income excludes Japan Life classified as held for sale. 93 2014 FULL YEAR RESULTS
Life IFRS operating income – US Sources of income US IFRS operating income 1 , £m Growth % 2,820 2014 vs. 2013 CER 2,388 (36)% 1% 26% +6% 29% 50% +26% 47% 24% +20% 23% 2013 CER 2014 Insurance margin Fee income Spread income Expected return on shareholder assets 1 Excludes margin on revenues, acquisition and administration expenses and DAC amortisation. 94 2014 FULL YEAR RESULTS
Life IFRS operating income – UK Sources of income UK IFRS operating income 1 , £m Growth % 2014 vs.2013 821 767 +2% 17% 17% +2% 31% 33% 33% +19% 30% 8% 7% (6)% 12% 12% +8% 2013 2014 Insurance margin Fee income Spread income With-profits Expected return on shareholder assets 1 Excludes margin on revenues, acquisition and administration expenses and DAC amortisation. 95 2014 FULL YEAR RESULTS
Asset Management M&G – retail FUM Retail funds under management , £bn 16% 16% 21% 19% 26% 35% 43% 43.5 42.5 40.4 36.0 33.5 31.8 26.1 23.7 16.0 14.5 9.0 8.2 5.0 3.1 2008 2009 2010 2011 2012 2013 2014 UK / Other Europe Europe FUM as % of Retail FUM X% 96 2014 FULL YEAR RESULTS
EEV operating profit Life operating variances – Group Group Life operating variances, £m Experience variances and assumption changes % opening EEV 1 0.4% 1.1% 2.4% 0.7% 1.2% 1.9% 2.2% 3.0% 2.5% 1,500 1,440 1,133 1,106 1,068 1,055 811 881 754 668 609 427 347 339 180 132 110 40 2006 2007 2008 2009 2010 2011 2012 2013 2014 Unwind Experience variances and assumption changes 1 Opening EEV of Life operations, excluding goodwill. Note: 2006-2014 Unwind & Experience variances / assumption changes are on a post-tax basis and excludes Japan.. 97 2014 FULL YEAR RESULTS
EEV operating profit Life operating variances – Asia Asia Life operating variances, £m Experience variances and assumption changes % opening EEV 1 2.4% (0.5)% 1.1% 1.0% 0.9% 0.9% 0.8% 2.0% (1.5)% 668 648 490 476 465 406 316 226 177 89 89 91 85 81 51 16 (32) (80) 2006 2007 2008 2009 2010 2011 2012 2013 2014 Unwind Experience variances and assumption changes 1 Opening EEV of Life operations, excluding goodwill. Note: 2006-2014 Unwind & Experience variances / assumption changes are on a post-tax basis and excludes Japan. 98 2014 FULL YEAR RESULTS
IGD capital Movement during the period 1 IGD capital – movement in 2014, (£bn) 1 Capital position at 31 December 2014, (£bn) 1 Solvency 2.4x 280% 280% cover IGD surplus 31 December 2013 5.1 Net capital generation 2.1 Cost of intangibles 2 (0.8) Reduction in SHIFT asset allowance 3 and Surplus (0.2) other smaller one-off items £4.7bn Market movement including fx impact 0.4 8.2 Dividend payment (2013 final and 2014 (0.9) interim) External financing and other central costs (net 3.5 (0.6) of tax) Redemption of Sub-debt (0.4) Estimated IGD surplus 31 December 2014 4.7 Solvency I (IGD) Available capital Required capital 1 Before 2014 final dividend. 2 The cost of new intangibles acquired in the year including renewal of the bancassurance partnership agreement with Standard Chartered Bank. 3 The Group previously recognised a proportion of the shareholders’ interest in future transfers from the UK’s with -profit business, contributing £0.2bn to the IGD at 31 December 2013. As per the guidance received from the PRA in January 2013, credit taken for the SHIFT asset was reduced to zero in January 2014. 99 2014 FULL YEAR RESULTS
Invested assets Group overview Breakdown of invested assets – 2014, £bn Total PAR Unit- Shareholders Group Funds Linked Asia Life US Life UK Life Other Total Debt securities 145.2 59.6 10.7 7.9 33.0 31.7 2.3 74.9 Equity 144.9 34.7 108.9 0.9 0.3 - 0.1 1.3 Property Investments 12.8 10.4 0.6 - - 1.7 0.1 1.8 Commercial mortgage loans 6.6 1.1 - 0.1 3.8 1.6 - 5.5 Other loans 6.2 2.0 - 0.4 2.9 - 0.9 4.2 Deposits 13.1 10.4 1.1 0.3 - 1.3 - 1.6 Other Investments 8.6 6.0 - 0.4 1.7 0.4 0.1 2.6 Total 337.4 124.2 121.3 10.0 41.7 36.7 3.5 91.9 100 2014 FULL YEAR RESULTS
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