M&G plc ($MNG)

Good morning, and welcome to M&G's Full Year 2025 results. I'm Luca Gagliardi, Group Director of Strategy and Investor Relations. And if you don't know me, this is not my real voice. I just chosen the right day to be sick, but I'm going to keep a safe distance between me and all of you today. I'm joined today by Andrea Rossi and Kathryn McLeland, our CEO and CFO. As usual, we'll go through a short presentation, and then we'll open up for questions from the analysts. So with that, thank you very much, Andrea.

I hope my voice holds because I spent too much time with you. Good morning, and welcome to M&G's 2025 Full Year Results. It is a great pleasure to be here with you today. 12 months ago, we announced new targets and moved to a progressive dividend policy, underscoring our confidence in the outlook for the group. Over the course of last year, that confidence has been matched by solid progress against our strategy. Our investment for growth has paid off with excellent momentum on sales and record net inflows across both asset management and life annuities. Now we are translating this success into profitable growth. which will be our main focus in 2026. Today, I will cover our operational progress and explain what gives me confidence in our growth trajectory. Kathryn will then take you through our financial results before I conclude by recapping our investment case. So let's start by reviewing the main highlights from last year. We are committed to 3 strategic priorities: financial strength, simplification and growth. Of this, growth is where we made the most significant progress in 2025. The GBP 7 billion net inflows from external clients in asset management is an outstanding result. It represents nearly 4.5% of opening assets, a remarkable achievement as we won business in high-quality and high-margin propositions. M&G has also become more international as we welcomed Dai-ichi Life as our strategic partner and largest shareholder. Our work together is off to a great start and has already generated GBP 400 million of net inflows in 2025. Momentum in our Life business was also good. We scaled our presence in the BPA market, achieving sales of GBP 1.5 billion and returned PruFund to consistent net inflows in the second half of the year. And finally, we moved all with profits new business to a fee-based model, accelerating our shift to capital-light growth, which we will cover later. I am in no doubt that our synergistic business model continues to be our main competitive advantage. With the support of our life business, we have built a first-class asset manager which delivers superior investment performance and which is scaling through external clients. In 2025, assets under management grew to GBP 345 billion of which GBP 81 billion is in private markets, and we won high-value external business. Third-party clients now account for over half of total assets. testament to the quality of our proposition. We also continue to expand internationally and to improve our profitability with more to come in 2026. At the same time, we are growing again in life with PruFund net inflows over GBP 400 million in the second half of the year and good BPA volumes, doubling our market share. We also expanded our proposition and distribution channels, launching a retail fixed term annuity solution and are with profits BPA here in the U.K. Let's now take a closer look at our asset management results. In the second half, net inflows from external clients accelerated further. We had continued success in wholesale and internationally, but the most notable change was the GBP 1.4 billion of net inflows from U.K. institutional clients. Headwinds from U.K. DB pension schemes have reduced since 2023, with more clients considering run-on options. And while we remain cautious about the long-term prospects for this segment, we don't expect it to be a material drag going forward. With our U.K. business in a stronger position and continued momentum abroad, we will deliver sustained net inflows from external clients. Our continued international expansion is a real success story for M&G. Over the last 6 years, we have nearly doubled our assets outside the U.K. to GBP 107 billion. This equates to a consistent double-digit growth rate. With nearly 60% of external assets from international clients, we are becoming a leader in European and Asian asset management. And our partnership with Dai-ichi Life will further support this progress. Partnering with our clients remain key to our success. On this slide, you can see some of the partners that are powering our international growth. When I joined 3 years ago, we had around 800 institutional clients globally. Now this number has grown to over 1,000. There are some of the most sophisticated allocators in the world who have chosen M&G for our compelling offering and commitment to investment excellence. The strong relationship between our asset management and life business is a crucial advantage to win in this space. We understand the needs of these institutions and can deploy capital at scale. We think like them, coinvest with them and develop innovative solutions for them. It is exactly for these reasons that Daiichi, now M&G's largest shareholder, has chosen us as a long-term strategic partner and preferred asset manager in Europe. But they are not the only ones who value our investment expertise. Last year, we completed large transactions with CVC and PGDM while also entering into an agreement with Guotai Haitong for the distribution of our fixed income funds in China and Hong Kong. The quality of the business won in 2025 also makes me confident in our revenue outlook. The GBP 7 billion of net inflows came mainly from private markets and public equity mandates, which are of high quality and high value. The net new revenues from these flows equates to GBP 23 million annually, a fantastic outcome that helped us increase our overall asset management revenue margin by 1 basis point. Net inflows of GBP 3.9 billion in private assets lifted total assets in this area to GBP 81 billion. We are extremely confident in the quality of our private markets capabilities. thanks to our focus on Europe and Asia and discipline in asset sourcing. With strong client demand in structured credit, and GBP 8.2 billion capital queue and a healthy new business pipeline, we are well positioned for the year ahead. Within public markets, our equities team delivered GBP 5.6 billion of net inflows, a stellar achievement. Their investment performance is second to none in Europe with a scaled offering which is diversified across geographies and strategies. Active asset management is still very much in demand, and our public equities team have again delivered a superb performance with investment returns exceeding client expectations. Let's zoom in on our public equities business. We have excellent research capabilities. a rigorous investment process and seeding from our life business. Through this, we have built a diversified proposition with a remarkable performance. 90% of our assets ranked in the top 2 quartiles on a 5-year basis. Demand for sustainable strategies remains strong. And as investors increase their allocations to Europe and Asia, our high alpha solutions are well aligned to our client needs. As you can see on the right-hand side of this slide, over the last 5 years, this team has delivered nearly GBP 12 billion of cumulative net inflows with a positive contribution in every single year, despite extremely volatile market conditions. Let's now turn to life. Starting with the retail market. PruFund is our flagship proposition here, and I'm pleased to report that it has been back in positive territory since last June with 7 consecutive months of net inflows totaling just over GBP 400 million. This trend is encouraging, and we expect to see continued progress as PruFund's smoothing mechanism remain very much in demand, given the volatile market environment. But improving PruFund sales is only part of the solution as we build a holistic retirement position around this unique product. In doing so, we continue to expand both client access and our product offering. To expand client access, last year, we integrated PruFund on FNZ technology. We will launch PruFund on the first FNZ platform in Q2 this year. It is our first step to access the large and growing digital platform markets. From a product perspective, we added retail fixed term annuity solution, which will be followed by a lifetime version later this year. We also signed an agreement with Zurich Group for the distribution of a PruFund-like proposition in the UAE. All this activity will attract more assets to do with profit funds and channel them to our asset manager. Moving on to the corporate segment. Here, we continue to invest in our BPA capabilities, a market we are targeting annual sales of GBP 3 billion to GBP 4 billion by the end of 2027. In 2025, we completed the build-out of our team, adding resources across origination, proposition and pricing. As a result, we closed 11 deals totaling GBP 1.5 billion, a 65% increase in sales and doubling our market share. This business was written at attractive return levels, delivering double-digit IRRs above our cost of capital. We have a good pipeline for 2026 and are on track to achieve our 2027 target. Importantly, we can now leverage our with-profits BPA, which we have recently launched. This proposition is very competitive, benefiting from the with-profits fund lower cost of capital and its GBP 7.1 billion surplus. We executed our first with-profit BPA transaction a few weeks ago, and more will follow, fueling our growth and attracting flows to the group with a meaningful allocation to private markets. From this year, nearly all new business in life will be written by the with-profits fund with a simpler and more transparent profit signature. All with-profit solutions, such as the with-profits BPA, PruFund, fixed term and lifetime retail annuities, will operate on a fee-based model. We expect that these products will grow to at least GBP 50 billion in assets by 2030. M&G will service this business, providing customer admin and investment services in exchange for fees to both life and asset management. Through this innovation, we are transforming traditional insurance into a capital-light business that generates 2 streams of fee-related earnings with minimal balance sheet risk and shareholder capital requirements. Over time, this will improve the quality of our earnings, making them more transparent and predictable. From a strong financial position, we will deliver attractive dividends and business growth. This is a focus of our capital framework. Taking into account our business momentum and earnings trajectory, we are declaring a total dividend of 20.5p per share for 2025, a 2% increase year-on-year. To support our profitable growth, we will consider targeted investments to drive further simplification efforts and potential bolt-on acquisitions. AI will be a key enabler for business growth, and we are focused on increasing AI adoption across M&G with a clear strategy to transform our processes, improve productivity and drive better customer outcomes. Focused capital deployment will be instrumental to deliver on our ambition. And while we remain committed to return any excess capital over time, we are prioritizing disciplined investments that can deliver attractive returns above our cost of capital. Our commitment to investors is clear. Yields and growth. And our capital allocation in 2025 closely aligned with our stated framework. More than half of operating capital was distributed to shareholders as dividends. This was complemented by simplification and growth investments targeting double-digit IRRs. This includes GBP 90 million for the acquisition of P Capital Partners and GBP 163 million to support Life new business. Going forward, we will maintain this disciplined capital allocation, underpinning long-term growth and attractive progressive dividends. Now let's turn to our financial targets. Here, our commitment remains unchanged, to be highly capital generative, improve the efficiency of our business and deliver sustainable earnings growth. Over the course of 2025, we have moved forward on our targets, but more work is needed. The GBP 928 million of capital generated before new business strain is a good start to our 3-year ambition. I'm also pleased by the progress on our transformation program. as we once again beat our cost target by delivering cumulative savings of GBP 250 million, a great result, but progress on the cost-to-income ratio and group profit was marginal. Here, I expect a significant improvement supported by the strong momentum I see across the group. Over the last 12 months, we have invested for growth. adding distribution and investment capabilities. Now we will realize the benefits of these investments. We remain firmly committed to delivering profit growth of at least 5% on average between 2025 and 2027. Therefore, you should expect a meaningful acceleration in our operating profit for 2026 and beyond. Profitability will improve in asset management. where we will achieve a cost-to-income ratio of 70% by 2027. We are confident we will meet this target, thanks to strong top line growth and cost control that Kathryn will cover in more detail. By generating capital, being disciplined on costs and growing profits we have set in motion a positive cycle. This means we can invest in the business, secure its long-term success and deliver attractive returns. With that, I will hand over to Kathryn, who will take you through the financial results.

Thanks. Good morning, everyone. I'll now take you through our results, which highlights steady momentum across the group and disciplined execution. Covering first the key pillars. We delivered GBP 7.8 billion of net flows from open business, reflecting the strength of our asset management performance, the progress we continue to make on our international expansion and improved sales in life. Group adjusted operating profit of GBP 838 million highlights the resilience and balance of our business model. In Asset Management, fee-related earnings increased by 12% year-on-year, while in Life, higher contributions from PruFund and traditional with profits more than offset lower earnings in annuities leading to a 2% increase in profits. The Corporate Center result deteriorated by GBP 8 million, impacted by lower investment income. Operating capital generation of GBP 765 million reflected the higher strain from our strong BPA volumes. And excluding new business strain, capital generation was GBP 928 million, in line with our GBP 2.7 billion target. Supported by this strong operating performance, the Solvency II ratio reached 242%. So let's now turn to our flows. Closing AUMA stood at GBP 376 billion, and this reflected the GBP 7.8 billion of net inflows from open business, which improved by nearly GBP 10 billion year-on-year. favorable market movements and the acquisition of P Capital Partners. You've just heard from Andrea about our very pleasing asset management flows, with our institutional franchise recording net inflows of GBP 4 billion supported by the continued international expansion and easing headwinds here in the U.K. The wholesale franchise also contributed meaningfully, delivering GBP 3 billion of net inflows underpinned by excellent investment performance. And importantly, the continued growth in our international AUM further improves our diversification and resilience. Life open business also made a positive contribution of GBP 0.8 billion, and this reflects the strong growth in the BPA market, where we recorded the first net inflows since 2016 when the business was closed. And we also saw improved momentum in PruFund with gross inflows in the second half up nearly 28% versus the first half at GBP 3.6 billion and with GBP 400 million of net inflows. Moving on now to profits. At GBP 838 million, operating profit was stable year-on-year with the key features being, first, higher revenues and improving operating leverage in asset management, continuing to support a gradual reduction in the cost income ratio. Second, an increase of 2% in life profits to GBP 764 million with a stronger contribution from both PruFund and traditional with-profits, offsetting a GBP 25 million reduction in annuities due to lower returns on excess assets, which we previously flagged. And finally, the Corporate Center outcome was impacted by lower investment income, which was down by GBP 17 million, more than offsetting a reduction in debt interest costs of GBP 12 million following our 2024 deleveraging actions. One important feature of our results is the quality of our earnings. And today, 73% of operating profit comes from capital-light businesses, and this proportion will continue to rise over time. You'll hear from Andrea shortly on how we also expect to grow the proportion of fee-related earnings across the group. And finally, it's important to note that in 2025, we delivered after-tax profit of GBP 314 million compared to GBP 347 million loss in 2024. So let's now look at each of our businesses, starting with Asset Management. Our Asset Management business delivered a 12% or GBP 27 million growth in fee-related earnings driven by higher average assets and resilient margins. Looking ahead, the GBP 23 million of net new revenues delivered last year will provide a solid underpin to top line growth. At GBP 345 billion, assets under management ended the year up by GBP 30 billion supported by strong net inflows and favorable markets. Our average fee margin remained resilient at 33 basis points as we continue to prioritize high-value solutions for our clients. Higher average assets and stable margins resulted in revenue growth of 6%. On costs, we continue to exercise discipline while making targeted investments to support our long-term growth. And most of the 4% increase in cost was driven by a broader perimeter of our asset management operations. And in fact, GBP 28 million of the GBP 31 million increase relate to the acquisitions of BauMont and PCP, together with the reclassification of our direct book into life, which we had previously highlighted. And PCP and BauMont bring new capabilities to the group, further improving the quality of our earnings. Our cost transformation program facilitated these and other targeted investments, strengthened our operational efficiency and helped us lower the cost income ratio to 75%. The operating profit was down GBP 9 million year-on-year due to lower performance fees and investment income. Before moving on to Life, I want to address our cost-income ratio target. Over the past 3 years, we have reshaped the cost base, demonstrating that we can continue to invest for growth while improving our fee-related earnings. And that gives us confidence that further progress is achievable as revenue scale. We are absolutely committed to our 70% cost-income ratio target and achieving this does not depend on a single initiative or assumption, but on continued execution across a number of levers that we are already acting on. Our focus is firmly on delivery and on demonstrating steady, repeatable improvements over time. Let us now turn to Life and starting with PruFund. Here, operating profit increased by 17% to GBP 265 million, reinforcing its role as a growth engine within the group, supported by a higher opening CSM and slightly higher amortization rates. Profits from our traditional with-profits business of GBP 258 million were up 16% year-on-year, reflecting the same positive dynamics. And we're encouraged by this performance, particularly as it was achieved against the backdrop of lower expected returns and risk-free rates, which we previously highlighted. Both PruFund and traditional with-profits continue to provide resilient earnings for the group, underpinning the sustainability of our profits. Let's now turn to shareholder annuities. Our annuities profits were down 8% year-on-year to GBP 283 million, which reflected the guidance we gave last March, specifically the combination of a smaller pool of surplus assets and lower expected returns of 5.2%, down from 5.6%. These headwinds were partly offset by a higher CSM release supported by the large longevity benefit we recognized in 2024 and a modest increase in the amortization rate. Turning to other life. The loss of GBP 42 million was primarily driven by a GBP 26 million provision in relation to our Polish business, which we do not expect to repeat. Before moving on to capital generation, I would highlight the strength of our CSM, the details of which you can find in the appendix. Total CSM ended the year at GBP 6.6 billion, representing a meaningful store of future value and benefiting from GBP 144 million of new business generated from PruFund and annuities. I'll now cover capital generation, which supports the strong outcomes we continue to deliver for our shareholders. Our operating capital generation, excluding new business strain, was GBP 928 million, and this represents a solid start towards our cumulative GBP 2.7 billion target by 2027. The underlying result was GBP 529 million, GBP 115 million lower than last year, which largely reflects capital deployment to support the strong growth in our BPA volumes. Asset Management contributed GBP 14 million more year-on-year, supported by the stronger fee-related earnings, together with a small SCR reduction, driven primarily by lower market risk requirements. In Life, both PruFund and traditional with-profits benefited from a higher opening PBSD which partly offset the anticipated impact of lower expected returns. And as noted earlier, the annuities contribution declined due to the GBP 134 million we deployed to support the GBP 1.5 billion of new BPAs and due to the lower return on surplus assets in the in-force book. The Corporate Center benefited from a GBP 12 million SCR reduction, largely driven by reduced treasury lending activities. Management actions totaled GBP 236 million, just above our recurring long-term target of GBP 100 million to GBP 200 million per annum. And so thanks to our strong operating performance, the Solvency II ratio closed the year at 242% and our surplus increased to GBP 5 billion. Owned funds remained stable at GBP 8.5 billion, including GBP 4.6 billion attributable to the with-profits PBSD. The SCR improved largely due to management actions, including model and data enhancements and a higher level of deferred tax loss absorbency capital reflecting more favorable stress outcomes. And after refining our estimates, we expect only a modest impact of less than 3% on our solvency ratio from the government's proposed changes to ground rents. And this reflects the benefit of our prudent reserving approach. You can find more details on this in the appendix and also in our annual report. I'm very pleased with the continued strength of our balance sheet, underpinned by disciplined risk management in what remains a volatile and uncertain geopolitical and macroeconomic environment. And I'll briefly cover the successful delivery of our cost transformation program. And this slide shows the tangible progress we've made in delivering strategic operational efficiencies while continuing to invest for growth. And since 2022, we have delivered GBP 250 million of cost capacity, exceeding our upgraded target of GBP 230 million. And you can see here on this slide an update on the types of savings together with the targeted growth investments they have enabled while holding the cost base stable over time and materially improving the scalability of the group. As we look ahead, we see significant opportunities to create more capacity led by a new Chief Transformation Officer. For example, with further refinement of our organizational structure, including greater integration of our recent acquisitions, more functional centralization and optimizing our partnerships with outsourced suppliers. We are also continuing to refine our location strategy while driving AI adoption. And just a few words on our AI strategy, which is focused on 3 primary objectives: firstly, enhancing our engagement with our clients; secondly, improving our productivity; and thirdly, transforming our end-to-end processes. By increasing AI adoption, we're giving our clients more time to focus on what really matters to our clients. Examples of where we see AI driving a step change in efficiency include across our research teams, our financial advisers and the staff in our contact centers. Thanks to AI tooling, almost 40% of our code is now generated by AI, meaningfully increasing the productivity of our engineering team. I want to reiterate that we are firmly focused on maintaining a disciplined approach to operating efficiency and on achieving a 70% cost-income ratio target for the asset manager. Looking ahead now to 2026. While, of course, we remain mindful of the volatile external environment, our focus for 2026 remains consistent, delivering strong outcomes for our clients; executing our plans with discipline; and sustaining the growth momentum we have established. Asset management is set to deliver a meaningful improvement in its operating leverage, underpinned by a robust GBP 30 billion increase in opening AUMA, resilient fee margins and our unwavering commitment to cost efficiency. These factors combine to give us confidence in achieving a step change in our cost-income ratio target and in unlocking further profitability. Life is similarly well positioned with a substantial 9% increase in our opening CSM balance, which will drive improved operating profits more than offsetting lower expected investment returns. These strong foundations taken together with disciplined cost management means we're confident of achieving strong profit growth in 2026 and an average growth over '25 to '27 of at least 5%. And so finally, on capital generation. Here, we expect to deliver an improving underlying result, new business strain of up to GBP 150 million and management actions returning to our usual long-term range of GBP 100 million to GBP 200 million per year. This means we are well on track to deliver on our GBP 2.7 billion cumulative target by 2027 as we support new business growth, while maintaining a strong balance sheet. These strong tailwinds, supported by the strategic building blocks we have put in place give us the confidence that we are well positioned to deliver sustainable values to our shareholders. With that, I'll now hand back to Andrea. Thank you.

Thank you, Kathryn. So before concluding, I want to summarize the key elements of M&G's investment case. Today, we are a growing and diversified savings and investment business. We leverage our unique with-profits fund to gather insurance assets in a capital-light way. And we grow in asset management by externalizing funds that we seed with internal capital. This combination gives us scale and resilience. We operate in markets supported by strong client demand and are well placed to capitalize on this growth, thanks to the strength of our franchises. The way they work together, our synergistic business model sits at the core of our right to win. And the outcome is strong financial returns. Life underpins our attractive dividend. And we are driving growth in fee-related earnings across asset management and with profits. By combining an attractive yield, growth and improving quality of earnings, we will deliver consistent returns to our shareholders. And we will continue to do so as we unlock opportunities across several attractive markets. We have an GBP 81 billion private markets business and have raised GBP 107 billion from international clients. In both these areas, we have grown at double-digit rates. In the U.K. PruFund has now reached GBP 70 billion, and we continue to scale in the BPA market, with sales increasing by 65% year-on-year. This scale matters as it drives relevance with our clients and improve our operating leverage. Our businesses work together and will grow together. Over 80% of our life assets are managed in-house with around 30% of new business being allocated to private markets. And we attract this new business deploying surplus capital from the with-profits fund. We also have the partnership with Dai-ichi Life, which supports our continued expansion in Europe and Asia. This integrated model gives us greater control, stronger economics and a more resilient earnings profile. Since listing in 2019, M&G has delivered annual shareholder returns of over 15%, a remarkable achievement with GBP 4.2 billion returned to investors through dividends buybacks and deleveraging. We have achieved a double-digit returns through a mix of yields, growth and quality. Looking ahead, we will extend this track record. The stable and predictable contribution from life underpins our attractive yield. Asset management and fee related with profits will drive the group's growth. And the quality of our profit mix will improve as we shift to a greater share of fee-related earnings. So our message to investors is simple. We are operating in growing markets. We have the right business model to win and we will deliver attractive returns. To conclude, 2025 was a strong year for M&G as we laid the foundations for profitable growth. New business momentum was fantastic, and we continued to expand internationally. We are now focused on translating this growth into higher operating profits in 2026. And as we deliver profitable growth, we also shift life new business to an innovative fee-based model. Finally, we will achieve our capital generation target and remain disciplined as we invest in the business. We have started 2026 with good momentum. We are in the right markets, investment in the right asset classes with industry-leading investment performance. I am energized by our strong performance and want to thank all our colleagues for their hard work. And I am confident that we will continue to deliver, generating value for our clients and shareholders. Thank you. It's Q&A, right?

So before we start with the question, and Larissa and Michael at first. I've already seen your hands. I think Larissa beat Michael by about half a second. [Operator Instructions].

Larissa Deventer from Barclays. Two questions, please, from my side. The first one, you mentioned that a very strong capital position that you have for growth. Kathryn also mentioned that you would like to your earnings on capital light businesses. Can you give us a little more color on which areas you would like to grow and if there are any areas within you believe would benefit from enhancements. The second question appreciate that there's a sensitive topic but to give any more color with the directional thinking. And could you please help us understand what is included in your provision and what remains?

Thank you, So probably, Andrew, do you want to start with kind of where are we focusing on our growth efforts and if there's any area where you -- if I read the question, whether we think we should invest a little bit more heavily and then maybe, Kathryn, if you want to go on the ground rent side of things.

Yes. Obviously, you've seen in 2025, we have been investing for growth. We both have invested in the asset management business, in distribution and investment capabilities and hence, also, I would say, the good momentum that we saw in terms of net new money and net new revenue. Same thing, of course, in the life business where we invested in order to support that growth, both on the corporate side because we strengthen our team, proposition, pricing and origination for writing BPAs but also to support our PruFund. Obviously, we are going to put PruFund on third-party platforms in the second quarter of this year. given that we have integrated with FNZ technology, very, very pleased with that. But more importantly, we also have supported PruFund in terms of marketing. Let's not forget that PruFund during the Liberation Day month in April performed as it was supposed to perform. We smoothed the volatility. Clients, unfortunately, they took out their money and then they came back, of course, afterwards. They should just have trusted us more. So clearly, we want to continue to make sure that we support all the capital light business, in particular, on the asset management side. But I mean I remember when I arrived 3 years ago, our investment performance was still very, very strong. And I said, listen, the way we're going to grow the Asset Management business is by investing in distribution capabilities. That's what we have done. And that's why you see the stellar net new money that we have delivered. I mean delivering 4.5% of external net new money over opening assets under management, I've been in the industry for decades, that's a stellar achievement. And that's not money market, that's not passive. This is true active asset management. I mean I look at peers, this is top decile, if not top percent up. So we will continue to support, I would say, the capital light businesses moving forward. But I would say most of the investment has been done already in 2025.

And I think just, obviously, there's going to be some more spend as we continue on the simplification program as well. Just to add that as well as these capabilities that Andrea talked about. And so Larissa, on ground rents, obviously, the announcement of the government came out at the end of January, and you saw the RNS that we put out on the morning of it. . Now clearly, there's a lot that needs to happen as it goes through committee stages and through the whole legislative process. And that's still quite uncertain and will take over the next couple of quarters. I think the most important thing is you see an update today is on -- it's in the appendix, and it gives an update of all the numbers. which are very much aligned to what you saw at the end of January. So this is also in the results and you can get a bit more detail. But you can see that I mentioned in my script that the solvency ratio is up to a 3% impact on the ratio you see the day 1 IFRS impact and the own funds impact, which obviously impacts leverage. And so we guided also in the RNS that the AOP impact is very modest, GBP 10 million to GBP 15 million in 2028.

And Larissa, just on the provision side, these numbers are net of the provision. So after you take into account the provision that was already in the balance sheet, this is the residual impact. And I don't know in your question on capabilities, maybe Andrea, do you want to talk from an asset class perspective after BauMont, PCP, do we feel that we are in the right places?

Well, I mean, we have -- obviously, when we're looking at investment capabilities, and I said this already in previous full year results, we want to expand our private asset franchise. We see significant demand, of course, in Europe, in private assets. And by doing both BauMont and PCP, we strengthened already a very strong franchise, both on the private credit side, where we have GBP 27 billion franchise, but also on the real estate side, where we have a GBP 35 billion franchise. So we think we're well placed there. But I think there's going to be another asset class where there's going to be a lot of demand in Europe in the coming years. Given also what is happening, I would say, in the Middle East, I think Europe is going to have to rely a bit less maybe on fossil fuel and accelerate on renewable energy. And therefore, there's going to be more infrastructure projects into this sense. And so there will be more interest here. So if we had to look at additional capabilities, probably that's where we would look to expand. But overall, you look at our private assets franchise, it's doing extremely well, GBP 4 billion -- GBP 3.9 billion of net inflows in 2025. A lot of that was private credit and structured credit. Private credit still continues to be a very strong asset class in Europe, where there's strong demand. I'm sure we're going to talk about private credit in general, but Europe still remains very much in demand in private credit.

So Michael and then David, Dom and Tom.

Michael Huttner from Berenberg. Just 2 questions. You said so I wondered if you -- I'm particularly interested in PruFund. If you could say the new platform, what that could bring. But also on the growth, if I'm right, new business last year it was 160 and you're saying 150, so that doesn't sound like more growth. But I'm asking this. And then the other question I was interested in is you're leveraging your with-profit surplus presumably that has a cost of capital, but I'd be interested to understand what the benefit is. Is there a number here, you could say, well, we're paying them 5% or 2% or nothing? Just to get a feel of that.

Okay. So maybe, Andrew, do you want to take PruFund and Kathryn more on the new business stream for annuities and with profit funds side.

So PruFund, you know I'm passionate about PruFund I'm very pleased that it has become a GBP 70 billion franchise here in the U.K. We had positive net inflows in the last 7 months in 2025. And you should continue to see positive net inflows in 2026. I mean the product is delivering what it should be. We see demand here in the U.K. on it. And more importantly, as I anticipated before, we are going to put it on a third-party platform in Q2. And that's just going to be the first one. So by having done the integration with FNZ technology, we are covering roughly 40% of the GBP 700 billion digital platform market size here in the U.K. So we will put it on more platforms before the end of the year, and that will, of course, increase flows coming in. So very, very pleased with what we do in the U.K. Let's not forget also that we have international as well. And you saw that we finally signed an agreement with Zurich Group in the UAE. So this is sort of a blueprint where we are the default option for on the DC scheme there, where Zurich is managing it. And that will also bring flows and potentially also other clients. So we see PruFund being one of our main growth engine going forward. And let's not forget, it's not only about access, but it's also about expanding the product offering. We launched a fixed term annuity in 2025, and we will launch a lifetime annuity this year as well. So more to come from PruFund. You should expect positive net inflows in PruFund moving forward.

And so covering capital and how we see cost of capital and hurdle rates for the with-profit funds. So yes, it was GBP 163 million of strain across all products last year, GBP 134 million for BPAs. The key thing for us, as you know, is always looking at hitting our cost of capital. So double-digit IRRs is what really matters for us. And I think as you also all know, we've not reinsured longevity on these deals, and we look at everything on a case-by-case basis. Now the exciting opportunities for us that you've heard us talk about today with the GBP 7.1 billion surplus is that we can essentially grow life with the diversification of these new products that we are talking about today. And this is also in the interest of the with-profit fund. We have a very strict with-profit committee. We know all the requirements and rules that they need to follow. And it is a different cost of capital, but they absolutely have to do profitable, good quality business for current and future policyholders. So it is very exciting for us to be able to do BPAs and these other products used in with-profit fund capital. We have the 2 fee streams that you see coming into the life and into the asset manager, which will build over time. So it is really exciting for us to have the with-profit fund to be able to be the main insurance writer of risk going forward. And so yes, they have slightly different hurdle rates. But for the shareholder balance sheet, we remain very focused on double digit.

And Michael, clearly, while the capital strain that we've indicated is up 250 from a shareholder balance sheet, the idea is that the more you do with profit, the more you can leverage up the volumes with -- while keeping that same level of capital.

And to be clear, we are committed to write GBP 3 billion to GBP 4 billion of BPA by 2027. We have not changed our targets. If you remember, we presented. So that's -- that gives you some sort of growth trajectory.

Then we said David, Tom, Andrew, Dom and Nasib, just in order of who has the hand -- or maybe just I looked the wrong way, but we'll get there. [Operator Instructions].

from RBC. The first one on the GBP 27 billion structure in private credit AUM, Can you tell what proportion is open to retail investors? And are you expecting taking any actions to NAV of those portfolios? Second, on the business CSL profit. It was only GBP 23 million from GBP 1.5 billion of annuities to the margins 2%. How should we think about any context of all net profit margin? And are your return on capital and will your return on capital for the deals? As a follow-up, there is -- what is M&G doing with reinsuring the risk? If all deals were reinsured, would this have a meaningful impact on and therefore the leverage? And just lastly, on the market capital deployment. Can you just tell us how will we deploy it between private equity, structured credit and infrastructure? And more broadly, what are the characteristics of fund raising and employment environment in 2026 so far?

Perfect. So we've got 4 in there. Let's split them between 2 in asset management and 2 in life. So asset management was around the retail exposure in our private credit franchise and the capital queue while in life, we've got the new business, CSM margin and the use of reinsurance.

So can I use -- I mean, I can -- maybe just on your first question, and I want you to talk -- Joseph, do you want to take both? The first one is I guess.

I hope you can hear me. So exposure we are having credit. We have about less than GBP 1 billion in LTIF, which is the European long-term investment fund. It's a private credit strategy. The regulation in Europe is extremely strict. No leverage is allowed which is extremely different from what you can read in the press on what's going on in the U.S. So indeed, we are probably on a much safer side in Europe than what's happening in the U.S. I think that's a massive difference. And we've been extremely cautious when it comes to private credit. You didn't ask the question, but I want also to add that when you look at what we read in the press in private credit, default rates, some expected for the rate to increase. our default rate has been significantly below the average of the market, which is already at 2%. We are way below that level. We are extremely cautious across asset classes, the quality of research, we know how to deal with those deals. We are extremely selective and we don't leverage. And we have high quality of selection ultimately that help us have a very low, let's say, level of default compared to the industry. And again, I invite you to always make a difference between Europe and U.S. in that private credit segment. So I'm sorry, I forgot the second question.

In case you haven't met him, he is Joseph Pinto, the CEO of our Asset Management business. And the second question was around the capital queue of GBP 2 billion, high growth since half year, how do we think about deployment and in what asset classes is a focused.

So it has grown pretty much everywhere in private credit, including strategic credit. In the real estate, I just want go out to real estate because this is an asset class that was probably on the negative side across the industry 2 years ago. We've been rebounding extremely well on a lot of business in that space with our flagship fund, the European real estate fund, but also with Asian strategies in Asian clients, mandates and also in the U.K. Very pleased to see how international clients are now interested more and more into U.K. real estate. That has been the second one where we've seen effectively a bigger and bigger capital queue. Also, I remind you that at the end of June, we will not integrating the capital queue of PCP and BauMont, that has brought also GBP 1 billion of capital into it. We are extremely disciplined in deploying that money. We are very well organized into it. Each team has -- each investment team has a specific team to work on deployment but we are cautious on how we want to deploy it because at the end of the day, clients matter first. We want to deliver the best performance. That's why we do it very diligently in terms of deployment.

Thanks a lot, Joseph. And the other point on the LTIP and retail exposure, what we have less than GBP 1 billion of assets there, a large proportion comes from our internal client. Actually, the majority which is a very, very stable investor.

87%.

87%. So I think while it is a vehicle that is open also to retail investors, nearly 90% is in the end of our internal clients. So it gives great stability to that vehicle as well on top of all the good things that Joseph mentioned. Kathryn, do you want to take the...

Just a couple of comments around last year's CSO margin, which you quoted, which you can see in today's numbers. There are probably 2 comments I'd make around the level. First of all, as we said, we're delighted to have done GBP 1.5 billion and a really pleasing end to last year. . We have invested meaningfully to get that platform reopen, and we've got all the capabilities to compete. We've got a lot of conversations happening at the moment. So obviously, as we scale, we become more profitable. So I think that's -- and I called out the cost, I think, in one of the slides around how the whole purpose of this simplification program is to invest and supporting that BPA business is one of them. And secondly, we haven't reinsured longevity. That's your second question. That obviously means we also have a higher risk margin, which clearly will flow into profits over time. but it will also affect the actual CSO margin that we deliver. So there is a real meaningful element coming to from our decision. And obviously, we're lucky on longevity that we can be very selective. We can be very disciplined. We've got capital, we've got a very strong -- also using the with-profit balance sheet in the future. So we have deployed it in the past as a management action, and we'll be very thoughtful and it's likely that we've got the options around longevity reinsurance. And it could be one of those management actions that we use to deliver the GBP 100 million to GBP 200 million to support operating capital generation. And so in terms of the impact of longevity, obviously, the relationship between the shareholder and the profit fund changes with these new fee-related products. Again, how we use that balance sheet, the respective balance sheets will determine on a case-by-case basis. And we have always, as we said, got the flexibility of longevity. Now I don't think of any impact -- meaningful impact on own funds or on leverage, which you've seen our leverage ratio today and the progress we've made over the last couple of years. So it's more a question of delivering the strong IRRs and importantly, now improving our profitability. We've given clear guidance around 2026 and building over time these fee-related earnings.

Perfect. I think, Dom, you were next, and then Tom or did I say Dom and Tom. First Tom?

So as usual 3 questions, if that's all right. Thank you for the color on the private asset side. I guess just more broadly, it's been an interesting sort of 3 months in the market. What is the mood amongst capital allocators? What are your conversations like? And more broadly, do you think you can deliver the stellar level of flows you saw in '25 again in '26? Second sort of related question. Just on the asset management revenue margins, Luca, you seem to have given me your cold already. On the revenue margins them going up. Clearly, the mix is in your favor coming into next year. How much can revenue margins go up in '26 in asset management? And then the third, this is a technical point. I think the CSM amortization rate improved in all 3 of your major life segments. Can you just walk us through why the organization rates increased? Is that assumption change? Do you see different customer behaviors, anything going on?

Okay. So I'll take the first 2. So capital allocator and what's the mood of our clients, that's what you're asking. Obviously, we've only been 10 days into the Middle East crisis. But overall, if you look at the beginning of the year, the strong momentum we had in 2025, we continue with strong momentum in 2026. Let's not forget, strong capital queue that Joseph talked about. More importantly, Dai-ichi Life continues to be a very strong partner with us. We did GBP 400 million in 2025, and we're continuing strong momentum with them as well. And then I think it's really a question about institutions are looking to diversify a bit out of the U.S. And therefore, Europe and Asia is where they're looking at. And obviously, we are both strong on the public side. I showed the amazing numbers on equities. We actually see mandates, institutional mandates on equities in where we are very, very strong. So European, Asian, emerging markets, et cetera. And then, of course, on the private asset side, Joseph said, real estate is very much in demand again, but private credits, and this is an important point, continues to be attractive in Europe, and we see appetite to invest in private credit in Europe. This is not the situation in the U.S. And let me be very clear here because I get this question very often. I got it also this morning at Bloomberg, We are -- it's a very, very different market in Europe versus the U.S. U.S. has much larger market, much more in the hands of capital markets, less so banks therefore, much more mature, more competitive, overcrowded, more exposure to software. Europe is in a very different place. And the point -- the key point here is we've been in this market over 25 years. We have a GBP 27 billion private credit franchise. It's not that we started 5 years ago. So we know how to underwrite. It's extremely vigilant, strong guidance, strong risk management very low default rates. So we see strong momentum here and a lot of clients want to invest alongside ourselves. Let's not forget we have Prudential Assurance Company, our own balance sheet, very often investing in our strategy. Now we also have another balance sheet, the GBP 390 billion Dai-ichi Life balance sheet. And of course, big institutions want to be together with those 2 balance sheets. So we continue to see strong momentum for the first half of the year, but obviously, it's only been 10 days into the crisis and I mean, you've all seen the volatility. I mean no one can predict is it going to be a week, it's going to be 2 months, this can all have different consequences. What I can tell you is we have a strong diversified business model. I mean, obviously, the life business, as I said before, providing strong underpin for the dividends. And of course, the with profit that is growing asset management, all this is capital light and well diversified. So I'm relatively confident in the future.

And 30 seconds on the asset management fee margins.

That's a very simple one. I mean I wish every year, we had margins going up like that. You correctly said, of course, it can be mixed. But the reality is things about food pressures out there, most peers, it goes down like this. I think you should -- for sort of guidance, you should see it more like resilience. I mean I don't expect it going up. I mean that will be -- but already at 33 bps, I think it's a very good number.

And on the...

And so on amortization rates, I think they were up by 20 and 30 basis points. So very modest. We've not guided to anything changing in 2026. We gave some other guidance which is about opening CSM. There were actually -- there weren't any methodology changes. It was just more at the book. There has been some changes to what we're using for expected returns. I remember you asked about the shape of the curve in 1 year and 10 years. So we've made a few refinements to that, but that's also reflected in the guidance we've given today.

We'll do Tom and then we'll come across.

Thomas Bateman from Mediobanca. profits from the with-profit fees. And I think you said there was GBP 50 billion that you're targeting in assets there. What is the fee margin that you're expecting on that GBP 50 billion? And it really would be great if you could give cost of equity for the with profits? You're saying it's the main risk area going forward. So that is important. And just a second question, I think you've had another positive tax impact on the capital generation. Can you just explain what's happening there? How likely is that to recur?

Kathryn, all for you.

Okay. Yes, I'll take those. So what you see here is our expectations over the years to 2030 around these new fee-related earnings that we're going to be delivering from this year. And obviously, you still have the bulk of life earnings with the GBP 6.6 billion of CSM, supporting the confidence in our AOP for '26 obviously, with the strong performing asset management also contributing. So these numbers are guidance for you. We've given a 10 to 15 basis points of profit for these new products. So that's profit and we've given the GBP 50 billion. And that's essentially, if you think about the rough volumes that we're doing on a gross basis of about GBP 6 billion improved fund, GBP 4 billion BPAs maybe by the end of '27, so that's ballpark, we always got our plan to 2030, but that can tell you why that GBP 50 billion number makes sense. And so it's 10 to 15 basis points on profit plus the fees that the asset manager gets, which we've given a guidance to what we're currently seeing of around 20 basis points. And we said also before 30% to 40% obviously goes into a private market. Now really importantly, you asked about cost of capital, but this is very, very, very little capital. So the quality of these, it's not just very transparent, very high quality, very recurring, but it is on very limited capital.

And Kathryn, I think the cost of capital was more the cost of capital for the with-profit fund as opposed to the...

Yes. So sorry. I mean obviously, their book and the capital that they take on for these transactions, we've -- in previous discussion, we said, we've not given an exact number. It's not the double-digit shareholder cost of capital that we need to deliver for all of the business that we're writing. . It is lower. There's no precise number, Clive is here, and he's had a lot of conversations with the with-profit Committee. It's really important that all of these products have got very robust governance and they have to deliver good, profitable business. but it will be at a lower cost of capital.

The way to think about it, which is always I find both fascinating and interesting is that the with profit fund has got 2 objectives: serve clients as well as you can and deliver the greatest value that you can and if you want to deliver great value, you want to bring down your price towards the clients to give them better outcome. But at the same time, the other objective is that you want to show by forever, and if the with-profit fund is a business, you want to make profits. Otherwise, you're not going to exist in 200 years where the with profit fund is built to exist for another 200 years. So that's why there is a cost of capital. It needs to be a positive number before someone have jokingly said, is it 0? It's definitely not 0. It needs to be a profit, but you take down that profit from the double-digit rates that a publicly listed company like us would require to a rate that is more amenable to your end clients effectively. And the other question...

The other question was you saw that it was a very similar number to last year, you probably noticed around the loss absorbency of our deferred tax asset. And this obviously came from the statutory losses when rates backed up massively in '22. So we created a number of DTAs. And essentially, what we've seen, and it is -- it's an interesting condition of the balance sheet and profits at year-end '24 and year-end '25, that we've been able to use more of this in the solvency stress due to higher future profits and also some movements in the SER. We really wouldn't expect anything to repeat of the scale. It will depend a little bit on this time next year, but you should treat these as largely one-offs impacted by that original DTA that we put on back in '22 and '23.

And we do Andrew, Andrew and Nasib.

It's Andrew Crean, Autonomous. A couple of questions. on that sort of GBP 50 billion of with profit going through can you tell us what the counter factor is, i.e. you're with profit fund is 90-10. What rate of shrinkage in profitability would you anticipate over the next 5 years is that goes into a runoff situation? And then secondly, I know it's been asked before, the PruFund opportunity within the platform market with FNZ. Clearly, I think you said in the second quarter, you do you first position. Can you give us an idea longer term as to how big this opportunity is? How much do you expect PruFund to be able to sell through the platform market when you -- for the in money?

We pass the second question to Clive.

I want my CEO to speak. So Clive, maybe you want to take the second question. Then Kathryn, you take the first, right?

Clive Bolton, CEO of Life business. So what we do is following the trend of clients and their advisers wanting to transact on technology, which people platforms and therefore, we're moving and making it available. I see it as the equivalent of making sure that our brand is in all the supermarkets and probably the platform in this example are the biggest versions of the supermarkets. I think specifically what that will allow us to do is move further into the affluent market for investors we're very strong on the mass market side. We're actually surprisingly strong in the high net worth wealth preservation market where people enjoy the stable returns. So it will enable us to push more strongly into the -- into that mass affluent market, which is probably the core market for the adviser market. And as I say, at the moment, PruFund remains an advise proposition. Well, I think you've seen we've got some on the So there'll be a gradual shift. We think into the platform market. I don't have a number for you today on the precise one.

But Clive, you can say, obviously, that market is a GBP 700 billion market with roughly 10% of gross flows a year, so GBP 70 billion. we will cover with FNZ technology roughly 50% of those gross flows. Of course, you need to be on the different platforms, first platform, Clive, and more to come by the end of the year. So I mean it should be accretive for us. There's no doubt about it. But obviously, we cannot give you more guidance than that.

And we are looking to almost all the main platforms. So when we talk about the first one, the first one is very important, not to -- we have some experience of that because of our own IFGL platform is already PruFund enabled from that perspective. And just -- and it's a strength of the PruFund franchise that we distribute to those advisers already, but they go through our own proprietary platform rather than their platform they built their business around. So we think it will be from that basis, a significant uplift in the amount of PruFund.

And covering the direction around the CSM and I guess the impact on profits. So as we've given the guidance around the AOP margin of 10 to 15 basis points for the GBP 50-odd billion to 2030. And clearly, what we have is confidence in hitting the AOP growth target. So whilst we are seeing fees that will contribute to profits, that will build meaningfully over time, we have already got the 6.69% higher CSM, which will grow with interest accretion and expected returns. There'll be a small element of new business contribution, but that really does underpin a large part, clearly, a majority of our earnings. And our confidence in hitting '26. And obviously, we obviously want to grow CSM and have a strong contribution in '27 which will deliver the 5% on average. It's really important this will take time for these fee-related earnings to build, but we will still deliver meaningful AOP growth. We will still hit our 5% AOP target and over time, you saw the sort of shaded bar. We know what our fee-related earnings are now. They will move up quite meaningfully by 2030 because we have the additional also fees generated into the asset manager as well. So we're confident clearly that, yes, this will build over time, and we've already got the real stock of 6.6 supporting profits this year and the next few years.

In terms of runoff, I think it's important to underline how slow the runoff is and how valuable this book is for an extremely long period of time. If you take the traditional with-profit book, which has been closed to new business for, I don't know, 10 years, 15 years, a long time. the contribution to profit in 2023 was GBP 263 million, and this year was GBP 258 million. So only GBP 5 million lower. So in percentage terms is what, 2% lower over 2 years. So it's just that because there's that big expected returns, as you know, PruFund traditional with profit, or the with profit products have got this very strong component from the annual expected return. Well, in annuities, you would only have the interest accretion piece, right? So that's really something that extends the life of the product for a really long period of time. Finally, Andrew, Nasib, apologies. There always needs to be someone last. so that's going to be you.

It's Andrew Baker, Goldman Sachs. So the first one just on can you just be a bit more explicit on your 2026 BPA expectations and then the mix between traditional with-profit and I guess also your Dai-ichi Life flow expectations in 2026. And just curious, no mention of future plus anywhere today. Any update there? Second one on ratings migration. So I think the appendix shows 4.5% of ratings migration, which is a little higher I would have thought. And it looks like some of it's related to ground rents that came in '25. And then just is there anything we should be thinking about in '26 related to ratings migration? And then just a quick one. M&A, we've obviously got on U.K. in the market. Is that something you guys are looking at or have any interest in?

Okay. Should we start with M&A?

Yes, I think why don't you start there and then...

So let's be clear. I mean you've seen we have -- we presented a clear strategy 3 years ago. We're delivering on the strategy. And I think we have a very clear path of what we want to deliver moving forward. So we are very much focused on that. When I see some of the M&A activities around us, what is it that they're trying to achieve. It's either significant scale. So you're talking GBP 2 trillion, GBP 3 trillion, GBP 4 trillion, passive, active, everything. And then you have another activity, which is alternative asset managers looking for permanent capital, particularly here in the U.K., we've seen 2 transactions. Well, when I look at that, that is exactly what we are doing already since a long time with a big difference that we have also do with profit funds, which is a competitive advantage. So I think we have a very clear competitive advantage. And given that we're delivering on our strategic drivers, given also that we have come out now with using the with-profit fund in a smarter way, we have a very strong independent future in front of us. So we are focused on continuing to deliver what you would like, which is growing profitable earnings.

And we are not looking at it U.K.

No, no. And we're not looking at U.K. that we can say, no, no, we have what it takes. Now then on -- maybe on flows. So you asked, first of all, on BPAs. Well, I said it before, we are committed to the GBP 3 billion to GBP 4 billion of BPAs by 2027. We did GBP 1.5 billion in 2025. Of course, now, whether with profit BPA, we can do more. We have a competitive advantage from the cost of capital. But let's not forget also, we also have a diversified offering because we also do what we call the value share BPA. You remember, we presented this where we are sharing the economics with the scheme sponsor. So we will see more momentum this year. And yes, we will write most with profit BPAs. But of course, there will be also alignment from a shareholder, and we will align ourselves and write some alongside those deals. And then there might be also cases where we would like to take all on our own balance sheet, right, from a return perspective. So the guidance that we gave you already when we presented, I think it was last year, where we were saying 75% BPA , 25% that sort of remains the guidance you should think.

25% our capital and 75% either value share or with profit capital.

Then on -- you asked about flows on...

Dai-ichi.

On Dai-ichi, exactly. On Daiichi. So I said it before, once again, partnership is going extremely well. Obviously, they decided to be our partner because they went through all the possible partnerships in Europe and said, okay, who is the strongest asset manager. Well, I think our numbers probably said that we are in terms of investment performance and reach. And then they wanted also to understand more about the BPA market since that's a possibility at a certain stage in Japan as well. So we are really working extremely well with them and not only did we see the GBP 400 million of flows in 2025, but we see continued momentum in 2026 as well. Let's not forget that they had a commitment of $6 billion over 5 years. And we said that it will be good to have $1 billion the first year, first year anniversary is in May. I think we will do more than that number by May with Daiichi. But obviously, we will have to see, there's still a couple of months to go. But good momentum with Dai-ichi and a very, very strong partnership. Then what was...

Futures plus.

I know, Futures plus. So future plus, by the way, we can say future Plus sort of what we're doing in UAE is a bit of future plastic. Maybe it's not Europe. So remember what I said before here, Future plus continues to be -- so future plus for everyone is proof in Europe, continues to be a very relevant opportunity but you need to have the right distribution partner. And I always said that the right distribution partner for us is probably a strong insurance group. We had done a partnership with a strong insurance group in the UAE. There are others, of course. There are several strong large pan-European ones. That's what we were working on. So it will come. It will come.

And for you, Kathryn.

The question on the annuity book credit quality, yes, you've seen that in the appendix. It's the typical slide we give. And it still remains, obviously, 96% investment-grade, 74% single and above, and we anticipated there'd be a question on this given the external environment at the moment. And so the 4.5% net downgrades was driven by that ground rent asset class. As you said, there were just 1 or 2 other small impacts as well on the book, but it overall remains very high quality. And I suppose, given I think you said because the announcement was in January, what we had -- what we do and is essentially look at the valuation of that and when we see either a situation changing, perhaps with where the government was in terms of potential imminent announcement coming as we entered 2025, there were some ratings moves. So that's what it was.

Nasib Ahmed from UBS. Firstly, on private assets. More than GBP 80 billion, I think most asset managers out there would want a piece of the pie. Do you think that there's going to be margin pressure as a result of other guys coming in and trying to access more of the private assets on the asset Management side? That's 1 part of it. And then do you see commoditization of that product as well kind of impacting revenue margins as well? Second question, a technical one for Kathryn. I'm trying to square the OCG growth versus the AOP growth. So if you take the 928, keep it flat. We get to the GBP 2.7 billion target, whereas AOP growth implied for the next 2 years is about 8% to get to the 5%, right? So there's flat on OCG implied by the guidance and 8% on AOP. So what's the difference? Any color on that?

Okay. So private assets and what you're saying is are there any pressure on fees in private assets. Now let's remember where our focus of private assets is. It's mainly Europe. And of course, in real estate, we also have roughly GBP 10 billion in Asia on the real estate side. Our franchises are leading franchises. Let's not forget, GBP 35 billion in real estate, GBP 27 billion in private structured credits and then we have GBP 6 billion in Infra and another GBP 14 billion in impact in private equity. So we have strong franchises there. But I think the key message here is Europe is still underpenetrated when it comes down to private assets. There is still opportunities in Europe. I said before on private credit, roughly 70% still of loans are with the banks. Banks are retrenching, as you all know here in Europe. So that's an opportunity. not too many players playing in this field, either because Europe is not the United States of Europe. Every country has its own rules and laws. So you need to have had that track record and knowledge which we have. We've been in 25 years doing private credit and the same is with the other asset classes. So I don't see too much pressure there. Then we have some uniqueness as well. I mean we are -- with the PCP acquisition, we are the leader in the non-sponsored private credit space. We are clear leaders there, and we see significant appetite into that space. So I don't see any key pressure on margins on the private asset side, given our focus in Europe. And in particular, also on private credit, I really see still significant demand here coming, by the way, from everyone, not only European clients, but also Asian and North American clients as well. So very, very important point. That was the first question. Second one was on...

Well, maybe in the first one on the whether it is becoming a more commoditized product. Is it fair to say that we are moving also more the higher-margin part of the spectrum, the value add, core plus type.

Yes, You're right, We used to be more core, given also that we had a large internal client that was looking for let's say, less -- that's not called exotic, but less value add. So yes, we're moving more towards that. PCP is a good example. is another one. So no, I think we're in a good place. And we should see thanks also to the proximity and I would say, the life business growing but also having access to Daiichi Life, we should see strong momentum here because remember the slide I showed before, on institutional clients. We had 800 institutional clients 3 years ago. Now we have 1,000. Now it's not because we're lucky. This is we have invested in distribution people. Joseph and myself were out there seeing big, relevant big asset allocators and they want to invest alongside other big balance sheet. And now we have 2 balance sheets. So no, you should see strong momentum on the private asset side going forward.

And so I think that answer to the technical OCG versus AOP growth, as you average to get to the 5%. I think if you look at underlying capgen where we did guide to it growing over time, there will be a similarity. And clearly, what you've seen is us try to align our approach for both CSM and PBST. So you get a broadly similar approach, but that will be on an underlying basis, and they'll be similar. And then we've given the reiteration obviously, of the management actions of GBP 100 million to GBP 200 million and obviously, we exceeded that a bit last year. But that, I think, will bring you closer into line. And clearly, it will evolve addressing the question we got today around the CSM contributing to a meaningful proportion of profits whilst we see this really exciting fee earnings growth over time, which will change that equation again.

And importantly, the GBP 2.7 billion, it's a target that we just issued 12 months ago. So we all have our incentives to do as well as we can. It's not a cap.

I've got 2 questions. The first one on margins. So thank you for the color on the fee business margins that you've given so far. I just wondering if you could give us a sense of the margin versus life time value on the basis that you've recent last year and sort of perhaps with the business that you hope to run. I'm trying to dimension the sort of 10 to 15 bps of profit margin on fee-based business versus I think, sort of 100 bps of profit margin on the traditional BPAs, which, of course, comes with a higher business strength. So just trying to sort of square all of that? And then the second question is on private credit. Just wondering if you are indeed expecting a tick up in the default rates across any of the private asset classes. And if you could help us with quantifying what you're seeing perhaps at the industry level in default rates across Europe versus U.S.? And any color on that would be helpful.

Okay. I mean I can take the first one, and I think I explained before. We are talking 2 very difficult markets between U.S. and Europe. And I know there's a lot of focus on private credit lately. Most of the problems we see are mainly in the U.S. And it's linked to for underwriting, overcrowding, but also the lot is linked to software exposure. We know the U.K. market -- U.S. market is a larger one than Europe. Europe is less mature, smaller, less players. And then it comes down also to the quality of the players. I mean I don't want to speak about peers, but we've been in this business since over 25 years. We start as a credit house. Let's not forget about that. And then we moved into private credit 25 years ago into private credit. And if you look at our default rates, I think the European loan fund, we have looked, yes, it's less than -- yes, 1% exactly, less than 1%. So that shows the quality of how we are underwriting this. So I'm not overly concerned. And Joe, I mean, I don't -- we have not seen any trend in Europe of more defaults lately. Yes, of course, there are cases where we have seen MFS and others, by the way, we have no exposure to MFS to be very clear. So once again, it shows how good we are and also saying, I said that number, we turn away 2/3 of the businesses that are offered to us. So I would be -- well, cautious, let's call it cautiously optimistic. It's a good word I always have to use, on Europe, given our focus on Europe. And we have no real exposure to the U.S. So you should not be overly concerned on this. Of course, I don't know what's going to happen in the Middle East. Maybe it goes on for another 6 months, and we will see, but these are all things that we cannot...

And exposure to software for us...

Yes. Very good. And exposure to software for us is extremely limited. So if you look at our private credit book, it's less than 2% in the asset management business. So very, very, very low. I'm sure you can see some of our peers came out with much, much higher numbers there.

And Kathryn, do you want to...

Yes, just you'll probably get more color as we start to write more of these products. We've obviously -- we talked about the CSM margin and the strain for the BPAs we did last year, and we're really pleased with the start of fixed time annuity and with individual annuities coming. For now, we've grouped all of these products together in that 10 to 15 basis points of profit. And obviously, as volumes grow, we'll give more color to support the products that we're writing, but we're not going to give individual product by product. But clearly, what we've said very clearly is that we need to meet our cost of capital hurdle rates for shareholder business, the with-profit fund has got a different objective for the business that they write. But look, we see this as very high-quality earnings, very transparent, very repeatable, that will build over time.

Perfect. I think everyone asked the question. So thank you very much. and see you at our half year results. Thank you.

Thank you.

Thank you very much.