Prudential plc (PRU) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Prudential plc 2026 Half Year Results Q&A Audio Webcast Call. [Operator Instructions] I will now hand over to Patrick Bowes. Please go ahead.

Thank you very much, Alex, and good afternoon, good morning, everyone. Welcome to Prudential PLC's First Half 2026 Results Analyst and Investor Call. Before I turn over to our CEO, Anil and Ben, our CFO, I have a couple of housekeeping points. A recording of today's call will be available from Tuesday next week. Our full results package is available on our website and I'll refer you to the disclaimers and safe harbor wordings in these documents, and they also apply to this call. Anil will start. Ben will start the call with opening remarks followed by a Q&A and also on the call today are [ Angel, ] [ Dennis, ] Rajeev, Naveen from our group GC members. And now let me pass over to Anil, our CEO, to start us off. .

Patrick. Good morning, good afternoon, and good evening, everyone, and thank you for joining us today. The strength and resilience of our multi-market, multi-channel platform across our insurance and asset management businesses allow us to deliver consistent quality growth. We've been focused on accelerating the conversion of new business profit into cash thereby generating sustainable and growing shareholder returns. I'm really pleased with the progress we have made in the last few years and our strong track record of delivery as we transform and modernize potential. We have repositioned our Hong Kong business by substantially growing the domestic franchise. It now generates 50% of the new business profit in this key segment, improved our Chinese Mainland operations through better product mix risk management and strong levels of capital, demonstrated the breadth of our diversification with ASEAN markets growing new business profit by 13%, and our Indian and African business is growing double-digit APE Alongside our insurance operations, our asset management business grew underlying profit by 20%. In addition, we are focused on our strong proprietary channels of agency and bancassurance, driving productivity and expanding our bancassurance footprint. We launched a multiyear transformation of our agency operations with productivity and quality recruitment being the key priorities. I'm very pleased that we have reported progress in these areas in both our developed markets and our emerging ASEAN businesses. We have built out our market-leading health and protection operations helping our customers navigate the post-COVID medical inflation while delivering significant operating improvements, driving innovation AI adoption and high-quality customer experience has been a focal point of our $1 billion investment program in technology, in distribution, health and customers. We have all set clear priorities for capital allocation with a comprehensive and sustainable capital management framework. We have made good progress in delivering over $7 billion of returns to our shareholders from 2024 to 2027. And rounding off last year, we completed a highly successful IPO of our asset management operations in India creating substantial value for our shareholders and are in the process of returning it. Most recently, you may have seen, we are moving towards meeting the initial 15% free flow requirement. This would generate proceeds of approximately $0.3 billion, which will be added to our 2026 share buyback. Coming to our first half results. We continue to build on the track record of our delivery. We have invested further in our high-performing business in Malaysia through increasing ownership and we have fundamentally repositioned our India business through taking control of the 2 complementary insurance platforms of life and health. In the first half 2026, we grew new business profit by 8%. We grew earnings per share by 17% and free surplus generation was up 15%. As well as we increased our first interim dividend per share by 15%. Our first half 2026 performance was well rounded, and we remain very disciplined on both quality and our execution. I have 3 clear messages to our investors. First, we remain firmly focused on the delivery of our guidance for 2026, and of double-digit growth across our key financial metrics and on achieving our 2027 financial objectives. Second, we are progressing well in our transformation agenda continuing to build capabilities and modernizing our operations and technology platform. Third, we remain highly disciplined in allocating capital. We are investing for quality growth, driving attractive margins, and sustainable growth in capital generation. With our multi-market, multi-channel model and our drive for quality growth, I'm excited with our prospects in the growing markets of Asia and Africa. Now I will hand it over to Ben, our CFO, to walk through the financial highlights.

Thanks, Anil, and hello, everyone. So as Anil has mentioned, in the first half of 2026, we delivered double-digit growth in EPS, DPS, gross OFSG and 8% growth in new business profit. We remain firmly focused on high-quality growth in new business with high IRRs and short payback periods, the compounding effects of which are driving strong capital generations and earnings. The new business margin expanded 2 percentage points to 40% and further focus on improvements in agency performance and increasing the proportion of health and protection business within our newness mix, provides us opportunities to continue to improve margins over the medium term. Our embedded value per share ex goodwill reached $15.27 or GBP 11.50 and our return on embedded value is 15%, with scope to improve this further by 2 to 3 percentage points. The management of our in-force book continues to improve. -- and we are pleased that our underlying variances are back in positive territory. This is an important milestone and reflects actions in strengthening claims management, growing revenue premiums and containing costs. These improvements will allow us to continue to invest in our business on a normal course basis, while delivering sustainable positive variances as we move forward. We continue to benefit from strong persistency and in Hong Kong, that is 99%. We will largely complete our capability investment program in 2026 with an investment of between $300 million and $350 million and we're confident of returning to positive variances north of $200 million in 2027. In short, we're pleased with our capital generation trajectory, gross OFSG is up 15% year-on-year and net OFSG is up 41%. We'll continue to build on this momentum as we work towards and beyond our 2027 objective year. The group's capital position remains highly robust, and we have a conservative level of gearing. Our free surplus ratio as of 30th of June was 209%, and or 200%, excluding the remaining net proceeds from the AMC IPO, consistent with the 175% to 200% range we've set out. In January, we launched a combined $1.2 billion buyback to be completed by the end of 2026. And as Anil indicated, with today's capital market actions, we had a further $ 0.3 billion of buyback to be completed by the year-end. We continue to expect to return a further $1.3 billion in 2027, and all contributing to over $7 billion of capital being returned to shareholders between 2024 and 2027. In summary, we delivered a significant improvement in financial performance in the first half of 2026, with quality growth across our key financial KPIs. Looking forward, we are firmly focused on delivering our 2026 guidance of double-digit growth in our KPIs and our 2027 financial objectives. Prudential has leading positions in the highly attractive markets of Asia and Africa. We are generating attractive margins and are positioning the business to deliver double-digit performance for many years to come. With that, I'll pass back to Patrick.

Thank you, Ben and Anil. And I'll now hand over to Alex, our call operator, who will provide instructions and open the lines for questions. Please remember to give your name and organization that you represent when asking your question. And also please submit your questions online. In particular, if you're on a mobile phone and just for the benefit of everybody else, to be able to hear properly, please do use the online service or dial in to the VoIP, it's much clearer. So over to you, Alex. .

Thank you, Patrick. [Operator Instructions] Our first caller is Kailesh Mistry from Bank of America.

It's Kate here. So first 1 predictably is on new business value in Hong Kong, Anil, thank you for your guidance of double-digit growth for 2026. A couple of things I wanted to unpick here. Could you help us better understand your base case for the second half. Should we think about the domestic growth continuing at the 20-plus level and the MCB kind of at the level we saw at the first half? And also, how much should we expect to be driven by margin versus volume -- so that's the first question. Second question is just on new business strain. Obviously, sales up 3%, 4% strain was 11% lower. What were the key drivers here? And are they sustainable? Or should we still have the 11% to 12% of AP guidance in our mind. And then lastly, just on India very quickly. In terms of the asset management business, is your intention to get the -- meet the free criteria and then stop at that point and keep your stay stable? Or are you thinking something else there? And it on should we expect all the proceeds to be used for reinvestment in the new entity? Or could we see some coming back to shareholders?

Thanks, Kailesh. Many questions there. So let me first start with the Hong Kong question and the margin question, and then I will pass on to Ben for the new business strain as well as the question on AMC and [indiscernible]. So firstly, let me just kind of zoom out and give you a little bit of color on our Hong Kong business. So I really like the shape of where our Hong Kong business is. As you would remember, Kailesh, coming out of Corvid. We were highly skewed towards the Chinese mainland visitor business. We are now very much in balance. 50% is Chinese mainland and 50% is domestic. You're right in pointing out that domestic business did very well, grew by 22%. And it also underscores in many ways, the focus that we've been employing on quality. We are very focused on driving our proprietary channels. And the quality came through quite strongly with the 7 percentage points improvement that we saw in our margins. Additionally, we are a multichannel growth engine model. You would have noted the strong performance on bancassurance. And a combination of these factors are likely to continue in the second half of this year. To your specific question on CME, and I'll try and keep the answer short. We are not seeing any abatement in terms of the drivers of demand. We are constantly in touch with our agents as well as with our customers and the structural demand drivers for why Chinese mainland customers buy in Hong Kong, that seems to be very strong. So strong stake, margin improvement, strong bancassurance. We are working very hard on improving our agency performance, and that gives us the positive outlook for taking Hong Kong to double digit for the full year, including upping our performance in the second half. I'm going to pause there and pass it on to Ben.

Okay. Thanks, Anil. Kailesh, so if I take these in order, on new business strain, what you're seeing is the benefit of a slight shift in product mix. There's a bit more power in the mix. So we're more capital efficient. There's also some nuances in country mix. Look, what I think I'd steer you to going forward is to continue to use 11%, 12% in terms of APE when you think about modeling strain. To your question on the free float, I think you've seen from today's actions as making steps towards meeting our free float requirements. Initially, I think as you'll recall, that was a 15% free float, but that then ups to a 25% free float. The proceeds as you've seen, add to an already very healthy free surplus ratio. And of course, when not going to retain capital, we don't need. So they're being returned to shareholders. I think stepping back on the opportunity, India remains a very strategic market for the group and asset management broadly and wealth enabler. Your question on IPO Sell-down -- Well, look, this firstly is subject to successful completion of our acquisition of we are relevant parties around the sort of timetable of reducing shareholdings. As we said in our presentation, we'll want to retain a portion of the proceeds from the initial acquisition, but also to fund investment in the Prudential Bati platform to accelerate growth. There will, however, be residual proceeds. We expect these to add once again to a very healthy free surplus and hopefully you can see by likely to me.

Just 1 additional flow from my side, Kailesh. So we now have complementing channels of both life and health in India and pleased to share that we have started writing our first set of policies on the health business from earlier this month. And remember, this is the joint venture where we have control with an and delighted with the fact that we've been able to launch our health business in a market as strategic as India.

Okay. Thanks, Anil. Over to the next one. .

Our next call is from Andrew Crean at Autonomous Research.

A couple of things. Ben, I think you said that the new business contribution to 2027 gross operating free serves generation would move in line with the business in the '26 contribution, whereas I think it was up 42% in the first half to clarify that you think the contribution for '26 will be roughly 10% or in line with the business profits growth. Secondly, could you talk about MDRT in first half 2026 within your 55,000 total and how much they grew? And then thirdly, Ben, you talked about the [ RV ] being 15% hope to improve by 2 to 3x. Where do you see that coming from? Do you see it going from stronger new business from positive operating variances or shrinking the embedded value denominator.

Thanks for your questions, Andrew. So why don't we first go to the new business contribution to free surplus generation, let Ben answer that. I'll have Naveen MDRT question, and then we'll kind of come back to the ROE one.

Yes. Thanks, Andrew. So the 2 increase had represents really 2 things. One, as you appreciate, is sort of moving on 1 policy year and the other is growth in the book. And so another way to express that. If I think about the 2026 new business contribution to the 2027 target. There's a couple of things. One is actually, the cash generation signature we're writing is very much in line with the 2025 cohorts and that would have added and you can see this in our accounts, $0.5 billion of contribution to 2027. So I would start with that as a base and then simply grow that. But the growth we're putting on the book in 2026 if that makes -- do you want to pick up...

Growth in new business profits or sales?

Profits, Andrew, profits.

Let's go to the MDRT and then we'll come to the ROE question.

Andrew, thanks for your question. Let me answer it like this thing firstly, as we have shared in the us, we remain very focused on improving the productivity of our agency force. One aspect of which is growing our MDRT franchise. We are very proud that we are the #2 MDRT franchise. And we look to -- you've seen from the numbers, our NBP per active has grown a further 9% in H1 this year. And this has happened because 5 initiatives, which we will continue to accelerate through the second half of the year. Very briefly, I think the first 1 is we will continue to pivot the quality of our recruitment towards quality schemes like true ventures, which have scaled up already in markets of Hong Kong, [indiscernible] which have been relaunched and refurbished in markets of Indonesia and Philippines. Second, we have launched for the first time this year, a group-wide true MDRT program, which kind of creates benefits, capability building and incentives for MDRTs across all markets. And you will recall, we had also made compensation changes early on in the year, favoring high productivity agents, which we expect to see some benefits come through in the second half of the year in particular. Third, we have had good success with launch of affluent propositions. Our case sizes have increased by 6% in H1 this year, you would have noticed that number and we are poised for some more affluent proposition launches in our key markets in the second half. So that will be an additional [ Philip. ] Fourth, Ben already mentioned that we pivoted quite strongly to health and protection, which has been a driver of our margins. And we have further initiatives to enhance health and protection in our agency channel. And last but not the least, there's significant investment in AI and technology in the agency platform to drive productivity. Our True Action 1.0, which is our AI module for performance management is now live in Singapore across 5,000 agents. I'm pleased to share that users have improved productivity by more than 13%. Now on your specific question of what is the actual growth in the MDRT numbers? What I can share is the following that MDRT is a full year phenomena. We are at the half year stage. And we will continue to focus on that as we go forward. What I can share specifically is that the contribution of MDRT and the strong line that we have on MDRT. So I'm now in particular, referring to agents who have already crossed 70% of MDRT threshold the contribution of APE from this cohort and people who've already become MDRTs remains exactly what it was last year. So we are pretty much dead on where we were last year. And we will look to accelerate in the...

And then coming back to your ROE question, Andrew. So the start point for that is double-digit growth in new business, we are a double-digit business. think 2 to 3 points is really twofold: one, completion of the investment and capability program you're aware of but also then improving variances. And I'm pleased with the progress we've made in that regard. As you will have seen, we're back to net positive underlying variances, positive underlying claims experience. What will now start to benefit for scale coming through ultimately and greater operating leverage. And there's a slide in the appendix to my presentation showing our operating leverage ratio improving 40 bps in the period. So that's where you're going to see the uptick.

Okay. Thank you. Back to Alex for the next question, please.

Next call is Nasib Ahmed from UBS.

3 for me. Firstly, can I impact the double-digit growth for the group in NBP regarding China broadly flat. I get Hong Kong is going to be double digit, but what's kind of pulling up the rest. Second, on Malaysia, I saw MDRT 2026 was up 4%. The business profit is pretty good as well. Where can you actually get -- can you get any learnings from this Malaysia business and kind of get them on to other places and geographies as well. And then finally, on the short-term leases below the line, the $66 million, where does come from is there actually economic versus noneconomic in there, China is typically an economic move.

Thanks Nasib. First one I will go to Naveen and second to Ben the first one, and I'll go to on the second and then on the third on your third question. So we are firmly focused on delivering our guidance of double-digit growth across a range of financial metrics and pretty much kind of lining that up as we look at our objectives for 2027 as well. You're right in pointing out that we believe that we'll carry some of the positive developments in Hong Kong into the second half. We also believe that the growth will resume in China. We are taking a number of steps to firstly conform to the new expense regulations as well as have a slew of actions in force to be able to get our product mix in balance. So that should hopefully, a positive growth in the second half in China. But at the end of the day, we have got a multi-growth or rather multi-market growth model. So if you look at our Malaysia business, it did very well. Talen had an outstanding first half, we believe that we can take the growth in Singapore from mid-single digit to high single digit, if not early double digit. And we are also starting to see a turnaround come through in our Vietnam business. So remember the Vietnamese business has been negative. -- growth for us, and it's starting out to getting marginally positive. And we are hopeful that it will start to grow as we kind of go through the second half of this year. So we have a number of markets that will complement some of the growth that we are going to see in Hong Kong which gives us the belief that we will be able to get to our guidance for 2026. I'm going to go to Malaysia, which had a very strong performance. Naveen, you want to tea that up.

Sure. Thanks, Anil. And Nasib, thanks for the question on Malaysia. So as you have seen in the numbers, Malaysia grew very strongly in the first half. led by an outstanding performance from Agency and killer. And if you recall, agency, we had shut last time had turned the corner in the second half of the year. And Malaysia is second half of last year -- and Malaysia is the 1 emerging ASEAN market where our agency transformation is the furthest in its implementation. And to your specific question, there are three big learnings, I think, coming out of Malaysia, which will sustain the performance of Malaysia through the next few quarter, ASEAN markets. The first 1 is focus on quality recruitment. We are talking about this last time as well that the fall in Malaysia, and we are seeing the incoming class of recruits actually drive productivity, which is 5 to 6x the normal organic recruits and increasingly, the focus is to make sure that we have more and more share coming from the pro venture recruit. The second 1 is tailored proposition for the agency largely on health and protection, but also set of propositions addressing the HNI and affluent needs in the Malaysian markets has worked really well in the first half for us. And those are learnings that we will also take forward to other markets, particularly Indonesia, Philippines, where we have launched Pro ventures or refurbished it in the first part of this year, and we are looking to launch some of these protection and affluent propositions in the second half. And third, very pleased to also share that Malaysia had very strong growth in active agents in the first half. This was on the back of some of the ways of agency management initiatives that we have put in place. And again, those give us learnings for some of the emerging ACM markets as we move forward. So all in all, strong performance from Malaysia sustainable growth as we see it going forward, particularly driven by agency and lots of learnings that we are already taking to other emerging ASEAN markets.

Nasib, just 1 additional point for me. So while we remain positive about the growth prospects in Malaysia in the second half on account of all the reasons that Naveen has mentioned, do you expect the [indiscernible].

[Technical Difficulty] the rates in China that lowered the discount rate that we apply to the GMM contra and lower spreads. And then secondly, higher rates more broadly across many of our markets. So there was a mark-to-market impact on bond holdings backing shareholder business. But also you then have the sort of discounting effects getting us to a lower present value of future profits on health and protection business. So arguably, a lot of those movements sort of discount rate related as opposed to underlying economics. What I would point out, I'm sure you've noticed, actually, that we have positive unlocking in the CSM that goes some way to offsetting that minus 0.6%. There's 0.4 positive of unlock and that's to do with better-than-expected long-term equity returns across a number of our markets.

Alex, we go to the next one.

Our next caller is [ Michael Chang from CGSI. ]

Sure. I've got a few questions. I'll start with Mainland China. Started up the year very strongly, then obviously, we've got some regulatory impacts that impacted 2Q and quite possibly a bit of the second half as well. I really appreciate the additional disclosure in terms of the quarterly trends for the Mainland China business. But can I just get a sense in terms of seasonality, what typically is a normal seasonality pattern within Mainland China? Because typically, 1Q tends to be a very strong 4Q tends to be very weak. So I'm not only sure how to actually interpret the numbers as to how high price is how low for basis? I mean, when I talk to some of the other insurers, it's typically maybe about 30% or 35% in 2025, [ 25 ] and then the last quarter might be about 15% is fairly similar for protein in China business. Secondly, about go across to Singapore. Singapore is a market whereby I think well, APE has been very strong, but markets have been lagging a bit. So maybe I can just get a sense for when markets start to turn around and when the agency performance, we'll start to see a bit more of an improvement because it seems to be very much a bancassurance dropping at this stage? And then lastly, Bancassurance has clearly sorry, or OFSG, OFSG, the inflection point taking a look at as of the first half and likely for the full year, we're looking at probably mid-high teens, which means that to meet the 2027 target. Next year OFSG growth will be clearly at the high end of the inflection point over how then should we be thinking about modeling going forward post 2027?

Michael, so let me start with your first 2 questions, and then I'll go to Ben for the surplus generation 1. So in China, as you know, we have been very focused on driving transformation over the last 3.5 years. And you saw that come through quite emphatically in our 2025 results, -- we carried that momentum quite strongly into 2026. You're right to point out that quarter 1 typically tends to be the door opener, which tends to be the biggest quarter in the year. We did see the impact of a higher-than-expected power mix as well as regulatory changes in quarter 2. As we look to the second half, we are focused on 3 things: One, we have a big competitor base in quarter 3 in China. July, August and specific were very strong months for us. in 2025. So that is something that we have to deal with. From September onwards, the competitors start to ease quite significantly. So to your question, the shape of how we're going to grow in China or how we deliver the new business profit in China is likely to be slightly different from what you probably witnessed in 2025. In terms of your second question on Singapore, we saw growth both across agency and bancassurance on volumes. And the challenge for us was the new rules that came in with respect to a copayment. And this is where we had to adjust to the new health guidelines, the government introduced, which had a knock-on impact as you rightly pointed out on margins. In Singapore, we provide the entire spectrum of products, as you can imagine, and we have launched newer protection products to extend our health continuum as well as innovative products to address the needs of the high net worth and ultra high net worth customers. And that kind of gives us the confidence that some of these shorter-term challenges around the health or the changes to the health regulations we will be able to offset that as we go through the second half of this year. Remember, we had a household brand in Singapore, very strong on both agency as well as on account of our partnership with Standard Chartered and UOB in Singapore. I'm going to stop there, and I'm going to go to Ben for the free surplus question.

Yes. Thanks, Anil. Michael. So Look, we're very pleased with our progress on the capital generation front, very confident in delivering our 2027 OFSG target of $4.4 billion. There's a slide in the appendix to my presentation that sets out the development of the free surplus ratio. I think it's useful to think in terms of those building blocks when you model our OFSG going forward beyond 2027. Look, in short, the in-force generation, the expected transfer continues to grow strongly. I mean, as you know, from our past comments, we've calibrated dividends and the additional recurring capital returns to be sustainable and allowing for those we expect to be at the end of our free surplus range. So when you model that out, allow for the acceleration you referred to, to our object of $4.4 million. I think as I've said before, I continue to guide you to required capital growing early double digit. I mentioned the sort of rough yardstick to use for new business strain earlier on this call. Central costs will remain fairly flat, which I think then gives you all of the ingredients nonoperating a bit harder to give guidance on. As you know, that's the sort of market movements effects on regulatory balance sheet. Some of which aren't necessarily economic in nature. And you can see from the slides that actually pre-capital returns if you annualize it, we're generating mid-double-digit growth in the free surplus ratio. So hopefully, that gives you a sense.

Alex, next question please.

Our next call is [ Michel Ma from Citi. ]