Prudential plc (PRU) Earnings Call Transcript & Summary

Good day everybody and thank you for joining us. We felt it appropriate to bring up you up to speed on how the business is responding given the external environment we are in. It's been a while since we have done a quarterly update. So appreciate you joining us. We're not going to continue to do this on a scheduled basis, but if the climate and the environment continues, we'll keep these updates coming. And as you know, we had our AGM today, our first virtual AGM in almost 200 years. So we thought it would be appropriate time to bring you up to speed. Let me start with some brief opening remarks, and then will be followed by a few comments from Michael Falcon, CEO of our U.S. business; Nic Nicandrou, Head of PCA for us, and then we'll open up to questions. And also from the Prudential team, I am also joined by Mark Fitzpatrick and Nic Nicandrou. I also have James Turner, our Chief Risk Officer, Michael Falcon, again, Axel André, who is our CFO of the U.S. and Ragh is joining us as well from Asia on -- so we have both CFOs of the major business units as well. So our immediate priority, I think, is you're probably hearing a lot of management teams and this first part was the needs of our colleagues, our agents, our distribution model, customers, obviously. And then the -- where we could have impact on the communities we're in and make sure we're delivering on all those fronts concurrently and in speed. And I think we are, to date, doing all of that. We performed well though I think with somewhat substantial disruption and obviously, a lot of market volatility. I think it demonstrates the strength of the business model that we're bringing to the capital and particularly, uniquely, I think, our operational capabilities and digital capabilities. In Asia, close to 2/3 of our products now have been sold without face-to-face interactions. And again, that's based on the first quarter sales mix. And we've utilized our digital platform to issue 1.2 million policies during this time and the majority of which were new customers, and we continue to roll out our digital ecosystem Pulse. Pulse is now live in 8 markets. We've seen 4 million downloads. And the benefit of our diverse portfolio is evident, I think, from ever-increasing sales and double-digit sales growth and new business profits in our markets outside of China and Hong Kong. Let's start with China and Hong Kong. The impact of COVID-19 and social restrictions there hit first, and they led to lower new business profits -- excuse me, lower new business sales and profits. And importantly, our in-force business remains resilient. Our renewal premium base continues to compound, driving earnings growth at 14% over the first quarter. That's across Asia. And we invested heavily in Asia again this period. In bancassurance deals in Thailand and Laos, we continued an extension second payment on the UOB relationship and have committed over USD 1 billion capital to the region for inorganic and expansion of our capabilities. In the U.S., preparations for minority IPO continue alongside our asset valuation for other options. We have moved towards an independent Jackson, and we've committed to provide an update with our half year results in August. Over the extraordinary volatile first quarter, Jackson's [ hedge ] program and the RBC ratio finished the quarter in 340% to 365% range. Again, that's only marginally below the level at the beginning of the year. And we've managed our investment portfolio quite conservatively there and not stretching for yield, as we've discussed many times and significantly increasing our cash and U.S. treasury holdings in the period to nearly now 20% of our portfolio on a flat basis. We manage a good balance sheet and liquidity carefully. We successfully accessed the U.S. debt market close to USD 1 billion and finally, our solvency, both of the group business unit remains robust. At the 31st of March, the group had an estimated LCSM surplus of $11.1 billion and a ratio of 302%. So we see resilience, diversification and prospects for long-term growth coming in our Asian businesses. We're continuing to invest and innovate to meet the important needs of our customers. We have a highly resilient business model, and we're well positioned over the long-term to weather the disruption caused by this COVID-19 pandemic and to support our customers and the communities we're in and the recovery regardless that shape. So next, I'd like to hand it over to Michael Falcon, CEO of Jackson; and then to Nic Nicandrou, CEO, of PCA, to make some brief prepared comments on how things are going for their customers, staff, businesses, and then we'll go to questions for the bulk of the hour. So firstly, Michael?

Great. Thanks, Mike, and good morning, good afternoon to everybody. Thank you for joining the call. Jackson performed well in the first quarter, I think, showing resilience in what Mike -- as Mike said, is a volatile and challenging environment. Our statutory capital increased by over $3 billion in the quarter to almost $8.4 billion at March 31. And our operating capital generation remained in line with our expectations. From a credit exposure perspective, we began the year well positioned and continue to carefully monitor and actively manage the portfolio. And critically important, Jackson's business operations have remained fully functional. Even as roughly 95% of our associates are working remotely, we remain connected to each other our clients, markets and key partners, and we've maintained service and quality at historically high levels. Sales in the quarter were strong compared to year-ago levels, although we did see a slight decline compared to fourth quarter '19. I'd note that VA origination in the quarter increased both year-on-year and sequentially. That was offset somewhat by fixed annuity and fixed index annuity volumes when we compare to the fourth quarter last year. Given market and rate conditions, we took pricing actions on fixed and fixed index annuities late last year and again in the first quarter. So the lower volumes are expected, and they're likely to continue in the months ahead. We've also initiated actions in our VA product line. We expect to come into the market later this year. That's subject to the regulatory approval process. Our long-standing approach to pricing discipline is intended to keep sales origination aligned to both our risk and our return hurdle rates. As regards to our in-force book, we haven't seen any notable changes to policyholder behavior or overall asset mix in the separate account book. A few words on sales activity. There's still no face-to-face meetings taking place in the U.S. between our wholesalers and financial advisers. At least, fortunately, Jackson is digitally capable across our product range, as are many of our distribution partners, and we're continuing to write new business through this period. Advisers -- financial advisers, along with our external wholesalers, are getting increasingly comfortable with digital and video engagement, and we've seen virtual client meeting counts increase meaningfully over the past several weeks as well as attendance in virtual events. Long term, this creates some potential cost and scale efficiency for us, but I think it's too soon right now to know exactly how that's going to play out. Overall, I'm very proud of the way our associates and the Jackson leadership team have worked through this extraordinarily demanding period. In closing, let me just highlight that it's during these periods of market stress and volatility that the value of our products and services best come to light. That's both for advisers and their clients. Jackson's ability to manage effectively through these periods, coupled with our leading distribution franchise, really means we're well positioned in the U.S. retirement market, I think, for the months and years to come. With that, let me turn it over to Nic.

Thank you, Michael, and good afternoon, good morning, everyone. I hope that you are all staying safe and healthy. PCA's efforts in the current volatile operating environment are focused on 3 key areas: one, ensuring the safety of our staff; two, meeting the needs of our customers; and three, digitizing our business model. For our staff, we put our business continuity plans into action as movement restrictions were enforced across our 15 markets, helping over 12,000 of our employees, excluding JVs, to work from home at literally the flick of a switch. At the peak, 80% of our staff work from home. Today, this figure is around 60%. We have also provided masks and sanitizers to ensure that those employees who are at work feel safe. For our customers, we have responded to the needs and concerns in multiple ways by offering in-force customers COVID-19 related cover and benefits across all our markets, by allowing grace periods on premium payments to enable customers in financial hardship to retain their valuable protection cover, and lastly, by innovating to provide bite-sized health products and by rolling out Pulse, our digital health services app in 8 markets and in 6 languages. Mike referenced our resilient first quarter sales and NBP performance outside Hong Kong and China. With the latter, in other words, NBP, up 23%, reflecting both the portfolio diversity and the demands of protection across these end markets. So mid-March, however, all our markets in addition to Hong Kong have imposed social restrictions. And even though China saw an easing and a return to growth in April at plus 28%, these developments will adversely impact our overall second quarter sales and NBP performance. In response to these growing restrictions, we accelerated our efforts to digitize our business model from front to back. By moving agent recruitment online, virtualizing the sales process so that agents can sell nonface-to-face, launching digital bite-sized products and Pulse and providing customers access to multiple electronic payment channels across all of our markets. As Mike said, 2/3 of our APE is now capable of being sold virtually while we recruited 40,000 new agents in the first quarter, up 11%. Complementing this capability 4 million Pulse downloads, which provide a rich source of leads and have enabled digital customer acquisition with 1.2 million [ micro ] Pulse directly the majority to new Prudential customers. Our China playbook, where rapid digitization and agent recruitment through February and March enabled the business to benefit strongly from the recovery we saw in April, gives me confidence with the improvement in our digital capability across the rest of our markets positions us well to benefit from the eventual ease out. So to conclude, the improvement in our sales capability will, over time, amplify the traditional strengths of PCA's business, mainly strong capital, low assets, high risks and higher customer retention to deliver sustainable, profitable growth. With that, I'll hand you back to Mike.

Thanks, Nic. So I think Maxine, if you would, please, let's open the session up to Q&A. So we maximize amount of time that you guys have today to ask any specific questions you may want. You know the breadth of the management team that's available to you here. So Q&A, please, Maxine, if we could.

[Operator Instructions] We have a question from John Hocking from Morgan Stanley.

I've got 3 questions, please, 2 on Jackson and 1 on PCA. So starting with Jackson. On the fixed-annuity products and fixed index annuity products to general account strategy, the objective you've got to tilt the mix all those products, does that still look sensible given what's going on with the yield curve and where the new business ROEs have presumably moved to despite the repricing? This is the first question. Second question, again, on Jackson. I think at the year-end, you made a comment that you'll be looking at spreading the dividend payments back to PLC through the year at Jackson rather than the usual annual payments. Can you comment when you expect to make the first payment? I mean, is that contingent on the solvency ratio improving at Jackson? And then finally, just on Singapore, it was in the set of markets you called out for so strong performance in Q1. I just wondered whether that's a market that's going to be particularly impacted in Q2, given that the lockdown is a little bit out of phase with the rest of Southeast Asia.

So Michael, do you want to do the first 2? And Nic handle the Singapore question, please.

Yes. Sure. So let me take the second one first. So the dividend remittance, I would actually -- I'm going to put back to Mark Fitzpatrick as it's a function of group policy. And I'm not sure we're going to comment on that, but I'll let Mark Fitzpatrick. I think that's more appropriate that he handle that. On the general account strategy in the FA and FAA I think it's an important point that something we've heard a lot in investor meetings. Let me -- a couple of things. One is with the strategy we talked about last year still holds, right? This idea of additional capital into Jackson against diverse risk to realize covariance benefit is important. But we've said all along that the organic ability to move that in the short-term is somewhat limited, principally given the size of our installed VA book and how well that's performed through markets. And that's true even given the correction in market values we've seen. In the current environment, and we did move last year, I mean, we had, I think, pretty good success of establishing additional distribution platform relationships and actual sales on fixed annuity and fixed index product. In terms of the first quarter activity and pricing and sort of a drop in those volumes now, I wouldn't read too much into that. One is while rates have come down and the treasuries have come down, corporate spreads have widened, too. And so we're comfortable with the business that we've written during this time and particularly in the first quarter. I think, going forward, in the short term, at rates where they are and as well as looking at the capital position and the capital required to put up those products, we're expecting to see lower levels, and be priced accordingly. But I don't think, long term, anything that we've said relative to that strategy has changed. I think, importantly, though, there's also a commercial element to this, which is that our clients and our distribution really want a more complete solution set for their clients across the annuity platform spectrum. And so that includes fixed index. It includes the vial of products, which we're in process exploring, and VA as well, which is our traditional strength.

Mark, on dividend?

John, it's Mark here. So on dividend last year, we said that we would look to spread remittances over the course of the full year rather just taking them in the first half. And last year and traditionally, I think we've taken tender to take the dividends in June of the year. So that's why you don't see anything coming through in the first quarter. And I think you'll be able to get to see the cash flow disclosures and when we publish our interims in August. It's been an extraordinary quarter. And we're very mindful of where markets are at and look forward to be able to update you on level of remittances at the interim stage.

So Nic, on Singapore, please.

Thanks, Mike. So Singapore had a muted response to the COVID outbreak in the first quarter but the government just tightened up by introducing the circuit breaker measures on the 7th of April. In fact, these measures will last until the 1st of June at the earliest. Now as part of those measures, the -- any face-to-face solicitation by agents was prohibited. So agents, like everyone else, had to work from home. And whilst banks were allowed to open because of the slowdown in foot traffic, both UOB and SCB closed between 1/3 and half of their branches. So that's how severe the restrictions were and how severely it hit Singapore now. Immediately, from the 1st of April, we were able to launch all our products, every single one of our products, virtually, train all our agents. And they literally, from 1 April, were able to sell face-to-face. The virtual activity stepped up as agents were trained and became far more familiar with it. And so much so that, as of now, every sale that is made in Singapore is on a virtual basis. We rolled out the same technology to our bank partners, which is now also up and running. Now all this to say is because the measures were quite severe and came in on the 7th of April. Yes, the outlook for Singapore in the second quarter is more challenging until those circuit breakers restrictions are lifted. Now we're launching more products that are more bite size, easier to sell face-to-face. As I said, 1/3 of our agents did a virtual sale in April, and that number is increasing all the time. And having launched Pulse, which was the latest market in which to launch Pulse, that's producing a rich source of leads. I referenced that across the region. It's also true in Singapore, which we can sell to both directly online or refer to agency downstream.

We have a question from Kailesh Mistry from HSBC.

I wanted to follow-up on the virtual sales. So Nic, just to clarify, I think in the first wave of rules, virtual sales were only applied to existing customers, but not to new customers. Has this now been rolled out or have the regulations allowed this to be rolled out to new customers as well now? Second question is on Pulse. What type of product mix are you selling on that? Is it equivalent to product mix in the respective countries where it's being sold from a profitability and a quality perspective? And then lastly, just on the operating profit, 14% growth, is there a big sort of positive experience variance in there? Or is it significant? Because I guess, most of the competitors have been saying in the region that claims for other types of illnesses, et cetera, have fallen. So just a bit of color around the operating profit would be helpful to me.

Okay. No, the -- so new versus existing in the -- I think in nearly all the markets when virtual sales came in. And I can give you an answer by market, they were allowed for both new and existing products. So as I mentioned to John earlier, in Singapore, everything can be sold virtually both to new and existing. The same is true in Malaysia. The same is true in the Philippines, the same is true in Vietnam, the same is true in China. In Thailand, we can sell virtually face-to-face all products except linked. In Hong Kong, we can sell stand-alone protection products and qualifying the annuity plan virtually, but not products with an account value, which is what our evergreen table is. In Indonesia, we can sell products to new and existing customers, stand-alone protection, virtually, but not the linked product with the account value. So that's -- but as I said, we came in, it came in pretty much for new and existing everywhere. And the activity is picking up, as I said, in a number of these countries. Most of the sales, as we sit here today, are now done virtually. To your second question on Pulse, the products that we are currently offering are purely protection. And they are there, if you like, to establish a second relationship with a customer or with a user, but simply that may be for now has just downloaded the app and is using Babylon symptom checker health assessment, using the telemedicine. So what we're doing is that we're pushing small -- limited-duration products, whether it's personal accident, whether it's a family fever-type product, whether it's short-term life, whether it's sort of COVID cover in case you're diagnosed or hospitalized. Those are the products that we're selling, some of them are done in a premium basis, others are done on very low case size. But as I said, at this point, it's just to establish a second relationship before we can -- we could -- before we can offer either higher size products or indeed ultimately refer them to either an off-line or a virtual sale to one of our agents. And on the operating profit question, I mean, there was some extra benefit coming through from a lower normal, if you like, claims count, not significantly. So it wasn't until March that we saw across our portfolio a 15% reduction in the medical claims count relative to a normal run rate that stepped up further in April. We saw a reduction in the claim count in April by -- across our portfolio by around 30%. So there is some effect, but not that significant in the Q1 earnings. In the meantime, the claims that we pay for COVID cases are continuing to be minimum, a few million dollars.

We have a question from Blair Stewart from Bank of America.

A couple of questions from me as well. Just coming back to the U.S., I just wonder if you can comment on the conflict between sales growth and preserving cash and capital. I was slightly surprised to see the VA sales up in the quarter. And added to that, could you maybe comment on the new VA product that you filed? How is that different? Second question in the U.S. would be linked to hedging costs. You've reported, I think, a $500 million incremental hedge spend over the last few years. I just wonder if the run rate of that has maintained at the same level or if it has changed. And thirdly, could you perhaps talk about Thailand, if you saw this as an opportunity? What does the acquisition do to your scale and ambition in Thailand?

So I think, Michael, why don't you talk about sales and Axel, let's put you to work, while we got you on the call as well on hedge costs and the normal tension that exists in the capital deployed by product type versus sales growth. And then Nic, kind of a quick overview on what we like about Thailand and why we keep expanding that.

Yes. So, Blair, thanks for the question. So sales, not sure I totally followed the question relative to capital relative to VA. VA tends not to have a lower capital drag and the increase in VA sales in the first quarter really followed the momentum that we saw through the balance of last year. So it was built on an increase. And so the quarter-on-quarter versus first quarter a year ago, which was at very, very low levels, historically built up throughout last year. And we just saw a continuation of that in -- through March. And clearly, by the middle of March, we started to see new activity tail off as the country went into lockdown. We suggested that, that's going to continue, and we expect lower levels, particularly in the second quarter and for some time. But there was still a backlog of pending cases and work to do. That was cleared through March and the beginning part of April. On the capital side, I mean, that's the issue, particularly around the spread business and on FA and fixed index annuity. And as we ramped up, you'll recall last year, we introduced new product and distribution partners on the fixed annuity, midyear and fixed index in January, February, and those volumes built throughout the year peaking really in our third quarter. So the second half of the year in fixed and fixed index was much greater than the first half of the year. We saw a tapering of that. In the -- last year, and you saw it in the full year results, there is a capital drag on new business. And I think we talked about it in the call earlier this year, that drag is greater in the first year when you're writing higher levels of business. There's a look back. One of the capital charges is adjusted up if you're writing more of the business type than you had previously. So as you would anniversary those levels of higher activity, you would have less of that incremental capital drag. We're not -- when you compare first quarter this year to last year, we're still at higher volumes than were we were, so that look back is still in there. And so we pay attention to not just the profitability on that, but the capital component, too, given where RBC and our current capital position is as well. In terms of the new VA product that we've filed, we haven't -- maybe I misspoke earlier in my comments, but we're filing -- we need to file product changes, certain product changes through the regulatory process, mostly with the SEC for product change on the VA relative to security. And so those are -- I think those are actually going in within the next -- if they haven't gone in already within the next day or so. So it takes time for them to run through. But once they're filed and become public, they'll become public. I want to turn -- Axel, maybe you want to talk about the reference to the incremental spend that we did last year and where sort of hedging costs are right now?

Yes, sure. Blair, this is Axel. So yes, on the hedge cost question, I would say that, yes, the first quarter was clearly more volatile quarter, the price for things like equity options or anything that's an option related derivative was elevated. So incrementally, we did spend a little more on that. I would say, offsetting that or as a counterpoint to that, we really entered the period at the end of the year with a significant option book already on the balance sheet. So as the -- as the quarter occur and as the markets started to trade down, essentially, a lot of our options book became in the money. So we saw lot of gains, obviously, on the derivatives and a lot of actual hedge payoffs with derivatives maturing. And then the underlying exposure on the liability really became a lot more linear. So the -- we were able to -- the incremental hedging was more in the form of futures rather than options. Nonetheless, yes, this was a quarter where hedge costs were more elevated than normal. Again, we price for this very conservatively. And then we assess the hedge cost over a long period of time over the life of the product. And we're still comfortable with what we're seeing there.

Right, specifically to the $500 million that we referenced last year, I think that was very specific to issues related to moving between regimes and obviously moving between regimes at a time when rates were volatile. If we go back to -- remember back to August, September, last year or what -- at least what we thought was volatile and large swings in rates and equities at the time, not what we've seen, obviously, in March of this year but...

But I think incremental hedge spend to protect capital has been at $500 million for the last 3 years, Michael?

Yes. I don't have a quantification of -- on the comparable basis of where that is.

Okay. So Thailand is a market where historically, we've been underweight, both on the asset management side. In fact, we're not present there. And also on the life side, we've also -- we've had a share of somewhere between 3% and 4% now. For one of the -- for a market, which is ASEAN's second largest economy, 70 million people, a market where the demand for savings and investments is growing -- has grown and will continue to grow at a double-digit rate. This was a gap. This was a gap in our business, which is what we've invested to address over the last few years, firstly, by acquiring controlling states in 2 fund managers, which gives us based on the year-end stats around 12% of the retail AUM in that market. And we've cemented that by partnering with TMB to also serve the customers with traditional health protection and savings in our products. Now TMB, following its merger with Thanachart, will be one of the largest banks there. Importantly, they look after 17% of the country's adult population. So it's a serious relationship we now have in place with a bank that is very ambitious, very digitally minded. And what it offers us and what I like about this particular deal is the opportunity to actually bring both sides or the strengths of both sides of our house, both the asset management and the life part of our house, bring those on in a combined way to a single partner, which we don't do that in any of the key partnerships that we have. That's going to be very, very powerful. Look, it has the potential on the life side, once we're up and running and we'll be exclusive with the entire TMB franchise from 1 January next year, but it will give us the opportunity to make much faster progress in a very important market. And hopefully go from a position that we've been, as I said, a 3% to 4% market share position, closer to 10%. So -- and again, it's a great opportunity and one that we were delighted to secure in March.

We have a question from Andrew Crean from Autonomous.

Three questions, if I can. Firstly, could you give us a bit more on second quarter outlook for the non-Hong Kong, China business? Because I know it grew 1% in the first quarter. Can you -- there's a lot of markets there. It's very difficult for us to get an assessment. Can you give us a broad feel for how that slightly developed in the second quarter? Secondly, could you also talk in terms of the IPO would -- is the current U.S. balance sheet strong enough for an IPO in your view? Or you may need to strengthen it to put that through? And then thirdly, Mike, you made comments on the 24th of March, which was slightly changed, I think, from the messaging prior. You said you're still pursuing your minority IPO. But if you look at other avenues. Could you talk a bit more about that, in particular, taking in whether the other avenues are still limited by a minority position or whether you would entertain ideas for majority sale?

So Nic, do you want to take the -- just the general, very general feel about Hong Kong with Mainland China coming back online? And then I will address the other 2.

Okay. So Andrew, I think you were asking about the markets outside China and Hong Kong, right?

Yes.

Oh, I'm sorry, Andrew, I thought you're asking Mainland China, apologies.

So I mean, just let me give you a color about what happened in Q1 and then to address your point in relation to the near-term outlook. So we did see an imposition of movement restrictions. We talked earlier in my answer about Singapore it was 7th of April, in Malaysia it was on the 20th of March, and Indonesia it was also around that time as well. So -- or in early April. So we saw an imposition of movement restrictions in pretty much all the markets outside China and Hong Kong. And that started from mid-March and they tightened as we go into April. Then for those markets that started being affected from mid-March, we kind of arrested the double-digit momentum that we have up until that point. Now all of the businesses, and I'll talk to in detail to Singapore but I could have said the same thing about all of them, the business has pivoted very quickly to the virtual sales tools and I said, 100% of the products to new and existing customers are now available virtually in Singapore, Malaysia, Philippines, Vietnam, India, and actually, recruitment moved online everywhere. And agency hires were up 20% in all these markets, ex Hong Kong and China in March and 13% in April. So the virtual tools are allowing us to build out further our distribution. All these businesses also doubled down on the quality focus. So I mean, you don't see it in the numbers, but behind the 1% increase in the APE in Q1 was a 19% increase in health and protection, moving the mix of health and protection in ex Hong Kong China markets from mid-20s to low 30s. We've had several launches of new protection stand-alone protection propositions during the first quarter and then into April and May, which is really the reason why the NBV is much better at plus 23% in Q1, with 5 market double digit. Now yes, the near-term outlook is challenged as restrictions were in place pretty much everywhere through April. As we sit here today, it's only Vietnam and Taiwan have eased. A couple more, Malaysia, Thailand, will start maybe even later May, but Singapore, Indonesia easing won't happen and India easing won't happen until June. But if you like, the 1Q performance just shows what the power of this franchise is, if you like, in a period, which is mostly or totally undisturbed. So that hasn't gone away. And everything that we've done since the lockdown, be it moving to more digitally enable the business when it comes to agent onboarding and customer onboarding. The broadest suite of products that we're now launching that have -- that are more -- that have a higher protection focus and on a stand-alone basis, the 3.7 million Pulse downloads across these markets that we've had, again, provide a rich vein of customer leads, as I said earlier in my prepared remarks and also give us the ability to position in direct-to-consumer in some of the central products. All of these will make it even better when we have a return to normality. And I know you haven't asked about China, but China effectively sets the template. China did everything that I've described for the markets that we've just been talking about. They went virtual, the innovated on product, they -- and then when things eased up, we saw a recovery of sales in margin, a 28% growth in April. So that is the template for all these -- for these other markets, and we're using the same playbook as China did in all of them.

Yes, great. I suppose what I was after a number, the plus 28% to the non-China, Hong Kong.

No. No, the 28% was the -- sorry, just to be clear. I flipped to talking about the -- in making the point that I see no reason why we can't follow the same playbook in these markets as we did in China, and I used the China growth in April of 28% to illustrate kind of the power. The power of our franchise with all these additional strengths in place when normality returns.

Yes. Nic, I was simply asking the question, what is the equivalent number in outside China and Hong Kong to the plus 28%, which you gave us for China in April.

It's much more challenged, Andrew, because we're in lockdown. In the same way as China was in February.

And the number?

Yes, listen, let's complete this Q1 metrics for now, please. It's -- we're not trying to give a monthly update. So Andrew, on the U.S. piece, just one other dimension on the success the teams had in Asia, particularly Southeast Asia, we already had this working in China, but we've seen a really strong pickup in the digital payment, automated payments. As you can imagine, as these transactions get more digital, they look much more like our Mainland business where using digital payment technology away from cash, which is a trend we've been managing for years, but it's had a nice pickup in the quarter as well. So again, the number varies by market. It's -- but it's -- the consumer behavior is changing, and that's one of the elements. And then in the Pulse technology in most of the markets, there is a digital payment capability or sometimes more than one and this also gives us the ability in some of the markets to do digital claims. And again, these sorts of things are what we think will stick as consumer preferences for some part of the market post this current COVID environment. So it's a great pickup and capability. I think it's better quality business when it comes in on cash and in terms of persistency and all good things. And the questions on the U.S. So I know this is a frustrating answer from the full year, but I'll give you a fairly similar one. We can't -- given where we are in SEC rules, we can't and aren't going to comment on timing or options and things in the U.S. The reason I can't tell you where we get to the broader answer is we weren't going to prejudge the outcomes on what's the fastest or best path to an independent Jackson. And so there are -- there's obviously public and private sources of capital, there's different routes to market, and we've been very clear that nothing is off the table. And I can be very clear here, this is when we talk about working on our strategic objectives, we continue with this at pace. So that's not a -- but I can't give you specifics on that one. I know that's frustrating, but we've got to be clear that we're inside of the lines based on what sort of choice we make up we're going to do something with a public filing. We can't talk about it ahead of time.

We have a question from David Motemaden from Evercore.

Just a few questions, if I could, on the U.S. capital levels. First, I guess, could you just talk about the moving pieces for the RBC ratio, where you said at March 24 that it was broadly similar to the 366% at year-end '19. When I look at where it shook out this quarter, that it included about a 25-point benefit from the CARES Act, and that would have put it at 315% to 340%, which is quite below the 366% level when you guys put out that March 24 press release. Just wondering what the driver was for the drop versus -- between March 24 and Q1, if I strip out the tax benefit from the CARES Act. Second, just a more technical question, maybe for Axel on just hedging the VA book. And I know a couple of years ago, you guys have started to move to buy treasuries to hedge your interest rates on the book, which a few of your U.S. peers have done this, too. That, I guess, there would be a -- I would assume if you did this, there was a pretty big mark-to-market gain that would not be reflected in the RBC ratio. So I'm hoping if you could sort of size that for us and so we could get a sense for how much the RBC ratio would have benefited if that gain was realized. And then just lastly for Michael, just a follow-up on the fixed index annuity sales and sort of the outlook there. Just a question in terms of just wondering how much of capital does a dollar of fixed index annuity sales consume just to help us think about what sort of tailwind to capital generation that could be as we progress through the year.

Yes. So, Michael, do you want to start the framing and then Axel?

Yes, I was going to frame and then have Axel talk to the specifics, I can come back and finish on the FAA outlook. So the -- look, we're giving ranges on the RBC because these are estimates. We only calculate this number officially once a year actually through the NAIC software. We're obviously -- we obviously monitor estimates and model it much more frequently than that. And we've done the reporting in the RNS on the 24th and the -- now relative to end of the quarter, given the sort of extraordinary events that we've been through, particularly in the month of March and then markets are currently experiencing. So there's lots of puts and takes to that number. I would say the biggest impacts that we've seen, and there were changes certainly even in the last week of March, if you think back. You had equities climbing, you had rates moving, you had credit spreads coming back in. There's a number of factors. So you can look at the benefit computation from the movement in the CARES Act application as of the end of the quarter. That's certainly one of the elements, but there's a lot of other components there. And I think what we're trying to show is the range and the relative stability to where we were at year-end and give some indication of the progression of that. I think one of the important things, and I -- we have this in the release, and I highlighted it in my comments earlier, we did see additional statutory capital generation as you would expect, and as you would hope, I guess, during the period. So we're pleased with the way the hedging program is designed and performed in a particularly stressful environment. We saw peak to trough 30% declines. We saw in the quarter, I think, 25% decline in S&P or 20% or 25% S&P, 125 basis point drop in rates, the shortest corrections, I think, in both rates and equities that we've ever seen in those markets. And we saw a statutory capital generation, and we saw capital generation in excess of what we saw in the increase in required capital based on the model. And so those dynamics are holding and ultimately, that sort of, I think, the basis behind the disclosure today. I'll let Axel -- Axel, why don't you comment on that or add to it or correct me if I'm off base, but also the question on the VA book.

Yes. Sure. No, I think you summed it up well, Michael. There's various moving pieces, but obviously, the big ones are equity, interest rates and credit spreads. On the treasuries, so yes, the treasuries are -- they're part of the overall general account. They're part of our overall A&M strategy. They play and they play a role, therefore, in the way that we think about the VA economic risk. Yes, it's absolutely logical to think that those bonds are in high gain positions currently. And rather than talk about a specific number, I would just point you to the blue books that are due to come out shortly to public right now. And so the numbers are there.

And on the SA outlook, I don't know exactly how to tell you to direct you in terms of information that we release on how to direct the FAA outlook for the year other than to say that we expect -- you saw what the volumes were in the guidance that we've given in the first quarter and that the outlook, at least currently, given levels of activity and where we move the pricing to the book, we would expect lower levels of FIA and FA origination to continue for some time. Order of magnitude, I think -- as I think back to last year in a broad range, a significant portion of the capital drag on new spread origination was due to the increase in volumes year-over-year, maybe plus or minus half of that, depending on how you look at it. But it remains to be seen where rates move and how markets recover in the second half of the year. Markets meaning like sales activity recovers. We're already seeing a pickup in adviser interaction with our external wholesalers and a level of engagement with end client. In past cycles, it's taken 60 to 90 days to up to 6 months, if we go back to the financial crisis to see field sales activity levels normalize. Again, I wouldn't point on the fixed index and fixed annuity book. Certainly, the absolute level of treasury rates are important, but the investment rates, new money rates and corporate spreads figure that in as well. So we have a decline of treasuries of 125 basis points and a widening of corporate spreads of 150, which we had, you still have expansion of the underlying return, and that has an impact on rate profitability of the book as well. So again, we're trying to be realistic, given the environment we're in, in terms of COVID-19 and both market and commercial activity, but I wouldn't read too much across on the FIA piece, like any one piece in particular.

Great. Okay. And if I could just follow-up -- if I could just follow-up with Axel, just on just wondering if you'd be willing to share the dollar amount of treasuries that you use to hedge the VA book because I think that could be a pretty big benefit depending on the size of it, that is not reflected in your RBC ratio.

David, it's Mike Wells. It is. But it's -- for those of you that I know you're familiar, for those of you that aren't fans of U.S. statutory accounting, the gains we have to -- even if we sold all the treasuries, they have to be amortized over their life effectively to come back into capital. But you're right, the economic value is absolutely there. And given the 20-plus year commitment to these consumers, again, with their investment first, and they're very effective hedge on particularly GMWB withdrawal benefit. But it's a -- when you see the blue books, you can get a good idea of the percentage and the values. And it's pretty easy to market, especially to market, but I think that's it. The other question, David, you asked on capital strain by product. If you just want some general categories, I mean, vary by feature on the product, but think of VA somewhere around 2% to 3% regulatory capital, fixed index somewhere in the 5% to 7% and then the fixed somewhere between 7% to 9%, again, depending on structure, duration, other nature, that as an industry would be without getting into our pricing model. So that would be sort of industry trends. So the more rigid the rate guarantee, the more explicit the -- the higher the capital requirement by the U.S. regulators.

Mike, we've got a few minutes left. I think we've just got space for a couple of more calls from the -- on the conference call. There are no messages from the online. So back to the operator for Scott, please.

We have question from Scott Russell from Macquarie.

Just 2 questions, please. Firstly, on Hong Kong, the sales having halved in the first quarter, that obviously makes earning income for an agent difficult, can you -- how does the agent team holding together in Hong Kong, particularly perhaps those agents who are mainlanders who have joined very recently and may not have that trail commission coming through yet. Second question is just about dividends and remittances. Obviously, banks have been told by regulators to exercise caution around dividend. Just wondering to what extent your regulators across the world are perhaps paying closer your attention to your dividend and remittance decisions at present.

So Scott -- Scott, appreciate the questions. Let me pivot to Mark FitzPatrick first for the dividend. And then, Nic, if you want to talk about Hong Kong a little bit. But -- so Scott, obviously, now as of this year, our regulators, our lead regulator is Hong Kong, not the U.K. So -- and the regulatory college, let's say that collectively, but Mark, you want to -- Mark actually again you too, but let Mark FitzPatrick, why don't you start?

Scott, so in terms of the international regulators we have around the group, the only one has come up publicly and said anything around remittances is in India, where the authorities effectively said no remittances for effectively the sector for the majority of this year. The other regulators, as you would expect, we are in regular contact with them. And the Hong Kong Insurance Authority is our group-wide supervisor has not said anything publicly about any levels of remittances, pointing out that remittances are for the company and the Board to determine provided they have the appropriate solvency and liquidity to be able to pay them out.

And Nic, please, on Hong Kong agent recruiting, retention, rookie versus a veteran, just a little color on where all that sales were bolstered, that sort of thing.

Sure. I mean, I think, yes, the -- I mean the veterans have trail commissions. And that is sustaining the amount of period where sales are not as high. I mean, clearly, within a 24,500 agency force, you have people that are more full time. And those are still selling. I mean, they are selling. In fact, the top end of the agency force is selling almost some level of case counts even through this crisis. Where we're seeing kind of lower activities in the more part-time agents. And I guess the reason the part-time, in fact the reason they are part-time is because they are selling products as a supplement to their income as opposed to the source of income. So there's a lot of activity that is taking place to ensure that the agents complete all their CPD requirements now whilst demand is lower, so that actually they can spend lot of their time once the situation is well in the rest of the year to sell, getting them to update the client profiles again so they can upsell to clients. We have a lot of activity where they're not able to sell. In terms of recruitment, actually, the run rate of agent recruitment in the first quarter of last year, is about 500 a month. We actually recruited 600 in January, and then it got to around 350 a month, but it's only 15% down, but attrition is down by 1/3. So our agency count in Hong Kong is 11% up on what it was this time last year. So people are coming in like ourselves. We believe that once normality returns the demand will be there, both from mainly domestic, but also the Mainland China market. And the other thing, of course, that we can now do that we weren't able to do before is having launched Pulse in Hong Kong, in -- towards the end of March. We have 400,000 users and 48% of those are new customers, and we've already started the process. And these are more domestic customers of China and those leads to agents and looking to deepen our relationship with those customers beyond being a Pulse user.

So Mike, we're up to time now?

Yes. I think so too, Patrick. All right, everybody, well, one, I want to tell everyone, thank you for your time, and I hope everyone is safe and functioning well as best they can in this current situation. I know it's changed a lot of work styles. I hope what you hear in this and the reason we wanted to continue to give you updates on how the business is doing is -- the business is shifting. I think it's showing its agility. I mean some of our investment in the tech now is clear. I mean we could -- you can't talk about Pulse and digital and online without having the ability to digitally process and handle digital currencies and the scalability now of our platforms and our capabilities, I think, are very unique in our history, and you're seeing that play out in a very stressed environment. I think we've referenced a couple of times earlier on the call, regardless of the shape of recovery of this pandemic, we think some of these consumer behaviors stay with the -- some of the scalability, some of it's convenience, some of it's aged clients. But the idea that all of our sales, if you think of the -- one of our agent said to me the other day, that he's gone from business in home, business in an office to business in a Starbucks and now business on a interactive screen on Zoom or Microsoft teams. Those are consumer preference changes as much as they are sort of prerequisites for us to be able to stay with that and have the capability to execute, however that client wants to do business with us. So those things are all happening at pace. The earnings, as we've said, it is important to shift to health and protection. It's important to shift to recurring earnings. You see those recurring earnings and retention rates in the high 90s on the retention rate and the earnings falling from that. So strategically, the -- I think we're very well positioned to deal with whatever shape this comes. The shape of -- and the size of this cohort of profitable new sales and client relationships is hard to determine because that's dependent on the next few quarters or however long the normality bakes in whatever shape it comes in, but that doesn't affect the overall profitability of the business as much as we've shown in the various presentations over the last few years. It defines one increment, one vintage, if you will. So consumer behavior is not changing, policyholder behavior in U.S., Asia, again, sort of as expected. And so there is a lot of disruption, but there's a lot of what we built for playing out here and working as we expected. So I just want to thank everybody for their time. We're going to keep giving you updates on things that we think are material, some requiring aren't as some more informal, just so you can get a scale of -- you get some feedback on how -- I think formally and informally on how some of the things we're doing are shaping. And we'll just keep those coming as we think the information needs to be in the market. So I appreciate everyone's time and attention, support, and thanks for joining us today. Maxine, it is back to you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect your lines.