Prudential plc (PRU) Earnings Call Transcript & Summary

Good morning, and welcome to the Prudential Half Year Results 2024 live Q&A session. My name is Adam, and I will be your operator today. [Operator Instructions] I will now hand the floor to Patrick Bowes, Chief of Investor Relations to begin. So Patrick. Please go ahead, when you're ready.

Thank you, Adam, and good morning, good afternoon, everyone. Thank you for joining us. I'm delighted. I'm joined by our CFO and CEO. And I'll pass over to Anil to give us some opening remarks.

Thank you, Patrick. Good morning, and good evening, everyone. A very warm welcome to our results call. I'm Anil Wadhwani, CEO of Prudential Plc, and I'm delighted to provide you with an update on our first half 2024 results. Building on last year's exceptional growth of 47%, our new business profit for the first half grew by 8% to $1.5 billion, excluding economic effects. This growth was both high quality as well as well-diversified. We improved our new business profit margin through product and repricing actions and reported an encouraging 9% growth in operating profits supported by our large and growing in-force portfolio. Our gross operating free surplus generation was very much in line with what we had expected. We continue to focus on cash returns to shareholders following the $2 billion buyback program, which we launched in the month of June. We are pleased to announce our first interim dividend for 2024 of $188 million, up 9%, which aligns with our dividend policy and previous guidance. We are 1 year into our 5-year strategy, and we are seeing encouraging early results from our capability investments as well as disciplined management of financial and operational performance. Let me start by sharing a few illustrations of where we are seeing operational improvements. Starting with customer. We successfully launched our enhanced customer digital platform PRUServices, building in self-service capabilities and other enhancements. We have seen improved customer registrations and satisfaction and now plan to deploy this in 9 markets over the next 12 months. We have focused on driving quality agency through strategic recruitment, training and lead generation, empowered by our agency digital platform PRUForce, which has now a 90% adoption rate amongst our active agents. Going forward, one of our primary focus will be to encourage and drive greater module usage with our agents. Our Bancassurance business continues to provide us the balance in our channel mix. We are encouraged by the momentum in the first half and are focused on driving further increases in our share of health and protection mix. In health, we have implemented a new operating model to improve the quality of our front and back book. We have launched new propositions while undertaking disciplined regulary pricing and claims management. And while we are seeing progress across our pillars and enablers, at the same time, I believe we are more effectively identifying issues and taking hard decisions where they are required to ensure we are generating high-quality, sustainable growth that will convert into operating free surplus over a period of time. In Malaysia, we were surprised and deeply disappointed with the Federal Court decision to overturn to previous judgments in our favor at the High Court and Court of Appeal, we have now received the seal order and are evaluating our options. You will appreciate we cannot say more at this stage. For the full year 2024, we continue to expect new business profit growth at a rate consistent with the trajectory needed to meet our 2027 new business profit objective. Our confidence is supported by several key factors. Firstly, we delivered 8% growth in new business profit in the first half of 2024 on the top of 47% achieved in 2023 while increasing our margins. Second, we have seen pickup in sales momentum in June and coming into the start of the second half as the base effects of the first half of 2023 comparators start to ease. And third, the momentum is broad-based and diversified across markets as well as across our 2 channels of agency and bancassurance. Looking further ahead, we remain confident in achieving our 2027 strategic and financial objectives given the encouraging early results from our capability build and the actions we are taking to drive high-quality sustainable growth and cash generation. Joining me on the call is Ben Bulmer, our CFO, Lilian Ng, who is responsible for Greater China; Dennis Tan, who looks after Singapore, Vietnam and Thailand; Solmaz Altin, who looks after our other ASEAN markets alongside India and Africa; and Bill Maldonado, who is our CEO for Eastspring. I would also like to take this opportunity to thank Lillian Ng, given her decision to retire. Lillian has been a veteran of the insurance industry and within Prudential with significant personal contribution to building our Asia franchise to what it is today. Lilian has played a pivotal role in building our multi-distribution platform and championed transformative growth strategies into our businesses. In October, we will welcome Angel Ng to Prudential lead Greater China Wealth and Customer. Angel's operational experience in managing businesses and relationships in Greater China, plus her knowledge of distribution and wealth will be strong additions to our leadership team. Additionally, I also look forward to onboarding our new Chief Agency Officer next month. Pankaj Banerjee is returning to Prudential, and will be reporting to Solmaz to drive our agency strategy forward. On that note, I'll now hand it over to our CFO, Ben Bulmer, for his comments. Ben?

Thanks, Anil, and hello, everyone. Look, there are, of course, the usual slides, transcripts and videos covering details of the results on our website. So I'm just going to limit my comments to the following 3 points. Firstly, as I've said before, continuing to grow profitable, high-quality new business is key to our 2022 to 2027 NBP objective and our 2027 gross operating free surplus objective. The other building blocks of our gross OFSG objective include our asset management profits and the elimination of adverse operating variances. We have made material progress over the first half. In particular, I'd like to flag the contribution of new business added in the first half of 2024 to the level of expected OFSG in 2027, and that's up 12% ahead of the 6% growth in new sales. Now those jaws will accelerate as we move through the remainder of the year as the full effect of the pricing actions taken only at the beginning of the second quarter start to emerge. I expect our actions to increase the rate of OFSG in relation to APE added in 2024 to be far more comparable to 2022 levels. These new business pricing actions, coupled with our ongoing efforts to return to positive net variances, growth in asset management and our ambitions for agency and health, of course, give us continued confidence in reaching our 2027 objectives. Secondly, our balance sheet remains in very good shape with a robust capital position and sufficient flexibility. We've continued to deploy capital in line with the high-return allocation priorities we've set out investing in high-quality new business, enhancing our capabilities. And as Anil mentioned, at the end of June, announcing a $2 billion share buyback. To date, we've invested $230 million in our $1 billion program to enhance our capabilities. Over time, these investments will drive improved consistency of execution, increase productivity, improve customer experience and increase operational efficiency, all of which aim to accelerate sustainable value creation. Finally, as I mentioned in March, having completed the IFRS 17 project, we've been actively considering converting to traditional embedded value or TEV. We will do so from our first quarter 2025 business update. And I believe that the move to TEV will enhance the transparency of underlying growth trends and allow greater comparability with our Asia peers. This is, of course, an accounting change. It doesn't affect the economics or actual cash flows earned by the business and is substantially about discounting. Consequently, of course, it goes to follow. There's no change in business strategy. Definitions of free surplus, capital management or our dividend policy. There is also no change to our NBP growth objective, which remains a compound growth rate of 15% to 20% between 2022 and 2027. On a TEV basis, the implied 2027 NBP objective range is $3.4 billion to $4.2 billion. Finally, our 2027 capital generation objective of gross OFSG of above $4.4 billion is unchanged. Back to you, Patrick, to run the proceedings.

Thank you, Ben. Thank you, Anil. Okay. Adam, over to you to run the Q&A session.

[Operator Instructions] Our first question comes from Kailesh Mistry from HSBC.

A couple of questions and then a couple of clarifications. I guess first thing is on Mainland China. I think there's a comment in the release that said that you saw growth second quarter, '24 over second '23. Could you just provide a little bit color on the level of growth of new business as well as which distribution channels and products? Secondly, just on Hong Kong, on the MCV business. Just a little bit more color on the movement in the MCV new business? I appreciate it was down 15%, but I think some of this was average [ cape ] sizes being down at least I think of around 15%. So is that the main driver? And also how does the product mix compare with the second half of last year? And are there any signs going into the second half of '24 of the trends continuing, if that makes sense. And then just 2 clarifications. On the new business outlook for 2024, is that ambition excluding economics or after economic effects? And on Slide 23, on Ben's comments, should we assume new business, OFSG as a proportion of APE at 4.3% going forward? Or do you expect to increase it from 4.3% going forward?

Thanks, Kailesh, and good to hear from you. So let me kick it off with Mainland China. I will then go to MCV, and then I'll have Ben offer his comments on both the ambition on an ex economics basis as well as your last question around the 4.3% ratio. So let me start with CPL first. So the way we saw the CPL business last year basically informed the decisions to drive a different product mix, and as I had mentioned on several of the previous calls, that we made certain preemptive actions or we took some preemptive actions on repricing to drive a different product mix. And as we closed out last year, got into the first half of this year, Kailesh, we did see the product mix shift. We saw greater longer-term savings, greater power as well as greater health and protection. Now on account of the base impact of the first half of '23 versus '24, we had anticipated that the growth coming into this year in China Mainland will be tough. But as we've turned into the second half of the year, we are seeing growth return back to our China Mainland business. And I do want to emphasize that the steps that we have taken on account of driving a different product mix is now yielding a significant margin improvement both in agency as well as in our Bancassurance business. So we remain cautiously optimistic, both on the emphasis that we are driving on quality, but also ensuring that we are driving productivity improvements, both with our banker channel partners as well as with our agency. To your second question on MCV. So you're right. And again, I would like you to go back to when the borders opened between Hong Kong and Chinese Mainland and we did see a surge of pent-up demand and specifically coming through in the months of March, April and May, where we saw the ticket size improve quite significantly. It started to normalize at around about the 18,000 levels, in the USD 18,000 levels I must clarify in the second half of last year. And as we transition, Kailesh, to this year, that ticket size has very much held up. The way we are seeing the momentum in MCV is the traffic is now stabilizing at about $2.6 million to $2.7 million. And if you look at the number of products or number of cases that are sold to customers, they are roughly about 10 for every 1,000. So I think the opportunity for us is to be able to drive greater penetration while we see the ticket sizes in MCV stabilizing. I also would want to emphasize that when we speak to our MCV customers, the demand for the Hong Kong health infrastructure as well as the products that we offer in Hong Kong continues to remain undiminished. And that gives us the confidence to be able to drive growth in the MCV segment as we go through 2024. In terms of the next 2 questions, I will turn to Ben both on the ex economics and the 4.3%.

Yes. Kailesh, so briefly in terms of outlook, yes, absolutely, it's on an ex economics basis. On your question that refers to Slide 23, look, pleased with the pricing and product actions we've taken in the first half of the year. As I've mentioned in my opening, that was around about the beginning of 2Q. So the 12% growth rate I referenced in '22 will accelerate as we move through the year. Look, we -- I am determined to drive capital generation velocity across the business, be that through mix, through pricing, through scale benefits. So we will continue to look at opportunities to increase the number. I think for '24, we're going to get to a broadly comparable level of 2022, but by no means rest on those laurels.

The next question comes from Larissa Van Deventer from Barclays.

Three quick ones, if I may. The first one, can you provide the split on health and protection versus savings. You made comments in your presentation, but can you give us more color on the split, both in new business sales and new business profit and how you expect that to evolve? And the second one, could you please give us an update on the spend on the USD 1 billion? How far you are? And how we should think about that being deployed and for the rest of this year? And third question on -- you recently published a China regulatory return. Can you help us understand how you think about capital requirements in China and how [ capital ] that business may be in the coming year, please?

Thank you for your questions. Let me start. Firstly, to address the $1 billion question, and then I will flip to Ben to talk about the health and protection mix specifically and the improvements that we are seeing there and we will also address then the China question. In terms of the $1 billion spend, as of date, we have spent $230 million. So we had indicated last year that our spend was in the region of $130 million. So we've added about $100 million to that. As we go through the second half of the year, our expectation is that we would invest another about $150 million to $200 million. And as we transition to 2025, the expectation is that the investment will range roughly in the region of about $250 million to $300 million. I think what is equally important is that we are focused on accelerating the execution of the growth drivers. And what I mean by that is investing in the quality of our agency through strategic recruitment program by generating greater activity for our agents as well as reskilling our agents to drive greater share of health and protection. We already are seeing some great momentum on bancassurance and something that we intend to build. We continue to believe that it provides us the balance between bancassurance and agency, something that we like. We've already stood up the health vertical taking a number of initiatives around new propositions, repricing, use of technology to cut fraud waste and abuse and again, some good progress done there. And on customers, again, delighted with the progress that we made in launching our enhanced customer digital platform. So the early progress seems solid. And again, our focus is to continue to accelerate and replicate some of the best practices that we are getting across the markets of Asia and Africa. I'm going to now turn to Ben for the health and protection mix as well as the capital question.

So health and protection NBP was $545 million. So that grew 7% year-on-year. And just to give you a sense in terms of APE mix, stood at around 22%, in line with prior year. Demand for H&P remains strong. We actually had 14 of our markets record H&P, APE and NBP growth. So I hope that gives you a sense of the mix. I think what I'd add to that is, historically, I'm cognizant that mix has been a lot higher. I think there's opportunity for us as a group to increase this as we accelerate towards our 2027 objectives. And as you know, health is one of our important pillars. So as we do that, that should give a tailwind not only to margins but also to capital generation. In terms of your question on China, and I think this was around the reductions in CPL solvency. So we saw rate reductions in China in the first half of the year. The China business consequently has a lower FER and a lower RDR. And ultimately, the effect of that has been to reduce the net assets of the business. But subsequently, also the amount of future profits that can be counted as surplus into its solvency calculation. As you'd expect, the business is looking at actions to improve that solvency ratio on top of all of the activity around repricing and product mix shifts that it's been taking. It's also looking at bonus management and asset-related actions, all of which will take some time to effect. So consequently, it's likely later this year, we'll make another injection into the business. That possibility was always allowed for within our capital management plans. So no change to the group's broader capital management plans. I think stepping back, China is a very important market for us. We like the growth potential of the market, the economics of the new business we're writing and momentum is coming back for us. So both us and our partners are very much aligned in our support for the business through the cycle.

The next question comes from Farooq Hanif from JPMorgan.

Three questions. Starting with Slide 22, which shows the kind of the new business generation to your point that you target. It looks like in 2026, I know you're not trying to show the numbers in the chart, but it looks like in 2024, more than doubling the contribution than, let's say, in [ 2023 ] -- I think at 2024. Firstly, is that kind of widened is not going to depend on you introducing new products? Second question on traditional and better value. How will you deal with yield curve movements? I'm guessing the risk discount rate will be quite stable, but how often will you look to change over a function within that? And the third question is really around the health proposition. Can you give us an example of kind of what is different in this proposition that you're trying to introduce versus what you already do, maybe with some examples? And how close are you to thinking about launching health, for example, in new markets such as India?

Thanks for the question, Farooq, and good to hear from you. Let me start with the third question first on health, and I'm going to ask Solmaz who leads our health business to provide -- just comment, and then we'll go to the Slide 22 question and the TEV, if that's all right with you. So you're absolutely right. We called out health as one of our key pillars as we think about driving the 15% to 20% new business profit growth, but equally important, converting that and accelerating that growth to cash. We have now successfully stood up our Health vertical. We have a new CEO who has deep experience in health. And there are a number of initiatives that are on flight. And I alluded to that in my in my previous answer. So firstly, we are launching new value propositions across markets of Hong Kong, Indonesia and Malaysia. We've now introduced disciplined repricing both in Indonesia and Malaysia in addition to the disciplines that we already had in markets like Singapore and Hong Kong. And we are getting a lot more effective by cutting our fraud waste and abuse with the use of technology and really doubling down on claims management, as you would expect. I'm just going to stop there and turn to Solmaz, who may have some additional comments to offer.

Yes. Thank you, Anil, and thanks for the question. It is indeed that we are doing health differently than before and also differently than some of our peers. And you ask, for example, let me give you one example from Indonesia. It's important to note that in Indonesia, the medical inflation from half year '23 to half year '24 was 30%. That's way above the multiple of the normal consumer inflation. And this is nothing that is pertinent to only us. So the whole industry is reeling from the very high unexpected medical inflation on the back of post COVID and other matters. So we are meeting the market as a first one to introduce annual repricing in our medical book, for example. On top of that, we're introducing new propositions, as Anil mentioned, that have features like claims-based pricing. So we are going to manage that in order to reduce the blow to customers that are not claiming as much as those who are claiming more. So we are going to reprice according to the claims behavior. This is quite new work. And we are the second example of also introducing a Malaysia copay products, where customers can soften the increase in premium that we are going to, again, do annually in a repricing fashion, by choosing copay options that we're introducing in the market. So what we can say is we are seeing early success of that, which is exemplified, for example, by an increase of the health NBP margin by positive double digits half year '24 to half year '23. On your Asahi question, India, we continue to be very interested in the Asahi opportunity in India. We have seen over the last 5 years, 25% CAGR growth in the Health Insurance space, and we are continuing to evaluate organic opportunities to [ intend ] to that market.

Yes, I just wanted to be clear, Farooq, we are not going to go the inorganic route if we were to pursue that opportunity in India. And we have concluded that we will pursue that on an organic basis. And again, Solmaz and team are actively working on the same. I'm going to now turn to Ben, to specifically to your question on Slide 22 and on the TEV, RDR.

Thanks. So why don't I start with TEV. So the -- we used to derive the long-term risk-free rate, a building block approach across cash rates, inflation, term premium and so on. This is entirely consistent with our assumptions we've applied for IFRS reporting. So as well trodden in terms of process governance and audit review. Essentially, there's a trend up from current rate towards long term, and that's a 3-year half-life application in essence. Your question on Slide 22. I'm sorry, maybe I should say on the RDRs, yes, you're right. I think we'd expect broad stability in RDR. And obviously, you've got the risk-free elements in that. But stepping back broad brush, these -- looking across our countries typically cover our ERPs and additional margins for risk by country. But yes, I'd expect stability there. On Slide 22, broadly doubling contribution. No. We're not sort of reliant on introducing lots of new products that we don't already have on the shelf today. Clearly driving health and protection product mix is exactly what we'll be looking to do and continuing to look at our cash flows from all of our products vis-a-vis accelerating capital generation coming back to the capital velocity point I made earlier.

Thanks, Farooq, and obviously variances.

And variances.

The next question is from Andrew Crean from Autonomous.

And well done for transferring over to TEV. I had 3 questions, 2 of them are fairly numeric. So the first one is, could you give us the APE and new business profits for Hong Kong MCV business rather than trying to guess all these things. Secondly, in China, where I see the margin has gone from 43% in the first half to 36% and then 35% in the first half of this year. Could you give us the split ideally of sales and new business profits of the banca channel versus the agency channel and whether you anticipate 35% being a good run rate moving forward to the margin? And then thirdly, this comment you have about momentum in June being good and building into the second half. I suppose, clarification here. You said to Kailesh's question that, that was ex economic basis. But we do need to forecast these things on the current economic basis. Could you say whether you see there is momentum on the reported new business profits? And whether the momentum is really because profits fell off a cliff in the second half of last year as opposed to there being growth second half on first half of this year?

Thanks for your questions, Andrew. So let me start with the third one first because that's relatively straightforward. When we mentioned about June, we were talking specifically about sales, yes, you're right that our focus is always in terms of creating value, new business profit and equally ensuring that, that's kind of converting on an accelerated pace on -- in terms of cash. So I just wanted to kind of clarify that. And our targets, again, just to reiterate what Ben said earlier, has always been on ex economic basis. I will now go to your second question on China. So China, again, the margins have improved both across bancassurance and agency. And we don't see that much difference in terms of margins on an ex economics basis when it comes to agency and bancassurance in China, partly on account of the steps that we have taken to drive a different product mix, but partly also because of the regulatory changes with regards to the bancassurance channel last year. And as I mentioned earlier that as we transitioned into 2024, we saw higher mix of power, higher mix of health and protection and higher mix of longer-term savings, which were the key catalysts to the margin improvements that we witnessed on banca and something that we would expect to continue in the second half of this year. In terms of Hong Kong, our new business sales was USD 955 million and MCV was $540 million out of that, and the balance was domestic. So I hope I've answered your questions, Andrew.

Well, just actually going back on that, the new business profits on MCV business in Hong Kong. And when in China, you say you have improving margins in both banca and agency, I can't see how that's possible if the actual overall Chinese margin went from 43% to 35%.

Maybe I can help. Andrew, it's Ben. So on a reported NBP basis, so [ cum ] economics, MCV, NBP was 384 out of 651. The margin expansion in China that was -- Anil was referring to was on an ex economics basis. And driven really through shifts in product mix. On the agency side, we had a higher mix of whole of life protection and CI products. So our ex economics margin actually expanded 8 points to around 64% on the banca side. There was a bit of a margin tailwind from the reduction in commissions that happened last year, but also, again, the benefits of mix shifts and some pricing actions that have been taken. So our banca margins there, again, ex economics expanded 18 points to 61%. Our reported margins though, are down overall, Andrew, and that's really driven by lower rates and the fact that there's a lot of savings business.

Next question comes from Andrew Sinclair from Bank of America.

And I heartily agree, well done from [ TEV ]. It's been much demanded by the investor base. A few from me, please. First is on agency count. It looks like active agency count subsequently drops in Indonesia, Malaysia and Philippines, better in Hong Kong as we look forward though. Can you just give us a little bit more color on just active agency count where -- what's caused that drop? And where should we see that eventually see that returning to growth? The second thing was, it feels like there's been a few questions on this guidance for 2024. We do just see Q3 on Q3 and Q4 on Q4 as now being clean growth quarters. But we shouldn't be thinking that there's too much noise in the numbers. It's just clean growth from here? And third was just on the Health and Protection and savings growth. I was probably a little bit surprised that there was more savings growth year-on-year in H1, 9% growth in savings versus only 7% for Health and Protection. I probably thought that there was maybe a bit more one-off in savings component last year. Just can you give a little bit more color on that, in particular, just how that's varied from market to market?

Thanks, Andy. Let me take those questions. I'll start with agency and I'll also offer some comments from Ben and others if they would like to supplement. So on agency, clearly, agency is the lifeblood of our company, contributed to 60% of new business profit growth. We were pleased with the fact that our recruits, our new recruits improved by 5%. We were, on an average on a monthly basis, recruiting about 12,300 agents. But I think the more important factor there is the focus on quality and the focus on helping agents improve their activity and productivity. And three things that we are focused on. One is, as I said, the quality of new recruits. So just to kind of illustrate that point, we have launched PRUVentures program, which is a strategic quality recruitment program across our different markets. We were able to hire 2,300 agents under that program. And what we are observing is that the productivity coming out of these agents is 6x the regular agent. So something that we are very keen to expand and launch in all markets. The second one is reskilling our agents. And again, you can see that crystallized in the Health and Protection mix, something, again, we are very keen to grow. And the third is specifically helping our agents get a lot more productive a lot more sooner. And that is where the 2 million leads that we generated in the first half were quite effective. And actually, we saw a 1% improvement in conversions, which really kind of fed the volumes that we saw coming from specifically the rookie agents. Having said which, the impact that we are seeing to your point is not equal. So we are seeing active agents improve in Hong Kong and Singapore. But we also realize that we have more work to do in markets specifically like Indonesia and Philippines. And that, to my mind, the way we see is an opportunity as we go through 2024 second half into 2025. To your second point on Q3 versus Q3 and Q4 versus Q4, you're right. The base effects have now pretty much abated. So you would probably get a much cleaner version of the comparators versus last year. And again, as I said, given the momentum that we saw as we closed out the first half and in the early part of second half, we are encouraged in terms of the growth prospects for the second half of this year. To your last question on health and protection and savings and the surprise element on savings, listen, we are still seeing the demand come through. And if you go back to last year, one of the key drivers of that was the growth that we saw, both in MCV and domestic in Hong Kong. And to my mind, that has only continued into 2024 first half. So we are encouraged to see that growth. But we're also seeing that growth, for example, in markets like Singapore. Singapore had a solid first half. And a lot of that growth came on the back of the demand that we are seeing in the savings product. I'm just going to stop and see if Ben or any of the business heads had any further comments to add?

I think the only thing I'd add, Andy, is that the pricing actions I referenced earlier were largely on the savings side. So you see that benefit coming through. We've had strong contributions from a number of savings markets, including Taiwan, for example, in the results. I think net-net, there's an opportunity for us on both the agency side and the health and protection side to really drive that channel and that line of business, and that's exactly what our investment in capability program's designed to do. So we'll be really focused on that. And we'll see consequentially margin benefits coming through over time.

Okay. Okay. Can I just be [ rigid ] to ask one final question. I'm sure one other fellow analyst [ orchestrated ] this. But can you give us a bit more numbers on what you mean by your full year guidance? I mean lots of people seem to be asking this question. What do you actually imply by on track to meet your type 7 targets for FY '24?

So Andy, again, as you know, getting into this year, we were all coming into this year with -- on the back of what we thought was an exceptionally strong 2023, and we grew our new business profit, 47%. And I just want to go back and talk about the 15% to 20% growth, which is the ranges that we had said that we will -- we are aspiring to, if not exceeding that by 2027. And if you were to kind of do the math of that, that kind of comes broadly to about 9% to 13% on new business profit. I do want to qualify that we are not necessarily going to kind of stick to that range. But to the extent that we can exceed it, we absolutely will try and exceed it.

The next question comes from Michael Chang at CGS International.

It's my a solid serve results. First, I would like to congratulate on good set of results. I just want to ask some more detail about some of the key Asian markets. So Singapore was an impressive 15% year-on-year for the new business profit growth. But if I take a look at one of your peers, Singapore was also a key standout market. And it seems that one of the big opportunities over there is selling into a more high net worth customer base and power business also offshore customers. So how do you see the opportunity in terms of [ trapping ] of your customers in Singapore? And how important is that in driving the growth? Secondly, within Hong Kong, it's quite clear, I think, on the results, just MCV because the non-MCV portion was up 35% year-on-year, and one clear trend within Hong Kong is the increased talent schemes if you want. So increased operation, would you still present it as an opportunity, I think, for insurance. How important has that been driving your non-MCV growth rate? And maybe just lastly, I'm not sure if I missed it, but some of your insurance have mentioned the impact of this implementation of global minimum tax and how it's not really expected to have a material impact on growth targets. Would it be fair to say that you are still very confident in your growth target that you've mentioned for new business profits, for example, even with the implementation of this global minimum tax regime.

Thanks, Michael, and to hear from you again. So let me start with Singapore. Yes, I mean the growth was impressive. We were very happy with the rebound that we saw at the back half of 2023, which continued into first half. And again, no surprises there. We have a quality-quality franchise given the strength that we have both across agency and our 2 bank partners, our 2 significant bank partners, Standard Chartered and UOB. And Michael, I also want to go back to the point that we have been emphasizing. Given that Singapore is an international, a global international hub, there is a natural attraction of emerging affluent and affluent clients to house themselves in Singapore. And towards that, we had launched a Prudential Financial Advisory, which now I'm pleased to say we have greater than 800 financial advisers, partly on account of the graduation that we've done from the agency channel, but a lot of them are new to Prudential and have joined the Prudential Financial Advisory. What we see on an ongoing basis is that the demand on legacy planning, on retirement, on wealth accumulation, on health is very much intact in Singapore. And I'm just going to stop there and see if, Dennis, you had any further comments to add in terms of the way we are building our business there.

Thanks very much, Anil. And nice to hear from you, Michael. In terms of your question on offshore, that is one of the key area of focus that we have been building in terms of serving the clients for typically affluent or high net worth in nature, and this comes primarily through our Bancassurance channel. So in specifically within our Bancassurance business in Singapore, already 1/3, right, more than 33% of our business comes from the Offshore segment. And this segment has been growing quite strongly in the recent years on the average close to almost 20% annual growth again targeting on high net worth and affluent clients based on the bank's segmentation. And secondly, which is what Anil kind of mentioned earlier, which is the formation of our new distribution capability through PFA, Prudential Financial Advisers. And again, this is fairly 1 year in the making already now by having the more than 810 growing distribution force. Their primary focus is to target on, again, affluent and high net worth individuals, and we are beginning to also see the average ticket sizes for these bookings being larger than the typical agency force. So I think these bode well for us, and we are definitely counting on this to be the growth engine going forward.

Thanks, Dennis. Michael, going to your second question on non MCV. You're absolutely right. The domestic business did increase. And again, if you would recall, I've been emphatic about the fact that we need to grow our domestic business to complement the strengths that we have on MCV, and that's exactly what we have done. Lilian and team have done a phenomenal job to improve the underlying quality of the Hong Kong business. So our recruits -- our new recruits, as you rightly pointed out -- pointed are already at 2,600 at the half year stage mark as compared to 4,000. Our active agent count is up 19%. Our health and protection sales in Hong Kong was up 4%. And the good news is that the Hong Kong persistency continues to be quite high. And that, again, is in excess of 90%, which qualifies or underscores or underpins the quality of business that we have in Hong Kong. You're also right in pointing out that the talent program is kind of helping. We have -- the government has already received 300,000 applications as part of the top-tier talent program, out of which they have approved 180,000. And given on account a multitude of factors that we are seeing in Hong Kong, we continue to remain optimistic about the way we would like to grow our distribution channel for the remaining of this year. I'm just going to stop and go to Ben on your global minimum tax question.

Yes, Michael, the short answer is no change in targets to 2027 as a result of BEPS. As you know, Hong Kong, Malaysia, Singapore adopts minimum -- the OECD minimum tax rates effective next year. I'll give further guidance at our full year results. We're still assessing the impact. The top-up tax calculations are quite complex. Well, what I would say though is just because effective tax rates might be below the 15%, it doesn't automatically follow that a top-up will be payable because the rules are jurisdictional and we have service entities in a number of territories, including Hong Kong, where effective tax rates are lower. So no change to targets. And continued confidence in our ability to hit those targets on top of the strong growth we posted last year, the recent momentum pick up. The actions we talked about to drive new business mix and pricing and candidly, are aimed to drive up agency mix and health.

Okay. Thank you. We're close on time, but I think we've got a few -- squeeze a few more in. Adam, over to you for a couple more.

The next question comes from Nasib Ahmed from UBS.

So firstly, on the new plan, it's been more than 12 months and focusing on the strategic aspect of it. When I look at things like NPS scores, active agents and [ DRPs ], you're lagging behind your closest peer. I know you've been in the job for more than 12 months. Looking back, what actually went wrong? Why is Pru lagging behind on these metrics? And to your point on you've been becoming more efficient at identifying issues? Are there any issues that you've identified? Can you put more flesh on the bones on how you're going to improve these strategic metrics and targets that you've set yourself? Secondly, on China, coming back to the question on CPL solvency. Ben, you've mentioned there's a capital injection coming, but your peers have been using other tools like debt raises, changing the asset -- the way the assets are measured from held to maturity to AFS? Are those tools not available to CPL? Is that the reason why you're doing a capital injection? And then finally, on China, again, there's a pricing interest rate change coming through. I remember last time, there was one -- CPL was a first mover. Is there going to be a similar kind of move by CPL where you're going to be moving ahead of the market on that pricing intersection as well.

So your question, let me start with agents and our overall performance and 1 year into the strategy, my assessment, and then I'll go to Ben on your second -- your second and third question on solvency and the pricing changes. On the overall business, the way I saw -- the way I see it is that we announced our strategy, and we were entering this year on the back of an exceptionally strong year, 247% growth overall on new business profit. And within that, Hong Kong grew 267%, which was 3x the growth rate of some of our peers. And I think as we entered this year, we were quite cognizant that when we go through the first half of 2024, we will have a comparative -- a strong comparative of first half to deal with. And the way I'm thinking about this is as we've kind of gone into 2024, we have focused on the key growth drivers of our business, which is customer agency and bancassurance and standing up the health verticals. Specifically on agency, I feel the progress has been quite solid. We are recruiting about 12,300 new recruits. Our emphasis has been on quality, has been on helping our agents to generate more activity and reskilling our agents at the same time, both in light of the regulatory changes, but also the emphasis that we are employing to drive health and protection. And I'll be the first to admit that the impact has not been equal. It has been quite visible in markets like Hong Kong and Singapore. But in other markets, like Indonesia and Philippines as well as Vietnam, we need to do more work. To your point on being able to identifying issues, yes, I mean, I can give you a couple of examples of that. We did mention about the fact that we would like to drive a different product mix in China. And we took some decisive actions in terms of repricing well ahead on a preemptive basis in the market and you're starting to see some of those hard measures yield results. The second good example and again, Solmaz mentioned about, is that we are witnessing high levels of inflation on medical. And as a consequence of that, we were the first in the market to go and reprice, which I think is absolutely the step in the right direction. And I think that is where the responsiveness and taking some of the best practices that we have and replicating them at speed and scale is something that we collectively are focused on. So those were a couple of examples that I wanted to share. I'm going to go to Ben on China as well as probably go to Lilian on some of the pricing changes.

Yes. Thanks, Anil. So you're absolutely right. There are management actions that the business is looking at on its in-force book. It's actively doing capital planning now. There's possibilities around taking on a bit more duration. They're looking at reclassifying some of the accounting treatment on certain assets. So for example, health and maturity to IFRS. I'm very cognizant that debt and the perpetual debt route has been open to others. There are some criteria around that, that need to be satisfied. But frankly, I need to see the results of this work and of course, where rates move to, which is why I flagged that I think it's likely that we'll make an injection. I'm conscious it will take the business some time to conclude the results of all of the work that it's undertaking.

Thanks, Ben. I'm just going to move to the second question on pricing. Lillian, if you want to take that?

Yes. Thank you. Thank you, Anil. Thank you for that question. I think as you mentioned, CPL is always a first mover. Actually, even before the regulation came out on the change, we had already repriced our products in line with the new pricing rate. So we'll be able to launch as soon as the effective date becomes in 1st of September and 1st of October. And then, if I may, I want to address the MDRT questions. Actually, we are very pleased with our MDRT numbers. We have over 9,000 registered MDRT numbers growing at 30%, which is the highest amount of all the multinational. At the same time, we have more than 1,000 MDRTs in 5 markets. Thank you.

I think we can squeeze in rapid fire 3 more. Adam, you just keep it to a restricted list. Dom, do you want to go first?

I'll try to keep it really quick. Firstly, thank you for the new disclosures on the gross OFSG, so Page 22 and 23. Can I just ask you to give a bit of sense of what's happening to the whole curve of free surplus and margins from new business? So a 12% increase you tagged on Slide 22, that's the 27 emergence for the vintage. Some of that will be that 27 is closer now. So is the core to the whole new business going up 12%? Or was it a bit less? And then a clarification also on 22, which, by the way, the slide is super helpful. But I noticed there's variances in the chart. They're small positives. Should we read anything into that? Are you expecting positive variances? Or are you just saying that they're there and they're part of the metric? And then final question, just on the move to TEV. You say this shouldn't change strategy. At the same time, I'm mindful or I would have thought that if you cascade the methodology through your target setting your incentives through the business that, a, a higher discount rate would make shorter duration products more attractive; and b, less of a differentiation between products should tilt further toward maybe savings products. Would you agree with that? Or would you push back on that?

Thanks, Dom. I think it's probably better for Ben to take these questions, Ben, do you want to address?

Yes. Dom, thanks for the question. So yes. As I mentioned, that 12%, you're right, is the 2027 contribution that accelerates as we move through the year because of the sort of timing of the pricing actions. Does it just give an uplift to 2027? No. There's an improvement in the intervening years. And in terms of the benefit to holdco, again, I'd stick to my sort of rule of thumb of sort of 70% of OFSG coming up to holdco in the near term. I'm conscious that I'm over that this year and last year, and that's because I don't want to leave capital in the businesses that doesn't necessarily have an obvious application in the near term. I think on your point on TEV, I mean, you're right, that there will be, I guess, increased purely the RDR change, right, an increased attractiveness on shorter duration. I mean we use a broad pricing framework. It's not simply a TEV lens. Ultimately, we're looking at the economics of the product, the IRRs, the paybacks. So there's a far broader framework in place, and I'm not expecting if you're inferring a sort of a shift to sort of savings and shorter duration. Our strategy is absolutely about driving health and protection and health business because we like the economics of it.

I think there was just one on the variance in the page on variances.

So positive, Dom. I want to be back at positive variances. We'll get there by 2027. We're doing a lot of work around that, not least of which has been repricing on the medical book. As you know, we set up a provision full year '23. We've released a bit of that into this set of results. So you see a positive claims variance. But the business is actively repricing now across its major medical markets. On the expense side of things, we're seeing scale coming back into the business. We lost some scale through COVID. We're seeing that now coming back through growth. So in-force premiums are now growing strongly, up 9%. So it was greater expense allowables. More work to do on the expense side, both tactically and strategically. Strategically, that comes back to our target operating model but also the investments we're making in our larger scale platforms and moving away from our federated approach candidly.

Adam, these last couple. I think, next one, please.

Next question comes from Thomas Wang at Goldman Sachs.

I'll try to be quick. So a couple of questions. One on net profit and negative -- the short-term negative, short-term investment values. Can we just get a sense of how much is the equity market driven? How much is more related to rate movements? And then secondly, on Hong Kong, I see that OpEx down 9%. Can you just give a little bit more color because some of the explanation given, I think I don't expect the business mix have changed that much over a 12-month period. So just wondering what's happening there.

Thomas. So I'll start with Hong Kong, if I can. Yes, look, on the IFRS results, we saw a lower release from the CSM in this period. That was, frankly, was from unlocking of the CSM as a result of rates up. We saw that in the first half and the back half of last year. There's also a slightly lower amortization rate because we've got more whole of life sales. But I think stepping back, as you can imagine on that business, we've got good structural growth in the CSM. In terms of non-op items, actually, equity returns were good in the period. They've been strong. So the short-term flux you're seeing is mainly as a result of rate movements. And in particular, as you know, we write a lot of U.S. dollar-denominated business. So it's the effect of higher rates at half year. Where we sit today, of course, that's all effectively reversed.

Okay. And finally, I think we've got 1 more. Please Adam.

Our final question comes from William Hawkins at KBW.

First question, please. Your free surplus ratio, do you have any more insight into how required capital should change over time? It's interesting that it's just been flat through the first half of this year? And is that a metric that should be adjusted when you move to traditional embedded value? Or is that part of the equation unchanged, i.e., new methodology? And then secondly, please, your outlook for new bancassurance relationships and inorganic growth. I mean, it's really interesting that we've not talked about at all on this call. Is all this just timing for how the world works? Or do you think your priorities are shifting between inorganic and organic growth?

Thanks, William. Let me take the second question first, and I'll have Ben talk about the free surplus ratio. So our emphasis right at the outset in terms of capital deployment was organic followed by capability build, which is where the $1 billion investments we've kind of spoken about. And to the extent that we can find opportunistic areas of expanding our distribution, we absolutely will pursue them. I've, again, been quite emphatic about the fact that ASEAN provides us that opportunity and we are in active conversations. So you're absolutely right, some of this is purely timing. But I do want to emphasize 2 points. One is these are going to be in-country bancassurance deals. And secondly, for all deals, we will be putting the returns hurdle to ensure that we are being very disciplined in the way we are deploying shareholder capital. I'm going to turn to Ben to answer the final question.

Thanks. So yes, when we think about modeling out the free surplus ratio, I think it's important to be conscious of both the growth in regulatory capital as renewal premiums, new business bills, but also the $1 billion investment in capabilities. And as I've said before, I'm expecting to operate at the upper end of the range we've been given or I've given allowing for the buyback in the current dividend policy. In terms of modeling required capital, it's really difficult to give a broad brush rule of thumb. That's because we operate under many different regimes. In 2023 from memory, we were up about 10%. I'd expect low double-digit growth going forward through to 2027. On your question on TEV, no change to required capital.

Thanks, Adam. I'm just going to pass back to CEO to close off the call.

Thanks, Patrick. And again, thank you, everyone, for your questions. As always, quite a robust engagement and truly enjoyed it. I'm sure we will have opportunities on the back of this to interact and would be happy to clarify and engage on questions that you might have. I do want to close by saying that 1 year on into the strategy, I continue to be very impressed by the strength and the breadth of our organization. And I firmly believe that Prudential is a great franchise that has not yet realized its full potential. Looking further ahead, we remain confident in achieving our 2027 objectives, given the encouraging results that we are seeing from our capability build as well as the relentless focus that we are employing on driving sustainable quality value growth. But at the same time, doubling down our focus to convert that value into cash. Do feel free to reach out to Patrick and the IR team. We look forward to sharing our 9-month business update in November. Thank you all for joining us this morning, this evening.

Okay. Thanks, Adam. You can close the call now.