19 Oct 2006

Prudential plc New Business Results for the 9 months to 30 September 2006

All figures compared to 2005 at constant exchange rates unless stated.

New business for the first nine months of the year:

APE1
Nine months
Growth PVNBP1
Nine months
Growth
Insurance:
Total Group £1,803 million 11% £13,902 million 6%
Prudential UK retail2 £485 million 11% £3,954 million 10%
Total UK £664 million (4%) £5,744 million (7%)
Jackson £467 million 15% £4,633 million 14%
Prudential Corporation Asia £673 million 29% £3,525 million 22%
Asset Management:
M&G Record net fund inflows of £5.1 billion, up 87%
Asia Record net fund inflows of £1.6 billion, up 65%

1See notes 1 and 2 in Notes to Editors
2UK Retail sales include all products except bulk annuities and credit life sales

Mark Tucker, Group Chief Executive, said:

“The Group is in robust health with excellent prospects for continued profitable growth.

“We continue to see strong growth in APE new business premiums across our retail life insurance businesses with Asia up 29%, Jackson retail up 25% and the UK retail up 11%. Overall, APE for new business sales across the Group was ahead 11% to £1.8 billion.

“Our asset management businesses – M&G in the UK and Europe, and our businesses across Asia – again delivered record inflows.

“ Egg, however, was adversely affected by a marked deterioration in industry wide consumer behaviour in this quarter. We now expect Egg to report an operating loss in the second half of 2006.”

Commentary on Third Quarter 2006 New Business Results

UK Insurance and Banking operations

Prudential's UK retail insurance operations have continued to perform well in the first nine months of 2006 with retail APE sales of £485 million up 11 per cent on 2005 driven primarily by the growth in pensions and individual annuity sales. Total APE sales for the UK insurance business in the first nine months of 2006 fell 4 per cent on 2005 to £664 million (£5.7 billion on a PVNBP basis) because of lower sales in the bulk annuity market. Total sales in the third quarter have increased by 13 per cent on the corresponding period in 2005.

Corporate pension APE sales increased 23 per cent due in part to the continuing shift from defined-benefit to defined-contribution pension schemes but also due to the impact of A-Day. Individual pension sales increased 8 per cent due to increased activity following A-Day. As part of its commitment to this market, Prudential launched a new self-invested personal pension (SIPP) in August 2006.

Individual annuity sales grew by 15 per cent, driven primarily by increased internal vestings and new partnership agreements. The annuity partnership with Royal London announced earlier this year came into effect in September. This agreement allows Prudential to provide annuity quotes to all Royal London customers with maturing pensions originally written under various brands within the Royal London Group. Sales of with-profit annuities continued to grow strongly (up 127 per cent), benefiting from the favourable comparison of their returns with conventional annuity rates. Prudential's continued outstanding performance in the annuities market was recognised with the Moneywise Best Annuity Provider Award for the third year running.

With-profits and offshore bond sales increased by 29 per cent and 73 per cent respectively, reflecting Prudential's financial strength and outstanding life fund investment returns as well as an increase in consumer appetite for these investment products. Its strategy of targeting higher value intermediary sales led to reduced sales of unit-linked bonds.

Prudential believes the lifetime mortgage market will continue to grow, reflecting the increasing need for many consumers to supplement their retirement income. In response to this, it is introducing a new sales team to sell its Property Value Release Plan. The team will be recruited by the end of this year to visit prospective clients and offer specialist advice on Prudential's lifetime mortgage product.

Prudential launched its new Flexible Protection Plan in July 2006. This is an innovative new protection product, which is designed to provide customers with wider cover than traditional products.

After a slow first half in 2006, activity within the wholesale bulk annuity market has picked up in the third quarter, however, Prudential's sales for the first nine months have remained lower than the corresponding period last year. Prudential has seen increased competition in the bulk annuity market during 2006 and although it remains committed to this market it will only participate where there is an acceptable return on risk adjusted capital.

Direct and corporate sales of PruHealth remain very strong, with nearly 80,000 individuals now covered. The success of this product is also demonstrated by the low levels of claims currently being experienced, particularly on the individual business.

Prudential's UK insurance operations will continue to focus on maximising value and return on capital in its chosen product areas and distribution channels in 2006.

During the third quarter, Egg has been affected by a marked deterioration in market trends that are being seen across the banking sector.

Interest income in the quarter was lower than expected due to lower than forecast net borrowing on cards, as consumers reduced their spending and borrowing.

In addition, bad debt experience, particularly in relation to personal loans was worse than expected. There has been a marked increase in consumers using individual voluntary arrangements, debt management companies and in some cases bankruptcy to alleviate their debt burden. These arrangements typically result in lower recoveries from customers than have historically been achieved via Egg's collection strategies. Within the Egg personal loan portfolio, the number of customers employing debt management companies in the last quarter increased 40 per cent on the prior quarter.

Egg is responding by taking a number of actions, for example increasing the APR on credit cards by 1 per cent in September and introducing risk based pricing across the portfolio. Based on current experience, we now expect Egg to report an operating loss in the second half of 2006, similar to the loss reported in the first half of 2006.

Jackson

Jackson , Prudential's US insurance business, achieved APE sales of £467 million in the first nine months of the year, representing a 15 per cent increase on the same period in 2005, driven by strong growth in sales of variable annuities. On a PVNBP basis this equates to sales of £4.6 billion. Retail APE sales in the first nine months of 2006 of £390 million were up 25 per cent. APE sales in the third quarter of 2006 were £143 million, up 14 per cent from the same period in 2005.

Jackson delivered record variable annuity sales in the first nine months of 2006 of £2.8 billion, up 48 per cent on last year, reflecting its distinct competitive advantages of a flexible and innovative product offering, strong distribution model and award-winning service. This result was achieved in a market that has seen 22 per cent year-on-year growth during the first half of 2006. Product innovation continues to be a key competitive driver of Jackson 's sales performance, as 80 per cent of retail sales during the first three quarters of 2006 were related to products and product features launched since the beginning of 2005. For the half year 2006, Jackson increased its variable annuity market share to 4.3 per cent, up from 3.5 per cent at the half-year in 2005, and maintained its ranking of 12th in total variable annuity sales. Specifically, in the independent broker dealer distribution channel Jackson 's variable annuity sales rose 57 per cent in the 6 months to June 2006, while industry sales rose 33 per cent in the same period. This took Jackson 's ranking in the channel from 5th to 2nd and increased its market share from 8.8 per cent to 10.4 per cent at the half-year 2006.

Fixed annuity APE sales of £52 million were down 20 per cent on the same period of 2005, reflecting the current interest rate environment that has affected customer demand for this product. Jackson continues to pursue profitable growth and therefore has been unwilling to lower margins. Fixed index annuity APE sales of £44 million were 6 per cent down on 2005, as sales continued to be unfavourably affected by the uncertain regulatory environment surrounding this product in the US.

Curian Capital, which provides innovative fee based separately managed accounts, continues to build a strong position in the retail asset management market in the US with total assets under management at the end of September 2006 of $2.16 billion compared with $1.67 billion at the end of 2005.

Institutional APE sales of £77 million were down 19 per cent on the same period of 2005; this is a market in which Jackson continues to participate on an opportunistic basis.

Jackson has delivered strong results in the first three quarters of the year, focusing on value-driven growth in its key product lines. In addition, it signed new distribution agreements with key financial institutions that have an important presence in the US annuity and asset management markets. As the first of the Baby Boomer generation retire, Jackson is well positioned to take advantage of this market opportunity due to its continued focus on product innovation, strong relationship-based distribution model, excellent customer service and efficient technological platform.

Prudential Corporation Asia

Prudential's Asian life operations delivered growth of 29 per cent in the first nine months reflecting the continuing momentum of the business with nine out of twelve operations reporting double digit growth in the first nine months. The third quarter of 2006, with APE of £226 million, showed an increase of 15 per cent relative to the same quarter in 2005. On the PVNBP basis the first nine months sales of £3.5 billion are 22 per cent higher than in 2005.

Across the portfolio of businesses, performance continues to reflect Prudential's focus on profitable and sustainable growth. The proportion of unit linked business in the first nine months of the year is 66 per cent up from 62 per cent for the same period last year. The proportion of new business from channels other than traditional agency distribution is 30 per cent compared to 27 per cent last year, as our bank and broker distribution continues to strengthen.

Prudential's joint venture with ICICI in India continues to grow apace with nine month APE increasing by 95 per cent over the same period last year to £78 million. This was driven by a 50 per cent increase in agent numbers to 89,000, and higher average premiums per policy. There was also a 173 per cent increase in APE from the bancassurance channel that contributed 27 per cent of the total APE.

Korea continues to benefit from the expansion of the tied financial adviser channel in 2006 with nine month APE growth of 66 per cent to £163 million, reflecting an increase of 120 per cent from this channel, offset by slower growth in the broker channel where some brokers have been restructuring. Bancassurance growth continues to be constrained by regulatory imposed individual company production caps. Prudential continues to explore opportunities to work with more banks.

In Taiwan , Prudential's focus continues to be on profitability rather than volume. Whilst APE sales for the first nine months at £112 million are 4 per cent lower than the same period last year, the proportion of higher margin unit linked business at 60 per cent remains high.

Prudential's life business in Indonesia continues to go from strength to strength with APE sales for the first nine months of £51 million, 46 per cent up on last year driven by increased agent numbers. It is now Prudential's sixth largest sales contributor in Asia . The Asia Development Bank recently reported that life insurance penetration in Indonesia is only one sixth that of Malaysia , showing that there remains considerable upside potential in this market.

Although growth in Singapore slowed in the third quarter as equity market volatility impacted single premium linked business, nine month APE is up a healthy 23 per cent. After a slower start to 2006, Hong Kong , at £90 million for the first nine months, is up 17 per cent compared to 2005 following a rebound in the third quarter where APE increased 40 per cent relative to the same quarter in 2005 due to a successful retirement orientated savings product launch. In Malaysia , the sales across the industry remain depressed following regulatory changes last year; however sales levels for the first nine months have been maintained. The Takaful joint venture with Bank Simpanan Nasional (BSN) was officially launched in August and with regulatory approvals relating to products received on the 12 th October 2006, sales are expected to commence soon.

In China , CITIC Prudential APE sales for the nine months are £23 million, an increase of 35 per cent compared to 2005. Third quarter APE sales at £9 million increased 29 per cent compared to the third quarter 2005. Guangzhou and Beijing , the longest established operations, account for 56 per cent of the APE sales for the first nine months of 2006, compared to 80 per cent for the same period last year, reflecting the increasing contribution from the new cities.

The Vietnamese market continues to be challenging and Prudential's APE sales for the first nine months have declined by 17 per cent. Earlier this month, the Vietnamese government granted Prudential approval to set up a finance company offering credit products such as home and corporate loans. Currently this market is very small and consequently little impact on Prudential's life results is expected over the short to medium term, though the longer term potential is attractive.

Prudential's other smaller operations of Japan , Thailand and Philippines grew at 40 per cent, 59 per cent and 15 per cent respectively for the first nine months.

Prudential has an excellent track record of building a profitable business in Asia and its focus continues to be on long term, profitable and sustainable growth.

Asset Management

M&G

Outstanding investment performance led to M&G delivering record fund inflows in the first nine months of 2006, reflecting its leading positions in retail fund management, institutional fixed income, pooled life and pension funds, property and private finance.

Whilst gross fund inflows in the first nine months at £10 billion were up 78 per cent, net fund inflows nearly doubled to £5.1 billion. Net fund inflows at the end of the third quarter now exceed those generated in the whole of 2005, which was in itself a record-breaking year. External funds under management, which represent a quarter of M&G's total funds, rose by 25 per cent to £42 billion.

Gross fund inflows into M&G's retail businesses were £5.1 billion, the highest ever and nearly double those achieved in the first nine months of 2005. Net fund inflows more than doubled to £2.6 billion on the back of the excellent fund performance of M&G's equity, fixed income and property funds. Over the past three years, 71 per cent of M&G's retail funds have beaten their UK sector average, with 51 per cent delivering top quartile performance. Retail sales were strong in the UK and across Germany , Austria , Switzerland , Luxembourg , Italy , Spain and South Africa.

Recent industry data has shown that M&G was one of the top selling fund managers in the UK and Germany during the first half of the year. In the UK , data released by FERI Fund Market Information showed that M&G was in second position for net retail sales across the industry and in the top five for gross retail sales for the second quarter. A survey from Germany 's funds management association, BVI, showed that M&G was the second most successful non-domestic fund provider in terms of net flows in the first half of 2006 and in the top ten overall.

Gross institutional fund inflows increased substantially in the first nine months of the year, up 67 per cent to £4.8 billion. Net institutional fund inflows increased 39 per cent to £2.6 billion. Strong fund inflows were seen across M&G's institutional business, especially in the area of segregated fixed income. The continued growth in assets under management in the Collateralised Debt Obligation (CDO) programme and Episode global macro fund in the first nine months of the year clearly demonstrates M&G's success in developing skills in external markets originally built up for internal funds.

Asian Fund Management Business

The Asian Fund Management Business has delivered record net inflows for the first nine months of 2006. Net inflows of £1.6 billion were up 65 per cent for the same period in 2005, reflecting the strengths of the Asian Fund Management's geographic and product diversification. Net inflows for the first nine months are 117 per cent of the total for the full year of 2005. Although the business experienced net inflows in the first nine months, there were net outflows of £194 million in the third quarter due to outflows in money market funds (MMF), which are short term in nature.

Of the net inflows of £1.6 billion for the first nine months, £1.4 billion or 88 per cent have been from non-MMF products. During the third quarter the Vietnam mutual fund business launched its first retail fund in the Vietnamese market. The fund was capped at £17 million and was fully subscribed.

Total third party funds under management were £11.2 billion, an increase of 20 per cent compared to the third quarter in 2005. India and Korea were the main contributors to this growth with funds under management increasing by 43 per cent and 55 per cent respectively. India growth was largely driven by strong equity and money market inflows. Korea growth was attributable to positive market sentiment, expanded distribution channels and good fund performance which led to a high level of equity and structured product inflows.

Based on Asia Asset Management's latest Fund Manager Survey in September, Prudential's Asian Fund Management business is currently ranked second in terms of retail sourced FUM in Asia (ex-Japan).

ENDS

Enquiries:
Media
Investors/analysts
Jon Bunn 020 7548 3559 James Matthews 020 7548 3561
William Baldwin-Charles 020 7548 3719 Valerie Pariente 020 7548 3511

Notes to Editor:

  1. Annual premium equivalent (APE) sales comprise regular premium sales plus one-tenth of single premium insurance sales and are subject to roundings.
  2. Present Value of New Business Premiums (PVNBP) are calculated as equalling single premiums plus the present value of expected new business premiums of regular premium business, allowing for lapses and other assumptions made in determining the EEV new business contribution.
  3. There will be a conference call today for wire services at 7.30am (BST) hosted by Mark Tucker, Group Chief Executive and Philip Broadley, Group Finance Director. Dial in telephone number: +44 (0)20 8609 0793. Passcode: 155439#.
  4. There will be a conference call for investors and analysts at 10:00am (BST) hosted by Mark Tucker, Group Chief Executive and Philip Broadley, Group Finance Director. From the UK please call +44 (0)20 8609 0793 and from the US +1 866 793 4279. Pin number 487687#. A recording of this call will be available for replay for one week by dialling: +44 (0)20 8609 0289 from the UK or +1 866 676 5865 from the US. The conference reference number is 154344#.
  5. Sales for overseas operations have been reported using average exchange rates as shown in the attached schedules. Commentary is given on the results on a constant exchange rate basis. The two bases are compared in the table below.
    Annual Premium Equivalent Sales
    Actual Exchange Rates Constant Exchange Rates
    2006 Q3
    YTD
    £m
    2005 Q3
    YTD
    £m
    +/- (%) 2006 Q3
    YTD
    £m
    2005
    YTD
    £m
    +/- (%)
    UK 664 692 (4%) 664 692 (4%)
    US 467 401 16% 467 406 15%
    Asia 673 508 32% 673 523 29%
    Total 1,803 1,601 13% 1,803 1,621 11%



    Gross Inflows


    Actual Exchange Rates Constant Exchange Rates

    2006 Q3
    YTD
    £m
    2005 Q3
    YTD
    £m
    +/- (%) 2006 Q3
    YTD
    £m
    2005 Q3
    YTD
    £m
    +/- (%)
    M&G 9,981 5,600 78% 9,981 5,600 78%
    Asia 14,694 14,378 2% 14,694 14,253 3%
    Total 24,675 19,978 24% 24,675 19,853 24%


    Total Insurance and Investment New Business

    Actual Exchange Rates Constant Exchange Rates

    2006 Q3
    YTD
    £m
    2005 Q3
    YTD
    £m
    +/- (%) 2006 Q3
    YTD
    £m
    2005 Q3
    YTD
    £m
    +/- (%)
    Insurance 11,185 10,720 4% 11,185 10,800 4%
    Investment 24,675 19,978 24% 24,675 19,853 24%
    Total 35,860 30,698 17% 35,860 30,653 17%
  6. For Jackson, market share data is provided for the half year 2006, being the latest available. Variable annuity data is sourced from VARDS, fixed annuity data is sourced from LIMRA and fixed index annuities data is sourced from LIMRA and The Advantage Group.
  7. Total number of Prudential plc shares in issue as at 30th September 2006 was 2,429,970,525
  8. High resolution photographs are available to the media free of charge at www.newscast.co.uk
    (+44 (0) 207 608 1000).
  9. Financial Calendar 2006 - 2007:
    Payment of 2006 Interim Dividend 27th October 2006
    2006 Full Year New Business Figures 30th January 2007
    Full year 2006 Results 15th March 2007
    Q1 2007 New Business Figures 19th April 2007
    AGM 17th May 2007
    Interim Results 2007 1st August 2007

Prudential plc is a company incorporated and with its principal place of business in the United Kingdom , and its affiliated companies constitute one of the world's leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world. It has been in existence for over 150 years and has £237.5 billion in assets under management as at 30th June 2006. Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America.

Forward-Looking Statements

This statement may contain certain “forward-looking statements” with respect to certain of Prudential's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words “believes”, “intends”, “expects”, “plans”, “seeks” and “anticipates”, and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Prudential's control including among other things, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of regulatory authorities, the impact of competition, inflation, and deflation; experience in particular with regard to mortality and morbidity trends, lapse rates and policy renewal rates; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which Prudential and its affiliates operate. This may for example result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits. As a result, Prudential's actual future financial condition, performance and results may differ materially from the plans, goals, and expectations set forth in Prudential's forward-looking statements. Prudential undertakes no obligation to update the forward-looking statements contained in this statement or any other forward-looking statements it may make.

Jackson National Life Insurance Company

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Prudential plc is an international company incorporated in the United Kingdom, and its affiliated companies constitute one of the world’s leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world, and it has been in existence for over 170 years. Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America, or the Prudential Assurance Company, a subsidiary of M&G plc (a company incorporated in the United Kingdom).

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Prudential plc is an international company incorporated in the United Kingdom, and its affiliated companies constitute one of the world’s leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world, and it has been in existence for over 170 years. Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America, or the Prudential Assurance Company, a subsidiary of M&G plc (a company incorporated in the United Kingdom).