29 Jan 2007

Prudential plc Full Year 2006 New Business Results

All figures compared to 2005 at constant exchange rates unless stated

New business for the full year 2006:

APE Growth PVNBP Growth
Total Group Insurance £2,470 million 16% £18,947 million 12%
Prudential UK retail £689 million 14% £5,594 million 15%
Total UK £900 million 1% £7,712 million 0%
Jackson £613 million 21% £6,103 million 20%
Prudential Corporation Asia £956 million 30% £5,132 million 26%
Asia Fund Management Record net fund inflows of £2.5 billion, up 91%
M&G Record net fund inflows of £6.1 billion, up 58%

Mark Tucker, Group Chief Executive said:

"I am delighted by our full year new business figures: the Group’s insurance new business has increased by 16 per cent year on year, on an APE basis, and our asset management businesses saw net inflows increase by 66% to £8.6 billion.

"We have seen a 25 per cent increase in the Group’s insurance new business, on an APE basis, for the fourth quarter of 2006 compared to the same quarter in 2005 and an encouraging 21 per cent rise in new business for the fourth quarter of 2006 over the third. Overall the Group is in robust health.

"A 14 per cent increase in UK retail insurance operations APE sales was driven primarily by the growth in individual annuities and corporate pensions. In wholesale, we have chosen not to write business at unattractive pricing and therefore sales are down year on year.

"We have continued to reassess in depth the prospects for all sectors of the UK life and pensions market and are confident that there are profitable organic opportunities in the retirement savings and income market. We shall provide an update with further details by 15th March.

"Jackson, Prudential’s US insurance business, achieved record new business of £613 million APE in 2006, representing a 21 per cent increase on 2005, driven by strong growth in sales of variable annuities, up 48 per cent on last year.

"Prudential’s Asian life operations delivered new business APE of £956million, up 30 per cent in 2006 including a 25 per cent rise over the third quarter and reflecting the momentum of the business seen throughout the year. We have seen strong growth in a number of country markets including India up 95 per cent, China up 56 per cent and Korea up 54 per cent.

"Asset management continues to perform exceptionally well with M&G achieving record net fund inflows of £6.1 billion, an increase of 58 per cent, reflecting M&G's leading position in retail fund management, institutional fixed income, pooled life and pension funds, property and private finance.

"In Asia, PCA Fund Management also achieved record net inflows of £2.5 billion, almost double the 2005 figure. This reflects the product strength and increasing geographic diversification of our Asian fund management business.

"Trading conditions at Egg, our UK banking business, have seen further deterioration since we updated the market in October as a result of worsening credit experience and lower levels of lending than anticipated. Separately today, Prudential has announced that it has entered into a binding agreement to sell Egg to Citigroup for a consideration of £575 million subject to adjustment to reflect any change in net asset value between 31 December 2006 and completion.

"Going forward, the Group expects to maintain both its momentum in sales volume and its focus on value.”

Commentary on Full Year 2006 New Business Results

UK Insurance and Banking operations

Prudential’s UK insurance operations delivered total APE sales for the year of £900 million, 1 per cent higher than those achieved in 2005. Sales on a PVNBP basis are in line with 2005 at £7,712 million.

The UK retail insurance operations performed well with APE sales up 14 per cent on 2005 to £689 million driven primarily by the growth in corporate pensions and individual annuity sales. In the wholesale business, Prudential has chosen not to write business at unattractive pricing and therefore sales are down year-on-year.

Individual annuity sales grew by 22 per cent to £271 million as the annuity market experienced increased activity in the second half of 2006 following the removal of uncertainty around A-Day pension changes. In total 110,000 new annuity policies were written. Sales volume has been driven by the continued strength of internal vestings (APE £135 million) together with the cumulative benefit of partnership deals signed in previous years. With-profit annuities sales from all distribution channels more than doubled to £37 million compared with 2005.

In relation to externally sourced annuity business, Prudential signed further partnership agreements in 2006 including the Royal London transaction that came into effect in September. In addition, Prudential signed an exclusive 5-year agreement with Threadneedle as their supplier of annuities for their Stakeholder scheme as well as any future defined contribution schemes that Threadneedle acquires. This is a new area for Prudential that builds on its experience in providing annuities to customers of life insurance companies. With the future growth in DC schemes within the UK Prudential expects more agreements of this type.

Sales of with-profit bonds increased by 44 per cent during 2006. Much of this reflects Prudential’s financial strength and continuing outstanding life fund investment returns that have been well received by both customers and advisers. PruFund, Prudential’s unitised and smoothed investment plan, secured a new distribution agreement in the fourth quarter with National Australia Bank Group.

Corporate pension APE sales increased by 23 per cent to £224 million with the capture of a number of new scheme wins during 2006, including Debenhams and Royal & SunAlliance with 4,100 and 4,500 members respectively. This is due in part to the continuing shift from defined-benefit to defined-contribution schemes and also due to the impact of A-day and the growth in Prudential’s new Fund Delivery Service. This contributed £25 million of APE sales in its first year of operation.

Prudential has continued to pursue its focus on value, not volume, in the unit linked bond market. A large percentage of this market is financially unattractive with high up-front commission costs and poor forward-looking persistency due to high churn. For this reason we have been targeting higher value intermediaries.

Prudential has recruited a team of 20 face-to-face specialist consultants to sell its Lifetime Mortgage product, the Property Value Release Plan, and are looking to grow this team further in 2007. APE sales in 2006 were £9 million and resulted in Prudential achieving an 8 per cent share of the lifetime mortgage market.

PruHealth continues to develop well, with full-year Gross Written Premiums up 300 per cent at £36 million (£9 million in 2005). It now has around 100,000 individuals covered.

As previously announced, we believe it would be beneficial if there was greater clarity as to the status of the Inherited Estate and we continue to keep the situation under review. A reattribution will only be undertaken if there are clear benefits for both policyholders and shareholders and we will provide an update as to whether we intend to proceed in due course.

Jackson

Jackson, Prudential's US insurance business, achieved record APE sales of £613 million in 2006, representing a 21 per cent increase on 2005, driven by strong growth in sales of variable annuities. On a PVNBP basis, new business sales were £6.1 billion. Retail APE sales in 2006 of £524 million were up 27 per cent. APE sales in the fourth quarter of 2006 were £147 million, up 43 per cent CER compared to the fourth quarter of 2005.

Jackson delivered record variable annuity sales in 2006 of £3.8 billion, up 48 per cent on last year. This reflects its distinct competitive advantages of an innovative product offering, an efficient and flexible technology platform, a relationship-driven distribution model and award-winning service.

Jackson's sales result was achieved in a market that grew 18 per cent year-on-year through the first three quarters of 2006. Jackson increased its variable annuity market share to 4.5 per cent as at the end of the third quarter of 2006, up from 3.6 per cent at the same point in 2005, and maintained its ranking of 12th in total variable annuity sales. In the independent broker dealer distribution channel, Jackson's variable annuity sales during the first nine months of 2006 increased 52 per cent over the same period in 2005, while industry sales grew 27 per cent. This took Jackson's ranking in the channel from 5th at the end of September 2005 to 2nd at the end of September 2006 and increased its market share from 8.8 per cent to 10.6 per cent.

Innovation in product design and speed to market continue to be key drivers of Jackson's competitiveness as 81 per cent of retail sales during 2006 were related to products and product features launched since the beginning of 2005. In January, Jackson added a 5 per cent annual benefit increase option to its popular lifetime guaranteed minimum withdrawal benefits (GMWBs). In May, Jackson added five new GMWB options that offer contract holders a guaranteed return of premium and lifetime income. Additionally, Jackson expanded its variable annuity fund offering during the year. In February, the company launched two new fixed index annuity (FIA) contracts, which expanded the number of FIA products Jackson offers to five.

Entry spreads for fixed annuities continued to be challenging during 2006, which limited the attractiveness of the market to Jackson. APE sales of £69 million were down 12 per cent on the same period of 2005.

Fixed index annuity sales continued to be impacted by the uncertain regulatory environment in the US. APE sales of £55 million were 10 per cent down on 2005. Jackson's market share through the end of the third quarter of 2006 was 3.8 per cent, unchanged from the same period in the prior year.

Curian Capital, a specialised asset management company that provides innovative separately managed accounts, is building its position in the US retail asset management market with total assets under management at the end of 2006 of $2.4 billion compared with $1.7 billion at the end of 2005.

Institutional APE sales of £90 million were down 8 per cent from 2005. Jackson participates in this market on an opportunistic basis.

Jackson's focus is to expand its share of the US annuity and retail asset management markets. This will be achieved through continued expansion of existing product offerings, additional growth in new and existing distribution channels and opportunistic acquisition activity.

Jackson's product development strategy includes further enhancement of its variable annuity offerings and the introduction of new guarantees, including a guaranteed minimum accumulation benefit (GMAB). Jackson has launched a simplified retirement annuity that will serve as a low cost option for financial advisors who are currently not participating in the variable annuity market. Additionally, Jackson has rolled out its first set of retail mutual funds for distribution by existing wholesalers. Jackson's new mutual funds will be marketed as an additional option for financial advisors currently selling variable annuity products.

Jackson will continue to build its relationship-based distribution advantage in the advice-based channels, including a particular focus on increasing annuity sales in the bank and regional broker-dealer channels. Jackson will also explore additional distribution opportunities, including further expansion into the wirehouse channel, as evidenced by the company's recent distribution agreement with UBS.

Jackson continues to deliver growth in the attractive US market and has further enhanced its competitive advantages in the variable annuity market, offering the product and service solutions that both customers and advisors desire. With a continued focus on product innovation, a proven relationship-based distribution model, award-winning service and excellence in execution, Jackson is well positioned to take advantage of the changing demographics and resulting opportunities in the US market.

Prudential Corporation Asia

Prudential's Asian life operations delivered new business APE of £956 million representing growth of 30 per cent in 2006 and reflecting the sustained momentum of the business seen throughout the year. The fourth quarter of 2006, with APE of £282 million, showed an increase of 29 per cent relative to the same quarter in 2005 and 25 per cent relative to the third quarter of 2006. On the PVNBP basis sales for 2006 of £5.1 billion are 26 per cent higher than in 2005.

Prudential's focus continues to be on sustainable and profitable growth and the new business results reflect the continuing success of this strategy. The proportion of unit linked business for the year is 65 per cent, in line with the 63 per cent reported for last year and demonstrates the sustained appeal of these products to consumers across the region. The proportion of new business from traditional agency distribution is 70 per cent compared to 74 per cent last year, as our bank and broker distribution continues to strengthen.

Prudential's joint venture with ICICI in India is a market leading operation and has rapidly achieved material scale since launch in 2000. APE for 2006 increased by 95 per cent over the same period last year with Prudential's 26 per cent being £107 million. This was driven by a significant increase in agent numbers as the operation continues to open up new branches across India, and higher average premiums per policy, as well as growth from the bancassurance channel.

Prudential's Korean life business with APE of £218 million, which is a growth of 54 per cent from 2005, continues to benefit from the expansion of the tied financial adviser channel in 2006 partially offset by slower growth in the broker channel where some brokers have been restructuring. Bancassurance growth continues to be constrained by regulatory individual company production caps and Prudential continues to explore opportunities to work with more banks. Since acquisition this operation has outperformed the industry and is well on track to become a major player.

In Taiwan, Prudential's focus continues to be on value rather than volume. Whilst full year APE at £148 million is 6 per cent lower than last year, the proportion of higher margin unit linked remains high relative to the industry at 58 per cent.

Prudential's life business in Indonesia continues to go from strength to strength with APE sales of £74 million, 54 per cent up on last year driven by increased agent numbers. This business has a high proportion of unit linked sales and is the well established market leader in this product.

Although growth in Prudential's Singapore life business slowed in the third quarter as equity market volatility impacted single premium linked business, it had a strong fourth quarter and full year APE of £108 million is up a healthy 23 per cent on 2005. Prudential's Hong Kong life business, at £139 million for 2006, is up 26 per cent over 2005 driven due to a successful retirement orientated savings product launch and strong results from Standard Chartered Bank. In Malaysia sales across the industry remain depressed following regulatory changes last year; however in the fourth quarter sales growth recovered and Prudential's new business was up 15 per cent compared to the same quarter in 2005. Full year APE in Malaysia for Prudential was £72 million, up 6 per cent on 2005. The Takaful joint venture with Bank Simpanan Nasional (BSN) commenced sales in November.

In China, CITIC Prudential APE for 2006 of £39 million is an increase of 56 per cent compared to 2005, reflecting an increasing contribution from the new cities as well as the continued growth from the longer established operations such as Guangzhou and Bejing.

The Vietnamese market continues to be challenging and Prudential's APE year to date has declined by 14 per cent, however the long term potential of this market remains excellent.

Prudential's other smaller operations of Japan, Thailand and Philippines grew at 133 per cent, 83 per cent and 14 per cent respectively year to date.

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 fund performance led to record fund inflows into M&G's retail and institutional businesses during 2006. Gross fund inflows were £13.5 billion, an increase of 70 per cent on the previous year. Net fund inflows were their highest ever, increasing by 58 per cent to £6.1 billion, reflecting M&G's leading position in retail fund management, institutional fixed income, pooled life and pension funds, property and private finance. External funds under management grew significantly, up 24 per cent to £45 billion, and at this level represents over a quarter of M&G's total funds under management.

Fund inflows into M&G's retail business continued to perform very strongly. Whilst gross fund inflows increased by 75 per cent to £6.7 billion, net fund inflows more than doubled to £3.1 billion. Fund performance across M&G's range of equity, bond and property funds was excellent, which was recognised by M&G being named Best Equity Group (Large) and Best Non UK Equity Group (Large) at the Lipper Citywire All Stars Awards 2006. Demand remained strong for M&G's high alpha equity and competitive fixed income and property offerings and M&G continued to innovate during the year with the launch of two new funds, the M&G Optimal Income Fund and M&G European Property Fund. Retail sales were strong in the UK and South Africa, and across the European markets of Germany, Austria, Switzerland, Luxembourg, Italy and Spain, where M&G is maximising the opportunity created by the continued opening up of these markets to foreign players.

M&G's institutional business also saw substantial growth with gross fund inflows increasing by 66 per cent to £6.8 billion and net inflows rising 19 per cent to £3 billion. M&G's scale and market reputation in fixed income continued to position it very favourably in both traditional areas of the market, such as segregated funds, and more alternative areas such as structured credit. Fund inflows into segregated funds was strong on the back of good fund performance which saw 86 per cent of funds above benchmark over one year and 90 per cent over three years. M&G consolidated its market leading position in structured credit with the launch of seven new Collateralised Debt Obligations (CDOs) during the year and was named CDO manager of the year by IFR magazine. Significant fund inflows were generated into M&G's Episode global macro fund, with the fund reaching $1.5 billion assets under management within 17 months of launch.

Asian Fund Management Business

The Asian Fund Management Business continues to deliver record net inflows in the fourth quarter in 2006. Net inflows of £0.9 billion, were up 155 per cent for the same period in 2005, reflecting the strengths of the Asian Fund Management's geographic and product diversification.

Full year record net inflows of £2.5 billion were up 91% from 2005. Of the annual net inflows of £2.5 billion, £2.3 billion or 94 per cent have been from non-MMF products. Equity and non-MMF assets grew by £2.0 billion in 2006.

Total third party funds under management were £12.3 billion, an increase of 21 per cent compared to the fourth quarter in 2005. India and Korea were the main contributors to this growth with funds under management increasing by 36 per cent, and 27 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.

During the fourth quarter, Prudential Vietnam Fund Management Company launched a Cayman structured closed ended fund targeted at sophisticated investors and distributed for the first time actively to high net worth individuals through private banking channels. This fund raised close to £160 million and is listed on the Irish Stock Exchange. Prudential Vietnam Fund Management Company has now become the largest domestic mutual fund company in Vietnam in terms of funds under management. CITIC Prudential Fund Management launched its second fund in the fourth quarter and raised £220 million. Launched only last October, CITIC Prudential Fund Management has already raised over £420 million from its two fund launches in 2006. Prudential Asset Management (HK) Limited has been awarded a US$200 million quota by China's State Administration for Foreign Exchange under the Qualified Foreign Institutional Investor ("QFII") scheme. Introduced in May 2002, the QFII scheme allows qualified foreign institutional investors direct participation in China's domestic "A" share equity and fixed income markets. PCA Securities Investment Trust in Taiwan launched the Asia Pacific REITs Fund in the fourth quarter and achieved its FUM cap of £157 million.

Prudential remains confident that its fund management businesses in Asia are in an ideal position to achieve strong and profitable growth as it has put in place a distinctive and advantaged platform.

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 rounding.

  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. UK Retail sales include all products except bulk annuities and credit life sales.

  4. There will be a conference call today for wire services at 11.30am (BST) hosted by Mark Tucker, Group Chief Executive, and Philip Broadley, Group Finance Director. Dial in telephone number: +44 (0)20 8609 0205. Passcode: 155439#

  5. There will be a conference call for investors and analysts at 12.00am (BST) hosted by Mark Tucker, Group Chief Executive, and Philip Broadley, Group Finance Director. From the UK please call +44 (0)20 8609 0205 and from the US 1866 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 160468.

  6. High resolution photographs are available to the media free of charge at www.newscast.co.uk (+44 (0) 20 7608 1000).

  7. 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
    £m
    2005
    £m
    +/- (%)
    2006
    £m
    2005
    £m
    +/- (%)
    UK 900 891 1% 900 891 1%
    US 613 515 19% 613 508 21%
    Asia 956 731 31% 956 734 30%
    Total 2,470 2,137 16% 2,470 2,134 16%

    Gross Inflows

    Actual Exchange Rates Constant Exchange Rates
    2006
    £m
    2005
    £m
    +/- (%)
    2006
    £m
    2005
    £m
    +/- (%)
    M&G 13,486 7,916 70% 13,486 7,916 70%
    Asia 20,408 18,457 11% 20,408 18,049 13%
    Total 33,894 26,373 29% 33,894 25,965 31%

    Total Insurance and Investment New Business

    Actual Exchange Rates Constant Exchange Rates
    2006
    £m
    2005
    £m
    +/- (%)
    2006
    £m
    2005
    £m
    +/- (%)
    Insurance 15,094 13,700 10% 15,094 13,641 11%
    Investment 33,894 26,373 29% 33,894 25,965 31%
    Total 48,988 40,073 22% 48,988 39,606 24%
  8. For Jackson, market share data is provided for the first nine months of 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.

  9. Total number of Prudential plc shares in issue as at 31st December 2006 was 2,444,312,425. This number will be reported monthly to the stock exchange going forward.

  10. Financial Calendar 2006 - 2007:

     

    Full year 2006 Results 15th March 2007
    Q1 New Business Figures 19th April 2007
    AGM 17th May 2007
    Interim Results 2007 1st August 2007
    Q3 New Business Figures 18th October 2007
    *Prudential plc, 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 30 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).