26 Feb 2008

£2.7 billion added to policy values in another year of strong performance for Prudential's with-profits customers

59 Per Cent Increase In With-Profits Bond Sales In 2007

Performance Overview:

  • The Prudential Life Fund has delivered strong investment returns of 91 per cent over 5 years and 134 per cent over 10 years, with the Fund delivering a strong performance of 7.2 per cent in 2007
  • £2.7 billion* added to Prudential UK With-Profits policy values (£2.5 billion in 2007)
  • Majority of annual bonus rates to increase in 2008
  • Pensioners receiving a with-profits annuity income in retirement from Prudential** will benefit from a rise in income of up to 11 per cent (compares with an inflation rate of 3.1 per cent and State pension increase of 3.9 per cent)
  • All Prudential endowments to meet repayment targets in 2008, as they have done in all previous years
  • This strong long-term performance has led to total Retail with-profits sales in 2007 of approximately £2.3 billion, up 21 per cent on 2006. With-Profits bond sales increased 59 per cent in 2007, with sales in the fourth quarter up 89 per cent on the corresponding quarter of 2006
Notes:
*£2.7 billion added to With-Profits policy values is split £1.2bn Annual Bonus and £1.5bn Terminal Bonus.
**This does not include the book of with-profits annuities that transferred from Equitable Life to Prudential on 31 December 2007

Gary Shaughnessy, Managing Director of Retail Life and Pensions at Prudential said:
"In these challenging markets, we have delivered once again - improving the retirement and savings prospects for millions of our customers. Over the long-term, these inflation-beating returns clearly demonstrate the value of investing in our actively, well managed fund, particularly in periods of market volatility, and the benefits that this style of more cautious investing provides. Nowhere is this more apparent than for the pensioners who will receive monthly income growth well above the cost of inflation and their State pension increase.

"We are again number one among our major competitors in terms of Life Fund investment returns over 5 and 10 years and the value of our with-profits investments continues to out-perform many of the other investments typically available to with-profits investors. With consumers in the UK seeking to protect themselves from market down-turns, we have shown yet again that investing in a strong with-profits fund can produce good returns for the prudent investor. We have seen a surge in with-profits sales as more and more investors choose Prudential’s with-profits to protect themselves during volatile and uncertain conditions as well as during market growth.

"Successful risk management and asset allocation by the Prudential Portfolio Management Group, our in-house fund managers, has been a key driver in helping to protect the fund and lock in value to produce consistently strong returns that are in excess of most other with-profits funds, thereby delivering improved prospects for our policyholders over the longer-term. They have made a number of significant strategic calls over recent years including the decision to de-risk the corporate bond portfolio within the fund prior to the market turbulence experienced since the middle of last year."

Prudential’s with-profits customers have benefited over the long-term from the With-Profits Fund’s performance, a consistent bonus setting philosophy and long-term investment growth. This has allowed customers to plan for their retirement with increased certainty and without having to experience the worst of stock market conditions.

In 2007, the well diversified, multi-asset mix of Prudential’s With-Profits Fund was able to withstand the market pressures and produce a 7.2 per cent return. It also out-performed all other major with-profits funds that have declared to date, as well as many other investment sectors (Cautious Managed, Balanced and FTSE All-Share (total return)). The Prudential With-Profits Fund continues to help protect its investors from the volatility seen in investment markets over the last 12 months.

Our investment performance stands out from our major with-profits competitors with impressive one, five and ten year returns on the Fund.

With-Profits Fund Performance
Company 2007 Total return
over 5 years
Total return
over 10 years
Prudential 7.2% 91.0% 134.4%
Scottish Amicable 6.5% 86.4% 128.2%
Liverpool Victoria 5.7% 78.7% 93.9%
L&G 5.0% 77.4.% N/A
Standard Life* 5.7% 69.8% 99.1%
CGNU 5.4% 73.4.% 101.3%
Norwich Union 5.8% 65.3% N/A
Scottish Widows 5.0% 61.4% N/A
Friends Provident 5.0% 59.7% 80.4%

*Note 6

Equally over 10 years, our Fund has outperformed the FTSE 100 and FTSE All-Share indices, as well as the UK Average Cash benchmarks. Take a look at the facts:

Fund / Index Total return
over 10 years
Prudential With-Profits Fund 134.4 %
FTSE All Share (total return) 82.4 %
FTSE 100 (total return) 69.2 %
UK Average Cash Fund 38.2 %

Note 7

This message is a consistent and familiar one to Prudential policyholders who are again rewarded for being part of the recognised top-ranking with-profits fund in the UK over the last ten years, with strong investment growth over that period.

Prudential’s with-profits customers can also plan for their retirement with greater certainty in the knowledge that their investments have performed consistently well over both the long-term, but also more recently in volatile and uncertain market conditions. The payouts to Prudential’s with-profits customers compare very favourably against other actively managed investments.

In 2007, Prudential’s With-Profits Fund return of 7.2 per cent out-performed the average sector returns:

  • Balanced Managed Funds: 4.5 per cent;
  • Distribution Funds: 0 per cent;
  • IPD Property: 5.5 per cent; and
  • Cash: 3.8 per cent.
Source: Financial Express average life fund sector fund performance and Financial Express FINEX 90 day deposit performance, both between 31/12/2006-31/12/2007. Investment Property Databank 31/12/2006-31/12/2007

 

This performance demonstrates that investing in with-profits with Prudential works.

Prudence Delivers for Customers:
Prudential believes that its with-profits investments continue to provide solid, long-term growth prospects for most investors through increased payouts for policies maturing in 2008 when compared with their value 12 months ago – further evidence that holding long-term investments over their full term is sensible for the vast majority of investors.

As in previous years, Prudential continues to show the 12-month growth achieved for individual policyholders, as this is a more relevant measure than showing a comparison with a policy that matured a year earlier.

Policies in 2008 show increases compared with their position a year ago:

  • 10 year Prudence Bond - With-Profits Bond - (£10,000 single premium) up 6.0 per cent
  • 15 Year Prudence Bond - With-Profits Bond - (£10,000 single premium) up 7.7 per cent
  • 15 year Personal Pension - (£200 per month regular premiums) up 8.7 per cent
  • 15 Year With-Profits Annuity - (i.e. taken out between 6 April 1993 and 5 April 1994 with no anticipated bonus) will pay an income in 2008 up 10.1 per cent
  • 20 year Personal Pension (£200 per month regular premiums) up 9.1 per cent
  • 25 year Prudential With-Profits Mortgage Endowment up 5.9 per cent
Notes:
- Mortgage endowment example based on £50 p.m. regular premiums; male aged 29 at start of contract
- All figures are after deduction of tax (where relevant) and charges.

As investor sentiment turns ever more cautious, the majority of Prudential’s customers continue to benefit from year-on-year increases in their policy values, driven by fund management excellence, financial strength and a diversified mix of assets that has seen their investments compare very favourably to alternative available investments.

Examples of annual bonuses include:

Prudence Bond’s performance relative to alternative investment products
Investment Product Total Payout Annualised Return
Prudential With-Profits Bond
(10 year, £10,000 single premium)
£17,361 5.6%
Average building society account £11,879 1.7%
Average balanced managed unit trust £15,655 4.6%
Average balanced managed unit-linked life fund £14,429 3.7%

Notes 5 and 8
Prudential’s Personal Pension performance relative to alternative investment products
Investment Product Total Payout Annualised return
Prudential With-Profits Individual Pension (20 year term, £200 per month regular premiums) £117,469 8.2%
Average building society account £65,123 2.9%
Average balanced managed unit trust £111,801 7.8%
Average balanced managed unit-linked pension fund £109,337 7.6%

Note 5, 8 and 9
Majority of annual bonus rates are increasing by around 0.25 per cent
Annual Bonus Rates Per Cent
2008 2007 Increase
Prudential
Prudence Bond
Personal Pension
Mortgage Endowment
Unitised Corporate
Pensions

3.50
3.50
1.20/2.50*
3.75

3.25
3.25
1.00/2.00*
3.50

0.25
0.25
0.20/0.50*
0.25
* per cent of sum assured/ per cent of previous annual bonus.

Scottish Amicable With-Profits:
Prudential’s fund management team is also responsible for the running of the closed Scottish Amicable with-profits fund. This fund accounts for £13.2 billion of the £87 billion with-profits funds managed by Prudential. Since Prudential’s acquisition of Scottish Amicable in 1997, the Fund has benefited from the same investment process as the Prudential With-Profits Fund.

This year’s highlights are:

  • The Scottish Amicable fund delivered a solid investment return of 6.5 per cent in 2007. Over 10 years the fund has delivered 128 per cent.
  • £676 million* added to Scottish Amicable With-Profits policy values
  • 25 year Scottish Amicable With-Profits Mortgage Endowment value up 8 per cent
  • A typical payout on a 25-year Scottish Amicable endowment maturing in 2008 is £49,280
  • 98 per cent of Scottish Amicable endowments are expected to meet repayments targets in 2008
*Notes: £676 million added to With-Profits policy values is split £216 million Annual Bonus and £460 million Terminal Bonus. Mortgage endowment example based on £50 p.m. regular premiums; male aged 29 at start of contract. All figures are after deduction of tax (where relevant) and charges.
Majority of annual bonus rates are increasing by around 0.25 per cent
Annual Bonus Rates Per Cent
2008 2007 Increase
Scottish Amicable
Personal Pension
Mortgage Endowment

0.60/1.40*
1.10/2.00*

0.40/1.00*
0.80/1.50*

0.20/0.40*
0.30/0.50*

* per cent of sum assured/ percent of previous annual bonus.

Ned Cazalet, Cazalet Consulting, and a leading industry commentator, said: "The Pru’s WP Fund has turned in a dazzling performance over the past few years. On the investment front, the Pru has got some big market calls right, and its tactical asset allocation decisions have paid-off, big time, leading to massive investment out-performance relative to its peers, with the knock-on effect showing up in its market-bucking bonus payments – we score it 9 out of 10." (Cazalet Consulting - October 2007)

In July 2007 Prudential retained its top ranking in the WM Life Fund Survey. The Prudential With-Profits Fund took the top spot, making it the best performing fund in the WM UK Life Fund Universe. The WM Life Fund Survey is compiled on a quarterly and annual basis by WM, the independent fund-performance service provider. This ranking consolidates the superior position achieved in previous years, with Prudential retaining its top spot over 10 years.

Steve Johnson, of the Financial Times, wrote: "The Prudential fund, which famously avoided the worst effects of the dotcom crash by de-risking shortly before, was the best performing fund in the WM UK Life Fund universe in 2005 and 2006. Prudential’s with-profits fund, consistently the strongest performing life fund in the UK, de-risked its portfolio prior to the current market turbulence by hedging its credit exposure and selling down Asian equities and UK property." (Source: Financial Times FM - 13 August 2007)

With-Profits Sales Boost:The strong long-term investment performance has led to total Retail with-profits sales in 2007 of approximately £2.3 billion, up 21 per cent on 2006. With-Profits bond sales increased 59 per cent in 2007, with sales in the fourth quarter up 89 per cent on the corresponding quarter of 2006.

Sales of PruFund (Prudential’s unitised and smoothed investment plan) in particular were strong during 2007 at £190 million and it now has more than £300 million of funds under management. PruFund includes an optional five year capital guarantee - this means that the value of a customer's investment on its fifth anniversary is at least the amount initially invested in the plan, allowing for any income or withdrawals taken. This option is extremely popular, with over 60 per cent of new applications last year opting for it.

-Ends-

Full details of Prudential’s 2008 bonus announcement can be downloaded from:

www.pru.co.uk/presscentre

www.headlinemoney.co.uk

Or contact the Prudential UK press office on:

Darragh Leeson Tel: 0207 150 2600 Mobile: 07801 856011
Sophie Dawn Tel: 0207 150 2574 Mobile: 07810 753485
Steve Colton Tel: 0207 150 3136 Mobile: 07771 531525

The information contained in Prudential UK's press releases is intended solely for journalists and should not be used by consumers to make financial decisions. Full consumer product information can be found at www.pru.co.uk

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.

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