17 May 2010

First Quarter 2010 Interim Management Statement

NEW RECORD FOR FIRST QUARTER NEW BUSINESS SALES AT £807 MILLION

  • GROUP-WIDE SALES OF £807 MILLION UP 26 PER CENT. NEW BUSINESS PROFIT UP 27 PER CENT
  • OUTSTANDING FIRST QUARTER IN ASIA. SALES UP 30 PER CENT, NEW BUSINESS PROFIT UP 35 PER CENT
  • CONTINUED POWERFUL MOMENTUM IN US. SALES UP 39 PER CENT, NEW BUSINESS PROFIT UP 25 PER CENT
  • UK FOCUS ON VALUE OVER VOLUME DELIVERS HIGH MARGINS
  • ASSET MANAGEMENT NET INFLOWS OF £1.2 BILLION
  • CAPITAL POSITION REMAINS STRONG - IGD SURPLUS ESTIMATED AT £3.4 BILLION 1
  Q1 2010 Q1 2009 % change on
Q1 09
Group Insurance 2, 3      
Sales - APE £807m £640m 26%
New Business Profit 4 £427m £336m 27%
Margin – APE % 53% 53% -
Investment Net Inflows £1,203m £2,728m (56%)

Tidjane Thiam, Group Chief Executive said:

“Our record performance in 2009 continued into the first quarter of 2010. We maintained our focus of allocating capital to the most profitable opportunities, and as a result have delivered strong growth in new business profit. This first quarter interim management statement represents a significant evolution in our financial communication as it includes for the first time new business profit, as well as new business sales. This change reflects our continued commitment to greater disclosure.

In the first quarter, APE new business across the Group was £807 million, up 26 per cent (first quarter 2009: £640 million), and new business profit was £427 million, up almost £100 million and 27 per cent (first quarter 2009: £336 million).

In Asia we delivered strong growth in new business compared to the first quarter 2009. APE sales in the first quarter 2010 were £359 million, an increase of 30 per cent on the first quarter last year of £276 million. New business profit for the first quarter was £183 million, an increase of 35 per cent. This performance demonstrates the strength of our businesses in Asia and emphasises the return to economic growth experienced across the region.

In the US, Jackson’s focused approach and strict pricing discipline also delivered an improved first quarter with new business profit of £175 million, up 25 per cent (first quarter 2009: £140 million) and APE new business sales of £255 million up 39 per cent (first quarter 2009: £184 million). We maintained our deliberate emphasis on variable annuities in which we ranked fourth in the US in 2009, with a market share of 8 per cent.

Prudential UK continued to serve targeted segments of the retirement savings and income markets, emphasising value over volume. This strategy delivered attractive returns on the capital employed in the first quarter. New business profit was £69 million, up 15 per cent (first quarter 2009: £60 million) and APE new business sales were £193 million, up 7 per cent (first quarter 2009: £180 million).

M&G continued to outperform the market with net fund inflows in the first quarter of £1,889 million (first quarter 2009: £2,543 million). After making allowance for the exceptional nature of the inflows into corporate bond funds in the first quarter of 2009, this is a very strong performance in a reinvigorated and competitive environment.

Our performance has been delivered while taking a disciplined approach to risk management and targeted Group-wide actions to protect our strong capital position. Our estimated IGD surplus was £3.4 billion at 31 March 2010 (31 December 2009 £3.4 billion). This capital strength underpins our ability to exploit growth opportunities.

In 2010 we said that we would accelerate our proven strategy to capitalise on the most profitable growth opportunities in our chosen markets and these strong results demonstrate we are delivering on that objective. Going forward, we expect momentum in Asia to continue, whilst the economic conditions in the UK and the US stabilise.”

1. Q1 2010 Business Unit financial highlights

Sales - APE Q1 2010 Q1 2009 % change on
Q1 09
Insurance      
Asia5 £359m £276m 30%
US £255m £184m 39%
UK £193m £180m 7%
Total Group Insurance £807m £640m 26%


New Business Profit6 Q1 2010 Q1 2009 % change on
Q1 09
Asia £183m £136m 35%
US £175m £140m 25%
UK £69m £60m 15%
Total Group Insurance £427m £336m 27%


Margin – APE % Q1 2010 Q1 2009 +/- %pts
Asia 51% 49% +2pts
US 69% 76% -7pts
UK 36% 33% +3pts
Total Group Insurance 53% 53% 0pts


Investment Net Inflows Q1 2010 Q1 2009 % change on
Q1 09
M&G £1,889m £2,543m (26%)
Asia Asset Management (£686m) £185m (471%)
Total £1,203m £2,728m (56%)


1.1 Asia Insurance operations

Asia Q1 2010 Q1 2009 % change on
Q1 09
Sales - APE £359m £276m 30%
New Business Profit £183m £136m 35%
Margin – APE % 51% 49% +2pts

During the first quarter 2010 the Asian economies have continued to perform well and demand for life and savings business is rebounding strongly to pre-crisis levels. Prudential has delivered a very strong quarter, with APE new business sales of £359 million up by 30 per cent over the same period last year. Sales in the first quarter of 2010 at actual exchange rates were the second highest in our history and represent a record first quarter, ahead of the previous best first quarter in 2008. Our high margin South-East Asian operations (including Singapore and Hong Kong), grew APE sales by 53 per cent to £216 million, a clear indication of the potential of these markets.

In line with the recovering economic outlook, single premiums are up 66 per cent over the first quarter last year meaning that their proportion of total APE has increased from 5 per cent to 6 per cent. The business mix is in line with the first quarter 2009, linked at 44 per cent, par at 29 per cent and protection at 24 per cent.

We have continued to focus on the profitability of the business we write, allocating capital in priority to those markets and products which offer the highest returns. New business profits increased by 35 per cent to £183 million resulting in an improved margin of 51 per cent (first quarter 2009: 49 per cent).

Looking at developments of our sales in each major market:

China

  Q1 2010 Q1 2009 % change on
Q1 09
APE £14m £11m 27%

In China, Prudential’s share of new business sales for the first quarter 2010, is £14 million (reflecting our 50 per cent ownership) up 27 per cent on 2009 and represents our strongest quarter ever in both local currency and at actual exchange rates. Recruiting and retaining agents in China remains challenging and CITIC-Prudential’s average agent numbers have declined by 20 per cent compared to the first quarter last year. However, this has been more than offset by a significant increase in average APE per case of 31 per cent and an increase in agent activity. The bancassurance channel is also performing very well with sales up 47 per cent. Our joint venture partner CITIC-Bank in particular is showing strong growth and generated 32 per cent of the total bank new business in the quarter.

Hong Kong

  Q1 2010 Q1 2009 % change on
Q1 09
APE £68m £46m 48%

Hong Kong delivered a very strong first quarter with March 2010 being the second highest production month ever in terms of APE for the agency channel after December 2009. A key driver of that performance is the 40 per cent increase we have achieved in the average case size as confidence returns to the market, coupled with the launch of a new linked product. Average agent numbers in the first quarter are up 14 per cent over the same period last year. The bank channel also continues to perform well and is demonstrating strong momentum over the same period last year, with new business sales up 48 per cent.

India

  Q1 2010 Q1 2009 % change on
Q1 09
APE £73m £56m 30%

In India, ICICI-Prudential has seen a continuing resurgence in new business sales during the first quarter following on from the market related decline in 2009. This represents the second highest quarter of sales in both local currency and at actual exchange rates. Prudential’s share of first quarter new business sales of £73 million (reflecting our 26 per cent ownership) is up 30 per cent over last year. The proportion of contribution of agency and other alternate channels (including bancassurance & broker channels) to the APE for the quarter were at 50 per cent each, remaining in line with the same period last year.

Indonesia

  Q1 2010 Q1 2009 % change on
Q1 09
APE £61m £38m 61%

Strong growth in Indonesia continues with £61 million of new business sales up 61 per cent on the first quarter of 2009. Agency continues to be the predominant distribution channel and our successful agency management system has driven a 28 per cent increase in average agency numbers (to 85,000), a 13 per cent increase in the number of cases per active agent and a 9 per cent increase in average case size. Takaful linked products remain a significant contributor at 24 per cent of the new business mix.

Korea

  Q1 2010 Q1 2009 % change on
Q1 09
APE £22m £37m (41%)

As seen during 2009, the market in Korea remains very challenging and a key contributor to the 41 per cent decline in new business sales over the first quarter 2009 to £22 million is our unwillingness to compete in the low margin, high capital guaranteed products sector. Our agency force has reduced by 38 per cent compared to last year. Persistency experience in Korea continues to be on an improving trend.

Malaysia

  Q1 2010 Q1 2009 % change on
Q1 09
APE £36m £24m 50%

Malaysia delivered an excellent first quarter with new business sales up 50 per cent over the first quarter last year. This follows a 43% increase in new business sales in the previous financial year. The first quarter sales improvement was driven by promotional activity and the launch of a very popular new par product. Agent numbers for the first quarter 2010 are up 14 per cent over the same period last year and average case sizes are up 25 per cent reflecting renewed confidence in the market and the strong sales of the new par product that contributed 34 per cent of new business. Correspondingly the proportion of protection business has declined relative to the first quarter last year, from 57 per cent to 43 per cent and the proportion of linked business declined from 35 per cent to 22 per cent.

Singapore

  Q1 2010 Q1 2009 % change on
Q1 09
APE £33m £22m 50%

Singapore also had a very strong first quarter in 2010, with new business sales up 50 per cent to £33 million driven by promotional activity and increased agency productivity. Agency incentives drove the increased agency activity. Average agent numbers are up 7 per cent in the first quarter and average case sizes are up 21 per cent. The proportion of linked business increased to 26 per cent for the first quarter compared to 19 per cent for the same period last year. Sales of our highly profitable protection business also increased by 36 per cent. The bancassurance channel delivered 23 per cent of the quarter’s new business and within this the new UOB relationship is performing very well which produced £1.4m of APE in March 2010.

Taiwan

  Q1 2010 Q1 2009 % change on
Q1 09
APE £34m £31m 10%

Following our exit from the agency channel in 2009, Taiwan is now successfully focused on bank distribution principally with partners E.Sun Bank and Standard Chartered Bank. New business sales of £34 million for the first quarter 2010 are up 10 per cent on the same period last year and represent our highest quarter sales since the disposal of our agency business in the second quarter of 2009. We have succeeded in increasing the proportion of protection business in the mix from 6 per cent for the first quarter last year to 18 per cent for the same period this year.

Others – Philippines, Thailand and Vietnam

  Q1 2010 Q1 2009 % change on
Q1 09
APE £18m £11m 64%

In the first quarter Vietnam delivered a very strong result with APE sales up 33 per cent on the prior period, driven by a 35 per cent increase in agent numbers and a 14 per cent increase in average case size. Both Philippines and Thailand delivered strong results, up 150 per cent and 25 per cent respectively with direct marketing successes in Philippines and our new distribution relationship with UOB in Thailand already contributing over 50 per cent of the total APE from the bank channel.

Japan

We announced at the start of 2010 that PCA Life Japan was suspending writing new business sales with effect from 15 February 2010. Sales for Japan in the first quarter of 2010 amounted to £7 million (first quarter 2009: £17 million). In order to reflect the results of our ongoing Asian operations, all of the headline financial metrics included in this announcement exclude the contribution from Japan.

1.2 US operations

a) Insurance operations

US Q1 2010 Q1 2009 % change on
Q1 09
Sales - APE £255m £184m 39%
New Business Profit £175m £140m 25%
Margin – APE % 69% 76% -7pts

The US equity markets continued to recover during the first quarter of 2010 while interest rates remained generally flat and AA corporate spreads and volatility declined somewhat from year-end 2009 levels. While market conditions have improved, companies that were hit hardest by the market disruption of the last 18 months are still struggling to regain market share as customers are increasingly seeking product providers that offer consistency, stability and financial strength. Jackson has continued to benefit significantly from this flight to quality. Our strategy remains focused on increasing sales in variable annuities whilst managing fixed annuity sales in line with the goal of capital preservation. There were no institutional sales during the first quarter of 2010 as Jackson directed available capital to support higher-margin annuity sales.

Jackson delivered APE new business sales of £255 million in the first quarter of 2010, representing a 39 per cent increase over the same period in 2009 and the highest level of sales during the first quarter at actual exchange rates and local currency of any year in the company’s history. Jackson achieved exceptionally high new business margins in 2009, partially as a result of our ability to take advantage of extreme dislocation in the corporate bond market. While recovery in the corporate bond market has led to somewhat lower new business margins for fixed index and fixed annuities due to lower spreads in 2010, we continue to write new business at Internal Rates of Return in excess of 20%.

Our pricing discipline has enabled us to substantially preserve the 2009 margin improvement. Jackson achieved an overall margin of 69% in the first quarter 2010. Whilst lower corporate bond spreads have resulted in fixed index and fixed annuity margins normalising to pre-crisis levels, variable annuity margins have remained high at 77%.

Variable annuity

  Q1 2010 Q1 2009 % change on
Q1 09
APE £201m £105m 91%

Variable annuity (VA) APE sales of £201 million in the first quarter of 2010 were 91 per cent higher than the same period in 2009, reflecting the equity market rally that began in the second quarter of 2009, the relative consistency of Jackson's product offering and continued disruptions among some of our major competitors. Jackson’s first quarter VA sales were the highest first quarter sales in the company’s history. Jackson7 ranked 4th in VA sales in 2009, with a market share of 8.1 per cent, up from 12th with a market share of 4.3 per cent in 2008. In the fourth quarter of 2009, which are the latest statistics available, Jackson ranked 1st in VA net flows.

Fixed index annuity

  Q1 2010 Q1 2009 % change on
Q1 09
APE £30m £25m 20%

Fixed index annuity (FIA) APE sales of £30 million in the first quarter of 2010 were up 20 per cent over the same period of 2009. Industry FIA sales have benefited from an increase in customer demand for products that offer guaranteed rates of return with additional upside potential linked to stock market index performance. Additionally, Jackson’s FIA sales have benefited from the company's consistent financial strength ratings and continued disruptions among some of the top FIA sellers. Jackson9 ranked 4th in sales of FIAs in 2009, with a market share of 7.5 per cent, up from 9th and a market share of 3.5 per cent in 2008.

Fixed Annuity

  Q1 2010 Q1 2009 % change on
Q1 09
APE £18m £48m (63%)

Jackson’s strategy of containing fixed annuity volumes resulted in first quarter 2010 APE sales of £18 million, 63 per cent lower than the same period in 2009 and 14 per cent lower than in the fourth quarter of 2009.

Total retail annuity net flows of £1.5 billion for the first quarter of 2010 represented a 108 per cent increase on the same period in 2009, reflecting the impacts of the significant increase in sales and continued low levels of surrender activity.

b) Asset management

Curian Capital, a specialised asset management company that provides innovative fee-based separately managed accounts, had total assets under management of £2.7 billion at the end of March 2010 compared with £2.3 billion at the end of 2009. Curian generated record deposits at actual exchange rates and local currency of £309 million in the first quarter of 2010, up 218 per cent on the first quarter of 2009 and up 7 per cent on the fourth quarter of 2009.

1.3 UK insurance operations

UK Q1 2010 Q1 2009 % change on
Q1 09
Sales - APE £193m £180m 7%
New Business Profit £69m £60m 15%
Margin – APE % 36% 33% +3pts

Prudential UK continues to focus on balancing writing new business with cash generation while realising value from the opportunities created by the increasing need for retirement solutions in the UK. By competing in selected areas of the UK’s retirement savings and income markets Prudential has been successful in generating attractive returns on capital employed.

Total APE new business sales of £193 million were up 7 per cent on the first quarter of 2009, principally due to higher sales of corporate pensions and protection products. In continuing to apply strict return criteria, Prudential did not write any significant bulk annuity transactions in 2009 or 2010.

The new business margin improved to 36 per cent in the first quarter of 2010 from 33 per cent in the first quarter of 2009. This was primarily due to increased margins on with-profit bond business combined with the continuation of strong margins achieved on shareholder-backed annuity business.

Sales of individual annuities of APE £59 million were 2 per cent higher than the first quarter of 2009. Sales of external annuities of APE £26 million were up 37 per cent on the first quarter of 2009, aided by strong sales of with-profit annuities, which were up 73 per cent at £13 million following the launch of the with-profits Income Choice Annuity in the first quarter of 2009. Prudential UK continues to manage actively the flow of external conventional annuities to optimise capital consumption.

For internal vestings, APE of £33m was 15 per cent lower than 2009, impacted by a reduction of 13 per cent in average case sizes as a result of depressed asset values and by customers choosing to delay their retirement to allow asset values to recover. We continue to see a positive shift in the number of internal customers choosing to take a with-profits annuity, APE sales amounted to £4 million and were 46 per cent higher than the first quarter of 2009.

Sales of onshore bonds of APE £33 million were in line with the first quarter of 2009. With-profits bonds sales of APE £29 million were down 6 per cent on the first quarter of 2009, but this was offset by an increase in sales of unit-linked bonds. Demand for with-profit bonds remains strong, reflecting the attractiveness of Prudential's with-profits offering, including in particular PruFund with its optional capital guarantee.

In January 2010 five new unit-linked risk graded portfolio funds - Pru Dynamic - were launched across Prudential’s retirement savings product range, providing risk managed investment for IFAs and their customers. We believe that the new funds play to Prudential’s key strengths of portfolio management, asset allocation, and its reputation of being a solid, secure investment company.

Within corporate pensions, Prudential UK continues to focus principally on the opportunities from the substantial existing Defined Contribution book of business as well as providing Additional Voluntary Contribution (AVC) arrangements to the public sector. We have been the sole AVC provider to Teachers’ Pensions for 20 years and provide AVCs to 65 of the 99 Local Government Authorities in England & Wales. First quarter 2010 corporate pensions sales of APE £60m were 15 per cent higher than the first quarter of 2009.

Sales of other products of APE £40 million were 14 per cent above the first quarter of 2009. Individual pensions sales (including income drawdown) of APE £15 million were 21 per cent higher than first quarter 2009. Sales of the Flexible Retirement Plan, Prudential UK’s individual pension product with customer agreed remuneration, continued to grow, with sales in the first quarter 2010 of APE £6 million up 37 per cent from the first quarter of 2009. Sales of the income drawdown product of APE £4million were double that of the first quarter 2009. PruProtect sales continued to grow strongly, with APE sales in the first quarter of 2010 of £5 million, up 145 per cent on the same period last year. This represented a record quarterly performance for PruProtect. Growth continues in PruHealth, with APE sales up 12 per cent on the first quarter 2009. PruHealth now has more than 210,000 customers insured.

1.4 M&G

  Q1 2010 Q1 2009 % change on
Q1 09
Retail business inflows £1,454m £2,207m (34%)
Institutional business inflows £435m £336m 29%
Total net inflows £1,889m £2,543m (26%)

M&G is an investment-led business which aims to deliver superior long term performance for third party clients and the internal funds of the Prudential Group.

Our strategy is to recruit and nurture leading investment talent. We seek to create an environment in which this talent will thrive and so deliver the level of returns that our clients expect of us. This focus on investment performance, combined with a well-diversified business mix and well-established distribution capabilities, has helped M&G to make a strong start to 2010 as indicated by sales performance and the growth in FUM. We maintain our number two position in the UK on the basis of Retail FUM.

Net new business for the first quarter of 2010 was robust at £1.9 billion. While this is lower than the £2.5 billion of net inflows during the same quarter of the previous period, 2009 was an exceptional year for M&G as investors invested heavily in our top-performing bond funds to exploit a near unique opportunity in fixed income markets. We expect new business to return to more normal levels this year.

The UK & European Retail Business maintained its strong performance, with net inflows of £1.7 billion. Sales of our fixed income funds accounted for 35 per cent share of net inflows in the first quarter of 2010 but the continued recovery in the equity markets has meant that net inflows into M&G’s top performing equity fund accounted for 49 per cent of the inflow. The total Retail Business, including South Africa, attracted net new business of £1.5 billion, compared with £2.2 billion in the first quarter of 2009. Gross retail inflows for the quarter were £4.2 billion, an increase of 26 per cent on the first quarter 2009.

These strong flows were on the back of excellent investment performance by M&G’s retail funds, with 42 per cent of funds in the top quartile over the preceding three years ending 31 March 2010 and 71 per cent of funds in the top half over the preceding three years ending 31 March 2010. Performance was strong across both equity and fixed income funds with 69 per cent of the equity funds and 75 per cent of the fixed income funds in the top half over the preceding three years ending 31 March 2010.

The Institutional Business also attracted net new business with net inflows at £0.4 billion for the first quarter of 2010, including £0.2 billion of new money into our public debt funds and a new £0.1 billion segregated equity mandate. Gross inflows were up 99 per cent over the first quarter of 2009 at £2.2 billion.

Investment performance on the Institutional side continues to be very strong with 94% of our external mandates at or above benchmark.

M&G’s total funds under management at 31 March 2010 were £182.3 billion, up 5 per cent on the 2009 year-end and up 35 per cent on the first quarter of 2009. Total external funds under management at 31 March 2010 were £76.2 billion, a rise of 8 per cent since the start of the year and 64 per cent compared with 31 March 2009. The increase in external funds in the first quarter represents the combined result of market and other movements of £4.1 billion and net flows of £1.9 billion.

After an exceptional 2009 and in line with expectations, net sales are showing signs of returning back to more normal levels in 2010. Nevertheless, the continuing excellent investment performance of M&G’s flagship funds gives grounds for confidence that M&G will win a healthy share of new business.

1.5 Asia Asset Management

  Q1 2010 Q1 2009 % change on
Q1 09
Net (outflows)/inflows (£686)m £185m (471%)

The net retail outflows for the quarter were attributed to Money Market Funds (MMFs) of £857 million, principally in India and Taiwan, offset by net inflows of £171 million in other non-MMFs . Large redemptions in MMFs are typical for the March financial year-end and during last year the MMFs were seen as a safer haven in the volatile investment markets. At 1 January 2010 MMF funds under management, at £4.9 billion, were 34 per cent higher than the beginning of last year hence influencing the volume of outflows this quarter. In the first few days of April, close to £1 billion of money had already flowed back to the MMF funds.

The non-MMF net inflows of £171 million included successes in Japan with the Asia/Oceania High Dividend Equity Fund that had net inflows of £440 million. In India ICICI-Prudential has won the "Debt Fund House" category in Morningstar's India Fund Awards 2009 for the second consecutive year.

2. Financial Management

The Group remains focused on the proactive management of its balance sheet and risk profile. We continue to impose stringent stress testing on our key capital measures, ensuring we could withstand, both in the short and medium term, significant market shocks.

2.1 Capital Management

Our capital position remains strong. We have continued to place emphasis on maintaining the Group’s financial strength through optimising the balance between writing profitable new business, conserving capital and generating cash. We estimate that our Insurance Groups Directive (IGD) capital surplus was £3.4 billion at 31 March 2010 (before taking into account the 2009 final dividend of £0.3 billion), covering our capital requirements 2.7 times. This compares to £3.4 billion at the end of 2009 and £2.3 billion at the end of the first quarter of 2009 (before taking into account the 2008 final dividend of £0.3 billion).

The IGD capital surplus at 31 March 2010 is unchanged since the end of 2009. This primarily reflects a positive contribution from underlying earnings, offset by inadmissible assets arising on the purchase of UOB’s life insurance subsidiary in Singapore of £0.2 million and the impact of costs incurred to the end of March 2010 in relation to the AIA acquisition and its financing.

We continue to have further available options for us to manage available and required capital. These could take the form of increasing available capital (for example, financial reinsurance) or reducing required capital (for example, through the mix and level of new business) and the use of other risk mitigation measures such as hedging and reinsurance.

As at 31 March stress testing of our IGD capital position to various events has the following results:

  • An instantaneous 20 per cent fall in equity markets from 31 March 2010 levels would reduce the IGD surplus by £250 million;
  • A 40 per cent fall in equity markets (comprising an instantaneous 20 per cent fall followed by a further 20 per cent fall over a four week period) would reduce the IGD surplus by £650 million;
  • A 150bps reduction (subject to a floor of zero) in interest rates would reduce the IGD surplus by £350 million;
  • Credit defaults of ten times the expected level would reduce IGD surplus by £600 million.

In addition to our strong capital position, on a statutory (Pillar 1) basis the total credit reserve for the UK shareholder annuity funds also protects our capital position in excess of the IGD surplus. This credit reserve as at 31 March 2010 was £1.6 billion. This represents 44 per cent of the portfolio spread over swaps, compared to 41 per cent at 31 December 2009, and 31 per cent as at 30 June 2009.

2.2 Credit

The Group’s total debt portfolio on an IFRS basis is estimated at £102.8 billion at 31 March 2010, excluding holdings attributable to external unit holders of consolidated unit trusts. Of this total, £68.9 billion is in the UK, including £44.5 billion within the UK with-profits fund. Shareholders have limited risk exposure to the with-profits fund as the solvency is protected by the inherited estate. Outside the with-profits fund there is £4.5 billion in unit-linked funds where the shareholder risk is limited, with the remaining £19.9 billion backing the shareholder annuity business and other non-linked business (of which 78.4 per cent is rated AAA to A, 18.8 per cent BBB and 2.8 per cent non-investment grade). No defaults were reported in the first quarter of 2010 for UK shareholder backed business.

Asia’s debt portfolio totals £7.2 billion, of which £3.5 billion is invested in unit-linked and with-profits funds with minimal shareholder risk and £3.7 billion held by shareholder backed non-linked business. No defaults were reported in the first quarter of 2010.

The most significant area of exposure to credit risk for the shareholder remains Jackson in the US. Jackson’s fixed income portfolio at 31 March is estimated at £25.4 billion. As reported at 31 December 2009 the net unrealised position continues to benefit from the market recovery from the historically wide spreads at the end of 2008. Jackson’s net unrealised gains has increased to £0.4 billion at 31 March 2010 from £4 million at the end of 31 December 2009.

Gross unrealised losses on securities priced below 80 per cent of book value were £0.5 billion at 31 March 2010 compared to £0.6 billion at the end of 31 December 2009.

Jackson did not experience any defaults during the first quarter of 2010. Write downs of impaired securities in the first quarter of the year were £35 million, of which £26 million were on Residential Mortgage Backed Securities (RMBS). No write downs were reported on corporate bonds. This compares to total write downs of £152 million for the first quarter 2009. In addition losses of £76 million were incurred in the first quarter of 2010 on sales of impaired and deteriorating bonds (first quarter 2009: £15 million). The increase over first quarter 2009 is the result of Jackson utilising opportunities to continue to de-risk the portfolio.

ENDS

Enquiries:

Media   Investors/Analysts  
Edward Brewster +44 (0)20 7548 3719 Matt Lilley +44 (0)20 7548 2007
Robin Tozer +44 (0)20 7548 2776 Jessica Stalley +44 (0)20 7548 3511

Notes:

  1. Asia 2010 and 2009 comparative APE new business sales and new business profit (NBP) exclude the Taiwan agency business disposed of during the second quarter of 2009 and the Japanese insurance operations which we have closed to new business with effect from 15 February 2010.

  2. On 1 March 2010 the Group announced that it has reached agreement with American International group (AIG) on terms for Prudential to acquire AIA Group Limited, a wholly owned subsidiary of AIG. The prospectus detailing the terms of the acquisition was issued to shareholders today (details of the terms of the offer can be obtained on the Company’s website.

  3. Annual premium equivalent (APE) sales comprise regular premium sales plus one-tenth of single premium insurance sales and are subject to rounding.

  4. 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.

  5. NBP assumptions for the period are detailed in the accompanying schedule 5. All references to NBP margins on pages 1 to 12 of this statement refer to margins on an APE basis, calculated as the ratio of new business profit to APE.

  6. High resolution photographs are available to the media free of charge at www.newscast.co.uk (+44 (0)20 3137 9137) or by calling the media office on +44 (0)20 7548 2466.

  7. Financial Calendar:
    AGM 19 May 2010
    Reconvened AGM 7 June 2010
    2010 Half Year Results 12 August 2010
    Third Quarter 2010 New Business Release 10 November 2010
  8. Sales for overseas operations have been reported using average exchange rates for the period as shown in the attached schedules. Reference to prior year figures in the commentary is on an actual exchange rate basis unless stated. An alternative method of presentation is on a constant exchange rate basis.

Prudential plc is a company incorporated and with its principal place of business in England, and its affiliated companies constitute a large global financial services group. It provides insurance and financial services through its subsidiaries and affiliates throughout the world. It has been in existence for over 160 years and has £290 billion in assets under management (as at 31 December 2009). 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 standards 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, whether as a result of future events, new information or otherwise except as required pursuant to the Prospectus Rules, the Listing Rules, the Disclosure and Transparency Rules, the Hong Kong Listing Rules or the SGX-ST listing rules.

1 Before allowing for the 2009 final dividend
2 Asia 2010 and 2009 comparative APE new business sales and new business profit exclude the Taiwan agency business disposed of during Q2 2009 and the Japanese insurance operations which we have closed to new business from 15 February 2010
3 Unless otherwise stated all growth rates are on a sterling basis. Growth rates on constant currency are presented on schedule 1B of the Interim Management Statement
4 For Q1 2010 we have presented new business profit and margin for the 3 month period ended 31 March 2010 and the comparative period. The assumptions underlying new business profit are presented in schedule 5 to the Interim Management Statement
5 Asia 2010 and 2009 comparative APE new business sales and new business profit exclude the Taiwan agency business disposed of during Q2 2009 and the Japanese insurance operations which we have closed to new business from 15 February 2010
6 For Q1 2010 we have presented new business profit and margin for the 3 month period ended 31 March 2010 and the comparative period. The assumptions underlying new business profit are presented in schedule 5 to the Interim Management Statement
7 Source: VARDS
8 Source: Morningstar
9 Source: AnnuitySpecs.com

Links to supplementary information about this release: PDF
Prudential plc First Quarter 2010 Interim Management Statement - News Release, Schedules and Notes to Schedules

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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).