Prudential plc

Welcome everybody to our conference call for the 2021 full year results. I'm delighted to be joined today by several members of our leadership team, including Mark Fitzpatrick, our group CFO and COO, as well as Nick Nicandro, our CEO of Asia and Africa, and James Turner, who is group chief risk officer. You'll have noticed that we've moved our start time for the results day to be at lunchtime in Hong Kong, and we're delighted that we're joined by a number of Asian-based research analysts who've just started to coverage the group. Welcome to all of you. I'll make some short-term remarks, and then we'll go directly to Q&A. And I appreciate the several numbers the companies are reporting today, so we'll try and keep this to time for your convenience. Let's start with the external environment. We're obviously all very conscious of the current acute global political issues. Combine this with the ongoing challenges of COVID-19 and its effects, the resulting environment remains highly uncertain. The pandemic has had an ongoing impact on our customers. communities we serve, colleagues, and we continue to support our key stakeholders. Right now, there's a record high number of COVID cases in many Asian markets. Sadly, last year, we lost 52 of our staff and agents to COVID over the year, and our thoughts and prayers are with their families, friends, and colleagues. We've taken and will continue to take further steps to support the emotional, mental, and financial well-being of our people. To be clear, our people have not only risen to the challenges of COVID, but I think they've delivered to incredibly high standards across our footprint. We've also responded for our customers. We've developed and tailored our product ranges, in particular in health and protection, to enable these products to be suitable for a wider range of income gaps, such as our bite-sized insurance products, and including specific coverage for COVID at very low or discounted rates. As far as strategic priorities, 2021, we completed – our strategic repositioning to focus entirely on the long-term opportunities for us in Asia and Africa. This of course follows the demerger of Jackson in Q3 and the equity raise in Hong Kong in Q4. Looking ahead, we're very excited in particular by the four large markets of China, India, Indonesia, and Thailand. In all of them, there's significant structural demand drivers and opportunities to strengthen our growing positions further. As far as 2021 results, Let's run through them briefly. We delivered high quality, resilient growth in 2021. I think that's despite the challenges posed by the pandemic. We increased our AP sales by 8%, delivered double digit growth in nine of our 14 insurance markets. Outside of Hong Kong, we grew AP sales by 16%. Again, that's driven by our business in mainland China, India, Malaysia, Philippines, Singapore, and Thailand. We reported 13% growth in new business profits, over $2.5 billion. with our margins improving on better business mix. China is now our largest market for sales, and I'm really pleased with the way the rest of the businesses are developing across Asia and Africa. Our business, as you all know, is based on regular recurring premium income, a focus on health and protection, and high levels of consumer retention, all of which support resilient compounding growth as you see in today's results. Our adjusted operating profit for the continuing business was up 16% to $3.2 billion. And again, we believe that's in line with the market's expectations. At the same time, our asset manager, eSprings, IFRS operating profit was up 10% with funds under management reaching $258.5 billion. Our embedded value grew to $47.4 billion, again, leading to a 7% rise in embedded value per share. And we continue to invest for the long term in new products, additional distribution capabilities, to further build out our presence as a leading agency and bank assurance player, and to access new pools of customers. We also announced a second interim ordinary dividend of 11.86 cents per share, creating a total dividend of 17.23 cents per share for the full year. As I'm sure you're aware, last month we announced I'll be retiring from my role at the end of March. Given the refocused nature of the business, the board is conducting a search for a new CEO to be based in Asia, looking at both internal and external candidates. Mark will become interim group CEO at the end of March, and he'll assist the incoming CEO in completing the transition process as required, and then he'll be stepping down from the board. We've also announced two internal promotions of James Taylor taking over as CFO and Avnish taking over as CRO. Both of them experienced highly valued internal candidates and both of them already based in Hong Kong. As far as an outlook, we entered 2022 with a strong balance sheet and capital position. The timing of the opening of Hong Kong border remains uncertain and we believe COVID will continue to have an impact. Clearly, there are tragic events going on in Ukraine which could have wider implications for the global economic and market conditions as well as potentially geopolitical relations. However, we think Our heavily diversified, multi-channel approach focused on quality business and operating efficiency is the right strategy for dealing with volatility in any operating conditions, including these. And we're confident that our investment in new business, distribution, product enhancements will continue to meet the long-term needs of the customers and build value for our shareholders over the long term. So let me stop there and let's go to Q&A. And we will open the mics up, Jordan, if you will, now to take some questions.

Of course, as a reminder, if you'd like to register a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two and please ensure you're unmuted when speaking. For those on the webcast, you can submit a question by the questions tab in the top right. Our first question comes from Edwin Liu with CLSA. Edwin, please go ahead.

Hi, good morning. Thanks for the opportunity to ask questions. My name is Edwin from CLSA in Hong Kong. Congratulations on the decent results in a challenging environment. If I may ask two questions. Firstly, on Mainland China, CPL has been able to outperform the industry in terms of gross premium or ATE. Could you share a little bit more on how you could achieve that and what is the outlook for this year? And secondly, on Hong Kong, as you pivot to the domestic segment, given there's no MCV, what exactly have you done more specifically on agency and bank assurance channel, respectively? So that would be two questions from my side, one on mainland China and one on Hong Kong. Thank you.

Edwin, thank you for the question and the comments. Appreciate it. So let me give a... One general statement on Mainland, and Nick, if you wouldn't mind, you can provide some color on both domestic, the activities and the success we've had there, and also Mainland. So, Edwin, you probably saw, too, in the gross written premium numbers that are out for the market, we're up 15% last year, and the market was down one. So not only were our results obviously pleased with them year over year, in our business, but also relative to all of our peers in China. We feel we're taking market share and our combination of bank assurance and agency is producing a unique results in market. But Nick, do you want to give some color on that and what you have the teams doing in Hong Kong?

Okay. Thank you. Thank you, Mike. Good afternoon, Edwin. As Mike said, we've delivered both absolute as well as relative growth in China. We've been able to do that because of the model that we operate. We're a well-diversified business because we're spread over 20 provinces, 99 cities. We're structurally advantaged because we're multi-product and we're also multi-channel. And because we've entered some of these provinces and some of these cities relatively recently, there's a natural seasoning or maturation that happens every year. Those cities and provinces are getting better and better. Clearly, with new products that have been launched and refreshed, with good training on agency, we run an intensive agency model with a focus on quality, focus on regular premium business, and a heavy health and protection content. All this came to our advantage. And the bank models that we run, again, a lot of the products that we sell are regular premium in nature with a very long tenure And we've added more bank relationships. We've increased the outlets to which CPL's products are marketed massively in the course of the year by more than 60%. And all of this played well. We increased our share overall, as Mike said, but if you study the appendices to our slides, you'll see that we've done that importantly across clusters such as GBA and Beijing, where our share of market is 2 or more percent. So we're very pleased with the performance on Outlook. Clearly, the year is tougher. There are several factors that are affecting that, not least consumer sentiment, not least some restructuring that is taking place in the market. Not all of these factors affect us. in the same way as the rest of the industry. We do expect the market to slow down in the first half. We saw in the January numbers that the market declined by 6.6 percentage points. We were in positive territory, again, for all those structural reasons. And, you know, whilst I expect some short-term volatility and challenge, I think the structural advantages that we have, that seasonings that I've referenced should hold us in good stead and continue to grow share. In Hong Kong, if I can move on to that, the pivot has been fully to the domestic channel, domestic segment. We have broadened as we focus on that segment of proposition. Again, if you look at the slides, compared to pre-COVID, we have many more products and riders. Products that we've entered in the last three years now contribute over a third of our APE. That just speaks to how much better the business is. We're multi-channel in Hong Kong with a very good partnership with SCB, which we have reinvigorated. We've seen very strong progress Improvement in sales through SCB more than 20% last year, up, and new business profit more than doubling. Again, that is part of the structural advantages that we have, our experience of working with banks, but also the improved product set. We are offering now digital services through Pulse. That's bringing a digital presence with consumers with 800,000 downloads, and generally, whilst the border is still closed, we're improving, if you like, the quality of the business that we currently have, and you see that through the 9% increase in domestic MVP.

Thanks, Nick. Thank you, Edwin.

Our next question comes from Kwing Kwing Mao with CICC. Kwing Kwing, the line is yours.

Thanks. It's Jingxin from CICC. Congrats on the results. If I can ask to deep dive, dig in on China a little bit, we can see your resilient growth, which is quite impressive amid the slowdown in the industry. Could you tell us more about what's driving this significant improvement of agency productivity and what's the outlook for this year? That's all for me.

Ching-Ching, thank you. Nick, I'm going to flip it back to you again, if you don't mind.

Could you tell us more? I'm sorry?

Ching-Ching, did you have another question? I'm sorry. One on China productivity. Is there another one we can answer?

Okay. And could you tell us what's the outlook for China this year?

Okay, Nick? Okay.

Okay, thank you. Can you hear me? Yes. Just making sure you can hear. Okay. So on agency, as I've said before, we've imported, moving in China for 20-plus years now, and we've imported the same intensive model that we apply elsewhere in the regions. And by that, I mean watching very carefully, if you like, the ratios of the pyramid from agency leaders to downstream agents. We run relatively tight ratios of five to one. And that, if you like, improves both the supervision and the support that an agency leader can give the downstream. At the same time, we've imported many of the programs. We call them Run to MDRT. that we use in other parts of Asia, and we've seen a significant improvement in both the number of MDRPs as shown on the slide, but also the percentage of business that is written by them. But it doesn't stop there. We give quite a lot of training, and we started new programs in the course of last year on how to support agents, new leads management, new activity management systems, how they can support productivity. Where we roll those systems out, we've seen a threefold increase in productivity, and we will gradually roll out the equivalent systems to cover 80% of our footprint in 2022. Hiring has been a challenge. You would have heard that from a lot of people, a lot of players in China. But it's less to do with the – it's just as much to do with the hiring skills as it is with the availability of candidates. And again, we've upgraded and we're rolling out new virtual now hiring. In the most recent one, we did a business opportunity presentation that we did was attended virtually by 4,000 by 4,000 prospects. So there is demand. It's just how do we close it. The training that we give people is differentiated both in its duration, its timing, and how we do that. And, of course, as we enter a new city, we adopt the same model and we build highly productive pyramids as we go. And every year those pyramids get more and more experience. I've already referenced the outlook. The market is tough. I've given you the stats from January. But all these structural advantages that I've referenced in my earlier answers should enable us to continue to deliver relative outperformance if we can't deliver absolute. Longer term, I think the prospects are huge given the low level of penetrations. across the market, the need for retirement products, the need for ongoing medical and educational savings plans. And we're well-placed to do that with a very strong brand and a very good partner.

Thanks, Hinting.

Our next question comes from Sabrina Soho with UOBK Han. Sabrina, please go ahead.

Hi, I'm Sabrina from . Thank you for this opportunity and congrats on the results. So I have two small questions here. I would like to ask, could you share with us the view on the Greater Bay Area development, like what are some opportunities that Prudential is trying to accomplish? And another question about Southeast Asia. What are your plans to revive the business in Indonesia, and what's the outlook for Indonesia?

Okay. Thanks, Sabrina. I think, again, I'll give some general comments, and then we'll let Nick add some color to those. But I think on GBA, it's one of the catalysts for us in Hong Kong. So, I mean, clearly the border reopening, in whatever shape that takes, and we're not forecasting a date on that, we're ready. And that's a combination of training, the communication our agents have had with their clients. You see the persistency of the business in Hong Kong, those mainland Chinese consumers still funding these 20-year relationships they have with us each year. But on GBA in particular, so the final shape of it is still being discussed. You clearly see attention now and public positioning from Beijing on its importance, which I think is a is a great message in terms of the resources that get put behind it that continues to move forward in COVID. What it means to us, it's one of the wealthiest, collectively, it's some of the wealthiest parts of greater China. It's markets we're operating in, with the exception of Macau, we're working on that. And we have roughly 10% market share of it. So we start with a great brand, as Nick said, a leadership position, And if it's insurance service, if it's insurance sales, if it's wealth management, these are all things, the next earlier comments, that I think we're incredibly well positioned to capture. And we're in these dialogues both with commercial trading partners and the government on it, and we see it as a very good thing for the region. Again, it's not the only cluster model in China, as you're well aware, but it's one that has a particularly unique benefit to us, I think, over the intermediate term. But, Nick, any further comment on that, or do you want to comment on all the work going into Indonesia?

No, I think you covered the GBA. The only thing I'll repeat is if you have the right brand, if you understand the needs, if you have the right relationships and distribution reach, and the right products, then we're well-placed to continue to win sales. The premiums that are joint venture rights in the GBA area are more than a quarter of our premium take. That's again shown in the slides. Of course, we're one of the biggest. About 20% of what needs to be written in Hong Kong from mainland China when the borders were open were also from GBA. brand resonates well and we understand the needs and we're well placed to service them. Once the rules on how insurance connect will operate are announced, then we'll be able to share more. In Indonesia, the market continues to be disrupted. We were the most disrupted through COVID. If you look at The GDP, it's only just getting back to 2019 levels. Unemployment is running between 6.5% and 7% before COVID. It was running just below 5%. So, impacted as an economy overall. The insurance sector was flat in 2021. But it was only flat because a lot of money went offshore through bank-sourced unit-linked, single-premium unit-linked products. That's not really the business that we're in. It's opportunistic in my view. It is not a structural growth driver. The business that we're in is in regular premiums. Those were down single-digit overall agencies. In the market, the regular premium business was also down, partly because, as I said, the high-net-worth individuals took advantage of the single premium offerings, and partly because affluent families took the view that they wanted to instead buy simpler protection-based regular premium products. So what we did against that backdrop was to massively expand the product range. We've issued standalone products. critical illness, standalone medical products, standalone hospitalization, standalone term. All these were termed as opposed to whole of life. And we've written a lot more of these contracts that are at any point in our history, as I said, so much so that even though our sales are down, the number of policies that we've written was up consecutively in the last two years. So actually, in a way, our business is a much better business than it's ever been before. We now have market presence in the traditional segment, which we didn't have before. We have market presence in the group insurance segment, which we didn't have before. We retain the leadership position. We had an agency and unit linked. So it's a much stronger business, and as soon as the environment normalizes, I believe that whether it's our scale, whether it's the enhancements that we made, whether it's now the digital reach that we have with Pulse with 10 million downloads and 4 million registrations, and now it's becoming the main tool our agents use to onboard customers. We are phenomenally well-placed, and as soon as it normalizes, then you will see the benefits of this investment. Unfortunately, the performance is lagging the development of our capabilities. But rest assured, those are much stronger than at any point before.

Thanks, Nick. And then, of course, the development of our Sharia business continues at pace with the effectively creative standalone entity. So lots going on there. I couldn't agree more with Nick, the positions as well. But it's been a difficult time in Indonesia. And Sabrina, thank you for your question. Time for the next question.

Our next question comes from Fu Lin Liang with Morgan Stanley. Fu Lin, please go ahead.

Thank you. Very good results. Congratulations. And I forgot the three questions, if I may. Two of them are related to Hong Kong. The first one is on the IFRS basis, your Hong Kong profit earning year-on-year growth is falling below 10% for the first time, I think, in the last decade. And I just wonder, because Hong Kong is still your largest IFRS earning contributor, and if it's falling down, what's the reason behind it? Because I'm just so worried that is that something we should actually expect in the future as well? Any reason for that? So the first one. The second one is, again, on the Hong Kong domestic-based business. I understand the current situation. You write about 430 new business profit in the second half of 2021 without contribution from mainland Chinese visitors. Is that some kind of sustainable new business profit in the future? And how does the lockdown, the very, very strict lockdown locally actually affecting these numbers in 2022. So that's the second one. The last one is I know that we have been talking about the potential pent-up demand once the COVID situation is getting better. And I just wonder, actually, from the markets which have opened up gradually, like Singapore, are we seeing pent-up demand there? Thank you.

So let me address a couple, and I'm going to put Mark to work on the IFRS topics, and we'll give Nick a break on this one. So I think on lockdown, we have seen at our peak we were 96% lockdown globally. So our capabilities were there, and they've certainly improved to be able to deal with lockdown. Let me give you an example. Even in markets, so our agency business now is about 50% virtual selling globally. which, again, in Hong Kong, when the city was closed but not fully locked down, that was not a tool that was used as much. But now, of course, it's a tool that's available to them, and we can adjust. It doesn't replace face-to-face, but it has become a normal way, a consumer preference as well as an agent preference. And, of course, you've had some of the bank branches closed currently in Hong Kong. So those will affect on a short-term basis. But Again, our ability to deal with this now is a pretty well-traveled business plan, and we know how to execute that. On pent-up demand, so we survey an external survey, and there's some in the deck, mainland Chinese consumers to see, you know, are they still interested in having long-term savings for education and retirement in Hong Kong? Are they still interested in accessing, you know, medical care, whether specifically to go to Hong Kong for that or while they're there? And the short answer is they are. It's sort of pre-pandemic levels is what the surveys would show you. And, again, we've positioned that in our results in the appendage for you to look at. So we think the demand is there. In all of our markets, I think you see an increase in health demand that's been just incrementally growing, you know, quarter by quarter because people are just so aware of the financial risk of this. But it does vary by market. the amount of government support a bit in the markets. You know, we do business in a lot of countries where there's little or no, you know, government support on rather effectively health support or unemployment events. So those tend to have a much more dramatic need, if you will. So with that, Mark, do you want to go through the IFRS piece?

In terms of Hong Kong IFRS operating profit on a constant exchange rate basis is up 10%. And we're really pleased with that because I think it reflects both our long-term focus on regular premium and also the element of health and protection business and a very strong retention rate of both our domestic and mainland Chinese customers. You know, kind of regular premium mixes 85% and the element of customer retention number is in the 90s. So we're very pleased with the number. I don't think there's anything untoward to see inside there. We think that Hong Kong, I suppose, for the last two and a half years have been affected either through COVID or protests earlier on to still be able to have this level of IFRS operating profit growth. I think talk to that resilience and quality and the great ability that Derek and the team have had during the course of this last year to pivot to the domestic business. And the one thing that we've also seen is that the medical expenses Coming through, we saw kind of an element of in 2020, an aspect of medical expenses a bit lower as people were staying away. And during the course of this year, we're seeing that normalize a little bit towards the back end of the year. So we're pleased with the IFRS number in Hong Kong.

Glenn, thank you for the question.

Thank you.

Our next question comes from Kailash Mystery with HSBC. Kelesh, the line is yours.

Hi, morning, everybody. It's Kelesh here from HSBC. I think there's three questions. The first one is, obviously, in terms of new business value, the health and protection mix fell. Can you just take us through why that is? I think there were some product adjustments on the savings side. The second thing is, just on the Indonesia comment, I think both are down, impacted by both claims and worsening inconsistency. In particular on persistency, is this something you've seen in other markets as well? And in particular, mainland Chinese buying in Hong Kong. And the third thing is, obviously in the second half, there was a slowdown in new business momentum. Can you just help us to unpick base effects versus pandemic-related sort of restrictions on that to help us with our forecast going forward.

Certainly. Good to talk to you. It's Mike. I think that – let me do the last one first, and then, Mark, I'll turn it to you on the MVP parts. But I think the second half, you know, in most of our markets in Asia was the most severe – pieces we saw of the Delta variant hitting. Sadly, it's when we had the most mortality claims in Indonesia and India, the tail of most of our markets on their heaviest lockdowns. If you look at the GDP of the various countries, I think it's the most disrupted half for GDP across the region and various countries as they are in the West are in various positions now coming out of that, as Nick flagged, some of them are still, Indonesia, for example, are still, you know, working through it and the economic impacts of it. I think to help you, we've got in there the vaccination level slides and things, and I think it's a decent leading indicator. Because I think that, you know, the differences when you look at that is keep in mind, you know, a vaccination level a year ago versus the vaccination level today The one today has the benefit of everything the medical community has learned in the last 12 months. You know, you have the protein-based, which effectively means non-refrigerated vaccines on the horizon, Novavax, et cetera, you know, in weeks now for these markets, which given the sophistication of some of the delivery, you know, a vaccine that you can ship in a box instead of needing a sophisticated refrigeration is a major breakthrough for some of these markets to get to the next level. So there's better information, better medical product and solutions now than there were if you look at that same vaccine level a year ago. So I wouldn't make it – it's not linear by quarter, but it's a directionally good indicator of where the markets are and the impact on our various markets. And I think it warrants you taking a minute and looking at country by country because that's really the way we've seen it play out. None of these two started in the same place. None of these two are reacting. None of the two countries are reacting the same way. And then the last one is their economic options. What do they do with QE? What's their per capita income? Those sorts of things. It's all combined. That's how we look at it. But I would say that the second quarter, second half of last year was the most difficult macro environment we dealt with. And it definitely feels better in most markets. Does that answer that? Clearly?

I think, yeah, partly. I think one of the other things is just to understand the base effects. In my mind, I guess mainland China is pretty high in the first half, and I know that domestic Hong Kong is improving quarter on quarter through the year. Are there other base effects that we should be considering? So, yeah, I think...

No, the other markets I would say no, but I think the Hong Kong or China, in Hong Kong I'd say no. I think mainland China, you've got to remember the industry enjoyed in the first part of 2021 a unique CI, you know, sales spike. But you've also had policies there that are actually taking effect now where the government has said to, you know, the insurance industry, We really want you out of the short-term bank-like savings product. We want you out of shadow banking as a company. And I think you've seen that in the decline of agency in China across the entire industry. And so, you know, what it does is force people to a more professional model. The agents have to learn health and protection. They have to learn long-term savings products instead of short-term, you know, bank equivalent time deposit. And that that's a transition for a market that at its peak had almost 9 million agents, right, and is losing a lot now, which everyone will lose their part-timers in that. And, you know, that's not a unique occurrence and it's a manageable event. But for the scale of some of our competitors in China, you know, it's a big challenge if you've got a million or more agents in market, right? I don't want to diminish the work those firms are doing to to pivot their distribution strategy. So that's what I would say. When you look at China, that would be the only key ones. The rest of the markets, no, there's no material difference. Mark, do you want to hit MVP in the mix?

Sir Kailash, hi. In terms of health and protection, when I look at the year and from an APE level, health and protection last year was about 27%. 2020 was also about 27%. The kind of mix of sales hasn't really changed, so overall health and protection would have grown in line with the overall growth in APE. In terms of NBP mix, it has come down a bit. Part of that is an element also of the effect that Nick mentioned in terms of the broadening of the product range, slightly more standalone products and element of term products. So some of those products have a slightly different element of profit signature in them. So as Nick said, in some of the markets, we're actually selling more, but it's at a slightly lower case size, and therefore the profitability of some of those is slightly off relative to levels we've seen before. But underlying mix in terms of the underlying direction of travel in terms of health and protection, we're very pleased with it. We think it is very important, and we think that as a result of COVID, it has actually increased the demand from customers and from the market as a whole. for health and protection products and that's one of the reasons you've seen a strong uptake in terms of the number of policies that we call out in terms of some of the narrative and some of the slides in the deck today. So that more and more people are buying but they may be buying slightly shorter term products and slightly less complex and therefore less rich margin products.

Mark, if I can interject. we're selling fewer, if you like, riders that are attached to a whole-of-life type contract. And this is what we're finding in one or two markets as people pull back from making the kind of commitments given the backdrop and selling more standalone, which are terms. It could be for five years, 10 years, 15 years. So when you look at the profitability of a 10- to 15-year contract divided by the first-year premium, it's going to look optically lower than that which you would get from a rider, which is a whole of life. But if you look at other metrics, kind of much more meaningful metrics, which are internal rates of return, for example, they are just as attractive, if not more attractive. So in Indonesia, where we've seen the biggest transition from people buying effectively linked protection into standalone, the IRRs of the business that we've written in 2021 are much healthier than that which we've written in years where there was more writer-based business and less standalone business. So the economics on which we're writing these can be downplayed. These standalone products can be downplayed if you simply looked at margin because they are turned. And I hope that makes sense.

Yes, that makes sense. Thank you. There was just one more question on the persistency on planes, any other markets materially impacted?

So, I think India, Indonesia are the main ones. We haven't seen, and I think for a while now we've been keeping very close eye on persistency levels in Hong Kong, especially to your question about mainland China. Sorry, I forgot about that part. And we haven't seen any kind of deterioration in that in terms of, you know, business coming across the border. I think that just talks to the value that customers attribute to that. And from the survey slides that you'll see in the deck, that also talks to the ongoing enthusiasm for people to continue to buy, as and when they can, products down in Hong Kong to provide mainland China customers with support.

I think, you know, it's always been a risk-off trade for the consumer. So I think we feel pretty good about the future resilience of that book.

Thank you. Thank you very much. Thank you.

Our next question comes from Andrew Crean of Autonomous. Andrew, please go ahead.

Good morning, all. Thanks for taking my questions. A couple of questions. Firstly, I wanted to get a sense as to what is happening on the talks on the China JV, whether there are live talks with CITIC and whether there is any sort of timeline around that. And I suppose as a writer, it would probably be with that. And then secondly, I know you have yet to adopt RBC and COS2, but could you give us some sense, as to what your capital position feels like relative to the comfort zones you'd like to operate in.

Yeah, I think on – let me speak to the acidic relationship. Then, James, I'm going to have you speak to China RBC and CROS if you would, please. Nothing to announce. The relationship you see continues to work. incredibly well performing the market. I don't think my view on it has changed. We've been very public that we'd love to own more of it, but there's nothing to announce today. I think I told you once in a group meeting, in the first meeting with the new chair, he said, yeah, I would too, sort of thing. It's a great business. I think long-term, it's probably not big enough for CITIC because their capabilities in China, they could buy and operate something even bigger But there's no announcement there. We don't comment on ongoing conversations. But we've made it very clear to them, both publicly and privately, that we stand ready to do more there at a reasonable price. We're not going to pay anything for it. But you see the model is working. We'll have more competition, obviously, as people see its performance. But I think with both partners, they are very helpful in entrance into new markets and navigating some of the complexity of China and navigating some of the political and as a distribution partner. And we brought our best practices from, you know, region-wide in there. And I'm, you know, extremely pleased to see where that business has gotten to in the last few years. It's, you know, it's compounding its IFRS earnings and it's APA close to 40% on both those metrics. So, you know, that's, if you look over the last, say, five or six years or so. So that's, you know, it's, Very, very happy with it. But that's not lost on them either, Andrew. James, you want to talk about CROS and RBC? You're spending a lot of time on both.

Yeah, no, look, I'm happy to. Thank you. Listen, so clearly where we are right now in the capital level, we're very well capitalized. We've got pro-former LCSM ratio of 0.8%. Now, the published results do not reflect either the utmost from the early adoption of RBC in Hong Kong, nor the impact of CROS-2. And the impact of both will be shared in the half year once these regulatory changes have become effective. To give some kind of flavor directionally, given our health and protection focus, you're going to see additional surplus arising whenever we adopt RBC regions. And there's a number of changes across the region where regulators are looking at RBC regimes. And similarly, the impact of CROS II, as I think we said at the half year, is not expected to be material in terms of our surplus. So we will go into more details on the impacts at the half year. But that's directionally where they are, the break policy.

Thanks, Andrew. Thanks, James. Appreciate the question, Andrew. Any questions?

Our next question comes from Larissa Van Deventer with Barclays. Larissa, please go ahead.

Thank you. Three quick ones from my side, please. The first one, you haven't spoken much about Pulse. Could you please highlight the markets where you're getting most benefit and what those are and the extent to which you believe they can be expanded into other regions? The second one is a very simple question on China. What is the biggest constraint on growth? And the last one is on the China-Hong Kong border. Could you comment on how much of the lost Hong Kong sales you believe may have been taken up in mainland China or may be taken up in other regions that has been cannibalized?

Yeah, so let me do a couple of these, Nick, and then I'm going to flip them to you for color and pulse. So they're generally the Again, we're outgrowing the Chinese market as a whole, I think, at pretty dramatic levels. I just mentioned the kind of compounding growth we've seen in China, which I think certainly rival anybody in market. We're starting from a lower base, so it's not a fair comparison to somebody who's got a larger shop there, but they're real and they're relative and absolute benefits to us and our shareholders. The only constraints to growth for us in China, we pretty much have the regulatory footprint of the country now available to us. Not quite, but the majority of it. It's speed of development of quality agency. It takes a while to get good agents to build a book. But we have roughly 4,000 wholesalers who call on banks. So we have the ability not only to distribute through bank products, but to get them up to speed very, very quickly when we enter a new city. We have lots of new cities to enter when you look at some of the second and third tier markets. And those aren't lost on us. That's where we should go next. So it's an order of execution for us, not a lack of opportunity. And you want to build agency quality first. not quantity first. You want to make sure you have the right people. They build a quality book. You don't want compliance issues later. You don't want reputational issues. So you're going to do that the right way. And that takes time. That's the only part of our business plan in China that's got any sort of, you know, constraint on its short-term growth. And as you get more successful in the agency, the more agents want to work for you and the more easier recruiting gets. So there's, you know, there's a virtuous circle there. On Pulse in China, we've said we're looking at it. We haven't announced the launch there. That's a dimension of our capabilities that we haven't brought there. But we have, as Nick said, brought a virtual hiring, training, agency development model that's our best practices into China in this last year. And we continue to extend that. So again, for agency productivity, no barriers there other than execution. Nick, do you want to comment on pulse and the border question?

So let's start with the border question. I mean, to understand what's been lost to maybe domestic, to local competition within China, you have to go back and see who was buying in Hong Kong and why were they buying. And the vast majority of people who were buying in Hong Kong were high network individuals. particularly of a certain age group, 40 to 55-year-olds, or affluent individuals with children under the age of six that were looking for educational savings-type products, denominated in foreign currency. So the reason they were buying is exactly that, is the foreign currency and the ability to invest in U.S. or Hong Kong dollars, to tap into returns outside China, and also because of the comprehensive nature and the quality of the coverage on the CI, critical illness, as well as access to private hospitals for medical treatments. Now, those needs remain, and the availability of equivalent products in China is not there. Difficult to be specific, therefore, on your question, but the underlying needs have not changed. and they're not served anywhere near in the same way as they are in Hong Kong, which is why we believe once the border opens, the business will return, and it's a question of the shape rather than the question of the quantum. The fact that we've brought in our products now to appeal to mass market as well with Insurance Connect also gives us another leg, so that with a new segment, particularly with those others in time, who will not need to travel in to buy a policy. On Pulse, we've done a lot. The focus shifted in the second half of last year to one of embedding and conversion. 32 million downloads, 13 million registrations. I think we have plenty of users. So it was all about how do we get them to use the services more, so we extended the services to 56. How do we get them to spend more time, those that are using the services? And again, on average, the amount of time spent increased by about 20% by the regular users. We also connect it or host it. We're now hosting tools on Pulse that help with lead management, with activity management. So if you like the conversions, or passing across a pulse user into a lead and converting that into a phone call is now seamless and it all happens within the same application. That's been done now across eight markets, Indonesia and Malaysia led the way, Hong Kong has come on stream and now pretty much every single one of our big agency markets including including Vietnam, Philippines, Hong Kong, Singapore, are all looking to adopt those tools. We've had a four-fold increase in the number of agents who are now registered to use those tools, and a two-and-a-half-fold increase in the numbers that are actually using them. So as we go into 22, we will see further increases there, which is part of the reason why you've seen the percentage of AP that comes from users that are involved in Pulse increased from around 6% last year, 7% last year to as much as 11.5%, but in the fourth quarter it was 13%. Look through number of cases, those numbers are even higher. We've added direct-to-consumer products. We now have 46 products across nine markets, and a lot of them came like latter part of last year. The direct-to-consumer sales that we have so far this year are primarily concentrated in Vietnam, Philippines, and in Indonesia, but we expect to see a lot more coming across the rest of the markets as we put some marketing effort behind those. And again, these are all new relationships that we will have with our users, if you like, a second relationship before we engage our agents. So higher uses of services, more direct-to-consumer products, greater efficiency or improving efficiency in terms of converting users to buyers of full premium products are now being spread across more markets than this time last year.

Thanks, Nick. Guys, we've got time for just a couple more questions, and we have opportunities to meet with you over the next few days in various meetings. So apologies if we didn't get to your question today, but we're also live to the fact there's a number of firms reporting and We were asked by a lot of you to stop at the top of the hour, so I want to respect that. So next question, if we could, please.

The next question comes from Blair Stewart with Bank of America. Blair, the line is yours.

Thanks. Good morning. I just made it, it seems. Two questions, please. First one on the margins. I noticed 134% Hong Kong new business margins, 70% in Singapore. These are margins that you've never seen before. So what's going on there? Are you just able to sell a richer stream of health and protection? Is that all that's going on? Is that being driven by the pandemic? Or what's happening there just to drive that uplift? And my second question, for now at least, is if on financial flexibility you've given an indication of CROS and RBC, and I think, Mark, you talked in your in your statements earlier about having financial flexibility and I think leverage is down at 21%. So what level of financial flexibility do you think you have based on what you know about your solvency and liquidity, et cetera? Thank you.

So the general comment on the second one, then I'll go to Mark just for the timing. I don't think Blair, we've had, this low a sensitivity to rates and equities, movements in our earnings. And I think our financial flexibility in my time has never been greater. But Mark, do you want to comment on specifics on both? And there's a wrap up of this one.

Yeah, I think you're right in terms of the rich stream of health and protection that's come through in both of those components. And also with an element in Singapore, additional link products, et cetera, coming through. In terms of financial flexibility, As you say, Moody's leverage ratio pro forma for the debt repayment in January is about the 21%. So we think we've got decent scale in terms of the headroom to kind of get to about 25%. It's kind of just under $1.5 billion kind of headroom that we have for that perspective. And in terms of our regulatory capital levels, at the levels we're at, at the 4% or 8%, again, pro forma, It's an aspect where the regulatory capital is not a binding constraint in terms of how we operate and what we do. And we think that's important because that enables us to operate and enable us to engage with the regulator on the front foot and be very kind of forward looking and forward leaning in terms of the opportunities that we might have in front of us. And we saw how we deployed that locally, for example, in Thailand recently with the TTB bank assurance deal where that was partly funded by some surplus in Thailand and partly funded from the centre. So we continue to be very pleased with the strength of the balance sheet, especially with the turbulent markets that we have, the resilience of that, and the financial flexibility, A4, the element of inorganic opportunities, but also the great organic opportunities. In the last eight years, we've invested about $11 billion in Asia and Africa alone, kind of roughly split 50-50 between organic and inorganic. So we'll continue to look to invest hugely in organic and continue to explore carefully inorganic opportunities ahead.

Blair, I'm going to have to cut it there. I know we'll see you later in the week, and thank you for the questions. You know, to Mark's point on Thailand, the measurable output of that is you watch the bank assurance channel market share go from 4% to 14% if you look at the detail and the results. So very happy with that. Thank you very much, everybody, for your questions. I just want to personally thank you for your interest and support in our business and my time as CEO. It's been a privilege for me to serve for the last 26 years with Prudential. And I'd like you to take away a few things, if you would. We are now, and I'm very pleased to say, entirely focused on Asia and Africa. Clearly, we've delivered high-quality, resilient growth in 2021. And I think in this environment, that's a you know, valued and unique statement. And we're extremely confident that the model we built with the diversification of countries, the multi-channel structure, it's the right one to continue to execute in what's going to be or very likely going to be a complex environment for the short term. So thank you again for your time today. We look forward to talking to you all in more detail in the coming days.