Earnings Call Transcript - PUK Q4 2020

Mike Wells, CEO

Good morning. I'm Mike Wells. In this video, I'd like to cover 3 things: First, the progress we're making towards the proposed separation of our U.S. business, Jackson; second, highlights of how our businesses have delivered in 2020; and third, I will set out our go-forward investment case as an Asian and African-focused business. As we announced in January, the plan is for Jackson to be separated through a demerger. This decision was guided by 2 priorities that have driven our strategy over the past 12 months: One, to achieve a fully independent Jackson at pace; and two, to best position our investors to benefit from the opportunities of Asia and Africa. The demerger is designed to lead to the earlier creation of a separate fully independent Jackson than would have been possible through a minority IPO. It would deconsolidate Jackson in a single step. For shareholders, this accelerates the transformation of Prudential into a business purely focused on the exciting growth opportunities in Asia and Africa. We've made considerable progress towards our most important near-term strategic objectives. We've hit many of the key milestones along the path to Jackson's independence. We've completed the transaction with Athene, we've secured the bank commitments for the debt financing. We appointed a new leadership team that positions Jackson for independence: Steve Kandarian as Chair; Laura Prieskorn, our CEO; and Marcia Wadsten as CFO. Laura and Marcia are 2 highly experienced professionals with long records of delivering for Jackson. Laura most recently served as Chief Operating Officer; and Marcia as Chief Actuary. Looking ahead to the expected path to completion the next steps of the regulatory filings, Jackson management roadshow and the regulatory and investor approvals. I hope during this process that many of you have the opportunity to meet this quality management team. Subject to shareholder and regulatory approvals, we look forward to an independent Jackson trading on the New York Stock Exchange in the second quarter of this year. Following the planned demerger, Jackson intends to pursue a focused strategy that prioritizes optimization and stability of capital resources while protecting franchise value. Jackson's financial goals as a stand-alone company will be designed to maintain a resilient balance sheet in order to provide shareholders with stable capital returns and profitable growth over the long term. Now let's move to the financial highlights and what our Asia business has achieved last year. The macro environment for these results should be considered. It was a time of extreme volatility in equities, foreign exchange, bond markets, geopolitical uncertainty and the operational impacts of COVID-19. That said, they're very strong results. In 2020, we demonstrate that we have a business that is high quality, compounding, diversified, resilient and at scale. We continue to focus on high-quality health and protection business, and our insurance margins, that's our underwriting profit grew by 19% to $2.6 billion in 2020. The layering and compounding impacts are powerful. With client retention ratios in the '90s, we've again produced high-quality resilient growth in premiums. This is despite the very challenging headwinds with respect to new business sales in 2020. This was demonstrated through the in-force base of recurring premium income, which grew by 6% to $20 billion. We continue to invest in relationships and to advance service quality and technology. All of these enhanced both our new business capability and our ability to service and retain those profitable client relationships. Our geopolitical footprint, our multichannel distribution and our broad product mix demonstrate the diversity of our platform. As COVID-related restrictions have lifted, we have seen strong recovery in APE sales from a low in the second quarter. Nine markets and all product lines saw strong sequential APE growth in both the third quarter and the fourth quarter. Free surplus is up 8% and both Asian earnings and embedded value are up strongly with double-digit growth. What I'm particularly pleased with is that 9 of our life businesses had double-digit growth in IFRS profits. Eight of our businesses have now produced over $200 million in earnings, and we are seeing increasingly material contributions from markets that not long ago were considered too small dimensions separately. I'm also excited that our prospects in Africa, which saw rapid growth in APE sales of over 50%. We've accomplished a great deal over the last year, and I want to share some of our key achievements with you. We believe in a multichannel approach to distribution. The benefits of this diversification come through in the resilience of our business model, particularly so in 2020. This means being able to successfully operate in all 3 channels: agency, bancassurance and digital. And what's exciting for me is that this is an increasingly integrated and flexible approach to servicing our customers. We've stepped up our agent recruitment with recruits up 4%, but we've also improved the quality and productivity of our agents. We've created a culture whereby agents aspire to attain membership in the Million Dollar Round Table, which is an industry-recognized indicator of quality. The number of our MDRT agents has doubled in size during 2020. And Indonesia is a standout result here. On bancassurance, we continue to invest heavily in our leading position. And last year, we added 5 new bancassurance partnerships, expanding our reach to around 20,000 bank branches. Most importantly, this includes establishing a 15-year strategic partnership with TMB. And then in the digital space, we've made great strides with Pulse, our digital mobile health ecosystem. Crucially, we control most of the intellectual property and maintain the client relationships directly. There are around 3 billion mobile users in Asia, and Pulse is set up to meet the needs of consumers in this addressable market. Take-up has been strong with 20 million downloads and 2 million new policies written. We're driving hard, our focus on health and protection business, with 7 of our markets seeing an increase in their health and protection sales mix. Not surprisingly, our surveys show us that the pandemic has increased awareness and demand for health and wellness. Asian consumers are looking for more flexible cover and insurance bundled with value-added services. And the protection gap in Asia is huge, with roughly $400 billion of healthcare costs being settled out-of-pocket by the consumer. Enhancing the customer proposition is at the heart of everything we do. And we've broadened coverage for new risks, added innovative new features. And last year, we launched 175 products, of which over 115 were traditional health and protection products. New protection policies in the fourth quarter rose by 10%. We're also seeking to develop Eastspring, a unique capability and a leading asset manager in the region with $248 billion of funds under management. Inflows have recovered in the fourth quarter, and there is strong support from our life businesses with in-house funds under management, up 19% in 2020. We continue to enhance its capabilities to better capture the significant opportunities for mutual fund growth in the region. And finally, we're making great progress in deepening our presence in China with our life operations. This is the single biggest opportunity in front of us, where we're able to reach close to 80% of the population and 83% of the GDP of China with our regulatory footprint. We are growing faster than the market in the majority of our 99 cities and 229 sales outlets. The bank channel did exceptionally well during the COVID lockdown and our agency new business profit was very strong at 85%. The runway for growth here is exciting for us. Our life assets reach close to $22 billion, demonstrating the scale of this important business. A crucial part of our multichannel model is digital. Pulse is our all-in-one artificial intelligence powered digital mobile app. Consumers use it because of its broad suite of value-added services from the best-in-breed health and wealth area. In 19 months since its launch, we are now operating at scale in 15 markets using 11 languages. And with that, we've launched 37 digital products in 2020, winning 1.3 million new customers of whom 70% are new to Prudential, and most of them are a younger demographic, some 10 years younger than the offline customer base on average. We're using micro products to generate customer leads for our traditional agents. From there, we're able to sell full suites of products, the full premium products. In 2020, we generated 2.2 million leads for our agents, converting 120,000 of those into new business. And that produced $208 million in sales. It's already a valuable contributor to the sales overall. Pulse is not just about customer acquisition. It's also about an end-to-end platform. Consumers are not only able to purchase insurance products directly online, but in a number of our key markets, they're also able to make claims and do policy servicing through Pulse. We're creating a new platform that can keep up with the demands required by many stakeholders while improving workflow efficiency, generating operating leverage through end-to-end integration. So our 2020 Asia and Africa scorecard is just another reference point in our long track record. Our focus on operational improvements and disciplined execution has created a financial signature of double-digit growth over 10 years across all key metrics, new business profits, earnings, and capital generation. Embedded value, perhaps the best proxy for our compounding growth has more than tripled over the decade and doubled in the last 5 years. For a company of our scale with almost a century of history in this region, this is particularly an impressive achievement. Prudential has the discipline capabilities and the capital to continue this delivery. So let's now move on to the group post-separation. Our business model will focus on the long-term structural growth opportunities in Asia and Africa, building our market-leading positions and growth levers in our chosen markets. We have a high-quality, diversified portfolio of 26 businesses in 15 markets, operating across different maturity spectrums. In the more developed markets, such as Hong Kong and Singapore, we have top 3 positions. In the largest scale markets of China, India, Indonesia, and Thailand, we have significant operations, which represent huge long-term opportunities. Across the region, we have a leading multichannel distribution platform with around 600,000 agents, a leading position in the bancassurance channel, and over 300 life and asset management distribution partnerships. We are also building competitive advantages in digital. We have innovative and adaptable product skills, customer centricity is our mantra. And with Pulse, we offer an end-to-end solution, which covers health, wellness, fitness, diet, links to hospitals in many markets, all through our in-house ecosystem. And in Eastspring, a leading Asia-based asset manager with assets under management of $248 billion, we have an excellent platform, giving us access to the fastest-growing demand for wealth solutions across the entire region. We have a strong track record and effective capital allocation in risk management. And Prudential will be focused on growth with a view towards achieving sustained double-digit growth in embedded value per share. For shareholders, this means direct and focused exposure to this powerful compounding value creator, creating sustainable growth in operating capital generation in a unique and proven business model. And Mark FitzPatrick will go into this in more detail in the financial review that follows. So to sum it up, 2020 has been an extremely important year. We've made substantial strategic, operational, and financial progress. The most important near-term objective is the separation of Jackson, and the demerger is on track for completion in the second quarter of 2021. We expect the pandemic to accelerate digital and health trends further by highlighting the need for increased provision of financial protection and health. Importantly, COVID has also reinforced the alignment of our business and social purpose with our communities, our staff and our stakeholders. Throughout the pandemic, we've demonstrated our ability to act at pace and our flexibility to adapt. And our results show the resilience of our underlying business. We know there's significant latent demand for our services, and our people are becoming ever more effective at working amid social distancing requirements. We have invested almost $10 billion into Asia since 2013, including approximately $5 billion of inorganic investment to grow our distribution and to build our digital capabilities. Our organic new business continues to generate internal rates of return in excess of 35%, with an average payback period of 3 years. The potential equity raise is intended to further enhance our financial flexibility as a pure-play Asia and Africa business following the redemption of existing high coupon debt. We see a breadth of opportunities in the region in which to invest. We see scope for further compounding growth with high risk-adjusted returns for shareholders as we continue to execute our strategy with discipline and enhance our platform. In summary, we're well positioned for long-term value creation.

Mark FitzPatrick, CFO

Thank you, Mike, and welcome to you all. In this presentation, I will cover 4 areas: First, our Asia businesses; secondly, the U.S.; thirdly, some group-related items; and finally, I will close by covering some of the financial aspects of the Prudential group following the separation of the U.S. We are pleased and encouraged by the financial performance of our Asia businesses in 2020 despite the significant impact of COVID-19 and substantial market volatility. Our business has distinct and diverse capabilities across product development, digitally enabled distribution and disciplined capital allocation. We have worked to develop these further over 2020, and all of these underpin the financial performance summarized on this slide. We have a high-quality in-force business. Our sales are mostly comprised of regular annual premiums, and we have a very high customer retention ratio. Our focus on health and protection products resulted in insurance margin representing 79% of our 2020 insurance income. All of these helped to provide stability in volatile markets. We are well diversified across the region, and balanced across distribution channels. We are agile and highly innovative, whether through our new and revamped products or our rollout of Pulse. Over the year, we further broadened our offering with 175 new and revamped products. We are also focused on managing our cost base, and we have today announced that we have delivered on the $180 million central cost reduction target. The outworking of these qualities is the resilience of our financial performance. Among these selected performance metrics for the group, I would highlight the following: The 13% growth in our Asia Embedded Value; a 13% growth in Asia IFRS operating profits; and an 8% increase in operating free surplus. These are all driven by the quality and resilience of our in-force book. Although sales and new business profits were lower over the year as a whole, given COVID disruption, we saw an encouraging bounce back in the second half, with APE sales 20% up on the first half of the year. Other highlights are the growth in Eastspring's fund under management to $248 billion after a strong second half recovery. And we are reporting a solid year-end group LCSM shareholder cover ratio of 328%. So moving on to my first topic, the detail of our Asia results. In 2020, our overall renewal premiums increased 6% to reach $20 billion. Within that, health and protection renewal premiums were up 8%, and both demonstrating the value of our compounding model. A 19% increase in our insurance margin, largely earned from health and protection business, supported a $400 million growth in overall IFRS life operating profits. This reflects the continued growth of our in-force business. As we indicated at the half-year, we continue to benefit from favorable claims experience, which was partly due to the effects of the pandemic, for example, as elective medical procedures were deferred. Over time, we expect some of this favorable claims experience to unwind. We now have 9 life markets with double-digit growth and 7 businesses, including Eastspring, earning an excess of $250 million. Although Eastspring's IFRS profit growth was more subdued than in prior years. As an integrated part of our business, it continues to benefit from steady net inflows of internal insurance funds totaling $8.5 billion. Internal FUM of $138 billion now accounts for around 60% of total FUM, which at year-end was $248 billion, up 3%, driven by internal net flows and higher equity markets. Against this, we saw third-party net outflows excluding to M&G plc, of $10 billion over the year as a whole. Now this was driven by outflows in the first half, notwithstanding an improved performance in the second half, with $0.5 billion of positive net flows in the fourth quarter. In addition, as we anticipated, we also had outflows of $10 billion in respect to funds managed on behalf of M&G plc, with further outflows of around $6 billion expected in the first half of 2021. Underlying cost control remains strict. With the 2020 cost income ratio stable year-on-year at 52%. Turning now to Asia new business performance. COVID-related disruption varied considerably in both duration and severity across the region, and this pattern has continued into 2021. There is a chart in the appendix summarizing these effects. Overall, new sales were down 28%. In large part, this reflects the impact of the Hong Kong-China border closure earlier in the year, which led to an effective halt in Hong Kong cross-border business. Excluding Hong Kong, new sales were only 6% lower despite COVID disruption during the year. Importantly, as COVID restrictions have lifted, we have seen a sustained bounce back in APE quarter-on-quarter from the low in the second quarter shown on the middle chart. Now a number of factors contributed to this. First, we are well diversified by market, and we benefit from the portfolio effect this brings. While some markets remained under strict lockdown, others were rebounding strongly. Overall, new sales excluding Hong Kong in the second half of 2020 were up 27% on the first half. Six markets delivered growth in the second half of 2020 compared with the second half of 2019. Secondly, we benefited from a diversified and multichannel distribution platform. Being able to sell through 20,000 bank branches was particularly valuable. In many markets, bank branches tended to remain open as an essential public service. Thirdly, we benefited from tremendous progress in the implementation of our digital strategy. Virtual sales accounted for 27% of bank sales between July and December and 28% of all agency sales from April to December. Our agency force was also supported by leads provided by customers accessing Pulse, which we call online-to-offline sales. Over the course of the year, we saw a pivot to stand-alone protection products, reflecting increasing consumer demand. This contributed to a higher health and protection sales mix in 7 markets. Finally, a word on our Africa businesses. These delivered an excellent 2020 performance, with APE up 51% to $112 million. In terms of outlook, we are encouraged by the sequential quarterly increases in sales in Asia, seen from the second quarter of last year. However, our continued success across all our markets will be dependent in part on government reaction to changes in the number and type of COVID-19 cases and the rollout of vaccines. In respect of Mainland China/Hong Kong border restrictions, there is at present, unlikely to be a lifting of the border restrictions until the third quarter of 2021 at the earliest, but this will depend on a number of factors. We do believe there will continue to be demand for mainland Chinese customers for the Hong Kong product suite once the border reopens. Until then, this will continue to materially restrict our Hong Kong cross-border business. This year, we have further enhanced our NBP and EEV disclosures. We have provided additional EEV sensitivity scenarios in particular for larger changes in interest rates, which will allow you to compare us better with some of our regional peers. We have also provided NBP and EEV results for each of our main business units, as well as for our growth markets combined. These, along with Eastspring, will provide the basis of our new segmental reporting from half-year 2021. New business profits largely followed new sales trends. Excluding Hong Kong, new business profits were 4% lower, and in Hong Kong, new business profits were down 62%. Among our larger markets, China and Malaysia grew NBP, largely reflecting resilient new sales levels. And in China, a more favorable business mix. Within our growth markets, Thailand was up strongly by 38%, reflecting the activation of the substantial bancassurance transaction last year. The addition of each year's new business profits is really the key in our EV build. New business profits of $2.2 billion added 6% to the opening balance. And the 11% increase in the Asia segment EEV value build is underpinned by this new business profit and the $1.9 billion of expected return on our in-force business. Once again, operating experience variances were favorable for the year, underscoring the conservative nature of our assumption setting under EEV. Asia segment embedded value grew by 13% over the year to $44 billion, more than doubling over the last 5 years. As we indicated with our half-year results, after the separation of the U.S. business, Prudential will focus on achieving sustained double-digit growth in EEV per share. This will, in turn, be supported by growth rates of new business profit, which are expected to exceed GDP growth rates in the markets in which we operate.

Mike Wells, CEO

Moving now to the U.S. results. Jackson's new sales development reflects a combination of pricing actions taken in relation to its general account business and a strong sales performance from its core VA business. On a headline basis, U.S. operating profit was 9% lower. Both current and prior year operating earnings were impacted by the effects of deferred acquisition costs or DAC. And in the current year, we have seen the impact of the reinsurance agreement with Athene, which was effective from the 1st of June 2020. To provide you with a clear view of the underlying picture in the right-hand chart, I've deducted the favorable DAC deceleration recorded in 2019 to get to an adjusted base. We saw a moderate increase in fee income, largely reflecting the higher average separate account balance although this was effectively offset by lower spread and other income. This resulted in pre-DAC 2020 earnings, approximately in line with the 2019 adjusted base. I will spend a few moments now going through Jackson's statutory capital development. So starting with the adverse 80% RBC point impact from the hedge modeling revision, which we announced in January. This was a revision of the hedge modeling used to calculate statutory reserves and capital. It is not related to hedging strategy. They are different. The new VA statutory framework, which Jackson adopted at the end of 2019, recognizes the cost and benefits of hedging in the statutory reserves and capital requirement computations. In preparation for the planned separation from the group, Jackson conducted a thorough review across all models and assumptions, which concluded in January this year. As a result, Jackson identified a modeling simplification, which needed to be revised. This change was reviewed by independent third parties. This modeling simplification reduced the level of hedge credit recognized in the statutory reserves and capital requirements, resulting in a $390 million reduction in surplus. Given this included a $251 million increase in required capital, this magnified the effect on the RBC ratio, leading to an 80-point reduction. I'll now turn to the other components of Jackson's 2020 Capital Development. As expected, in-force Capital generation contributed $975 million to surplus, equating to 100 RBC points. Repricing actions resulted in an intended sharp reduction in FIA and FA new sales, which reduced new business strain to 23 points, roughly 1/3 of the level we incurred in 2019. Other nonoperating movements reduced RBC by 108 points and were mainly driven by the impact of falling interest rates, rising equity markets and elevated volatility. The Athene reinsurance transaction and equity investment combined added 92 RBC points. Finally, reflecting more favorable economic conditions and following the recapitalization of Jackson through the debt raise, the team expects Jackson's RBC ratio at the point of separation to be in excess of 450%, though this remains subject to market conditions. My third topic is the group results, where segment profits from continuing operations were 2% higher on an IFRS basis. Central overhead expenses are down 20%. And we have delivered on the $180 million annual cost reduction target, and this applies in full from the 1st of January of this year. Of this, roughly $80 million flowed into our 2020 results. As previously announced, costs are targeted to further reduce by about $70 million from the start of 2023. We will continue to review the timing of the full realization of these further savings following the completion of the U.S. demerger. Combined, these actions will represent a $250 million annual reduction in costs compared to the $490 million cost level in 2018. Interest costs are also down sharply. Looking forward, we are considering raising new equity in order to enhance financial flexibility. Interest costs would reduce commensurately with any deleveraging we undertake. We also expect to refinance a large portion of our remaining debt at lower interest costs in due course, where we have the options to do so. While restructuring and IFRS 17 costs increased, they did not do so by as much as we anticipated. In 2021, we will continue to invest in automation and aligning of core functions and processes to support growth. We will incur more costs with the ongoing IFRS 17 build-out. As a result, we currently expect 2021 restructuring and IFRS 17 costs combined to remain elevated. Thereafter, we expect these costs to reduce. Short-term fluctuations and other items are largely driven by the U.S., principally resulting from incurred hedging expenses and adverse IFRS liability movements driven by lower interest rates. These negative effects are partially offset by gains on several corporate transactions. Notably, the reinsurance transaction in the U.S. in June and the Reinsurance Commission received from a quota share transaction undertaken by our Hong Kong business. This transaction has been done as part of the group's ongoing asset-liability management and helps mitigate the effect of the accounting mismatch that exists under the existing regulatory framework in Hong Kong prior to the transition to the new risk-based capital regime. We are well positioned for the transition to the new group-wide supervisory framework. On the current local capital summation method, we ended the year with a shareholder cover ratio of 328%. Excluding the U.S. completely, this ratio would be marginally lower at 323%. We have been operating under the LCSM framework for a while now, and I'm pleased with the building track record you can see in the left-hand chart. Our updated economic sensitivities are illustrated on the right-hand chart. The Hong Kong Leg Co approved the enabling primary legislation in July 2020 and the subsidiary legislation in February '21. The GWS framework is expected to be effective for Prudential upon designation by the HKIA in the second quarter of this year. As we have previously indicated, the GWS methodology is largely consistent with that applied under our current LCSM regime. Our initial analysis indicates that all debt instruments, senior and subordinated, issued by Prudential will meet the grandfathering conditions set by the HKIA. If this is confirmed, the group ex U.S. shareholder LCSM ratio of 323% would increase by around 50 percentage points. Turning to my fourth and final topic of today's session. Following the demerger of Jackson, Prudential was solely focused on the growth markets of Asia and Africa. I'll start with organic capital generation. Our Asia business is highly capital generative. And in 2020, for every $1 invested, we generated nearly $4 of new business profit. The chart illustrates our operating capital generation over 2020 and shows in-force capital generation of $2.4 billion before central overheads. On the right, we show our uses of capital. We will continue to invest in new business while paying dividends under the revised policy we set out in August last year. For clarity, the dividend has been calibrated to rightsize cost, not current costs, so dividend growth over the next few years will not benefit from expected central cost reductions. The 2020 total dividend proposed set according to this revised policy, is $0.161 per share, equivalent to $420 million. In 2020, our strategic investments mainly related to broadening our distribution reach through new and extended partnerships and enhancing our digital capabilities. This takes strategic capital investment in Asia to almost $10 billion since 2013. And finally, at the bottom of the slide, you will see that our holding company's liquidity position remains strong at just under $1.5 billion after having invested $1.2 billion of central resources into Asia growth opportunities during the year. To ensure we are well-positioned to take advantage of the age of growth opportunities ahead of us, we are considering some balance sheet restructuring. Based on our year-end position, excluding the U.S. completely, our Moody's total leverage ratio would be 33%. While this would be manageable, it is clearly above the 20% to 25% range we are targeting over the medium term. Therefore, in order to enhance financial flexibility and delever the balance sheet, Prudential is considering raising new equity of around $2.5 billion to $3 billion following the completion of the Jackson demerger. We have $2.25 billion of relatively expensive debt, which will be past first call date by the end of July this year, with annual interest costs of about $125 million. If we were to redeem all of this with the proceeds of the potential equity raise, it would put our pro forma end 2020 position towards the lower end of our target leverage range. We have a strong investment case. Prudential is well positioned in a diversified portfolio of attractive markets with substantial opportunities ahead, is focused on high-quality, recurring premium business and on meeting the health and protection needs of people in Asia and in Africa. We have a modern distribution platform diversified across agency, bank and digital channels. We have a leading pan-Asian third-party asset management capability. And we have a strong record of value creation, evidenced by the doubling of embedded value over the last 5 years and more than tripling over the last decade. All of this gives us confidence about our abilities to drive future growth. To summarize, our 2020 financial performance reflects the strength of our business model. We expect to complete the separation of Jackson in the second quarter of 2021. In order to enhance financial flexibility and delever the balance sheet, we are considering raising new equity of around $2.5 billion to $3 billion following the completion of the Jackson demerger. Following the separation of Jackson, Prudential will focus on achieving sustained double-digit growth in embedded value per share. I look forward to engaging with you in the coming days and weeks. Thank you.

Operator, Operator

Ladies and gentlemen, hello, and welcome to the Prudential 2020 Full Year Results Call. My name is Maxine, and I'll be coordinating the call today. [Operator Instructions]. I will now hand you over to your host, Mike Wells, Group Chief Executive to begin. Mike, please go ahead when you're ready.

Mike Wells, CEO

Maxine, thank you. Well, welcome, everybody, to the conference call today for our 2020 prelim results and on the next phase in the transformation of Prudential Plc into a pure play Asian and African group with obviously exciting growth opportunities. As you've heard me say in January this year, we have 2 key priorities, one is to pursue at pace an independent Jackson and the second is to enable our investors to fully benefit from the opportunities of Asia and Africa. So today, we're announcing further substantial progress in this journey. Firstly, indicative details in our timetable in H1 2020 for the intended demerger and a summary of what we can say about -- at this stage about Jackson's equity story. Documentation will follow in due course with more details as we proceed with the required approvals. We can then give you full details on the timetable for the Q2 completion. Second, now that we have secured committed bank financing for Jackson, this will support its RBC, which we now expect to be above our 450 RBC target level on demerger, again subject to market conditions. Thirdly, our fully audited financial results are in line with our expectations, as highlighted to you in January. I think this is an encouraging performance given the challenging conditions. And then finally, further details on the preferred route of the $2.5 billion to $3 billion equity raise that we announced in January. So I'm delighted to introduce to you today by telephone to Laura Prieskorn, Marcia Wadsten, the new CEO and CFO of Jackson, respectively. And now Laura is going to give you some brief introductory remarks. We also announced in January the appointment of Steve Kandarian as the Independent Chair of Jackson's Board of Directors, and we expect to make further nonexecutive appointments with Jackson shortly. And in February, we announced two new plc nonexecutive Board members Chua Sock Koong and Ming Lu are joining the plc Board. Both are Asian-based business leaders, whose skills and experience are closely aligned to our Asian and African future and we welcome them all. So also joining me on the call today are several members of the leadership team including, Mark FitzPatrick, Group CFO and COO; Nic Nicandrou, CEO of our Asia business; Ben Bulmer, Interim CFO of Asia; James Turner, our Group CRO, and then we also have our group in Jackson Investor Relations team. So Laura over to you. If you would please to make some short prepared remarks and what you see as the key features of the business. Then another early morning for you and your team.

Laura Prieskorn, CEO of Jackson

Thank you, Mike. I'm excited to speak with you today about executive outlooking, hard work towards independence. Over my many years at Jackson, I've helped guide the company's growth. My regional terms were leading U.S. annuity provider. Throughout our history, our culture of ownership and accountability has served us well and we'll continue to do so as we move towards an independent public company. Our 2020 results, highlighting the hard work of our associates and the steps taken to position Jackson for success as a standalone company. All well navigating in our response to the COVID-19 pandemic. As the former COO, I can personally speak to the dedication of our employees to our customers, our business partners, our communities and certainly to each other. And although the pandemic persists, we continue to adapt our business and deliver on our ongoing commitments to helping Americans seek financial protection as they transition to and through retirement. From an operating standpoint, given the low interest rate and tight credit environment, we've repriced our fixed index annuities and reduced our institutional new business, actions designed to optimize our capital position ahead of separation. We actively managed our product offerings, which you saw on our updated variable annuity benefit. Our customers continue to place great value on the investment freedom we offer, and they were rewarded with strong separate account returns in 2020, a significant positive for both Sam and for Jackson. We've maintained the leading market position with key distributors and increasingly diversified our channels to market. Customer service and operational standards have been industry-leading and remain a priority as we meet customers’ needs throughout this period of COVID-19. This collective effort contributed to a 13% rise in VA sales and a matter that increasing fee income reflecting the higher average separate account balance for this year. In 2021, you can expect us to remain innovative in our approach to the market; we'll look forward to future updates on the rollout of our registered index linked annuity or RILA, which meets market demand for equities exposure with a limited downside protection structure. Jackson is well on track to demerge in the second quarter, subject to its shareholder and regulatory approval. You've seen us take important steps as we prepare to operate as an independent public company. Last June, we announced positive capital transactions with a theme, including a reinsurance agreement and an equity investment. In addition, our hedging strategy continued its long-term track record protecting our business during stresses, most evident in the stability provided during the volatile first quarter. As Mark explained in his video this morning, there are recent hedge modeling changes which reduced our year-end RBC as a revision under the new statutory accounting framework related to hedge credit. It was not a change to our hedging strategy and does not change our view of in force capital generation. As we move towards separation, Jackson is pursuing a focused strategy which prioritizes optimization and stability of capital resources while protecting our franchise value. This strategy combined with Jackson's well-recognized brand and award-winning customer service will allow us to further build upon our position as a leading U.S. annuity provider. We'll have to give further details in our SEC Form-10 filing, but I want to highlight today that Jackson's financial goal as a standalone company will be to maintain a resilient balance sheet and provide shareholders with attractive capital returns and profitable growth over the long term. Both Marcia and I look forward to spending more time with you here today, but for now, I will turn the call back over to Mike.

Mike Wells, CEO

Okay. Thanks, Laura. So despite quite extraordinary market and operating conditions, the businesses across the group have proven, I think extremely resilient, adaptable, and agile. In particular, we can confirm the overall quarterly sales trajectory in Asia continues to improve during the second half of 2020. Our presentation slide is up on the web today, go and visit for more details. By pivoting to a demerger, we're aiming to complete the transaction by the -- excuse me, the transformation of Prudential into a business that's purely focused on the exciting growth opportunities of Asia and Africa sooner than what would have been possible into the minority IPO. This spells us out under the IPO route Prudential and our likelihood could have been a majority owner Jackson for some considerable time. However, we expect to complete the demerger in the second quarter of this year. Going forward, the pure play Asia and Africa PRU is in essence a new company. We want that new company to have the best possible start and to have the further financial flexibility to invest in growth opportunity. So we said in January that we are considering raising $2.5 billion to $3 billion in equity, primarily to redeem relatively high coupon debt in 2020. It was a year of substantial inorganic investments, for example, in Thailand and today you saw we announced a very significant 15-year extension and an expansion of our MSP bancassurance partnership in Vietnam. With this agreement, Prudential will become MSP's single partner in nationwide Vietnam's life insurance sector has significant growth potential with insurance penetration, at roughly 1.6%. Being well positioned in these fast-growing economies is an important part of how we can achieve our objective, that is the same double-digit growth of embedded value per share, and we believe that there are clear benefits in the group as an Asian-focused company of increased institutional ownership in Asia, in enhancing the liquidity of our ordinary shares in Hong Kong. So as a result of that, our preference is to raise the new equity through a fully marketed global offering, institutional investors, concurrent with the public offering in Hong Kong to retail investors. And this will be undertaken after the Jackson demerger and obviously subject to market condition. It's been a lot of time assessing the ways we could achieve our objectives with this potential equity offering, and we've also consulted widely with shareholders in Asian-focused investors. Our teams continue to get better and better at adapting to the restrictions caused by COVID-19 and meeting the needs of our customers. As I indicated on the pre-recorded video published earlier this morning, I also see that the virus has reinforced demand for our products and services as well as aligning even further with the social purpose of the group. So to that end, I want to highlight what we'll shortly publish with our full report in accounts and importantly our updated ESG strategy. Our ESG strategy, there are still many ways in which the business model and strategies support our stakeholders. So let me briefly go into the 3 core themes here for you. One, we give people greater opportunity for good health and financial security and we're doing this at scale. We are moving beyond our traditional role of financial protection to provide services that also prevent and postpone illness. And we are increasing our focus on the underserved parts of the population. Our multi-product, multi-channel approach of Asian bancassurance is now 20 million downloads on Pulse. I'll show you how active we are in doing this. Second, we are stewarding the human impact on climate change, we're setting new and stretching targets for Scope 1 and Scope 2 greenhouse gas emissions with the aim of becoming net carbon neutral across these two scopes by the end of 2030, and we're assessing similar or suitable targets in respect to carbon emissions from our investments. Crucially, as an Asian and African-focused business, we're pursuing an inclusive transition in the market. We're also building social capital, promoting diversity and prospering a culture of inclusion, we are prioritizing digital responsibility through our organization, digital capabilities in new markets, and engage with new demographics using new products sets and services. So to close, we are well positioned for growth. And today's announcement shows we are moving at pace, and executing on our strategy. And now let me turn it back over to Maxine to take the question-and-answer session. And as you'll be aware everybody, there's considerable regulatory work going on. So some of our answers are going to need to be limited until we can share more detail with you, but please bear with it. Patrick as usual, pull us back if we stray too far. Maxine, do you want to open it for a Q&A, please?

Operator, Operator

[Operator Instructions]. Our first question comes from Farooq Hanif from Crédit Suisse.

Farooq Hanif, Analyst

Congratulations today on the steps you've taken. So just my first question on Jackson, actually. Given the positive news you've given on the outlook for the RBC ratio. And it seems that your capital generation will allow that to potentially quite quickly. What are your kind of early thoughts on capital return policy? Again, I know you've probably kept on details, but just do you feel, for example, that the 450 level allow is a really good base? That's question one. Question two, just on Mainland China. The recent regulatory move to potentially allow greater overseas insurance and share ownership. Just wondering what your thoughts were on those regulatory developments and whether that's actually a benefit or a risk to your business model? And lastly, just on Pulse. So given the very quick payback period that you have on health and protection in Asia, can you guide us a little bit to when Pulse will appear in your P&L? When will it start to be kind of an isolated contributor to the group?

Mike Wells, CEO

So let me give a couple of general comments, and I'm going to go back to Laura and Nic on your specific answer. So I think one of the things with Pulse is critical to keep in mind is what you're seeing is an integration of the channels as much as you are the success in each one. So we're growing agency and they're more efficient and more effective. We're growing banca, maintaining sort of leadership position there and again, getting involved in their digital platforms and then obviously growing now the digital platform with the sheer scale of Pulse now and its success. But they also intertwine. So you have leads going from Pulse to agency, you have banca using Pulse technology on their platforms, there's a we talk a lot about the reporting on this, and we'll continue to give you enhanced reporting on our activities as we move forward. But it's an interesting challenge because it's a bit -- I'd say, the closest analogy we have in-house would be Eastspring because Eastspring's success is both related to its sister companies in the group and it's also related to its ability to raise money with Asian investors directly and investors outside of Asia who want to invest directly in Asia, and the scale of all of those make each piece more successful. I think you're going to see Pulse continue down that sort of trajectory. So we'll keep giving you more detail, but I think you -- if you pull it apart, you underestimate the value of those intersects. So Nic, do you want to talk a little bit about -- I'm sorry, let's go Laura first on what little you can say about capital return given the current SEC filing, but a little direction on your views on that and then Nic, on the other two, if you would, please. Laura first.

Laura Prieskorn, CEO of Jackson

Okay. Sure. Thank you, Mike. A couple of points I would like to share is that the health of the existing in-force book is very strong. And you would, of course, expect this to be the case with the equity markets near all-time highs. The other point I would share is, keep in mind, we have a long history of capital generation and remittances to Prudential. And then in relation to our overall financial goals, I would just point out that we'll have more detail available in our upcoming SEC filings.

Mike Wells, CEO

Nic, do you want to share ownership rules in China and Pulse?

Nic Nicandrou, CEO of Asia Business

Sure, Mike. Hello, Farooq. I mean the share ownership rules in China are neither really a benefit or a risk to our franchise. It's a 50-50 JV. Yes, we're interested in buying up, but that's now dependent on our partner. So nothing -- as I said, no, neither a risk or a benefit. In relation to Pulse, I mean, clearly, the costs that we are incurring, both technology and marketing, are included in the numbers that you see. On average, it costs us about $1 to secure a download. That gives you a sense of some of the marketing spend. I mean, the technology spend is part of our change agenda. And that we have a significant spend each year. So we are redirecting more towards this particular platform. The sales that we're generating -- we've generated $3 million of APE -- $3 million of APE from direct-to-consumer small products. But importantly, we generated $208 million of APE from referrals to agents. At least 34,000 agents have done at least 1 sale from referrals that have come from Pulse. The economics of that are very similar to any of our products. And given that the vast majority of what's been sold tends to have a health and protection flavor and tends to come from the markets of Hong Kong, Malaysia, Singapore, Indonesia, which is where our downloads are greater. They're very rich. They're very rich from a margin perspective. So the economics are there in the numbers that you see, both in terms of top-line new business value and contribution to IFRS. I mean contribution to IFRS will lag. This is like any other start-up. But it's part and parcel of what we offer. It's integrated with our other panel offerings.

Farooq Hanif, Analyst

I mean just to come back on the share ownership, I was referring more to rules about individuals in Mainland China and their ability to buy foreign insurance products and liberalizing that. I'm happy to take that offline, but I know there's lots of questions on the line, but that's what I was referring to more than your ownership of the JV.

Nic Nicandrou, CEO of Asia Business

I see. So you're referring to the announcements that were made on sales priorities for 2021?

Farooq Hanif, Analyst

Yes, that's right. Yes.

Nic Nicandrou, CEO of Asia Business

I mean, yes, we note that with interest. They did say that they will study how -- when and if so, how to open up the capital account. The capital account is the component of the $50,000 a year that can be directed to buying effectively protection-linked products or protection products with a saving element. I mean, clearly, if that was to come to fruition, it will unwind some of the restrictions that were imposed in 2017. And it may even lead to using the UnionPay card again to affect transactions, but we're getting ahead of ourselves. It's positive. They're looking at it. And it reinforces the -- it will be positive for our franchise were that to conclude to reopen aspects of the way in which people bought that were in place pre-2017.

Mike Wells, CEO

Farooq, thanks for the questions. Appreciate it.

Operator, Operator

[Operator Instructions]. Our next question comes from Jon Hocking from Morgan Stanley.

Jonathan Hocking, Analyst

I've got three questions, please. Firstly, on Indonesia, I think from the dependencies that you've got sort of increasing market share of the traditional business, about 20% or so, I wondered whether you could comment on where you see that topping out? And how do you see the return profile for the traditional product versus what you've historically written in that market? That's the first question. Second question, in the slides you've sort of reiterated the guidance you've had before about the sort of double-digit EEV growth per share going forward for the sort of pro forma Asia group. That's slower than the traditional guidance that you've had sort of doubling the business every sort of 5 to 7 years or so. Is that predominantly a function of the sort of discount rate coming down on the EEV with rates over the last few years? Or is there something structurally you're seeking there in terms of growth slowing over time? That's the second question. And then the final question, on the Holdco cash on a pro forma basis, you sort of got $1.5 billion at the end of 2020. What sort of level do you want to run in terms of central liquidity going forward once you complete all the restructuring?

Mike Wells, CEO

Thanks, Jon. Nic, do you want to take Indonesia and then Mark the EEV question and the Holdco cash question, please?

Nic Nicandrou, CEO of Asia Business

Okay. Let's start. Hello, Jon. Let's start with Indonesia. We've done a number of things this year. The -- we've launched, and there's more detail on an Indonesia-specific slide, but we've launched around 60 new products. Remember, we've been saying for some time that we're looking to broaden out the offering that we have in place. And in the past, we had effectively a linked protection flagship product, and that's pretty much what we did, linked with riders. Over the last few years, and it further accelerated this year, we started offering stand-alone protection products, whether that's hospitalization, whether that's simple, critical illness, whether that's medical. Clearly, not linked -- not having a savings element, so to speak, pure protection. And the vast majority of those 60 products were on that nature. Now against the backdrop of the pandemic where there's been an enhanced demand for all sorts of protection and against the backdrop where people are a little more worried about the financial outlook, selling pure protection with lower ticket sizes has found favor with consumers in Indonesia. So that's what you see. Many more products, pure protection in nature bought by with lower ticket sizes. So even though -- just to give you some more color, even though our sales are down 30% year-on-year, the number of cases that we wrote in Indonesia this year is up 10%. That kind of gives you a sense to how we are fulfilling demand in the current environment. The contribution to our sales from pure protection has gone up to around 38% of our sales, up from 8% the year before. So that's what's driving that uptick in the market share for traditional. It's not endowment. It's not guaranteed type products. It's candidly pure protection without a savings element. At the same time, we pushed very hard on the Sharia component of our business. We're a market leader in Indonesia. We have 35% market share. So as we have created or manufactured these products, we've issued them both in conventional and Sharia format. And the Sharia segment is highly underpenetrated. We have a 35% market share. We have 400,000 customers to give you a sense, modern population of Indonesia is 220 million. So again, lower ticket-sized products found favor with people who buy Islamic insurance. And again, which is why even though our overall sales are down, our APE from Sharia products was up 6%, NBP was up 27% because of the high health and protection component. And we've sold twice as many policies as the year before. So despite the fact that the onset of COVID in April of 2020 slowed down, if you like, or halted the progress that we have made in the previous 2 months in growing this business, we've continued to increase the -- broaden our product set and finding favor with consumers in the current backdrop, and we're a better business for it.

Mike Wells, CEO

Thanks, Nic. Mark, do you want to EEV and Holdco cash, please?

Mark FitzPatrick, CFO

Yes. Sure. Jon, so on the EEV, the double-digit EEV growth, not trying to signify or signal anything particular other than an element of actually allowing for slightly lower rates in our projections and also acknowledging there is a somewhat larger base to grow front. So there isn't anything in particular that you're missing in that particular piece. And as for the $1.5 billion central liquidity, very comfortable with that level. I think we did expect a lower level of central cash to be held post-demerger. And as the group demerges from Jackson, our central costs will be coming -- continue to come down. Interest costs come down in light of the potential equity raise. So all of that will mean that we've got a very good cover in terms of our central cash level. But we're very comfortable with what it is at the level it is at the moment, and we'd expect to see that come down a little bit as we get the other side of Jackson.

Mike Wells, CEO

Thanks, Jon.

Operator, Operator

Our next question comes from Colm Kelly from UBS.

Colm Kelly, Analyst

I think given the guidance on the U.S. demerger, quite clear, I'll focus mainly on Asia. The first question is just on the health and protection mix. You made very good progress on increasing that mix over time given the product strategy. I know there's a full year, the percentage is slightly lower than that at the half year at 27%. So is that just a function of market disruption in 2020? Or is there anything more related to the use of more digital distribution in 2020 that influenced that health and protection mix? And that's the first question. The second one is on Solvency capital and specifically to Hong Kong. So I noticed that's ahead of the move to the Hong Kong RBC regime you've put in place and good derisking of reinsurance treaty ahead of that, is there any -- are there any further management actions you're looking to take with respect to the Hong Kong portfolio in advance of the move to the RBC framework? And related to that, I suppose, in the context of the fact that the move to the Singapore RBC actually benefited the group Solvency, the group LCSM by $2 billion or more. Are you able to provide any more updated guidance on what you can be impacted to the Hong Kong capital levels will be as you transition to RBC? So I'll leave it that there.

Mike Wells, CEO

Appreciate that. Thanks. Nic, do you want to talk about health and protection mix and then Mark the capital regimes and the actions required or not required going forward for RBC, including -- probably should mention the group regime as well.

Nic Nicandrou, CEO of Asia Business

Okay. So on health and protection mix, the reason, candidly, the reason is change is because of how significant in terms of size, Mainland China, businesses in Hong Kong. We had the benefit literally of a month in 2020 of just over with pipeline business. And that factor alone is that's the way that overall ratio. When you go beyond that and you look at market by market, the health and protection mix actually increased in 7 of our markets, including places like India, which was strong, Singapore, to name a few, Vietnam, Thailand, so a few markets. So that's really what's driving. And it's on the back of this, that really, we've seen margin improvement in 10 of our markets last year, notwithstanding the drop-off in overall sales. Look through other metrics, the health and protection renewal premiums were up 8% to $6.3 billion. This is the totality of the premiums that we collect from in force as well as new business, looked at the contribution to IFRS earnings of our health and protection business, if you like, the underwriting result, that was up 19% to $2.6 billion. And of course, at 19% increase compared to 14% for the life business, of course, the contribution to that total has increased to 74%. So no, there's nothing that we're seeing in the mix of that portfolio that is making us anything other than happy. And we clearly would like the border to open and for that high ticket size critical illness to sales to Mainland Chinese customers to resume. We've shown a lot of innovation in that space, and we're ready to go once the border opens up.

Mike Wells, CEO

Yes. Mark, on RBC management actions?

Mark FitzPatrick, CFO

Colm, maybe if I step up a level first to GWS and then I'll cover off the RBC. As you can see, we've noted that the group-wide supervisory regime is that much closer. We're expecting the rules to come into operation on the 29th of this month. The rules in the framework will be effective for ourselves and upon designation by the HKIA in the second quarter of 2021, and that will be subject to certain transitional arrangements. So the GWS methodology is largely consistent with that which we've got at the moment in terms of the LCSM, and we don't expect any significant changes. There is a potential upside, as I think I've mentioned before in terms of what might happen in terms of the debt instruments that all of them may be recognized and therefore, it would act as an uplift to our LCSM ratio. In terms of the RBC 2 for Hong Kong, we continue to work closely with HKIA on that and as we move towards that. Clearly, as Asia markets generally transition to more realistic solvency regime, we tend to see benefits, and that was kind of I suppose what you're alluding to and referring to in terms of Singapore, and we would expect to see a benefit in terms of the Hong Kong regime. That is still all to settle down. So I don't want to kind of get ahead of ourselves and kind of give you any kind of number. As soon as we are comfortable as soon as the regulator is comfortable, we'll be able to share something more fully with you on that side. But generally speaking, as the markets move towards these new kind of realistic regimes, we do see a very significant benefit coming through.

Operator, Operator

Our next question comes from Scott Russell from Macquarie.

Scott Russell, Analyst

Three questions, if I can, about Asia. Firstly, in Hong Kong, the -- I'm interested in the half-on-half increase in margins. It was surprisingly strong in the second half, which is surprising given rates were lower in terms of assumptions and acquisition costs would have been higher the policy as well. So maybe just a bit of explanation how the margin was so strong there in the second half? Is it all products -- product-related or is it something else going on? The second question is just picking up on Nick's comment about NBP cross-border sales being ready to go. And I've got Slide 63 in front of me here where -- I'm wondering what the source of the data is here. There have been some reports of agents who are based in Hong Kong who traditionally focus on NBP on visitors who are currently residing in Guangdong until the border reopens and then do they transition back to Hong Kong to continue their cross-border sales. I'm just wondering if that's an opportunity for the crew, whether you have agents -- some of your agents focus are in Guangdong at the moment, and that's where you're getting the confidence from the surveying future customers? And then finally, just on the orphan estate. The unallocated surplus now at $5.2 billion. This is a headache to value. But I'm more interested in why it just keeps rising, what does that say about the level of bonuses that you're paying on win profit policies at the moment? Is there anything I can infer there?

Mike Wells, CEO

Thanks, Scott. Nic, why don't you do the first 2 and then Mark on the third?

Nic Nicandrou, CEO of Asia Business

Okay. The increase in margin in the second half is purely a protection, a business mix change. I mean, clearly, with the border closed, our attention turned squarely on the development of our domestic franchise, maybe I can give you a little more color. Historically, in the domestic franchise, we've targeted the affluent, the high net worth. Around 500,000 of our 800,000 domestic customers are in that segment. And we've -- over the last 12-or-so months -- 12 to 18 months really are -- we've had a twin strategy. The first one was to upsell to this segment. An example of that being the qualified diverted annuity plan, which we launched in 2019 and through which we secured around 16% market share. So that shows the power of our franchise. And to your -- to the specific question, recently, we've refreshed the high-end critical illness offering in this -- for that particular segment. Now in addition to that, we've sought to broaden our presence in the mass affluent in the mid segment. Again, there, we launched a VHIS, the Voluntary Health Insurance Plan, in 2019. That was an entry-level product. But in the second half of this year, we extended it to a mid-tier product. So much so that our market share of that particular offering increased from 7-or-so percent in 2019 to more than 20% in the second half of this year. And there were a number of other stand-alone protection products that were also launched again in -- like we've done everywhere else in light of the pandemic, in light of enhanced demand for protection. And that's really what you're seeing coming through. I mean, clearly, with the 600,000 downloads that we had on Pulse, 50% of those were new to Prudential. Again, our agents were given leads. And really the first product that is often sold to that particular cohort tends to be a protection product. So that's really what's driving it is an uptick in sales from agents in the second half of the year relative to the first half. And because the agency does a lot more health and protection, that's what's driving the uptick that you see. Less to do with rates, and less to do with the savings component. Really, a lot of the profit comes from health and protection. Savings is participating inevitably, the margins of those are more modest.

Mike Wells, CEO

Yes. Mark, on with profits, please?

Mark FitzPatrick, CFO

I get that it may be a messy thing to or difficult thing to value, but it's an incredibly valuable thing to have in the business. So as you say, we have $5.2 billion of unallocated surplus, and that's really there to fund future bonuses. And it's a bit difficult to read into bonus rates from that number. It clearly grows the business grows and market returns generate more capacity to be able to pay future bonuses, and that kind of message what is held by the unallocated surplus until it's converted into terminal bonuses. So really kind of see that as the capacity for future bonuses that would come out to the policyholder. And then clearly, a percentage of it would come out to us as shareholders. So it's an incredibly valuable component of the Asia business in terms of the way the risks are pooled and our earnings from them tend to be fairly back-end loaded, but it is an incredibly powerful and key differentiator.