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Unpacking Prudential PLC's 2024 Financial Surge · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Okay, so you want to know what's really going on with Prudential Plex. Yeah.
• 0:11
  And you want to know what's really going on with their financials for 2024. Yeah, absolutely.
• 0:15
  You want to know like the good, the bad, the ugly. The insights.
• 0:18
  Yeah, the insights, exactly. The analysis.
• 0:20
  You've given us Prudential Plex press release for the full year.
• 0:24
  Results for the year ended December 31st, 2024. Yeah.
• 0:28
  So that's what we're going to deep dive into today. We're going to unpack all that stuff for you.
• 0:32
  We're going to figure out what drove those numbers and what Prudential thinks
• 0:36
  is going to happen in the future. Their outlook, yeah.
• 0:38
  Okay, so let's jump right into those financial highlights. Right.
• 0:42
  What were some of the things that stood out to you?
• 0:44
  Well, the headline figure is definitely that 11% increase in new business profit. Okay.
• 0:50
  Reaching $3,078 million.
• 0:53
  $3,078 million. But I think what's really important to understand is that the
• 0:58
  underlying growth, if you strip out the impact of interest rate and economic
• 1:03
  shifts, was more stable year on year.
• 1:06
  So that suggests that the core business momentum is solid. OK,
• 1:10
  so 11 percent. That's great.
• 1:12
  But once you account for just general market conditions, then the growth is
• 1:15
  probably a little bit less impressive, but still pretty good. Yeah, still solid.
• 1:19
  OK, cool. And then what else stood out to you?
• 1:22
  We also saw a pretty robust 7% rise in group EEV operating profit to $4,828 million.
• 1:34
  So EEV, just as a quick reminder, that's embedded value. Exactly.
• 1:37
  So it's a way of measuring kind of like the longer term profitability of the
• 1:41
  life insurance business.
• 1:42
  Yeah, present value of future profit. So that's 7%. So that's good.
• 1:45
  That longer term profitability measure is also looking good. Yes, it is.
• 1:49
  Okay. So we've got these alternative measures of profit. we've got new business
• 1:51
  profit, we've got EEV operating profit,
• 1:55
  What about their more conventional measures of profit? Well,
• 1:58
  IFRS. What do those look like?
• 1:59
  Yeah, so their group IFRS adjusted operating profit increased by 10% to $3,129 million.
• 2:09
  And maybe even more notably, their total IFRS profit after tax saw a significant
• 2:15
  jump to $2,415 million compared to $1,712 million in 2023. Wow.
• 2:24
  So that's a substantial improvement in their bottom line. Yeah,
• 2:28
  it's a huge improvement in profit after tax. Yeah.
• 2:30
  Okay, so we see all these profit numbers going up, up, up. Right.
• 2:34
  What does that mean for shareholders?
• 2:36
  Yeah, so earnings per share. Okay.
• 2:38
  Based on the adjusted operating profit saw a slight increase to 89.7 cents up from 87.8 cents.
• 2:47
  There's a bit of an interesting detail here. Right. This figure includes an
• 2:51
  adjustment because of a federal court ruling in Malaysia.
• 2:53
  And before that adjustment, it would have been higher at $0.94.7.
• 2:58
  Gotcha. So a little asterisk there. Yeah. Okay. So not a huge increase in earnings
• 3:02
  per share, but then more directly benefiting shareholders, the total dividend
• 3:07
  per share for 2024 rose by 13%.
• 3:12
  That's right. To $0.23.13.
• 3:14
  So that's going straight into the shareholders' pockets. Exactly.
• 3:18
  Yeah. That's good news for them.
• 3:19
  So yeah, overall looking really good from a shareholder perspective as well. Yeah.
• 3:23
  Definitely. Okay, so we've talked about Prudential Plaque as a whole,
• 3:26
  but they also have an asset management arm.
• 3:29
  EastSpring Investments. Yes, they do. How did EastSpring Investments do in this environment?
• 3:36
  Yeah, EastSpring had a really good year actually attracting new client money. Okay.
• 3:41
  They reported a significant $6.5 billion in net inflows from third-party clients. Wow.
• 3:49
  Which is up considerably from the $4.1 billion they saw in 2023.
• 3:54
  Okay, so huge jump in the amount of money that clients are putting into EastSpring.
• 3:58
  Yeah, definitely a really strong inflow.
• 4:01
  And that strong inflow helped push their total funds under management, or FUM, to $258 billion.
• 4:08
  Wow. That's a big number. That's a very large number. Yeah, it is.
• 4:11
  Okay, so what drove that growth in FUM? Well, I think it's really a combination of factors.
• 4:16
  First of all, you've got the general improvement in investment market conditions
• 4:20
  over the year. Okay, so the markets did well. Yeah.
• 4:22
  So that helps the FUM. Exactly. Okay. You've also got better performance of
• 4:27
  their investment strategies.
• 4:28
  Okay, so they did a good job picking investments. Yeah, they did a good job.
• 4:31
  And then lastly, you have strong momentum in both their retail and institutional client segments.
• 4:38
  Okay, so they're bringing in new clients. Yeah. And their existing clients are
• 4:43
  probably happy with their performance and keeping their money there. Exactly.
• 4:47
  Okay, so all those factors combined lead to a very big jump in FUM.
• 4:52
  Yes, and generally speaking, higher FUM means higher fee income.
• 4:57
  Okay. So that's a really good sign for that part of the business.
• 5:01
  Okay. So it sounds like across the board, the headline financial figures are
• 5:04
  quite positive. Yes. Very strong performance.
• 5:06
  Okay. So now let's dig a little deeper into the why. Okay.
• 5:10
  What were some of the key factors that fueled.
• 5:14
  This really good performance. I think there are several factors we need to consider.
• 5:18
  Firstly, Prudential saw an increase in APE sales.
• 5:21
  Just for everyone out there, APE, that's annual premium equivalent. Exactly.
• 5:25
  And that's the sum of annualized regular premiums plus 10% of single premiums.
• 5:30
  It's a key metric in the life insurance industry.
• 5:33
  Yeah. So they saw an increase in APE sales and then what else?
• 5:37
  And they also implemented positive pricing actions.
• 5:40
  Okay. So basically they sold more policies.
• 5:43
  Okay. And on average, those policies generated more premium income.
• 5:47
  Okay. So they sold more policies and they were able to charge higher prices on average. Exactly.
• 5:51
  Okay. That's good. And then furthermore, they also highlighted a really important strategic shift.
• 5:56
  Okay. What's that? A greater proportion of their new business profit is now
• 6:00
  coming from their health and protection segments. Oh, interesting.
• 6:04
  Yeah. And this is a key point because these types of insurance products often
• 6:08
  have higher profit margins than, say, savings-focused products.
• 6:13
  Gotcha. So that's a deliberate strategy.
• 6:15
  I think so. To move more of their business towards health and protection.
• 6:18
  Because those are more profitable lines of business. Absolutely.
• 6:21
  Okay. Interesting. What other factors played a role? Well, geographically,
• 6:25
  their performance was really strong in Hong Kong and Singapore.
• 6:29
  Okay. Two of their really big markets. Absolutely.
• 6:31
  And they also reported growth in 18 out of the 22 markets they operate in. So widespread growth.
• 6:38
  Yeah, really encouraging to see that. Okay.
• 6:40
  And beyond just new sales, they also benefited from increased profitability
• 6:44
  from their existing portfolio of in-force insurance policies.
• 6:49
  Okay, so their existing policies are doing better. Yeah, those policies generate
• 6:54
  a steady stream of income and profit over time.
• 6:57
  Okay, cool. And then what about eSpring?
• 7:00
  Yeah. As we mentioned, the increased adjusted operating profit from eSpring
• 7:04
  also provided a boost to the overall group results.
• 7:07
  OK, so, yeah, it really does seem like a lot of different parts of the business
• 7:10
  were doing well. Yes, a lot of positive contributions.
• 7:14
  OK, so it wasn't just about increasing revenue, right?
• 7:17
  Were there also things that they did to improve their profitability more directly?
• 7:21
  Yeah, I think so. OK, like what? Well, the substantial improvement in their
• 7:25
  IFRS profit after tax was partly due to a moderation in the impact of short-term
• 7:30
  fluctuations in interest rates. Okay.
• 7:33
  As you know, for an insurance company, changes in interest rates can significantly
• 7:36
  affect the present value of their future liabilities. Yeah, makes sense.
• 7:40
  So more stable rates can lead to more predictable and potentially higher profits.
• 7:46
  Yeah, so they got lucky with interest rates, maybe. Perhaps.
• 7:48
  Okay, cool. And additionally, their agency channel.
• 7:51
  Well, their new business profit was consistent with a strong 2023.
• 7:56
  Okay. It showed improved momentum in the second half of the year.
• 7:59
  Okay. And if you look over the longer term, they've seen a really significant
• 8:04
  31% compound annual growth rate in new business profit from this channel between 2022 and 2024.
• 8:13
  Wow. So that indicates a pretty strong underlying trend.
• 8:16
  Yeah, it's a big number, 31% compound annual growth rate. Yeah, definitely.
• 8:21
  Okay, so the agency channel is doing pretty well. And I think that's particularly
• 8:24
  interesting because the whole landscape of financial services is evolving.
• 8:28
  It's evolving rapidly, yeah. Like with technology and everything.
• 8:31
  So it's interesting to see that agency channel is still such a big part of their
• 8:35
  business. Absolutely. And doing so well.
• 8:37
  Yeah, they're doing a good job of adapting. Okay. Cool.
• 8:40
  What about bringing in new customers? How are they doing with that?
• 8:43
  Yeah, they're clearly making some headway there. Okay.
• 8:46
  APE sales from customers who were new to Prudential increased by a healthy 13%. Okay.
• 8:52
  And they also highlighted the progress they're making in their bank assurance
• 8:55
  channel. So that's those partnerships with banks. Yeah, exactly.
• 8:59
  Partnerships with banks to sell insurance products.
• 9:01
  Okay. And in this channel, sales of health and protection products saw a big
• 9:07
  increase with overall APE sales through bank assurance up by 32%. Wow.
• 9:13
  So it seems like those partnerships are becoming increasingly effective. Okay.
• 9:17
  Particularly in those higher margin product lines.
• 9:20
  Yeah. So their bank assurance business is really booming. Yeah,
• 9:23
  I think that's a fair assessment. Okay.
• 9:25
  So we've talked about a lot of different factors that contributed to the positive performance.
• 9:29
  Yes. Were there any particular markets that stood out to you?
• 9:33
  Absolutely. In Indonesia, their
• 9:35
  agency business saw a 5% growth in new business profit overall. Okay.
• 9:40
  With a particularly strong second half where profit jumped by 28%. Wow.
• 9:45
  And they also managed to increase their number of active agents in Indonesia
• 9:49
  by a significant 44% in the second half.
• 9:52
  So a lot more agents, and those agents are selling a lot more business.
• 9:55
  Yeah, that's right. Okay, so Indonesia sounds like it's doing really well. It does, yeah.
• 10:00
  Okay, what about other markets? Hong Kong also performed really strongly,
• 10:04
  with APE sales increasing by 5%, actually exceeding their pre-COVID levels from 2019.
• 10:11
  Wow. So they're back to where they were before the pandemic.
• 10:13
  Yeah, better than ever. Okay, cool. What else?
• 10:16
  They saw consistent quarter-on-quarter APE sales growth throughout 2024 and
• 10:21
  an improvement in their new business profit margin.
• 10:24
  Okay, so steady growth throughout the year. That's right. Yeah.
• 10:27
  Okay. And then Malaysia experienced a 6% increase in APE sales with a notable
• 10:32
  acceleration in their agency channel in the second half.
• 10:36
  And importantly, their new business profit per active agent in Malaysia also
• 10:40
  increased. Okay. Which suggests improved efficiency.
• 10:43
  Gotcha. So they're getting more out of their agents. Exactly.
• 10:46
  Yeah, cool. And then lastly, they also emphasize their effective cost management.
• 10:51
  Okay. Noting that their central operating costs remain broadly stable,
• 10:55
  which helps to improve overall profitability.
• 10:59
  Yeah, that makes sense. If you can keep your costs stable while your revenue
• 11:02
  is growing. Absolutely. Then that's a good thing for your profits. Exactly.
• 11:07
  Okay, so we've painted a picture of a lot of positive momentum.
• 11:10
  Yeah, definitely. But we know that no company operates in a perfect environment.
• 11:15
  That's true. So were there any areas where Prudential faced challenges or saw negative performance?
• 11:21
  Yeah. I mean, while the overall picture is very bright, the press release did
• 11:25
  highlight some headwinds.
• 11:27
  So the insurance markets in mainland China and Vietnam continue to face challenging
• 11:32
  macroeconomic conditions.
• 11:34
  And these difficulties have impacted their recent financial performance in those regions.
• 11:39
  Makes sense. And it's also led to a reduction in the number of active agents
• 11:43
  they have in those markets.
• 11:44
  OK, so they're facing some headwinds in those markets. Yeah, they are.
• 11:47
  And those are pretty big markets for them. Yeah, they're significant markets.
• 11:51
  So it'll be something to watch.
• 11:53
  Okay. Any other challenges that they mentioned? Well, we talked about that slight
• 11:56
  decrease in new business profit in Malaysia, even though their APE sales grew. Yeah.
• 12:02
  And they attributed that to a couple of factors. Okay.
• 12:05
  A shift in the mix of distribution channels used and the initial impact of repricing
• 12:11
  actions they took in their agency channel. Okay.
• 12:14
  And while they did see improved momentum in the agency channel in the second
• 12:18
  half, that initial dip is worth noting. Yeah. Okay.
• 12:22
  So even though overall things look good.
• 12:26
  There are a few little areas where they're facing some challenges.
• 12:30
  Yeah, I think that's fair to say. Okay. And what about their financial strength?
• 12:34
  So their capital and liquidity positions? Yeah.
• 12:37
  So the group's central liquidity position did see a decrease over the year. Okay.
• 12:42
  And the primary reason for this was their ongoing program of buying back their own shares.
• 12:47
  Okay. So they're buying back stock. Exactly. Which is a way of returning capital to shareholders.
• 12:52
  Right. Their free surplus ratio. So that's a measure of how much capital they
• 12:56
  have above what they need to cover their liability. Exactly.
• 12:59
  Okay. So that also decreased slightly, although it remains at a very strong level of 234%. Okay.
• 13:06
  And Prudential seems pretty comfortable with this, as they previously indicated
• 13:10
  a target range of 175% to 200% for this ratio.
• 13:15
  Okay. So they're still well above their target. Yeah. They're in a very strong
• 13:18
  position. Okay, so a few specific market headwinds, but overall very strong
• 13:23
  financial performance.
• 13:25
  Yeah, I think so. Okay, so now let's look ahead. What is Prudential's outlook
• 13:29
  and what strategic priorities are they emphasizing for the future?
• 13:34
  Well, their outlook is really focused on continuing to execute their established
• 13:38
  strategy across their key markets in Asia and Africa.
• 13:42
  Okay. And they've outlined several core priorities.
• 13:46
  Okay, what are those? A major emphasis is on further developing their customer
• 13:50
  digital servicing platform, PRU Services.
• 13:54
  They anticipate having it rolled out across seven of their business units by
• 13:58
  the end of the first quarter of 2025.
• 14:00
  Okay. A key part of this is leveraging artificial intelligence and data analytics
• 14:05
  to enhance the customer experience and drive greater efficiency.
• 14:10
  Okay, so digital transformation is a big thing. Absolutely. Yeah,
• 14:13
  it's a major theme across industries these days. What about their more traditional
• 14:17
  distribution channels, like their agents and their bank assurance business?
• 14:20
  They're not neglecting those at all. They're really focused on strengthening
• 14:23
  both their agency and bank assurance channels through various initiatives.
• 14:27
  Okay. So for their agency force, they've got programs like PreVenture PreU Force
• 14:30
  and PreU Leads. Okay. Which are aimed at boosting productivity and recruitment.
• 14:35
  Okay. So they're investing in their agents. Yeah. Okay. And what about bank assurance?
• 14:39
  So in bank assurance, their strategy involves deepening their relationships
• 14:43
  with their existing bank partners. Okay. Yeah.
• 14:46
  They specifically mention their strategic alliances with Standard Chartered and UOB.
• 14:51
  And further integrating their insurance products onto the bank's digital and physical platforms.
• 14:57
  Okay. So basically trying to reach a wider customer base through those partnerships.
• 15:01
  Okay. So a lot of focus on strengthening those traditional channels. Yeah.
• 15:05
  Okay. And then what about the actual insurance products they offer?
• 15:08
  Are there any areas of particular focus there? Yeah, they're really committed
• 15:12
  to developing compelling and differentiated product propositions that are tailored
• 15:17
  to various life stages and customer needs.
• 15:20
  OK. So this includes a focus on innovative products for the high net worth segment.
• 15:25
  OK. Such as Prime Maternity in Hong Kong and Peru Vantage Legacy Index in Singapore. OK.
• 15:30
  Which are often distributed through their bank assurance partnerships.
• 15:33
  OK, so they're targeting different customer segments with specific products.
• 15:37
  Yeah, I think that's a fair way to put it. OK. And then on top of that,
• 15:41
  there's a growing societal focus on health and wellness these days.
• 15:44
  Yeah, for sure. And that's definitely reflected in Prudential's future strategy. Okay, how so?
• 15:50
  Enhancing their health business is a significant priority. Yeah.
• 15:54
  They plan to develop more segment-specific health insurance products.
• 15:59
  Okay. Such as the one they've launched targeting mainland Chinese visitors in
• 16:03
  Hong Kong. Okay. Who may have different healthcare needs.
• 16:06
  Gotcha. They're also looking at ways to deliver better value to customers through
• 16:10
  affordability, for example, by establishing tiered networks of health care providers.
• 16:16
  Ultimately, their ambition is to become a trusted partner in their customers'
• 16:20
  broader health care journey with a greater emphasis on preventative care and
• 16:25
  wellness services in addition to traditional insurance coverage.
• 16:29
  OK, so they want to be more than just an insurance company.
• 16:32
  They want to be a partner in their customers' health. Yeah, a more holistic
• 16:35
  approach. OK, that's interesting.
• 16:37
  What about how they plan to manage their capital and deliver returns to shareholders moving forward?
• 16:44
  Yeah. So this is a key aspect of their strategy. OK. They intend to regularly
• 16:48
  assess their level of free surplus capital. OK.
• 16:51
  And have indicated a potential for returning excess capital to shareholders.
• 16:56
  OK, so capital above that 200 percent free surplus ratio.
• 17:00
  Exactly. OK. Over the medium term. And this really underscores their commitment to shareholder value.
• 17:05
  Right. Their current $2 billion share buyback program is on track to be completed by the end of 2025.
• 17:12
  So this suggests that they are quite confident in their capital generation capabilities.
• 17:18
  Okay. So despite all the economic uncertainties that exist globally.
• 17:22
  Yeah. They seem pretty optimistic about their ability to.
• 17:26
  Generate capital. Yeah, that's fair. And reward their investors. That's cool.
• 17:30
  They emphasize the strength of their capital position and the financial flexibility
• 17:36
  it provides them to pursue growth opportunities.
• 17:39
  Even in the face of macroeconomic and political uncertainties,
• 17:42
  they also reaffirmed that their dividend policy remains consistent.
• 17:46
  Okay. With an ongoing focus on delivering sustainable and growing dividends to shareholders.
• 17:51
  Okay. They anticipate that their restructuring costs, which can sometimes impact
• 17:56
  profitability, will gradually return to lower historical levels over time.
• 18:01
  So that's good news for shareholders as well. Okay.
• 18:03
  So finally, given all the various risks inherent in the financial services and
• 18:07
  insurance industries, how were they approaching risk management in their outlook?
• 18:12
  Well, they highlighted that managing a broad range of risks,
• 18:16
  including macroeconomic market insurance, specific operational conduct and regulatory
• 18:21
  risks, is a continuous and fundamental part of their approach.
• 18:25
  They emphasize their commitment to maintaining robust risk management practices
• 18:29
  and a strong governance framework across all their operations.
• 18:33
  And then regarding the ongoing challenges in mainland China and Vietnam,
• 18:37
  they reiterated their commitment to adapting their agency models in those markets.
• 18:41
  To ensure that they are productive, sustainable, and focused on delivering value
• 18:46
  in the long run. Okay. Despite the current headwinds.
• 18:48
  Okay. So it sounds like they're aware of the risks. Yeah, definitely.
• 18:51
  And they're taking steps to manage them. They are.
• 18:53
  Okay. So to bring it all together, what are the key takeaways from this deep
• 18:58
  dive into Prudential's 2024 financial performance for our listeners?
• 19:02
  I think it's clear that Prudential demonstrated a really strong overall financial performance in 2024.
• 19:08
  Okay. Driven by robust growth in key markets like Hong Kong and Singapore,
• 19:12
  alongside positive contributions from their health and protection business segments,
• 19:17
  and their asset management arm, EastSpring.
• 19:21
  They're strategic initiatives. Particularly in digital transformation,
• 19:25
  strengthening distribution channels and developing targeted products appear to be gaining traction.
• 19:31
  They also maintain a solid capital position and are committed to returning value to shareholders.
• 19:37
  And while they are navigating some ongoing challenges in certain markets,
• 19:41
  notably mainland China and Vietnam, their strategic focus remains on long-term
• 19:46
  growth and shareholder returns across Asia and Africa.
• 19:50
  Okay, great summary and so on that note. Thanks for diving deep with us today. My pleasure.
• 19:55
  We hope this has provided you with a clear and insightful understanding of Prudential's
• 19:59
  latest financial results.
• 20:00
  We did our best. Join us next time for another Deep Dive. See you then.
• 20:07
  Thank you.