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Our businesses and
their performance

United Kingdom: focus

People walking across a bridge in London

“The business proved resilient despite
unprecedented regulatory change in 2014,
delivering a stable, robust financial
performance while favourable brand
recognition, diversified distribution and a
market leading with-profits proposition
positions us strongly to help customers save
with confidence to secure a dependable
retirement income.”

Jackie Hunt
Chief Executive
Prudential UK & Europe

Jackie Hunt

Performance highlights:

  • Two ‘five star’ ratings for excellent service2, achieved for fourth consecutive year
  • Outstanding Achievement Award for continuous customer-service excellence
  • FT Adviser – Online Outstanding Achievement Award 2014
  • Robust performance despite significant regulatory change impacting retirement income market
  • Diversified distribution model focusing on intermediaries, Prudential Financial Planning (our direct advice service) and individual customers via mail, email and telephone
  • Continued strong performance of with-profits, in particular PruFund
  • Product innovation to meet changing face of UK retirement market
  • Strong growth across investment products

Visit the Prudential UK & Europe website

New business profit1 £m

New business profit graph (million pounds). 2014: 165 retail, 105 wholesale.

IFRS operating profit £m

IFRS operating profit (million pounds). 2014: 671 retail, 105 wholesale.

Net cash remittances £m

  2010 2011 2012 2013 2014
300 297 313 355  
120        
        325

*One-off release of excess surplus

Inherited estate £bn

2010 2011 2012 2013 2014*
6.8 6.1 7.0 8.0 7.2

*After the effect of completing the domestication of the Hong Kong branch of the PAC with-profits fund.

Our strategy and operating principles

Our strategy and operating principles: UK

The strategy in the UK business continues to be one of ‘focus’:

  • Selective participation;
  • Capital discipline;
  • Sustainable cash generation;
  • Delivering value through cost and persistency management;
  • Provision of market-leading with-profits investment returns to our customers; and
  • Opportunities for growth:
    • broaden risk-managed products and retirement solutions
    • enhance distribution.

Read more: Our strategy and operating principles

Market overview

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The evolution of saving in the UK

The configuration of the UK market is unchanged, characterised by an ageing population with wealth concentrated in the 50+ age group and a younger generation of savers who are typically less well-funded. While the announcement of pensions freedoms in the 2014 Budget has significantly reduced restrictions on how these individuals will access their savings to help fund an income in retirement, the need to accumulate savings remains. It constitutes a significant opportunity for companies with a strong brand and a solid track record in the long-term savings market.

In the UK we focus on those areas of the market where we are able to bring superior value to our customers, and where we enjoy a competitive advantage, primarily in with-profits and retirement income provision.

The changing regulatory landscape

The UK life and pensions industry continues to undergo significant change. The announcement by the UK Chancellor in the 2014 Budget to remove compulsory annuitisation and introduce new pension freedoms from April 2015 has been described as a once in a 100-year change. We are supportive of this change and more generally of policy initiatives that will help encourage people to save in greater numbers, and more often, particularly in an environment where there is a significant savings gap. Simultaneously, we are witnessing a shift in how customers view retirement. The distinction between accumulating funds and then using them to provide an income in retirement is no longer clear-cut. We expect to see further opportunities created in the saving and investment market with demand for financial advice increasing and customers engaging more frequently with their providers.

These new developments represent major changes to the way business is conducted in a number of areas of the markets in which we operate in the UK, and impact not only insurance and investments providers, but also distributors and consumers.

What we do and how we do it

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Valuable customer franchise

With a pedigree stretching back over more than 166 years, the Prudential UK business has built the foundation of the Group’s iconic brand and its cash, capital and credit-ratings performance. Our approach in the UK is driven by a focus on providing long-term value to our customers based on our longevity experience, multi-asset investment capabilities and our financial strength. In the UK the Prudential brand is long established, well-known and, importantly, well-trusted both in the intermediary financial adviser and the retail marketplaces. This trust and recognition positions us favourably to help customers save with confidence and to understand how to secure a dependable retirement income, through our range of market-leading with-profits and retirement income products.

We continue to focus on meeting customer needs:

  • Products and retirement solutions to help customers take advantage of the new pension freedoms;
  • Offering a range of ways to do business with us through intermediaries, through our Prudential Financial Planning partners providing advice to customers in their homes, or by telephone and internet;
  • Our market-leading PruFund investment range with optional guarantees to suit customers’ attitude to risk; and
  • Driving year-on-year improvement in service for both customers and intermediaries. Our ongoing commitment to customer service improvement was recognised at the Financial Adviser Service Awards, where we retained our two five star ratings in the Life & Pensions and Investment categories while also receiving the Outstanding Achievement Award for 2014.

Strong product capability

Prudential is a leader in its chosen markets, benefiting from a strong investment track record, a financially strong with-profits fund and a recognised reputation for developing innovative products such as the PruFund range.

The introduction of new regulations in the form of pension freedoms will allow new ways for our customers to secure an income in retirement. Most notably the removal of compulsory annuitisation has created new and exciting opportunities that play to our strengths. Against the backdrop of a changing regulatory environment, our strong product capability, financial strength, reputation and experience provide a very solid foundation for us to enable customers to save and invest today for the outcomes they wish to achieve in the future.

We have a competitive advantage in with-profits and a distinctive investment franchise in the PruFund range, which in 2014 celebrated its 10th anniversary. Demand remains strong for our products offering downside protection against the volatility of the market, while still providing a steady return over the medium to long term.

We provide a comprehensive range of risk-managed investments, including with-profits bonds and pensions, which continue to outperform other competitors’ propositions. We will continue to develop our with-profits proposition, enhancing the range of investment choices available to policyholders and have recently made PruFund available in the Individual Savings Account market – a market with customer holdings of £470 billion.

In addition to our customers, our shareholders also continue to benefit from the steady performance of our with-profits based products and the cash they generate. The chart overleaf shows the outperformance of our with-profit funds when compared to peers. This performance has allowed us to add an estimated £1.9 billion to with-profits policies in the year. Policyholders will typically have seen year-on-year increases of between 5 per cent and 8 per cent in accumulating with-profits policy values over the past year.

With-profits fund outperforming competitors
5-, 10- and 15-year cumulative return to end 20143

Prudential with-profits. 15 years - 153%, 10 years - 109%, 5 years - 52% FTSE100 index. 15 years : 58%, 10 years: 96%, 5 years: 45% Company B with-profits. 15 years: 115%, 10 years: 97%, 5 years: 52% Company B with-profits. 15 years: 108%, 10 years 101%, 5 years 57% Company C with-profits. 15 years: 88%, 1 0years: 82%, 5 years: 40%

In Corporate Pensions, we continue to focus on securing new members and incremental business from our current portfolio of customers and on additional voluntary contribution plans within the public sector, where Prudential is the market leader, providing schemes for 72 of the 99 public-sector authorities in the UK.

Prudential has a long-standing reputation as a leading provider in the bulk annuity marketplace participating at the higher end of the market with the seven transactions completed in 2014 generating sales in excess of £1.7 billion. In a market that has around £1.8 trillion4 of liabilities that scheme trustees are increasingly keen to remove from their balance sheets, we selectively participate where premiums are larger and the added complexity and greater focus on financial strength is better suited to our core capabilities.

Broad distribution

Prudential has developed a diversified distribution model focusing both on financial advisers and the individual customer through a direct non-advised channel and its own financial planning arm – Prudential Financial Planning – which focuses primarily on the financial planning needs of our existing direct customer base. At the end of 2014, its third year of trading, adviser partner numbers had reached 210. Distribution through financial advisers continues to be our most significant route to market in the UK. 2014 was another successful year, with sales growth of 24 per cent over the same period in 2013 being achieved by our intermediary sales teams.

Our new life company, Prudential Polska, conducted its second year of business in 2014, growing ahead of plan. Headquartered in Warsaw, the business now has 15 branches across the country and 712 financial planning consultants. Its success demonstrates our ability to build a new business franchise and generate value in the European context.

We are also positive about the long-term opportunities in Africa, where we see many of the favourable structural characteristics of our Asia markets, although most sub-Saharan life insurance markets are in the very early stages of development and therefore are not likely to be material for many years. During 2014 we acquired Express Life in Ghana and Shield Assurance Company in Kenya, both of which have been renamed using the Prudential brand.

In November 2014 we completed the sale of our 25 per cent equity stake in the PruHealth and PruProtect businesses to Discovery Group Europe Limited for £155 million in cash. This represents an excellent return on our investment and creates the future strategic flexibility to participate in the UK protection market.

Prudential UK & Europe will continue to focus on its core strengths of with-profits and retirement income, while utilising its highly regarded brand franchise in order to help its consumers accumulate savings to help fund a dependable income in retirement. It will do so by expanding the PruFund range initially to the Individual Savings Account market, developing its annuity and income drawdown propositions, and exploring the opportunity to bring further saving and investment products to market following the introduction of pensions freedoms in April 2015.


7m life customers


PruFund – a market-leading proposition

When investing or saving for retirement, many of our customers value the potential for both growth and a degree of security against losing money. Prudential UK’s PruFund offers these features.

With its market-leading multi-asset fund offering, Prudential UK provides access to our fund management expertise, with:

  • Funds with innovative designs that spread risk by investing in many different assets;
  • A smoothing process that offers potential growth in the value of the funds, while helping to manage short-term volatility; and
  • A range of guarantee options to tie in with customers’ future needs.

Strong growth in assets under management £bn

2006 2007 2008 2009 2010 2011 2012 2013 2014
0.1 0.3 0.9 2.5 4.1 5.4 7.5 9.1 11.6

Visit the PruFund website

Budget 2014: merging of accumulation and decumulation

Budget 2014 diagram.

Notes

  1. The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, prior years’ results are shown on a comparable basis.
  2. Financial Adviser Service Awards.
  3. Prudential, Financial Express. All figures to 31 December 2014. The with-profits gross performance is gross of tax, charges and the effects of smoothing. Cumulative returns for Company A, B and C have been calculated internally based on bonus announcements gathered from publicly available sources; these may differ from figures quoted by the Company.
  4. KPMG analysis based on Purple Book 2013.

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Asset management: optimise

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