PRUDENTIAL PLC ADS (REP 2 ORD SHARES) 2026 Q2 Earnings Call

Hello, I'm Anil Wadhwani, CEO of Prudential. Thank you for joining us today. I'm pleased to share our half-year 2026 results and update you on the progress we are making on the execution of our strategy. The message I want to leave with you today is simple. Prudential is focused on the strategy we set out, delivering high-quality growth, generating strong capital and cash, and positioning the group for long-term success in the growth markets of Asia and Africa. We remain disciplined in our execution, capturing the benefits of Prudential's diversified multi-market and multi-channel growth engines for all our stakeholders. Our first half reflects that. Growth was broad-based, margins expanded, underlying variances turned positive, and earnings capital and cash generation remained strong. Importantly, this is quality growth. We are writing business that delivers attractive margins, strong cash conversion, and resilient capital generation.

In doing so, we are creating long-term value for all our stakeholders. Our focus on long-term savings and protection is also closely aligned with the regulators' objective for the insurance sector. At the same time, we are allocating capital with discipline. For example, investing for long-term growth in Malaysia and India while continuing to increase returns to shareholders. In line with this, we expect to add $300 million to our previously announced $1.2 billion 2026 share buyback program. We are strengthening our competitive position in structurally growing markets across Asia and Africa. Our investments in distribution, propositions, and technology position Prudential to capture the opportunity over time, creating a significant and durable growth runway. In summary, disciplined execution is delivering quality growth, stronger capital generation, and greater shareholder value while positioning Prudential for sustained long-term growth.

For the first half of 2026, new business profit was $1.4 billion, up 8%, or 10% excluding the Chinese mainland. Adjusted operating profit after tax grew 17% per share. Gross operating free surplus generation grew 15% to $1.8 billion and dividend per share grew 15%. Capital generation remains strong, supporting $1 billion of returns to shareholders in the first half through dividends and the share buyback program. We remain firmly focused on the delivery of our full-year 2026 guidance of double-digit growth in new business profit, gross OFSG, and adjusted EPS, together with double-digit dividend per share growth and achieving our 2027 financial objectives. We are executing at pace across agency, bancassurance, health, and customer. We are making steady progress on agency transformation with new business profit growth of 5% versus 4% for the full year of 2025.

We recognize there is more work to be done, and we continue to implement our plans to improve the performance of this key distribution channel. Bancassurance delivered another excellent performance with new business profit up 13%, driven by deeper strategic partnerships and a broader partnership base. Excluding the Chinese mainland, bancassurance grew 18%. Health new business profit grew 15% as we continue to build on our strengths in health to further extend into protection. We are reshaping and reimagining customer experiences through better technology operations and AI. This is translating into stronger outcomes and more scalable engagement. For example, our customer engagement platform, now live in 10 markets, has helped drive more than $330 million of sales in the first half, and our customer retention rate is strong at 94%. These results are supported by our billion-dollar strategic investment program, which was designed to build capabilities and modernize our infrastructure.

We have invested around $700 million since 2023, including $145 million in the first half of this year, continuing to build our distribution and customer capabilities and significantly strengthening our technology platform. Our growth continues to be high quality, broad-based, and balanced across channels and markets. Quality growth is a deliberate choice. We are focused on writing business that delivers attractive margins, strong profitability, persistency, and higher cash conversion. We are seeing that come through in margin expansion, strong aggregate IRRs of more than 25%, and fast paybacks. We saw a broad-based contribution from our multi-market growth engine model. New business profit in Greater China grew 5% and in ASEAN markets by 13%. APE sales were up 11% in India and were up 19% in Africa. Our asset manager, Eastspring, delivered operating profit growth of 20% on a like-for-like basis, with funds under management up 5% to $291 billion.

Our distribution model remains well-balanced, with agency contributing 53% of first half new business profit, bancassurance 42%, and other channels combined, including brokers 5%. This balance matters because it gives us resiliency and flexibility. Our proprietary channels support higher quality advice and deeper customer engagement while serving customers through the channels that best meet their needs. Turning now to the Chinese Mainland. Entering 2026, we had great momentum. APE grew 42% in the first quarter with very strong momentum across both agency and bancassurance. Bancassurance, however, reduced in the second quarter following the implementation of more prescriptive expense regulations. Overall, the first half APE grew 21%, new business profit was down 4%, reflecting an accelerated shift towards participating products. The par mix increased from 35% to 76% of APE, which compressed new business profit margins.

Alongside this, we are working closely with our bancassurance partners as the channel transitions to the new expense regulations. We see these regulatory changes as supportive of a healthier, more sustainable industry over a period of time, even as they create some short-term transition impacts. Our strategic relationship with China CITIC Bank continues to deepen, and we expand our preferred bank network from 50 to more than 80 branches. At the same time, agency transformation continues to progress with APE per active agent up 24% and MDRT qualifiers up 40%. The Chinese Mainland faces a high bancassurance comparator in the third quarter, which eases materially from September onwards. We expect full year new business profit to be in a similar range to that of 2025.

We continue to focus on the transformation of agency, restoring momentum in bancassurance, and rebalancing product mix with a clear focus on quality and capital efficiency. We have navigated previous periods of change effectively. While this creates some short-term transition impacts, it does not take away from the medium to long-term potential, and we continue to see significant long-term growth potential in the Chinese Mainland market. I really like the shape of our Hong Kong business. It is now better balanced between domestic and Chinese Mainland visitors and across agency and bancassurance. Our emphasis on generating quality growth translated into a seven percentage point improvement in margins overall across both our proprietary channels of agency and bancassurance. Overall, new business profit grew 8%. Within that, bancassurance grew 48% as it captured wealth flows, and agency grew 4% against a strong comparator.

Our domestic customer segment, which now generates around 50% of our new business profit, performed strongly, supported by demand from new residents. New business profit grew 22%. CMB new business profit was down 2% against an extraordinarily strong prior year comparator. We remain highly optimistic about our Hong Kong business given the strength of our multi-channel model, the balance between domestic and CMB, and our emphasis on longer pay savings, health and protection, and regular premium products. That is why we continue to target double-digit growth in Hong Kong for the full year, with the high July-August comparator base starting to ease from September onwards. On the recent commentary around the reinforcement of existing rules for Chinese Mainland customers, in our assessment, it is too early to tell what impact this might have on customers' behavior.

In our conversations with customers and agents, the underlying demand drivers for insurance in Hong Kong remain very strong. Customer retention rates remain very high at around 99% across both domestic and CMB segments. This reflects the continued attractiveness of our propositions and is supported by our most recent customer survey, reinforcing our confidence in the structural growth prospects of our Hong Kong business. ASEAN continues to perform well, with improving momentum across the region driven by our underlying transformation. Overall, new business profit grew 13% in the first half, and new business profit margins improved by two percentage points. In Singapore, we delivered double-digit volume growth in both the first and the second quarters. We refreshed and broadened our health and protection offerings, adding new critical illness solutions. We saw 39% growth in investment linked products, reflecting continued demand for wealth and saving solutions.

Agency productivity improved with new business profit per active agent up 9% and average case size up 23%. In Malaysia, new business profit grew 46%, supported by propositions that help customers upgrade their health cover to better reflect their current needs. This was complemented by more specialized advice for affluent and high-net-worth customers with new business profit per active agent up 29% and agency new business profit up 36%. In Indonesia, the first half was challenging on account of the macro environment, including inflationary pressure, volatile equity markets, and a depreciating currency, which weighed on the customer sentiment. Bancassurance performed very well, up 55%, supported by demand for USD products and a higher mix of affluent customers, while agency was impacted by a strong prior year comparator and weaker customer sentiment. In Thailand, product innovation and partnership execution supported strong growth.

Our investment-linked offering targeting affluent and upper affluent customers, together with our partnership with TMBThanachart Bank, known as TTB, contributed to 41% APE growth in the first half. The theme is consistent, growing our proprietary multi-channel distribution model while improving the quality and productivity of our agents and leveraging product innovation to engage emerging affluent and affluent customers across the attractive markets of ASEAN. India is one of Asia's significant long-term growth opportunities. Our strategy is to play a more active role and shape our growth trajectory through two complementary insurance platforms, life and health. In life, our proposed acquisition of a 75% controlling stake in Bharti Life, subject to regulatory approval, would fundamentally reposition our platform. It moves us from passive minority participation to an active operating platform in a market with significant long-term potential. We are excited to be partnering with Bharti Airtel and 360 ONE together.

Bharti Airtel's omni-channel reach and 360 ONE's affluent, high net worth, and institutional relationships give us a stronger route to expand distribution, deepen customer access, and deploy Prudential's capability more directly. In health, we said we would launch our standalone business in the second half. We have now done so, and I am delighted that we have written our first policies earlier this month. Together, life and health give us the foundations to build a scalable franchise in India, aligned with the country's long-term ambition of insurance for all by 2047. Our focus is on building a high-quality business with a differentiated customer experience and regional expertise, and a strong position in health where there is significant unmet demand to address. We are investing for the long term in a structurally attractive market where we can apply our capabilities and create sustainable value.

Eastspring continues to be an important value creator and a key differentiator for Prudential. In the first half, operating profit after tax grew 20% on a like-for-like basis, while funds under management increased 5% to $291 billion. Performance was supported by $5.7 billion of positive net flows, diversified sources of funds, and strong investment performance with 74% of funds outperforming their three-year benchmarks. The business is highly cash generative with a strong ROE and a disciplined cost income ratio. Eastspring is well positioned to capture the rising wealth flows and growing retirement needs across Asia. Its scale, diversified funds under management, strong investment performance, and deep local market expertise give it a clear platform for growth. Strategically, it is an important differentiator for Prudential, strengthening our life businesses through its investment capabilities and co-developed solutions while creating synergies between the two businesses.