Good day, and welcome to the Prudential plc Quarter 1 IMS Analyst and Investor Conference Call. [Operator Instructions] Just to remind you, this call is being recorded. I'm pleased to present Group Chief Executive, Tidjane Thiam. Please begin your meeting.

Thank you, Hugh, and good morning, everybody, and welcome to Prudential's Q1 IMS teleconference. I am joined this morning, as usual, by Nic Nicandrou, our Group Chief Financial Officer. Today, we are reporting a strong start to 2012 with good performances from all of our businesses and a robust balance sheet with an IGD surplus of GBP 3.8 billion at the end of March. In the first 3 months of the year, group sales were up 9% on an APE basis and new business profits were up 8%. Asia continues to be the driver of our growth as APE sales increased by 21% and new business profits by 22%. We remain on track to achieve our objective to double Asia's 2009 IFRS and new business profits by 2013, i.e. to double our profits in Asia in 4 years. In the U.S., we delivered new business profit of GBP 214 million in the first quarter. Jackson continues to focus on variable annuity sales, which represented over 80% of our sales in the period. In the U.K., we delivered new business profit of GBP 62 million in the quarter. We retain our strategy of value over volume, competing in the product lines where we have a clear competitive advantage and can generate attractive IRRs, namely annuities and with-profits. All 3 of our life insurance businesses generated IRRs of greater than 20% on capital invested in new business in Q1. Last but not least, in asset management, we have had a very good quarter, delivering GBP 2.1 billion of net inflows. So let's now take a closer look at each of our businesses in turn, starting with Asia. In Asia, the momentum we saw in 2011 within our business has continued in the first quarter of 2012. Sales via our proprietary agents continue…

[Operator Instructions] Our first question comes from the line of Blair Stewart at Merrill Lynch.

Two questions, please. Firstly, in Indonesia, you talked about a 23% increase in average active manpower. Just to clarify, what period is that or was that year-on-year? And could you maybe comment on how you see that particular measure moving forward? And secondly, with regards to Singapore and bancassurance, more generally, clearly seeing strong increase in penetration through the banking partners. I wonder if you could just share, perhaps very generally, information about how far you've already penetrated into the banking customer base and what the outlook there is. I mean, are we starting to reach saturation point in any of these banking channels?

Okay. On the first question, the 23% is Q1-to-Q1 year-on-year. And I think what we want to indicate there, we've often talked about this whole topic, it should give you a sense of the quality, the emphasis on quality in Indonesia because we realize the numbers are large. It's a young market, but we want to show that we are not just hiring agents. We are really focused on activating them, and that is something on which the management is very focused and is incentivized. So it's quality growth. The other word of caution on those numbers and that they -- and certainly from a region, you've always heard me say that they don't mean a lot when you take them out to a regional level because you're mixing a bit of Vietnam, a bit of Hong Kong, a bit of Singapore and Indonesia and Korea and all. So I think over a longer period of time, they are meaningful, but I wouldn't also read too much into the quarter-by-quarter evolution. Second question, the bancassurance, yes, it is important. The UOB deal for us was a fantastic opportunity. We're thrilled to get it. We knew that it was an underexploited franchise. That was a big part of why we paid the price we paid, and it's performed beyond our expectations. What I can say, discussing this with our teams on the field talking to UOB as a partner, too, is that there is still a lot of headroom there. We've only started really working the franchise, so we're very comfortable that there is a -- there is still a lot of growth available within UOB, particularly in Singapore, where they have a very historic base and a very strong brand and strong presence, a very good relationship with our customers. So we have started putting riders on the core products that we sell, and that's going to drive a progression in both volumes and margins in the coming years, which we expect to be strong.

Just if I can follow up on that. Presumably, it's not just a question of penetration as well; it's a question of the type of product that you're selling. And could you -- maybe not for today but be interested to compare the penetration and the product type that you're getting through UOB compared to more established bancassurance relationships like Standard Chartered and then if there's anything you see on that at the moment?

Blair, we can give you a sense of that. As I said, we sell a lot of par. That's the business structure of the market in Singapore. It's the same in our agency business. But probably not for today, we can't give you more color. But directionally, it's really about driving more health and protection through that channel. The prospects are good again on the back of the good banking relationship. UOB is a really old established franchise in Singapore. That's why we are very keen to have them. We have a very good customer basis, very wealthy.

Our next question comes from the line of Jon Hocking at Morgan Stanley in London.

I've got 2 regulatory questions, if I may. First of all, Solvency II, Tidjane, I see you're quite on the tape talking about the Solvency II negotiations. I wonder if you could just give us an update of your discussions with regulators and politicians and what you think the progress has been, particularly with regards to the equivalence issue? And then second, in Singapore, I wonder if you could comment on the Monetary Authority's review into the advisory industry and what your thoughts are there and what engagement you've had to date with the MAS?

Okay. On Solvency II, as you know, for the matching premium, now called matching adjustment, there's been progress. There's still quite to discuss there, but it's there. And I must say, the engagement is very good. As you know, Mark Hoban is leading things on the government side. We also have Jon Cunliffe, who is in Brussels, handles the -- coincidentally, he was the U.K. Sherpa on the G20. So I knew him from there, and he's a detail-oriented man. He's a finance man. He understands the numbers and the issues. It's been great to have him in that role, and it's a fantastic appointment by the U.K. And he's made a big difference. He just gets it. He comes from the Treasury, and it's great to have a Treasury man leading the charge there. It's had a huge impact. So on U.S. equivalence, frankly, I think that's probably the area of greatest concern. There is some progress. There was talk of 5 years plus one. There is now talk of 5 plus 5, which has already been our position, our request as an industry, certainly in the ABI. But frankly, there is no clarity yet on the process going forward on how the U.S. and the EU are going to resolve this. So that's something on which we push very hard. We're very keen. And I think that the U.K. government is very aware and mobilized. And I've been trying to use some direct access to the U.S. also to progress the issue, so we need to continue watching that space.

Do you think we'll have clarity this year?

I can't guess, Jon. I wish I can give you a clear answer. I just -- frankly, I just don't know. But we're working towards that goal, whether it's going to happen or not. It's completely outside my control.

I mean on equivalence, we know it's going to be in well into 2013, so that subject alone will just see us through to the middle of next year.

I think the sooner, the better. But really, we're pushing hard. That's all I can say. Now in Singapore, actually I've read personally, carefully the speech given. Directionally, we're very supportive of what MAS is trying to do. I think it's good for the industry. That focus on the customer is consistent with what we want to do. It's a very sophisticated market with a very sophisticated regulator. It's very comforting. I looked at the list of the people on the panel and the commission that's going to drive this. It's a very broad range of people from all walks of life, so you can expect that it's going to be a sensible process. And certainly, they are very, very keen to engage with us. Well, the Deputy Prime Minister will be in London soon. He asked to see me. He's in my diary. He's running -- he's also Chairman of the MAS, gives you a sense of the importance it gives to this. So it's positive. Engagement is positive. We are involved from the start. Our business there will be a big contributor. So now we think it's good, it's -- the aim is to professionalize the agency force. It's one of the key things, and that's something we support. We have very well-trained agents who mostly sell insurance. And it's to make all the sales process, commissioning, et cetera, more transparent, and these are things we are supporting.

Do you have an idea of the likely timetable from here? I think the consultation period or the initial consultation period closed recently.

No, not yet. I don't think we have clarity on that, but we can give you more granularity on that offline.

Our next question comes from the line of Raghu Hariharan of Citi in London.

I just had 3 questions, please. Wondering if you could give us a flavor of what the Asian net flows look like and whether it followed the strong sales trend that you've reported. The second question was just on the distribution mix in Asia. I see your comment in the press release saying that the higher proportion of bancassurance sales paid on margin. So I was wondering if you could us a flavor of what the margin -- new business margin differential is between bancassurance and agency. And the last question was really on Thailand. Clearly, a strong performance there but, if I can call it, there is an aberration in the sense that your underweight -- your position is underweight in a very strong Southeast Asian market. So I was wondering whether you would look at inorganic routes in addition to organic routes to accelerate your ambitions, I guess, in this market?

Okay. I'll let Nic take the net flows and I'll do the other 2.

Raghum, net flows continue to be positive. You're -- it might be the assumption that you made given the strong sales is coming through those figures. Clearly, there's an overall shift in mix towards par. Therefore, you'd see a stronger, bigger proportion of the income come through that line. There's nothing noteworthy to say on exits. There's nothing significantly up or significantly down. Of course, we've had positive market movements also in the quarter and that pushed the overall value of the funds, which we make basis points up. So the trend continues. And the other noteworthy part is the fact that 93% of the sales in the first quarter were regular premium business, so it's that feature that consistently drives the net flows positively up quarter after quarter.

Absolutely. The other question was on the distribution mix. Really, the point I'll make there is the proof. I've always considered that margin potentially is a dangerous tool to run a business. You don't just chase high-margin business. A lot of businesses have kind of shrunk themselves by -- or missed huge opportunities by doing that. Now the big strategy call, which we made on Asia, has been to go into bancassurance. And we're doing it because the IRRs cover the cost of capital very comfortably. No question that the margin -- the mathematical, the arithmetic margin is lower, but we like that business. It generates additional good profits for the shareholders, and it's a good business. So we're not too concerned about the mix, if you wish. We have 2 channels. Each of them creates huge value for the shareholder, and it gives us an additional lever to drive the business. And something I should say, because we cover UOB quite a bit in here, is that really, it is across the board. UOB is very visible because we just signed it and it doubles every year. But the other partners are also doing very, very well, Maybank, SingPost and Standard Chartered, E.Sun in Taiwan. In India, the bank made a big contribution to our performance this quarter, so that's really across Asia. Thailand, I think you're right. But I'm glad you call it an aberration, Raghu. I think we've talked about it in those terms. It's a great market. We're doing really, really well. I mean, our books have been doubling kind of every year, but it took us to a great number of 2% market share in a very attractive market. So look, we -- I don't really like so much to talk about inorganic or organic…

Our next question comes from the line of Andy Hughes of Exane BNP.

A couple of questions, if I could. The first one on Malaysia, just wondering what's going on there with the year-on-year growth, I think, being 2%. I think you managed to mentioned the average case size has declined. I'm just wondering, have you lost a core product in the kind of saving space maybe, which is -- and the underlying growth, is that stronger than what you're reporting as a 2% growth in Malaysia? Or is that the trend that's going to be going forward? And the other question was on Korea. Obviously, sales are down quite a bit in Korea. And I can see that Aviva took a big charge to its embedded value equivalent to 10%, the absolute value in-force, but it's largely a Korean business. I'm just wondering what's going on there in terms of lapses. I think you said the trends have not changed very much but is there anything specific to Korea that we should be thinking about?

Okay. On Malaysia, it's actually a very interesting point, I think, in the results. Let me spend a bit more time on it. We always talk about value and volume. You know that we had difficulties in Malaysia last year, and I always talk about how we can never say that we'll never have any difficulty in the network that we deal with, Korea, Taiwan, Japan or India. So we're dealing with Malaysia, and what we're doing is driving the product mix to help their position. And that's what you see coming through this quarter very clearly with lower volume progression but very strong NBP growth. I didn't quote it in my remarks. It's very strong. That's a very comfortably double-digit growth in NBP, which is what we like to see. So yes, looking forward, I think you can expect that we'll continue to drive the NBP very, very strongly, with also health and protection. Now that has an impact on APE also because Takaful effectively has a lower average case size -- I'm sorry, very -- yes, the Takaful, he says, in Malaysia, but it has much -- it has a very high health and protection content. So again, in that, we also see a growth in NBP. So I think that business is very, very good for NBP. We're not very focused on case size. It's a function. It's like margin, it's a function of product mix. If you sell more risk business, more health and protection, it's going to hurt your APE growth. It's going to improve your NBP growth, and that's really the strategy we're driving in Malaysia. And a quick comment on Korea, let me complete. But really at the high level, a lot of the evolutions in Asia are kind of what I call ILP, investment-linked products, versus the ISP, the interest-sensitive products. And the macro in Asia, you will find that in countries where markets -- equity markets have been very volatile. The ILP numbers have suffered and that can explain a lot of what happens in the region. Will you take Korea?

Thanks, Tidjane. The headline -- the drop in the headline sales is very much a feature of market effects. The volatile equity market environment has depressed the share that unit-linked sales have in their market overall substantially, some 30% in the market. The unit-linked market has come down. And what you -- that has forced banks more specifically to stock and to sell interest-sensitive product, which is a product whose economics we don't like. We don't find it sufficiently impactive and, therefore, we haven't participated. So this is what you see coming through our numbers. On the other hand, the agency -- our agency, which we are continuing to build and continuing to professionalize, has been much more resilient. So in a market that's been reducing, that held their own. So those are some of the features that underlie the trends that you see in Korea. Your question about the in-force book, look, we took a massive hit to our embedded value in Korea in 2008, 2009 when we relooked at the persistency assumptions. And pretty much ever since, there's been some small positives or small negatives. So we're comfortable with the value of the in-force that it's behaving broadly in line with what we were expecting to see.

Our next question comes from the line of Andrew Crean at Autonomous.

I had 3 questions actually. Firstly, on your capital position. I mean, at year end, you had GBP 2.75 billion coverage over the required minimum on IGD. What's your capital policy? I mean, what coverage level would you target and not wish to go below? Secondly, again on capital, if you didn't have equivalence in the states, does Jackson have enough capital currently to run under a Solvency II economic model? And then thirdly, in corporate pensions in the U.K., there's a lot of competition for existing big schemes. And I was wondering whether what's happening to your actual net flow and stock positioning in corporate pensions and whether you see over the auto-enrollment periods, you being able to hold your funds under management in that line?

Okay. Thank you, Andrew. You're going to allow me to take a break. And so I'll let Nic handle the capital IGD. And again, I'll do the Solvency II, and Nic will do the corporate pensions.

Andrew, look, on the capital side, I mean, the reality is we don't want to find ourselves in that position and as we -- having experienced what we've seen in the markets through 2008 up today, a position where we don't have enough capital. We've worked hard to rebuild the buffers. We would have been around the GBP 4 billion level that allows us to absorb, as you see from the sensitivity that we published, quite significant adverse events. And really, our philosophy there has always been one of having enough buffers, so there is a shock. But at the same time, there are opportunities to capture profitable growth. We don't effectively miss out on them because we find ourselves in a very low capital position. This is one of the lessons that we've learned through the last crisis. We haven't put out a target, but a position along the lines of where we are, maybe a little higher, as the size of the business increases, is what is in the back of our minds, if you like, as we look at the next 1, 2 or 3 years.

If that's okay, Andrew, the equivalence question in the U.S., I think, frankly, if you look at it and you know this. Fundamentally, the extreme versions of Solvency II try to be fully market consistent and RBC is fundamentally, in its philosophy, a mean reversal model. So in the -- considering the current interest rate environment, if you have to run that business believing that interest rates will stay where they are forever versus running it thinking that someday interest rates will increase, that clearly will drive very different levels of required capital. And what we are saying is that, philosophically, we don't agree with a fully market consistent approach, pure market consistency approach. I think that's where Solvency II learns. We will have to take a different approach and probably leave the EU, which is what has driven our major interest. But that's the reality. You cannot really run Jackson on a market consistent basis.

Just coming in on that, Tidjane, Solvency II is unlikely to be fully market consistent and there will be liquidity buffers. That was the case in QIS5. So the question was, given that, would your current capital be able to withstand a sort of market consistent plus buffers approach?

It's very difficult, Andrew. I don't want to give you a non-answer. Yes, it all depends on the devil is in the detail. Because as you know, you can run very differently the liquidity premium. That's why we pedal [ph] the scenarios. You're right, if you cut the liquidity premiums by increasing the spread, your balance sheet is going to look very, very different in one place or the other. What I can say that there are versions of Solvency II where Jackson could operate. And I can say the further we get from market consistency, the more true that is. That's the, I guess, the best answer I can give you. Yes, there are versions where it works. You need to accentuate what I consider a sensible approach. I feel like we've been having the same debate for almost 5 years. I remember MCEV had the conversations around that. It was almost the same debate. If they are pragmatic, I think, yes, it can work. It may take a really purist approach. And that, at times of stress, the whole thing -- the whole division is about times of stress because when everything is normal, in benign markets, this debate doesn't exist. It's only in times of stress. What are the terms or the conditions under which you can put the liquidity premium and how much is the liquidity premium or the 2 things that have not been clarified? And that's why it's a bit difficult for us, but I'm still hopeful that we will land in a reasonable place. That may be our central scenario. So the other plan is we're making our contingency plan, but that's not our central scenario.

The corporate pensions and auto-enrollment, as you know, Andrew, the -- what this is targeting is effectively employees on lower income in order to give them a mechanism for saving for retirement, a solution. And the proposition that we're offering our existing clients is one of working partnership with the net, if you like. There's a dual portal. Lower value employees can auto enroll, and then the larger value employees can continue with us. A number of -- 1 or 2 players in the market are taking the opportunity, if you like, to offer propositions to the entire workforce of many corporates often at very low prices. In other words, within the pricing of the net scheme not only for the lower value employees, but also the higher ones. Now we believe that in writing this business, they're making an assumption they can attract a lot of other new business from those corporates, such as ISO SIPs through either platform propositions or work site marketing initiatives. And I -- we think that, that assumption is really a leap of faith, and there isn't a lot of precedent in the U.K. industry where people have better success with that. So that's our proposition versus that of others. As to the question of flows, we're not seeing any -- if there is a risk, it's more to the flow rather than necessarily to the stock. But there isn't a lot of embedded value tied up in the type of schemes that are potentially vulnerable, and it's a few tens of millions of embedded value. A lot of the stuffs that we do such as the AVCs is not likely to be affected by what's happening in the corporate pension space.

Our next question comes from the line of Toby Langley at Barclays.

I've got 3 questions, if I may. The first is on single premium sales. Across Asia, with the exception of Indonesia, the Philippines and Thailand, you've got pretty hefty decline in single premium sales. I'm just wondering is that something that you have been proactive about cultivating? Or is that just a natural shift change in your split between regular premium and single premium? And then you've already talked a little bit about Malaysia, but Vietnam is a market that -- I mean, Tidjane, previously you said it was maybe the fifth market to emerge from the pure Asia platform. And it's had a quite a challenging few quarters and things don't look like they're getting much better as of yet, so I'd appreciate some further commentary on that business. And then lastly in the U.S. on variable annuities, can you provide some commentary on how hedging costs are evolving at the moment? You must have felt some relief last month when you saw U.S. rates spike upwards, but they've come back again. And of the publicly available indices that showing via hedging costs, they are now on a 12-month basis -- they appear to be running on a 12-month basis a little bit above your -- in the 95 basis point budget. Can you comment on that and whether you feel you've reached the point where you need to start considering raising fees?

Okay. On single premium, I think really the answer fundamentally is that it's a part of our business that is the most sensitive to the macro. If you remember in '08, '09, we lost about 90% of the single premium business. I mean, luckily, it is not a big part of our business in Asia. So you will see those variations also as a result of competition. It's a business that is the mostly income interest-sensitive -- interest-rate sensitive segments, where people will have -- given market campaigns and drive the flows with that, and we generally don't participate in those types of war, if you wish. So fundamentally, the answer is that no, it's not something we drive. It's often just a result of specific market conditions in a given country. Vietnam, I think you're right. It's a bit disappointing in the short term. We think that the medium-, long-term prospects are intact. Fundamentals around demography, et cetera are there. The challenge in Vietnam has been really the macroeconomics, where inflation got out of control and the government has been changing. The government, et cetera, et cetera, as you know, has been trying to bring the macroeconomic framework back in balance. For us, what we do in those moments because we've had that in operation in countries. There is a time to actually consolidate. So it's the time where you focus on your agency force and you take -- get sort of a breather or two, really make that you recruit in quality. You continue to train people. You focus on their productivity numbers, et cetera, et cetera. And that is what's going on in Vietnam. But we don't change in terms of our assessment of a medium-term prospect in that market. We think they remain very good. I think that they will get the macroeconomic framework back under control and get inflation under control. And we will then be able to sell again as we have in the past. On VA, I know there has been quite a bit of debate on cost of hedging, et cetera, et cetera. What we'll say is that we've been very conservative historically, and that we are comfortable that in spite of the market variations -- because we've always been proactive in repricing the products to be ahead of the interest -- the trends you see in the interest rate environment. We remain in our hedging budgets, which is what allows us to be comfortable selling the kind of volumes we are selling. So yes, the cost of hedging is higher, but it is still within our budget.

Our next question comes from the line of Greig Paterson at KBW.

Three questions. One is, Indonesia bancassurance cost, the CEO of Danamon Bank recently put its pension deal up for tender and moved from Allianz to Manulife. I was just wondering if you could give me a feel for how much bancassurance deal costs you're realizing in Indonesia over the last 12 months, et cetera? And the second thing is, I know you don't like disclosing it, but you used to disclose it up till last year. Could you give us the year-on-year growth in APE per active agents? And also, bancassurance margins, seeing how bancassurance is now becoming more important and growing quickly, I was wondering if you could actually quantify the magnitude -- some kind of magnitude the difference between the bancassurance and the agency margins?

Okay. Can we give you a sense of how much bancassurance deals cost? I think that is very, very difficult. I think that is very, very difficult. What is it going to depend on? It's going to depend on the situation of your banking partner. What is their own strategy as a bank? What do they see -- how do they see the desirability of insurance business versus traditional banking business? Do they want off-balance sheet assets or on-balance sheet assets? Things like interest rates are going to play a role. When interest rates are high, if the banks want to keep the deposits on their balance sheet or use cheap funding. The interest rates are low rates such as 1, 2. It's going to depend on the demand side or supply side on how many insurance companies are interested, what is their own strategy, what is their own appetite for Asian growth, what commitments they made to the market, how they're willing to destroy value in that process or not. So frankly -- and that will also depend on their experience. I would argue that because we have so much bancassurance, we are good at pricing it, and we understand its value. It's not publicized, but we've walked away from a number of situations in Asia just simply because we didn't see a way to make money from them in spite of our schemes and what would have taken them. So really, I think it's very difficult to give an honest answer.

I'm just more interested in the trajectory in the last 12 months where we've seen an increase. I also saw 2 Japanese banks came in there. As I said, Allianz lost a deal to Manulife. I was wondering, has the cost increased dramatically?

Completely anecdotal. You'll get situations where costs will be very high because everybody will be competing. You'll get situations where a bank -- I mean like UOB with us, will go and through the farmers, say, we just want to do business with you. And that's it, and you'll get your sensible price. Really, it's very hard. I understand why you would want to make that analysis, but I'm not trying to recommend doing this because I think the probability that you could be wrong is extremely high.

Well, maybe you can give us as agents margins versus bancassurance. I mean, at least, give us some kind of feel for what the economics are.

We have in the report from time to time commented on that the agents [ph], APE, et cetera. I know that's the topic you're interested in, and it's an interesting statistic. But here again, we haven't given it out every quarter. And the quarter from quarter numbers can be all over the place. I'm not sure.

You said, I think, last time we chatted, that it was going to be flat, the expectation. Is that for the expectation?

My difficulty is predicting Asian numbers because really, I don't know from quarter-to-quarter what's going to be the makeup of the growth for the Asian platform between Malaysia and Indonesia. [indiscernible] And that's very difficult. I said at the high level, but as a theory, you can expect that if you push very hard the number of agents for a little while because it's not science -- I think what I was saying when I chatted was that you can expect that forward is going to consolidate. And in a very short term, that's going to affect your productivity negatively because you just take a lot of new agents that you need to train, you need to activate. So that kind of situation is to be expected. Now on the margins, look, as I said, they are lower. It's a function of product mix essentially. What you will see is that in a lot of banking situations, we sell a lot of par products, okay, and we lower margin on the one hand. On the other hand, we are regular premium, which works the other way. And we are comfortable again that the IRRs are above the cost of capital and constantly in both channels. So if you look at Singapore, for instance, where we have lots of bancassurance this quarter, the NBP has increased, which is ultimately what we drive. So I understand the big frustration but we want to be judged on Asia, the total platform, and we want keep degrees of freedom in the way we run that platform. So we're committed to delivering a certain outcome at the Asia level. It's very clear what we're trying to achieve by 2013. We're confident we'll deliver that, and we want to be able to pull various levers at different points in time depending on what's happening in the different economies to do that. And frankly, getting into granular discussion would stand in the way of that.

Yes. I mean, I'm sure. I appreciate that. It's just we need to produce results so it's quite difficult to figure it all out.

We have different jobs. But I understand your predicament.

I thought you were saying, if you push hard -- I thought you were referring to me. If I push hard enough, I'm going to get that APE number and get the point through that.

I know what you're trying to do, but I have a lot of people here. I'm not being unfair. I know it makes life difficult for you. I completely understand, but...

I mean, it's a dilemma. You don't have to answer but you can take away this point. You say that the key differentiating factor is the amount of riders that you attached. But I had a good chat with Nic the other day. And you used the same unit cost but the bancassurance also has the amortization of the initial cost. So I just struggle to understand -- to square the circle on the comments for a slide in a future presentation, just to give you some idea how all mechanics work.

Well, we're looking at it over here, David and Nic and myself, and we -- look, we take that away and we'll see what we can do with file sharing. I don't know. Nic, you want to add anything?

No.

The next question comes from the line of James Pearce at UBS.

I just wanted to ask you about the Elite Access product in the U.S. I can see why it's good for you not to offer any guarantees. But what's in it for the customer? What are the selling points? What funds are they getting access to? Is it cash plus type funds? Or is it hedge funds or what?

Now you put your finger on one of the explanations.

I think that's -- it is trying to access a different element of the retirement planning pot of investors, an element that predominately in the past or currently goes into a much more basic and mutual fund. What we are able to do -- and we're trying to prove a concept here because not many people -- we're trying to use the power of our wholesaling to see if we can create something that no one else has. It does help us. Tidjane has already covered the -- it does help us write more business without leaving benefit guarantees. The funds -- the advantage is that clearly the benefit from the VA tax wrapper that comes with it. And what we're offering is a variety of things but it tends to be skewed towards the alpha type funds. As you know, we've reduced our alpha offering on the underlying VA once we got to a place where we wanted to -- we had exhausted our appetite on basis risks. So we're able to take those funds that were no longer offer on the standard VA with living benefits, wrap them under the Elite Access. Clearly, the fees that we charge are lower, which ultimately competes with them in a slightly different space. But it will -- if it takes off another set around 70-odd percent of our distributors have signed up to promote the product. And we spend most of the early part of the year doing seminars and running through the product. If it did had taken up, it will diversify our earnings and it will increase, if you like, the proportion that you would have had heard both Mike and Chad say in KL, the proportion of our profitability, of our income that comes from a more basic fee business. In other words, a fee business that isn't sold on the back of living benefit guarantees.

And in terms of penetration, I mean, do you think it's already sort of a material percentage of your sales? Or if not, do you expect it to become material? Or is this just sort of a little sideline?

Let's wait and see. I think it's too early to say. It was launched on the 5th of March. I mean, in terms of sales, it was only $11 million. That has -- it contributed $11 million in the first quarter numbers. It's -- as I said, we are trying to push something new. We're trying to see if the power of wholesaling that we have can promote something new in the U.S., and we're confident. But really to get too specific about numbers, it's just too early to say. We'll be able to give you a better update come the half year and as we go into the rest of 2012.

Our next question is from the line of Nick Holmes at Nomura.

Couple more questions on the U.S. please. First one is, could you update us on the competitive environment in U.S. variable annuities? I'm asking really because some of your main competitors have reported big drops in VA sales in Q1. And I wondered, are they becoming more risk averse? And are you taking more market share? And the second question is, just looking at your VA margin, which is 70% on an EEV basis, I wondered -- you're talking about market consistent earlier. Have you looked at it on an MCEV basis? And if so, what would -- can you give us a sort of approximation of what the difference might be?

A number of things are published now there at Q1. I'm not sure we'd make the same observation. It's MetLife or who was down, depending on what you look at. If it's a sequential, they were down 32% in Q4. If it's year-on-year, they were go down 30% -- 13%, sorry, on Q1 '11. But the sequential is quite interesting and their proofing was up 12% in Q4 '11. We're up 17%; Lincoln up 8%; Americo is up 3%; Hartford up 42%. So we don't see the retrenchment that you are talking about that would lead us to pick up business that others don't want. We don't see it in the numbers.

And I think these trends are often influenced by a 5 sales and another product and others very company-specific product initiatives.

And the other question on MCEV. You probably remember the '08, '09 debate on MCEV. We decided not to go to MCEV simply because we think it's not the right way to account for our business. So I'm not really sure why we should use a metric we think is bad to measure our business. We refused to do it in '08 with LNG. It served us very well, and we don't believe in MCEV.

Okay. I mean, do you think that the volatility that MCEV has is the problem? I mean, surely, it's quite good to look at the market economics isn't it, and especially with variable annuities when you've got guarantees and so on.

What you said was cute [ph]. Look, we've had that debate in '08, '09. We took a very clear stance. Other companies took a different stance. We think we've been proven right by the event. I was once an interest rate swap trader. I worked on the Deutsche Mark market during the unification of Germany. You said that -- anybody who's been on the phone trading anything knows that markets over the long term are good predictor of things. But there are -- there is overshooting. It's very well-documented. There are tons of PHD theses defining and explaining to you how and why markets overshoot. So the notion that at every single point in time, the market number is the best predictor of the future has been turning to ridicule in the early '80s. And that's the market consistency I believe in. I'm very happy to have that conversation with you. I think it's a bad framework. I think it's misguided. I think that in terms of stress, it will lead people into catastrophic behavior, and that's why we don't believe in it.

Next question comes from the line of Oliver Steel at Deutsche Bank.

Two questions on M&G, where, I think, actually after today's announcement, it's even more unfair that nobody ever asks questions. So the first question is really about the European inflows, which seem to be annualizing at something like 60% to start your funds. And I'm wondering what you've done out there that seems to have sort of increased them so sharply and what the outlook would be on that? And then second question is more generally about the sort of how we should think about the margin of the net inflows that you're receiving versus the existing margins?

Okay, Oliver, thank you really for talking about M&G. We think it's a bright spot, as we said. It's just an amazing performance, 14 quarters in a row. They actually have a very -- in retail, very positive inflows in both Europe and the U.K. The GBP 2.4 billion that we gave break down in GBP 1.4 billion positive for U.K. retail, GBP 1.5 billion positive for Europe retail and kind of GBP 600 million negative in institutional which is used. And we were spending the IMS what led those withdrawals in institutional. So it considerably neutral [ph]. The key numbers are GBP 1.4 billion retail U.K., GBP 1.5 billion retail euro. And in Europe, it's really the result of a long-standing strategy. They penetrated first Italy. And in the previous slide, I saw Prudential arriving in the Italian banks. And M&G did very well there, as well extended to over European markets. They have good products. They pick good partners. And overall, in general, in Europe, you've seen huge outflows in the sector. M&G has been really an absolute big part of our performance. That's a huge source of strength. It's very pleasing to see that Europe at the same level of net contribution as the U.K., and so it's a great performance. Now you'll never catch me making a forecast on net flows in asset management ever because that's just -- I think annualizing or doing anything like that is dangerous. In just the recent elections, perhaps, we can assure that Europe is still going to be a very volatile place. Sometimes the view is that people think that Asia is more dangerous than Europe. But anyway, that's that. Your second question was on margins.

No, there's no differentiation. I think the margins -- I mean, it's the same funds that are being promoted. The very successful funds that have attracted strong flows in the U.K. are also the ones that are also on the fast track -- strong flows in Europe and -- when the margins are strong.

The final question is from the line of Ashik Musaddi of JP Morgan.

Just 3 questions coming on variable annuities and 1 on Indonesia. Can you give us some color on the average case size of Indonesia? Just trying to, in terms of single premium, first year single premium? Just trying to figure out like -- because you charge 70% of your unit-linked premium as production charge. So just trying to figure out what are the production charge -- production premium that you take on the first year? That's question number one. Second, can you give us some color on the changes you have done on your variable annuity products in terms of bps margin for guarantees or change in guarantee rates basically, given that your margins are still at a high level at roughly 63% in new business margin? And third one and not so relevant, but can you give us some color on your front performance of variable annuities versus S&P index?

Okay. Look, the angle on the first one, we can give you some color offline for only [ph]. Indonesia, et cetera, the average case size, we can provide that. The trend in the VA product, we have a page on how it is -- there's a lot of trends here. We can also take you through that line by line for changes introduced in 2012, if that helps you model what you're referring to -- you're trying to model, and also the front performance. So I would suggest, David, if you could just collect that data and pass it on, that would be -- hopefully that would be helpful to you. So I'd like to thank you all for your questions. The global economic outlook remains uncertain, primarily due to the ongoing challenges within the Eurozone. Despite this bad growth, all 4 of our businesses are producing strong performance on a relative and absolute basis. And the rapid growth of our market-leading Asian franchise increasingly positions us towards a most attractive region within the global economy. As a management team, we are driving growth where it is profitable, being disciplined in writing business that meets our target returns that's really central to everything we do. We are generating increasing amounts of cash, and our value-driven management philosophy gives us confidence in our outlook for the rest of the year. So we remain on track to achieve our 2013 financial objectives. Thank you and have -- for attending our call and have a good day. Thank you.

This now concludes our call. Thank you all very much for attending. You may now disconnect your lines.