Prudential plc (PUK) Q3 2013 Earnings Report, Transcript and Summary

Cheick Tidjane Thiam - Group Chief Executive and Executive Director Michael Andrew Wells - Chief Executive Officer and President Jacqueline Hunt - Chief Executive of Prudential UK & Europe and Executive Director Nicolaos Andreas Nicandrou - Chief Financial Officer, Executive Director and Chairman of Disclosure Committee Paul Chadwick Myers - Senior Vice President of Asset & Liability Management

Blair Stewart - BofA Merrill Lynch, Research Division Jon Hocking - Morgan Stanley, Research Division Andrew Crean - Autonomous Research LLP Farooq Hanif - Citigroup Inc, Research Division Alan Devlin - Barclays Capital, Research Division Oliver Steel - Deutsche Bank AG, Research Division William Elderkin - Societe Generale Cross Asset Research Greig N. Paterson - Keefe, Bruyette & Woods Limited, Research Division Fahad Changazi - Nomura Securities Co. Ltd., Research Division Abid Hussain - Societe Generale Cross Asset Research Ashik Musaddi - JP Morgan Chase & Co, Research Division

Hello, and welcome to the Prudential plc Third Quarter Interim Management Statement Analyst and Investor Call. [Operator Instructions] And just to remind you, this session is being recorded. Today, I am pleased to present Group Chief Executive, Tidjane Thiam. Please begin.

Thank you, Jerry, and good morning to all. I am joined today by Nic Nicandrou, Group CFO; Mike Wells, CEO of Jackson. It's a very early time in the U.S., and Jackie Hunt, U.K. CEO. I am pleased to report that Prudential has continued to make good progress in the third quarter with a particularly strong performance from Asia. So let me take you through the highlights for each of our main business units, starting with Asia. In Asia, new business profit in the first 9 months grew by 20% to GBP 990 million, as APE grew by 15% to over GBP 1.5 billion. Our Asian business had a strong third quarter, delivering sales of GBP 513 million and new business profits of GBP 331 million. 9 of our businesses grew sales at double-digit rate in local currency terms in the third quarter. Thailand more than doubled its sales, up 120%, due to a strong contribution from our new venture announced last year with Thanachart Bank. China was up 62%, India was up 27%, Hong Kong was up 23%, Indonesia and our Takaful business in Malaysia were both up 22%. Vietnam, up 17%; Singapore, up 16%; and Taiwan, up 12%. Our business continues to be primarily driven by several favorable long-term favorable trends, to name a few, GDP growth, high savings rate, a growing middle class that has a strong appetite and need not only for savings for us, but also for protection of their health and that of their family, low penetration of protection products and limited work per state. These positive long-term trends are not significantly affected by short-term economic situations, as evidenced by our performance in the third quarter. Moving now to the U.S. from Asia. Q3 [ph] new business profits were up 11% to GBP 756 million, reflecting 3 main positive factors: first of all, higher sales of our new VA with no leading benefits and the success, which have really become material this year; pricing and product actions that we have continuously taken and talked to you about; and the beneficial impact of higher long-term interest rates. Moving now, the U.S., to focus on the U.K. In our life business, new business profits were GBP 204 million, 10% lower year-over-year due to lower booked annuity volumes mainly. Retail new business profits were actually up 2% over 2012. Our asset management businesses have continued to perform well, with external funds under management up 18% year-over-year to GBP 143 billion, largely driven by positive net flows. Overall, we believe we're on track to achieve our 2 remaining 2013 'Growth and Cash' objectives. So after we read the highlights, let us now take a closer look at each of the 4 businesses in turn, starting with Asia. Our businesses have delivered a very strong third quarter, leading to a strong year-to-date performance with broad-based growth across our key sweet spot markets and across both our core distribution channels, agency and bank balance sheets. What we call our sweet spot markets are Hong Kong, Singapore, Indonesia, Malaysia, Thailand, the Philippines and Vietnam, an area with close to 600 million people and more than USD 2.5 trillion of GDP, which would make it to G5 105 in the second quarter. In the stand-alone third quarter, our sweet spot markets delivered APE of GBP 428 million on a local currency basis, which is 22% higher over the prior year. This strong volume growth has helped drive year-to-date new business profits up 22% in local currency terms again. Our multichannel distribution platform continues to be a unique advantage in the region. In the discrete third quarter, agency APE grew by 22% on a local currency basis, with strong contributions from all our businesses, except Korea where APE fell 43% reflecting our discipline in not offering low margin guaranteed products in that market. On a year-to-date basis, agency APE grew 16% driven by a continued increase in the number of active agents, higher case agencies [ph] and higher number of cases per active agent. The bancassurance channel delivered discrete third quarter APE growth of 27%. All of our top 5 banks recorded double-digit growth, with Thanachart delivering a particularly strong performance after coming onstream in May 2013. So I'd like to just run you through a few key market, 6 actually: Hong Kong, Indonesia, Singapore, Malaysia, China and Thailand. In Hong Kong, we delivered year-to-date APE growth of 23%, led by sales of our popular Evergreen Growth Saver and PRUmyhealth lifelong crisis protector products. Our Hong Kong agency force has had a particularly strong year with productivity in this channel up by 25%, mainly driven by higher case agencies [ph]. I would like to spend some time on our performance on Indonesia as it is a market that has attracted a lot of interest as concerned in previous year about emerging markets, and particularly, Southeast Asia. Our year-to-date sales in Indonesia on a reported exchange rate basis have increased by 15%, with new business profits growing at 16%. Please note that on a local currency basis, both APE and new business profits grew by 22% versus 15% and 16% I just indicated. So this demonstrates, we believe, a continued strong underlying performance of our business in that country. The continued growth in Indonesia is supported by mainly 3 drivers: the strong underlying demand for protection products, our expansion outside Jakarta and our exceptionally strong and growing distribution. Taking these in turn, first, the continued growth of the middle class, increased availability of medical services, the absence of the workers' state [ph] and the low penetration of savings and protection products, mean that demand for our regular [indiscernible] savings and protection products remains robust. Sales of this product were up 28% in the third quarter in local currency terms. We continue to invest in understanding our customers' needs, which underpins our ability to innovate and sell products, which are always well suited to meeting our customers' requirements. Second, our strategy of expansion outside Jakarta is progressively bearing fruit, with non-Jakarta APE up 31% in local currency terms, comprising now almost half of our total Indonesian sales. This evolution is typical of what we have seen elsewhere in the early stages of the development of an emerging economy. Urbanization leads to a growth of a main cities, but also and as importantly, our growth of a number of medium-sized and smaller cities where business opportunities are significant. Companies only neglect these adverse [ph] expense, and as always, there is effectively a sizable first mover advantage by country that we have much talked about, but also by town, and we expect this to continue to pay [ph] out over many years to come. Third, our agency channel, which is central to capturing the significant profitable growth opportunity available across the archipelago, showed continued strong momentum with a number of active agent significantly up over the year. Our agency recruitment, on-boarding and training model remains a core competitive advantage and is instrumental in driving sustainable, high quality growth. Moving now from Indonesia to Singapore next door. Sales grew by 18% for the year with broadly similar contributions from both our agency and bancassurance channels, illustrating the benefits of our multichannel approach. This is a strong level of growth in the market that is sometimes perceived wrongly, described as mature. What I would call the wealth effect is particularly strong in Singapore, which is a wealthy country where the population keeps getting wealthier, not a bad place to be. So our agency channel in Singapore delivered 21% APE growth led by both a continued increase in the number of active agents and higher productivity. In the bancassurance channel, overall APE grew by 17%, led once again by a strong contribution from Europe [ph]. Our long-term track record in Singapore underlines the quality of our execution in delivering additive growth from both our agency and bancassurance channel. Moving on to Malaysia. In Malaysia, we saw strong demand for our flagship [indiscernible], the protection product with savings drivers, as part of our actions initiated in the third quarter of last year to refocus the business away from high volume, lower volume products towards low volume, higher value protection products. For a few quarters, this produced a drag on our product sales growth number as we were comparing a period where sales were lower, but higher value, this year, compared with sales were relatively higher but lower value last year. Beneficial impact of our new approach can now be seen more clearly in the figures from the third quarter of last year as they are truly comparable with the third quarter figures this year. On that basis, APE was up 13% year-over-year and NBP over same period was up 18% in local currency terms, validating this refocused strategy. Moving now to China. Our strong start to the year in China was confirmed in the third quarter [indiscernible]. Year-to-date APE sales are up 48% and NBP is up 44%, reflecting increased levels of cooperation with our JV partner, Citi, and rewarding us for our long-term approach in that market and in our patients. In the discrete third quarter, reported APE was up 62%. This growth has been broad based with APE in the agency channel growing by 85% while the bank channel grew by 61%. In the agency channel, growth was led by higher productivity; and in the banking channel, by an increase in the number of [indiscernible] customers buy our products. So let us finish this tour of Asia that took us to Hong Kong, Indonesia, Singapore, Malaysia and China, by talking about Thailand. We have been operating with Thanachart Bank since May this year. I am pleased to report that we have made a strong start to our new relationship with Thanachart, which has achieved GBP 15 million of sales in its first 5 months of operations. To put this in perspective, Thailand, overall, achieved total APE sales of GBP 37 million for the whole of 2012. Thanachart has produced GBP 15 million in 5 months this year. Other results, as mentioned at the outset, overall third quarter sales more than doubled over prior period, and we have been able to activate over 90% of Thanachart's branches since May, so that most of its branches are now contributing to our sales. Our bancassurance, where there is a core expertise and has been perfected over many years of operating with our banking partners across the region, our experience has allowed us to work closely with Thanachart pre-approval so that when approval on May 3, we sold our first policies the next day on May 4. And all that means we were very pleased to take the plc board to Bangkok for its Annual Meeting in Asia in September, a very successful meeting. Let's speed up the discussion [ph], it has become the core skill of our company as demonstrated in the [indiscernible] partnership and now with the Thanachart partnership. This allowed us to convert quickly and effectively new distribution opportunities into tangible value, delivering valuable products for our customers and meaningful returns for both our banking partners and financial shareholders. Looking further ahead, the favorable structural trends of low insurance penetration, significant demand for savings and protection products from a rapidly growing and wealthy middle class are not affected in any major way by short-term investment market volatility and continue to underpin our long-term perspective for the region. The quality of the execution of our team in Asia, combined with the unique nature of our multiproduct, multi-distribution Asian franchise, with top 3 positions across 8 of our 12 markets, make us confident that we will remain well positioned in a very sustainable growth in IFRS earnings and cash generation over the medium- to long-term. In summary, our business in Asia had delivered strong sales and new business profits in the third quarter. The quality of our execution, our ability to drive additive growth through our banking agency channels and the sustained strong customer demand for our products which meets real and important needs, were all key to delivering this performance. We continue to see strong activity levels across our distribution channels and remain confident in our ability to capture a significant long term, profitable [indiscernible] growth opportunity in our present market. And we remain on track to double Asia's 2009 new business profits by 2014. Leaving Asia now for the U.S. The U.S. market, we believe continues to offer good long-term growth opportunities, which will transition into retirement of the baby boomer generation, which will create 10,000 retirees per day for each of the next 20 years. In that context, new business profits grew by 11% to GBP 756 million, benefiting from higher volumes of our non-guaranteed valuable annuity credit access, from pricing and product actions and from higher long-term interest rates. We have continued to manage our volumes and product mix proactively in this highly competitive market. As a result, Jackson reduced its sales of variable annuities with guarantees by 15% to GBP 12.5 billion. In parallel, sales of Elite Access grew to almost $3 billion in premium from $630 million last year. Sales of variable annuities without leaving benefits guarantees of which Elite Access is a significant proportion, now represents 30% of our total variable annuity sales, up from 15% at the same period last year, further evidence of a successful implementation of our diversification strategy. We continue to pull those same levers, addressing pricing and product features as appropriate to achieve our target profitability, while remaining within our risk appetite. Both hedging and policy-holder behavior continue to track in line with our expectations. In summary in the U.S., we have continued to execute with discipline our strategy of optimizing the balance of risk and value. Moving now to the U.K. Retail new business profits were 2% ahead of last year at GBP 195 million, offsetting a 9% fall in retail sales volumes. This is an illustration of our value over volume approach. Overall, new business profits were GBP 204 million, reflecting lower book annuity sales in the current year. In retail annuities, I would like to underline the performance of our reaped [ph] profits in contrast annuity products, which show continued strong customer demand with volumes growing by 15% to GBP 66 million. In our internal vesting business, the positive impact of higher fund values was outweighed by increased levels of customer deferrals, giving overall annuity volumes 3% lower year-over-year. In other products, investment bond volumes fell as expected as a result of implementation of Retail Distribution Review, while corporate pension volumes reflect our selective participation in this market. While we remain well positioned to operate in the RDR environment, [indiscernible] environment, we expect the short-term disruption to persist at both distributors and customers addressed to a new regulatory landscape. Looking now at our book annuity business, we completed 1 book annuity transaction in the third quarter worth GBP 12 million of APE. Our approach to this market reflects our disciplined capital allocation process where we allocate capital only to those transactions that meet our high hurdles in terms of return on capital and payback periods as we make all of our business units across the world compete for capital. Lastly, I mentioned to you at the half year that we were reaching the closing stages of a project to domesticate our with-profit business in Hong Kong. As announced in September, we have now received approval from the U.K. and Hong Kong courts on the timetable for the completion of this project. And we are aiming for domestication to become effective on January 1, 2014. Overall, the U.K. continues to perform well, in line with its stated strategic objectives. Turning now to asset management. Our asset management businesses have delivered a good performance, with net inflows of GBP 10.9 billion in the first 9 months of this year and third-party funds under management growing by 18% this year to a historically high level of GBP 143 billion. At the end of the third quarter, M&G external funds under management of GBP 124 billion were 19% higher over last year, with year-to-date net inflows of GBP 8.9 billion. This represents the 8th consecutive year of net inflows for M&G. M&G diversification, by geography, by channel, by fund and asset class and its strong investment performance differentiates their business for most of its peers and has helped to deliver strong performance over a long period. These Eastspring Investments, our Asian asset management business, saw a 12% increase in external funds under management with positive net inflows in the third quarter, offset by adverse investment market movements. I'd like to say a few words, at this point, about our balance sheet. We continue to remain defensively positioned on the asset side of our balance sheet. At the end of September, our IGD surplus remained a robust GBP 3.9 billion, which is stated after deducting the 2013 interim dividend and is equivalent to a cover of 230%. To finish, I'd like to give you our outlook for the remainder of the year. Our strong performance for this year, and in particular, our strong third quarter continues to be driven by Asia with the U.S. and the U.K. also making material contributions. Macroeconomic context is improving with adverse economies showing signs of recovery. Asia and emerging markets are forecast to continue to grow at faster rates than developed economies, and will continue to account for a significant share of future global growth. We believe the Asian economies fundamentally have enough policy flexibility and levers to pull to perform well across the state [ph]. The underlying drivers of our profitability expense [ph] in Asia, rapidly growing in wealth and middle class where significant unmet savings and protection needs remain intact. Our leading market positions in our chosen sweet spot markets and our excellent execution allow us to provide valuable products and services to our customers and generate significant shareholder value. In the U.S., we remain focused on meeting the return of the needs of the growing baby boomer [ph] reputation [ph]. While in the U.K., our with-profits [ph], annuity and asset management business in M&G, our profit for decelerating [ph] the [indiscernible] and savings needs of an Asian population. We are confident of delivering our 2013 objectives. Then we can now move on to Q&A.

[Operator Instructions] And our first question comes from the line of Blair Stewart of Bank of America Merrill Lynch.

Three quick questions. Firstly, maybe a few words on the business in the Philippines and how that's been affected by the unfortunate events of late. And secondly, with the U.S. separate account assets up strongly and the business mix improving, it seems inevitable that, that business will be capable of returning significantly more cash to the group. I just wondered what [indiscernible] management thinking in terms of whether to return that or to keep it in the local entity? And thirdly, just on Eastspring, I noticed that floors were somewhat flat in Q3. I just wondered if there's anything going on there.

Okay, thank you, Blair. On the Philippines, and again, I want to review [ph] how sorry we are about what is going on there. We have been extremely proactive. To give you some numbers, we have 7,401 agents and 486 staff in the Philippines, so a significant business. We have -- what we do in most cases, we really have a well-established process, unfortunately, to handle this because typhoons are a feature of life in Asia. We have a well-established process, so we account for all of our staff. In the worst place, which is Tacloban, we have about 60 agents. Unfortunately, out of the 60, 28 have not been yet accounted for. And we are working actively to find them. In addition to that, we always work with NGOs. We have a very extensive cooperation, particularly, Save the Children, in the region. That was in contact adjusting for our sites yesterday. And we have made funds available to them to alleviate some of the situation, and we have also committed to matching all our staff donations across the world. In our experience, unfortunately we've had that in Asia with the earthquake and tsunami. And In Japan is that our staff of the region, it was in fact, we need to material amount. So at a high level, that's what we're doing. And frankly, at this point, the business is low on our list of priorities. It's, first of all, human tragedy, and we need to deal with it. The U.S., yes, look, we've had a strategy, which has been very clear of growing the funds under management in the end that rise earnings. You've noticed the progression of earnings, which is very pleasing. But allow me to make an important comment on cash. What we're focused on, especially in the new [indiscernible] world, is cash generation rather than cash remittance. So what I can tell you, Blair, is that the cash generation will remain extremely healthy and will grow very significantly. [Indiscernible] is a different matter because we live in the new world where there's a lot of dialogue with regulators around that. And we really have [indiscernible], one is to continue to rebuild. The reason I say it's bigger, this is something we keep telling everybody. Everybody is pleased with our growth, and so are we. But if your business is growing at 15%, 20%, the balance sheet grows too, so a part of what you generate has to be retained. And if you just want to keep the same capital strength, you have to retain a proportion of that, so that's that. You have to reinvest in the business because we're writing at extremely attractive IRRs. I'm not sure everybody realizes that, but VAs currently have the highest margins ever. After all the pricing actions and returning the cycle, we are writing at extremely high margins, so it's a very attractive business. And finally, you have to remit. So that we -- you know, we don't hold cash. We don't keep cash anymore than is prudent in the businesses, but after that, the level of remittance has to be agreed with the regulator and has to be prudent. But over the long term, and I wouldn't commit over 6 months period or 1 year period. Over the long term, meaning, 2, 3, 4 years, yes, we're growing cash generation. You can expect growing remittances, but there may be time lags at a different points in time. At Eastspring, you're right. That's the one place, possibly, where you can see the impact of the so-called Asian crisis because it is of everything we do, but most exposed to short-term economic effects and market volatility. So yes, Eastspring has a flattish flows in the third quarter, and that was expected. It's nothing untoward [ph]. It's just a consequence of what's going on in the markets in the region that have been quite agitated. But I just like your comment there on interest rates because I think there's sometimes confusion. As you know, our exposure to interest rates is to long-term interest rates, and it remains geared positively to interest rates. Fundamentally, if you think about Asia's 2 businesses, kind of interest rate-guaranteed products and protection, on the interest rate-guaranteed products, higher interest rates are positive. And on the protection business, it's in an easy [ph] world, a little bit of cash flow. In an easy [ph] world, so it's negative because it's discounted at a higher rate. But net-net, and we give you a sensitivities now, this recovery is positive with higher interest rate. Between what we gave, if you look at Hong Kong, you've seen that the NBP really increased more than 60% in that interest rate. And net-net, it's a positive in Asia. So long term interest rate will gear [ph] positively. And really, the fourth -- and we're not really exposed to -- and a lot of the market [indiscernible] in this course of about the short-term of the yield curve, which really has a limited impact on our economy. It's very limited impact. And actually, if interest rates in the short term go up to different currencies, that's very positive for us. And if they go up to control inflation, that's very positive for us, too, because inflation is bad. No long-term inflation is good. So that's how we look at that whole interest rate question in Asia, market volatility. Sorry for long a answer.

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

I've got 3 questions, please. On the U.S., I just wonder if you could comment on how long this mix shift from guaranteed and nonguaranteed products could continue. How far can you take this? And are you seeing any pushback from distributors on that front? That's the first question. The second question, I wonder if you could comment a little bit on M&G, what's happening in terms of the types of products you're selling. Are you seeing a shift out of fixed income into equity strategies? And what's happening geographically in terms of distribution? And then, finally, I just wonder whether Jackie had any initial views on per U.K. versus her old shop and what she thinks the opportunity might be for the business.

Thank you, Jon. Thank you very much.

I don't expect that you answer the compare and contrast, but I thought I'd ask you.

I don't expect anything less from you. U.S., we have the pleasure of Mike on the line. So Mike, do you want to take the first one?

Yes. I think, Jon, the -- we're obviously -- the mix is what we talked about in New York and the attempt here isn't a full transition from one product to another. It's products that work across the cycle. Now Elite Access is focused on diversifying the clients' asset. So your question about the BDs and the distribution, they -- the broker-dealers, they actually like the product a lot. They are looking to us for a lot of training and branches and -- with advisors and we spent a lot of time prepping the wholesalers and, as we discussed getting the -- by year before we launched getting their skills up to deal with third-party constituents in this and actually, we're bringing some real value here. And that's the feedback we're getting. So I -- 0 pushback from our distribution partners. If anything, they've more time in the office and more time on the product. The one thing you are seeing is the S&P in the U.S. had a huge run this year. And so the -- I'm exceptionally pleased with the numbers of Elite Access, given the fact it's an alternative asset class in the S&P, which is having quite a dramatic year. So no issues there at all. We're going to continue to drive the mix of products away from guarantees, but as Tidjane mentioned earlier, the margin on our core P2 product is excellent. So we're not unhappy with the sales there either.

So the distributor just don't feel that you're not in any way backing away from the guaranteed product and having to go to competitors to fulfill their sales needs?

Okay, different question. We are doing activities right now similar to what we did in the last year, where we're not accepting 1035s for a period, managing capacity. And the -- it's a very different set of conversations this year than last year. Part of having done it once and returned to the market successfully and done everything we've said we were going to do, which, last year, we had a lot of competitors speaking against us that we were going away and also, the silliness. What I -- you're hearing from competitors is they'd rather us maintain the product quality and a proper balance between consumer pricing and shareholder -- stakeholder pricing versus raising the fees, again, to manage volume and having a less quality product. So I would -- anytime you disrupt the sale process, somebody's unhappy with you. But the number of calls and the tone of the calls are materially different than last year. I wouldn't -- I'm not going to tell you, Jon, everybody was happy but we're not getting the -- they appreciate the integrity issue on the product. And I'm hearing that more and more and that's -- and I've talked to a dozen retail reps this year that do a lot of business for -- this week, I'm sorry, that do a lot of business for us. And that's the tone of the calls.

Okay, so M&G. Look, first thing I'd like to say about M&G is that the results we've had have been absolutely outliers, completely exceptional by any historic standards. And so it -- the level of flows have been just stunning. And you should expect some mean reversion there because historically, the flows were GBP 2 billion, GBP 3 billion, GBP 4 billion not GBP 8 billion , GBP 9 billion , GBP 10 billion. And I think that, over time, it's going to normalize. Looking -- so this year, really, we've had -- structurally, we've had very strong flows in Europe, okay, and a negative flows in the U.K. So it's volatile not by an improvement recently we've seen in the U.K. but overall, that's the net picture. So if you think about retail, it's about GBP 5.9 billion. You've got something like 6 point something, 5 4 [ph] of positive flows outside the U.K. and minus GBP 0.9 billion in the U.K., roughly. That gives you a balance is the PTMs [ph] in the U.S. and it's small. So the feature structure has been that. If you look at products, the equity flows are higher period-for-period. They're about 23% of the flows now and they were 13% last year. So there's been a -- unsurprisingly. You want [ph] to see but cyclical shift towards equity. And that transition is going to play out, we're quite relaxed about it. Money will flow out of fixed income and it all go into equity. It's underway and it's going to continue in the coming quarters. So Jackie, we've given you enough time to think about your answer.

Thanks. And so by way of opening, really, I should just highlight. Obviously, I'm 2 months into the new role. And I have been saying to all the other [indiscernible], "I do get a bit of a honeymoon period." I'm still looking at parts of the business and forming some views. Initial observations...

Not just the honeymoon.

Initial observations, I mean, you wouldn't expect me to do a significant compare and contrast but, clearly, the strategy for PRU U.K. is very different than its last [ph] strategy. It's much more risk-based business as opposed to the asset gathering model. And really, I used to strain the [indiscernible] thinking that risk space. So if you look at the areas and what attracted me into parts of the role, we have an immensely strong retail brand that were different from some others which are largely intermediated brands. I think that gives us the kind of the resonance with still demand from the PRU and prudence and all these things in the consumer arena. And I think that has paid, actually, hugely to job benefit over the course of the last 4, 5 years. If you look at our With-Profits Fund performance, clearly, that has been strong against the backdrop of a product that hasn't sold in large quantities elsewhere, and that is driven really by the customer performance that they've seen off the back of those With-Profits Funds. So again, when -- we're talking to [indiscernible], I'll share with you some of the analysis. Many of you would have seen it, how strong PRU U.K.'s With-Profits performance has been relative to other similar funds out there. And finally, I think the thing I would highlight is around annuities. Obviously, it's a key strength of our business. It is a growing part of the market. There are areas where we have what I would see as market-leading propositions, so something like the Income Choice Annuity. You've seen a significant uptick in the sales of Income Choice Annuity products over the course of the last 9 months, and that's because it's the perfect customer proposition in as much as it gives a secure income with some opportunity for upside as well. So we will come back, I think, to this broader question of observations on the 10th of December, but maybe that gives you a little bit of a sense, Jon.

All right. Thank you very much, Jackie.

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

I might challenge you with a couple of follow up questions, one for Jackie. Has she reflected at all on the linkage between life companies and fund management groups in the asset gathering space because that's -- that was an area which, I think, stands worth exploring a lot and it's an area, fixed income, where a different strategy has been taken. And secondly, I wanted to follow up on what you were talking about in terms of capital generation, cash to group in the U.S. The implications seem to be that there was a one-off uplift in the regulators' requirements for capital for you in the United States where you wouldn't be able to remit cash back to group from the U.S. business in 2014. Was that a wrong deduction?

Everybody here is shaking their heads. It is a wrong deduction, if I may. But maybe I was too cautious in my comments. I'm just very reluctant to commit to kind of very short-term remittance to make further retail commitments because it is just not smart, frankly. It's not the way things work. We have a very good relationship with all the regulators involved, but the dialogue is always ahead of us, and we shouldn't preempt that dialogue but the rules are very transparent and how remittance work is very transparent. So no, we think that the level we have achieved is a sustainable level. So I'm not creating any concern. Sorry if I was -- I created the wrong impression. Jackie, the life and fund management?

Yes, I mean, and I think, again, Andrew, it's an area that I have felt and continue to feel strongly on where you can actually drive value across the group where you do find, obviously, a lot of companies often in a better place to distribute and the asset managers effectively to drive some of that retail growth performance. And elsewhere, it has been a strategy that has begun to pay off. When it comes to where we are today, I believe strongly that you play to your strengths in the first instance and clearly, as I said in my some earlier comments, our strengths here on the annuities base and in the With-Profits space more generally. So to my mind, that's really where we need to make sure we remain very focused, where we continue to actually generate the right financial outcomes for shareholders, and Tidjane has talked a lot about capital and cash generation. That will continue to be a significant focus of mine in the U.K. business. I do think we have the opportunities to potentially broaden our approach. We will look at those, make sure that we're not leaving any opportunities on the table, but it feels to me that, that particular one is further down the list of priorities than some other areas you would think me to be -- you would expect me to be concentrating on, things like enhanced annuities, those sorts of parts of the market.

Absolutely. And also, as you know, there is even today, a very strong relationship between our life business and M&G. They work very, very closely together, and we encourage them to do a lot of things together. So we're getting a lot of good synergies already today. So okay, very good.

Our next question comes from the line of Farooq Hanif of Citigroup.

I wondered if you'd comment on the kind of Omnibus II agreement that's just come out. Obviously, we don't have a lot of details apart from hearsay, but it seems like a bigger volatility balance, provisional equivalence, et cetera, et cetera. How does this -- I mean, how do you feel about it in terms of your group? But also, how does it potentially change product strategy? That's question area one. And question 2, going back actually to Jon's question about the mix of nonguaranteed and guaranteed annuities, VAs in the U.S. So am I right in thinking that you're still potentially likely to increase the nonguaranteed portion, therefore, there's still going to be a kind of a countercyclical element to your growth rates? Or do you think, given the really strong margin, that you could possibly stop pushing the guaranteed side a lot more and maybe change from your recent approach?

All right, well, thank you. Look, on Solvency II, as you said yourself, we're getting e-mails as this call is ongoing on the agreement that has been reached. My first reaction is to say that I'm pleased that there's been an agreement, because we all know that businesses and markets don't like uncertainty and 13 years is enough. So it's a bit of a relief that we are moving towards closure. And really on our big, big issues, which you know were, for cyclicality, having countercyclical buffers, I think we won the intellectual argument, we, being the industry and we got so much an adjustment or technical issues there. I haven't seen the text on things like BBB, the [indiscernible] effects or things that we're worried about. I'm not sure what the resolution has been, but I have every reason to believe that it's positive because, certainly, the U.K. Treasury and the U.K. regulator have been involving -- well aligned now for a while what is necessary for the long-term health of the U.K. industry. So overall, in short, I think it's a good -- it's probably a good package, but I have to wait until I see the detail. And what we are hearing on equivalence sounds positive also. I've heard 10-year [ph] mentioned. I've heard provisional equivalence, 10-year [ph] renewable is kind of what we here from a great [ph] point. That's also a great progress compared to where we were a few years ago. So certainly, as the leadership of this company, I probably have never felt better about Solvency II, certainly, in my years here.

[indiscernible], yes.

Yes, yes, it's been a -- product strategy is too early. We don't even know what it is of if -- it's too early to talk about that, but we'll come back to it. But from what I say, you can deduct that there is no earthquake and no drastic change because we basically have been able to -- we've always argued. But keeping it at about -- as we are a long-term business. So the premises of 1-year vouch is that you liquidate all your liabilities instantaneously. It doesn't make sense for an insurance company. Even in a failed insurance company, you liquidate the liabilities as they come due. That is the orderly way to do it, and that's how every insurance failure has been handled. So with 1 year of our approach, which is completely banking base, was just wrong. And not -- it was very difficult to hold years to just get people to recognize that. I think we got over that. So we're happy with any solvency regime as long as it takes into account the specificities of our industry and it doesn't lead us to do things that are damaging to the customers, damaging to the economy, the long-term growth potential of the economy through the savings rates linked to the investment rate, and employment and growth for instance by stopping us from investing in infrastructure or from financing the corporate sector beyond 5 years, or [indiscernible] the government in 5 years. I say in AAA, there are very few AAA countries these days. Anyway, I'll stop because my -- the list of my issues with the old framework is long. So we've made good progress. VAs, a follow-up for you, Mike. You want to...

Yes. No, I think it's a good question. I think the that things we look at is we look at our -- we're looking for the quality mix of our earnings and the strength of the balance sheet. So you have products mix in that, the appetite for with-guarantees. We don't have a materially different view of that year-over-year, even with the improvement in interest rates involved. Again, those -- sort of short-term looks, the book looks outstanding just from a quality point of view, both the level of guarantee, and then, as was mentioned earlier, and the performance the consumers have enjoyed. So we think we have a really good product that works for the retirees. We think Elite Access is a really good product to diversify away from complete equity and bond exposure for the retirees and -- or potential retirees and I think that what you're seeing is due with the balance, the balance sheet and earnings issues, what the consumer demand need issues and those are going towards, I think, an appetite for a range of products and guarantees. And that's what the industry is producing now, as well as a number of competitors have decided they like this business again. So we're watching what each of them are doing carefully, and we don't have any material increase at all in our appetite for with-guarantee. We think we're writing a pretty good level now, and I think that's demonstrated by a slowing down sales here at year end.

Our next question comes from the line of Alan Devlin of Barclays.

Just a couple of follow-ups on the U.S. and obviously, the impact of higher interest rates is rate-positive on your new business margin. I was wondering if you could give us some kind of color and the impact on the in-force [indiscernible] the VA business on the spare piece business? Should we see a similar impact on the profitability there? And then, second, just following on from the last point, if you could give us a bit of color in the competitive environment in the year? So I think one of your competitors, Nic and National [ph] because of reinsurance capacity and to help them grow one of these -- you mentioned IRRs are at a record high there. Do you think they'll start to come down as the competitive environment increases?

Okay, thank you, Alan. Maybe I'll ask Nic to take the first one and Mike the second one.

Okay. Alan, the impact of high interest rates is positive. But when you think about the VAs, that manifests itself in the high discounting of the obligations that we have, the very long-term obligations, for any policies that are in the money, so higher interest rate discount those at a lower -- that the discount affect is lower. So it's positive in terms of the economic exposures that we have on obligations. In relation to earnings, your write-up, that does come through on the fixed account. You would have seen that the business that we've written in sort of the third quarter, because of the higher interest rate base, has -- we've locked into a higher spread. It was up by around 55 basis points compared to this time last year or 50 basis points compared to the first half. So it comes through in the economics that we're securing on the -- on fixed [ph] account business that -- we are writing. Of course, the back book, it's matched. It's cash flow matched at the point of writing the business so the in-force book, the impact of the current rise in interest rates is not that significant.

Okay, thank you, Nic. Do you want to give some color on the competitive environment, Mike, please?

Yes, I -- on -- the Lincoln deal is interesting. It's a subsidiary of Wells Fargo that did the -- that's doing the reinsurance on their withdrawal benefit. We haven't seen the actual agreement. It's -- but I think it's generally positive when you see large financial players back in the space, back in the products. As you guys know, we never left it, so I don't -- I see it more as a sort of industry endorsement. So no different than you're seeing some of these other competitors now come back to the market with obviously much higher appetites for VAs with guarantees, but the environment is interesting. I think the competitors are -- the trends, as we discussed in New York, continue. You're seeing a lot of these attempts to -- the risk management overlays from ball only -- ball-controlled funds to forced allocation to these sorts of models, and they definitely have some advantages for the writer and for the consumer if used correctly. The disadvantages, when the S&P is up materially, they don't -- they're not going to participate in that the same way a portfolio of value centric in the more diversified funds are going to do. So each of the strategies has strengths and weaknesses. PRU U.S. has got a new product this year. They're pushing hard, which is focused -- it's a VA with effectively a bond type of -- bond-only portfolios in it that's kind of interesting. But, again, these all go to individual firms' agendas and what they're trying to accomplish with their own balance sheets, as well as trying to find if there's a consumer need for what they're putting out there. But it's a pretty good crop of products right now. I think that's healthy for us as an industry. I think you're seeing it reflected -- in the earlier part of your question, the interest rate and equity will reflect it in the valuations of the U.S. sector in general and these -- some of our competitors are much more geared or need more life -- or excuse me, need more interest rate -- higher interest rate levels to -- for their back books to be effective. As Nic mentioned, we've hedged interest rates, as we've told you, for a long time, so that's not a particularly material issue for us right now.

Okay, Alan, thank you.

Our next question comes from the line of Oliver Steel of Deutsche Bank.

Two questions. One is actually just really more of the same on the last question, I'm afraid, which is -- I mean, how do you see the outlook for U.S. margins from here? Because, I mean, you actually raised your pricing earlier in the year and it's coming through in the margin. But equally, you're also saying it's the best margins you've ever seen, I think, on VAs. The second question is, the comments you make about the review into policy behavior you've done is a little vague. You talk about generally in line with assumptions. I wonder if you could just expand on that and sort of particularly, where it isn't in line and to what degree.

Not really, but thanks, Oliver. I did, in my remarks, comment on how high the margins are but I think that's not always understood. So -- and the policy behavior, of course, is an important point. We've spent a lot of time on that at Investor Day last year. So Mike, I'll let you take both.

Well, I've got Chad sitting next to me. I made him get up. Do you mind if I have him do the policyholder behavior one? Chad, why don't you go ahead on that second piece, and I'll do the margin piece.

Sure. So on the policyholder behavior side, I think, as you're aware, we do an annual refresh of the experience studies which we tend to complete in middle of the year and get -- portions of which will get reflected at midyear, and portions of which get reflected in the second half of the year. And so you'll see the net result come through at the year-end result. But we've seen the -- broadly speaking, lapse rates, utilization rates, the main things that drive VA are continue to be in line with long-term assumptions. We make minor tweaks every year as the experience warrants. And this year is, I think, very much like what we've seen in prior years, which is that our guesses are reasonably good and we're not seeing any major shifts in policyholder behavior. I'd say the only interesting part there is it's still -- on the very extreme cases, we just don't have a lot of experience. As Mike mentioned, most of our book is well out of the money and we do have some experience to the financial crisis to try to extrapolate from, but -- and trying to set assumptions in the scenario is still a little bit tricky. But we've been very defensive there as I think we've shown in multiple venues in terms of how -- just how adverse we assume the policyholder behavior to be in those scenarios. But in terms of everything we're seeing that we have available information for, we're very much in line with where we've been in the past.

And then, Oliver, on the margin piece, I think the clearest way I could explain it is it's -- we have the #1 product in the space. So we have now -- I saw, probably a couple of weeks ago, that we have the 1, 3 and 5 product now of the lead access in the independent broker-dealer space and they're all top 10 in the U.S. industry. They -- we like the pricing on the product. We could sell more of it than we're interested in selling in a given year, so I think the demand is there, telling you that we're priced correctly at the consumer and advisers' view. And the -- it's clearly benefiting from the higher interest rates. And I'd say, I think, one of the questions on margin would be your own opinion on where you think U.S. rates are going long term. But we don't anticipate any need to -- we certainly don't need to reduce margins to sell more. That's not in the plan. And we think that, again, I think the quality of the product for the consumer is very high. So I think we're in a very good balance of the different stakeholders' issues there.

And just a follow-up on the first answer. Does that mean basically that there shouldn't be any material changes to assumptions at year-end on a net basis?

Correct.

Yes. Let's just say, on a net basis, that's going to be in line with what we've seen in prior years. That's not -- yes, I guess, maybe I can answer it this way. We're not looking at anything like we've seen with our competitors come out with in terms of major announcements on off-the-shoulder behavior revisions.

But the key point really, you shouldn't expect anything from us, obviously [ph].

Our next question comes from the line of William Elderkin of Goldman Sachs.

I've just got 2 quick questions left. First of all, could you just give a sense of how the statutory capital of the U.S. business has developed over 2013? And secondly, just on the Elite Access product, could you give us a bit more color in terms of how your competitors have responded in that space?

All right. Okay. Chad, probably one for you, stat capital.

Sure. I think as I mentioned last year in New York, the -- a scenario like we've seen with equities up as much as they are this year is not -- from a statutory perspective, our reserves are getting to floor-type of levels as I mentioned, so we're getting some asymmetrical accounting on the statutory side. But that -- irrespective of that, we're still seeing very strong capital formation through the first 9 months and now we see...

Sorry, Chad, can I stop you? We're hearing someone typing on the keyboard. Probably, they can go to mute maybe.

Okay. So -- yes, anyway, so we've seen, despite the fact that the capital formation is being held back somewhat by the market being up as much as it is in the asymmetric accounting at this point in time, we're still seeing, I'd say, a plan level type of capital formation. And with the strong fee base that continues to build as markets go up, that's obviously a short-term positive. REALIC's has been a very good capital formation tool for us over the last year. I'd say, with equity markets being up as much as they are, that's -- again, the present capitals were mentioned somewhat but still, despite that, we've managed to be, I'd say, in line with the plan.

Okay. Thank you. And next question was Elite Access, the competition, maybe for you, Mike?

Yes, there's about a half-dozen products out now from various firms and some on the process of launching. We never anticipate we have the space to ourselves. So I think it's sort of, again, a validation of the success of the product. And I think you've seen from the numbers, we're about GBP 4.3 billion through September on the launch. There's no -- that's about as successful as anybody's launch of a VA that's profitable. So I think there's a -- it's drawing attention from our peers. Proper competition will broaden the dialogue -- increase the dialogue, broaden the market space. Right now, the firms that -- U.S. industry research would suggest to the 3 top brands and [indiscernible] are Blackrock, Jackson and Fidelity, so I don't think it's a bad thing if we've got more people out there talking about the correct use of that. I'm not real concerned about the competition in the space at this point, candidly. It's a pretty sophisticated product to wholesale. And I think you'll see the impact of the quality of our distribution team relative to peers in these numbers when you lay these products side-by-side with ours over similar time periods, launched to x number of quarters and see how everybody does.

And just to build on what Mike said, and he's made the point that we just -- keep in mind, all these products are also -- the sales are market-dependent. No one is underestimating impact of something like the S&P on all that. And the S&P has probably been, in the last 12 months, the single best investment anybody could make on a risk-adjusted basis. So a good opportunity, folks have returned less. And you see yourselves being impacted by that, and that's just normal. And that's why we talked of diversification because as you go through cycles and markets move, it's good to have several options that you can push at different points in time, and Elite Access gives us a really very, very useful diversification.

Our next question comes from the line of Greig Paterson of KBW. Greig N. Paterson - Keefe, Bruyette & Woods Limited, Research Division: There's 3 questions. One is just on Eastspring outflows. I wonder if you could just -- Nic, could talk to the potential for assumption changes on the Asian EEV for consistency at the year-end here?

If we [indiscernible]. Greig N. Paterson - Keefe, Bruyette & Woods Limited, Research Division: Sorry?

[indiscernible] Keep going [indiscernible]. Greig N. Paterson - Keefe, Bruyette & Woods Limited, Research Division: Well done. Second is just basically the same question. Are you -- like you talked about the U.S. in terms of assumption changes year-end, just concerning that Eastspring, weak persistency. I was just trying to see if there's a change. The other thing is did I hear it correctly that Jackie say she was looking at in-house annuities? I thought you and Tidjane stood up at the half year and said you didn't like it because of the cannibalization, et cetera, et cetera. And I suppose when your answering that question, you can give us a sort of update on the FCA investigation into why not as much product is going to market, how that would have an impact on you? And the third thing, I was looking over the weekend and looking at my fourth quarter numbers, and I realized that the Indian -- Indonesian currency has depreciated again quite materially in the fourth quarter, and that's a key element of your Asian sales. So, I mean, does it mean that you've had a major up -- in order to counter and hit the targets, although you've had a major uptick recently in the Indonesian agency numbers? So is that -- to me, that's the other thing that must have moved for you to have confidence.

Okay. All right. Thank you for the questions. Nic, do you want to take Eastspring outflows, EV?

Yes. The outflows that we report in the IMS, Greig, only relate to external third party business, so they are not indicative of what's happening to flows on the life side. Those on the life side, by way of update, we see no change in the trends that we've been reporting over the last few years. So there are no -- there's no new news today in terms of the stickiness of our Asian life business flows which, ultimately, is what gets included and incorporated into our EEV assumptions. So for third party business, we don't put them on an EEV base, so there's no change. Greig N. Paterson - Keefe, Bruyette & Woods Limited, Research Division: So I shouldn't expect a major...

No, no, no. I mean, the flows are excellent. That's why I didn't understand your comment about outflows. The flows on the life side are excellent. As you would expect, we've done commercial performance with that. So those numbers we give are about third party business, nothing to do with EV. So enhanced annuities, Jackie, do you want to say what we -- on what our thinking is there?

Yes, so... Greig N. Paterson - Keefe, Bruyette & Woods Limited, Research Division: Yes. So Jackie mentioned that annuities, specifically [indiscernible].

No, no. We noted the question, we're trying to answer. Jackie, can you...

Sure. So Greig, just by way of context, we do actually participate in enhanced market, both externally and internally, as we stand today. Although we, in practice, tend to more commonly quote for -- on 1 business with more serious medical condition, so we tend to be more competitive there. I think my comments, and I -- clearly, Tidjane can clarify what his comments were around, but my comment was much more the market is moving increasingly towards individual underwriting in various forms, more individual risk assessments of some form. And so, while I wouldn't be saying we would aggressively compete to win business in a very narrow niche space, I think as the largest annuity writer out there, we do need to have a very clear strategy around how we defend and how we continue to compete in the open market more generally. And clearly, some of the products that we've developed in the third, that's also within the business, are focusing into that market change that's underway at the moment. You are -- and I think about the... Greig N. Paterson - Keefe, Bruyette & Woods Limited, Research Division: So Jackie, did you say you write more and pay it out? I thought you were opposed to quote [ph] price when I look at your products suite.

We do. But...

We do quote pricing, and we do some other sort of enhanced around medical conditions as well. I think something like -- I've seen stats of about -- probably about 8% of enhanced annuities are coming through Prudential in some form, is the sort of market level I've been seeing more generally. So it's part of the product suite out there. I think there's potentially more we can do. It's much around defensive positioning as sort of offensive.

But I think the fundamental point is one Jackie just made, and she hit the nail on the head. We're moving towards individual pricing. And you will see us, in our language, get away from all those definitions. But at the end of the day, it's -- pricing has to be based on the personal risk assessment and that's what we are working on and refining and aligning our systems to do. That's the direction we're taking. Sorry, you were asking about the FCA investigation? Greig N. Paterson - Keefe, Bruyette & Woods Limited, Research Division: Yes. And do -- I mean, you guys are probably the biggest example of a success in internal vestings. And the FCA is doing a major investigation into why clients are not getting the best terms, i.e. they're not shopping around. So I mean just on a high level, you seem to be most vulnerable. I just want to know if you've an update.

And I think...

Jackie, go ahead, and I'll close here.

Okay. So I think, Greig, both prior to the implementation of the ABI Code and now subsequent to further refining our processes around the code, we're very clear that we are encouraging our internal customers to shop around and to make sure they are getting the value for money. And we do see some of our products, and I've talked a bit about the Income Choice Annuity as actually being market-leading. So in some parts and the fact that the vesting levels are holding consistent with where they've been previously, to me, is not necessarily an indication they aren't shopping around or they aren't aware of it. It's an indication that we do actually have a very strong product out there that meets the customer need.

And we're -- actually, you've probably noticed that the ABI announced today a review. So there's a lot of work. We had an ABI board yesterday afternoon. There's a lot of work at the industry level around all that to make sure that the customer gets the best deal. So we are active participants in these reviews, and we don't see them as a threat. They are things we absolutely support and want to be involved in. So [indiscernible] and we have a good dialogue with the FCA all those issues. As you came, I think we have a lot of research. The reasons why people stay with us are actually the right ones. They understand that an annuity is not just about price, that it's important when you're 85 that your provider is still there. It is important that the commitments are kept, so they're actually quite smart. They go differently from the direction the press is pushing them towards, which would be to just go for the best price. They made a considered judgment to stay with the company, because, really, the way we work now, they -- we go out of our way to get them to shop around and look. But when you have a GBP 20,000 put, you just -- you think it's not worth it, you're very happy with where you are. And in spite of all the efforts we make, they stay. There's been no change in our vesting rate. What you've seen, the decrease in annuities, is people deferring. There's been no change in the vesting rate, no discernible change. So, anyway, it's an interesting area, but sometimes people are quite rational. And it's quite rational for people with those types of products to not waste time shopping around and stay with their provider if they're happy. Indonesia, it's an important question. We do not -- okay, our investment proposition is simple. There is a lot of evidence that FX, for the long term, is highly correlated to GDP growth. We are winning in markets. We've structurally higher GDP growth on the rates [ph]. I think the prospects that Europe will start growing faster than Asia are limited. So our long-term belief is that the Asian currencies will appreciate compared to the European countries. That is the strategy. And thank God we don't run the business with an eye to short-term exchange rate. We are a locally-based business. We are locally matched in terms of currencies, our assets and liabilities. And we run the business, generate the best results in local currency, and we're very confident that, over time, it will translate in a higher result in Western currencies because the Asian currencies can only appreciate. So we have not done the recruiting in Indonesia because the pound-rupiah parity moved. That's not how we run the business. The business is up 22% on a local basis, that's what we maximize. We've been for a year -- as we've told you in the past, the flows are hedged. Intra-year, we're not hedged at all because we think the bigger attraction of our thought [ph] for the investors who believe what we believe, is that FX appreciation will flow into our results over time. So we do not run the group in function of short-term currency movements. That's really in our... Greig N. Paterson - Keefe, Bruyette & Woods Limited, Research Division: What is [indiscernible]? I mean, you said you've got confidence in the -- I'm just thinking about the fourth quarter number and your share price correlation to the sales. You said you've got a lot of confidence, and I was just going through all the little product developments and everything you've done and it seem -- I came unstuck when I was looking at Indonesia once I adjusted for the currency to date, I went, "Oh." We might be a bit light in the fourth quarter. So I was just brainstorming and thinking, well maybe there's been a surge in agents or something like that to counteract.

I can help you take the fourth quarter of last year because I know you're very focused on NBP. Actually, maybe if I -- I think, I probably have time to just say a few words about NBP again because I think I said at the half year that I really don't like NBP because it's -- I know the community is very focused on it. One, it's an EEV-based measure or metric and I don't like EV, I'm on the record on that. And it's very much interest-rate sensitive because of the NPV aspect. So something about that protection, which is a great business because it's pure cash and it's not interest-rate sensitive. It's made interest-rate sensitive by NBP which is really, really stupid, okay? So NBP tells you about the great inflows you probably -- you're getting Indonesia, less valuable when the Indonesian interest rate goes up, and we don't believe that. So there is some of it. It's only on cash basis. It's just not true. There is some of it that is misleading. It depends on a lot of things that we don't control, it goes up and down depending on -- so I mean, we've been on the record saying that our forward target is the one we like the least. But that all being said, take the Q4 NBP and look in '12 and look at how much it has to grow for us to hit the target in Q4 this year. So you do GBP 1,426 million, which is the target, minus GBP 990 million, that's GBP 536 million (sic) [GBP 436 million], if my math is correct, and you compare that to the Q4 NBP, and you'll see what kind of growth we need in Asia to hit the target. That's why we're confident having 13 countries and 11 life business to play on that we can and we will hit that target. It's not an Indonesian question.

Our next question comes from the line of Fahad Changazi from Nomura.

A question on U.K. annuities, please. Could you expand upon your comments? You said that you're seeing people defer this on the decision to annuitize. Is that -- are you referring to specifically Q3? And what are you seeing in Q4 in that respect? And could I just follow up on what you said just now on augmenting your IT systems to cater for medically -- or underwriting medically enhanced annuities? What exactly are you doing?

Okay. Well, I'll let Jackie start on that, yes?

Sure. So in terms of the deferral behavior, the ABI Code was implemented, as most of you would know, sort of around the third quarter time, just pre-third quarter. And the big change that really drove was, previously, when tax was in touch to people who are coming to annuitization point, the application form would go along with it. The process has now changed, so it's actually a 2-stage process that takes about 6 months, and there are opportunities and further sort of conversations with customers along the way to say, "Have you done what you need to do around shopping around?" Now what we're seeing as a consequence of that, and I think it's an industry-wide sort of trend. I certainly saw it in some other announcements that have been made the last few weeks is that more annuitants are coming to this point of vesting and they are deferring their decision. I think there is some question as to whether that deferral is because they are waiting for advice or whether it's because they're looking at annuity rates and thinking they might get a better rate as interest rates rise or whether it's just that they are finding it actually quite confusing and, as a consequence, not really making the final call. When it does come to the vesting itself, as Tidjane said earlier, the vesting rates have held steady, so we know we're not losing the business to other providers in large part. The same percentage roughly that was converting to Prudential contracts prior to this change has continued to convert. But we are seeing a large number of customers delaying their decision for whatever the driver might be. It is early days in the process as the whole code sort of embeds and, clearly, some of the media sort of speculation and focus, I think, is driving into consumer behavior as well. And we're seeing a similar continuation of that trend into the fourth quarter, but I would expect that, over time, it would stabilize. But it's still pretty early days, and Tidjane did talk a bit about the ABI announcement that was made earlier. In terms of sort of the personal underwriting, again, it's something that's probably more suitable for us to come back to in December and to talk a bit about where we see the supplementing of individual risk assessment will be necessary as we go forward to remove this very kind of blunt distinction between standard and enhanced business. So I think we can pick it up in a more thoughtful way in December if that's all right with you, Fahad?

Our next question comes from the line Abid Hussain of Société Générale.

Just a follow-up question from an earlier question. Just on the U.S., can you give us a sense of how much of the rise in the VA margins was from rising yields and how much was from -- were due to pricing actions? And can you give us an indication of whether you expect to continue to have pricing actions -- take pricing actions in Q4?

Who wants to take that? Maybe Chad or -- the interest rate.

Sure. In terms of the mix, I'd say it's, roughly speaking, 50-50 between rates and product mix from [indiscernible].

Yes. We don't -- we're not -- we haven't filed or are not anticipating any pricing action in Q4 because it requires an SEC filing and we've done that.

So it would be too late for -- that's what Mike is saying. So we'd absolutely not is the answer, okay?

We have a question on the line from Ashik Musaddi from JPMorgan. Ashik Musaddi - JP Morgan Chase & Co, Research Division: A couple of questions. First of all, can you give us some color on the Malaysian regulator now looking at the allocation rates? It somewhat defers to your allocation rate. But any color on where we are on that one and what are your thoughts on that on the investment link solutions? Secondly is can you give us some color on hedging costs in the U.S.? It look to be pretty low at this point mainly because of low volatility and, partly, rising rates. So where does it stand versus your average expectations? So yes, these are the questions, in the U.S. I mean here.

I'm afraid on Malaysia we're drawing a blank here. What do you have in mind here? Ashik Musaddi - JP Morgan Chase & Co, Research Division: Sorry. Basically, there has been, recently, a consultation being started by the Malaysian regulator on the allocation rates on the investment link solutions, i.e. the charge you take upfront over next 10 years or something. So there has been a recent consultation on that, so it was regarding that.

Well, we'll come back to you on it. But I saw the gatekeeper [ph] -- the regulator a month ago, and that didn't figure in our conversation so, I don't know. We'll look for more detail and we'll...

The majority of our profits, on whichever basis, are on protection.

Protection, yes.

Malaysia, would be -- the product is sold as -- on a protection as that...

It's a protection, but it's actually we were saving write-off. So basically you buy for protection, and if you want to save also you can, but it's fundamentally your protection product. So we wouldn't be very opposed to that. The hedging on Jackson, Chad?

Yes. Ashik, there's nothing new or eventful on the hedging budget or strategy. We're continuing to be very defensive at this point in the cycle at the hedging, but there's no material difference in our spend versus the fees we take in specific for hedging at this point. Ashik Musaddi - JP Morgan Chase & Co, Research Division: So just a follow-up on that. Sir, are you still spending around $1 billion, of which, I guess, is -- what you mentioned is your hedging budget?

Yes. We're spending the majority of it. And as we've talked before, it's -- over a cycle, we anticipate spending all of it or -- and if we needed to, we would spend more than that. But we, obviously, at this point in the cycle, don't need to do that. But yes, that's a good approximation of the budget at this point.

As there are no further questions at this point, I'll return the call to you, Tidjane, for closing comments.

Okay, thank you. Thank you, Jerry. Thank you, all, for your questions, a lot of interesting conversation. The global macro environment is improving with the recovery in the U.S., an increasingly positive outlook for the U.K., and with the economies in our key Asian markets expected to continue to grow faster than developed economies. The long-term structural trends we see in Asia; low insurance penetration; positive demographics, with a rapidly growing middle-class; rising wealth; and a significant protection gap, remain compelling and are key driver of our future prospects in this region. Our multiproduct, multichannel platform, our leadership positions across our sweet-spot markets, our ability to execute on the substantial opportunity to profitably serve the growing savings and protection needs of our customers and the quality of our staff gives us confidence we will continue to deliver long-term shareholder value. In the U.S., we remain disciplined. Our focus in the U.K. is on delivering good returns. And our asset management businesses across the world are performing well in meeting the savings needs of our customers. Our business is well positioned, our balance sheet is strong and we are disciplined in executing all the opportunities available to us in each of our markets. We remain on track to achieving our 2013 objectives, and we look forward with confidence for the rest of 2013 and beyond. I hope that of what I said, there'd be no drama. Many of you will take the opportunity to join us for our Investor Conference on the 10th of December in London. I thank you very much for your attention and patience and wish you a very good day. Thank you.

This now conclude our call. Thank you for attending. Participants, you may now disconnect your lines.