Prudential plc (PUK) Q4 2021 Earnings Report, Transcript and Summary

Welcome, everybody, to our conference call for the 2021 full year results. I'm delighted to be joined today by several members of our leadership team, including Mark FitzPatrick, our Group CFO and COO; as well as Nick Nicandrou, our CEO of Asia and Africa; and James Turner, who is Group Chief Risk Officer. You'll have noticed that we've moved our start time for the results day to be at lunchtime in Hong Kong, and we're delighted that we're joined by a number of Asian-based research analysts who've just started to coverage the group. Welcome to all of you. I'll make some short-term remarks, and then we'll go directly to Q&A. And I appreciate the -- that several numbers that companies are reporting today, so we'll try and keep this to time for your convenience. Let's start with the external environment. We're obviously all very conscious of the current acute global political issues. Combine this with the ongoing challenges of COVID-19 and its effects, the resulting environment remains highly uncertain. The pandemic has had an ongoing impact on our customers, the communities we serve, colleagues, and we continue to support our key stakeholders. Right now, there's a record high number of COVID cases in many Asian markets. Sadly, last year, we lost 52 of our staff and agents to COVID over the year, and our thoughts and prayers are with their families, friends and colleagues. We've taken and will continue to take further steps to support the emotional, mental and financial well-being of our people, to be clear. Our people have -- they've not only risen to the challenges of COVID, but I think they've delivered to incredibly high standards across our footprint. We've also responded for our customers. We've developed and tailored our product ranges, in particular in health and protection, to enable these products to be suitable for a wider range of income gaps, such as our bite-size insurance products and including specific coverage for COVID at very low or discounted rates. As far as strategic priorities, 2021, we completed our strategic repositioning to focus entirely on the long-term opportunities for us in Asia and Africa. This, of course, follows the demerger of Jackson in Q3 and the equity raise in Hong Kong in Q4. Looking ahead, we're very excited, in particular, by the 4 large markets of China, India, Indonesia and Thailand. And all of them, they're significant structural demand drivers and opportunities to strengthen our growing positions further. As far as 2021 results, let's run through them briefly. We delivered high-quality, resilient growth in 2021. I think that's despite the challenges posed by the pandemic. We increased our APE sales by 8%, delivered double-digit growth in 9 of our 14 insurance markets. Outside of Hong Kong, we grew APE sales by 16%. Again, that's driven by our business in Mainland China, India, Malaysia, Philippines, Singapore and Thailand. We reported 13% growth in new business profits to over $2.5 billion, with our margins improving on better business mix. China is now our largest market for sales, and I'm really pleased with the way the rest of the businesses are developing across Asia and Africa. Our business, as you all know, is based on regular recurring premium income, a focus on health and protection and high levels of consumer retention, all of which support resilient, compounding growth, as you see in today's results. Our adjusted operating profit for the continuing business was up 16% to $3.2 billion. And again, we believe that's in line with the market's expectations. At the same time, our asset manager, Eastspring, IFRS operating profit was up 10% with funds under management reaching $258.5 billion. Our embedded value grew to $47.4 billion, again, leading to a 7% rise in embedded value per share. And we continue to invest for the long term in new products, additional distribution capabilities to further build out our presence as a leading agency and bancassurance player and to access new pools of customers. We also announced a second interim ordinary dividend of $0.1186 per share, creating a total dividend of $0.1723 per share for the full year. As I'm sure you're aware, last month we announced I'll be retiring from my role at the end of March. Given the refocused nature of the business, the Board is conducting a search for a new CEO to be based in Asia, looking at both internal and external candidates. Mark will become interim Group CEO at the end of March, and he'll assist the incoming CEO and completing the transition process as required, and then he'll be stepping down from the Board. And we've also announced 2 internal promotions of James Turner taking over as CFO and Avnish taking over CRO, both of them experienced, highly valued internal candidates and both of them are already based in Hong Kong. As far as an outlook, we entered 2022 with a strong balance sheet and capital position. The timing of the opening of Hong Kong border remains uncertain, and we believe COVID will continue to have an impact. Clearly, there are tragic events going on in Ukraine, which could have wider implications for the global economic and market conditions as well as potentially geopolitical relations. However, we think our heavily diversified multichannel approach focused on quality business and operating efficiency is the right strategy for dealing with volatility in any operating conditions, including these. And we're confident that our investment in new business, distribution, product enhancements will continue to meet the long-term needs of the customers and build value for our shareholders over the long term. So let me stop there, and let's go to Q&A. And we'll open the mics up, Jordan, if you will, now to take some questions.

[Operator Instructions] Our first question comes from Edwin Liu with CLSA.

Hi, good morning. My name is Edwin from CLSA in Hong Kong. Congratulations on the decent results in a challenging environment. If I may ask 2 questions. Firstly, on Mainland China, CPL has been able to outperform the industry in terms of gross premium or APE. Could you share a little bit more on how you could achieve that? And what is the outlook for this year? And secondly, on Hong Kong, as you pivot to the domestic segment, given there's no MCV, what exactly have you done more specifically on agency and bancassurance channel, respectively? So that would be 2 questions from my side, 1 on Mainland China and 1 in Hong Kong.

Edwin, thank you for the question and the comments. Appreciate it. So let me give one general statement on Mainland. And Nick, if you wouldn't mind, you can provide some color on both domestic, the activities and, yes, the success we've had there and also Mainland. So Edwin, you probably saw, too, in the gross written premium numbers that are out for the market, we're up 15% last year and the market was down 1%. So not only were our results -- yes, I'm obviously pleased with them year-over-year in our business, but also relative to all of our peers in China, we feel we're taking market share. And our combination of bancassurance and agency is producing a unique results in the market. But Nick, do you want to give some color on that and you have the teams doing in Hong Kong.

Okay. Thank you. Thank you, Mike. Edwin, as Mike said, we’ve delivered both absolute as well as relative growth in China. We’ve been able to do that because of the model that we operate. We – we’re a well-diversified business because we spread of 20 provinces, 99 cities. We’re structurally advantaged because we’re multiproduct, and we’re also multichannel. And because we’ve entered some of these provinces and some of these cities relatively recently, there’s a natural seasoning or maturation that happens every year. Those cities and provinces are gettin’ better and better. Clearly, with new products that have been launched and refreshed with good training on agency, we’re on an intensive agency model with a focus on quality, focus on regular premium business and the heavy health and protection content, all this came to our advantage. And the bank models that we run, again, a lot of the products that we sell are regular premium in nature. We have a very long tenure. And we’ve added more bank relationships. We’ve increased the outlets through which CPL’s products are marketed massively in the case base of the year by more than 60%. And all of this played well. We increased our share of the loan, as Mike said. But if you study the appendices to our slides, you’ll see that we’ve done that importantly across clusters such as GBA and Beijing, where our share of market is 2 or more percent. So we’re very pleased with the performance. On outlook, clearly, the year is tougher for – there are several factors that are affecting that, not least the consumer sentiment, not least some restructuring that is taking place in the market. The – not all of these factors affect us in the same way as the rest of the industry. We do expect the market to slow down in the first half. We saw in the January numbers that the market declined by 0.6 percentage points. We were in positive territory again for all those structural reasons. And whilst I expect some short-term volatility and challenge, I think the structural advantages that we have, that seasoning that I’ve referenced that should hold us in good stead and continue to grow share. And in Hong Kong, if I can move on to that, the pivot has been fully to the domestic channel, domestic segment. We have broadened as we focused on that segment proposition. Again, if you look at the slides compared to pre-COVID, we have many more products and riders. Products that we’ve entered in the last 3 years now contribute over 1/3 of our APE. That just speaks to how much best of the business is. We’re multichannel in Hong Kong with a very good partnership with SCB, which we have reinvigorated. We’ve seen very strong improvement in sales to SCB, more than 20% last year up, and the new business profit more than doubling. Again, that part of the structural advantages that we have, our experience of working with banks, but also the improved product set. We are offering now digital services through Pulse, that’s bringing a digital presence with consumers with 800,000 downloads. And generally, whilst the border is still closed, we’re improving, if you like, the quality of the business that we currently have, and you see that through the 9% increase in domestic NBP.

Our next question comes from Qingqing Mao with CICC.

It's Qingqing from CICC. Congrats on the results. If I can ask to just dive deeper on China a little bit. We can see your resilient growth, which is quite impressive. I mean the slowdown in the industry. Could you tell us more about what's driving this significant improvement of agency productivity and what's the outlook for this year? That's all for me.

Qingqing, thank you. Nick, I'm going to flip it back to you again, if you don't mind.

Okay.

Could you tell us more -- I'm sorry.

Qingqing, did you have another question? I'm sorry, one on China productivity. And what was -- is there another one we can answer?

Okay. And could you tell us what's the outlook for China this year?

Okay. Nick?

Okay. Okay. Thank you. Can you hear me?

Yes.

Yes.

Just making sure you can hear. Okay. So on agency, as I’ve said before, we’ve imported moving in China for 20-plus years now. And we’ve imported with the same intensive model that we apply elsewhere in the region. And by that, I mean working very carefully, if you like, the ratios of the pyramid from agency leaders to downstream agents. We run relatively tight ratios of 5:1. And that, if you like, improves both the supervision and the support that an agency leader can give the downstream. At the same time, we’ve imported many of the programs. We call them one to MDRT that we use in other parts of Asia, and we’ve seen a significant improvement in both the number of MDRTs as shown on the slide, but also the percentage of business that is written by that. But it doesn’t stop there. We give quite a lot of training, and we started new programs in the course of last year on how to support agents, new lead management, new activity management systems, how they can support productivity, where we rolled those systems out, and we’ve seen a threefold increase in productivity. And we will gradually roll out the equivalent systems to cover 80% of our footprint in 2022. Hiring has been a challenge. You would have heard that from a lot of people in – a lot of players in China. But it’s less to do with the – it’s just as much to do with the hiring skills as it is with the availability of candidates. And again, we’ve upgraded and we’re rolling out new virtual hiring. And the most recent one, we did a business opportunity presentation that we did was attended virtually by about 4,000 prospects. So there is demand, it’s just how do we close it. The training that we give people is differentiated both in its duration, its timing and how we do that. And of course, as we enter a new city, we adopt the same model, and we build highly productive pyramids from – as we go in every year, those pyramids get more and more experienced. I’ve already referenced the outlook. It is – the market is tough. I’ve given you the stats from January. But all these, the structural advantages that I’ve referenced in my earlier answers, should enable us to continue to deliver relative outperformance if we can’t deliver absolute. Longer term, I think the prospects are huge given the low level of penetration across the market, the need for retirement products, the need for ongoing medical and educational savings plans. And we’re well placed to do that with a very strong brand and a very good partner.

Our next question comes from Sabrina Soh with UOB Kay Hian.

I'm Sabrina from UOB. And congrats on results. So I have 2 small questions here. I would like to ask, could you share with us the view on Greater Bay Area development, like what are some opportunities that Prudential is aiming to accomplish? And another question about Southeast Asia. What are your plans to revive the business in Indonesia? And what's the outlook for Indonesia?

Okay. Thanks, Sabrina. I think, again, I'll give some over -- some general comments, and then we'll let Nick add some color to those. But I think on GBA, it's one of the catalysts for us in Hong Kong. So I mean, clearly, the border reopening and whatever shape that takes, and we're not forecasting the date on that, we're ready. And that's a combination of training, the communication our agents have had with their clients, that you see the persistency of the business in Hong Kong that those mainland Chinese consumers still funding these 20-year relationships they have with us each year. But on GBA in particular, so the final shape of it is still being discussed. You clearly see attention now and public positioning from Beijing on its importance, which I think is a great message in terms of the resources that get put behind it. It continues to move forward in COVID. What it means to us, it's one of the wealthiest -- collectively, it's some of the wealthiest parts of Greater China. It's markets we're operating in, with the exception of Macau, we're working on that. And we have roughly 10% market share of it. So we start with a great brand, as Nick said, our leadership position. And if it's insurance service, if it's insurance sales, if it's wealth management, these are all things, to Nick's earlier comments, that I think we're incredibly well positioned to capture. And we're in these dialogues, both with commercial trading partners and the government on it, and we see it as a is a very good thing for the region. I mean, again, it's not the only cluster model in China, as you're well aware, but it's one that has a particularly unique benefit to us, I think, over the intermediate term. But Nick, any further comment on that? Or do you want to comment on all the work going into Indonesia?

No, I think you covered the GBA. The only thing I'll repeat is if you have the right brand, if you understand the needs, if you have the right relationships and distribution reach and the right products, then we're well placed to continue to win. Sales or the premiums that our joint venture, right, in the GBA area are about -- are more than 1/4 of our premium take. That's again shown in the slides. And of course, we're one of the biggest -- about 20% of what needs to be written in Hong Kong for Mainland China when the borders were open were also from GBA. So brand resonates well and we understand the needs, and we have -- we're well placed to service them. Once the rules on how Insurance Connect will operate and announced, then we'll be able to share more. I mean on Indonesia, the -- I mean, the market -- Indonesia as a market continue to be disrupted. It is the most disrupted through COVID. If you look at the GDP, it's only just getting back to 2019 levels. Unemployment is running between 6.5% and 7%. Before COVID, it was running just below 5%. So impacted as an economy overall. The insurance sector was flat in '21. But it was only flat because a lot of money went offshore through bank-sourced, unit-linked -- single premium unit-linked products. That's not really the business that we're in. It's opportunistic in my view. It is not a structural growth driver. The business that we're in is in regular premiums. Those were down single digits. Overall, agency in the market, regular premium business was also down, partly because, as I said, the high net worth individuals took advantage of the single premium offerings, and partly because affluent families took the view that they wanted to instead buy simpler, protection-based regular premium products. So what we did against that backdrop was to massively expand the product range. We've issued stand-alone critical illness, stand-alone medical products, stand-alone hospitalization, stand-alone term. All these were termed as opposed to whole of life. And we've written a lot more of these contracts that are at any point in our history, as I said, so much so that even though our sales are down, the number of policies that we've written was up consecutively in the last 2 years. So actually, in a way, our business is a much better business than it's ever been before. We now have market presence in the traditional segment, which we didn't have before. We have market presence in the group insurance segment, which we didn't have before. We retained the leadership position we had in agency and unit-linked. So it's a much stronger business. And as soon as the environment normalizes, I believe that -- whether it's our scale, whether it's the enhancements that we made, whether it's now the digital reach that we have with Pulse, with 10 million downloads and 4 million registrations, and now it's becoming the main tool our agents use to onboard customers, we are phenomenally well placed. And as soon as it normalizes, then you will see the benefits of this investment. Unfortunately, the performance is lagging with the development of our capabilities. But rest assured, those are much stronger than any point before.

Thanks, Nick. And then, of course, the development of our Sharia business is – continues at pace with – effectively created a standalone entity. So lots going on there. I couldn’t agree more with Nick, that positions us well, but it’s been a difficult time in Indonesia. And Sabrina, thank you for your question.

Our next question comes from Fulin Liang with Morgan Stanley.

Very good results. Congratulations. And I got 3 questions, if I may. Two of them are related to Hong Kong. The first one is on the IFRS basis, your Hong Kong profit earning year-on-year growth is falling below 10% for the first time, I think even in the last decade. And I just wonder because Hong Kong is still your largest like IFRS earnings contributor. And if this falling down, what's the reason behind it? Because I'm just sort of worried that is that something we should actually, like, expect in the future as well. Any reason for that? So the first one. The second one is, again, on the Hong Kong domestic base business. I understand the current -- you write about 430 new business profit in the second half of 2021 without very, very small -- without contribution from Mainland Chinese visitors. Is that some kind of sustainable business profit in the future? And how does the lockdown, the very, very strict lockdown locally, actually affecting these numbers in 2023 -- 2022? So that's the second one. The last one is, I know that we have been talking about the potential pent-up demand once the COVID situation getting better. And I just wonder, actually, from the market, which has opened up gradually like Singapore, are we seeing kind of demand there?

So let me address a couple, and I'm going to put Mark to work on the IFRS topics, and we'll give Nick a break in this one. So I think on lockdown, we have seen, at our peak, we were 96% lockdown globally. So when we can -- our capabilities were there and they certainly improved to be able to deal with lockdowns. Let me give you an example. Even in markets that are -- so our agency business now is about 50% virtual selling, which, again in Hong Kong when the city was closed but not fully locked down, that was not a tool that was used as much. But now, of course, it's a tool that's available to them, and we can adjust. It isn't -- it doesn't replace face-to-face, but it has become a normal way our consumer preference as well as an agent preference. And of course, you've had some of the bank branches closed currently in Hong Kong. So those will affect in a short-term basis. But again, our ability to deal with this now is a pretty well-traveled business plan and we know how to execute that. On pent-up demand, so we surveyed, an external survey and there's some in the deck, Mainland Chinese consumers to see are they still interested in having long-term savings for education and retirement in Hong Kong? Are they still interested in accessing medical care, rather specifically to go to Hong Kong for that or while they're there? And the short answer is they are. It's sort of pre-pandemic levels is what the surveys would show you. And again, we've positioned that in our results in the appendix for you to look at. But it's -- so we think the demand is there. In all of our markets, I think you see an increase in health demand that's been just incrementally growing quarter-by-quarter because people are just so aware of the financial risk of this. But it does vary by the amount of government support a bit in the markets. We have -- we do business in a lot of countries where there's little or no government support on -- rather effectively help or support unemployment events. So those tend to have a much more dramatic need, if you will. So with that, Mark, do you want to go through the IFRS piece and [indiscernible]?

In terms of Hong Kong, IFRS operating profit on a constant exchange rate basis is up 10%. And we're really pleased with that because I think it reflects both our long-term focus on regular premium and also the element of health and protection business, and a very strong retention rate, both our domestic and Mainland Chinese customers, kind of regular premium mix is 85% and the element of our customer retention number is in the 90s. So we're very pleased with the number. I don't think there's anything untoward to see inside there. We think that Hong Kong, I suppose, for the last 2.5 years has been affected either through COVID or protests earlier on, to still be able to have this level of IFRS operating profit growth, I think, talk to that resilience and quality and the great ability that Derek and the team have had to do in the course of last year to pivot to the domestic business. And the one thing that we've also seen is that the medical expenses coming through, we saw kind of an element of 2020 an aspect of medical expenses a bit lower as people were staying away. And during the course of this year, we're seeing that normalize a little towards the back end of the year. So we're pleased with the IFRS number in Hong Kong.

Our next question comes from Kailesh Mistry with HSBC.

It's Kailesh here from HSBC. I think there's 3 questions. First one is, obviously, in terms of new business value, the health and protection mix fell. Could you just talk us through why that is? I think there were some product adjustments on the savings side. The second thing is just on the Indonesia comments, I think OPAT down impacted by both claims and working persistency. In particular, on persistencies, is there something you've seen in other markets as well, and in particular Mainland Chinese buying in Hong Kong? And the third thing is, obviously, in the second half, there was a slowdown in new business momentum. Can you just help us to unpick base effects versus pandemic-related sort of restrictions on that to help us with our forecast going forward?

Kailesh, good to talk to you, it's Mike. I think that -- let me do the last one first, and then, Mark, I'll turn it to you on the NBP parts. But I think the second half in most of our markets in Asia was the most severe pieces we saw of the Delta variant hitting. It's -- we had the most -- sadly, it's where we had the most mortality claims, Indonesia and India. The tale of most of our markets on their heaviest lockdowns, that it was a -- I think if you look at the GDP of the various countries, I think it's the most disrupted half for GDP across the region. And various countries as they are in the West are in various positions now coming out of that, as Nick flagged, some of them are still -- Indonesia, for example, are still working through it and the economic impacts of it. I think to help you, we've got in there the vaccination level slides and things, and I think it's a decent leading indicator. Kailesh, I think the differences when we look at that is keep in mind that vaccination level a year ago versus the vaccination level today, the one today has the benefit of everything the medical community has learned in the last 12 months. You have the protein based, which effectively means non-refrigerated vaccines on the horizon, Novavax, et cetera, in weeks now for these markets, which given the situation of the delivery, a vaccine that you can ship in a box instead of needing a sophisticated refrigeration is a major breakthrough for some of these markets to get to the level. So there's better information, better medical product and solutions now than there were -- if you look at that same vaccine level a year ago. So I wouldn't make it -- it's not linear by quarter, but it's a directionally good indicator of where the markets are and the impact on our various markets. And I think it warrants to take a minute and looking country by country, because that's really the way we've seen it play out. None of these 2 started in the same place. None of these 2 are reacting -- none of 2 countries are reacting in the same way. And then the last one is their economic options. What they do with -- what did they -- what's their per capita income, those sorts of things. It's all combined. That's how we look at it. But I would say that the second quarter -- second half of last year was the most difficult macro environment we dealt with, and it definitely feels better in most markets. Does that answer that clearly?

I think yes, partly. I think one of the other things is just to understand the base effects. In my mind, I guess Mainland China was pretty high in the first half, and I noticed that domestic Hong Kong was improving quarter-on-quarter through the year. Are there other base effects that we should be considering? I'm thinking Singapore, Malaysia...

So yes, I think -- no. The other markets, I would say no. But I think the Hong Kong -- in Hong Kong, I'd say no. I think Mainland China, you got to remember the industry enjoyed in the first part of 2021 a unique CI sales spike. You also -- but you've also had policies there that are actually taking effect now where the government has said to the insurance industry we really want you out of a short-term bank like savings product, we want you out of shadow banking as a company. And I think you've seen that in the decline of agency in China across the entire industry. And so what it does is force people to a more professional model. The agents have to learn health and protection. They have to learn long-term savings products instead of short-term bank equivalent time deposit. And that's a transition for a market that at its peak had almost 9 million agents, right, and is losing a lot. Now, would you -- everyone will lose their part-timers in that, and that's not a unique occurrence and it's not a -- it's a manageable event. But for -- the scale of our competitors in China, it's a big challenge if you've got 1 million or more agents in market, right? I don't want to diminish the work those firms are doing to pivot their distribution strategy. But -- so that's what I would say -- when we look at China, that would be the only key. With the rest of the markets, no, there's no material difference. Mark, do you want to hit NBP and the mix?

So Kailesh, in terms of health and protection, when I look at the year and from an APE level, health and protection last year was about 27%. 2020 was also about 27%. So the kind of mix of sales hasn't really changed. So overall, health and protection will have grown in line with the overall growth in APE. In terms of NBP mix, it has come down a bit. Part of that is an element also of the effect that Nick mentioned in terms of the broadening of the product range, slightly more standalone products and element-of-term products. So some of those products have a slightly different element of profit signature in them. So as Nick said, in some of the markets, we're actually selling more, but it's at a slightly lower case size, and therefore, the profitability of some of those is slightly off relative to levels we've seen before. But underlying mix in terms of -- and the underlying direction of travel in terms of health and protection, we're very pleased with it. We think it is very important. And we think that with -- as a result of COVID, it has actually increased the demand from customers and from the market as a whole for health and protection products. And that's one of the reasons you've seen a strong uptick in terms of the number of policies that we called out in terms of some of the narrative in some of the slides in the deck today, so that more and more people are buying, but they may be buying slightly shorter-term products and slightly less complex, and therefore, less-rich margin products.

Mark, if I -- it's Nick here, if I can interject. I mean we're selling fewer, if you like, riders that are attached to a whole of life type contract. And this is what we're finding in 1 or 2 markets as people pull back from making the kind of commitments given the backdrop. And selling more standalone, which are termed. It could be for 5 years, 10 years, 15 years. So when you look at the profitability of a 10- to 15-year contract divided by the first year premium, it's going to look optically lower than that which you would get from a rider which is a whole of life. But if you look at other metrics kind of much more meaningful metrics, which are internal rates of return, for example, they are just as attractive, if not more attractive. So Indonesia, where we've seen the biggest transition from people buying effectively linked protection into standalone, the IRRs of the business that we've written in 2021 are much healthier than that which we've written in years, where there was more rider-based business and less stand-alone business. So the economics on which we're writing these can be downplayed -- the standalone products can be downplayed if you simply looked at margin because they are termed. And I hope that makes sense.

Yes, that makes sense. There was just one more question on the persistency and claims, any other markets materially impacted?

So Kailesh, I think India, Indonesia are the main ones. We haven't seen, and I think for a while now we've been keeping very close eye on these levels in Hong Kong, especially to your question around Mainland China, sorry if we got about that part. And we haven't seen any kind of deterioration in that in terms of business coming across the border. I think that just talks to the value that customers attribute to that. And from the survey slides that you'll see in the deck, that also talks to the ongoing enthusiasm for people to continue to buy, and when they can, products down in Hong Kong to provide Mainland China customers with support.

And Kailesh, I think it’s always been a risk-off trade for the consumer. So I think we feel pretty good about the future resilience of that book.

Our next question comes from Andrew Crean of Autonomous.

A couple of questions. Firstly, I wanted to get a sense as to what is happening on the talks with the -- on the China JV, whether there are live talks with CITIC and whether there is any sort of time line around that. And I suppose, as a rider when it will probably lead with that. And then secondly, I know you have yet to adopt RBC and C-ROSS II. But could you give us some sense as to what your capital position feels like relative to the comfort zones you'd like to operate in?

Yes. I think on -- let me speak to the CITIC relationship, then James, I think I'm going to have you speak to China RBC and C-ROSS, if you would, please. The -- nothing to announce. The relationship you see continues to work incredibly well outperforming the market. I don't think my view on is changed. We've been very public that we'd love to own more of it, but there's nothing to announce today. I think I told you once in a group meeting that the first meeting with the new chair, he said I would do sort of thing. It's a great business. I think long term, is probably not big enough for CITIC because their capabilities in China, they could operate something even -- they could buy and operate something even bigger. But there's no announcement there. There's no -- we don't comment on ongoing conversations. But it's -- we've made it very clear to them, both publicly and privately, that we stand ready to do more there at a reasonable price. We're not going to pay anything for it. But it's -- you see the model is working. You see -- we'll have more competition, obviously, as people see its performance. But with both -- I think with both partners of ours, they are very helpful in entrance into new markets and navigating some of the complexity of China and navigating some of the political and as a distribution partner. And we brought our best practices from region-wide in there, and I'm extremely pleased to see where that business has gotten to in the last few years. It's compounding. It's IFRS earnings, and it's close to 40% on both those metrics. So that's, if you like, over the last, say, 5 or 6 years or so. So that's a -- very, very happy with it. But that's not lost on them, either, Andrew. James, you want to talk about C-ROSS and RBC, you're spending a lot of time on both.

Yes. Look, I’m happy to. Thank you. So clearly, where we are right now [indiscernible] the capital level, we’re very well capitalized. We’ve got pro forma LCSM ratio of 48%. Now the published results do not reflect the uplift the early adoption of RBS in Hong Kong, nor the impact of C-ROSS II. And the impact of both will be shared at the half year when these regulatory changes have become effected. To give us some kind of flavor directionally, given our health and protection focus, you’re going to see additional surplus arising whenever we adopt RBC regimes. And there’s a number of changes across the regime where regulators are looking at RBC regimes. And similarly, the impact of C-ROSS II, as I think we said at the half year, is not expected to be material in terms of our surplus. So we will go into more details on the impacts at the half year, and that’s directionally where we break positive.

Our next question comes from Larissa Van Deventer with Barclays.

Three quick ones from my side, please. The first one, you haven't spoken much about Pulse. Can you -- could you please highlight the markets where you're getting most benefit and what those are and the extent to which you believe they can be expanded into other regions? The second one is a very simple question on China. What is the biggest constraint on growth? And the last one is on the China/Hong Kong border, could you comment on how much of the lost Hong Kong sales you believe may have been taken up in Mainland China or maybe taken up in other regions?

Yes. So let me do a couple of these, Nick, and then I'm going to flip them to you for color and Pulse. So generally, the -- again, we're outgrowing the Chinese market as a whole, I think, at pretty dramatic levels. I just mentioned the kind of compounding growth we've seen in China, which I think are -- will certainly rival anybody in the market. We're starting from a lower base in this, so it's not a fair comparison to somebody who's got a larger shop there. But they're real and they're a relative and absolute benefit to us and our shareholders. The only constraint to growth for us in China, we pretty much have the regulatory footprint of the country now available to us, not quite but the majority of it, it's speed of development of quality agency. It takes a while to get good agents to build a book. But we have roughly 4,000 wholesalers who call on banks. So we have the ability not only to distribute the bank products but to get them up to speed very, very quickly when we enter a new city. We have lots of new cities to enter when you look at some of the second and third tier markets, and we're -- those aren't lost on this, that's where we should go next. So it's an order of execution for us, not a lack of opportunity. And you want to build agency quality first, not quantity first. You want to make sure you have the right people to build the quality book. You don't want compliance issues later. You don't want reputational issues. So you're going to do that the right way, and that takes time. That's the only part of our business plan in China that's got any sort of constraint on its short-term growth. And as you get more successful in agency, the more agents want to work for you and the more easier recruiting gets. So there's a virtuous circle there. On Pulse in China, we have said we're looking at it. We haven't announced a launch there. That's a dimension of our capabilities that we haven't brought there. But we have, as Nick said, gone -- brought a virtual hiring, training, agency development model, that's our best practices into China in this last year, and we continue to extend that. So again, for agency productivity, no barriers there other than execution. Nick, do you want to comment on Pulse and the border question?

So let's start with the border question. I mean to understand what's been lost to maybe to local competition within China, you have to go back and see who was buying in Hong Kong and why were they doing. And the vast majority of people who were buying in Hong Kong, they're high net worth individuals, particularly of a certain age group, 40- to 55-year-olds or affluent individuals with children under the age of 6 that were looking for educational savings type products are denominated in foreign currency. So the reason that we're buying is exactly that, is the foreign currency and the ability to invest in U.S. or Hong Kong dollars to tap into returns outside China. And also because of the comprehensive nature and the quality of the coverage on the CI, critical illness, as well as access to private hospitals for medical treatments. Now those needs remain, and the availability of equivalent products in China is not there. Difficult to be specific, therefore, on your question that the underlying means have not changed, and they're not served anywhere near in the same way as they are in Hong Kong. Which is why we believe once the border opens, the business will return and it's a question of the shape rather than the question of the quantum. The fact that we've broadened our products now to appeal to mass market as well with Insurance Connect also gives us another leg so that with a new segment, particularly with those others in time, we will not need to travel and to buy a policy. On Pulse, the -- we've done a lot. The focus shifted in the second half of last year to one of embedding and conversion. The 32 million downloads, 13 million registrations, I think we have plenty of users. So it was all about how do we get them to use the services more, so we extended the services to 56 . How do we get them to spend more time, those that are using the services. And again, on average, the amount of time spent increased by about 20% by the regular users. We also connected or hosted. We're now hosting tools on Pulse that help with lead management, with activity management. So, if you like, the conversion or passing across a Pulse user into a lead and converting that into a phone call is now seamless and it all happens within the same application. That's been done now across 8 markets, Indonesia and Malaysia led the way, Hong Kong has come on stream, and now pretty much every single one of our big agency markets, including Vietnam, Philippines, Hong Kong, Singapore, are all looking to adopt those tools. We've had a fourfold increase in the number of agents who are now registered to use those tools and a 2.5-fold increase in the numbers that are actually using them. So as we go into '22, we will see further increases there. Which is part of the reason why you've seen the percentage of APE that comes from users that are involved in Pulse increase from around 6% last year -- 7% last year to as much as 11.5%. But in the fourth quarter, it was 13%. Look through a number of cases, those numbers are even higher. We've added direct-to-consumer products. We now have 46 products across 9 markets, and a lot of them came live latter part of last year. The direct-to-consumer sales that we have so far this year are primarily concentrated in Vietnam, Philippines and in Indonesia, but we expect to see a lot more coming across the rest of the market as we put some marketing efforts behind those. And again, these are all new relationships that we will have with Pulse users, if you like, a second relationship before we engage our agents. So higher uses of services, more direct-to-consumer products, greater efficiency or improving efficiency in terms of converting users to buyers of full premium products, and now being spread across more markets than this time last year.

Thanks, Nick. We’ve got time for just a couple more questions. And we have opportunities to meet with you over the next few days in various meetings. So apologies if we didn’t get to your question today. But we’re also alive to the fact there’s a number of firms reporting and we were asked by a lot of you to stop at the top of the hour, so I want to respect that.

Next question comes from Blair Stewart with Bank of America.

Two questions, please. First one on the margins. I noticed 134% Hong Kong new business margins, 70% in Singapore. These are margins that you've never seen before. So what's going on there? Are you just able to sell a richer stream of health and protection? Is that all that's going on? Is that being driven by the pandemic? Or what's happening there just to drive that uplift? And my second question, for now at least, is just on financial flexibility. You've given your -- you've given an indication of C-ROSS and RBC. And I think, Mark, you talked in your statements earlier about having financial flexibility and I think leverage is down at 21%. So what level of financial flexibility do you think you have based on what you know about your solvency and liquidity, et cetera?

So a general comment on the second one, and then I'll go to Mark just with the timing. I don't think that, Blair, we've had this low a sensitivity to rates and equities, movements in our earnings. And I've never -- and I think our financial flexibility in my time has never been greater. But Mark, do you want to comment on specifics on both and let's wrap up with this one.

Yes. Blair, I think you're right in terms of the richer stream of health and protection that's come through in both of those components and also with an element in Singapore, additional linked products, et cetera, coming through. In terms of financial flexibility, as you say, our Moody's leverage ratio pro forma for the debt repayment in January, it's about 21%. So we think we've got decent scale in terms of the headroom to kind of get to about 25%. It's kind of just under $1.5 billion kind of headroom that we have from that perspective. And in terms of our regulatory capital levels, at the levels we're at, the 4%, 8% again pro forma, it's an aspect where the regulatory capital is not a binding constraint in terms of how we operate and what we do. And we think that's important because that enables us to operate, enable us to engage with the regulator on the front foot and be very kind of forward-looking and forward-leaning in terms of the opportunities that we might have in front of us. And we saw how we deployed that locally, for example, in Thailand, recently with the ttb bancassurance deal, where that was partly funded by some surplus in Thailand and partly funded from the center. So we continue to be very pleased with the strength of the balance sheet, especially with the turbulent markets that we have, the resilience of that and the financial flexibility, a, for the element of inorganic opportunities, but also the great organic opportunities. In the last 8 years, we've invested about $11 billion in Asia and Africa alone, kind of roughly split 50-50 between organic and inorganic. So we'll continue to look to invest hugely in organic and continue to explore carefully inorganic opportunities ahead.

Well, I'm going to have to cut it there. I know we'll see you later in the week, and thank you for the questions. To Mark's point on Thailand, the measurable output of that is you watch a bancassurance channel market share go from 4% to 14%, if you look at the detail in the results. So very happy with that. Thank you very much, everybody, for your questions. I just want to personally thank you for your interest and support in our business in my time as CEO. It's been a privilege for me to serve for the last 26 years with Prudential. And I'd like you to take away 3 things, if you would. We are now, and I'm very pleased to say, entirely focused on Asia and Africa. Clearly, we've delivered high-quality, resilient growth in 2021. And I think in this environment, that's a valued and unique statement. And we're extremely confident that the model we built with the diversification of countries, the multichannel structure, it's the right one to continue to execute on what's going to be or very likely going to be a complex environment for the short term. So thank you again for your time today. We look forward to talking to you all in more detail in the coming days.