Prudential plc
Q1 2013 Earnings Call Transcript

Published: 12 Aug 2013

[Cheick Tidjane Thiam:]

Well, good morning, everybody, and welcome to our 2013 Half Year Results Presentation. Prudential has produced a strong performance across all of our key metrics, and our strategy has been now the same for a few years. It is quite simple. We are focused on capturing 3 main opportunities. The first one is the emerging Asian middle class; the second one is a 77 million or so of baby boomers transitioning into retirement; and the third one is really the U.K., where we have the second largest asset management market in the world with all the wealth that can relate to it [ph]. And given our progress during the last 4 or 5 years, I think the question, what's next from Prudential, is very often asked. Well, we believe that the 3 areas we're focusing on are the right ones. And our answer is that we will continue to execute that strategy with discipline, creating significant value in the process. So in a nutshell, as I said in March, more of the same. So this morning, we will follow the usual format, with 2 presenters, Nic and myself. I will start with a few performance highlights for the first half of 2013. I will then provide a strategic update by region, with Asia then the U.K. then the U.S. And Nic will take you through his usual precision for our financial results, and I will come back at the end to provide my outlook for the remainder of the year. We will finish as usual with a Q&A session. And we have our leadership team here from all our businesses to answer your questions as usual again. So let's start. We have achieved a strong performance in 2013, delivering double-digit growth across all of our key group metrics. Picking out a few of the highlights

[Nicolaos Andreas Nicandrou:]

A customary adjustment to the lectern. Thank you, Tidjane, and good afternoon, everyone. My presentation follows a familiar theme of 'Growth and Cash' with a detailed look at the drivers of our overall performance in the first half of 2013 and an update on the capital position and balance sheet. Starting with the financial headlines, which are summarized on this slide. We have delivered a strong performance in the first half, continuing the positive momentum of 2012. A disciplined execution and prudent management on balance sheet risks have enabled us to improve all of the key financial metrics shown on this slide. As a result, new business profit rose by 11%, IFRS operating profit increased by 22%, shareholders' funds on an EEV basis were up by 19%, free surplus generation was also higher at 12% and this has led to a 16% increase in remittances to group. Our overall performance so far this year demonstrates the quality of our new business franchise, the resilience of our in-force book of business and the -- and our ability to continue to deliver growth in both earnings and cash. We proved our flexibility, when interest rates fell, by taking decisive pricing and product actions throughout the group in 2011 and 2012. Our performance in the first half of this year has benefited from the recent rise in yields, and I will highlight the areas where this is evident as I step through the results. Turning to new business profit. This metric grew by 11% to GBP 1,268 million, led by Asia. All 3 regions continued to write new business at internal rates of return of more than 20% with short payback periods. These attractive new business economics are underpinned by our strategy of prioritizing value over volume and by our approach to directing our investment to those products and geographies with the highest return and shortest payback characteristics. In Asia, NBP was up 20% at GBP 659 million, outpacing the growth in APE, with both agency and bank channels increasing NBP at similar rates. The improved profitability in the region reflects our ability to capture profitable growth in the markets that we referred to as our Southeast Asia sweet spot, 6 of which achieved record second quarter sales. It also reflects our discipline of taking product action where necessary, such as in Taiwan where we refused to offer certain guaranteed products, and in Malaysia where we have refocused the business on health and protection. Finally, the recent rise in yields has also contributed positively in the region -- to the region's NBP, most notably in Hong Kong. In the U.S., NBP increased by 8% to GBP 479 million. Within this number, the new business profit from variable annuities increased from GBP 402 million to GBP 454 million, representing a new half-year high. This is despite the 10% reduction in sales of VAs with guarantees, the negative volume impact of which was countered by the positive effect of product and pricing actions taken over the last 12 months, the contribution from Elite Access and the beneficial impact of the 86 basis points rise in 10-year treasury yields. We are pleased to see the NBP of the U.S. business move forward positively at the same time -- at a time when we are changing the shape of our U.S. sales. Turning to the U.K. In contrast to 2012, no bulks were written in the first half of the year for the reasons that Tidjane has already outlined. At the retail level, although sales declined by 8%, we maintained our new business profit at GBP 130 million, reflecting improved business mix and the benefit of repricing actions. Overall, returns in our U.K. business remain attractive and are, in my view, market-leading. I have summarized on this slide the key drivers of the movement in NBP between the 2 periods. As you can see, high sales volume in Asia together with the strong growth of Elite Access have more than compensated for declines elsewhere to deliver a net GBP 43 million positive volume impact. Pricing actions and changes to business mix continued to contribute positively. And the uptick in U.S. and Asia long-term yields have driven an additional GBP 54 million of new business profit. Not shown on this slide is the contribution to NBP from risk products, such as health and protection, which in the first half of 2013 [ph] was GBP 440 million, equivalent to 35% of the total, up from 31% this time last year. So the key takeaways on NBP are, one, that the higher health and protection content, combined with the lower volumes of VAs with guarantees, means that the new business written this year is higher quality and lower risk; and two, that the benefit from the recent rise in yields demonstrates the potential upside to our NBP as rates recover from the current low levels. Turning now to IFRS. Operating profit at the group level increased by 22% to GBP 1,415 million. This improvement is driven by an 18% increase in both our life and our asset management operations. Starting with our life businesses. As you can see in the breakout box, we have achieved operating profit growth in all 3 businesses, highlighting the quality of these insurance operations. In the next few slides, I will set out the reasons for these increases, which in overview reflect the growth in our overall book of business, the improvements in the quality and balance of our life income and further economies of scale. One of the factors that underlines our IFRS earnings momentum is the sheer scale of our life business inflows. Over the last 3 years, our life operations have attracted total net inflows of over GBP 30 billion. In the first half of 2013, net inflows were 13% higher at GBP 5,871 million, continuing the growth trend that we have seen over the 3-year period covered on this slide, which clearly demonstrates our impressive organic growth. Within -- when these net inflows are combined with the effect of positive investment market movements and the impact of acquisitions, such as REALIC and Thanachart Life, total policyholder liabilities for shareholder-backed business have increased by GBP 68 billion over this period to GBP 179.2 billion. It is this increase that has driven forward both our life income and our IFRS operating profit in recent years, with this momentum continuing in the first half of 2013. Looking at our life IFRS profitability by region. Asia has reported growth of 18% to GBP 474 million, with roughly 2/3 of the increase coming from our 4 largest businesses in Indonesia, Hong Kong, Singapore and Malaysia. We have also seen a strong step-up in contributions from Thailand and the Philippines, 2 of our smaller businesses where we're making rapid progress. Compared to the same period last year, the combined operating profit from these 2 businesses increased fivefold to GBP 20 million. I am pleased to report that our acquisition of Thanachart Life in Thailand, which completed in May, is already making a positive contribution to the results. In the U.S., we have reported a strong increase in operating profit to GBP 582 million, reflecting business growth and the addition of earnings from the acquisition of REALIC. As you can see in the breakout box, REALIC contributed GBP 56 million to our U.S. result and is on track to deliver the GBP 115 million pretax profits in the first year of ownership. The individual components relating to DAC and new business strain are more straightforward this time around in that they have moved in line with the scale of the business. This means that Jackson's underlying profits, shown in the dark blue bars on the right, have increased by 16%, primarily reflecting higher fee income. In the U.K., IFRS profit was slightly higher at GBP 341 million. As I said at the 2012 prelims, the strict capital criteria that we applied across all of our businesses limit the level of investment opportunities in our U.K. life operations, and this will continue to place downward pressure on the earnings growth prospects of this business. We're entirely comfortable with this as it does not detract on the important role that the U.K. place in our group. Turning to the sources of earnings. Both insurance margin and fee income are for the first time individually larger than spread income, highlighting the transformation that we have made in the overall shape of our earnings. Our bias in favor of risk products, such as health and protection in Asia, along with the contribution from REALIC's seasoned book of term business, has driven a 46% increase in insurance margin shown in red. Fee income in dark blue is also growing fast at 31%. In contrast, spread income has increased by a more modest 1%, reflecting our lower appetite for spread products at this point in the cycle. So what you can see is a very healthy evolution in both the quality and the balance of our life earnings and one that enhances their resilience as we move forward. Taking a more detailed look at sources of earnings for each business and starting with Asia. Total life income, shown in the top left, is up 22% at GBP 1,267 million, driven by a double-digit increase in all of the sources of income. As you can see below towards the right of the slide, technical and other margin remains both a fast-growing and a dominant feature of Asia's life income, up 22% in the first half. Within this category, insurance margin grew by 18% to GBP 303 million, reflecting strong growth in health and protection business and a continuation of positive claims experience. This category also includes the deductions that we made from premiums to cover our costs, which are higher at GBP 778 million, consistent with the growth in Asia's premium income. In the U.S., Jackson's total income, shown in the top left, is up 27% at GBP 1,197 million, outpacing the 9% increase in expenses, highlighting once again the influence of operational leverage in these results. Fee income, in the middle of this slide, is now the largest source of earnings in the U.S. and is also the fastest growing at 36% to GBP 554 million. The uplift reflects the 37% increase in average separate account balances, which benefited both from the USD 7 billion of net inflows in VAs and the strong equity market performance. Our average fees are broadly similar to last year at 196 basis points as Jackson continues to take product and pricing actions. Technical and other margin, shown in the adjacent box, was boosted by REALIC's life insurance income, contributing GBP 83 million to this line in the first half of 2013. Finally, on the left of the slide, we have seen an increase in spread income to GBP 377 million, principally reflecting the higher level of general account assets. We have held our margin due to the continuation of the fixed account allocation from new VA business, which attracts a low crediting rate of 1%. This is a temporary affect, and we still anticipate that this margin will continue to trend towards the 200-basis-point level over the next 3 years. In the U.K., total income was broadly unchanged while total expenses was somewhat lower than last year, in part reflecting lower commission costs as a result of RDR. Spread income on the left was lower at GBP 102 million due to the reduction in conventional annuity sales and no new bulks in the first half of this year. I would remind you that bulks contributed GBP 18 million to the 2012 IFRS result. Insurance margin is higher as it includes a GBP 27 million benefit from a longevity swap executed earlier in the year for risk management purposes. Income from with-profits, shown in the bottom right, declined in line with the reductions in policyholder bonuses. Moving to asset management and other nonlife businesses. IFRS profit was 18% higher at GBP 312 million. As you can see in the breakout box to the right, the improvement in performance is driven by M&G and Eastspring but also from U.S. asset management, where operations such as Curie [ph], which were previously subscale, are now beginning to make more material contributions. Looking at M&G in more detail. On the left, operating profit was 17% higher at GBP 204 million. Stripping outperformance-related fees and earnings from associates, underlying income increased by a healthy 19% to GBP 421 million. The increase tracks the 17% growth in average funds under management, which, as Tidjane has already covered, reflects M&G's success in attracting significant new business inflows and the higher market levels. I indicated at the prelims in March that we will be making additional investments in scaling up the infrastructure of M&G in 2013 and 2014. Reflecting this, expenses have increased by 22%. And as a consequence, the cost-income ratio has ticked up 1 percentage point to 54%. I would remind you that as in previous years, M&G's cost base has a second half bias, so please allow for these in your forecasts. In 2012, for example, the full year cost ratio was 6 points higher than in the first half. Eastspring Investments reported a 19% increase in profits to GBP 38 million, with total fee income growing at a faster rate than expenses. A continuation of the consumer-led preference for bonds over equities saw average fee levels reduced by 1 point. Fund growth mitigated this effect, driving income and earnings higher at the half-year stage. Turning to our results on an embedded value basis. You can see from the chart on the left that total life profit was 15% higher at GBP 2,497 million, equivalent to an annualized return on opening embedded value of 16%. Our life businesses in Asia and the U.S. have reported strong increases in operating profit of 24% and 26%, respectively, and are both above the GBP 1 billion mark for the first time. This performance reflects both business growth and the positive effect of the recent rebound in long-term yields. The U.K. reported an 18% decline in EEV profits as 2012 included items that have not recurred, such as the positive effect of reductions in U.K. tax rates. In line with our established reporting practice, the benefits from the further reductions in U.K. tax rates enacted in July, which amount to GBP 115 million, will be recognized in the second half of the year. Across the group, our overall in-force profits increased by 20% to GBP 1,229 million. This reflects our relentless focus on managing the existing business for value. It also illustrates the positive gearing to higher interest rates, which is evident in the component labeled unwind. This has increased from GBP 761 million to GBP 954 million, and we estimate that GBP 75 million on this step-up comes from the rebound in long-term rates. Despite the ongoing global macro headwinds, our focus on delivering the right outcomes for our customers and on managing our affairs efficiently saw all 3 businesses sustained positive contributions from operating experience and assumption changes. Overall profits were slightly higher at GBP 277 million, demonstrating both the quality and the resilience of our franchise. On this next slide, I will briefly run through the rest of our profit and loss account for both IFRS and EEV. As I have shown you in my presentation so far, rising equity markets and higher long-term yields are beneficial to our overall operating performance. The other positive impact of such market movements is that the guarantees provided to policyholders by certain parts of our group, such as Jackson, become less onerous, as Tidjane has already demonstrated. But as you know, under IFRS, the accounting does not fully reflect these effects, which has resulted in negative investment variances in the first half. As we have previously flagged, this is driven by the accounting mismatch from hedges that are fully mark-to-market and liabilities that are marked mostly to costs. While our total IFRS profits are susceptible to this type of accounting noise, we remain steadfast in our approach to hedging on an economic basis, and we accept the accounting volatilities that ensue. The rise in interest rates has also generated negative value movements on our holdings of fixed income securities, which under IFRS come through the investment variance and the unrealized losses on AFS securities line. Again, these negatives are not economic as we would typically hold these instruments to maturity. These factors, combined with the payment of the 2012 final dividend, have driven our IFRS shareholders' equity lower at GBP 9.6 billion. On an EEV basis, we can fully recognize the economic benefit of the higher market levels. And as you can see on this slide, the overall investment variance is a net positive. As a result, post tax profits for the period on this basis was 41% higher at GBP 1.9 billion. And after allowing for foreign exchange movements and dividends, retained earnings boosted our shareholders' funds by 80p to 958p per share. Turning to the balance sheet. The overall picture is unchanged. We remain well-capitalized and defensively positioned. The group's IGD surplus at the end of June after paying the 2012 final dividend and acquiring Thanachart Life was GBP 3.9 billion, equivalent to a cover of 2.3x. I would remind you that the IGD surplus now includes Jackson's capital in excess of the 250% RBC level, in line with the change we adopted earlier in the year. The group's liquidity remained sound. The USD 700 million perpetual Tier 1 notes raised in January 2013 further supports the financial flexibility of the group, while taking advantage of low interest rates. Higher remittances from businesses have increased central cash resources to GBP 1.5 billion. We continue to experience no defaults and minimal impairments. We have nevertheless maintained the level of default provisions in the U.K. and generally retain a conservative approach to credit. Finally, our stance on hedging the U.S. variable annuity exposures is unchanged. We hedge on an economic basis, utilizing the full 120 basis points of fees charged for providing the guarantees, which equates to a $1 billion hedging budget. We have seen no significant shift in customer behavior. And our pricing and reserving assumptions remain conservative when compared to our actual experience. The GBP 294 million remittance from Jackson in the first half of the year confirms the soundness of its overall capital position. Moving now to free surplus and cash generation. Free surplus stock has increased from GBP 3.7 billion at the start of the year, shown on the left, to GBP 4.1 billion at the end of the year or at the end of June, shown on the right. As you move from left to right on the slide, you can see the GBP 1,548 million of free surplus generated by our in-force book, which is 11% higher than last year with strong and growing contributions from all of our businesses. We continue to take actions to optimize capital consumption and have used GBP 396 million to write new business equivalent to a reinvestment rate of 26% in line with last year. After taking into account market movements and the impact of corporate activity, our free surplus stock rose to GBP 5 billion, allowing us to remit GBP 844 million to the center. Staying with this theme for a moment, I want to highlight the scale of free surplus that our business has generated and how this has been deployed since the 1st of January 2010, the start of the period covered by our cumulative free surplus objective. The left-hand column shows that we started 2010 with a free surplus stock of GBP 2.5 billion, on top of which in the blue bars, our growing life and asset management businesses have generated a combined GBP 9.2 billion of free surplus over the 3.5 year period. Moving 1 column to the left, you can see that from this total, GBP 2.2 billion was reinvested in writing new business; GBP 1.2 billion absorbed market effects, foreign exchange and other items; GBP 4.1 billion was remitted to group; leaving a free surplus stock of GBP 4.1 billion at 30th of June, shown in the gray bar, to support the increased scale of our local businesses. The GBP 4.1 billion of cash remitted to the center has enhanced the group's central resources, as illustrated in the chart on the right. This chart shows that all 4 businesses have made material remittances over the last 3.5 years, ranging from GBP 0.9 billion to GBP 1.3 billion. Together, these remittances have financed interest center costs and other corporate activities and provided the cash to pay GBP 2.3 billion of dividends to shareholders, including the additional outlay from the 2 upward dividend rebasis during this period. So how does this compare to the objectives that we set ourselves in December 2010? We expected to generate cumulative free surplus of GBP 6.5 billion after financing new business over the full year period to 2013. 3.5 years in, we have already exceeded this objective, having generated GBP 6.9 billion. We also expected that the cumulative free surplus would enable remittances totaling GBP 3.8 billion to the center over this full year period. We have already exceeded this objective, having remitted GBP 4.1 billion, which as you can see, represents a remittance ratio of just under 60%. So what this demonstrates is the consistency and pace with which our business has been able to generate free surplus after financing new business. It also illustrates how quickly this free surplus generation has translated into cash to the center and how these remittances have enabled to grow our dividends to shareholders. Our discipline of managing the in-force book for value and our focus on writing high-return, fast-payback new business makes us confidence that this positive dynamic will continue going forward. So to conclude, Prudential has delivered a strong start to 2013. Our performance in this period is broad-based with our key financial metrics of NBP, IFRS operating profit and cash achieving strong double-digit growth. At the same time, we have improved the quality, consistency and balance of our earnings and have accelerated the generation of free surplus and cash to group, all of which underpins our confidence in the future prospects of our business. Thank you. I will now hand you back to Tidjane.

[Cheick Tidjane Thiam:]

Okay. Thanks a lot, Nic. As you have seen, we have had a good first half of the year. So let's now turn to the outlook. A significant long-term opportunity for sustainable and profitable growth for our company in Asia is well-captured by this slide, illustrating 3 key and simple points. The first one is that we have a great platform in Asia with the right products and the right people. The second is that we are well-positioned in the right markets, our so-called sweet spot. And third, that even with the scale we have already achieved, our customer numbers remain a small fraction of the opportunity available in these countries with between 0.5% and 1% of the population in our customer base. To put this in perspective, one only has to look at the U.K., where our customer base of 7 million represents 11% of the total population. This, for me, confirms that we have not even scratched the surface in terms of capturing the potential in these markets. This is why we are confident that this company is well positioned to deliver profitable growth in Asia and to generate significant additional shareholder value for years to come. So to summarize, the group has delivered a strong operating performance for the first half of 2013 with double-digit growth across its 3 key metrics of new business profit, IFRS operating profit and cash. Shareholders continue to see the benefit of this performance through both capital appreciation and a growing dividend. We continue to execute our 'Growth and Cash' agenda by focusing on delivering profitable growth in Asia and cash generation from all businesses, as Nic just told you. So more of the same will generate over time huge value for our shareholders. And there remains very significant untapped profitable growth potential for this company. With that, I'd like to thank you for your attention, and we are happy to take your questions. If my colleagues will join us on the stage, we'll move to Q&A. Who's going to carry the mic? You do?

[Unknown Executive:]

If you want to ask a question, the usual format, stick your hand up. Please state your name and the firm's name and off you go. Gordon?

[Gordon Aitken:]

Gordon Aitken from RBC. Just a couple of questions. I'm just -- I'm interested in the 6 objectives you set, 3 of them were in Asia. And I think at the time, some of us doubted that you were going to achievement them. And it looks like you're going to achieve them all. But I mean, in Asia, the remittance and operating profit targets, you're already well ahead. I'm just wondering, I'm assuming when you set the targets, you set them with a similar level of buffer and stretch built into them. Why has it taken -- the new business profit target, why has it taken longer to achieve that one? And was it a tougher target to start with? Or was there any other reason? And the second question, the U.K., you mentioned are not liking conventional annuities quite so much. Why is that?

[Cheick Tidjane Thiam:]

Sorry, the second question is?

[Gordon Aitken:]

You're not liking conventional annuities quite so much.

[Cheick Tidjane Thiam:]

No. Okay, fine. Secondly, I just said that weak profitabilities were popular in the current interest rate environment in the U.K. because they provide a better return basically than conventional annuities with customers. But personally, no, I don't have a dislike of conventional annuities. On the first one, it's a really important point, if you wish. When we were setting the targets, that was -- where's Barry? The most heated discussion between Barry and me was about NBP because what you don't want to do when you set a target, and also Adrian [ph], who's nodding there, is to make yourself a hostage to fortune. I mean, the simple truth is the one we control the least is NBP, okay? You see it being moved by interest rates, up or down. You see it being moved by a lot of things we do not control. And it's the one we like the least, okay? We committed to it to give a sense of how confident we were. But it's one that is the most dependent on things outside our control. And we don't think it's particularly wise to make yourself a hostage to fortune. We did that really as a sign of our confidence. And I think it's going to happen. If you look at the target, you can do your own calculation. But I think 8% in the second half takes you there.

[Barry Lee Stowe:]

6.7%.

[Cheick Tidjane Thiam:]

Okay, 6.7%. I was trying to be [indiscernible] Okay, 7%. This is why -- he's greedy. But 7% in the second half will take him to his NBP target. So one that -- we don't have a lot of trouble doing the target in the first half, so it's the one we cannot deliver in a half year because NBP...

[Barry Lee Stowe:]

Well, effectively, it's the sales targets. So unless we were able to write as much -- to do it 6 months early, you'd have write the full year's new business in the first 6 months of the year.

[Cheick Tidjane Thiam:]

And you can do many things that...

[Barry Lee Stowe:]

Yes. We're good, but we're not quite that good yet.

[Cheick Tidjane Thiam:]

But fair enough. It's the one we, frankly, I think it's fair to say, we like the least really. So it has a lot of negative features of what people don't like about targets really.

[Unknown Executive:]

Blair?

[Blair Stewart:]

This is Blair Stewart from BofA Merrill Lynch. I think I've got 3 questions. Firstly, the domestication of the Hong Kong with profits fund and the legal entity structure in Asia, we can all have a guess what that might mean strategically. But what does it mean from a financial perspective, if anything, for the company? Secondly, given the cash levels are so strong, I think you've reset the dividend twice in the last 3 years. Any comment on what your thinking is there? And thirdly, in the U.K., I think on the individual annuities, you've got a very passive strategy. What implications, if any, do you expect from the review of that market going at the moment? Are you going to have to become more active? Does that mean lower margins ultimately?

[Cheick Tidjane Thiam:]

Okay. On the domestication, maybe I'll let Nic take that one, and I'll come back on the dividend and have Rob on the annuities.

[Nicolaos Andreas Nicandrou:]

Okay. So we're domesticating both with-profit business and also nonprofit business. The with-profit business will be domesticated with each share of the estate, and that will provide the appropriate working capital, not only to write new business but also to provide the ongoing protection to existing customers. The nonprofit business will also be domesticated. That will also go across with its own capital base. But in Hong Kong, it will have to be managed to clear, if you like, a hurdle above the minimum. Therefore, there will be some marginal friction in terms of the capital that we need for the nonprofit side. But it's -- you've seen the numbers that we've reported, both in terms of free surplus and also in terms of the cash that we're generating. That impact is manageable.

[Cheick Tidjane Thiam:]

Okay. Cash and the dividend. You know our thinking there, Blair, we've kept the same dividend policy. And the approach we've taken is, rather than touch our dividend policy, to rebase the dividend itself every time we've created enough headroom. So the logic is simple. We stress-test our cash flows on almost every metric. And a quite few of them what we calculate [ph] on a cap rating agency capital or IFRS or EEV, shareholder funds, et cetera, et cetera, statutory capital. And we set a dividend growth at a level where it is safe. We pay as much dividend as it is safe to pay. And we have no reluctance to do a step-up when actually that headroom appears, plus that between a number of favorable factors. And as you can see in the targets, et cetera, we've made progress faster than we thought. Every time that's happened, we've raised the dividend. That's really all we have to say on that. We are fortunate enough to have a lot of organic growth available, so we saturate our appetite for profitable organic growth. We continue to build the capital base because what consequence of this growth agenda in 'Growth and Cash' is that the group does get bigger. So we do have to retain some of those much earnings, not to weaken the capital position of the group. And frankly, M&A, as you've seen, we're very opportunistic. We're very happy with the transaction that we've done. REALIC was a fantastic transaction and the integration has been very good. The numbers are excellent. Thanachart is phenomenal. I told them, it's approved in May, outcome in July, this was a long planned visit with Barry. And we visited the branches. It's just a remarkable transaction in a great market. I mean, it's anecdotal. But I had a meeting with the Deputy Prime Minister, very influential in Thailand with Barry. And I told him what we say usually in those cases, investing $0.5 billion in your country, an expression of confidence. We like the economy in your country. And he stopped me. He said, "No, I'm not interested. Tell me what we can do better." Meanwhile, he said, "Yes, I want in detail what were the things we could have improved." To hear that from the leadership of a country, as an investor, gives you great comfort. But to my central point, we have the luxury of, if you wish, not needing to do M&A. We have enough organic growth. So we can really be selective and only do it when it's very attractive. So we don't need to keep a big war chest in the region of M&A. And we do relatively small transactions. So the rest is for the shareholders really. Individual annuities, Rob, are we being cautious?

[Robert Alan Devey:]

Happy to pick that up. We've been involved in the annuity review and very comfortably supporting what's going on there. I think in terms of the implication for ourselves, we have to remind ourselves what our U.K. pensions and annuities portfolio looks like. It's a very large number of really rather small annuities. So the average ticket size is around about GBP 20,000. Those are very satisfied and normal Prudential customers. We give them -- our vestings customers get a benefit when they come to us because we give them the better price because we don't have antiselection risk that we get there. So we're very comfortable about our pricing in that market. And with the introduction of the Code of Conduct for Retirement Choices that came in, in March, we're also seeing very strong feedback from our customers around them being aware of the choices they already have available to them in terms of whether it's different types of annuities and in terms of the ability to shop around in the market more generally. So albeit, there will be focus on this and we're supporting the focus on that, we're very confident as we look forward in terms of that book. As you know, we do not play aggressively in the conventional open market because we think the marginal pricing in that market is not attractive relative to other opportunities we have as a group.

[Unknown Executive:]

Greig?

[Greig N. Paterson:]

Greig Paterson, KBW. 3 quick questions. One is just in terms in the inherited estate discussions, Nic, do you still stand by the same? And I think I asked you before that when the Standard Chartered deal renews, you'll be able to finance those renewal costs by an inherited estate, as was done before the last time. Second question is in Indonesia, to me, that seems like the other area where there's potential new distribution deals. I was wondering if there are any regulatory restrictions on how many licenses or what deals you can do. And then as a final one, I was listening to your targets in terms of remittances in new business and free surplus generation. I was just wondering in Asia, out of the VNP [ph] and the free surplus generation, how much of that has been acquired through new distribution deals over the period from 2010 to 2013?

[Cheick Tidjane Thiam:]

Okay. Nic, you want to take the first one?

[Nicolaos Andreas Nicandrou:]

Look, I'm not going to speculate on what will happen towards the end of the decade when we come to that point. So I don't have anything to add to that.

[Cheick Tidjane Thiam:]

Okay. Indonesia, how many licensees? Look, what can I say? I don't really -- a bit like Nic, I really don't want to comment on speculation in Indonesia. What I can say is that we are very happy with our performance in Indonesia. I'm sure you've noticed some of it is optical because in local currency, it's much stronger than the 17% we announced and NBP is up 27%. On the business of that scale, very happy with the performance and we think we have enough growth available. Again, with 2 million customers in a 251 million people country, if we only do what we've done in the U.K., we would end up with 25 million customers in a reasonable time. So no, we're not really worried. I don't know, Barry. Do you want to say more about Indonesia?

[Barry Lee Stowe:]

There's no regulatory limit on number of bancassurance deals or other sort of structures that we could use to drive distribution. And as we say with respect to Indonesia within the other market, we obviously see every distribution deal that's available in the marketplace. And a handful of those we really go after because we think they make a lot of sense. That's where UOB came from. That's where Thanachart came from. Many, many of these deals we look at, for various different reasons, we think they don't make sense and we don't go for them. And we'll continue to use that system, which we think, if you look at it over the last 6 or 7 years, it's paid very handsomely for shareholders.

[Cheick Tidjane Thiam:]

Yes. So it's a bit of the answer to your third question because we really don't -- you see, we never give you breakups in terms of new deals because really we see -- sometimes, when I want to surprise, I say we only have one channel in Asia and it's face-to-face sale. I mean, sometimes, it's takes place in a bunker [ph] branch. But we've always seen banking distribution as a first part of our organic strategy, just add more people frankly. It just happens to be in branches sometimes. But it's not a different strategy from our perspective. And in all those deals, we really -- we do post acquisition with units, et cetera, et cetera, where we'll -- from the entity, you pay for business planning. That's why we keep giving you this kind of we cannot be ahead of our plan comfortably. That means we're doing -- we're gaining extra returns on the IRR we targeted to be in plain language. And in every one of those deals, you'll be as doubled every year. The price we pay, but you see it's the business plan we buy. We've outperformed that every time. But we also -- we don't say that too much because there will be future deals. And every time it becomes harder, every time we pull that trigger, it becomes harder the next time to attract have a good price. So that's -- but we have no doubt in all those situations that we are really getting the returns we expected on the capital invested and more.

[Unknown Executive:]

Andrew?

[Andrew Crean:]

It's Andrew Crean for Autonomous. 3 questions. Firstly, I think the first thing did when you arrived, Tidjane, was look at the inherited estate in the U.K. and decide not to go for it. Now that you are on board [ph] in the Hong Kong business and with the U.K. inherited estate more mature with less policyholders, could you give us an idea as to what the realistic value it is and what your plans are and timescale on that? Secondly, on M&G, could I get a sense as to what higher rates mean for your retail business, the flows impact on the bond side, and also what your views are on clean, clean pricing and how a fund manager views that? And then thirdly, I think in the full year, you talked a bit about being prepared to give some of the economic capital data. I wonder how you're getting along with that and what that's showing.

[Cheick Tidjane Thiam:]

Okay. Maybe Nic, you can take it. We'll go in reverse order. Take the economic capital, then I'll go to Michael on the clean pricing and higher rates, retail flows, and I'll take inherited estate.

[Nicolaos Andreas Nicandrou:]

Sure. Now we continue to work on that, Andrew. And we'll bring that information to the market in the new year.

[Cheick Tidjane Thiam:]

Okay. That was efficient. Michael?

[Michael George Alexander McLintock:]

Two parts to that question. Clean, clean pricing, it's too early to say is the short answer, Andrew. I mean, it's not positive. But we're playing in an awful lot of different channels and awful lot of different markets. As you've seen from the numbers, there's lower growth taking place in Europe. And so there's a whole mix going on in the marketplace. And it really is too early to say how this whole thing is going to shake out. On rates and flows into bond funds, we have been experiencing steady net outflows from our main corporate bond funds in the U.K. There are 2 actually corporate bond funds where we've been the leaders for actually, I can now say, many years. These 2 funds we're getting very big last autumn, and we decided to take action to choke off the flows. And ever since then, they've been -- there's just been a steady movement of money out of those funds. How quickly would rates back up? I mean, you could see -- you can see multiple different scenarios. If you have rates going up very quickly with some sudden sharp shock, it could be over before you've even -- you even had a chance to sort of analyze the consequences. And suddenly, the flows are stable again. On the other hand, you could have a sort of a perception that fundamentally, inflation is really coming back and rates are going to keep backing up for a long period of time, in which case that would actually probably be much more negative. There's a whole -- again, there's a whole range of scenarios. It depends where the money is going to because what's coming out of bonds are going somewhere else. And we've got to catch our share.

[Cheick Tidjane Thiam:]

And I think the other question was on the inherited estate. And you and I discussed it a lot of your time. If you remember the things we said, when we make a decision, a key consideration was growth prospects over With-Profit Fund and the fact that we were going to continue to write new business in the With-Profit Fund. And we felt that reattribution was a transfer of value between the future policyholders and the existing policyholders. And we felt it's our view as a company that future policyholders had actually rights to benefit from the products. I'll say last consideration was really -- was there really a surplus to distribute on? And that was depending on how you look at markets, et cetera. And I think with hindsight, it was a good decision to have kept that inherited estate. I think it was -- is it GBP 7.8 billion or not?

[Nicolaos Andreas Nicandrou:]

Yes, GBP 7.8 billion.

[Cheick Tidjane Thiam:]

The last value was GBP 7.8 billion in total at June 30. Sorry? Inherited estate, inherited estate. It's valuation at June...

[Nicolaos Andreas Nicandrou:]

Well, that's the face value on a realistic basis, of which Pillar 1 realistic basis, GBP 7.8 billion.

[Cheick Tidjane Thiam:]

GBP 7.8 billion.

[Nicolaos Andreas Nicandrou:]

In terms of how much of that is included in our embedded value, it's 1/10. But given that we assume embedded value that this stuff gets paid out by way of a terminal [ph] bond, it gets discounted down to about 7% or 8% of its value.

[Cheick Tidjane Thiam:]

So short answer on that is we will look at that issue again once the domestication has been completed. And what we were saying [indiscernible] to make a decision. Chris?

[Christopher J. Esson:]

Chris Esson from Credit Suisse. Just a quick question on the composition of Asian new business profits. On Page 15 of the EEV disclosures, it suggested that Hong Kong saw something like 60% growth, and the other markets, which included fairly appealing markets like Singapore and Malaysia among others, saw flat year-on-year trends. I just wanted to get a bit of a sense of what's going on country-by-country on NBP?

[Cheick Tidjane Thiam:]

Yes, we can give you some color on that between Barry and Nic. I mean, what has developed?

[Barry Lee Stowe:]

What happened in Hong Kong was really, it's all economics. I mean, it's increases in interest rates that materially improved. What you're seeing elsewhere in terms of new business profit movement generally is a continuing strength of health and protection products, and you're seeing a continuing strengthening of margin a little bit as a result of a geographic mix. So, I mean, that's why the margin is where it is. In terms of new business profit progression in other markets, there's a little bit of a ding in Vietnam because there was a change in the regulations there on how we split bonuses between shareholder and policyholders. So that had a little bit of an impact in Vietnam even though the business is growing very strongly there. We had a very good first half there. Other places, basically the progression continues to be good, as I say. You saw in the overall regional results 12% growth at the top line, about 20% growth at the top line that we really focus on, which is NBP. And again, the factors I already mentioned drove that, but it's -- with the exception really of those 2 instances. This is pretty good stuff. Nic, you want to...

[Nicolaos Andreas Nicandrou:]

No, the only thing I would add is in places such as Indonesia and Malaysia, where most of what we write, nearly up to 2/3, is health and protection, rising interest rates means that you're discounting those -- those future profits at a higher rate and, therefore, their NPV is low. So if you like, the headline year-on-year movement in those 2 countries is depressed by that effect. Places like Hong Kong and Singapore, you see the opposite. The mix of business is such that rising interest rates gives a kicker to the NBP progression. So those are the effects that you're seeing come through, and the rest, as Barry said, is a function of what products you sell, what mix, distribution channel and so on and so forth.

[Cheick Tidjane Thiam:]

It really goes back to the central point of diversification, that it can be frustrating sometimes. But what we always take you back to is the total performance of a portfolio because it's the strength of insurance companies. That's how it works. When you discount the insurance income in Indonesia, yes, higher interest rates hurt us. But during the whole period where the rates were going down, it protected us. And that's the way it is. In Hong Kong, we suffered when interest rates were going down, and now we're gaining when interest rates are going up. And that's why you want a diversified platform. And that's actually what allows you to hold those nice progressions on the total Asia performance every time, because it's well diversified. So at every point in time, we'll come under pressure in a given country. Depending on how the macroeconomic environment is, there will be countries benefiting, countries suffering. And when you get more country-specific factors, the elections in Malaysia did play a role, and the total Malaysian market, that's very visible, and industry statistics struggled in the first half. And that comes through our numbers. We're not completely insulated from that.

[Barry Lee Stowe:]

Yes. But again, actually, with the second quarter, it wasn't Malaysia.

[Nicolaos Andreas Nicandrou:]

It wasn't.

[Barry Lee Stowe:]

The market in the first quarter was -- the growth rate was 0.2% for the market.

[Nicolaos Andreas Nicandrou:]

Yes.

[Barry Lee Stowe:]

So...

[Cheick Tidjane Thiam:]

Yes.

[Nicolaos Andreas Nicandrou:]

Okay. Ashik?

[Ashik Musaddi:]

Ashik Musaddi from JPMorgan. A couple of questions. First, on Slide #81, you had given a GBP 100 million negative impact from economic hedging. That's 20% of your U.S. earnings. So how should we think about that given that it's its own economic basis? So that's the first one. Secondly, can you give us some color about your leverage, how rating agencies think about your leverage given that the increase in leverage is supporting your IGD capital as well and also the NAV going down mainly because of just mark-to-marking the bond portfolio? And thirdly, can you just remind us of when does this permitted practice on interest rate swap ends? Is it October, if I'm not wrong, or something?

[Cheick Tidjane Thiam:]

Okay, thank you. Thank you, Ashik. For hedging, Slide 81, you want take that?

[Nicolaos Andreas Nicandrou:]

Yes. What we've done on Slide 81 is to convert, if you like, the IFRS number with all its shortcomings into something that is more economic by adjusting those shortcomings in IFRS. So one of the things -- even for those products that are accounted on a FAS 157 basis, you're only allowed to count, and the way you think about those products, only a portion of the fees. So what -- the first adjustment we make is to then give ourselves credit for the full portion of those fees. Then you have a whole host of products that are accounted on an SOP 03-1 basis where nothing is economic. So what we've done in relation to that is we move those passive assumptions to align with FAS 157, and that also mitigates the impact. And then you have 1 or 2 other assets. We talk about having -- the way the book is structured, there are some internal hedges or internal offsets that form our hedging philosophy, and you see the other 2 bars relate to that. So if you like, this is an IFRS-adjusted result. Now the reason -- although it's called hedge result, it's not full economic because one of the things we don't do in IFRS is to take into account the additional net present value of the M&E fees, which, as you see from our sources of earnings, are 200 basis points. So if you like, yes, it's the hedge result on an economic basis. But of course, the business, because the balance sheet is that much higher, we are able to earn 196, which is what we earned at the half year, although many fees. And that's not NPV in these numbers.

[Cheick Tidjane Thiam:]

But overall -- so all of your accounting in [indiscernible], we, of course, take that into account when we define our hedging strategy and take that fully into account. We don't try to manage that negative 100. I don't know if -- Michael, want to add anything to that?

[Michael Andrew Wells:]

No, I think we flagged this in New York that both IFRS and stat floor out at these levels. And so, we knew there was going to be a material mismatch. And the firms historically in the U.S. that hedge to smooth accounting results did very poorly in real economic events, and we stick with the strategy of hedging the economics. So I think it's the only way to do it.

[Cheick Tidjane Thiam:]

The metaphor I'd use is if you own a bunch of your umbrellas and there is a drought, that says your umbrellas are worth less. That's no ground to get rid of your umbrellas. So we will hold on to our umbrellas because when it rains, they're going to sell for $20 a piece. That's the way it is. So -- and that's what our hedges are. Mark-to-market says okay, it's not been raining, so your umbrellas are worth nothing. I say don't listen to mark-to-market. A simple way. Leverage rating agencies, Nic, do you want to take that?

[Nicolaos Andreas Nicandrou:]

I mean, the -- you've seen both S&P and Moody's have taken us through committee this year. As part of the process, they look at a whole host of metrics, not only the financial ones but also the nonfinancial ones. I mean, leverage is not an area that we're getting a lot of noise from the rating agencies. Of course, they also look at our ability to cover the interest, and that's been with the increase in earnings. That's been going up strongly as well. So no issue from my perspective in terms of their leverage. And as I said, there's no heat from the -- our rating agencies. It's quite the opposite.

[Cheick Tidjane Thiam:]

And a growing balance sheet debt capacity as we grow, and that's something we've always, how can I say this, taken advantage of. Permitted practices...

[Michael George Alexander McLintock:]

It's an annual renewal.

[Cheick Tidjane Thiam:]

It's annual.

[Michael Andrew Wells:]

It continues to understate the strength of our financial position. So I think it's arguably quite conservative. And we -- going once a year with their commissioner and go through it. They review the hedges much more frequently than that, but that policy is annual.

[Ashik Musaddi:]

Is this just the I think one?

[Nicolaos Andreas Nicandrou:]

Yes, yes.

[Cheick Tidjane Thiam:]

Yes, yes.

[Michael Andrew Wells:]

Oh, yes.

[Cheick Tidjane Thiam:]

Yes. It's coming from Moody's October. Look, hey, it's every year, annual, and it's still there [ph]. Yes, are there any more?

[Unknown Executive:]

Only 1 or 2 more.

[Cheick Tidjane Thiam:]

Fahad? Yes.

[Fahad Changazi:]

Fahad Changazi calling. Fahad Changazi from Nomura. Could I have a follow-up on Blair's question please, if I may? You're generating very strong free surplus margins, and there's always a line there. It's about GBP 200 million of changes in operating assumptions and variances. And again, it was a quite strong gain. Could you give us some guidance on that in H2 and going forward? And secondly, just on that basis again, could we have the guidance of investing in new business because it always seems to be H1, H2 weighted? You said it was -- that reimbursement rate was the same as last year, so I assume that's going to be case going forward. And finally, the cash balance is significant at GBP 1.5 billion. Could you tell us how you think about the cash balance and what you're targeting there? And there's a final question on the U.S. if you don't mind. You did comment that there were increasing competitive pressures. Could you talk about the quantum and time frame of these pressures and how you look at the trade-off between rise in yields, risk appetite and market share?

[Cheick Tidjane Thiam:]

That's a lot of questions, but we'll take them.

[Nicolaos Andreas Nicandrou:]

Yes.

[Cheick Tidjane Thiam:]

Okay. Hopefully, they're quick. Nic, you can take the first 3.

[Nicolaos Andreas Nicandrou:]

Certainly.

[Cheick Tidjane Thiam:]

And then Mike, the fourth one.

[Nicolaos Andreas Nicandrou:]

Look, when I think about capital generation, I don't factor into any of my forward thinking a continuation of positive experience. I take that if it happens. But the way I think about it is, assume it won't happen. And if it does, then that's upside. The H1, H2, I mean, candidly, that in part reflects, more often than not, mix. The bias is not driven by anything smart that we do with our capital in the second half. It often comes -- reflects the mix of business, which again is then, to a degree, driven by customer preferences.

[Cheick Tidjane Thiam:]

Mike, on the U.S. dynamics markets.

[Michael Andrew Wells:]

Competitive pressures. 18-plus years, we have never had a market share target. So we've never as a group said we want x percent of the market or x ranking in the market. I think with the success in lead access, it's -- you're going to see us have the #1 slot for a while, but you're comparing a variable annuity with no living benefit to sales of companies' products that are with living benefits. So that ranking becomes a little less clean. That's -- it's sort of like the net ranking numbers. There -- you have players that actually would like their net assets decline. So that's no longer as direct as it was. We absolutely look at rising interest rates, volatility. We test the pricing and the products real time. As you've seen, we can adjust them now. 90 days, a fairly major change; six months that are full rewrites. And there's levers we can pull in shorter periods. So we're looking at that all the time. And then the other -- there's other levers like where the distribution team focuses. Those raise or lower your sales in a given product as well. So we're looking at all that real time. Does that answer your question? I'm sorry?

[Fahad Changazi:]

I'm more concerned with what you think the market was going to -- how it's going to develop in terms of...

[Michael Andrew Wells:]

Oh, okay. So what you're seeing the variable annuity in general? The variable annuity market. So it's very mixed signal now. So you have some players pulling back or stating targeted caps, if you will. You have a number of companies -- 5 coming up with more consumer-friendly or more aggressively priced product depending on how -- if you're a buyer or seller of that. And it's actually doing very well. I think we've -- you're going to see a larger number of firms share the bulk of the market now. AIG has done a very good job coming back. You have others trying Allianz. You have some interesting new products coming out of competitors that have -- got varying retirement solution, risk limitation strategies built in them. I think the overall market for living benefits is clearly down. And I think the mistake to make when you look at U.S. market trends now is the top line-only definition. So if you said how have variable annuities done year-over-year, they're down. And it looks down a few percent. If you said the products sold 1 year ago, it's actually down much more than that because the new products, including lead access, have filled in some of that gap. So it'll be a little more complicated from where you guys sit to -- to compare company by company, I think, going forward.

[Cheick Tidjane Thiam:]

But it's going to be fascinating, too, what happens from here because as interest rates improve margin, does it create headroom for some to gain change their pricing and move in the opposite direction like what we've seen in the last 4 or 5 years? What impact is that going to have on the -- our sales? You've heard us give statements over and over and over again because we don't know, okay? A lot of what we will do will depend on how the competition behaves. And historically, that's been something that's been very hard to predict because really, we're always reluctant to -- we're often surprised by what others do. So we'll adjust -- a degree of caution there, and we'll adjust to the environment that we see. An optimist will tell you that some lessons have been learned and we'll go towards a more healthy behavior in the market going forward, but that would be contrary to past experience. So we will see. See how it goes. David?

[Nicolaos Andreas Nicandrou:]

Sorry, I think you asked a question on cash.

[Cheick Tidjane Thiam:]

We have GBP 1.5 billion.

[Nicolaos Andreas Nicandrou:]

So we have GBP 1.5 billion. But, I mean, look, that is a little -- it's optically flat -- optically flattened by the fact Jackson paid us all the dividend in the first half. So -- but to your -- the substantive part of your question, yes, no, I'd like to keep cash above GBP 1 billion at the center. And we tend to be pessimists, I guess. I want to have the cash. If I need to hedge in the event of a market shock, we saw the value of that back in '08. Lastly, we also took some action in the lead up to the Greek election, believe it or not. It sounds -- feels like an age away, but yes, we have -- we want to have the money to protect our downside if we need to. And yes, there needs to be something there if there is a distribution opportunity, not to have to worry about where the money is going to come from.

[Cheick Tidjane Thiam:]

It's always emergence you're looking for. When you see the GBP 1.5 billion we should get at the beginning of a period in '10, that was absolutely built up on purpose because throughout a crisis, we believe that optionality would come from having cash available. And if we can do UOB in January 2010, which roughly, I think, firstly, we've got a fantastic price, we know others were soaking around their targets. It's because we have the cash. So the value of cash varies across the economic cycle, but we always like to have a lot of cash available. Shall we take 1 or 2 final questions? Yes?

[Unknown Executive:]

Andy?

[Cheick Tidjane Thiam:]

Yes.

[Andrew Hughes:]

Andy Hughes, Exane BNP Paribas. A couple of question on I guess, the U.S. first and Asia, if I can. On the U.S. very quickly, I'm not sure -- on G-SIFI, I'm not sure what the message is because my understanding is that variable annuities would have to be nonstandard under G-SIFI, and I'm just wondering how we should view that in the context of the group. And the second thing on the U.S. is, the lapse rates I saw from that and some of your peers in their presentations they have given out at their Investor Day have been a lot lower than yours. I'm just wondering if you can think of a reason why your lapse rates were substantially lower than the expectations of everyone else's. And on Asia, a couple of high-level questions, if I could. And the first one is coming back to your slide on when you should buy Prudential because of the need to fund health care out of in-the-pocket expenses. I was wondering why you think that's a market for you and not a market for employers because in most of the regions, it's the employer that provides a private medical insurance. And in which case, do you need an agency that work on bancassurance to do that? And a final one in Asia is, how much of the protection sales are linked to the housing market? And so if there's a housing market slowdown in Asia, what impact would that have? Because obviously, I see bancassurance has been growing quite strongly for the past year.

[Cheick Tidjane Thiam:]

Yes. Okay, look, we can take, I think, G-SIFI. I'm not sure. You're asking how VAs are classified. I mean, [indiscernible], but it's really we don't know. We're waiting to hear from regulators on the SII. And in the U.S., we haven't really...

[Nicolaos Andreas Nicandrou:]

I mean, clearly, yes, when you look at the criteria that they've used in designating variable annuities, sizes of the derivative program were factors, but so were the size of unit-linked funds annuitized with profits. Because it was deemed that those aren't in an extreme scenario, if there is a mass lapse, could create liquidity problems.

[Cheick Tidjane Thiam:]

And that's the debate we're having, that we're telling them that there's never been -- the objective [ph] of a retail investor is not to sell at the trough, okay? So a dumb question is what happens -- if you already own GBP 30 billion of unit-linked liabilities, what happens if people want to cash, I mean, at the bottom of the market? To which -- not just us but that's -- many of us are saying that it has never ever happened in history. When they do, your lapse rate is actually -- when you come out of a crisis, investment [ph] is at a million times. People invest 100. When they come back to 95 they think about selling. But when they are 20, they don't sell. I mean, that's economic history. But how do you prove it? So if there were -- so we're having those types of debates. And that's why we're saying there's still a lot of work to do. I know that it's very early stages. We haven't even been told formally yet what is the logic behind those decisions. So that's why we're just cautious in anything. So we'll see. We'll engage with them, we'll understand better. I met several of my U.S. peers, the CEOs. Everybody's in the same position and [indiscernible]. Lapse rates, I'll let you answer it.

[Nicolaos Andreas Nicandrou:]

I don't understand your -- are you saying their lapse rates are lower than ours? By -- which they? Which side?

[Andrew Hughes:]

Yes, it's -- no, no, they're not -- it's substantially lower than yours. I think now, we're showing a 3% lapse rate in [indiscernible].

[Nicolaos Andreas Nicandrou:]

Well, that may have something to do with the in the moneyness of their book.

[Cheick Tidjane Thiam:]

Exactly, exactly. But I think Mike was going to give you -- and so Mike is the best...

[Nicolaos Andreas Nicandrou:]

Yes.

[Michael George Alexander McLintock:]

That's the best answer I've gotten to give the whole day [ph].

[Cheick Tidjane Thiam:]

Yes. Yes.

[Michael Andrew Wells:]

I like our book better than their book. And it's -- on product design, on vintage -- throughout New York, the various vintages, the years of the S&P point in which they were sold, they have a book that's got more exposure and more consumer benefit relative to what they were charging and relative to the payout. Remember, MET is effectively a GMIB-based book, so it's a annuitization option. It proves it's more of a range product or a portfolio control product. So they're different products than our, different timing of sales, and they're getting different behavior than we are.

[Cheick Tidjane Thiam:]

The other thing then in Asia, it goes to the structure of the economies and sociological structures, and culture. If you take Europe, you will see, by the provision of health insurance, there is a lot from market governing [ph] the role of the employer. You will see that a lot of the economies we're talking about have a lot of very small businesses again that are not likely to provide insurance to their employees, and now the employees are very happy to buy that on a private basis and prefer to wait on a private basis, but...

[Barry Lee Stowe:]

That's really -- what you're describing is more of a Western phenomenon, most notable in the United States, where it is -- seems to not be going as well as some people would like. The -- it creates portability issues, which, having individual cover, mitigates. So there's lots of reasons why it has worked the way it's worked in Asia. You've seen -- as Tidjane said, you've seen virtually no inclination on the part of employers in Asia, generally speaking, particularly in the sweet spot markets to do full-blown cover. And typically, where you do see group coverage written in our part of the world, it tends to be, if anything, life insurance only, term life, just basic -- some amounts of group life. And historically, where medical benefits were provided, they were often provided only to expatriates, who were coming from some place where they didn't [ph] need an employer-based health care plan. So, I mean, that's what drives that. Your question about the -- yes, the real estate and...

[Cheick Tidjane Thiam:]

Yes [indiscernible]...

[Barry Lee Stowe:]

You're talking about mortgage reducing term?

[Cheick Tidjane Thiam:]

Do we sell credit -- if you wish for the insurance on the credits, for the loans, the [indiscernible] loans.

[Barry Lee Stowe:]

On housing, it's virtually nil. There's very little. There's a little bit of credit protection-type product that gets sold on, like for instance, the Thanachart with -- where they're -- because Thanachart is the #1 financier of automobiles in the market. So there's a bit of that. But in terms of -- if you look at it in terms of our overall protection business, then it's miniscule.

[Cheick Tidjane Thiam:]

Well, the simple truth, to be transparent, is we've always told you about protection was an upside in the banking channel. We don't do a lot of protection in the banking channel at all. So we want to grow it. So it's not a problem we have today, we don't do it. Yes. So thank you. Thank you very much for your attention. I think we -- oh, we said was first half has been a good first half, that we're on track to achieve our targets. And we'll update you soon. I think we have an Investor Day exactly on December 3. I heard an interesting comment this week, which I had never thought about. Someone told me, "But surely, you're going to announce your targets." And I said "Why?" And so he said, "Because by the time you announce your targets, it was in December," he said. "And the other time, it was in November." So I invite you not to draw too many correlations there. The date is December 3. We're looking forward to seeing you and updating you on the whole group then. And have a good holiday, for those of you who are going on holiday. That's what we're going to do. So thank you. Have a good day.