Good morning, and welcome to Prudential PLC 2014 Q1 IMS Analyst and Investor Conference Call. Throughout the call all participants will be in a listen only mode. And afterwards there will be a question and answer session. Just to remind you that this conference call is being recorded. Today, I'm please to present the Group Chief Executive, Tidjane Thiam.

Good morning everyone. I am joined today by Barry Stowe, Mike Wells, Jackie Hunt, and Nic Nicandrou our CFO. Prudential has delivered a strong and broad-based performance in the first quarter of this year. The Group's new business profits have grown by 29% in the first quarter, outpacing APE growth of 13%. The flows that we collect in Asia and in the U.S. are received in local currency. Recent months have seen significant fluctuations in the value of a number of currencies in our key markets. So we believe that the best way to look at the underlying performance of our business is on the local currency basis expressed through constant exchange rates. I will, therefore, use that basis throughout for my comments. On constant exchange rates, the Group's new business profits have grown by 44% while APE grew by 24%. Let me take you through the highlights for each of our main business units. In Asia, new business profit in the first three months of the year grew by 20% to 243 million while APE grew by 17% exceeding over a 0.5 billion level for the first time for the first quarter over GBP 507 million. This year delivered a strong performance, with many of our local business units, Hong Kong, Singapore, Malaysia, Takaful, Vietnam, Thailand, China and Taiwan; achieving double-digit growth or more. There is a big difference of GDP growth of Thailand. In the U.S., we continue to focus on value over volume, value measured by NBP, grew by 67%; and volume measured by APE, grew by 2010% over the first quarter of 2013. The continued strong demand for our innovative annuities (ph) product, the beneficial impact of many pricing and product changes over the years and of higher interest rates however enabled us to write first…

Thank you (Operator Instructions). And our first question comes from the line of Farooq Hanif of Citigroup. Please go ahead, your line is now open.

Hi there guys. Thanks very much for taking my questions. I just have two questions actually, firstly given the budget changes, have you developed now further your thinking about some kind of elite access of VA proposition in the UK, that’s question one. Question two is you mentioned the kind of agent’s productivity, agent growth in case size as being key drivers of that 20% growth or double-digit growth. Could you somehow quantify what each of the contribution of both other forces were. Thank you.

Okay, so thank you for two important points. On the UK budget changes, I think there is a consensus of what's needed is some kind of product that allows people to drawdown. And in other countries, it's called the GMWB, keeping the minimum withdrawal basis, and to keep so much product to the market over the long-term and to be able to pass on their savings to their hires. That’s kind of profile what we need, where people call that VA or something else, I think that’s a market need. Jackie has been working on all that as well. I will let her elaborate on that.

You’re actually right. I mean, if you look at what's on the product development runway at the moment, it is in the first instance ensuring that we have flexible draw down, but as you know we have the cap drawdown, so that’s currently available. But we will expand that in the flexible drawdown. We do think that’s going to be important as customers come to April next year. In terms of the more medium term, there is an opportunity I think you look at the variable annuity products that we write in, Jackson. We obviously have strong skills and competence there. Tidjane is absolutely right that the components that we will be looking for is both an opportunity for people to underwrite, in part, some of their longevity risks, but also to put space in the upsize as investor markets is. Now existing ICA annuity does that. It’s less competitive against the flexible drawdown, given some of the GAD (ph) changes. But we will look at all of those as potential options around replacing the annuity of the individual annuity markets.

For your third question, I'll turn to Barry on agent productivity. Actually, I doubt if he'll quantify it for you. But he can give you a sense of what’s going on there in terms of productivity growth. Barry?

Well, your instincts are correct, and that we don’t publish the very specific statistics on agency productivity by market. I mean, we do talk a fair amount of our scale, but let me give you some color, and I’ll try to answer your questions at the best I can. In Hong Kong, as an example, which is the market in normally you don’t see large increases in scale of an agency force. We have taken the agency for from 5000 to over 7000 agency in the course of a couple of years. And we have been doing that, during a period when we’ve also seen increasing active rates, increasing productivity on a unit basis for agent larger case sizes. Some of that is attributable to the mainland business, but some of that is attributable to what you’d call indigenous business as well. In the Philippines where we have historically been between 1500 and 2000 agents over the last couple of years, we’re moved through 7000 agents as well. And in spite of the fact that we are going to scale very rapidly, and during a period like that you would normally not see productivity increases, I have continued to see productivity improvement there as well. Indonesia, of course, you’re probably familiar with; we continue to grow the scale there, notwithstanding the complexity that Tidjane described around the natural disasters of biblical proportions in the first quarter, we did continue with recruitment apace. So we continued to add the number of agents monthly that we have budgeted to add. Singapore, we saw actually a little bit of increase in scale there, but more importantly again, productivity improvement. You look at all of these, you’ll get a 17% growth rate across the region, and you can attribute not half of the growth rate, but a material proportion of the growth rate, actually to productivity improvement, as opposed to just absolute increases in sales.

If I may just add a few points to that, what make it very complex and why we are reluctant to give it, as such at the regional level, it stops being meaningful. Because you're mixing some really small sales force highly productive in Singapore, as Barry has described, with very nascent markets where you have a high turnover and low individual productivity. When you aggregate, but at the Asia level it’s just numbers and it doesn't really mean anything. And the other complexity, as Barry described, that you have a virtuous circle here. The more people you recruit, so everything contributes, the more people you recruit, the more, before you’ll be able to recruit in the future. You know what I mean? Because the faster you get experienced agents, and the more experienced agents you have, the more people you can recruit and supervise and train. The model that Barry and his team run is a mix of all that. Because if you recruit more they become senior faster, you can then recruit even more, then your opportunity per person goes up even more. So when you were trying to unpick all that, it's a bit artificial. The reality is, it's what Barry said, you need quality recruitment and you’d need to recruit a lot of people, and you need to train them well. And after that rest will follow. They'll sell more and more cases, they’ll sell higher and higher case sizes. And you'll have more and more higher annual proportion of active agents trying to micromanage that numbers and it won’t help you.

Our next question comes from the line of Blair Stewart of Bank of America; please go ahead, your line is now open.

I've got three questions; the first one for Mike. We've seen from some of the US companies some adverse mortality trends. I just wondered if Jackson's seen that as well and if so, what impact, if any, has it had on your business. I know your business mix at Jackson is different from some of the U.S. companies have had these mortality adverse experiences. But I'd be interested to see if you've seen that as well. And secondly, coming back to the UK, the UK market does seem to be moving to more of an asset management type model if the annuity market is going to be affected. I just wonder, without your own platform, how do you steer the customer assets onto M&G funds? And you seem to be suggesting that you're limiting yourself to a with profit strategy on third-party platforms; I'm just interested in further comment around that. And then thirdly just for Barry, what's driving the Mainland effect in Hong Kong? What proportion of your business is that now? And if possible, you talked about the March pickup in Indonesia; just wondered how April's gone in Indonesia. Thank you.

Okay, thank you Blair. Okay, fine and thanks for spreading your questions around. We will start with Mike.

Yes Blair, good morning. No, there is nothing particularly interesting in our mortality trends, I am not seeing, again I didn’t listen all investor calls or competitors but there is nothing that we are concerned about.

Okay. And then we will go to Barry and come back for platform question next. So, Barry you want to talk about the Mainland effect in Hong Kong and why it’s so strong?

Yes, sure. Trying to take your questions in reverse order, I mean you asked about April in Indonesia and I think you are probably not surprised at all, I can tell you the weather was bad than it was in the first quarter. But in terms of giving you any guidance on business obviously those numbers aren’t public, but things are going fine. In terms of the Mainland effect, a lot of it is increasingly wealthy middle-class or middle-class and obviously a fluent Mainland Chinese being come to Hong Kong to buy a variety of products and services like they have legitimate standing here, most of them have investments here, the wealthier ones sometimes on property as well, they come to do just sort of retail shopping but they are diversifying their financial holding by buying insurance products here with most of it comes through agency but we see some through bank as well in fact an increasing proportion to bank. They buy lots of power products because to the extent they want to invest in equity markets, they tend to do that domestically in the Mainland. They come here to diversify by something they perceive as being stable and sure, so a lot of it is power products. For percentage of it about a third of our agency business comes from Mainland customers. As you know Blair, we talked about this before, there’s particular procedures you have to follow to ensure that with compliance sales and we go above and beyond the regulator here often points to us is sort of a gold standard of compliance on those Mainland sales. I would expect the trend to continue even with, talk about macro disruptions in China and things slowing down and so forth, there doesn’t seem to be any end in sight to the slower Mainland business.

Okay. The next question was on the platforms and the UK, I mean M&G already does a lot of second platforms but I think Jackie was making a slightly different point with profit.

I think that’s absolutely right, Tidjane. So I think the point that’s being made is really that we have an incredibly well regarded proposition in terms of pre-fund. At the moment in terms of distribution, the only way you can read access pre-fund is frankly through the intermediary channel. We see intermediaries moving increasingly onto third-party platform to make their models more efficient and so the point is not restraining us just to that saying this is an opportunity frankly for us to actually make an existing well performing product that customers really like and intermediates like to recommend more widely available and should be seen as that not a segment of any other intent. It’s worth highlighting as well that M&G does all of the asset management or M&G is bringing now some allocations to the U.S. business well and for the life company. So, these are assets that are going into the asset management cost business. We do run some open architecture out of Dublin and it’s relatively small and our focus is really in the short term around this particular strength.

Because when we see the market, there is a demand for product all our research confirms that and the sales will probably confirm that. So, there is no reason why that shouldn’t be available on the platform.

Our next question comes from the line of Andrew Crean of Autonomous. Please go ahead. Your line is now open.

Hi, good morning everyone. I also have three questions. Firstly, going back onto the drawdown product, I just wanted to understand and most people are talking about a simple drawdown product, you are suggesting introducing a drawdown product with guarantees, I want to see whether that’s clear. Secondly, also in the UK, I wonder whether you could talk about your BPA pipeline because your sales compared with others, have been quite lumpy. And then third question, your UK VF, I think is about 5.1 billion. What proportion of that is for relevant pre-2000 business, I think Aviva quoted a number of 200 million which in force was exposed to this potential FCA review.

Okay. Thank you, Andrew. So we’ll let Jackie -- most of it is for you.

Sure, yes. Andrew, in terms of the drawdown products, at the moment we have a capped drawdown and, in the first instance, we will look to make available relatively simple drawdown products. I think in the fullness of time, by that I mean so two-three years out I can see more complex forms of that in the four months in terms of guaranteed drawdown income guarantee associated with those, maybe it tends of the Elite Access coming on to the market. But I think that is really medium term short-term for us as well it will be more to simple end of the product size. If you sit back and see what is these customers are looking for, I think they are looking for element of guarantee. And I think if you look at the kind of minimum end we see the success of the restricted funds being around the fact that they get smooth returns, you can absolutely see that that would develop in some form of guaranteed return over time, but that’s not to say we don’t need a simple flexible drawdown as well. BPA pipeline we continue to be very disciplined about how we allocate capital. We’re not moving at all to the return hurdles, and in terms of the pipeline itself it remains strong and so you look at what we transacted last quarter of last year first quarter of this year it should be seen in light of what we see as an attractive and strong pipeline as in our financial hurdle rates. So for us this is not a replacement of product of any form, we will participate in the market if it meets our financial criteria and our risk criteria, and we see the outlook is positive. It will be lumpy by its nature because we see this as a financial transaction in large part. If the deals are there that are inacceptable from our return perspectives then we’ll do it either want to be driven into writing volume for volume sake, I think that’s the wrong sort of line. So you should expect to see it hopefully constant over the course of the year but lumpy again…

Yeah. But there is no sense that you've reached your appetite for the year.

No

So, as long as it meet both our risk criteria in terms of the nature of originally cost of the market, we don’t participate in but if it meets that and it meets our financial returns, we’re not capped out in any way. And on the risk side, it’s still not clear to us frankly what’s the FCA legacy review, what the scope is going to be. We’ve had no further contact from the FCA on this particular point. So I think we try to stick and guess what’s the nature of that review might be. There was more clarity through the form of the business plans and obviously a lot more generic in its statements and the way it’s being positioned in terms of media speculation. So I think this is something we’re just going to have to see how it develops. We actually think we’re very well positioned. So if you look at the majority of our business it’s with profits and annuities. On the with profit side there are a lot of existing government structures as you’d be well aware but the committee is making sure that there isn’t cross subsidization that in terms of that. So I think we are…

Compared to legacy we will plug that to the legacy.

That’s right.

I suppose the question was more -- more proportion of the VIF is on pre-2000 business which doesn't require you to define anything I mean just a sense as to how much of your VIF actually comes in that area? I thought maybe 1 million or something?

I wouldn’t know, Andrew I mean we can have a look as come back to you, but I am not sure if that…

We can back to you offline, but anyway it’s a huge number we can give you a precise number.

That would be kind. Thank you.

And if I may just a comment on product and product mix, I mean it’s really important where we run the group and I have got all my CEOs with me so I can say this is under our control. It’s a very fair process. The hurdle for both is actually quite high. We put the hurdle almost at the level where we are in different, we’re happy to write any products if you wish. So Jackie has to make a very high hurdle and frankly if we meet that I feel we’ve got capital almost enough in infinite quantity, so we’re happy. So the business you see as right, we’re very happy with it, I mean it means meet our hurdles comfortably and fairly attractive as you saw in the end we distribute this quarter. But deals like that are really hard to predict they come and go and as Jackie said they will be lumpy, we’ve been very lucky in the first quarter, we had three, the pipeline is good but we cannot predict the outcome of those.

[Indiscernible]

Okay. Next question then.

Thank you. Our next question comes from the line of Oliver Steel of Deutsche Bank. Please go ahead your line is now open.

Good morning everyone. Thanks for taking the call. I've got three questions, first is back to Indonesia. I mean you said outside Jakarta you had seen growth by implication you saw a fall in Jakarta. You also talked about a 19% increase in agency sales in March but, presumably that includes a bit of a catch up. So I'm just wondering if you can give us a bit more of a guide as to what you think the sort of true effect of the natural disasters were to give us some sort of guidance as to what we should be sort of thinking about over the rest of the year? Secondly, a question for Michael, which is very rare, I know. But some M&G European retail inflows continue to come in and I just wanted to know where you were in your rollout of the European distribution? And what we should be looking for in terms of further rollout of that over the rest of the year or two years, looking forwards? And then finally, do you happen to have the tax rates you're using for the new business profits?

Okay, all right. Thank you Oliver. On Indonesia, Barry do you want to give more color?

Much of the disruption due to natural disasters such as flooding, and it was -- we continue to see growth outside of Jakarta, where about half of our business comes. But half of the new business you ever had comes from Jakarta and the flooding was quite severe, and to give you a sense of how complicated it was, we had every agents in the country does a Monday morning meeting where, essentially, every agent shows up and gets their marching orders for the week and we have weeks in Jakarta where we were getting 20% of normal turn out. This was quite a severe situation, agents just simply could not move. I mean that gives a sense of what was happening, but as I said, the weather is better, floods are over, and we did have good March. You’re probably right, that there were some pent-up demand that came through in March. But in terms of giving you a steer on the future, from the bearer side what I would tell you is that there is a little bit of macro headwind. It's not a surprise that the environment isn’t complicated for the last year with the volatility in the equity markets and so forth. We wouldn't pretend that that had no effect on the business. The presidential election coming up in July, and there is a little uncertainty around that. The precursor to that were last month’s parliamentary elections where the candidate that’s favored to win the presidential election, his party won by a slightly smaller margin. People anticipated that, you know it created little uncertainty as to what the outcome of the presidential election might be and how definitive that victory might be. So these are all factors that can have an impact on consumer sentiment. Having said all that, the great thing about our model, not just in Indonesia but really throughout Asia is when you have the scale and quality of distribution that we have in the market, you have significant ability to power through the turbulence if you will, that's created by some of this noise in the system. You see the same thing candidly in Thailand where this week we’ve seen an increase in the political drama there, with what happened to the prime minister and nine other ministers, being asked to step down. Again, we have elections there in July. And yes, the business continues to power on. While all these disruption, beat natural or be it political, is real and it can have an impact; we shouldn’t ignore that, when you have large-scale high-quality distribution it gives you an enormous advantage that some competitors just don’t have.

I think that's a really vital point. I cannot say I'm pleased about Indonesia, it floods, but in a way I am, because it illustrates a point we've made many-many times, we’re not just a play on Indonesia. Our strategy is much more than that, and you see us growing at 20% NBP with Indonesia floods. There was a perception developing that it was all about Indonesia, well, it’s not. We have enough headroom, we have enough levers, Barry and his team that we can absorb those issues. You've seen in India in 2013; you've seen Korea; you've seen Japan. You've seen country after country, you have seen Malaysia, years in country after country how the difficulty is and rest normal. But what you see is that the regional platform's performance remains good. Question on tax for Nic.

Yes, Oliver, the tax rates that we've applied are 21% in the UK, 35% in the U.S. which are standard. And beyond that Asia averages, it will change quarter-by-quarter, it averages around 22% to 23%. But we've been helpful this time, on page 19 of the announcement, we've broken out the tax rates for largest businesses, Hong Kong, Indonesia, Malaysia and Singapore; which is the vast majority of the NBP.

Okay, and you have a question for Michael. Unfortunately, he's not on the call, so I'm going to do Michael. M&G Europe, look Oliver, Europe has been very successful. I was in Paris two or three weeks ago. M&G France had an investor there and I was there representing in front of 600 people, who were family offices, people like that. M&G France has gone from 50 million of AUM to more than 5 billion. It’s a great success story and it illustrates what we are doing in Europe. It’s really penetrating the market, working with specific segments. We work with lot of private banks, lot of family offices and people like that and generating good fruits. You know asset management went better when I do. It’s not a business where you want to predict flows. Anything can happen going forward. So we’re very pleased with the success we had but I don’t think if Michael was on this call he would give you any sense of expected volumes.

Our next question comes from the line of Greig Paterson of KBW; please go ahead, your line is now open.

Final question, actually, on the Standard Chartered deal. I see that, from the IGD, one could sort of work out the upfront costs. I assume you're pre-funded for all three payments, I work it out to be about GBP800 million. What I was thinking about is Thanachart, I think your upfront cost was 400. Thanachart is 800 but Thanachart is a much bigger deal. I assume Thanachart got better terms under the new door. Does that mean that the margins you'll disclose in terms of EV margins on the new Thanachart deal, i.e., that there's been more variable cost, the costs have been shifted to the variable side will be lower than the old Thanachart deal or any of the other bancassurance deals? I'm interested in that. That's my first question. The second one is just on bulk annuities. I was just trying to understand the free surplus generation, IFRS generation, how that might change as your mix shifts from individual to bulk annuities. And then just as a third question, you've mentioned that your bulk annuities, you're writing them ahead of very attractive hurdle rates. I assume they're above your hurdle rates, because the EV margins have come down under the new deals. I was wondering if there's further margin pressure going to come as you move, say, nearer the hurdle rates, as competition increases. I don't know if you want, just your thoughts on that.

Okay, Greig. Thank you. Lot of questions there, we have not disclosed the amount and we said there was no obligation to disclose it, it should give comfort but it was affordable. The central point for us is that it’s affordable. We have increased the dividend by 15% and taken into account the totality of the upfront payment, which was spread over three years in the IGD and the IGD remains extremely strong that’s a point for us. The other question you have is something we have answered, the terms obviously have not changed. We made an upfront payment, all of the other commercial terms remain the same. I have seen in your papers, as you talk about higher commissions, it’s not the case. The terms of the deal are identical to the previous deal. Okay, I think that’s credential.

Well and on Thanachart of course we bought a back book, so it’s part of the consideration, so the Thanachart was the book that we were buying.

And that book is contributing to IFRS profits in Thailand from day one, so it’s not comparable.

So, just to confirm that I can just assume the same sort of EV margins?

We told you that the terms were same on the new SEB.

Thanks.

Bulks, FSG, free surplus generation, IFRS, Nic, do you want to take it?

I mean the only thing I would say to that is and you only have to go back to disclosures we provide at the year-end on the monetization of the VIF. We have the tables in the list and we also have a chart in the appendix and the slides and what you will see is that in excess of sort of mid-90, around 95% of all the free surplus gets generated in the UK is from the in-force book. And the new business by comparison adds a very small sliver, so the point really I would make there is that we make more money each year in terms of free surplus and potentially on IFRS as well just by focusing on the back book and managing it within assumptions that we do through all the hard work that the team does in terms of adding another small cohort of business. So, really and it’s sustainable again you look at, we analyze it out for the next 30 years, you will see that the back book can’t sustain the free surplus generation of this business at broadly current levels that you have seen us report over the last few years for a long, long time.

And on IFRS, what’s the sort of new business release on an IFRS basis all that change?

We said that the annuities, the individual annuities and of course this is on the conventional side that we wrote last year contributed just over 100 million of IFRS profit, so it’s a 100 out of the 700 odd that you have seen in the UK which is literally, as Tidjane said earlier, 3% of the VIF’s total.

And does bulks have the same sort of characteristics as individuals?

We have given the -- and by the way these are pretax numbers, the 100 million on IFRS, every time we do a bulk deal because we recognized that they are lumpy and we will only do them on good returns. We give you the contribution to IFRS and we give you the contribution to new business profit, so that it helps you with your modeling and so on and so forth and your understanding of the sources of earning. Generally the IFRS profile is not that similar. I was not sure what your question on margin is.

I am just saying I mean if I look at the bulk deals you did for previous two years they had a higher EV margin than this one, I am sorry I just assume both have written about the rate but former ones are written higher. I was wondering, as everyone jumps into the bulk market whether we are going to see margin compression as you move down let’s say to your hurdle rate as oppose to being above?

Greig, margin isn’t the way we think about when we write business whether it’s in bulks, individual, annuity, U.S. it’s return on capital. So, when we talk about hurdles that we have in place for return on capital, they are hurdles based on ICA return on capital and ICA will then bring in the specific risks that you are taking on a particular deal. The assets that you are backing the deal with or indeed the longevity that you are, the aspects of longevity that you are bringing in. So, each deal is different, each deal is different. It will be sometimes it’s backed by different types of assets and certainly the longevity that we are underwriting through some of these deals because they’re not buy outs a number of them are buy-ins in a way. So the characteristics -- the risk shown in characteristics are slightly different. So, all that is factored in the denominator which is based on pillar two and we look to beat the hurdles above our capital requirement, so margin is forced in the sense that it doesn’t really capture the riskiness of each deal that you are taking on board.

This is central to way we manage our group we completely ignore margins it’s just completely irrelevant in all our internal conversations, it doesn’t matter. Because between a deal whether the 17 year of paid back and a margin of X and a deal which is five year of pay back and a margin of Y that’s just gets completely lost. So we look at return on capital and payback actually that’s also a very important consideration. So the new those deals we’ve signed tend to have a short payback because I am going to quote Barry here and you have to eat what you bake the problem with very long paybacks is that the generation of management that enters in those deals is not there when they’re materialize we like to keep people accountable and that’s why we like short paybacks. So really was the on our internal base of return on capital and payback and we just the margins where it is which is immaterial.

Given that the VNB is the center of today's press release, I was just wondering if there's -- I'm just trying to figure out if there is a risk of margin compression, as more people go into bulks, or what you think about that?

It actually doesn’t matter, first of all again as it is our fixed sort of profit we’re not doing both to make up for the lot of annuity profit. We rate business when the cost of the return on capital is above the cost of capital and by that when there is bulk, having that total we write it when there is not we don’t you have seen us some quarters writing no books. So in the future there is absolutely to change in our starts we will write both when they are attractive, and generate value whether there is compression in the market or not, frankly to us it’s very irrelevant. And we look at the both individually where we can negotiate good terms we will and where we cannot we won’t raise them. And that is very important to our ability to negotiate good terms but we’re not on the hook on volumes because I don’t know how you negotiate with counterparties because I know that you have to do X in both in this quarter. We’re very happy to have zero and that’s the only way we have short value from those deals. Because you can always walk away, there is no pressure on the team to write and have paid the team a bonus some years when there were zero volumes, so as I said you have done a good job, your job is to write and create deal and walk away from value destroying deals and that means there were zero deals. We’re very happy to bear the cost of team and pay you bonus and when there are good deals write them. So we think that’s the healthy way to push the business.

Thank you. Our next question comes from the line of Marcus Barnard of Oriel Securities. Please go ahead your line is open.

Firstly, I know you’ve got about 3 billion of capital in your UK books most of which is backing on realty business. I mean presumably if your annuity sales start to decline in the way I think most people expect, presumably we should expect to see some of that capital being released over time and I realize this quite, just to quantify that. But I just wandered do you envisage or leave it that to me some sort of future draw down type guarantee type business or do you think it will be available to group? And I suppose the links question this is given the fantastic conditions you have seen to seeing in the moment in the U.S. with your merchants on capital and opportunities. Is there scope for the group to allocate more capital to the U.S. and take advantage of its group structure?

On the reserve I think currently it’s too early to tell but at this stage I would say it’s much above in force the reserve we have on the 27 billion, 1.9 billion. So I don’t see a drastic change there, given the new announcement et cetera. Maybe if you think we should at this stage delayed. And annuities were never very capital for new business. Some years this trend was even negative, so anyway…

I was thinking about the stock of capital rather than the commitment of new capital?

I think the forces being known.

I mean there is risk capital that we hold in relation and annuity business it will be a different amount depending on the basis that you look at, I think the reality is the average liability duration of this book is even in discounted terms near or above 20 years. So I think I mean in the short-term there is nothing that will be transformational in terms of capital generation from that.

On the U.S. a fair point, the way we really the way we do this is, there is a capital constraint is not linked to returns. It’s more there is no actual constraint, we’re trying to re-diversify by vintage as we’ve always explained. There are two caps, or if you wish, daily pressures on the volume of VAs going to write. One is really this will of being diversified by vintage, disclosure we showed you much volume with different types of efficiency, it’s a very nice balance across that and given just the balance sheet of the group, so it’s not that we don’t have enough capital to write VA. It’s that we have to be conscious of the total shape of the balance sheet of the group and where the risks lie. And that puts another cap on the volume of VAs we're going to write. So if I can give any indication, in my view is, you’re likely to have more volume in H1 than in H2. That may be a bit of a prediction but really, if you look at the current returns, how much we have already returned is very-very attractive. But Mike has already put a number of changes through end of April, which will have, over the quarters, moderating impact on sales. Maybe Mike, you can talk on that.

We did our commission reduction in April, a 50 basis points and we reduced or suspended some of the more popular death benefits that affects to about 30% of our sales ; it doesn't necessarily eliminate it obviously, but it certainly has some impact. But I think the other thing that’s -- there's quite a few things driving a successful first half, 2013; talking to advisors in the last couple of months, really demonstrated how the various product structures that Jackson and his competitors have worked. If you think if you were a consumer, you saw 32% to 30% equity market and basically flat return on bond funds and so the conversation with advisors in these meetings now is -- our product did what they expected to do with the equity funds, did what they’re supposed to do. The bond funds were sort of flat to slightly negative. And some of these vol controlled funds, some of these other forced allocations to bond things that competitors did over this last part of the cycle really dampened some of the return for the consumers and so what you’re getting is a sort of bifurcation and did you buy this for accumulation, like a defined contribution plan or did you buy this for a guarantee payout, like a defined benefit plan. And you’re seeing a real split there in the new product offerings. And from the historic performance, in the way the advisors view the back book. So it’s -- on the volume control, Tidjane, I guess the key thing is we always like to get the volume before we control it at these margins. So I think a strong first half, due to level of changes we did add some regulatory filings. We anticipated, I think the quarter sales, and I think Tidjane’s comments are accurate. These changes will have some impact, and as you have seen last two years, guys we have levers to pull to get the sales in at the level we would like as a group.

But again, we love that business; if we get good returns, short payback, capital efficient, highly cash generative, so we’re pleased that this is being validated now.

Our next question comes from the line of Alan Devlin of Barclays; please go ahead, your line is now open.

It’s just a quick follow-up from the comments Mike made in the last question. You've obviously took advantage of the good margins this quarter, you had a lot of volume in the US. Should we think that margins now maybe have peaked at these levels or, given the changes you've just talked about putting through on commission levels, etc., you could actually see margins improve in the second half, but the volume would be the thing which is dampened? And then second of all on the Elite Access sales, 30% of your total sales. Is that the more natural level now of the non-guaranteed sales we'd think of, or can that still increase? Thanks.

Okay. Mike, do you want to take this; can your margins go any higher?

Margins are good. These are massive changes in margin that we’re putting through but there are not hurting margins, let's put it that way. The EA market is expanding in terms of competitive products. You get this question a lot and I'm not trying to be evasive. What's the absolute level of scale, I had to laugh, an industry consultant got the category, the IOVA, the investment only variable annuities. Okay, I'm pretty sure everyone refers to them as EA clones if you talk to advisors or competitors. I think there’s two things going on in this space. The product did extremely well last year, again on performance. The ALTs did what they were supposed to do, low correlation equities, low correlation interest rates, good total returns. That’s very helpful with annuities product concept. As I’ve told you before, over a third, the producers, Jackson has in that product have never written a VA before, so you’re getting into new relationships inside the firms. I think the broker dealers genuinely appreciate that. Certainly, I wouldn't underestimate the dialog right now with U.S. consumers on their income tax rates, federal state, and in some case it’s city or local. So saving for retirement now on a tax efficient manner is good. The things that concern me, competitors are trying to push this in a very good; some competitors but not all of them, from a very good investment proposition. It’s a great savings vehicle for retirement towards, you know some form of guarantees, higher commissions, sort of again back to the traditional VA space. It’s too early to tell of those sorts of moves have any impact on the overall market. But I think if you look at the mutual fund business, the asset management business in the space retail, most of the fund company CEOs I talked to think of, are a material part of their business plan going forward. I would agree with that and the last ICI research put us, Blackrock and Fidelity as the three top ALT brands in the asset management space. But we think we’ve got a good spot in that and we intend to defend it.

Your next question comes from the line of Andy Hughes of Exane BNP Paribas; please go ahead, your line is now open.

Hi, guys couple of questions, if I could do and first one on VAs as we're talking about that at the moment. Are people still allocating money to the segregated accounts on the VA and, if so, why, given the credits and rate is basically the same as the charges that you put through? And the second question is on Hong Kong; obviously, if I look at the Asian sales ex-Hong Kong, and actually Thailand, it wouldn't look that great, but obviously the 35% jump in constant currency sales year-on-year in Hong Kong. Now when I look at Hong Kong, it looks like you are selling main with profit and protection business and hardly and unit linked. So, coming back to the domestication and the capital budget you have in Hong Kong, perhaps you could comment on whether you have capacity to continue to grow at this rate within Hong Kong on the power side and may be you could update on the mix across Asia with unit linked protection and with profit which easily update on, I couldn’t find it in the press release.

Okay, no problem. Thank you, Andy. Mike, VA?

Yes, Andy, you are not seeing a materially different allocation in the first quarter than we have showed you at year-end. You are seeing about 70% of funds or less than that going to equities, the balance going to total return bond funds or little bit to the fixed account. I am not sure your point on the fees, I mean we had, our average client’s total performance on that portfolio last year was well north of 20%, so I think relative to the fees that were paid based on a lot of value. And I think relative to our competitors it was materially better performance on the total, allocated fund they have with us, regardless of the risk level they took. So, I am extremely pleased with the quality of products to the fees charge, so I hope that answers your question.

I guess I was trying to make the point that they should be allocating more to equities if they buy the product.

Andy, I totally agree. As you know we have got that product price that 82% allocation, I wish they would have done more as retiree. We have the benefit corporately, we don’t have the, as you know not much, 99% of the book as that equity levels of the guarantees aren’t in the money but from a retiree point of view they need the performance and the performance was there for them to say, the more they would have allocated equities, the more they would have enjoyed last year and we certainly would have like to see that benefit to everybody, yourself included on the share.

Okay. On Hong Kong, I mean just a quick comment I mean you said without Hong Kong and Thailand, numbers wouldn’t be great, if you exclude at any point in time the fastest growing part of the portfolio, I will agree with you that numbers wouldn’t be great. But that has been different countries at different point in time, so I really don’t think it’s fair to say that. But that said you saw in the domestication that we allocated to new business. If you remember at that time, interest rates were 0.6% in Hong Kong, so you can imagine but today that volume of capital allows us to write much more business that’s the first comment. Second one is that actually the mix changes and of course you look at the past returns and you don’t have the current mix. Barry can give you more color on that and we have been making a big push on protection also Hong Kong which may not be visible to you. Barry do you want to take that?

Sure, that’s right. Your last comment, I mean we have been making a protection in Hong Kong and it’s been very successful. The percentage of sales in Hong Kong derived from link has gone down and there’s a couple of factors that I mentioned earlier, Andy, that the Mainland Chinese customers also overwhelmingly prefer power and why they do that is diversification and stability play versus investments they have in the Mainland. So that drives part of it and it’s not too soft. If you look the whole market link is now. The other thing that drove that is the requirement that came in last year to disclose commissions on link sales through the bank channel. And In fact there is no reason why that should actually suppress link sales as we have been disclosing commission in other markets like Singapore on link sales for a decade and we continue to sale off that link. But the reaction of some of the multi-national banks who had compliance drama in the last 12 to 18 months and so forth, when they see a regulation like that come in, the instant response is oh well, if there is a new regulatory requirement around that product, let’s stop selling and let’s have products there. So, you seen a shift in the bank channel to power as well but I would expect that in Hong Kong specifically to wide itself and then if you look across the region, we continue to sale a lot of link in other markets. Indonesia continues to be virtually 100 linked. In Singapore, we continue to be the leading lighter of link and we gain share specifically with respect to the link. So, I am still very confident in the future of link as a product, it’s just we are getting a little short term movement in the mix.

And that will probably have a knock-on effect on IFRS profits?

Not necessarily I mean the up surge in protection that you have seen in Hong Kong has a positive impact, so no it doesn’t necessarily mean that you have a knock-on effect in profits, no.

Okay.

I wondered whether you’ve got any thoughts about where we’re going to end up with the advertisement guidance process UK, this was first question. And the second just on Standard Chartered, I wondered since you’ve signed the deal, the extent to which you’ve got new initiatives in markets that maybe previously on the penetrative Standard Chartered and how you planning of rolling out this initiative at the coming months when we might start in sales? Thanks you.

Thank you, Jon. Let me check [indiscernible] on guidance and where we are headed.

Hi, Jon. In terms of the process of itself and I think it’s becoming increasingly clear the difference between guidance that was sort of presented at the budget time, versus advice. It’s clearly not going to be full-scale advice that’s being discussed. I think it’s above the option of conversation it’s not even face to face anymore. I don’t know actually with many of the UK life CFOs on the FCA last night where we’ve talked a lot about, how do we drive forward, how do we get to position with people reach the right thought of guidance and what is the fundamental guidance for just process is going to give. And individually I’ve constructed advice process. I think it’s to say it can range anywhere from basic financial education. I think actually a lot of financial education tools are out -- these are the factors that you need to consider your tax position your need for income you need for capital growth. All those sorts of things through to something that’s little bit sort of that financial education plus, but I think it remains actually for the industry alongside the regulators to help to find the way forward is my sense where the conversations at. Tidjane, I don’t if you have anything more from ABI?

No, I agree completely. We already consider that people can get to a right decision provided they’re given advice and the people talk about VAs. VA is a very advice in Tennessee, it’s not secrete in the market people pay something like 7% commission because it’s a hard sale, it’s a complex sale, complex when you have to explain what think to people. So the conundrum here is really how do you want make it happen and how do fund it. A kind of RDR context so I don’t think anybody has answered that yet. It’s certainly a vital question. At the end of the day, we want people to make the right decision and we know the people here who are making one of the most important financial decisions in the life, so it’s difficult but this is a good dialogue going on that so I hope that we get to a sensible answer.

No initiative is discussing but we Barry recently. On SCB, do you want to give an update on what are sort of new things you can do there?

Absolutely, I actually met with senior people the CEO, the city crew together in Hong Kong and we’ve talked about some of this. There are new initiates underway to launch new products -- to complete your questions were from Andy, we’re launching new lift products in Hong Kong. We got initiatives going on in Singapore around new products as well. You recall that the relationship is also in the vision to extending some of the longstanding successful relationships like Hong Kong and Singapore we’re extending into places where we historically didn’t have an exclusive relationship like Indonesia. So we’re weeks or months away from the launch of some new activities in places like Indonesia in India where we historically not have relationship at all and the teams are working aggressively to get that up and running in the next couple of months. So there is actually quite a lot of going on and I think you’ve seen measurable impact during the course of 2014.

Thank you.

Okay, shall we take one more question?

We have no further questions at this time. So I can return the call to you Mr. Thiam.

Right. Fantastic. Thank you, Jerry. So thank you all for your patience, your attendance your questions with good discussion, we believe our strategy is clear. It's unchanged and it’s working well as we set more of the same. In Asia, our leading product and distribution platform, this has well positioned to capitalize on the long-term structural trend. We should drive profitable growth in the region for many years go to come. The diversity, scale and resilient of our platform is core for ability to deliver consistent and reliable financial performance. In the U.S. and in the U.K., we are focusing on generating cash and earnings for shareholders and our assets management businesses are focused on delivering good performance and good returns for our customers. So relating good progress towards 2017 objectives and we’ll continue to update you on the same during our half-year results presentation in the summer hopefully. The diversity of the group is source of strength and enables us to deliver a resilient and sustainable performance creating long-term shareholder value for development of the first quarter are good evident of that strength. Our businesses are in good shape. We have a strong balance sheet and we’re indicating with disciplined focus on the three clear opportunities we have in Asia, in the U.S. and in the UK across three regions. So thank you for your attention again and have a good day.

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