Good morning, everybody. Thank you for coming out on this warm and sunny London summer day. For those of you, first off, thank you for joining us, on a more serious note. And those of you via telecast and also I know on the phone, thank you for joining us. I’m Mike Wells, Group Chief Executive of Prudential. Our structure today is going to be a little different format than we’ve used previously. So I’m going to do a quick overview of the strategy and the demerger update, then we’re going to ask Nic to do an update on Asia and the success we’ve had in the first half of the year in quality, quantity, all the various metrics. Michael Falcon will come up to walk you through, well, Jackson’s success and also his view on some of the strategic challenges and where he wants to go with that business opportunities it has. Mark will walk you through some of the financial highlights, and then I’ll come back and make some closing remarks, and we should do this in less than an hour and leave you plenty of time for any questions you have. But we think it’s important to shift to have the business heads discussing the business performance with you more directly, and so we’ll get your feedback on the format after we’re done. So I guess key message is we’re moving forward with the demerger this year, fourth quarter. That tells you what’s done and the amount of work that went into unwinding 170-plus years of relationships inside the company, in structure and things and the, I couldn’t be prouder of the work that was done. But also the, we told you originally we’re doing this from a position of strength, and that was one of the…

Okay. Thank you, Mike, for the opportunity to present on the business. Good morning, everyone. It feels a little like old times presenting to you during interim results. Now in my presentation, I will provide an update on the progress that we’re making in delivering our strategic priorities and cover how these are driving our current financial performance while building a platform for sustainable, high-quality growth. Prudential Corporation remains focused on the 4 clear strategic priority shown here, which we first outlined in 2017. Through these, we’re looking to extend our reach and build on our established business strengths through a broader range of products, wider market access and seamless customer experience. Let me step through a few operational highlights. Starting with enhancing the core in the top part of this slide. Our new product initiatives such as the launch of Group Insurance and the high net worth propositions in Singapore, our entry into retail pensions in Hong Kong and our enhanced non-linked offering in Indonesia have contributed around half of the NBP increase in the first half of this year. On distribution, over renewal of UOB for another 15 years across 5 markets in our region has re-energized this partnership, delivering our best-ever performance for a 6-month period with sales up 27%. Our joint teams are hard at work to make our offering accessible to a wider UOB customer set both in branch and digitally. Meanwhile, our increased emphasis on high-end agency has seen our MDRT qualifiers across the region rise by 11% to over 8,000 for the first time. Moving next to health. Mike and I were in Kuala Lumpur last year week for the official launch of our AI-powered digital health platform branded Pulse by Prudential. This offers Babylon’s Health services alongside telemedicine, wellness and other bespoke…

Morning. Thank you, Nic. I’m pleased to be here with all of you today. My name is Michael Falcon, and I joined Prudential and Jackson at the start of the year. I’ve had almost 8 months in the business, meeting associates across our company, regulators, distributors and customers. When I accepted the role, one of the things, the key things that Mike and the Executive Committee were looking for was a fresh and in-depth review of Jackson’s business and strategy. There remains, I think, a broad consensus that Jackson, as strong and dominant as we’ve been in the market, can be more than it is today and that we still somehow punch below our weight. Our challenge, my challenge is to find the opportunities to unleash value and capability that realize a more robust and fully valued Jackson. Our review while ongoing is fulsome, it’s without limitation in scope and without preconceived outcome or conclusion. And as my leadership team and I move past initial assessment stages, I want to share some relevant observations as well as covering the first half 2019 results. I’ll include thoughts on indicated actions throughout and conclude with a road map on how we expect to go forward. So let’s start. Strategically, I would summarize my assessment in 3 simple points. First, Jackson is an outstanding business with even greater demonstrated capabilities than are usually noted. Second, the U.S. Retirement market, where we remain committed and focused, is large, growing and offers tremendous opportunities for us. And third, Jackson, I believe, can deliver a step-change in value by more actively diversifying our business mix. I think this reduces requisite hedge cost, and thereby, increases free cash surplus generation, this to support both growth and increased remittances. Jackson is a great business with a long and…

Thank you, Michael, and good afternoon to you all. I’d like to cover 3 main topics today. Firstly, as you have just heard from the CEOs on the performance of their businesses, I’ll start by taking you through how the financial performance of PCA and Jackson rose up into the group results. Secondly, I’ll cover capital, and will introduce the new group regulatory capital framework that will apply after the demerger. And finally, I will update you on the final stages of the demerger process. Our strong performance in the first half was achieved after a mixed market backdrop. While we generally benefited from the increase in equity markets, we saw the S&P 500 up 17% in the first half of 2019. Rates saw a sharp pullback particularly in the U.S., where the 10-year government bond yields fell nearly 70 basis points. Over time, we have taken actions to position the business to succeed across the economic cycle. In Asia, regular premium contracts continued to account for 93% of AP sales, and their earnings profile is far less correlated to investment markets. In addition, the proportion of new sales represented by health and protection products remain significant. However, lower rates are a headwind, most notably in the U.S., in respect of spread margins. From a financial as well as a strategic perspective, our businesses are strong and are very well-placed for the demerger. I would draw your attention to the following: Asia new business profits of GBP 1.3 billion is up 10% from a high base and driven by higher sales in almost every market. In the U.S., new business profit was 30% below the prior year at just under GBP 350 million. About half the reduction in new business profits is a result of the negative impact of economic…

Thank you, Mark. So to wrap up here. We think the businesses are positioned extremely well to grow across the cycle. What’s I think changed in the intermediate term is their ability to execute on more than one axis. You’re seeing expansion in distribution, expansion in geographic footprint, you’re seeing expansion of product segments we’re in, and success in each market at executing at those again. So how we grow now has more dimensions than it did just a few years ago. And I think that’s a key reason we believe, looking forward, that we are uniquely positioned. With John’s team, with M&G Prudential, the ability -- if you look at those first half results that with profit product to act in completely different manner than the asset management business in the U.K. and Europe, to bring a -- you’re bringing -- have a series of growth engines embedded in that business that appeal to consumers across different cycles. And again, that’s going to be the key for both these companies going forward is to not try and play cycles, to benefit from them when they’re appropriate, but they have a product line and products that consumers want and need across cycle. And again, I think both businesses are set up to capture that moving forward. I hope you see we’re doing this from a position of strength. The breadth and quality of the earnings in the first half of the year, the sales growth, the expansion and capabilities, the new relationships and distribution, the -- invigorating some of the existing relationships on distribution, the change in political headwinds in the U.S. on policy and advice and commission. All these things, again, we like the direction of all of them, and we think it puts us in a position to…

Thank you, Mike. Good morning. We’re going to do some questions here in the room, and then we have some calls coming in on the phones, and then we’ll come back to the room. Who wants to go first? John?

Yes. Jon Hocking from Morgan Stanley. I’ve got 3 questions, please. Firstly, starting with Jackson. Can you talk a little bit about what firepower you see for inorganic opportunities? And it sounds from the way you’re talking, Michael that you’ve ruled out getting any capital from the group. So can you talk a little bit more about the full suite of options? And is there any circumstances where you’d consider selling an equity stake in Jackson at the subsidiary level? That’s the first question. And then secondly, also Jackson, am I right to think that you said the risk appetite for Jackson wouldn’t change? I think one of the problems that we’ve all got with valuing the business is trying to find a steady-state number. So at the moment, you’ve got this hedging program, which protects economic balance sheet. But it’s hard to see the benefit of that in any of the reported numbers. So is the risk appetite the same? Or is there a balancing point where you could hedge less and produce more earnings, your prediversification? And then just finally. Nic, on the Chinese operations. You mentioned the foreign ownership changes are tailwind, I think you said. What is the current state of thinking in terms of the stake of CITIC? And absent changing the equity ownership, what is the benefit for Pru from the change in regs?

Great. So I can start. First, from the acquisition standpoint. I don’t think we rule out or in anything. There are a number of properties that trade in the U.S. marketplace and around the life space that we’re comfortable with. We’ve participated that more actively at certain times than others, and as you’ve seen with the Hancock acquisition late last year. And I see a number of properties that are either in market now or that we would expect to be able to come to market to be available. So I don’t want to sort of tip my hand or front run of anything in the marketplace, but we’re interested in a lot of things. And obviously, we’re aware it’s pretty transparent marketplace. In terms of the expectation from group. I mean obviously, our wording is very intense. I don’t feel that the investor base or from a group perspective we’re looking at increasing group capital against the existing profile of Jackson, that’s why I emphasize, I think, from our current book of business, we’re well capitalized to manage that. I think there is an opportunity, it relates to your second point around, I guess, the question around risk appetite, but I think there is an opportunity for us to improve the, call it, the remittance profile and the growth of remittances by diversifying the base. And the thesis to that is by diversifying the risk, if you will, the calls on capital deployed, albeit more capital deployed, we can lower that external hedge cost and free up cash for return. And so I don’t see that it would preclude capital coming from group, though more importantly, I think we have access to third-party financing that could help us do things faster to create that change and free up capital,…

Nic. Nic had a question.

Okay. So on the strategic point. Look, I mean we’ve said this before, before we have 2 hurdles to overcome. One was the regulation precluded ownership of a controlling stake. And so that was hurdle number 1. The second hurdle was the appetite of our partner to sell a proportion of that business to us. The first hurdle has been removed. And if anything, the timing which full ownership will now be allowed has in fact been brought forward by the Chinese government. But there is no change in the position, in the relationship we have with CITIC at this moment. It simply introduces kind of the option to do so at some point in the future. The other development, of course, on the asset management side, again announcements earlier in July where they said that wholly foreign-owned entities no longer have to have a 3-year track record as a private fund management company before they can operate into the retail space. So again, we have the optionality of using that new vehicle to access a better, a bigger part of the asset management space. So whilst no change in the 50-50 and the relationship with CITIC, the option is there on our relationship. And as we’ve said before, really the value and what we’re focusing on is on the operational leverage of this business. We have now 63.63% of the market, if we can increase that by 10 basis points a year, and you can, you overlay that, the projected growth in gross written premiums in that market of 12-plus percent, then this business 5 years from now will produce 3.5x the NBP. And the first 6 months of this year, we increased our market share by 16 basis points. So that’s what we’re focused on. And on the ownership, it’s just, it’s future optionality.

Blair. Blair Stewart.

It’s Blair Stewart from BAML. Two questions, please. First one for Michael. Just maybe a little bit more color on what you mean by use of reinsurance third-party capital? Maybe give us a theoretical example of how that might work. One of the issues, and John alluded to this, is the, I guess, the tail risk on the existing VA book, and would reinsurance be a solution to that potentially? Or are you just looking to diversify the risk, and therefore, lower the hedging cost? So do you see reinsurance as a way to facilitate a bolt-on deal? Or is it a way to perhaps swap some of the earning stream from the existing book into a new earnings stream from a bolt-on? Hopefully, that makes sense. And secondly, just on the Asian solvency. How should we contextualize the 260 market? Is there any way to do that? And what’s the outlook for the risk-based model that the Hong Kong authorities are looking at? Presumably then on a risk-based approach if you get some credit for your in-force book or such like move. Just a bit more color on the outlook for that.

Okay. So again, I’ll go first. So I see reinsurance in third-party financing as a way to execute bolt-on transaction where the size or relative size of what we might want to do to step change the balance in book would outpace short-term free capital generation in a period. So you saw with the Hancock, which I think the Hancock acquisition represented roughly about 10% increase in general account balance. We were able to handle that with basically within the organic capital generation of the business last year. So things of similar size can maybe be handled based on market environment and current year flow, but others might require a third-party financing, and reinsurance would be a way to bring some of that risk in either over time or to make something smaller that would otherwise be larger by transferring risk. I don’t see right now reinsurance as a strategic path on laying off risk in the current VA book. I think the -- we understand and manage that VA risk, I think, quite well, and any of the other buyers in the market are going to be looking -- there’s an economic return profile, and there’s a scale and a cost advantage in terms of hedging and managing that risk. And anybody that we would transfer part of that risk to is going to want a return on that transfer, and they’re going to, arguably, be subscale or sub-efficient or effective in terms of the hedging component. I would have to believe that a buyer would have to be able to add more value than we could to it to have a market value on that that would be interesting from most from a return standpoint. So I think shrinking is expensive in that regard. Our preference is to grow and diversify the book going forward, not offload the current risk.

Okay. And then in terms of LCSM, it will roll off your tongue soon enough. In terms of the LCSM, unfortunately, Blair, that’s just us as in it’s a bespoke arrangement with the HKIA. And until such time as the new group-wide capital standard is coming, the new group-wide supervisory regime comes in through Hong Kong, that will affect the whole industry. At this stage, that will continue to be a regime -- he LCSM will continue to be a regime that applies to us that has been agreed individually with the HKIA. As for the Hong Kong solo, their risk-based capital work that the HKIA is undertaking for that, that continues to go through quiz interactions with the industry. We’re expecting another quiz to come out later on this year, and that will give -- I think, when the feedback from that comes up, it will give us the industry and the HKIA a sense of where that might land and where that might go, but there’s a number of years before that actually comes into effect.

Okay. Oliver?

Oliver Steel, Deutsche. I’m sorry. I’m going to start with another question for Michael. I wonder if you can give us some sort of indications about relative sensitivity? So what sort of deals, what sized deals do you need to do or what type of deals do you need to do to say what proportion of hedging costs or improve the capital base by so much? Anything you can give on that would be helpful. Secondly, for Nic. Indonesia sales plus 48% in the second quarter but only plus 4% overall in the first half. So with the first quarter impacted by retraining onto the new products, does that, therefore, nullify the 48% growth in the second quarter if that was just a catch up? Anything you want to give on that would be helpful. And thirdly, for Mark, you talked about phasing of remittance is changing. Can you expand?

So I get to start again, which is fine. The honeymoon is over, so it’s all good. And I’ve been here eight years now, it’s perfect. Look, we have done and continue to do a lot of analysis relative to the types of assets that might be available in the market and the dynamics of how that would affect our book and risk and hedging. I’m not going to share specific trade-offs or rule of thumbs because it’s very, very property dependent; and two, we’re going to have to buy these. Anything that we do in an M&A sense, in a bolt-on sense is competitive in the market and goes to the underlying evaluation. I can tell you that we -- I think we understand pretty well the dynamic. So when I say we, I mean, me, I’m informed by people who have fortunately decades of very, very good experience to all this. We’re not -- what I can tell you is we’re looking at things that are close to home, they’re within the product sets that we already sell and/or service within our book. And there are a number of different ways and paths so we can do this. We’re not under any particular time pressure or constraint. Though I do think through market cycles we’re going to see opportunities in the market, we want to be positioned to act on those opportunistically. But there’s no single path. And I don’t think there’s any shortage of aggregation that we could do to affect the type of change we want to see.

Nic, you want to cover Indonesia?

Okay. Yes, on Indonesia. I mean, let me answer the question then I can give you some color. No, the second quarter performance really coincides with putting in place many of those new products, and some of the early benefits of retooling the high end of our agency force. So it’s not substitution for a low quarter, first quarter. Now in terms of a little more color, and we see this from market statistics that are made available. The first quarter was a slow quarter across the whole industry in Indonesia. I’ve said before that there are broadly four buckets of market in Indonesia. There is the linked agency, which, across Indonesia, has been in decline, and that continued to decline through the first quarter, indeed through the second quarter. The second bucket, and that’s about 22% of the market. There’s a 12% part of the market that is agency traditional, which also declined in the first quarter across the market, and we weren’t present in that. The bancassurance is another 30% of that market, also in decline in the first quarter. And the only part of the market that was rising was the 30-odd percent that comes from the group insurance. And again, we weren’t in that. So what’s happened as we went into the second quarter? We launched a new flagship product that was in the linked agency space. It takes a while when you have 260,000 agents. To properly train them, that took through most of the fourth quarter into last year into the first quarter of this year. But that’s now gaining traction, and coupled with the medical product, the rider that we put on it, we buck the trend. So our agency linked is now up when, as I said, the market is coming down. We now have a foothold in the traditional space, which we didn’t have before through the very simple product that we launched. And we’ve done a little better than everyone else in banca, and again, through some interesting new ideas that we brought in. And we now have an entry into the employee benefit space through the PRUworks platform. So market is down. We’re beating. We beat the market both in Q1 and Q2 on the back of all these propositions that are coming in. And the retooling of the agency, particularly with the high end, the MDRTs, the Elite has started, and we’re seeing some early benefits. So as I said, it’s early days, but so far so good. And we’re pleased with the performance in the second quarter, and many of the ingredients that drove that clearly are in place and in play.

Mark, on remittances.

And, Oliver, on the remittances. Effectively, the element of rebalancing, effectively, what that is looking at is, traditionally we’ve taken pretty much the lion’s share of the U.S. remittances in the first half. And what it is it’s trying to effectively balance them out through the calendar year. It’s effectively trying to balance capital efficiency and cash flow needs at the same time.

Johnny?

It’s Johnny Vo from Goldman Sachs. Just 3 questions, if I may. Just in terms of the U.S. business, in particular. I guess the statutory reserves don’t use market interest rate assumptions. And I’m pretty sure you don’t hedge for interest rates. So is the effect of low rates on your business the affect on the drift rate? Is that how I should think about it? The second thing is, in terms of assumptions with regards to surrender rates as well given the low-rate environment, you’ll have an assumption with regards to how many policyholders are in the money that would surrender. Do you need to think about reviewing surrender rates at some point if interest rates remained very low? And the third question, again, just in terms of diversification. Again, if you’re moving into fixed annuities and fixed index annuities, as far as I understand, that’s a credit gain. So are you just swapping out the equity risk and policyholder behavior risk for credit risk? And last question, just on China as well. The volumes were up quite substantially but the margins were down. So if you could just explain that movement.

Okay. So I’ll go in reverse order on the Jackson question. In terms of diversification to FIA and FA risk. There we are -- we would be adding, in a sense, rate risk as opposed to the equity risk component. But the deployment of that against common capital base creates advantages in the hedging. It’s also, we’re not exclusive to spread business. There’s also mortality risk that’s available on the market and that’s something else that we would look at, which has different dynamics relative to the efficiency in hedging, though Chad can speak better to that. In terms of the assumptions around surrenders and all the actuarial assumptions, it’s not that we would like need to go back and do review, the actuarial team, which is over 70 people, is constantly reviewing policyholder behaviors and expected sensitivities or impacts relative to behaviors and outcomes from an actuarial perspective. And again, I can ask Chad to comment on some of that as well. But to date, we haven’t seen big changes in those behaviors nor have we seen them through prior financial shocks or crises. So they tend to move, I don’t want to say predictably, because we’re all -- that’s sort of circular, but haven’t moved suddenly. But we obviously do sensitize for those moves and risks. And from a lower-rate perspective, I think my comments, if I understand the question correctly, were less related to stat and more talking about the asymmetry of the IFRS reporting. And so IFRS is particularly punitive in short term relative to fast rate drops because you’re getting all of the pain and none of the benefit and no assumption on any sort of risk premium on equity return or mean reversion on equity return, both of which we would expect from a long-term capital market. Again, it’s why we think structurally, these are better lens relative to value and value creation. But Chad, why don’t I, if there are comments on the FIA, FA or...

Yes. Just to pick up on that. On the, specifically on the VA stat and just how we, think about how we hedge the, how we’re thinking about hedging the interest rates there. It’s not the market-consistent type of view that IFRS takes. So what we’re looking at there is any payments that we’re making under VA is going to be contingent on equity market returns. So if you get bad equities, you then generate claims in the out-years. You’ll have a discounting mechanism with that, that’s the part that we hedge. So you’ll see in the accounts that we do have interest rate hedges, actually it’s fairly substantial interest rate hedges and that’s what that’s going against. But you are correct, that stat, generally speaking, is not super interest-rate sensitive, it does get more interest-rate sensitive in extreme low-rate scenarios, especially where equities are lower because you do get the discounting mechanism that comes in. Just with respect to the surrender rates. I would just add that we’ve seen low rates before, as fun as this is right now, going back precipitously, we did see this back in ‘16. And I’d say the surrender rates that we saw back then would be consistent with what we would have assumed, and we haven’t had to retool anything off of that. We generally are going to be expecting pretty low lapse rates for those types of policies in low-rate environments. But I would also mention in that, this is not a, because of the way people use these products, they need the cash flow. So I mean, they’re using this for retirement, they’re using it to support their lifestyle. So it’s not something they could necessarily hold onto indefinitely. They, you will see surrender. You will see withdrawals coming through.

Just conscious. We’ll go to Nic and then I’m going to take the call from, on the phones.

On China, no, we haven’t secured the sales by lowering the economics of what we sell. We’ve held on to the economics. The effect that you see coming through is simply a question of mix. We saw in the first half of this year, we saw the little more savings, and we saw the little more through banks, and that’s what’s coming through. So 45 up, 45% up on sales, 29-odd percent up on NBP. Interestingly, that’s the flip of what we saw last year. We had flat sales and NBP up 15%. When the markets were slow, particularly on the savings in 2018, we used our proprietary distribution to go after quality, which is the shape of the sales and NBP we had last year. This year, appetite for savings returned in the market, so we captured that. And we pushed on the accelerator for health and protection as well. So if you like, over a 2-year horizon, our sales were up 45% and, 47%, and our NBP was up 49%. So that kind of tells you what you want to, tells you what’s happened vis-à-vis mix, but the economics are intact.

Thank you, Nic. Can we go to the, there’s a call on phone. Who is it from? Do we put it through, please?

We have a question from David Motemaden from Evercore ISI.

I just have a few questions on the U.S. firms, Michael and maybe Chad. Firstly, just on the change in the business mix that you’re looking to diversify away from VA. Just wondering what the optimal mix that you’re targeting maybe 2 to 3 years down the line. And then secondly, just on the remittances out of the U.S., the remittance levels have been around 20% to 40% of IFRS earnings over the past 5 years. Is there a specific target in terms of where you want this to go? And then finally, could you just talk about your comfort level under the new [indiscernible] form considering where interest rates are versus when you gave the guidance of the 40 to 50 point hit from adopting the new framework?

Thank you, David. Sorry the line was a bit messy there, but I think there were 3. Did you manage to get them though?

I think the optimal mix. First 2, I think was, what’s the optimal mix? The second was the, regarding the 20% to 40% remittance of IFRS. Would we have a target for remittances?

And also there was some impact of interest rates on regulatory capital.

Okay. So I would say, we have a range of where I think we can get, want to get to in the current environment, but I’m not going to disclose it at this time. But I think the direction of travel is more balance of the book. I don’t know that the percentage of IFRS remittances, what we would anchor on in terms of going forward because of all of the shortcomings relative to economics as well as stat capital. So I think the better constraints or indicators to look at rather are the EEV and value creation within the book and how we’re growing as well as the stat capital generation because I think stat capital is more the constraining mix on that. And relative to the rates, I’ll turn to Chad.

So David, the dynamic right now with VA and low rates in the new model. I think what I mentioned before in previous conversations was that we saw a, we thought we would see a modest hit to RBC within that and that it would be less sensitive to market levels. And as we’re kind of parallel testing that right now, I’d say, those are coming true. We do see less sensitivity, so expect there’ll be less sensitivity to rates in the tails under the new methodology, which is good. And I would say that based on what we’re seeing, it’s hard at this point to necessarily reconfirm exactly what the hit will be on RBC. What I’d say is, because one is moving, the other one is moving at the same time and not quite the same dynamics given the low-rate scenario. And so what I’d say there is we’re still comfortable, as I’ve said before, in that 400 to 450 range post paying dividends post having gone through the NAIC regimes. So we’re, I think we’re reasonably happy with where the model came out, and that should be pretty tractable for us going forward.

Okay. Thank you. Just conscious, we’ve got a few more minutes. Greig?

Greig Paterson, KBW. Just three questions. One is, currently where we are with spreads? Wondering if you’re going to talk about the Jackson BBB book and this all whole theme of fallen angels and whether there’s a potential for downgrades then hurting the numbers? Second, in terms of the Pulse rollout that we’re seeing now, I’m just trying to understand from Nic whether it’s going to result in a spike in APE? Or it’s more like an evolutionary type in terms of timing or when you’ll see the benefits thereof? And then the third thing is you mentioned on the FIA, you changed the caps recently. I was wondering, does that mean that you’re going to expect a slowdown in the trajectory or you’re moving to the FIA space or the industry move their caps as well proportionately in your pricing relativity and then change?

Thanks, Greig. It’s traditional...

Should we go with Nic first then?

Okay.

Just to make it up.

So we -- and I think you asked me the same question last time, Greig. We are in the very early rollout phase of what we’re doing on Pulse. Malaysia was our first market. As I said in my prepared remarks, Hong Kong and Indonesia and Singapore will follow. Really, our focus and our priorities in the next year are to get this out to 10 markets across the region where we are contracted to work with Babylon exclusively to ramp up the number of users. We want people downloading it. We want people registering, in other words, giving us their details in terms of how to contact them. And then we want them to use it on a regular basis, and through that, we’ll get to understand more about the users, and in time, provide them with products, propositions either through offline or online channels. So that’s where we are. That’s where we’re focused as opposed to necessarily counting on this to give us a spike of APE in the immediate future. There’s many other things in the -- we have kind of many other initiatives going on at the moment across high net worth, employee benefit, retirement and other health initiatives on the critical illness side that will drive our growth in both top line and profitability. Pulse will come in, but it will be a slower burn.

Thank you, Nic. Michael, your turn next.

Great. So on the FIA cap reduction. I think it was in line with market rates and competitor moves as well. So I don’t think -- we haven’t seen a slowing in the FIA flow or the forward book. The market doesn’t move quite that fast, but it does move and we move with competitors. We’re not leading or lagging, I don’t think, materially in that case. In terms of the underlying credit book and BBB exposure, it’s obviously important, and again, we’re long and late in an expansionary cycle. At some point there’ll be credit cycle and contraction credit markets. I think we have really good policies controls and analytics in place around that, and the quality of the book has actually been improved over the past several quarters. We hold less BBB minus. We restrict and limit, we way underweight the financials within the BBB where we would see probably more vulnerability in the types of market conditions that could cause stress in credit markets. We have limits on positions and holdings with single issuers. So I think there’s a lot of prudence in that -- in the management of that book. We also, within the framework to the larger portfolio we steer clear. We’re relative to competitors, underindexed, high-yield and lower credit qualities. We play in mortgage and asset backs in safer parts of the market, our CLO exposure substantially less than others and higher in the stack. I don’t know if there’s anything else you would add to that.

The only thing that I would say, Michael, in addition is that kind of 85% of the book is BBB or BBB plus. It’s very conservatively positioned, very well reserved for downgrades and default shocks, and as we say, it’s very tightly, tightly controlled and monitored.

Right. Conscious of time. Andrew is next and then Andrew and then...

Andrew Baker, Citi. Three questions. First, so as part of the demerger for M&G Pru, we will get an update in terms of numbers, presumably targets. Is there any plan during the same process to come out with new group targets for PLC in terms of earnings growth, capital target, sales or anything of that nature? Second, Hong Kong, I appreciate the comment there, no impact on July sales. If you look at second quarter year-over-year growth versus first quarter, there was some slowing there. Is that just the base effect or is there anything else that we should be aware of? And then third, just on the group capital. So going from LCSM transitioning to the group-wide, supervision-wide second half 2020, this transition and sort of any uncertainty during that transition. Does that have any impact on the way you think about capital deployment during that time frame?

Should we get Mark to go first?

I’d like to thank you for not asking me.

Mark, you want to go first?

Right. On the group capital piece in the -- over the transition period, we’re going to be working and talking very tightly and very closely to HKIA. So what we have at the moment in terms of the LCSM is what we’re going to be using, what we’re going to be deploying against and how you’re going to be managing and running the business. And as we’ve said for quite some time, it’s -- when we talk about Solvency II, the thing that truly bites is the underlying capital level in terms of the underlying businesses, especially around Asia. And effectively, the LCSM gives us a more direct route across on that particular piece. So we’re looking to use that on a -- for the foreseeable future.

Nic?

On Hong Kong. Yes, it is a base effect. If we look back in 2018, we had a slow first quarter. And then what we did back then is we brought forward new product launch initiatives particularly around critical illness and new marketing campaigns into the second quarter. We didn’t -- as I said, the momentum that we carried coming into this year was strong. We’re balancing out the campaigns. We’re balancing out the timing of our product initiatives. And therefore, what you’re seeing is the outworking of that. And to give you one other data point, if you took June alone, 30% of our first half sales in 2018, 30% came in June. So that was the emphasis that we had put into these campaigns last year. Whereas this year, 22% of our sales, the first six months sales came in June. So much more, even much more normal pattern in 2019.

And Andrew, on targets. I think the -- I’ll do that. I need to pick that. No, on the group side, you won’t be, that’s M&G’s board and management teams to determine. But we did them as sort of proof-of-concept multiple times particularly out of Asia and that proof that the businesses could generate cash flow. There’s generally some very good things about targets, and this organization tends, yes, it’s hits them. There are some negatives to them in that they tend to be the only thing the organization focuses on if we put them in place. So knowing the culture well, our intent going forward is to keep giving you a more granular look at the key businesses so you can see the depth and breadth of the success versus trying to give you a rounded up number that says this is how it looks. And again, we’ll watch that. But I think the maturity of the businesses Indonesia, Singapore, Malaysia, Eastspring, Hong Kong, all could be listed entities at this point. So for us we think we’re past the proof-of-concept stage and it’s more of a show us how each one is working and will continue, like as we did today to give you more granular look at the core businesses, and so you have a better feeling for the environment as well as the depth and breadth of the performance.

Thank you. Andrew.

It’s Andrew Crean with Autonomous. Mike, I’m sorry to come back to you.

That’s fine. Which Mike? That Mike?

I’m still a little bit confused. You don’t want to write more VAs, and they’re factored in net outflows, but they’re the highest return, lowest capital requirement business you do. You want to write more FIA and FA, which are lower return but higher capital intensity. And you’ll fund some of that, the inorganic, bit with third parties. Why does that lead to higher remittances from the group? And why does that lead to a higher valuation of the group by analysts? I suppose what I’m really going to is, it’s so complicated with EV, IFRS and stat, all going in different directions. Why don’t you give us a target for what you think remittances will do from your U.S. business over the next 5 years?

Okay. So it’s a fair question. And let me clarify the first point part of the premise. We are interested in writing more VA business, and we’re in slight outflow based on the size of the book and where the VA market is today in the U.S. So long term, I’m bullish on it. I’m trying to give an outlook to set a baseline in terms of expectations. We’re continuing to write. We’re a leader in VA. We think long term, there’s growth. But in the short term, the VA market has generally been contracting, that contraction has slowed. Total VA market is actually growing from the last half of last year and in through the first half of this year. But a lot of that growth is in what we would term the structured VA or registered product, and those are more spread products in the VA wrapper than we would see as a traditional VA. It’s also not a part of the market that we’ve participated in yet. So I wouldn’t want the message to be that we don’t want or don’t expect to write more VA. And I don’t see the book in runoff at all. And over time, I do think we can grow and grow opportunity. From an operating or a return standpoint, from strictly a product, you’re right, VA has better operating cash flow generation and lower capital requirement from stat standpoint. The issue with that is against the hedging dynamics and sort of those below-the-line costs and the objective of having the benefit of having a more diversified book is to reduce those external hedge costs by having an additional return, asynchronous return on capital with an asynchronous call, right? And so the payoff if you, if we raise financing to buy a stream of income from spread block, and you assume that we buy effectively and manage that effectively and you’re using that return to support debt financing and actually pay it down, so you keep the value that you bought, that is going to reduce the requisite hedged spend that we have against that VA book and free up cash for remittance. In terms of target, I’m going to have to confer with my executive committee about how we come back and would or wouldn’t if you target, and my understanding is we don’t generally issue those types of guidances.

Andrew, we’re understanding importance of demonstrating growing remittance in Jackson, they’re up 17% this year. But again, you’ve got to then pick equity market assumption, rate assumption, M&A assumption, finance cost, and we’re not going to put a target on that.

Okay. Nick’s being very patient.

Nick Holmes of SocGen. I will keep this super brief. First question is obviously on the diversification plans for Jackson. Just why haven’t you done this before? What reason is the, for not having done this before? Secondly, can you remind us of the rationale for the UK demerger rather than the U.S.? I mean clearly, you know all the questions are on the U.S. not the UK, which is rather nice business in many ways. So why not the U.S.?

So Nick, I appreciate the questions. As always, they’re challenging and interesting. The diversification in the U.S. is where we are in appreciation in the accounts. And the client, the product has performed as it should for compliance, for consumers. So if you look at the first half, they participated in the rising equity markets again. Took a fresh look at the business and the process and decided this was the right time to do this now. So there’s no logic why it wasn’t done before. But if you’re looking for the point in time, we continue to see the underlying performance for the consumers. We were together in Singapore. You saw a little bit of a strained market since then, which, those accounts have grown back. So again, looking forward, which is our job, okay, this is the time to do something like this. And as far as looking backwards on the U.S., UK demerger, there’s a number of reasons, the market’s got structural growth, we’ve got a competitive advantage, it’s a high return on equity business, okay, and we like the dynamics of it, we like the alignment of capital. All the things you said on the demerger, I appreciate looking backwards, competitors with GMI books, 4 of them have exited that business in the U.S. That’s not how we base strategy.

Okay. That’s time. Thank you very much. Obviously, we’re seeing the Jackson management later on this evening for certain groups, and then we will, I’m sure, have lots of engagement in the coming quarter. Thank you very much.

Thanks, everybody.