Ladies and gentlemen, welcome to the Prudential 2020 Half Year Results Call. My name is Bethany and I'll be coordinating your call today. [Operator Instructions] I will now hand over to your host Mike Wells, Group Chief Executive to begin, Mike, please go ahead.

Bethany, thank you. Hello, everybody. Welcome to the Prudential plc 2020 Interim Results and Strategy Update. This year, we've recorded our full presentation in advance and it's up on our website with a transcript already. So today we can use most of the call then to take your questions and given the nature of our news this morning, we would expect that, that will take up the full hour at least. So to give you an idea who's with me, I'm joining you from Lansing, Michigan, the home of Jackson. Also in the US you've got Michael Falcon, CEO of Jackson, Axel Andre, CFO of Jackson and in London, we have Mark FitzPatrick, our Group CFO and COO and the IR team. In Hong Kong, we have Group Risk Officer Director, James Turner, CEO of our Asian business, Nic Nicandrou and CEO of Asia, Raghu is with us as well. And the out of respect to time, instead of going through a summary of the comments we made on the video, I'm going to go straight to Q&A and just see where we are and if need to I'll bridge back to some of the key themes and key things we've accomplished in the first half of this year. But Patrick, if you're okay, let's just go ahead and go straight to Q&A.

Sure. Thank you, Bethany, if you bring the first question.

Our first question comes from David Motemaden from Evercore ISI. Apologies, David, please go ahead. Your line is open.

Thanks. Good morning. Just wanted to maybe just get a little bit of background in terms of what made you think the full separation of Jackson is best achieved through an IPO? That's the first question. Second, do you foresee the need to inject any additional capital into Jackson to facilitate this transaction? And then third, if I may, if I look at - if I look at the org chart, it looks like Jackson is stacked under PCA. So I'm wondering if the Hong Kong RBC ratio currently benefits at all on a local basis from having Jackson as a wholly-owned subsidiary, and if so, is there anything that needs to be put into Hong Kong to help replace that? Thank you.

Thanks, David. So Mark, I'm going to let you take the last one. On the - so if you think of this journey to Asia, it started with the demerger of M&G through. And I think there's a sell down, obviously to a theme of 11.1%, and now the announcement today. So what we've said all along, as we maintain optionality and how we execute, and the statements today, we talked about the fact we still could do with the merger if we thought markets required that. That said, what you've seen us do with the theme transactions, plural, is you've got Jackson's capital levels to a range that we think is appropriate for a standalone entity versus an entity that's part of a group. We don't anticipate the need to put capital in Jackson, actually, you'll have - if you look at the M&G transaction, there would be some dead activity, some movement back and forth with capital to reduce leverage in the group, all those things coming in the next months to get Jackson ready to be standalone. So the answer to your second question is, it's not anticipated. Mark, and in the IPO, the advantage to an IPO is that you get more capital for reinvestment in Asia over time. The advantage of the demerger, obviously, would be less of that but faster. So again, that - we maintain that option, but the IPO is the route we're pursuing at pace now. Mark, you want to talk about the regulatory structure on?

Yeah. David, so the LCSM for Asia is 308%, that is not affected in any way by the USP, specifically a standalone tranche, if you will. So a separation of that would not change the Asia LCSM number. So that would continue if we were to do it at 30th of June, that would still be a 308% number for Asia.

Got it. Thanks. And if I could just follow up with Mike, and maybe for Axel as well. Just the RBC, the 425 and the 425 to 475 range. How should I think about any sort of changes to your hedge strategy within Jackson maybe from more of an option-based approach to more of a futures-based approach that would help reduce the upfront costs and improve capital generation?

David, Jackson's bias is a futures-based approach and that was done at the time not so much cost focused, as it was counterparty risk focused. So to concentrate the counterparty risk on up-market and equity, not on downmarket in equity. One of the learnings from a previous crisis, was the, the fact that, you know, we look back at some of the bank counterparties and realized that some of the risks that financed an insurer has, they're highly correlated to the same one. So we wanted to separate that. So the organization uses both and at higher capital levels you have more options on hedge strategy. So there's a trade-off there of return on equity, capital intensity, hedge intensity, but it's across that range. Axel, do you want to add any color to that?

I think you're right on Mike. So essentially when you we're in a more benign environment we would be hedging more with options. And as we - as the first quarter unravels, the options - essentially to put options became in the money. We gradually rebalance more into futures. The profile of the liability was more linear, so the futures were a better match. And as now we're tracing back, we're using a mix of futures and options.

Thank you.

Our next question comes from Kailesh Mistry from HSBC. Kailesh, please go ahead.

Hi. Morning, afternoon, everyone. Thank you for taking my questions. Few on Asia, first one is on Hong Kong. What's your base case for the Board [ph] reopening? Is it fourth quarter or 2021? On the domestic business, thank you for the information on slide 64. It seems to indicate a slowdown in the run rate between first quarter and the second quarter. Is that COVID related or is that just the high base because of the launch of QDAP and VHIS this time last year? And specifically what was the momentum like in July? Because obviously the Insurance Authority approved to say that's par online. Has there been a strong pickup and also has there been pent-up demand there? Second question is just on agency, obviously you flagged that there is 7% growth in the agency force, excluding India. Can you provide a little bit more color, especially what was the growth in Hong Kong, China and Indonesia? And then on Pulse, there seems to be some very strong progress there, with 70% of customers being new and younger than your existing customer set. Can you talk a little bit about average case size, business mix compared with traditional business, or your historic business, and, you know, any impact that had on the IIR that you're writing? Thank you.

So, Kailesh just a couple of general comments. And, Nic, I'll ask you and Raghu to comment as well. So, as you've seen consumer interest in health and protection by both in action, buying policies and also in just in general interest, so there's been increased interest in joining firms that supply those products and we're clearly an attractive player in that space. I'll let Nic tell you some of the more specifics around the growth. The scale the growth, just from my point of view, adding 70,000 plus agents in this period is most of our top 10 competitors agents in the region, it's larger than their agency force, right? And not to say all these agents will be successful or productive, you know, we're getting better and better at agency management. It's all virtual now. There's some great tools to improve the likelihood of success. But I just - I want to add some scale to that, I think it's an incredible effort by the team. But Nic, do you want to comment on some of the specific questions which is on Hong Kong, domestic run rate. The - I would say the other one, Kailesh, we don't have a forecast now, given how fluid governments opening and closing borders and travel on COVID, I think it's pretty hard for anybody to credibly predict. What I can tell you, I think in all markets with COVID, globally, we are much faster at responding to whatever the opportunity set is. So for example, we didn't have all of our products as you mentioned, par approved until well into the second quarter virtually. We now have agency up and running with that. We have the leads coming off Pulse, so in a lockdown we're much more effective week-by-week than we were previously and therefore less affected by lockdown and we're much faster at coming back up to speed when the market opens and we're assuming that this is the environment we work in for foreseeable few quarters at least. Nic, you want to answer the question specifically please?

Okay. Thanks, Mike. Thanks, Kailesh. We found ready when the open - when the border opens in relation to Mainland, China. The - it's possible that it may not, but once the - if it was to open then we stand ready to go and we know when we've seen opening up in other parts of the region, there's a rush to buy, so the minute the border opens, we think there'll be a rush to buy. We included a slide in the deck on 65, that shows the information around our latest survey on purchasing intentions and why Mainland Chinese customers prefer Hong Kong and really, it reinforces all the structural advantages that Chinese consumers see when they buy product in Hong Kong. So I'm not going to predict when it will open, but we stand ready to take advantage of that. In relation to the domestic, we had a good first quarter. First quarter and these are published that we were down 8% and we did better than the rest of the market that was down 25%. It was on the back of us doing really well in connection with the qualified deferred annuity plan. Having added up all the information we've secured 17% share of that market, that speaks to the business's ability to leverage an opportunity to innovate, move fast, use the distribution channels both agency and banker to deliver growth. VHIS was smaller around the sector in terms of APE, clearly important in terms of case counting, and we've got a fair share there as well. In Q2 to your question, there was a slowdown. There was more social distancing than we saw in the first quarter, particularly as students came back in March and placed - the containment measures tightened up. As you know,…

Thank you. If I may just ask a slight follow up on that, Pulse thing. Your offering is pretty advanced versus some of your competitors across the region. Are there other functions that you feel you need to add to this or, you know, are you kind of done with that, and now it's about acquisition and then cross referral and the rest of the model that you've highlighted?

No, we are only just starting. We're only just starting. The - we're going to add - there's a lot more we can do. The next phase of this is, you know, we said earlier that 90% of our products across the region can be sold virtually. This is done through a combination of technologies at the moment as we've joined it up together, two or three different platforms, by end of the year, that virtual sale will be able to be done via Pulse, with video, with being able to attach documents, that's already up and live in the Philippines. It's just up and live now in Malaysia. So the 38% to the extent that we have another 38% in a future quarter will be done through Pulse. So it's becoming a fulfillment tool for the agency, as well as a referral tool, as well as a tool where people can buy directly. We're going to be adding a lot more mini project - products across the piece. And also, we are trying to bring more aspects of the value chain onto this. So Indonesia, alongside the launch of the Pulse, which attracted 3 million downloads earlier in the year. At the same time, we incorporated a minor claims processing functionality. So we've integrated Pulse with hospital portals, so that - and issued kind of e-medical cards, which can admit someone on to the hospital. The bill can be submitted electronically by the hospital through Pulse to ourselves. We've connected to 570 of the 1700 hospitals in our medical network and we can process a claim in less than a day. We're also using it for reservicing. Again, in Indonesia and Hong Kong, Pulse customers can use it to go in and do inquiries and small servicing on their…

Thanks, Nic.

Thank you.

Our next question comes from Jon Hocking from Morgan Stanley. Jon, please go ahead.

Thank you. Good morning, everybody. So three questions, please. Firstly, on Asian new business strain. Can you comment on why that was at a much lower rate than sales? I think it was down 7% year-on-year. Is it purely the mix shift away from Hong Kong? But it doesn't seem to be something else going on there. So how should we think about that going forwards? Is first question. Second question. When are we likely to get some more visibility on the Hong Kong group-wide supervisory regime? Do you still expect that by year end? And then final question, just looking at slide 20, where you've got the phasing of the movement restrictions, et cetera. It does seem that a lot of markets have actually gone into a more restrictive phase, either in June or subsequent to the quarter end. And you mentioned obviously the ability to transact online in Hong Kong. But that seems to be around one market. Could you comment a little bit about how we should think about the sort of sales tempo 3Q versus 2Q? Thank you.

Yeah. So let me give a general comment on the third one, and then James, I'm going to have you comment on group-wide supervision, and Raghu how about you discuss new business strain in Asia. Try and get everybody involved in the call today. So the - we have 11 markets now, Jon, that we can transact virtually, as we finished the second quarter. So basically, all of our products sets in those markets. And it's a - Nic referred to one of the other pieces that's gone on is development of technology and tools for the agency force to be able to transact virtually and best practice virtually and things So again, we're much better at that than we were and those learnings are shared real time. I mean, one of the - our pace at being able to develop now and to be able to share something that's working across the region is historic for PRU. One of the agent lead, one of the pieces of technology that helps an agent work with a post lead to a full - one of the full client relationships that Nic referenced, for example, was developed in a hot house over three days, virtually people, not just tech people, people all over the region and our digital team. They finished on a Sunday night, again, none of these people could be in the same room. And Wednesday, the app was up in the iStore and Google Store, et cetera. So there's a pace now that's unique. So when I say we're getting better weekly, there's - that means improvements in the tools, as well as sharing what's working. But you have 11 markets now across Asia. And the US has virtualized its sales processes, its statements, it's always been an industry leader, and its technology platform, it's clearly using that to its advantage in this environment as well. So this is not just an agent story for us. But Raghu you want to talk about new business strain and James you want to talk about group-wide supervision, please, just both briefly, we got to keep guys the pace going, guys.

Sure. Afternoon, morning as might apply. I think Jon, it just reflects two things. One is, it reflects the higher product, better product mix, so we have more loan power and protection sales and our sales as a proportional sales are lower, that's one, and the second one is just the effect of lower rates. So that explains the strain levels which are gone from 13% of APE to 18%.

Okay, and on the GWS. The primary legislation enabling the new GWS framework was passed by the LegCo before the end of last season, the last session in July. The subsidiary legislation is required with the announcements today to extend the LegCo. It remains our expectations that the GWS framework will come into force in Q1 2021.

Thank you. Can I just come back on the sales point, Mike, you mentioned 11 markets I've got the ability to transact virtually, what proportion the product range? Would it be fair to say that you've got most of your best-selling products with virtual execution capability?

Shall I take that Mike? So the only - the reason it's not 100 is Taiwan hasn't approved the use of virtual, it didn't need to because the impacts in Taiwan of the pandemic wasn't that severe. So that was one. And the other one that hasn't been a - that hasn't virtualized is the use of linked products in Thailand. A vast majority of what we sell is linked at the moment. So that's the reason it's not 100. So it's one market and one product type in another market. So - and the other one is linked products also in Hong Kong, but that's less than 1% share of the industry and less than 1% share of our numbers. To your question on, some markets are increasing restrictions in terms of impact on Q3, I referenced Hong Kong, we're now having the tightest set of restrictions here. In Indonesia, Indonesia is struggling to contain this. So the number of cases now is increasing as is India. So that situation is live at the moment. And Vietnam, actually, part of the reason Vietnam shut and opened up very quickly because they were decisive at the beginning, then they got a few cases, they shut down. So having gone three months with almost no infections, when they've had a few, they immediately introduced a social distancing. So, look, the situation is live and it's volatile like everywhere else in the world at the moment. And - but we have more strengths. We referenced a few in the call so far in our presentation, and therefore, we should be able to mitigate better than we did immediately at the outset.

Thank you.

The next question comes from Andrew Crean from Autonomous. Andrew, please go ahead.

Thank you. Good morning, all.

Hi, Andrew.

Two questions if I can. Firstly, you were talking about debt capacity at Jackson being between 20% and 25%. And you were saying that Jackson doesn't need capital put into it. By my math, and it may well be wrong, that suggests debt raisings of between $2 billion and $2.7 billion to get to the 20% to 25%. Is it fair to say that that money is earmarked for a pre - that level of money is earmarked for a pre-IPO dividend? And the second question is to do with where you set the dividend going forward. It's really difficult for us to judge the capital position with the company because we just don't have any ideas on LCSM and that sort thing. But I think you said that you've invested a $1 billion a year over the last decade. Do you require to invest more than a $1 billion a year organically going forward? And also, do you need to reduce your group debt beyond that bit, which will be repaid as a result of the preclude dividend on Jackson?

Thanks, Andrew. Good questions. Let me start generally and Mark FitzPatrick, I'm going to ask you to come in on the various debt pieces. So on the ability to deploy capital organically, if you look at even just the last six months, you've now got at a scale position in Thailand, you've got an increase as we've been talking, and Pulse and the ability to do business through a digital channel and we've grown agency, again. You're moving further from power product, as Raghu mentioned, I think in his comment, so the breadth of products we're selling are incrementally more capital intensive. Now, this is not suggesting we're going to a heavy spread-based sort of strategy across the region. That's not the message I want to land at all. But these, these are products that are non-par disproportionately. So they are more capital intensive. We published the IIRs, you see we're - it is a very profitable, well received by the consumers, et cetera. So we believe we can deploy more capital organically in Asia, and we don't want to - the dividend policy doesn't want to constrain the organic growth. The inorganic stuff is, as we've talked before is opportunistic. We have two or three places we look there, it's increasing. We're in the markets we want to be in, we have great footprints. It's things that are related to earnings, to something improve the actual operating earnings of the firm, that's - the variety of lenses there, improved distribution first. So a bank deal, for example, or improves capability, which you've seen us do with the Pulse platform. And those sorts of options are outside of our business plans, and we view them - as they approach us one at a time and so we don't, you know, we couldn't forecast them because we pursue a lot of that all the time, but we don't know what's going to land when, it's counterparty dependent basically. But Mark FitzPatrick, would you comment please on the questions on debt pre-IPO dividend, those pieces.

Yeah. Good afternoon. So in terms of the debt numbers that you spoke about, I think kind of the 20% to 25% leverage based on the Jackson half year IFRS equity. And also if you add in the additional $0.5 billion from a theme that closed last month, in terms of its equity and investment, that would get you somewhere in the $1.8 billion to $2.5 billion debt type range. And effectively, we would expect that that would be - that would come up to PLC, or to the shareholders during the course of kind of the pre-IPO dividend. So that that would be then used by group to effectively repay, as we mentioned, repay some of our debt at the center. We have quite a lot of debt that we can redeem, that is kind of 2020, 2021 call date, so we have the option. And we're looking to be able to do that to be able to repay some of our debt, and to be able to ensure that our leverage ratio stays at a good and sensible level.

Great, thanks for answering.

The next question comes from Blair Stewart from Bank of America. Blair, please go ahead.

Thanks very much, and good afternoon. Just a couple of follow ups. I was also interested in Andrews's questions. Can you tell us what the level of organic RBC build is at Jackson now that is not paying a dividend back to group? That's the first question, just to give us an idea of where the RBC might land or everything else being equal. The second question just relates to the equity story, I guess for Jackson as we stand today and we've gone from various levels of appetite on sales and new business and also, an objective, I think from Michael to improve the state capital and cash generation, just wonder where we are in all that. I think those two things are linked to my first question. And my final question is just an observation on Indonesia, it was definitely a standout in terms of IFRS profits growth across the region was very strong in all countries except for Indonesia. I'm sure there's some obvious reasons for that, but perhaps you can just comment on that? Thank you very much.

So Blair, we're - remember where we are with the SEC and a pending S1, so forecasting RBC would fall into that overlying category. But how about Mark FitzPatrick first, then Michael on - Mark on what we can say on capital generation, let's call it that. Michael, just a little bit on equity story. And then Nic will come back to you on Indonesia, please on IFRS.

Okay. Blair, good afternoon. So in terms of organic RBC build, effectively, you've heard us saying, you've heard say for a while in terms of approximately about the $1 billion, $1.1 billion in terms of organic capital creation. And effectively, post the Athene reinsurance transaction, we've indicated that that would probably take about $150 million of that level. So the guidance would probably be kind of somewhere between the, you know, the 850-ish, kind of elements. So that's on a kind of the half so that's 425. That's about 20 to 25, kind of RBC points in terms of the half that we would ordinarily kind of look at on that particular - that particular patch. So can't guide in terms of a forward piece other than that component. But when you look at the element of the RBC role and you look at the capital generation during the component to the first half, you see that that's a strong number. And that's a strong contributor in the first half and very much in line with levels that was spoken about in the past.

Sorry, Mark, can you just clarify, you said 20 to 25 of RBC points. Is that in the half year?

Correct. That's in the half year, yeah. So ordinarily, we would operate at about - I said about a $1 billion in terms of operating capital generation pre-Athene, post- Athene we're guiding that, that's effectively closer to the 850 mark per annum. So that's where you get the $425 million for the half year. And at the half year, that's circa kind of 20, 25 RBC points.

Yeah, thank you.

So Blair, good morning or good afternoon there. Michael Falcon, here. And thanks for the question. So I'm going to stay away. As Mike said, given the announcement that we made and SEC rules, I'm going to stay away from forward-looking statements or projection or indication of what the equity story might be. But I can talk to where we are now and build on what we've said in the past, which is consistent with our view, which is that, there's a big demand for protection products around retirement in the US, particularly around income and replacement income guarantee, as well as principal protection and those are markets that we're in, we're the leading player in variable and we've demonstrated our ability to quickly lead in other categories. So we don't see any change in terms of the market demand. In fact, in many indications that that can increase with demographics and certainly volatility reminds people of why they want and need and use our products to begin with. I think we have excellent capabilities around distribution in that place and a low-cost platform that allows us to effectively and profitably write business. And a proven historic ability to price and manage the risks associated with those. So I can't go forward. You know, obviously, as we go through the process, at appropriate times, there'll be more information about the nuance of the go-forward strategy, as we can get into that detail. But I think the fundamentals that we rely on today are still there, and they're consistent with what's built the company to this point.

In Indonesia, Nic? Thanks, Michael.

Thanks, Mike. Blair, what you're seeing is the lag effect from past years where we're seeing a decline in sales. So as we picked up last year, then that should change. I guess the other factor is, we are investing heavily in that business. In terms of automation, re-tooling, the agency force, in terms of some of the developments we're doing with Pulse. Indonesia is a little ahead of other markets, so they're doing - they're developing a lot of things on behalf of the region as we look to developing ones and standardize and use it elsewhere. And we've done a lot of work in the last year to launch, to refresh the entire product set and launched new ones. We have 17 new product launches and all that requires investment in technology to pull through Indonesia. Now all our recruitment is done virtually. So again, that's more investment that we're making in that business. Now it's a shame on a number of levels, but certainly, for Indonesia, sales on COVID that the underlying improvement in that business over the last year, year and a bit has been phenomenal. And as soon as things normalize, we see a lot of demand coming back into a business that is much better place now to fulfill that demand on a number of damages.

Thanks, Nic.

I'll now hand back Patrick for web questions, if there are any.

Thank you, Bethany. And I've got to two different questions, one from Thomas Wang in Goldman's in Asia. The first part of it is, are you providing any financial support to agents that used to sell to Mainland customers? And do you think you can continue to provide financial support to Mainland customers don't turn in any meaningful way until H2 2021? And secondly, what's the impact of expense overruns on operating profit and new business profit in H1? That's Thomas Wang's question. So I'll pause there. Probably to Nic.

We are - yes, we're allowing Mainland customers to defer payments, our normal periods are 60 days to 90 days. Some of them are availing of that, but nothing that impacts our overall figures, you saw the profits grow in Hong Kong strongly. The thing though that we've seen is and we've always knew that - known that, a lot of Mainland customers that transact with us have other business interests and other sources of income in Hong Kong. So we've seen a switch away or rather a switch up in the electronic payment. So it was around 65% of payments were received electronically, now it's in the high 80s. So yes, it's there to provide relief, but it's - that's on the customer side. Now on agents. There are a number of initiatives that we have in place. Clearly a lot of them are benefiting from trial commission from sales that they've done in the past. We do have financial support schemes available. They're available to all agents. They need to be though underwritten by leaders. We haven't seen a big take up in those in the last six months. And if, you know, as I said, they are there for people to use. And on expenses. It's not impacted. I mean, clearly, some not all our sales calls are direct. But it's not giving us any cause for concern or indeed impacting the financials as you see them.

Okay, Bethany. Got one more, and it's one for, actually for Nic again, and then a second one for Mark FitzPatrick from Waverton Investments. The first one is, as businesses increasingly done, increasingly done online, has this reduced barriers to entry in your view for the market? And for Mark, which is could you just run through the differences that existing investors should think about between a minority IPO and a demerger? So Nic, first?

I mean, a lot of the business that is human supported at the moment, all the virtualization still requires a trained agent or be it via video to engage the prospect, engage with a customer. Yes, there is - there's more research that is now done online. And there are simple products that are made available and can be made available and we're doing that as well. It's producing a lot of number of cases, but not necessarily a lot of premium at the moment until such time as further engagement is made. So, no, I don't - I mean, I don't think it's reducing. It's reducing the barriers to entry not for the fuller policy - fuller size policy.

Thank you. Then over to Mark.

So minority IPO and demerger, ultimately, this is going to be driven by our desire to maximize shareholder value, in terms of where we're at. Clearly the element of an IPO there's an aspect of sell down proceeds to be able to fund future growth in Asia. And that's a very important consideration. And also the aspect of an IPO would actually target Jackson's natural owners for the future on that particular piece. So I can't really go into anything much more than that particular patch, but hopefully that gives you a sense of how we're looking at it in our primary lens, which is ensuring we maximize shareholder value. Thank you, Mark. Bethany, that's all from the online. So back to you, really.

Okay. The next question comes from Greig Paterson from KBW. Greig, please go ahead. Your line is open.

Morning, everybody. Can you hear me?

We can. Greg, good morning.

I actually went and lost the call when Andrew asked the question about the group debt. So I don't know to what degree that was answered. But if it wasn't, I wonder if could talk to the mechanics of the journey, how one would want to think about how much of the group debt will reduce considering money coming up from Jackson, and organic, inorganic growth, et cetera and Moody's leverage ratios, fixed costs coverage et cetera? And that's question one. The second two question is one is, I wonder if you could provide us a sensitivity of the RBC ratio to changes in interest rates? And the second one is you did provide the first quarter an RBC ratio for downgrades, but subsequently you've obviously transferred the $28 billion of assets over to Athene. So I was wondering to how that sensitivity would have changed, post the reinsurance contract? Thank you.

So, Greig, thanks for the questions, we did answer the debt piece, so I'll let Mark address that again in a moment, give you a summary. The - you have a flooring of rates in RBC, and we did not - we gave a greater than number you know, at the half year, just given everything else, so we're announcing we wanted to make sure you knew it's in the target range. And again, we want to see that continue to move up. So I don't think - Mark, why don't you do the debt first, and then, Axel, why don't you - quick overview about the - where rates are in the US, floors and how that affects RBC in general. Let's not get into specifics on Jackson, but I think there's a clear mechanical piece, Greig that's important in that. Mark?

Okay. Greig, hey. So in terms of the debt, Greig, first and foremost, there aren't any - we don't have any concerns with the ratings agencies or the ratings headroom. We have been in conversations with the rating agencies and the run-up to today, as you would expect, and would expect to hear something from the rating agencies in terms of them providing some update on today's news imminently to the market. So I think in terms of the pre-IPO debt, that would cut all that debt Jackson would raise and then dividend up to the group, it's in kind of the area of kind of the $1.8 billion to $2.5 billion debt is in that kind range to the 20% to 25% leverage. And that would be predominantly used to an element of debt repayment. We've got lots of flexibility and that's in terms of the debt that we have and a lot of debt that is available in terms of the call dates. That is there and that is available. So no issues in terms of the debt and no issue in terms of rating agencies from a debt perspective as well, whether it be Moody's or any of the lot. So actual impact of the derisking, the credit portfolio with Athene and then the - why don't you go a little bit on the floor and rates in this RBC model.

Sure, yeah. Let's start with the easy ones on credit. So we disclosed at the end of the first quarter, that if we did a hypothetical, that if 20% of the debt portfolio was downgraded by one whole letter rating, the RBC ratio impact of that would be 16 points of RBC, that was at the end of Q1, so post the transfer of a significant amount of assets as part of the reinsurance contract that sensitivity has decreased now to 12 points versus the 16. On the rate piece, as Mike said, the RBC methodology has an inherent flooring of interest rates. So, the reality is given where rates are today, they're essentially below that floor, that's embedded in those scenarios. So from a liability perspective, the reserves and capital requirements have relatively little sensitivity to interest rates at this point in time. Whereas, on the hedge and asset side, derivative hedges would be mark-to-market and interest rate derivatives would be mark-to- market. And to the extent that we have some rate protection embedded in fixed income assets, such as long duration US Treasuries as we've mentioned in the past, those are carried on the stat balance sheet and book value.

Thanks, Axel.

The next question comes from Ashik Musaddi from JPMorgan. Please go ahead.

Thank you. And good morning, everyone. Just I have a couple of questions, if you can help me. The first one is, if I look at the embedded value report, I mean, there is a bit of economic assumption changes in Hong Kong business, and that has resulted in $3.5 billion reduction in embedded value. Am I a bit surprised with that big number, because if I look at the embedded value of Asia it's about $35 billion? So even if we say that Hong Kong is about a third, let's say $10 billion, okay, so it feels like the interest rate drop has wiped out a third of Hong Kong's embedded value. Can we get some clarity on that? What sort of assumptions were used in past and what has changed? I mean, it looks like a massive drop. The second question is on the demerger. I mean, you mentioned that the IPO is not successful for market reasons, then you would demerge the US business. What does that mean for capital for Asia? Because on one hand, you're suggesting that you might need that capital that comes from US to help the growth, to accelerate the growth in Asia, but at the same time, if you demerge, then you're not going to get that. So how should we get that? And lastly, can we get some sensitivity on RBC for equity market as well? I think you gave like clear answers on interest rate, but anything on equity market would be helpful as well? Thank you.

Okay. Raghu, do you want to explain to Ashik the embedded value changes in the half year Hong Kong?

Sure. Hi, Ashik. So first thing I'll do is consider both the - as you know the short-term flux and the effect of the economic assumption changes together to gauge the total impact. So that's point one. Second, as you know, we update assumptions on an active basis. So here what's essentially happened is that the risk discount rates have undershot the fall in risk free rates, as you know the US 10 year is down 126 bps risk - risk discount rates have only come down 100 bps, so we are holding some for you know, market risk. And while the FCR has actually overshot the fall in risk-free, right? So the earned rates are lower, to give you a sense is about 1.5 times the 126 bps fall in risk-free rates. And this is because of two reasons. One, we do not assume a mean-ed version and this is an important point. And the second, so we assume June levels stay forever. And clearly, we also do not assume a dynamic rebalancing of the assets. So as bond value go up, proportionately, you have more bonds and therefore, your own rates are lower. So it's purely a mechanical impact of the assumptions coming through our EV.

And then on demerger, so I think we've been pretty clear on the advantages and disadvantages of both. I don't think we're looking necessarily where it had to be a failed IPO. I would disagree with your choice of language there. I think if we looked at a market and thought we can create more shareholder value via the merger, you still have the debt that's been discussed on the call, that transference of an internal dividend, if you will, up to group and it would be a decision by the Board and Management that that was more accretive to value than IPO, given a unique market, certainly as I think we're pretty clear that we think we can do a market, an IPO in the first half of next year. And we have the work streams Ashik that are consistent with an IPO are consistent with a demerger on timing and on effort. So we don't anticipate any issues with an IPO, but we're just making sure everyone knows, we're maintaining the option and we have a backup plan if we don't take the market. So think of like March of last year - this year, that was difficult environment, we still got off with the largest reinsurance transactions ever done and we got off an equity sale in that climate. So I think we're confident we can do this, but we're also maintaining optionality, which I think is appropriate, given the importance of the transaction. On RBC, Axel, do you want to comment, I am not sure what our last public comment is on RBC sensitivity. So I want to - let's keep to what we've said publicly, please.

Yeah, so I think on RBC, I would simply say that we've, you know, as we've indicated in the past, we're essentially in capital preservation mode. So really, we're on any one day, you'd have us look at interest rates and equity sensitivities and putting on hedges to reduce, to minimize the sensitivity as much as possible. On any one day, we may be more exposed to the up than to the down. But essentially, we're attempting to stabilize that.

Okay, Thanks, Ashik. Any last questions? I know we're coming up on a full hour here.

The next question comes from Abid Hussain from Credit Suisse. Abid, please go ahead.

Hi. Thank you for taking my question. I think I've got three questions left. Firstly, just coming back to the capital extraction and the debt leverage within the interaction between the US and the group. You said you're going to take out around $2 billion of debt from the US. And you're looking to use those proceeds to retire debt that, I think at the group and I'm just wondering, what is the right level of debt leverage that you are thinking of the group? I know there is sort of separate conversation that have gone with the rating agencies. But just in terms of group debt leverage, where are you sort of in for on that? And just sort of linked to that? Can you just confirm that any debt raise you do projects and will count available capital? So that's just the first question. And the second question is on the RBC ratio. Just wondering why you feel 425% to 175% is the right level and how does that compare to peers? So what sort of metric are you sort of thinking when you set that level? And then the final question is on China, it's a more of a broader question. Really, I was just wondering if you could perhaps talk through some of the growth initiatives in China and in particular, how you might reduce the reliance on Hong Kong?

Okay. Thank you, Abid. Mark. I'm going to have you handle the first one. And Nic will handle some of the initiatives in China. I think on RBC, let me just make a general statement. And Michael, if you think - so, the range comes from a number of things, it's relative to market and what we see going on there, it's discussion with key stakeholders. So think of, you know, rating agencies and others that would opine on the financial strength and commercial rating of the entity. And it's a - I think, we've discussed - so you're into a new RBC, RBC regime, which Jackson adopted early. I've said before, I think it's personally a better regime than the old one, and I think it's more conservative than the old one. So we think that creates a well-capitalized, still high return on equity, business still generating capital and again at very attractive returns and allows Jackson to operate as a standalone entity without the group. So that was the lens at which we looked at, what capital level we wanted for Jackson as a standalone listed entity. Michael, did you want to add anything to that? Is that…

Mike, I think you've captured it, right in terms of the mechanics and the direction and how the range is set and come to. I mean our focus - our principal focus is on economic and economic value creation, economic risk management. We obviously have accounting earnings and statutory capital. They're really important measures and we need to focus on them as well. But there's a number of things that go into it and the RBC is only one component.

Okay, so let's go to Mark please on debt US group leverage.

So in terms of debt, we are looking at and we plan on holding on to our current double AA rating. We think we've got lots of headroom today. I do look to use some of the proceeds that come up to reduce the debt as I've said. So that will be the essence of how we're looking to use that you know, the kind of the proceeds from the Jackson debt rate as it comes up. But the double AA rating, for us financial strength rating is a very - it's an important piece. We've got that today and we plan on holding on to that. And as I said, we've got plenty of scope for that. In terms of the debt raise for Jackson counting as available capital, yes, it does on that particular piece. And as regards to leverage target, I haven't commented or haven't said necessarily a particular target. But I think it's fair to say that we'll be aiming to make sure that in the medium long term that we're comfortably within the leverage range that really sets for that type of rating.

Thank you, Mark. And, Nic, do you want to give a little color on the growth that we're seeing in China and maybe a little bit on sequential, as well, if you don't mind, just give them a feel for recovering market?

Okay. Thanks, Mike. But before I do that, let me just correct the point. It's not Hong Kong or China, or Hong Kong or China instead of Hong Kong. Hong Kong will compound strongly. The needs are real. On the medical side we see them now, on the retirement side and the savings. And the same is true in China, but on a much small - much bigger scale with 1.3 billion people. So a few comments on progress in China. And to Mike's point, China has been a highlight for us so far in 2020, actually showcasing the power of our franchise, not only in that market, but the potential everywhere else. Now the resilience in the depths of the crisis, if you like, at the start of the year and our recovery, since, is really underpinned by three things. The first is the broad geographic reach, we're in 20 provinces. So, you know, not all were affected in the same way at the same time. The second is the balance channel strategy with 36,000 agents, and now 40 bank relationships giving us access to 4000 outlets. And the third one is the diverse product strategy. So we saw sales rebound strongly in the second quarter as restrictions were eased. We grew by 20%, agency grew by 15% in the second quarter. Three drivers, the first was boosted by the recruitment that we did in the first part of the year. In the first four months we upped our recruitment by 32% through January and April. The higher agency productivity that came from the use of virtual tools 67% of our sales were virtual. And a higher focus on H&P, H&P mixed in agency increased from 40% to 60%, fulfilling demand that was kind of obviously there. On the…

Great. Thanks, Nic. And we thank you for the question. Patrick, back to you.

Yeah, thank you very much everyone, on the call. For those who still got questions, you know how to get hold of at the Prudential and we look forward to speaking to you due course with - as we come forward with the next stages. Thank you very much, everyone. And good afternoon.

This concludes today's call. Ladies and gentlemen, thank you for joining us. You may now disconnect.