Prudential plc (NYSE:PUK) Q2 2024 Earnings Call Transcript

Prudential plc (NYSE:PUK) Q2 2024 Earnings Call Transcript August 28, 2024

Anil Wadhwani: Hello, I’m Anil Wadhwani, CEO of Prudential, and I’m delighted to give you an update on our First Half 2024 Results and the progress on the execution of our strategy announced 12 months ago. We are building momentum while addressing known challenges and identifying areas for continued improvement. As a reminder, we set out clear strategic and financial objectives to create shareholder value, driving high-quality sustainable growth and cash returns to our shareholders. Building on the last year’s 47% growth rate, our new business profit for the first half grew by 8%, excluding economic effects to 1.5 billion. We are pleased with this performance given we are lapping the strong first half 2023 competitor when the border between Hong Kong and the Chinese mainland reopened.

New business profit growth for the first half was high-quality and well diversified. We achieved growth in both health and protection and savings new business profit with bank assurance new business profit increasing by 28%. The benefits of our disciplined focus on quality and sustainability, including product and repricing actions, was evident from the improvement in new business profit margin ex economics. Our large and growing, enforced portfolios supported an encouraging 9% growth in operating profits. Our gross operating free surplus generation was very much in line with our expectations. Driving total shareholder return is a priority for us. This includes ensuring we have the right portfolio mix and that our organic and inorganic investments meet our required rate of return.

We are deploying our capital in a disciplined manner, retaining sufficient flexibility to invest in quality new business growth and strategic initiatives, and all while delivering sustainable shareholder returns. Reflecting our robust capital position and in line with our updated capital return framework, we launched a $2 billion buyback program in June to return capital to shareholders. And as part of our dividend policy, we are pleased to announce a first interim dividend for 2024 of 188 million, up by 9% compared to the previous year. We are confident in the outlook for the second half of 2024. This is supported by several key factors. First, we delivered 6% growth in APE in the first half of 2024 on top of the 37% achieved in 2023. Second, we have seen sales momentum in June and coming into the second half of this year as the base effects of the first half 2023 comparators ease.

And third, this momentum is broad-based and diversified across various markets and both across agency and bank assurance channels. We are seeing encouraging early results from our capability build and actions we are taking to drive quality sustainable growth. For the full year 2024, we expect new business profits to grow at a rate consistent with the trajectory needed to meet our 2022 to 2027 new business profit growth objective. And most importantly, we remain confident in achieving our 2027 strategic and financial objectives. As set out in our strategy, which we launched 12 months ago, we are strengthening our capabilities across our pillars and enablers and reinforcing our talent-based strength with senior leadership appointments in key areas.

We aim to create long-term sustainable value for all our stakeholders, including our customers, employees, shareholders, and communities. And as a reminder, we have 2027 ambitions for all these. Our strategy is multi-year, so over the medium term, our progress won’t necessarily be linear. There will be some areas moving more quickly than the others. Through last year and into the first half of this year, we have taken decisive actions. We have identified issues and their causes of underperformance more effectively and we have implemented corrective measures. Our goal is to ensure the company operates more efficiently and more consistently. We are taking the hard decisions which will ultimately lead to high-quality sustainable growth, improved margins and generate operating free surplus for reinvestment and shareholder returns.

Q&A Session

Our recent actions include repositioning our business in China in anticipation of both regulatory and macroeconomic changes. We were the first to move on repricing, and our decision is beginning to bear fruit on achieving a different product mix. And we are starting to see our China business turn around. Consumer demand for protection and retirement products continues to be robust and we have a good product range to offer which is well aligned with the recent regulatory moves. In health, we stood up a new operating model and have introduced medical repricing in Indonesia and Malaysia. We are investing in new talent, launching new products for our customers, and renegotiating contracts with healthcare service providers. Critically, we are working to build a stronger health insurance front book while enhancing the quality of our back book.

And finally, we are investing in our digital estate, the technology and processes that enable our businesses. We want to drive convergence across markets and create economies of scale. Let me share some highlights of what we have accomplished in the first half of this year and outline our focus for the next 12 months. We have a clear purpose to be the most trusted partner and protector of today’s generations and the generations to come by providing simple and accessible financial and health solutions. Because of this, customers are at the center of what we do every day. At the core of our strategy is a relentless commitment to enhance the customer experience by building efficiency in the business. Our customer initiatives across the group are focused on delivering differentiated customer experience that builds advocacy and trust for a lifetime.

Let me share an example with you. In Malaysia, we launched an enhanced customer digital servicing platform through services. By building in self-service capabilities and other enhancements, we have improved registration by 2x and the transactional Net Promoter Score of new customers has increased by 7 points. We are pleased with the improvement in customer satisfaction and will continue to deploy pro services across the group, including nine markets, over the next 12 months. By refining the customer experience, we are enhancing customer retention and creating opportunities to do more with the same customer, generating significant value for Prudential. Our agency network is the lifeblood of our business, and optimizing this capability with technology is crucial to achieving our 2027 aspiration.

We are confident about the underlying drivers of agency. We are seeing parts of this channel delivering good results, but are also cognizant that we have more work to do in certain markets. PRUForce, our upgraded agency platform that enhances agent effectiveness is seeing great adoption rates by our active agents. We are going to deploy PRUForce in all the relevant markets and encourage higher module adoption rates. Let me give you two important examples of these modules. First, we are supporting quality recruitment with PRUVenture, an enhanced trading program for agents who see insurance as a long-term career. Currently, only 10% of our rookie recruits come through this PRUVenture program, but those agents contribute to 40% of APE from new recruits, an impressive result.

We plan to scale PRUVenture into new markets and are accelerating the adoption of this program, particularly in the markets of Hong Kong and Vietnam. Second, PRULeads is our agency performance management module, equipped with intelligent profiling and allocation to prompt activities for conversion. In the first six months, 2 million leads were passed through PRULeads with conversion at 8%, contributing to a 49% increase in sales from Leads managed through this module. We see there is a big opportunity to further drive the productivity of our new agents as we expand this capability across our key markets. I’m also looking forward to welcoming our new Chief Agency Officer starting October, who will be driving our agency strategy forward. Our bank assurance relationships continue to deliver consistent growth as we collaborate to introduce new products to a broader customer base.

We cultivate strong partnerships, enabling us to align incentives and create mutual value across this important channel. This approach is delivering results for us, evidenced by the 15% growth in health and protection new business profits. We are also expanding our capacity in underserved markets. For example, our partnership with CIMB in Thailand is already showing promising results, contributing to 6% of the first half bank assurance APE sales for that market. One area of focus over the next 12 months is better integration into our existing bank assurance partnership platforms. Integration enables us to develop better propositions tailored to different customer segments and helps us identify and acquire new to prove customers more effectively.

Additionally, we continue to seek further agreements with in-country bank assurance partners across ASEAN to diversify our distribution network and we remain optimistic on locking in important partnerships before the end of this year. In our health business, where we have implemented a new operating model, we are focused on meeting the significant growing demand for health products. We are launching new propositions while undertaking disciplinary pricing and cost management strategies to ensure long-term sustainability of our health book and to address medical inflation. We now have claims-based pricing and regular repricing discipline in all our key health markets. This is a good example of how we are taking the learnings from one market, in this case Singapore, and applying it to the others.

While early days, our health business will be a significant lever for us, and we will continue to invest behind it with new features and value-added services. We plan to strengthen our preferred healthcare provider network through priority partner in key markets as well as expand on track renegotiations with service providers. This will help improve health outcome for our customers. On technology, we are committed to leveraging technological innovation to create value for our stakeholders. We are modernizing our technology infrastructure across our markets with investments in data, analytics, and global platforms. One initiative we are focused on is scaling AI. We have built a pipeline of around 100 use cases, which we are working on deploying across the organization.

AI will help us to drive progress in our strategies to enhance customer experience, drive technology power distribution, and improve access to quality healthcare. In the past two weeks, we have announced an expanded partnership with Google Cloud to create and support Prudential’s AI Lab. This is first-of-its-kind for the insurance industry in Asia and Africa. The AI Lab will focus on using AI to solve business and customer challenges and increase our speed to market. In people and culture, we have made 33 strategic appointments to strengthen our leadership team with top tier talent into mission-critical roles. These are pivotal to driving our strategic initiatives forward. I would like to highlight three in particular. Ken Rappold, coming on board in April to lead our transformation.

Anette Bronder, who joined us in May to lead global operations and technology. And we have recently announced Angel Ng, who will be joining us in October to lead our Greater China business alongside customer and both. I’m proud of these appointments also contributing to our target of 40% representation of women in our Group Leadership Team by the end of 2026. And this reflects our ongoing commitment to a diverse workforce. We will continue to strengthen our organizational model, succession pipeline and talent development to support our high-performance culture. These are just some of the initiatives we have underway. Prudential is a unique franchise, with a 176-year legacy and the trust of over 18 million customers. Our extensive and diverse presence across Asia and Africa allows us to tap into nearly 1 trillion of growth opportunity over the next decade.

We hold top three positions in 10 Asian life insurance markets and are the only large Asia-focused insurer with significant scale in both agency and bank assurance channels, alongside an in-house investment arm managing 247 billion in assets. These are strong foundations and our clear strategy underpins our confidence in creating significant value for our stakeholders. One year into our strategy, I continued to be very impressed by the strength and the breadth of our organization and I firmly believe that Prudential is a great franchise that has not yet realized its full potential. We have been building momentum over the past year in executing our strategy while addressing known challenges and identifying areas of continued improvement. Our focus remains on driving high-quality, sustainable growth and delivering cash returns to our shareholders.

I am pleased that in the first half of 2024, we achieved high-quality new business profit growth of 8%, building on the strong growth seen in 2023 of 47%. Our outlook for full year 2024 new business profit growth aligns with our expectations from the start of the year. It is supported by the broad and diverse sales momentum we see going into the second half of this year. Looking further ahead, we continue to be confident in achieving our strategic and our financial objectives for 2027. Thank you for your continued support. We are looking forward to sharing more updates at our quarter three results in November.

Ben Bulmer: We are now one year into the execution of the strategy we set out last August and are continuing to drive the operating improvements needed to deliver our targeted growth in value and capital generation. We continue to focus on driving quality new business, adding 1.5 billion of new business profits or NBP, up 8% ex-economics despite the elevated half year 2023 comparator. Our balance sheet remains in very good shape with a robust capital position and sufficient flexibility. We’ve continued to deploy capital in line with the high-return allocation priorities we have set out, including at the end of June, announcing a 2 billion share buyback. We remain focused on future capital generation drivers, both in terms of new business and our in-force book.

We continue to take meaningful actions to enhance these, including but not limited to, pricing and product actions to move new business capital generation profiles far closer to pre-2023 norms. Our IFRS operating profit grew 9% in the period, and underlying CSM growth remained within our 6% to 9% guided range. Starting from our first quarter 2025 update, we will shift to a traditional embedded value or TEV basis for our embedded value reporting. In the meantime, we will give an indication of TEV comparator results in our remaining 2024 reporting. This starts today by providing an indication of the effects of adopting TEV at the 31 December 2023 balance sheet date, as well as on new business written in that year. Note that our 2027 4.4 billion gross operating free surplus generation objective and our NBP compound growth rate objective of 15% to 20% from 2022 to 2027 are unchanged.

Finally, the actions we are taking to improve the quality of our new business, variances, and growth in asset management profits gives me continued confidence in the achievement of our financial objectives. Turning to delivery in the period and implying consistent period-on-period economics to better discern underlying operating performance, our new business profits grew 8% in the first half. On a reported basis, including the effect of economics, NBP is up 1%, and EEV operating profit grew 9%. Despite growth in embedded value earnings, embedded value per share declined by 4%. This includes reflecting an adjustment to recognize a 49% non-controlling interest in our Malaysia conventional business following the surprising Federal Court ruling in July.

This adjustment applies from this financial year. With respect to capital and dividends, our gross operating free surplus generation, whilst down 4%, is in line with the trajectory we set out to our 2027 objective. The free surplus ratio introduced when we updated our capital management framework earlier this year is down 10 points from year-end at 232%. This reflects the payment of the 2023 second interim dividend and non-operating effects, partially offset by net operating capital generation. In terms of capital returns, we announced our 2 billion buyback in June, and in line with our dividend policy, the 2024 first interim dividend per share is up 9%. Our IFRS operating profit is up 9%, with insurance profits up 6%. Underlying CSM growth was 9% on an annualized basis.

This includes the favorable impact of a new reinsurance treaty. Excluding this, underlying growth of 8% continues to be within our guided range. The 1% reduction in operating profit per share again reflects the Malaysian court ruling and the resulting increase in non-controlling interest. Excluding this effect, operating EPS growth would have been 9%, applying a normalized tax rate to both periods. From a value creation perspective, we remain focused on quality. On our reported active EEV basis, where we reset our economic assumptions to the relevant government bond yield at each balance sheet date, NBP is up 1%, impacted by interest rate movements. Removing this volatility to provide a clearer picture of the underlying business trends, NBP ex-economics grew 8%.

The growth rates referenced on this slide are ex-economics. The 8% NBP growth reflects the benefits of the group’s diversification by channel and strong product capability despite an elevated comparator and a mix shift towards bank assurance and savings products. Strong bank assurance NBP in this half has helped offset a weaker agency year-on-year growth, owing to the high base effects in Hong Kong and Mainland China. Whilst higher relative bank assurance and savings product growth would ordinarily lead to a contraction in margin, the benefit of our disciplined quality focus and pricing actions is evident from the 5 percentage points added to the half year ‘24 new business margin. These pricing actions were across a number of markets, including Hong Kong, Singapore and Mainland China, and are beneficial to both capital generation as well as NBP margin.

Looking forward, the elevated comparators we flagged in respect of the first half will dissipate as we move into the second. And as Anil said, we’ve seen sales momentum in June continuing into the second half of the year. As we continue to deliver on our operational transformation objectives, this will drive growth in agency and also our health and protection business, providing further channel and product mix tailwinds to margins. This supports our confidence in reaching our NBP and OFSG objectives. The benefit of our broad geographic footprint is evident over the first half of 2024, with seven Asia markets and seven Africa markets delivering growth in NBP on an ex-economics basis. Hong Kong remains a key driver with NBP growth of 9% ex-economics, despite the year-on-year reduction in sales, as we focus on quality, sustainable growth.

In the Chinese Mainland visitor segment, average case sizes were stable compared to the second half, but below the first half of 2023. Lower Mainland Chinese visitor sales were partially offset by robust domestic production, which grew 13%. Hong Kong margins were 4 points below the 72% year-end outcome, as the headwinds of higher interest rates at the end of June were partially offset by pricing and product mix. Our bank assurance channel, in particular, continues to make very good progress, increasing health and protection mix to 17% of sales, up 7 points compared to last year. On an ex-economics basis, Hong Kong margins expanded from year-end by about 4 points to 76%. Our growth markets segment delivered another strong performance, with NBP up 17%, led by a continued broadening of distribution of our very successful power product suites in Taiwan and in Thailand, driven by new product launches and the new CIMB Bank Assurance Partnership.

Singapore momentum continues to build, with NBP up 12% year-on-year, supported by agency and bank assurance sales growth of 18% and 15%, respectively. In Mainland China, CPLs, NBP contracted 2% on an ex-economics basis, as lower sales were largely offset by an improved margin. The 15% reduction in sales volumes reflects a high comparator, resulting from our decision to reprice ahead of the market at the start of the second quarter of 2023. CPL’s bank assurance momentum has improved, with sales volumes doubling relative to the second half of 2023. On the agency side, momentum improved in the second quarter. CPL’s overall margin, ex-economics grew 6 points, again driven by our focus on product mix. On a reported basis, the margin was 35% as a result of lower interest rates.

In Malaysia, NBP was stable, as a reduction in agency NBP was offset by growth in bank assurance. Finally, in Indonesia, new business profits reduced 18%, impacted by the ongoing effects of regulatory changes impacting investment link products and our own repricing actions. These actions, along with a claims-based pricing offering launched in the second quarter and ongoing negotiations with healthcare providers, are to ensure that our medical book remains sustainably profitable. Embedded value operating profit growth was driven by a higher in-force result reflecting business growth in 2023. We also saw improving, albeit still negative, operating variances. About half of the variances represent our ongoing investment to enhance our capabilities.

Eastspring delivered improved profits up 9% after tax. Combined, this resulted in EEV operating profit growing 9% and an ROEV of 11%. To aid comparison with peers, we have restated the ROEV calculation using the start period equity excluding goodwill and intangibles as the denominator. Non-operating movements reflect FX translation headwinds and negative economic effects. The latter were driven by higher interest rates in most markets and lower rates in Mainland China, only partially offset by positive equity market performance. Lower rates, as seen in a number of markets since the end of June, would mechanically reverse this. Continuing to drive growth in NBP, improving in-force variances and ongoing capital discipline remain key to enhancing our returns on embedded value.

The Group’s capital position is robust. As the execution of the buyback only commenced on 24 June, with 18 million returned by the end of the period, this had a minimal impact on our capital position. We expect to complete 0.7 billion of our share buyback by the end of this year. Our regulatory shareholder cover ratio stood at 282%, with a surplus of 15.2 billion. The moderate reduction from year-end reflects the net impact of underlying capital generation, offset by investment in new business, the payment of the 2023 second interim dividend and non-operating effects. The Group’s free surplus stock was £7.9 billion, down from the £8. 5 billion at the start of the year. The free surplus ratio of 232% was down 10 points from year-end, both essentially reflect the same drivers as regulatory capital.

I will return to this shortly. As I mentioned earlier, gross OFSG was 1 4 billion, in line with the path to our 2027 objectives and includes 0.1 billion of investment in capability enhancement. Business unit remittances of 1.3 billion for the period include an element of stock being brought up to the group, and for this year have been very much weighted towards the first half. Strong remittances in the period, partly offset by the payment of the 2023 second interim dividend lifted holding company cash to 4 billion. Note that our end June liquidity position is not yet materially affected by the buyback or the 0.2 billion impact of the payment of the 2024 first interim dividend. Finally, our leverage remains comfortably within the AA range and we retain sufficient financial flexibility.

I’ll now turn to how we’ve deployed the capital we generated in the period. As I mentioned, in-force capital generation was in line with our expectations. This reflects the Group’s high-quality and profitable stock of in-force business, which generates a predictable flow of capital available for deployment. You can see that the in-force emerging capital generation of 1.2 billion is consistent with the overall 2024 expected return of 2.4 billion. Along with asset management profits and reduced adverse variances, our underlying in-force capital generation was 1.5 billion. Note that in our accounts, our gross free surplus generation of 1.4 billion is presented net of investment to enhance our capabilities. We then deployed this according to our stated capital management priorities, investing 0.4 billion in high-quality new business, adding NBP of 1.5 billion, 0.1 billion in enhancing our capabilities in line with our strategic plan, and a further 0.1 billion in restructuring costs.

Finally, we paid the 0.4 billion 2023 second interim dividend, along with 0.1 billion of interest payments to our debt holders. We introduced the free surplus ratio with our Capital Management Update in June. We define this in terms of capital resources as the addition of group free surplus and the required capital of our life business divided by the life required capital. Our normal operating range is between 175% and 200%. And with our 2023 year-end position at 242%, we announced the 2 billion capital return via a buyback. From an operating perspective, the key drivers of the ratio are gross in-force capital generation, less the impact of new business strain. The gearing in the ratio amplifies the effect of new business strain. In the period, the other main factors were the payment of the 2023 second interim dividend and non-operating effects impacting free surplus, reflecting the combination of higher interest rates in many markets and lower rates in Mainland China.

As I mentioned, the buyback impact in the period is minimal. On a pro forma basis, if the entire $2 billion buyback is deducted, the ratio would be approximately 200%. Looking forward, other than the execution of the buyback, the key drivers of the free surplus ratio development will be retained operating free surplus and the development of life-required capital. As I previously mentioned at the recent Capital Management Update, we continue to expect to operate at the upper end of the 175% to 200% operating range over the next few years. Monetizing the value of in-force book into capital generation is a critical measure for us and a proof point that value added is real. This is why we introduced two financial objectives in August last year, growth in NBP and a gross OFSG capital generation target of above 4.4 billion in 2027.

We have shared the trajectory of gross OFSG we expect to deliver over the objective period before, and this is shown on the left-hand chart. By way of reminder, in the early years, the trajectory is relatively flat, reflecting both the impact of slower new business growth through the COVID period, adverse variances, and the cost of our investment in capabilities. From the end of 2025, we expect an acceleration of growth towards our target, driven by the combined effect of higher profitable new sales, an improvement in variances as repricing and other actions take effect, growth in asset management earnings, and the completion of our investment in capabilities. You can see these effects coming through in our half year 2024 performance. The expected OFSG transfer from in-force business is down 8% to 1.4 billion and is the cumulative result of lower new business sales over the COVID period.

Operating variances remain negative, albeit better than the prior period, and include 0.1 billion of investment in our capability program. We expect further improvement over the next years driven by repricing and the benefits of the full implementation of our health strategy. Finally, asset management earnings were up 9%, driven by average FUM growth of 6%. Looking forward, continuing to grow profitable, high-quality new business is key, both to our 2027 NBP objective and our gross OFSG objective shown on the left. The other building blocks towards this objective include the investment return on free surplus, our asset management profits, and the elimination of adverse operating variances. New cohorts of profitable new business add to the level of expected future OFSG.

The chart illustrates how the OFSG we expect to emerge in 2027 from business in-force at the end of 2021 builds year by year with each cohort of new business. Importantly, the contribution of new business added in the first half of 2024 to the level of expected OFSG in 2027 is up 12%, ahead of the 6% growth in new sales. This is shown on the right. These positive OFSG jaws reflect the same product and pricing actions that benefited NBP and the NBP margin, despite a relatively lower new business contribution from our agency channel and health business. If you have used our 2023 new business monetization schedule to project our growth in gross OFSG to 2027, keep in mind that the 2023 cohort has a slower expected cash emergence than the 2022 cohort.

This impacted the 2027 year OFSG edition, which in relation to new APE, was appreciably below that in 2022 and is shown on the left-hand chart. This was a deviation from historical norms resulting from changes to country, product and channel mix. There are various factors here, including in Hong Kong, where we capitalize on strong demand for savings products from Mainland Chinese visitors, and in Vietnam and mainland China, for reasons we’ve highlighted before. We expect the positive new business cash flow momentum evident in the first half of this year to continue, illustrated in the chart on the right. The full effect of pricing actions taken in the first half will emerge over the rest of the year, lifting the rate of OFSG added in relation to APE to be more comparable to 2022 levels.

This, along with the benefit of growth in our agency channel and health business improving mix, will enhance future cash generation. These new business pricing actions, coupled with our ongoing efforts to return to net positive variances, growth in asset management and our ambitions for agency and health, give us continued confidence in reaching our 2027 objectives. Anil has outlined the actions we are taking to support and enable the execution of our strategy, including the billion-dollar investment in enhancing capabilities. To date, we have invested 230 million to the end of June 2024, 130 million in the latter part of 2023, and 100 million over the first half of this year. We continue to expect another 150 million to 200 million investment in the second half of this year and a further 250 million to 300 million in 2025, with the balance being invested in 2026.

Around 60% of our investment to the end of June has been focused on distribution. Within distribution, our investments have focused on quality recruitment through PRUVenture and driving technology-enabled productivity through our agency platform, PRUForce. On the bank assurance side, we are very focused on customer penetration and driving the overall contribution of health and protection sales upwards. About 30% of our investments have been directed towards our customer pillar. In addition to PRUServices, we are also deploying a customer engagement platform to automate and personalize customer engagement and marketing. This platform is live in Singapore and Thailand and we intend to roll this out across seven businesses over the next 12 months.

Finally, in terms of health, we have made significant strides to onboard new capabilities, address medical inflation issues, and launch new customer propositions. Over time, these will drive improved consistency of execution, increased productivity, improved customer experience, and increased operational efficiency, all acting to accelerate sustainable value creation. Turning to our IFRS results, profitable new business in half year 2024 grew the CSM by 1.2 billion and combined with the unwind of the CSM balance increased the CSM by 2 billion. The new business CSM result includes a favorable one-time effect from a new reinsurance treaty of 84 million. On an annualized basis, the CSM release rate was 9.9%, similar to the pattern seen previously.

Underlying growth, excluding the reinsurance treaty benefit, continues to be within the 6% to 9% guided range, which, as I have said before, is consistent with our NBP 2022 to 2027 growth objective. Economic and other variances reflect the impact of a higher discounting effect in the Hong Kong business for variable fee products, and on the operational side, similar drivers to our embedded value result, including the CSM share of investment to enhance our capabilities and adverse persistency in Vietnam. Overall, the CSM declined by 2%, driven by economic and FX headwinds. Based upon current interest rates, we would expect to see these effects moderate. Group operating profit grew 9%, driven by a 6% increase in the insurance results shown on the left.

The CSM release continues to account for the majority of our IFRS insurance operating profit and reflects the high-quality and predictable nature of our earnings. The net investment result of 0.6 billion reflects the long-term return on assets backing equity and capital and the long-term spreads on GMM business. Long-term rates are applied to the opening value of assets and therefore increases in assets reflecting business growth and positive market movements in 2023 have led to an increase in this income. Turning to the Group P&L on the right. Higher segment profit and stable corporate center costs lifted group operating profit growth to 9%. Eastspring’s operating profit was up 8% before tax. At group level, we continue to expect restructuring costs for full year 2024 to be similar to full year 2023 before reducing towards historical levels with the completion of investments to enhance Eastspring’s operating model and our back office efficiency and scalability.

And looking ahead, I’d remind you of the mechanical reduction in investment yield from lower central cash balances as the buyback is executed. Finally, we reflect the impact of negative short-term fluctuations through our P&L rather than OCI. These fluctuations reflect the impact of interest rate movements on GMM liabilities and surplus assets, along with lower interest rates in mainland China. Since the half year, given subsequent interest rate movements, some of these effects will have reversed. As I mentioned in March, having completed the IFRS 17 project, we have been actively considering TEV and have now decided that starting from our first quarter 2025 update, we will shift entirely to a traditional embedded value or TEV basis. This will enhance the transparency of underlying growth trends in the business and allow greater comparability with our Asia peers.

This is an accounting change that does not affect the economics or ultimate cash flows earned by the business, it is substantially about discounting. Consequently, there is no change to business strategy, definitions of free surplus, or how we manage our capital and our dividend policy. Conversion centers around three things. The first and dominant impact is an increase to risk discount rates up 2.3 percentage points to 8.2% on a weighted average basis comparable to our peer. This is despite our UK style with profit offerings with relatively limited risk to the shareholder and conservatively set equity risk premier. Second, we have introduced long-term risk-free interest rates aligned to the Group’s long-term assumptions. And third, we’ve accounted for future recurring head office costs within the embedded value calculation.

The net effect of these changes at end 2023 results in a group TEV of 34.2 billion, equivalent to 1,241 cents, or 973 pence per share, and a full year 2023 TEV NBP of 2.3 billion. Mechanically, while these changes result in a lower EV, they also result in a higher return on embedded value, or ROEV, which we have estimated increases for full year 2023 to between 13% and 14% from 12% on an EEV basis. Looking forward, we see scope to increase this ROEV by delivering NBP growth, eliminating adverse variances, growing our asset management earnings, and managing our capital with discipline. Further details and accompanying notes are provided in the appendix to my slides. As I mentioned, TEV is an accounting change. The actual cash flows delivered do not change.

Under TEV, with a higher discount rate, the dollar value of NBP is reduced. There is no change to our NBP growth objective, which remains a CAGR of 15% to 20% between 2022 and 2027. On a TEV basis, the implied 2027 NBP objective range is 3.4 billion to 4.2 billion. There is no change to our capital generation objective of over 4.4 billion of gross OFSG in 2027. In summary, we are working hard to deliver the operating improvements needed to deliver sustainable growth in value and capital generation. We continue to focus on driving quality new business, with NBP up 8% ex-economics despite the elevated half year 2023 comparator. Our balance sheet remains in very good shape with a robust capital position and sufficient flexibility. We remain particularly focused on future capital generation drivers, both in terms of new business and our in-force performance.

Starting from our first quarter 2025 update, we will shift entirely to a TEV basis for our embedded value reporting. Our 2027 gross OFSG and NBP CAGR objectives are unchanged. Finally, the improving quality of our new business, the management actions we are taking, and our continuing sales momentum give me continued confidence [Ends Abruptly].

End of Q&A: