Asia:
accelerate

Asia (excluding Japan) is leading the world in terms of Gross Domestic Product growth. Over the next five years it is expected to generate US$5.5 trillion³ of new Gross Domestic Product, more than the US and the other advanced economies combined.

Economic growth is translating into the rapid increase of the Asian middle class. Between 2009 and 2020 it is estimated that there will be over 1.2 billion people who will have been elevated from rural subsistence to urban lifestyles. Families are getting smaller, life expectancies are lengthening and the incidence of chronic diseases is increasing significantly.

As people move into the middle class, their increased wealth and higher income provide the opportunity to make financial plans. Typically the first stage is to provide protection for the family and establish a regular savings plan through a life insurance policy.

Social welfare provisions vary by market but generally fall well below the levels people need to sustain their lifestyles in the event of a personal tragedy such as the diagnosis of a critical illness. Also, while basic medical services may be provided by the state, there can be a high level of out-of-pocket expenses, creating demand for financial solutions to significantly improve an individual’s experience through access to private medical services. Therefore, critical illness and medical riders are popular additions to life insurance policies.

Traditionally Asians would have relied on their children to provide for them in their retirement, but increasingly people are making their own financial provisions and life insurance policies are a popular part of a retirement plan.

Once the savings and protection solutions are in place, there is the opportunity to invest. Single premium insurance policies are also important in more developed markets and it is also likely that customers will increasingly seek access to different asset classes through mutual funds as their wealth grows and their financial needs become more sophisticated.

Each Asian market has evolved its own regulatory regime depending on the heritage of the industry, experiences and developmental priorities.

Regulators across the region are generally keen to promote the growth of the life insurance industry, as they appreciate the social utility of providing financial security to individuals and the way insurers channel unproductive cash savings into long-term investments in the economy. However, they are imposing higher standards on the industry and monitoring compliance more actively, with increasing focus on the quality of advice distributors provide and the suitability of the products offered. Although assessments of solvency can vary considerably market by market, there is increasing convergence on risk-based calculations.

Each market is unique and our overarching regional strategy is very specifically tailored to opportunities that reflect the many differences in each country, including its stage of economic development, cultural preferences, regulation, the competitive landscape and our own risk appetite.

Markets with highly attractive economic and demographic characteristics represent the greatest potential for us, which at present we collectively term the ‘sweet spot’. This comprises Indonesia, Hong Kong, Singapore, Malaysia, Vietnam, Thailand and the Philippines. We have strong market positions in all of them, including five countries where we have the leading market share.

The life insurance markets in India and China, while attractive in terms of scale, are more challenging for non-domestic life insurers to participate in. Working within these constraints, Prudential Corporation Asia has two joint ventures with leading market shares in these countries and is very well placed as these markets continue to develop.

Since 2008 we have de-emphasised Korea and Taiwan, as the mass life insurance markets are currently driven by product and distribution options that are not attractive to us and consequently we have concentrated on developing successful niche positions. In 2013 we announced our intention to sell our Japan life business, subject to regulatory approvals. However, the mutual fund industries in these markets are highly attractive and, through Eastspring Investments, we are able to take advantage of exciting growth opportunities.

We also continue to plan for the longer term by selectively investing in new countries where we see opportunities based on positive demographic trends. In Cambodia our new life business has made a good start and the relationship with our distribution partner ACLEDA Bank is working well. We have also opened a representative office in Myanmar.

Prudential Corporation Asia is well positioned in terms of its scale and diversity of distribution. Almost 460,000 agents produce around 60 per cent of sales and the remaining 40 per cent comes mainly from partnership distribution agreements that include access to 15,700 active bank branches throughout the region. At the core of our distribution model is our appreciation of the importance of face-to-face interaction and the need to provide customers with high quality advice.

Our success with agency is driven by a relentless focus on quality and professionalism, starting with the initial recruitment and training. We actively manage agency activity (excluding India, up 33 per cent since 2009) and agency productivity (excluding India, up 13 per cent per annum since 2009).

We have exclusive distribution agreements with a number of banks including Standard Chartered Bank and UOB. In 2013, we also added Thanachart Bank, significantly increasing our distribution reach in Thailand. Success in bancassurance depends on the ability to activate relationships quickly and focus on long-term customer solutions through in-branch, face-to-face advice-based selling.

Our product portfolio is centred on providing a robust financial safety net to customers at a reasonable price. The product mix reflects this with around one third of premiums directed to health and protection products, one third to unit-linked products and one third to participating products. This profile shows that we are de-risking our customers’ lives while also de-risking the business from the shareholders’ perspective.

Over 90 per cent of our new business is regular premium.

Prudential Corporation Asia has over 12 million life insurance customers and 19 million in-force policies. We actively manage customer satisfaction levels across multiple indicators, but key statistics are the numbers of customers who keep their policies (our retention rate is 93 per cent), and the number of customers who buy more policies from us (in 2013, 40 per cent of APE sales were from existing customers). This reflects the success of our advice-driven approach and shows that customers appreciate the value of the products we provide.

Innovations in service are also important to customer satisfaction. Some are technology based such as e-submissions and automated underwriting, but another key component is innovation with the human touch such as Indonesia’s PRUhospital friend.

Eastspring Investments, Prudential’s asset management business in Asia, manages investments for Prudential’s Asia, UK and US life companies and also has a broad base of third-party retail and institutional clients. It has extended distribution reach to the US and Europe.

Eastspring Investments was awarded the ‘Best Asset Management Company of the Year – South-east Asia’ at The Asset Triple A Investor and Fund Management Awards 2013. Eastspring Investments also received multiple accolades for its investment capabilities, including five fund managers across four markets rated as top 10 ‘2013 Most Astute Investors in Asian currency bonds’ by The Asset Benchmark Research; and the business in Malaysia was named ‘Best Group in Equity’ by ‘The Edge Lipper Malaysia Fund Awards 2014’.

Prudential is a committed member of the communities where we operate and through the Prudence Foundation, we drive social responsibility activities, with a focus on providing disaster relief, promoting financial literacy, and children’s education.

During 2013, Prudential extended its highly successful children’s financial literacy programme, ‘Cha-Ching’; for example, this has now been adopted in the Philippines as part of the school curriculum.

In April 2013, the Prudence Foundation announced a series of four multi-country programmes in partnership with Save the Children and Plan International with two main objectives: to enable communities to better cope with disasters, and to help children receive a better start to their education through the First Read initiative. More than 170,000 people in Cambodia, Indonesia, the Philippines, Thailand and Vietnam are expected to benefit from these programmes over a three-year period.

In November 2013, the Philippines suffered one of the worst disasters in its history, Typhoon Haiyan. Prudential has mobilised resources and committed to provide US$2 million (£1.25 million) to the immediate disaster relief and longer-term community rebuilding efforts.