M&G H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 19, 2025

There are 13 speakers on the call.

Operator

Good morning, everyone, and welcome to M and G's twenty twenty four Full Year Results Presentation. Today, as usual, we'll have Andre and Catherine going through the results, but they will also be joined by Clive Bolton and Joseph Pinto, the CEO of our live and asset management businesses respectively. So it's gonna be a slight longer than usual, but don't worry, we'll keep it, still short and crisp to about forty five minutes, fifty minutes. And then after that, we'll move on to Q and A. So without further ado, Andre?

Speaker 1

Thank you. Good morning, and welcome to M and G's full year results. It is a pleasure to be here with you. Today, I am joined by Catherine, who will cover our strong financial performance and by Joseph Pinto and Clive Bolton, who run our asset management and life segments respectively. They will share more color on the progress being made and explain the contribution of our business to the growth ambition for M and G and how we are collectively delivering for our clients.

Speaker 1

But first, let me start with a review of our main achievements. In 2024, we delivered meaningful progress across our three strategic priorities. First, on financial strength. By generating over $900,000,000 of capital, we beat our upgraded OCG target. This allowed us to reduce debt and to increase the dividend cash spend for the first time since we listed in 2019.

Speaker 1

Given our recent achievements and our confidence in the outlook of the business, I am delighted to announce that from today, we're moving to a progressive dividend policy. Second, on simplification. We moved at pace on our transformation efforts, delivering 188,000,000 of savings in the first two years of the program. Given this progress, we are upgrading our cost target again to $230,000,000 by the end of twenty twenty five. And let me be clear, we will continue to tackle costs even after we achieve this target.

Speaker 1

Our focus on cost discipline is also clear in asset management, where despite inflationary pressures and investments for growth, we reduced absolute costs by 2% and the cost to income ratio by three percentage points. All this while decommissioning legacy IT systems and improving client outcomes. And finally on growth. Group operating profit was up 5% year on year, driven by the strong asset management result, which improved by nearly 20%. I'm very pleased that we achieved this growth, while further internationalizing the business and expanding our private markets capabilities.

Speaker 1

In life, we continued to build our presence in the BPA market and launched our new value share proposition. We increased new business volumes by 50%, reached nearly $900,000,000 of premiums and offset the runoff of the in force book. When I started at M and G, the immediate priority was to strengthen the foundations of the business. Despite a challenging environment, we have done this. While we can always go further by fixing the fundamentals, we can now focus more on delivering sustainable growth to our shareholders.

Speaker 1

We are now ready to grow, and we will do so with discipline. First, financial discipline, maintaining a strong balance sheet. Secondly, operational discipline, continue tackling costs and improve our operating leverage. And finally, with a clear commitment to profitable growth across both asset management and life to underpin a progressive dividend. Only a couple of years ago, M and G had an asset manager with shrinking earnings, inefficient wealth operations and a legacy insurer in runoff.

Speaker 1

Now we operate an integrated, balanced and synergistic business model. One where the success in the asset manager is built in conjunction with the success of the life insurer. This business model is our competitive advantage. It is what differentiates us, what gives us confidence in the long term prospects of M and G. Today, we combine an international active asset manager and a scaled life business, bringing together strong investment capabilities with long term capital.

Speaker 1

With $185,000,000,000 of assets, our life operations provide scale and seed funds to the asset manager. Our asset manager then leverages this to foster innovation and expand our business with external clients and internationally. With over half of the asset manager AUM coming from third parties, of which the majority are based outside The UK, we have already proven that this model delivers real value. It is a model not dissimilar to many U. S.

Speaker 1

Alternative Asset Managers, and our 74,000,000,000 private markets franchise proves exactly that. We now have established capabilities in real estate, private credits and impact investing. And what gives us a unique advantage and will help fuel long term growth is the With Profits Fund. Let's just get a little bit of water. It's the voice.

Speaker 1

Sitting with life, it is a business within a business. With its own ring fenced balance sheet and nearly 6,000,000,000 of surplus capital ready to be deployed. Using this resource effectively means gathering assets and diversifying earnings without adding risk onto our balance sheet, but instead complementing the shareholder risk appetite. We have a winning business model, and we are clear about what we want to achieve. Thanks to the support and seed capital from the Life business, we will continue to grow in Asset Manager and expand our presence in private markets, focusing on high value areas of structural growth And bringing together our investment capabilities and with profits capital, we are developing new insurance solutions that will drive funds into the asset manager.

Speaker 1

After being in runoff for nearly a decade, we are turning our life operations into a growth engine for the group. Combining a thriving asset manager with a thriving life insurer means we will deliver more resilient and differentiated earnings, both in The UK and internationally. Our business model also means that we can address opportunities that others cannot tackle as effectively. On this page, you can see some of the key dynamics of our industry. Clients, in particular, retail savers are still under allocated.

Speaker 1

The rate environment has changed dramatically and investors are still adjusting to it. And finally, in these uncertain times, clients want to partner with asset managers that are experts at what they do, but that also have skin in the game and are aligned to their goals. Working together, our business can capitalize on these trends. Our recent Bolton acquisitions are good example of this as they were enabled by the unique setup of our group. We added two high quality teams that complement the asset management, private markets capabilities and fit the strategic asset allocation of the light business.

Speaker 1

With Beaumont and P Capital Partners, we can access fast growing segments in real estate and private credit, where we will rapidly scale also thanks to the €850,000,000 of seed capital from Life. But there is more we are doing to combine our asset management and Life capabilities. The launch of the value share BPA and our fixed term annuities means we now have client propositions that suit any rate environment and include guaranteed smoother than unsmoothed solutions. It also means that here in The UK, we can offer defined benefit pension schemes all the services they need across the de risking journey. And when we work with clients, they know they access the same solutions we use.

Speaker 1

Ourselves, very often, we co invest in the same strategies, aligning our interests with theirs. This builds mutual trust and creates long lasting partnerships. Through our business model, we are well positioned to serve clients and to grow. And with that, I will hand over to Joseph, who will outline the progress we have made in asset management.

Speaker 2

Thank you, Andrea, and good morning, everyone. I'm delighted to be with you today and to talk about what we are doing in asset management to support the growth of the group and address our client needs. Let me start with our clear ambition, which is to be one of the leading active asset managers in Europe with strong and growing private market capabilities. This is a high margin area of structural growth where we already have a strong presence and track record. As Andrea has already explained, M and G's business model is a key competitive advantage as we deliver on our ambition.

Speaker 2

For over twenty years, we've been developing new investment capabilities, thanks to Seed Capital from the Life business. Our focus is to further build on this successful partnership as we then externalize and scale the solutions that we create to serve our internal clients. This synergistic relationship drives innovation and fuels growth. On this page, we also show our priorities. Investment excellence is the core objective of any active asset manager.

Speaker 2

As we maintain our current strong performance, we are expanding both our distribution reach and investment capabilities. Growing internationally and in private assets are clear opportunities for us. But, at the same time, we also need to protect our home market here in The U. K. Let me go through these points in a bit more details, starting with investment performance.

Speaker 2

So, delivering excellent client outcomes is our number one priority. Putting client needs at the core of what we do and fulfilling those needs is the very reason we exist. This is why I'm very pleased that we have achieved strong investment performance over a sustained period of time. This is true for our institutional franchise with over 75% of our assets outperforming their benchmark, but also true for wholesale where according to UBS research, we have delivered the best investment performance across listed European peers for more than two years now. Behind this strong performance, there are strong investment teams.

Speaker 2

And we continue to invest in them and attract top talents. Andreu Chilton and Emmanuel Dublin have recently joined us to lead our investment teams together with Fabiana Fedeli. Their experience will support our efforts to further improve the quality of our proposition across public and private markets. So benefiting from strong investment performance, we have focused now on broadening our client reach. Our international development has been a clear success story.

Speaker 2

Over the past four years, despite continued market volatility, we've delivered consistently positive net flows outside The U. K. And have grown our international assets by 50% to nearly billion. Today, we have an established and growing international presence with 56% of our third party assets belonging to international clients. This gives us access to more markets and more growth opportunities.

Speaker 2

It also improves our financial resilience by diversifying our earning streams. You've heard from Andrea in the past how we have strengthened our distribution teams, particularly in Europe and in Asia. In parallel, we've also expanded our offering, making it more relevant to these clients. For example, we can now leverage our global credit platform after having added U. S.

Speaker 2

Capabilities in Chicago and Asian ones in Singapore. At the same time, we also built out our Asian equity and Asian real estate offerings. So with a more international distribution network and a more international product range, I'm confident we will continue to grow internationally. But growing internationally does not mean forgetting our home market, where today we manage billion of third party assets and which remains a core focus of the group. Defined benefit pension schemes are the largest client segment in The U.

Speaker 2

K. But high rates meant that they have accelerated their derisking journeys moving to buyout or to simpler buy and maintain strategies. But while structural challenges remain, these headwinds are starting to abate for us at M and G. Today, we are less reliant on this segment than we were in the past, both because of its smaller scale and because of our successful diversification internationally and within The U. K.

Speaker 2

Also, the emergence of Honon as a potential endgame strategy for larger debit schemes, it is a clear opportunity we are actively targeting. Here, we can leverage our strong fixed income expertise combined with our life insurance capabilities. Together, we can help these schemes achieve greater certainty on their future cash flows by providing partial guarantees or underwriting key risks. Other segments of The U. K.

Speaker 2

Market also offer opportunities for us. For example, most insurers and DC pension schemes want to increase their allocation to private markets, while local government pension schemes are keen to deploy capital in local investments. Our strong credentials in this space position us extremely well to win business here. Finally, the recent launches of our first LTAF vehicle and the U. K.

Speaker 2

Social Investment Fund will further support our efforts in The U. K. I want now to expand on our private market capabilities. With billion of assets and million of revenues across real estate, private credit, impact investing and infrastructure, we already have one of the largest franchises in Europe, built gradually over twenty years of continuous collaborations with the internal clients. This fruitful long term partnership clearly benefits from M and G's decision to reopen the annuity book eighteen months ago.

Speaker 2

This brings fresh assets into the group, assets that require allocation to private markets and support further innovation. This said, while most of our private market strategies were originally ceded by the Life business, we successfully scaled them by attracting third party capital, which now accounts for 59% of the asset base. So consistently winning third party business is testament to the quality of our offering. And it shows how much institutional investors value the opportunity to deploy capital alongside our internal clients. They know that we have real skin in the game and that our incentives are fully aligned with theirs.

Speaker 2

To accelerate growth in private markets, we've recently completed two bolt on acquisitions. So we targeted boutiques with investment philosophies aligned to ours and strong track records. In both cases, we pursued opportunity in asset classes where we already have a strong presence, but where we were missing specific strategies that benefit from strong client demand and positive market trends. In real estates, we have long been experts in the so called core strategies that typically present a lower risk return profile. Boumont, on the other hand, is a specialist in the value add space segment.

Speaker 2

An area where we see great opportunities given the recent dislocation in real estate markets. Similarly, Peak Capital Partner brings an established track record in the non sponsored lending space. This neatly complements our existing capabilities and allows us to tap into one of the fastest growing sectors within private credit. Furthermore, both firms had international sourcing capabilities, expanding our presence in Europe and supporting our efforts to attract international clients. As we have said many times before, all this was made possible by M and G's differentiated business model.

Speaker 2

These acquisitions are consistent with the strategic asset allocation of the Life business, which has committed million in seed funding. As I have hopefully made clear, our ability to leverage our own balance sheet to support growth and innovations remains one of our key competitive advantages. With that, let me hand over to Clive, who will outline how he's driving the Life business.

Speaker 3

Thank you, Joseph, and good morning, everybody. As Joseph has just done for asset management, I will now give you an overview of the Life business and the opportunities we're pursuing. Describing Life eighteen months ago would have been very simple, a legacy book in runoff with only one major open product, PruFund. Since then, a lot has changed. We have reopened the annuity book, launched new solutions, and are turning this business into a growth engine for the group capable of driving more flows into the asset manager.

Speaker 3

We are doing this by developing solutions that meet real client needs, leveraging both our balance sheet and our unique WithProphe Fund. And whilst we're broadening our offering through the WithProphets Fund, we're also changing our relationship with it, shifting solutions to a simpler fee based model for M and G. On this page, you can see the markets that we are targeting. In The UK, we operate in both the corporate and individual space. The bulk purchase annuity market continues to be attractive, with new business flows expected to remain strong over the coming years.

Speaker 3

And since our reentry in September 2023, we have already completed six deals worth a combined premium of £1,700,000,000 And not all these are traditional BPAs. The largest one with a premium of £500,000,000 is an innovative value shared transaction. This is a new solution unique to M and G that has already attracted interest from many other potential clients. And we're also building a with profit BPA solution, which we aim to launch next year. In the retail market, PruFund remains our anchor proposition.

Speaker 3

It is one of the most successful products in The UK with £64,000,000,000 in assets and continues to generate sales of over £5,000,000,000 a year. But since bringing our wealth and life operations together, we have also focused on broadening our offering with guaranteed solutions as these are attractive in this higher interest rate environment. Just last month, we soft launched our with profit fixed term annuity, which aims to offer a competitive guaranteed income when compared to conventional non profit products, but with the potential for an additional modest bonus. And we are also working on a lifetime annuity version of this product. And finally, let's look at the international market where we continue to seek opportunities to grow using our with profits fund.

Speaker 3

In a few weeks' time and subject to local regulatory approval, we will launch a proofund like guaranteed solution in The Middle East. All these new and existing profit propositions will drive profitable growth and funnel assets towards the asset manager, and we expect to allocate a significant proportion of them to private market solutions. We often speak about the with profit funds, so I wanted to explain what it is and why it is a unique source of competitive advantage for us. First of all, it is a 170 7 year old old investment vehicle with a great performance track record that exists to write with profit business for the benefit of its clients and in turn, M and G. It also has unparalleled scale.

Speaker 3

With nearly £128,000,000,000 of assets and nearly 6,000,000,000 of surplus capital on its ring fenced balance sheet, this size and financial strength means it can effectively differentiate its investments across a wide range of asset classes and deliver a great client outcome. Hence, there are two reasons why it is uniquely placed to support M and G's growth ambitions. First of all, it has significant capacity to write new insurance business and is becoming the primary underwriter for the group. Whilst WithProfit Capital needs to be appropriately rewarded, it allows M and G to attract assets without adding significant risk to its shareholder balance sheet. Secondly, the large scale of the fund supports our asset manager, generating a meaningful stream of income that diversifies our earnings mix.

Speaker 3

On this page, we illustrate the relationship between the With Profit Fund and the rest of the group. Although the With Profit Fund has the appetite and the capital to write insurance business, it does not have any operational or investment capability of its own. Therefore, it needs parts of NICE to deliver these services, and our life and asset management businesses are exactly that. The Life business manufactures, distributes and administers our with profit products, whilst the asset manager runs most of the mandates needed to satisfy the with profit strategic asset allocation. In exchange, the life business participates in the with profit returns on a ninety ten basis, whilst the asset manager receives an annual fee for the assets it oversees.

Speaker 3

These two income streams are a significant component of the group's earnings. And to further improve this profile, we are shifting all the new with profit solutions to a hundred naught basis. Whilst it will take time for these volumes to become material, it means that the life business will start to benefit from a simpler annual management fee like the asset management business. Our reentry to The UK BPA market is already becoming a material contributor to M and G's growth. I am proud of what we've achieved over the last eighteen months, closing six deals with a total premium of £1,700,000,000 And this includes a £200,000,000 transaction, which we completed just last week.

Speaker 3

Over the coming years, we will gradually increase our volumes and average deal size. And in a steady, mature state, we expect to write between 3,000,000,000 and £4,000,000,000 a year. This growth will not only benefit Life, but also the asset manager, offsetting headwinds it faces in the DB pension schemes transferring their liabilities from insurers. As mentioned, it's also working on a with profit solution, which will allow us to deploy with profit capital into the BPA market to support this growth alongside our new value share BPA, which I will cover on the next slide. Here, I want to explain how the value share mechanism works and why it can be a compelling solution for the many schemes and sponsors.

Speaker 3

Operationally, it involves a DB pension scheme, its corporate sponsor, and our life business. First, a well funded DB pension scheme enters into a traditional BPA transaction with M and G. Secondly, the corporate sponsor makes a one off capital injection into a captive reinsurer. And finally, M and G transfers most of the longevity and market risk related to the deal into this captive, which reduces M and G's capital requirements. This solution can be very attractive to corporate sponsors who want to share in the potential value that a BPA transaction can generate.

Speaker 3

And M and G benefits from a reduction in its insurance risk capital strain and in addition, receives two fee related earning streams. One to the life business for administering the whole annuity policy and one to the asset manager for managing the assets backing all the annuity liabilities and the surplus. This is an innovative way to broaden our client proposition, generate fee alert earnings for M and G, and drive flows towards the asset manager, further strengthening our synergistic business model. I hope this overview gives you a sense of the growth opportunity in the life business and how we are working closely with Joseph and his team to drive the success of the group. I will now hand over to Catherine.

Speaker 4

Thanks, Clive, and good morning, everyone. I'll now cover our financial statements and the securities at million supported by a 19% improvement in asset management and stable contributions from Life and Altender. At million, operating capital generation remains strong. The higher asset management result and management actions offset most of the reduced contribution from Life, which we flagged at the 2023 full year results. So thanks to this resilient performance, we exceeded our upgraded capital generation target of billion and lifted the solvency ratio to two twenty three percent.

Speaker 4

All this despite completing over the year deleveraging and dividend payments worth over million. Net client outflows of £1,900,000,000 were mainly due to UK institutional asset management and proof fund. Although we are encouraged by proof fund outflows halving in the final six months of last year. Closing AUMA of £346,000,000,000 was £2,000,000,000 higher than the opening balance with markets and other movements offsetting net outflows from the business. Asset management net outflows of £900,000,000 were entirely driven by the institutional segment, where headwinds, mostly here in The UK from DB schemes, more than offset continued international net inflows of £2,800,000,000 And thanks to the strong investment performance that Joseph talked about, wholesale asset management delivered neutral flows, which is a relatively good result in the context of a tough trading environment for active asset managers.

Speaker 4

Within life, proof fund flows remained under pressure as customers favored alternative risk free solutions such as cash and government bonds due to the prevailing elevated interest rates. On the other hand, annuity flows continued to improve as we gradually grew our BPA volumes. This has meant that since we're entering this market, we've stabilized the runoff of the book and now expect this segment to become a positive contributor to net flows going forward, in line with the guidance shared by Clive. On this side, we show historical net flows for our core segments. Within Institutional Asset Management, you can see two main trends.

Speaker 4

Consistently positive net inflows internationally of over £15,000,000,000 over the last four years, and meaningful UK outflows since the mini budget crisis in September of twenty twenty two. While 2024 international flows were impacted by some lumpy redemptions, including about £900,000,000 of outflows in South Africa, we are confident about the prospects for our international business and we expect it to continue to grow and to further diversify the earnings profile of the group. Here in The U. K, institutional net outflows continue to narrow in the second half. And over time, we expect to see further improvements, thanks to the proactive steps Joseph and his team are taking.

Speaker 4

And in relation to our wholesale franchise, you can see the strength of the business in its flows, which have been very resilient over recent years despite strong outflows in the market for active investment solutions. Turning now to Life. PruFund has been impacted over the past eighteen months by high rates, resulting in lower sales and higher redemptions. That said, PruFund's value proposition remains strong with its flagship growth strategy delivering one year returns of 6.6%, well in excess of the mixed assets benchmark return of 3.8%. And this relatively good performance is starting to positively impact flows, with redemptions reducing and net outflows halving in H2.

Speaker 4

And finally on annuities, you can see here how we have largely managed to stabilize flows since reentering to new reopening to new business in September of twenty twenty three. And as you heard this morning, we expect this positive trend to continue. I'll now move on to adjusted operating profit. At million, our group operating profit was up 5% year on year. And the key features of this result are firstly, a near 20% increase in asset management operating profit as we continue to successfully widen the operating jaws for this business.

Speaker 4

Second, a decline in PruFund and Traditional with profits due to the lower CSM amortization rates and lower CSM opening balances. And third, lower return on annuity excess assets as we flagged at our 2023 full year results. And finally, a strong improvement in Other Life helped by proactive cost management actions. Let's now look at the asset management result in a bit more detail. At £314,000,000,000 average AUM was up nearly 3% in 2024, mainly due to favorable equity markets.

Speaker 4

Our average fee margin continued to be resilient declining by only one basis point. Higher assets and resilient margins meant revenues were up 1% year on year. At the same time, thanks to our continued focus on efficiency, we reduced costs by 2%, leading to an improvement of three percentage points in our cost to income ratio to 76% or 74% including performance fees. The asset management result also benefited from million higher investment income, most of which from non recurring FX moves and ceiling gains. And all this led to a million increase in asset management operating profit to million.

Speaker 4

We're pleased with this strong result and I really want to emphasise that we are committed to delivering positive operating jaws over time, maintaining rigorous operational discipline to drive profitable growth. Now moving on to the Life results. Proofund operating profit, which includes Proofund UK and offshore bonds, marginally reduced by million to million, largely due to the lower CSM amortization rate that we flagged previously. Profits from traditional with profits were also impacted by the same dynamic of a lower amortisation rate, but the reduction in profit was more pronounced due to a lower opening CSM, which is to be expected given it is a closed book. It's important to stress though that lower amortisation rates simply mean customers are staying with us for longer and greater customer persistency supports ongoing CSM growth.

Speaker 4

Let's now turn to shareholder annuities. Our annuities result was 7% lower year on year, and this was largely driven by a lower opening balance of annuity surplus assets and by lower expected returns due to a more conservative asset allocation in line with the guidance we shared a year ago. This reduction was partly offset by a higher CSM release of £130,000,000 which benefited from a £244,000,000 increase in CSM from longevity and a 25,000,001 off benefit in our lifetime mortgage book. It's also worth highlighting the £65,000,000 year on year improvement in Otherlife. Twenty twenty three was impacted by a negative provision that did not reoccur.

Speaker 4

And in 2024, we also undertook proactive cost actions to reduce losses in our platform and advice businesses, and we also lowered the cost of our smaller service companies. Having reviewed our AOP, I'll now turn to CSM movements, which you can see on the following slide. At the December, our total CSM stood at billion, a 10% increase year on year, representing a significant increase in the stock of future profits from our Life segment. The contributions from interest accretion, expected returns and new business remained strong and more than offset the release to the operating results. And so in total, the operating change in CSM was nearly million.

Speaker 4

The CSM also benefited from a million increase from positive markets, predominantly driven by higher rates impacting the value of future with profit shareholder transfers. It is worth pointing out that the increase in traditional with profit CSM also reflects a million reallocation from PruFund due to a refinement of the CSM split across these two products. So having covered earnings and the CSM, let us now turn to capital generation and starting with the underlying result of CHF644 million. In line with our half year results underlying capital of million was 14% down year on year. The reduction was entirely driven by the million lower contribution from the Life segment as the improvement in asset management offset the deterioration in corporate centre due to higher costs.

Speaker 4

Within Life, PruFund and traditional whip profits delivered a stable combined result of nearly million, but annuities were impacted by the lower return on surplus asset, which we talked about when covering operating profit. And in addition, the annuity Solvency II result also reflects a lower CSR run off due to higher rates and the new business strain on the higher BPA volumes we transacted. And as a reminder, we've not reinsured longevity risk on any of our recent BPA deals. I'll now turn to operating capital generation. With an operating result of £933,000,000 I'm pleased to say that we exceeded our upgraded target of £2,700,000,000 operating capital generation over twenty two to twenty four.

Speaker 4

For the full year 2024, management actions were £289,000,000 up £45,000,000 over the prior period. And the main components of these management actions were £53,000,000 from the asset reallocation in the With Profit Fund, where we reduced equity exposure, lowering our capital requirements GBP 155,000,000 from longevity due to lower assumptions for future mortality improvements as we adopted the CMI 2022 tables: £160,000,000 from model changes, with roughly two thirds coming from a change to the with profits model, which feeds through to a lower shareholder risk, and the remainder from a reduction in op risk. And finally, million from adverse persistency and expense experience, which includes investment management costs. So thanks to this strong operating result, together with supportive market movements and the removal of all capital restrictions in the first half, we entered 2024 with a Solvency II ratio of 223%, twenty percentage points higher than twelve months ago. The Solvency Surplus increased more moderately from billion to billion.

Speaker 4

Own funds of billion, of which billion relates to the with profits PBST, are lower than the opening balance of billion for three main reasons. Firstly, the £467,000,000 cost of our ordinary dividend secondly, the deployment of £450,000,000 to reduce debt over the summer and finally, higher rates that while beneficial to the coverage ratio as they lower our SCR are also the primary driver behind the £281,000,000 adverse market impact to own funds that you can see on this page. I'll now update you on our progress towards our objective of building a stronger, simpler and more efficient business. Today, we are once again upgrading the cost target for our transformation programme and now expect to deliver cumulative savings of million by the end of this year. This does reflect the benefits from the consolidation of our Wealth segment, Interlife, which we announced at our half run results.

Speaker 4

With million of savings delivered to date, we're confident that we will hit our target. It is important for me to emphasize though that when we do hit our target, our cost transformation and simplification efforts will continue. We will remain sharply focused on cost discipline and on driving further efficiencies to selectively invest to grow in our target areas and to improve our capabilities. The strong progress of our transformation program reflects the action taken across the four levers highlighted on this slide. For example, since the start of the programme in 2023, we've reduced our UK office footprint by about 20% and saved around million through the optimisation of our technology estate.

Speaker 4

We've also reduced costs across all our segments by moving a number of activities to India, where we have built a very strong operation. And lastly, we've reduced our marketing, contract and consultancy spend by nearly million. By using these levers in 2024, we reduced costs by million, which allowed us to offset inflationary pressures and invest million in the business to deliver better customer outcomes and of course drive profitable growth. And as a result, we ended the year with a cost base that was 2% lower and of a better quality. We remain highly focused on improving our cost base in 2025 and importantly also beyond this year as we continue to drive operating leverage across the group.

Speaker 4

So to wrap up, today's results demonstrate the key strengths of our diversified business model and our ability to generate sustainable value for our shareholders and clients alike. The combination of our asset management and life operations provides us with differentiated growth opportunities that we will capitalize on in a disciplined and profitable way. So looking ahead, we're confident that we are well positioned to navigate what is an uncertain external environment. And we expect to see improved momentum on flows with UK institutional outflows continuing to reduce while we keep growing internationally and of course in the BPA market. Positive operating jaws in asset management and a resilient contribution to operating profits from life with stable CSM amortization rates.

Speaker 4

And finally, on capital generation, a gradually improving underlying result higher new business strength for BPAs and management actions returning to our usual sustainable long term range of million to million a year. And with that, I'll hand back to Andrea.

Speaker 1

We're coming to an end. Don't worry. Thanks, Catherine. Great to see. I will conclude with an update on targets and capital management.

Speaker 1

As you can see over the year, we continue to make progress across all our targets. We exceeded our capital generation target, which came an end last December. We are therefore refreshing our three year guidance and aim to deliver $2,700,000,000 of operating capital by 2027. An ambition in line with the last upgraded target. As Catherine mentioned, going forward, we expect management actions to contribute 100,000,000 to 200,000,000 per annum.

Speaker 1

This means that we will grow the underlying result over time, which is the higher quality component of our capital generation. Looking at the other metrics, I'm very pleased with the progress on leverage and on the cost target, which we are upgrading for the second time. Whilst the delivery of the 70% cost to income ratio for the current year is unlikely, we are proud of the progress achieved in 2024. This ambitious target helped us set the right expectations for the organization and drive material improvements. We are committed to continue making good progress in 2025 and beyond.

Speaker 1

Finally, given our strengthened focus on growth, we have added a new and explicit profit growth target. With our targets, we want to convey a simple message. M and G will continue to be highly capital generative. It will remain sharply focused on costs and it will grow. Our confidence in achieving our target is a fundamental driver behind our shift from a stable and increasing dividend to a progressive dividend policy.

Speaker 1

And we're starting today with a 2% DPS increase for 2024. This is an important milestone for us, as it is the first increase in the absolute cash cost of the dividend since we listed in October 2019. The way we think about our business is reflected in how we approach our capital management framework. We are in a strong financial position and we will maintain it going forward by being disciplined on capital, leverage and cash. From this position of strength, we will deliver business and earnings growth to underpin the dividend progression.

Speaker 1

To support our growth strategy, we will continue to consider targeted acquisitions, deploy capital to write insurance new business and push ahead with our simplification agenda beyond 2025. These investments are instrumental to the continued delivery of our attractive and growing dividends. And while we remain committed to return any excess capital over time, we are prioritizing disciplined investments in the business that meet our strict hurdle rates. Yield and growth. This is our commitment to investors.

Speaker 1

The majority of the $2,700,000,000 capital that we will generate over the next three years will address the first part of the equation, underpinning an attractive and growing DPS. The remainder, we support business growth, securing the long term success of M and G. In life, as you have heard from Clive, we will deploy capital to increase new business volumes in the BPA market. In asset management, we will complete later in the year the PCP acquisition, But we will also continue to monitor opportunities to selectively add investment capabilities. And finally, we will drive forward our cost reduction efforts beyond 2025.

Speaker 1

So to conclude. First, M and G in a strong financial position. Second, we remain committed to operational discipline. And third, we are pivoting the Group to long term growth across Asset Management and Life. This shift is also reaffirmed in our targets as we reiterate the upgraded level of operating capital generation for the next three years, and we have added a new explicit target for operating profit growth.

Speaker 1

And finally, because our confidence in the future of M and G, we are increasing the dividend cash spend for the first time since listing, moving to a progressive dividend policy. I am excited what M and G will deliver. And I want to thank all my colleagues for their continued hard work and dedication. I look forward to the year ahead and to delivering for our clients and shareholders. The macroeconomic environment remains volatile, but it is exactly in times like these that you can best see the value of our synergistic business model.

Speaker 1

We have a resilient earnings mix, improved operating leverage and access to diversified growth opportunities across asset management and life. In 2025, we will maintain our financial strength. We will continue to simplify the business and we will accelerate growth. Thank you. I'll stay here.

Speaker 1

Right?

Operator

Yeah. I think you can stay on stage. We'll just

Speaker 1

I'll go behind this. The burning. This burn this burns your head. Yeah. Oh, thank you.

Speaker 1

Here. I'll I'll take this one. You want help? You're okay? I'm gonna get some water.

Speaker 1

Okay. That's it. Good. Thanks. Yes.

Speaker 1

That's mine. Yeah. Thank you.

Speaker 4

You think there's any of

Speaker 1

that? Yeah. Thanks. Okay. It's longer.

Speaker 1

Everybody now. Ready.

Operator

Hands are already up, but I know that Nazib needs to dash. So I'm sure no one is gonna take offense if I start with him, and I can't even do the introduction. Remember to pull out as usual the microphone from the chair, pull the button down, over to Nazib from UBS.

Speaker 5

Thanks, Luca. Can you guys hear me? Yeah. Oh, yeah. Perfect.

Speaker 5

Perfect. So two questions. Firstly, on net flows over the first two and a half months, can you tell us how institutional, wholesale and proof fund have performed over the first two and a half months? Secondly, on the last slide, Slide 41, really appreciate the color on the uses of the $2,700,000,000 but can you kind of break that down a little bit and give us some color, particularly on how much cost you need to get to achieve the $2.30, how much is left on the simplification bucket and how much new business strain do you expect or you've budgeted for over the next three years? Thanks.

Operator

Okay. I guess, Andrea, do you want to start with flows and then

Speaker 1

Okay. And it was flows asset management and PruFund. You wanted to have the overall picture. So if you look if you finish look at 2024, and I see sort of the momentum we had, clearly, we're very, very pleased with what we achieved, in particular internationally, and this was in a different market environment. When you look institutionally, thanks to the very strong offer that we have both, I would say, on public equities and credit, but also on private assets, we started to see momentum already at the end of twenty twenty four.

Speaker 1

And I have to say, with the volatility that we have or the renewed volatility we have in 2025, we continue to see strong momentum. I think these are moments where if you are an active asset manager, you can get benefits from this because this is where you want to have an active asset manager next to you. In particular, for example, on wholesale, because we're performing so well on all our funds, Oikon and mutual funds, we gave the number before, 25% are in the top decile, forty percent forty percent forty two percent in the top quartile, 25% are in the top decile, one, three, five years. That allows us to actually see some significant interest from a wholesale perspective. We continue to see strong interest, in my view, on the private asset side, in particular, on private credit and on real estate.

Speaker 1

Real estate is an interesting one because it was sort of an asset class in the last two years, which did not have strong momentum. With valuations coming down the cycle, we see a lot of international investor, institutional wanted to invest there again. And of course, we have a very strong franchise there. So I would say the momentum starting in the year for the asset management, it's more positive than 2024. And as I said before, I expect us to continue and grow positively this business going forward.

Speaker 1

And even on The UK, which you saw, we sort of had still some headwinds in 2024, but you saw that in the second half, outflows were effectively halved versus the first half in 2024. I think we will continue to see this momentum also in 2025, as Joseph also explained before. So I would say, overall, I'm cautiously optimistic on the flows we will deliver on the asset management side, thanks to the relevance of our offer and the strong investment performance. With IV, PruFund, and PruFund, let's talk, PruFund UK, even here, we had strong competition in 2024, of course, from rates and from cash and gilts. But that competition sort of slowed down with rates coming down.

Speaker 1

You saw that the net outflows actually were halved versus the first half, million of our net outflows in the first half and million in the second half. And in 2025, we will see continued, I would say, improvement on proved fund flows, thanks also to the excellent investment performance we had in 2024. We had a 6.6 net investment performance. And that, of course, if you think about the volatility and people wants to have a smoother solution, they want to have investment performance as well, through Fund is the perfect product for them. And we are also going to put through Fund on other platforms, and we're increasing the number of restricted advisers.

Speaker 1

So that should also help momentum in 2025 for Proofund.

Operator

Perfect. Thank you very much. And I think it's Slide 41, the one that you were And I

Speaker 4

was also just going to add one quick comment on flows. And I think given what we're seeing in the market, even we've got in that top decile of funds, we have great equity funds. European strategic value add is doing really well, and we also hope that momentum to continue. So it's just fixed income on private assets but also equities.

Speaker 1

Yes. No, no. It's a great point. I think one thing we've seen, last year, nobody was interested in Europe. Since January, strange enough, Europe is back and The UK as well.

Speaker 1

And it's not only about The U. S. So of course, this place once again into our strength.

Speaker 4

Great point. So just adding that. And then onto this slide. And I think you had two questions. I think there was one on the cost needed to achieve the CHF230 million.

Speaker 4

And then obviously, this is for the next couple of years. So what do you expect in terms of transformation cost spend? And the second one was on strain. So if you look at you may not have had a chance yet to look at the results announcement, but we have spent a lot less on achieving our cost targets. So it's down from CHF 140,000,000 to CHF 105,000,000 last year.

Speaker 4

So we are spending a lot less on our change budget to deliver these savings. And so I wouldn't encourage you to get your little rulers out and look at the exact sums here. But we expect that spend to continue each year, so we will spend less each year on driving the simplification of the group. Really importantly, I think obviously what this translates to into the BAU cost base that is of a higher quality because of the savings we delivered last year, we reinvested in the business in a very disciplined way. So we are asset management business to grow in a very disciplined way.

Speaker 4

So I'd say the spend will continue to reduce over time. And as Andreas said, we will also continue with the simplification journey after this year. And in terms of strain, we've given some guidance around CHF 100,000,000 to CHF 150,000,000 that we'd expect going forward for the products that we're writing. Now as you know, they have a very different capital signature depending on whether we do the traditional BPA or the value share. And on Clive's slide, you saw him guide roughly to a split in 2025 that was still sticking with the roughly 1 odd billion a year traditional.

Speaker 4

But we the key thing really is though that we will do what our customers want that meet our hurdle rates. We have got great private markets capabilities. We can help, these DB schemes with a range of products given the innovation that we're now, that we're now seeing across the group. So it really will depend on what our clients see, but I'd encourage you to think about that SEK 100,000,000 to SEK 150,000,000 a year that we guided to.

Operator

Sorry, Nazeep, can you we cannot hear otherwise.

Speaker 5

The strain is not coming down as a percentage because you're not allowing for any longevity reinsurance. So if I did 5% of the SEK3 billion, I get to SEK1.50 billion, right? So are you going to do longevity reinsurance and get the strain down?

Speaker 4

So and if you again, you can see there is some disclosures in the slide in the sorry in the results pack around strain. We haven't reinsured longevity. And so that is a management action that we can still take to deliver the CHF 100,000,000 to CHF 200,000,000 in management actions. But also, yes, we absolutely have got the ability to improve our strain, increase our returns for future deals traditional side and obviously aware of where reinsurance pricing is at the moment.

Operator

Then let's come to the front from all the way back to the front. Let's do right to left. So we do Farooq, let's first row and then back. So Farooq, Tom, Andrew, Danis and so on. No worries.

Operator

So I'll introduce in the meantime Farooq from JPMorgan.

Speaker 6

Hi. Thank you very much. Just three questions, please. So I mean, I guess contrary to the last question, when I look at your strain of one hundred and fifty one hundred to one hundred and fifty, actually, given that you're using a lot with profits fund going forward, I think the 3,000,000,000 to 4,000,000,000 looks quite low. I think you're being quite measured in what you're guiding to the market.

Speaker 6

Is that the right sort of feeling to have about your future that actually you could do a lot better? And then generally speaking, when we look at your net flow picture and given the tone of your presentation, it seems that the future is really the life business funding the growth of asset management. Is that balance between flows and life versus asset management the right way to think about it that, a, you could do more and, B, it's going to be very sort of life focused. The second question is on your cost base. So you talked about reducing costs and the absolute cost in the asset management business came down.

Speaker 6

Sorry, I'm just trying to

Speaker 1

open up

Operator

a little bit. 2%, two %.

Speaker 6

So I was just kind of wondering whether yeah, we should expect that kind of quantum of reduction in the next few years in absolute cost base. And then my my final question is on on the with profits fund. So you have the 6,000,000,000. You're moving to a hundred 0, obviously, over time. What what are the restrictions on using that capital?

Speaker 6

So do we have to worry that at some point somebody's gonna raise a hand and say, hey. You know, what are you doing with our money? And, you know, try and, cause some litigation issues around that because we obviously have seen these kind of issues before.

Operator

So maybe given that there were a lot of questions in those three questions, And I'm just trying to how to best fit. Maybe, Catherine, just to tick them off one after the other, one neatly kind of down your allies is on Costa, whether you want to take it to asset management and where we expected it?

Speaker 4

Yeah, of course. And so we did see a 2% reduction in absolute costs as you said. It's we do look at the absolute number but the most important thing is to deliver positive jaws. So it's critical that the whole company becomes more efficient to get flows going through and creating operating leverage. So really it's about the jaws and about getting positive jaws.

Speaker 4

But we obviously also want to make sure that we can manage given the external environments. We look at the absolute number but obviously 3% reduction in cost income ratio was really pleasing and we want to see continued reduction in cost to income. I would say, we stay focused on the positive jaws, but we monitor also clearly the absolute cost number.

Operator

And maybe there was a question related to the asset manager maybe more for Andrea. A little bit of a maybe slight provocation, but is life the only future of the asset manager or is it part of the future? No.

Speaker 1

No. No. Listen, let's be very clear. We want both businesses to grow. I know I insist a lot in saying that they work in in synergy.

Speaker 1

But but clearly, when you look at the asset management by itself and and how it's been performing, we have amazing investment capabilities out there. You look at the flows even in 2024. Internationally, we had 2,800,000,000.0 of net flows on institutionally. And this was not in one country, was in different countries. Germany, we had strong flows in Asia, Netherlands.

Speaker 1

Italy? Italy, of course. But Italy was more of a wholesale to to be to be fair. So all that is well diversified, and it's thanks to a very, very strong investment capability in particular in particular on private assets, but very much on in fixed income and equities. I mean, we have and even here, what we have some unfunded wins, big ones, that we'll actually fund in in in the first half of the year.

Speaker 1

So, no, the asset manager has what it takes to grow by itself. But, of course, having the support from the live business is critical because it actually helps you in particular on private assets when you go out there. The two bolt on acquisitions we did, I can tell you when we spoke with the counterpart of the one selling, they were interested very much, but will your light balance sheet invest in it? Well, of course, it's not my decision. They look at it and the fact that they like the investment strategy and want to invest in it, that's a very good sign for us to then scale it up with third party money.

Speaker 1

So no, you should not think of the life business is supportive. It's the fuel, but even the asset management by itself, thanks to its very strong investment capabilities, is growing as well. So it's a booster. That's called a life of boosters, like turbo booster, if you want, if you think about it in engine.

Operator

And maybe to back to the first question, trying to unwrap them one by one on the volumes for BPA's strain and the prospect of the with product. I guess also we don't yet have the with product. So it will be a journey.

Speaker 4

And so we've not given any more guidance at this stage. This is too early around what that either capital earnings signature looks like for the life operating partner as Clive calls it. So in terms of this 150,000,000 up to 150,000,000 of strain, it is intended to be helpful guidance. We do have a very modest amount of strain coming through from PruFund as well and and the numbers that you know, but it is really modest. So it will depend on the types of deals that we're seeing.

Speaker 4

We need to deliver double digit IRRs, so that's really key that we have got the hurdle rates for the business that we're writing and that I'm pleased to say that's where we are. And there is a degree of flexibility because the value share BPAs, as we said today, they are quite lumpy. We don't expect any in the first half of this year. We expect the size to probably be bigger and that will have obviously a different strain and actually also has a different earnings impact in IFRS 17 and the CSM. So we have got some flexibility, but that's good for us because we've got the capital generation that you see coming through.

Speaker 4

We are going to see underlying capital generation improve over time, and we are going back to our CHF 100,000,000 to CHF 200,000,000 for management actions as well.

Operator

Perfect. And the last question was around the excess surplus capital in the With profit fund of SEK 5,800,000,000.0 and whether is it almost too good to be true that we can deploy that capital? And maybe, Clive, you want to explain a little bit why it is in the interest of the with profit fund to actually deploy profitably that capital? We we just need to make sure that we is there a mic on of Clive?

Speaker 3

It's a really good question. I mean, essentially, with pocket funds, and and as you may know, I spent five years running LVs with pocket fund and trading that. It can only do two things with it, sir. You can trade it for for future clients, future with pocket clients or you can give it back to the existing client. One thing you can't do, which I think is very credible, the shareholder just can't have it.

Speaker 3

And what we find here is a way that it does trade that surplus into the market, into the BPA market, into the investment market both in the corporate retail and international space. And the shareholder will get a share or partner and run the assets, provide the infrastructure and we think also share in some of the insurance risk as well as you see by that chart. But just to explain that, final Harvey board a little bit, there are essentially three balance sheets that we can play into the market. There's the shareholder balance sheet, the with profit balance sheet and also the sponsored balance sheet if they want to sell top of that.

Speaker 4

I think you need a mic.

Operator

Yes. But I think we probably you could hear Clyde, right? So I guess, well, for those people online, it would be good if we going forward, we can use the mic, but then don't need to repeat because I think that was a pretty comprehensive answer. And any other follow-up, or are you good for? Excellent.

Operator

So I promise let let's do a bit, Tom, so we we do fully, right to left. So Abid Hussain from, how is it called now?

Speaker 7

Morning. It's Abid Hussain from. Appreciate that. I've got three questions. The first one is, going back to the the love business.

Speaker 7

What was the thought process in probably reopening the live business to new business now? Was it the approval of the 100 structure? And I think quite candidly, what took you so long to make that decision. The second question is on the BPA value share. Can you share some more metrics, key metrics on that?

Speaker 7

Perhaps if you can give us an example of a £1,000,000,000 deal or £100,000,000,000 deal on a traditional BPA versus a value share and sort of talk to what the strain looks like on one versus the other, what the cash over the total lifetime looks like and what the payback period looks like? Because I just don't have a handle on that in my mind. And then the third one is on the prime markets. Can you just give us a more color on the €850,000,000 that you called out on seeding from with profits fund? And are there opportunities to see that the projects that can perhaps move the dial in a more meaningful way?

Operator

So maybe, Andra, do you want to start on why we reopened the LifeBook? Although, I'd say you mentioned the 100 that we reopened the LifeBook eighteen months ago on the shareholder balance sheet. And I guess it didn't take Andra very long because he said it on his first presentation exactly two years ago when he came as a new CEO. So there's always been also been a

Speaker 1

management shift. The reality is, I mean, we two years ago, this was a shrinking live business. I mean, let's face it. It was not. And the reason why we reopened was because there was a market opportunity there.

Speaker 1

And more importantly, we had, I would say, a right to win in this market. We had already an infrastructure, which we have not been using for many years. And more importantly we had some investment capabilities which are rather unique and I would say an advantage in this market fixed income and private assets. So with those we felt that there was an opportunity to enter into a much larger market. And we did so.

Speaker 1

And we did so also what I would say with the broader proposition because yes we have written a couple of plain Manila BPAs. But right as you said we also did the value share BPA which once again sort of links into our business model. So I think we have a very strong right to win in this market. We've been very selective on how we have reentered it. And going forward, we want to continue to be selective.

Speaker 1

But as Clive presented, we have different sort of ways of doing so. They can be plain vanilla, they can be balance share BPAs, and we will launch early next year, of course, also with profit BPAs. So different opportunities there. And let's not forget also, it's not only about BPAs. We can also provide, thanks to the asset manager, run on solutions, investments.

Speaker 1

So we can really, thanks to our unique business model, provide all sort of solutions to DB schemes out there. So I mean, I think, you know, we're well placed in order to benefit from this. And we'll be very, very careful how we do it. And of course, we have very strict hurdle rates and IRR we need to we need to deliver. And I

Speaker 4

think just one one point to add and then I'll get on to the the value share. And obviously all of this new life products will drive flows into the asset manager. So that is very beneficial and we've been clear that we do intend to have a meaningful allocation into private markets. And we can take the question on what else beyond the eight fifty that have been deployed for these two. But all of it drives flows into our asset manager with a meaningful part to private markets.

Speaker 4

And also we've indicated that this switch to more fee related earnings. So our fee related earnings go up anyway, but changing the profit signature to make it simpler for shareholders to understand this business given the firepower that we have with a very meaningful surface, we think will over time generate, you know, meaningful value for the group. And so on the value share, so we did go through, what we hope is a clear description of the various parties to the deal and the economics broadly. I'm not going to give actual numbers out but given that capital is retained, by the scheme sponsor, we obviously have a low strain. We have high IRR higher on this transaction than on on our traditional.

Speaker 4

Have the added, of course, that with the traditional, we can still reinsure longevity. I would say that this is a scale game for us. It's a very exciting product. We've had a lot of interest externally. The absolute earnings that we get is more modest, but with the volumes that will be we can potentially write and again we gave some indication this should be attractive for us over time.

Speaker 4

And clearly the other point is you don't see all the fees recognized from this product as well. So higher IRRs and also lower capital, the earnings is going to grow over time, and there is the additional fee streams that you don't see.

Operator

Excellent. So let's go to Tom.

Speaker 8

Hi. Good morning, everybody. Thomas Pavin from Mediobanca. Just on the private market inflows, I think you alluded to it a second ago, actually, but you've got this 100,000,000,000 target, I think, by 2025. We're a little bit off there.

Speaker 8

But it seems like there's a big allocation coming from the life of 20% to 30% into private markets. Is that the real driver that makes you confident of reaching that target? Second question just on I've seen lots of really positive announcements recently from M and G, whether that's PruFund being launched on new platforms or the new product launches. How much of these new products are in your 2,700,000,000.0 guidance or is there upside there? And then just finally on the cost income ratio target, I know that you've upgraded the cost saving target, but we're still a little bit way off the 70%.

Speaker 8

Are you still confident of achieving that, kind of where

Speaker 3

are we on that one? Thank you.

Speaker 1

Okay. I'll take two.

Operator

And maybe when covering private market, we should just touch upon briefly

Speaker 1

on what Abid asked earlier, which we forgot about the $850,000,000 into the 2 acquisitions that we that we've made. Yes. For sure. So, I have confidence in private markets, not only because we have what I call potential skin in the game. Let me be very clear.

Speaker 1

It's not because we have a live balance sheet and we have private assets capabilities that the live balance sheet has to invest in those in those private assets capabilities. They have to be relevant, performing. And, of course, the live balance sheet has its own investment process, their own strategic asset allocation, tactical asset allocation. They decide in what to invest in. We run only roughly 80% of all the assets of the live balance sheet.

Speaker 1

So just wanna make that point clear, because if not, it seems we are not doing what is best for the policyholders, and we are always focused on what is the best interest for the policyholders. Holders. So I just want to make but, of course, having access to permanent capital, potential seed capital is a help. It's a great help. It's a great help when you launch new strategies.

Speaker 1

And it also creates that strong alignment, which is very, very critical because when you go out and speak with other pension funds, insurance companies, sovereign wealth fund, when you can tell them that you yourself have invested your own money, let's say, in the strategy, that helps a lot. So that certainly is a positive. And with regards to, for example, those two acquisitions, we would not have done those unless there was appetite from the light balance sheet. That is actually one of the critical components. We believe that our model has always been, let's see if there's a seat from the light balance sheet, and then let's scale it up thanks to the great distribution network that we have with our asset management business.

Speaker 1

That has been the model how we have developed our other private assets capabilities, real estate, infrastructure, private credit, etcetera. So it is important to have that. The reason why I am positive on private assets going forward is, a, rates have come down. So valuations are more attractive now. There is definitely more appetite on private assets here in Europe.

Speaker 1

Private credit is one, in particular, on structured credit where we're very, very strong. But real estate, once again, thanks to our very strong franchise, is back again in terms of appetite. We see a lot of investors, Asian one, European ones, that are coming back to invest in real estate core and, of course, now value add, which we just added. So, yes, we believe that we will grow this franchise going forward. I never gave it 100,000,000 target.

Speaker 1

I wanna be clear on this. I think I gave an ambition. I never gave it as a target because there's a difference between a target and ambition. But having an ambition, it focuses people on trying to deliver it. And of course, I want to see this private assets franchise grow in 2025.

Speaker 1

And I think we really we have some very strong elements to do so. Maybe on the cost to income ratio, if I might lead to that one. So there, we have a target. It's true. There, we have a target of 70%.

Speaker 1

And indeed, when I look at what we have achieved in 2024, I'm very pleased with the progress. We moved from 79% to 76%. That 76% is without performance fees. And as you all know, when you compare to peers, they always include performance fees. So you should compare 74, not 76, because 74 is what we have with performance fees.

Speaker 1

So that's our true cost to income ratio, let's say, that you should compare to others. We want we're very pleased with what we have done in term of progress. It's thanks to a relentless focus on cost. It's what also allowed us to have nearly 20% of operating profits increase from asset management, so we're pleased with that. But I want us to continue, and I want us that's why I'm keeping the target.

Speaker 1

I want management. I want everyone in asset management to understand I want that 70%. I want us to get there. Now will we get there in 2025? It's a challenging target, but we will get there in time.

Speaker 1

And I I predict that we will continue to improve it as we did in 2024.

Operator

Thank you, Andrea. And Catherine, on the question on the 2,700,000,000.0, if I remember correctly, is whether it already factors in some of the, I guess, flaws and contribution and capital generation from the new products that we talked about?

Speaker 4

Yes. So there have been some good announcements we've had. Obviously, what we said we intend to launch, Proofund in The Middle East subject to local regulatory approval sometime soon. We are working on putting PruFund also on other platforms. And as we said, we also feel that we've got good momentum given the external environment and the strong positions of our business and the good investment performance that underpins it.

Speaker 4

So yes, the target is that reflects the future, strategy and the volumes that we hope to deliver across what is now I think a more diversified product range. So clearly with the fixed term annuities, we expect that to build quite slowly. We've been very clear on that. Individual annuities coming later and we'll give some more color when we get closer to the with profit fund writing BPAs and you're very aware obviously of the industry environment and conditions there. So yes, it does reflect our business plan and our product launches this year and next year.

Operator

Perfect. Then let's go to Andrew Baker, Goldman Sachs.

Speaker 9

Great. Thank you. Thanks for taking my questions. So first one on the operating profit growth target. Are you expecting this to be fairly linear over the period?

Speaker 9

Or should we expect it to be either front or back end loaded? And then secondly, on leverage, again, on your target there, are you expecting to do any additional sort of sort of nominal debt reduction? Or are you just relying were you expecting own funds growth to get you there? And then finally, sort of again on Slide 21, when we think about the billion to billion of BPA flows by 2027. Can you just help me think through how much of that goes through the shareholder annuity CSM?

Speaker 9

How much comes outside of sort of IFRS 17 and just generally the accounting and the different accounting based on value share with profit and traditional? Thank you.

Operator

So they are very CFO like. So, Catherine, if you don't mind. I don't

Speaker 1

have a CFO.

Speaker 4

So I think certainly when we give the 5% guidance, it is on average over the next three years. We obviously delivered 5% last year. And I would say that when we obviously stood at this time last year, we guided down meaningfully because of the lower rates, lower expected returns. So we do so we still hit the 5% for last year. Asset management clearly had a strong result, but we have also indicated that the asset management business did have some one offs 12,000,000 higher investment income than we've had.

Speaker 4

So clearly the life as you know very well the a lot of the traditional AOP is relatively stable. We've given some guidance around this 30% reduction just in base rates at the beginning of the year, but stable amortization rates. So we would see the benefits over time coming through into AOP. But we're pleased that we increased the CSM by 10%. So it's sitting at SEK6 billion and we do look at that metric.

Speaker 4

And obviously, the key thing on the asset management side which obviously flows through immediately into AOP is delivering growth given the strong positions of the key franchise where we're seeing a good external demand and positive jaws. So that continued growth in the asset management business. But given the profit signature from the traditional life products, clearly, it comes through differently over time. Now on leverage, so we're really pleased to have done the CHF $461,000,000 debt reduction last year and also partly redeeming a bond and then the liability management exercise. I'd just remind everybody about our calculation basis of prep is very, very different from other people.

Speaker 4

It is much more conservative. We know where we'd be if we use some of the other calculation or methodologies for calculating it. So we're really happy with our debt at the top at the whole curve with what we have. There's one bond that's coming up for call in a couple of years. So we want to reduce our leverage over time as we grow own funds.

Speaker 4

And we gave some color as to why our own funds went down last year. But certainly, we do want to see the leverage ratio reduce. We caveat that we're very conservatively calculated at the moment. Obviously, we've got asset management growth and other contributors to own funds to get the leverage down.

Operator

And to be explicit on the own funds is really like if you think about it last year, we had £450,000,000 from deleveraging and £280,000,000 adverse from higher interest rates. So it's almost like $730,000,000 of adverse own funds pressure that you normally wouldn't expect at the start of the year. You know what I mean?

Speaker 4

And I think the last question was on the value share and on the capital and

Operator

I think Slide 21. So let me bring it up so that

Speaker 9

So it was more around the CF, what goes into the CSM in terms of new business and how the shareholder CSM grows or what comes through its fee

Speaker 4

income So we can follow-up around the value share in particular, but it's the you should think about it as a sort of typical BPA with a reinsurance and then with a fee stream. So the CSM impact will not be as great because of the different profile of the product and what's kept with the scheme sponsor with the reinsurer sitting in the middle and when you go back to the other slide, we won't have to pull it up now. You obviously get the benefits coming through from surface flowing back to the reinsurer. So it is you can we can follow-up later, but you can split it into the traditional BPA with the reinsurance and then the different fee streams that go into the asset manager and into the life operating partner.

Operator

And clearly, as these products will grow in volumes and become more relevant to the equation of the group, clearly, we'll give greater disclosure and guidance on each one of those. But I think the key point from Catherine is like whether it's value share with profit BPAs because there's less capital intensity, it's less of a CSM game. It's more of a fee related earning stream a little bit like asset management that is not typically captured by the the CSM metrics effectively. I don't know whether to go backwards or forward. I mean, Dom looks very sad.

Operator

So I'll go with you, Dom. Dhamma Mani from BMP, sorry, but Exane.

Speaker 10

Indeed. Exane. I'm not I'm not that sad. Yeah. Okay.

Speaker 10

Good. Actually, I'm even happy you've chosen me to ask the question. So three for me, if that's alright. Firstly, just on the shift from ninety ten to one hundred Mhmm. Which I think is is just on the new business.

Speaker 10

Yep. Just understanding the the importance of that from a shareholder perspective, my assumption is that this is helpful for the liquidity flow. You don't have to wait for the, for the bonus to be paid or indeed for the customer to withdraw their funds to get the liquidity as a shareholder. Is that the point? For sorry.

Speaker 10

Is that one of the points? Mhmm. And is there anything you can do to transform the existing enforce book in this way, or is it just actually they can only be on new business? That's the first question. Second second and third is just on slide 41.

Speaker 10

And, Catherine, I'm really sure I got I got my protractor out before he told me not to. And, my first observation is just, the tax, which I think is about 15% of the

Speaker 7

Mhmm.

Speaker 10

Of the OCG, is it was basically, that's deliberate. I mean, as I understand it, conceptually, one pays tax on nine months in relation for the SDR release. But I'm guessing that probably the SDR development over time is roughly flat. Mhmm. So why is the tax rate so low?

Speaker 10

Is it is it actually that a lot of the OCG here is SDR release? Yep. Okay. And then the third question is it's also on 41. I'm just I'm just thoughtful about the way that you've framed the right hand side here, which is, you know, I think above the 2.7 you can allocate.

Operator

You you've got a lot

Speaker 10

of stocker surplus right now. And, I mean, you know, it's about a billion, I think. I I get that it's not always easy to to deploy surplus. But in in terms of taking risk

Speaker 1

Mhmm.

Speaker 4

And

Speaker 10

growing the SCR, which I think is the life growth here, I mean, most of that will be straight for SCR growth. My my I would have thought that actually you could use that very large stock of surplus today to fund that. So I suppose it's a long way of saying why couldn't you deploy some of this into maybe YM and A or or into extra capital returns? Thank you.

Speaker 4

Okay. Great.

Operator

I mean, if you don't mind, Catherine, we'll do this again.

Speaker 4

Collaboration them all down. So we wanted to start talking today, and I think there might have been a session that Clive did with some of the analysts last year on the life strategy and around how we see that we will use the With Profit Fund as a source of value not just for its own policyholders but for the whole group. And I think that, yes, it will have a different it will accelerate capital generation, it will accelerate cash generation as we move to one hundredzero. I think really importantly, it will just really simplify for shareholders how to think about the value and the economics of the business. And obviously ninety point one zero shareholder transfers, you will understand it very well, but the general shareholder, it is much more complex.

Speaker 4

So it will be simpler. It will be hopefully more predictable. And perhaps one day, it will attract a better multiple, but it does so it does accelerate capital and cash in. But the real driver really is it's about making our business easy to understand and certainly emphasizing fee related earnings. We have this strong insurance balance sheet that is able to also contribute to fee related earnings for the group.

Speaker 4

And in terms of whether we've guided for new flow for the With Profit Fund taking on that signature and there's no imminent plans for looking at anything on the in force book. But obviously, what we want to try and do is to continue to optimize our balance sheet to generate strong returns for policyholders and with profit funding across the group.

Operator

And maybe, Dom, the last thing on that one is that by moving from ninety ten to 100, there's no arbitrage either way. So it's not that either one of the two parties, the with profit fund or M and G POC, should be better off or worse off. Right? It's just purely a different profit recognition and timelines.

Speaker 4

And tax and life tax and is quite complex. And so what we've given here is just some guide to generate, I guess, the after tax impact in terms of capital generation. You also probably saw that we had a tax benefit this year. So we had essentially saw the PBST increase from four to 4.3. So we had future shareholders transfers able to absorb more of the DTA, which did contribute to that increase in the solvency ratio in 2024.

Speaker 4

So perhaps it might be helpful if we can follow-up with some some generic guidance or with you around how to think about tax. It's obviously pretty simple in one part of our business and it is more complex on the Life side and particularly with the with profit fund. And so I think the last question was you've got a lot of a very strong solvency ratio of 223%, why can't you deploy more capital? And certainly, when we look at the opportunities that we have and we look at what Kerrigan is doing across the corporate business and with the opportunities clearly to also use with profit fund the £6,000,000,000 surplus next year, certainly subject to meeting the right hurdle rates, there is the ability to use a bit more capital. We've since, you know, as Andrea, when he came in and decided to reenter the BPA market, we have been quite thoughtful and modest around our overall size ambitions.

Speaker 4

We know it's incredibly competitive. And so we felt that, you know, having a thoughtful volume assumption is is is the right approach. And the increase to $3,000,000,000 to $4,000,000,000 was across all products. But certainly, if there are the opportunities, if it helps our asset management business, but meets our hurdle rates, as we said also with the possibility of reinsuring longevity, then yes, we have got some surplus capital that we can use, subject to the capital management framework that Andre had walked to.

Operator

And maybe, Andre, I don't know if you want to answer to the slightly tail of the question, which is couldn't you just use some of the capital from your stock to do to go for capital returns?

Speaker 1

Well, listen, we've been in different stages here. The first two years, we have fixed the business. We have reignited the light business. We got the asset management to have earnings again. We have fixed our leverage.

Speaker 1

So we fixed the basics. Now the focus for us is looking for sustainable profitable growth going forward. And to do so, you can see it here, we want to invest in our businesses to make sure that we can sustain that growth going forward. And by the way, we also want to continue to simplify and transform our business to deliver better client outcomes but also create capacity so we can invest further. So that's our focus at the moment.

Speaker 1

And as it says it says very clearly here, you know, any capital generated above, then that we will see what we will do. But so far, we're very much focused in making sure that we deliver growth. It's all about growth now. You know, one year ago, you were all asking about leverage, leverage, leverage. Now we fixed that.

Speaker 1

Now so let's talk about growth. We know we're growing the business. We want to grow it further. I think there's a great opportunity for us in the current environment and given our strength of our business model to really deliver sustainable growth. That's also why we came up with with the progressive dividend policy.

Speaker 1

That that is what's going to fuel that that that that growing dividend going forward. So that's our focus. I'm afraid any capital return is not on the paper today. Okay?

Operator

And just like mechanically, it's not just about solvency ratio. You always need to think about how to triangulate with leverage and other metrics. So the play interplay between the two is important. So moving to the front, finally, sorry for taking so long. Andy Sinclair from Bank of America.

Operator

Or I don't know if you're pulling out the microphone. Turn it over to Oh, yeah. Andrew Green from Autonomous.

Speaker 1

Oh, he's a I'll go first. I have to compare notes. You know, that's it.

Speaker 11

The the two point seven OCG figure, helpful to have a 100 to 200,000,000 a run from Unifin actions. But within that 2.7, low end of 100, 2 hundred a year is 300, high end 600.

Speaker 10

It's quite

Speaker 11

a range. What are you actually allowing for within that 2,700,000,000.0 for management actions? Second is nice to see the progressive dividend policy. Just kind of thinking, what's longer term we could see the 5% operating profit growth, but thinking longer term, what's the right payout ratio for this business kind of once we've settled down? And third was just kind of coming back to the inorganic asset management bolt ons.

Speaker 11

You bolted on to real estate private credit. What skill sets do you see that are missing or that you'd like to add or accelerate? Alex.

Operator

So I guess probably the first one is more of a Catherine question on management action on the 2.7 and then Andrea on the progressive dividend and the inorganic. What are we missing anything else, I guess?

Speaker 9

Okay.

Speaker 1

Shall I go with maybe the first one? So you talked about the dividend. You want to understand move on dividend. First of all, obviously, we're very pleased to have moved to progressive dividend. We fixed the business.

Speaker 1

We're in a place now where we feel that the business can deliver sustainable growth going forward. And let's say it's since the delisting that we have not touched that dividend. So moving to a progressive dividend policy is very, very positive and shows the confidence that both we as management and board has in the future of the business. Clearly, the quantum is not a decision for me. I mean, that's something that the board will decide, but you would obviously expect it to grow year on year.

Speaker 1

But there are also other there are other components you have to take into account when you think about dividend. And maybe you want to go into more detail on those linked to leverage and

Speaker 4

Yes. I guess, we just want to make sure that the dividend is supported by obviously sustainable earnings growth. We want to see underlying cap gen grow over time. We think about our broader financial metrics that you had on the capital management framework as Andrea said around leverage. We think about the external environment as well.

Speaker 4

And I think payout ratios is we clearly understand, you know, you can have a OCG payout ratio. Obviously, earnings payout ratios perhaps, you know, once we've got a much more meaningful fee proportion to our earnings. So, yeah, it's really important for us to have got to this particular point given we're on a journey and having the that they see the underlying improvement in the operating performance of the business. So yes, we will think about the growth rate over time. It's a question for the Board.

Speaker 4

We think this is absolutely the right number. It's an important first step for us. And also we have got these opportunities and I know that was a next question, but to do some very selective bolt ons to continue to grow to support the capital and earnings generation of the group.

Operator

And maybe shall we actually I think Joseph would be very well placed to answer on the capital management capabilities. So let me bring back up the slide.

Speaker 2

I hope you can hear me. Happy to come back on the slide before if you don't mind on private market that's allowed. Yes, we did talk about bolt on acquisition and we are very pleased again to have done those two deals. But I want to insist on the fact that we already have extremely capable teams. What you don't see here is the number of products and new strategies we are launching in every single line of the slides on the screen, real estate, private and structured credits or even impact on private equity or even infrastructure.

Speaker 2

I just want to come back to the percentages that are mentioned here, which is the percentage of external assets. Probably what we don't see here is the time line. We launched our real estate franchise more than twenty, twenty five years ago. We have 54% of assets with third party clients, meaning the rest is with internal clients, the Life business. Actually, the Life business is extremely hungry on real estate.

Speaker 2

Just look at the next door, the building for Thieleven Hall. And for sure, which means that we have to grow even more on third party assets. Go to the next line, private and structured credits, still the same slide. Actually, this line, sorry. Line.

Speaker 2

Line, 84% like for infrastructures. These are strategies that have been around for more than twenty years. A lot has been sold for third party clients. Reversely, we launched recently three plus years ago, Catalyst, which is our growth equity fund investing in impact space alongside the acquisition we did in Responsibility. That's why as a weighted average, you have a relatively low percentage.

Speaker 2

Catalyst is still 100% for the Indian clients and we want to externalize it out there. So we don't need only to do bolt on acquisitions. We do have strong teams out there that can grow the business, and we still have a strong pipeline of new strategies. We've mentioned the LCAF for The UK market. We mentioned also the Social Investment Fund to grow effectively our, let's say, presence in various markets.

Speaker 2

Having said that, if you were to ask me where you are not really, so we are strong in Europe, relatively strong in Asia, especially in real estate. We are probably less present in The U. S. As we speak now.

Speaker 4

Management actions, should I do that quickly? So again, we're not going to guide to where exactly we will come out over the three years. I think you know that we've obviously delivered quite outsized management actions. We mentioned the July and in particular there was over the last two years quite sizable gains in terms of management actions coming from there with profit funds shifting their allocation from equities into fixed income. And so that was more meaningful in 2023 and also into 2024.

Speaker 4

Another really important factor is that we have largely optimized the annuity book also. So a lot of those levers have already been pulled in terms of management actions that we can take. We still look at credit risk. That's one area that we're focused on. And clearly there are other possibilities around re ensuring longevity as well.

Speaker 4

So it is critical that we want to grow the high quality underlying earnings and we said we'll do that over time and then we absolutely will deliver management actions, but we won't have some of these either meaningful sizable one offs we've had in the last two years. But we still have clearly actions that we're looking at and that we have on the horizon for the next couple of years to hit the 2.7%. But we won't guide to $100,000,000 6 hundred million dollars a

Operator

year. Andrew Green? From Autonomous.

Speaker 12

Andrew Green as Autonomous. Can I ask three questions? First one, can you provide the net flows in gross net flows into asset management, first from private assets? And secondly, from the internal funds? I mean, I know you do a wholesale institution, it'd be nice to have the whole bit.

Speaker 12

Secondly, the strain on the annuities this year, it was I think GBP 64,000,000, so it was something like 7%.

Speaker 4

That's right.

Speaker 12

When you're talking about your new strength targets, is that entirely because you're changing the mix to a lower strain value added, I can't remember what's called?

Operator

Yep. Value share.

Speaker 12

Yeah. Or is it the fact you're going to try and I mean, that's a very high strain figure compared to everyone else. And then thirdly, on the little section on the M and A bolt on M and A, rather than me get my protractor right, because I don't think I've got a protractor anymore. You can tell me what the number is, please.

Speaker 10

So

Operator

I guess on the gross and net flows, you were asking for private and public assets and

Speaker 4

International.

Operator

Internal. I so we don't have it in the slides. We provide gross and net by institutional and wholesale. So we need to come back to you. I need to check whether we have in the annual report anywhere, but I'm not quite sure.

Operator

And if we don't, good point, we can add it as additional disclosure because it's fairly easy to do. So let let us come back on that one. On the strain on the annuity, the 64,000,000 is correct. And how do we think about lowering that percentage going forward? I mean, maybe Catherine, do you want to take it?

Speaker 4

Yes. So we do know that, and I thought it might be getting a question on the CSM new business as well, but it is obviously a higher 7% number. We have got a small amount as we said the strain for the value share really is quite modest. We genuinely are focused on double digit IRRs. I know a lot of there's been a lot of commentary too around strain coming through from court credit versus gilts and portfolios and those sorts of things.

Speaker 4

But I think certainly we have got the ability to still re insure for longevity both on the existing deals that we've done and how we think about some of the future opportunities. So we've said that there's 64,000,000 there was also a modest amount for a proof fund which has been quite stable and it's quite small. But yes, having the opportunity to deliver if the strain is a tiny bit higher, but we've got amazing IRRs coming through from perhaps private markets for a different type of transaction and it hits our hurdle rates, then we will look at it. So it's to give us some flexibility to be open for, you know, a variety of deals across both the traditional as well as the value share. But it really is around the hurdle rates and ensuring that we've sort of optimized the total economics not just the deployment day one.

Speaker 4

But back to the early question, we also have got capital that we can use. So if it's delivering flows into asset management, if the IRRs are good, it's attractive business for us.

Operator

And as a key point, like, you know, if you compare our 7% with whatever 3%, four %, five % in the market, the market or 2%, well, they're insured pretty much entirely the longevity risk, while as we've said a couple of times, we have ensured no longevity risk on the traditional BPAs we have closed so far. And that by itself can be a high single digit swing in terms of strain. Right? So I think that is probably the best explanation for the 2024 results, while for going forward is about applying more longevity or insurance shifting more to value shares and with profit BPAs over time. There was I wrote down, can you tell me the number on the asset management bolt ons?

Operator

I guess the only call out that I'll make on Slide 41 is that we have not yet completed PCP. So part of P Capital Partners, the private credit acquisition. So part of that, slice, will be allocated to that.

Speaker 4

Yep. And

Operator

And this is like how can we give you a number? Like it means that we exactly know who we're going to buy and for what and it's not going to necessarily help the negotiations, right?

Speaker 4

And I think just in terms of these opportunities that Joseph outlined, they really are subject to meeting our cost of capital, payback periods being attractive, also continuing to diversify our earnings mix. That's also really important. So we look at a number of things in terms of financial metrics for these acquisitions, adjacency to existing capabilities. And given the given the demand we're seeing externally, and the attractiveness of having that internal client with €850,000,000 of euros we've already deployed, I think there are opportunities, but we will be incredibly disciplined.

Speaker 1

Yeah. And let's be very clear on this because you see many of our peers, everybody's trying to look how they can grow externally. I think there are two models that are sort of winning models. One is about scale, but significant scale means that you have to arrive to $33,000,000,000 3,000,000,000,000 plus passive active everything. And that that has some risks.

Speaker 1

That has risk on talent. That has risk on clients. But it's it's a possible play, not a play we're interested in. The other winning model, which we see many active asset managers want to go, is they want to significantly develop private assets. You can ask any active asset manager who will always say private assets is our top priority.

Speaker 1

In order to do so, if you really want to speed up, you need to have access to permanent capital. And that's where we believe we have an edge on many others. It's not when you look at many American players, alternative asset managers in The US, what have they done in order to boost even further their private assets franchise? They have been trying to buy buying life insurance books. That's what they've been doing in The US.

Speaker 1

They tried to do the same thing in Europe, but the regulators said no. So there is that model, which already we have. So, I mean, when I look at the opportunities, I think we have everything in within our our reach in order to grow, going forward. But we will be extremely selective. To Catherine's point, there are opportunities that are bolt on.

Speaker 1

It is critical that it is within the appetite of this strategic asset allocation of our of our light base because that helps us to scale it up much, much quicker afterwards. And we have a very, very strong distribution sales teams. Josef have in the last two years hired many super strong institutional salespeople across the globe that will help us further. So I think we're well placed in this environment to accelerate further in 2025 and beyond.

Operator

Last but definitely not least, I think, Larissa, on the way and I promise September you'll be the first, is that he always sits at the back, so it's hard to spot you. And, you know, if Andrew would sit at the back, I would still see him.

Speaker 4

See, that's why I wear red. Okay. Exactly. Actually, just thank you, Luca. And no need for September.

Speaker 4

On the longevity reinsurance, I'm curious as to why you haven't reinsured any longevity. And then could you give us indication of the longevity cover on your back book, please? And if I can add a quick one related to that. Are you concerned about Azempic? Concerned and the Singapore Yeah.

Speaker 1

Of course.

Speaker 4

JW reinsurance pricing. Thank

Speaker 9

you.

Speaker 4

So look, I think we've tried to explain how since coming back into the market, we've obviously we're really pleased of what we've been able to achieve, 1,700,000,000.0, 6 deals, and also this really innovative value share, half a billion transactions. So we have got capital that we have been able to use, and we've got the capabilities with, across the group to deliver the hurdle rates that we need. So we've clearly known about the cost of longevity, but we haven't felt the need yet to do that. But as I said, it remains a management action for us to take on the existing deals. And obviously, we can use it to bring down the strain for new business and new deals if we do traditional shareholder deals.

Speaker 4

And in terms of longevity and I'm sure you saw there was the pretty meaningful impact to CSM as well as the contribution to capital. Really it's just looking at those CMI 2022 tables. Obviously, we're a bit later than some peers in terms of how we adopt them. And we are not concerned around the trajectory for Ozempic and what that might do. We do and you'll remember we did a lot of work two years ago with external panels on the bolivar health trends.

Speaker 4

We had some benefit given for 2022 data in the longevity release that we did last year. So we're clearly engaging in all the industry discussions on Ozempic as you would expect us to and monitoring it. But obviously, as you know, there are also many other considerations and our own, obviously, population that think that we think about when looking at potential future trends here. So we're engaging in all the right conversations.

Operator

Perfect. Thank you very much. And actually, we got an extra question for online from similar actually both from Russia, Deutsche Bank and Sivan Abled, HSBC. Congratulation, by the way, Rhea. If you're listening, great news.

Operator

She's pregnant. So it is great news and almost there. The question, we are we did a few questions, but I think we tackled most of them throughout the course of the presentation. The one that I think we have not touched on is for you, Catherine, on the below line items. So in particular, the mismatching from IFRS 17 application, how should they think about it and the short term fluctuation returns.

Operator

We've covered in the past, but it's good if you could just elaborate a bit.

Speaker 4

So before the below the line?

Operator

No, no. It's mismatches. It's all below the line. It's IFRS 17 mismatches and short term fluctuations.

Speaker 4

As you've seen before in the results, so we had about SEK $643,000,000 from the short term impact from markets which was there was about of that around 100,000,000 was from the equity gains. So losses on our equity hedging, we protect our solvency position. That's why we put these hedges on. And so the remainder was split roughly fifty fifty mark to market losses on the annuity book and losses on the interest rate hedging. So pure accounting, we look at hedging our solvency position.

Speaker 4

We do monitor clearly looking at the statutory position. So that was $640,000,000 and then the million from IFRS 17. Again, that probably is something that's a little bit more unique to us. Again, it is accounting noise from IFRS 17. It should unwind over time And it really does come from mismatches in the accounting treatment for the annuity book that we have in the with profit funds.

Speaker 4

So it's quite a specific quirk of IFRS 17. So it we again, there's some disclosure on it in the results, but it is it's on the annuity booking with profit fund and that represents the majority, the vast majority of that SEK $333,000,000.

Speaker 10

Okay.

Operator

Thank you very much. I don't see any more hands in the room. So with that, we'll bring it to a close. Thank you very much for joining us today. Thank you.

Operator

And see you in September. Thank you. Thank you.

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Earnings Conference Call
M&G H2 2024
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