M&G H1 2025 Earnings Report

M&G EPS Results

• Actual EPS: GBX 10.10
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

M&G Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

M&G Announcement Details

• Quarter: H1 2025
• Date: 9/3/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, September 3, 2025
• Conference Call Time: 5:00AM ET

M&G (LON:MNG) is a leading savings and investments business, managing investments for both individuals and for large institutional investors, such as pension funds, around the world. We have a single corporate identity, M&G plc, and two customer-facing brands: Prudential and M&G Investments. Prudential offers savings and insurance for customers in the UK and Europe and for asset management in South Africa. M&G Investments manages assets for clients globally. With roots stretching back more than 170 years, we have a long history of finding innovative solutions for our customers’ changing needs. Today, we bring together our diverse set of asset management capabilities and our insurance expertise to offer a wide range of solutions for different types of customer in 28 markets around the world. We are proud to have been serving individual savers since 1848 and our purpose remains the same today: to help millions of people to manage and grow their savings so that they can live the life they want.

M&G H1 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Asset Management Momentum: M&G attracted £2.6 billion of net inflows in H1, driving a 14 percent rise in fee-related earnings and improving the cost-to-income ratio to 75 percent from 79 percent a year ago.
• Positive Sentiment: Strategic Dai-ichi Life Partnership: M&G’s new partnership with Dai-ichi Life, including a 15 percent stake acquisition, positions the group to generate at least $6 billion of new business over the next five years in Asia and private markets.
• Positive Sentiment: Life Business Expansion: M&G integrated PruFund onto FNZ platforms to tap digital distribution, launched a fixed-term retail annuity, and plans to introduce both a lifetime annuity and with-profits bulk purchase annuity in Q1 2025.
• Positive Sentiment: Robust Capital and Profitability: The group generated £443 million of operating capital in H1 toward its £2.7 billion three-year target, achieved a 230 percent Solvency II ratio, and delivered adjusted profit growth despite $16 million of one-off headwinds.
• Positive Sentiment: International Diversification: International clients now account for 58 percent of external assets (up from 37 percent in 2019), boosting resilience through geographic and product diversification.

Presentation

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

Have your results. Thanks a lot to those joining in the room and those following us online. We're here with Andrea Rossi, our CEO, and Kathryn McLeland, CFO. As usual, we're going to go through a short presentation, briefer than at full year, and then we'll have all the time needed for Q&A. Without further ado, thank you very much, and over to you, Andrea.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Good morning and welcome to M&G's half-year results. It is a pleasure to be here with you today. In March, we announced a new set of targets and dividend policy for the group, aligned to our long-term ambition. Today, Kathryn and I will cover the operational and financial progress we have achieved since then, as we position M&G for long-term profitable growth, which is diversified across business units, products, and geographies. I'm pleased to say that we continue to drive positive momentum in both asset management and life, and to deliver strong client outcomes. It's been a busy first half, so let's review the main highlights of the year so far. You notice we have three priorities for the group: financial strength, simplification, and growth, and we are relentlessly focused on execution. We strengthened the balance sheet and reduced our leverage. We simplified our organizational structure and tackled costs.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Now, we are growing the business. In the first half of the year, we attracted £2.6 billion of net inflows in asset management. This is a strong result, powered by market-leading investment performance and the continued success of our European and Asian operations. Every day, M&G becomes a more international, resilient, and diversified business. Today, 58% of our external assets come from international clients, up from just 37% in 2019. While growing in asset management, we are also becoming more efficient and more profitable. In H1, asset management fee-related earnings increased by 14% year-on-year, reducing the cost-to-income ratio to 75%. This is the third consecutive improvement since launching our transformation program in 2023, when it stood at 79%. While we have already made significant progress, we know there is more to do. We will remain disciplined on costs and drive top-line growth.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Our new strategic partnership with Dai-ichi Life will support this growth by giving us a strong platform to expand in Asia and to attract flows into our private market solutions. In life, we continue to broaden the distribution of PruFund. Here in the UK, we have successfully integrated PruFund onto FNZ technology, opening up digital platforms as new potential distribution channels. Tapping into this market of nearly £700 billion will further support PruFund sales next year and beyond. Finally, we continue to make meaningful progress on the development of a with-profits bulk purchase annuity solution, which we expect to launch in the first quarter of next year. This will give us a unique proposition and a competitive advantage to win business in an increasingly crowded market. Delivering on our strategic priorities means we're also making good progress on our targets.

[Andrea Rossi, Group CEO & Board of Director at M&G]

First, the $443 million of capital generated in H1 is a good start to our new $2.7 billion three-year ambition, underpinned by an 11% increase in the underlying result. Second, the cost-to-income ratio improved by 2% year-on-year, and we have achieved nearly 95% of the cost savings targeted by the transformation program. On both these areas, we expect further improvements in H2. Finally, we continue to drive positive momentum in adjusted profits. The headline result is up 1% year-on-year, despite $16 million of unexpected headwinds, which we do not expect to recur. Without these, our growth is already in line with our target. We expect the growth in profits to accelerate over time, as we remain firmly committed to our 5% average annual target. Kathryn will provide more details on this later.

[Andrea Rossi, Group CEO & Board of Director at M&G]

By continuing to generate capital, tackle costs, and grow profits, we underpin our new progressive dividend policy and deliver strong outcomes to our shareholders. M&G's integrated, balanced, and synergistic business model continues to give me confidence in M&G's future. It remains our competitive advantage to serve clients across their different investment needs. With the support of our life operations, we have built a first-class asset manager, delivering superior investment performance and consistently winning external business. Thanks to the insurance balance sheet, we continue to seed innovative investment solutions, particularly in private markets. This year, we have seen a renaissance of active asset management, with a renewed focus on Europe. This plays to our strengths and to what we do well. Our strong credentials are what has attracted leading financial institutions of the caliber of Dai-ichi Life to partner with us and invest in M&G shares.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Every day, we're making our asset manager stronger, more profitable, and more international. By bringing together asset management and life, public and private assets, we offer clients what they need at each step of their savings journey. For UK retail customers, we're building a holistic retirement proposition with PruFund at its core. For corporate clients, we continue to strengthen our bulk purchase annuities capabilities and offering. Let me now tell you why I'm confident about the future of our asset manager. Our investment performance is consistently excellent. The UBS analysis on this page shows that for the third year in a row, we rank as a top-performing publicly listed asset manager in Europe. Furthermore, at $2.6 billion, net flows are the highest since listing, and we continue to improve the profitability of this business. I am very pleased with how we have turned around our asset management operations.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Since launching our transformation program, we have remained focused on improving the quality of our cost base. We have soared inflationary pressures, freed up resources, and reinvested them to support our growth agenda, expanding our investment and distribution capabilities. In under two years, our cost-to-income ratio has reduced from 79% to 75%, a meaningful improvement in a short period of time. We are not done yet. The flow data also shows three positive trends. First, the headwinds in the UK institutional segment are gradually reducing. The defined benefit schemes continue to de-risk, but the pace at which they do so has slowed, and we are less exposed to these segments than in the past. Secondly, we're achieving strong net flows in wholesale, thanks to the outstanding investment performance we deliver to clients across both equity and public fixed income.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Finally, we continue to grow at pace internationally across a number of different countries. The international growth of M&G is a compelling story. Since 2019, we have consistently grown at double-digit rates. Having invested in and strengthened our distribution teams, our hard work is now paying off. Today, 58% of our third-party assets come from clients based outside the UK, up from just 37% five years ago. We are now a leading international manager, with an established footprint in Europe and growing access to attractive Asian markets. This means that our asset manager is more resilient, thanks to a broader client base, and has greater access to more growth opportunities. On this page, you can see our progress country by country. The Netherlands, Germany, and the Nordics are key institutional markets for us. In Italy and Spain, we have outstanding relationships with local banks and wholesale distributors.

[Andrea Rossi, Group CEO & Board of Director at M&G]

In Asia, we have a good footprint that we will build on, also thanks to the partnership with Dai-ichi Life. We are very pleased with our international expansion so far and the opportunities ahead. This is a top priority for M&G, and we are committed to build on this strong track record. Our other priority in asset management remains private markets. After completing the acquisition of P Capital Partners, our private markets franchise stands at $77 billion, with an additional $6.5 billion in the capital queue. These are committed client funds that will start to generate fees as soon as they are deployed. It is a healthy pipeline that gives us confidence in the outlook of this franchise. You can see on this page the breadth of our proposition. We have a strong 20-year track record and all the key components for a holistic private markets offering.

[Andrea Rossi, Group CEO & Board of Director at M&G]

With critical mass across asset classes, we continue to broaden our fund rate. Given the needs of our insurance balance sheet, we first focused on core strategies, which are on the conservative end of the risk-reward spectrum. We have since launched a number of successful high-alpha strategies, as you can see on the slide, across all asset verticals and in line with client appetites. One client that is keen to allocate capital to our high-alpha solutions is Dai-ichi Life. In May, we announced a long-term strategic partnership with them, which we expect to be a key driver of asset management growth, both in Asia and in private markets. By becoming their preferred asset manager for Europe, we expect to generate at least $6 billion of new business over the next five years, of which $3 billion will be allocated to high-alpha strategies.

[Andrea Rossi, Group CEO & Board of Director at M&G]

We expect the first mandates to be awarded before the end of the year, with detailed fund-level due diligence already underway. In July, I spent a week in Tokyo with the Dai-ichi Life leadership team. I returned energized and optimistic about the prospects of this partnership, which has significantly increased the profile of M&G in Japan and Asia. This collaboration proves that institutional investors are looking to increase their exposure to European assets. When they do that, they want to partner with strong active managers like ourselves. The presence of our large insurance balance sheet is another key attraction for Dai-ichi Life, as it proves we have real skin in the game. Once more, this is clear evidence of the value of our unique business model. As you know, Dai-ichi Life is acquiring a 15% stake in M&G, aligning our interests in making this relationship a strong success.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Let me just drink a little bit because my voice is going away. Good time to move to life. Pro Fund flows were soft in H1, with the April events impacting retail sentiment. Nonetheless, sales rapidly improved in May, June, and July, as Pro Fund continued to deliver strong outcomes and to protect customers from market volatility. This recent trend is encouraging, and we expect to see continued progress. Improving Pro Fund sales is only part of the solution, as we build a holistic retirement proposition around this unique product. In doing so, we're broadening both client access and our product offering. From an access perspective, we hit a major milestone this year, integrating Pro Fund on FNZ technology. This gives us better access to the large and rapidly growing digital platform market.

[Andrea Rossi, Group CEO & Board of Director at M&G]

From a new product perspective, we have launched our fixed-term retail annuity, and we remain on track to launch a lifetime retail annuity next year. Within life, we also continue to invest in our BPA capabilities. Having reentered this market two years ago, we aim to generate annual sales of $3 billion to $4 billion by 2027. To do that, we have been scaling our capabilities across our origination, proposition, and pricing teams, investing in the talent needed to achieve our ambition. In a short period of time, we have improved our chances of success, scaling our ability to quote deals, and implementing new longevity reinsurance capabilities. In what is becoming an increasingly competitive space, we are building a truly differentiated offering. Last year, we launched a value share BPA, an innovative solution where capital requirements and rewards are shared with our clients.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Early next year, we will launch our with-profits BPA. The product development is progressing well and is on track for Q1 delivery. Benefiting from the with-profits fund's lower cost of capital, this solution will be extremely competitive and will be a powerful tool to attract flows to the group. Having a differentiated offering also means we can remain disciplined on deal pricing and not compromise our financial returns. While market activity has been relatively subdued this year, we have closed $300 million of new business so far, with a further $200 million in exclusivity and a healthy pipeline for the remainder of the year. To conclude, M&G has financial strength. We continue to simplify our business, and we are growing again. In the first half of the year, on the back of consistently strong investment performance, we have delivered fantastic asset management net flows of $2.6 billion.

[Andrea Rossi, Group CEO & Board of Director at M&G]

We continue to expand internationally, improving the diversification and resilience of our business. The partnership with Dai-ichi Life will take our international journey to the next level. We also continue to broaden our proposition, both in asset management and in life, including the launch of our with-profits bulk purchase annuity early next year. All this work opens up additional avenues of growth for the group. In parallel, we remain absolutely focused on simplification, and we'll continue to deliver meaningful progress on the transformation program and the cost-to-income ratio. We have now set the group up for long-term profitable growth across products, segments, and markets. With that, I will hand over to Kathryn, who will take you through our financial results in detail. Thank you.

[Kathryn McLeland, CFO & Board of Director at M&G]

Thanks, Andrea, and good morning, everyone. I'll now go through the details of our first half results, which I'm pleased to say reflect the continued delivery against our priorities. Covering first the key highlights: net flows from open business of £2.1 billion, improved by £3.2 billion year-on-year. This is a great result, underpinned by £2.6 billion of net inflows from external clients in our asset management business. This achievement is particularly noteworthy given the volatile external environment we saw in the first half of this year. It was made possible by the market-leading investment performance and by the continued international expansion that Andrea talked about. In our life business, PruFund saw net outflows of £600 million. However, we are encouraged by the improvement we've seen recently, with flows turning positive in the months of June and July. Group-adjusted profit of £378 million reflects the positive momentum across our business.

[Kathryn McLeland, CFO & Board of Director at M&G]

Asset management fee-related earnings were up 14% during the first six months of this year, while in life, growth in traditional with-profits more than offset lower earnings in annuities. At £408 million, the operating capital generation benefited from a growing underlying result of £331 million. With both asset management and life contributing strongly, this result demonstrates once again the value of our diversified business model. Finally, management actions of £77 million in the first six months of this year are in line with our guidance of £100 million to £200 million for the year. Thanks to this strong operating performance, the Solvency II ratio reached 230% as at the 30th of June. Turning now to flows.

[Kathryn McLeland, CFO & Board of Director at M&G]

Closing AUM of £355 billion was £9 billion higher than the opening balance, supported by the £2.1 billion of net inflows from our open businesses and by £11 billion of impacts from markets and other items, which does include the £2.7 billion from the acquisition of P Capital Partners. As I mentioned, net flows from our open business improved by £3.2 billion year-on-year. Asset management net inflows were driven by £1.9 billion from the institutional segment, where continued strong international growth more than offset UK headwinds, which I'm pleased to say are gradually abating. Also contributing to the positive picture, we achieved $700 million of net inflows in our wholesale business, as we continue to deliver excellent client outcomes, with over 70% of our assets ranking in the top two performance quartiles. Life flows remain broadly unchanged year-on-year.

[Kathryn McLeland, CFO & Board of Director at M&G]

However, we are confident that there will be a stronger second half, as Pro Fund flows have gradually improved since April and as activity in the annuity market picks up after a quieter first half. At $378 million, our group operating profit was up by 1% year-on-year. The key features of this result are first, higher revenues and stable costs in asset management, leading to a 2% reduction in the cost-to-income ratio year-on-year. Second, an increase of $14 million in Pro Fund and $12 million in traditional with-profits, mainly driven by higher opening CSM balances. Third, reduced annuity earnings of $130 million, driven by lower returns on excess assets, as we flagged in our 2024 full year results, along with an $8 million headwind from a legacy contract. Finally, a stable corporate center result, as lower debt interest costs offset reduced investment income, with head office expenses remaining stable.

[Kathryn McLeland, CFO & Board of Director at M&G]

Not on this page, but worth noting, our statutory result increased meaningfully year-on-year from a $56 million loss to a $248 million profit after tax. This turnaround was driven by the strong operating result and by significant improvements in short-term investment returns and IFRS 17 mismatches. Let us now look at the asset management result in a little bit more detail. At $324 billion, AUM entered the period up by $11 billion, reflecting strong flows in favorable markets and the acquisition of P Capital Partners. Our average fee margin continued to be resilient at 32 basis points, despite a competitive environment, as we continue to focus on high-value-add solutions for our clients. Thanks to higher assets and stable margins, our revenues were up by 3% year-on-year.

[Kathryn McLeland, CFO & Board of Director at M&G]

We also kept a tight control on costs and improved the operational efficiency of our business, leading to a 2% reduction in our cost-to-income ratio to 75%, or 74% when including performance fees. I am very pleased with the continued improvement in the cost-to-income ratio, as it demonstrates our relentless focus on delivering positive operating jaws. We know we have more work to do and remain committed to maintaining strong cost discipline and to drive sustainable, profitable growth. Performance fees of $7 million were down $6 million from last year due to lower carried interest, and the $5 million loss in investment income was largely attributable to an $8 million FX revaluation loss due to the weaker U.S. dollar. In summary, high-quality fee-related earnings rose by $15 million year-on-year, offset by a lower contribution from performance fees and investment income. This led to the stable operating result of $128 million.

[Kathryn McLeland, CFO & Board of Director at M&G]

Let's now turn to our life business. PruFund operating profit increased by 14% to $112 million due to a higher opening CSM balance, marginally higher attrition rates, and a much improved new business strain. Profits from traditional with-profits were up by 11% year-on-year, also benefiting from the same dynamics of a higher opening CSM and attrition rates. We are pleased with this growth, as it occurred despite the lower expected returns and risk-free rates that we previously flagged at our full year results in March. We expect this new and improved level of profitability to be sustainable for the second half of this year. Let's now turn to shareholder annuities. Our annuities result was down 14% year-on-year, and this was driven by a lower opening level of annuity surplus assets and lower rates of expected return, which we guided to in March.

[Kathryn McLeland, CFO & Board of Director at M&G]

This was partly offset by a higher CSM release due to higher opening balances, supported by last year's large longevity benefit. The results also include an $8 million headwind from a legacy book, excluding which the annuity results would have been broadly in line with expectations. Other life was a small $1 million loss compared to a $2 million profit in the previous period, impacted by sterling euro FX headwinds and slightly higher losses in our advice business. Before turning to underlying capital generation, I wanted to remind you of the meaningful size of our CSM balances, which ended the half-year period at a strong $6 billion. You can find more detail on the operating change in CSM in the appendix. Our underlying capital generation in these six months of $331 million was up 11%, or $34 million year-on-year, though with some SCR impacts that may not repeat.

[Kathryn McLeland, CFO & Board of Director at M&G]

The asset management contribution was $18 million higher, thanks to improved fee-related earnings and a $12 million SCR reduction due to lower market risk requirements. Life delivered a $6 million increase to $289 million, and within it, both PruFund and traditional with-profits benefited from a higher opening PBSD balance of $4.3 billion and lower new business expense overruns in PruFund. This more than offset the headwind from a lower rate of expected returns on the PBSD of 7.8% versus 8.2% in the prior period. Annuities result saw a modest increase versus the prior period, thanks to a lower strain of $30 million from new bulk purchase annuities, which more than offset the lower return on surplus assets. Our corporate center benefited from an $18 million SCR release, primarily relating to lower Treasury lending activities. I'll now turn to operating capital generation.

[Kathryn McLeland, CFO & Board of Director at M&G]

Our operating capital result was a resilient $408 million, or $443 million, excluding new business strain, which is a good start to achieving our $2.7 billion cumulative target by 2027. Management actions of $77 million were lower year-on-year, as the first half of 2024 benefited from $62 million of one-offs from excess surplus distributions in our with-profits business. They are in line with our guidance for the full year. The main components of the management actions we saw were $118 million primarily reflecting equity hedging activities, $35 million of adverse experience and assumption changes on expenses and investment management costs, and a small $6 million adverse impact from model refinements with our traditional with-profits products.

[Kathryn McLeland, CFO & Board of Director at M&G]

Thanks to this strong operating result, our Solvency II ratio improved by 7 percentage points to 230%, and the solvency surplus remained stable at $4.7 billion, despite the payment of the final dividend for 2024 in May. Owned funds of $8.3 billion, of which $4.2 billion relates to the with-profits PBSD, are slightly lower than the opening balance of $8.5 billion, predominantly reflecting the dividend payment. I am pleased with the strength of our balance sheet, as we continue to carefully manage our risk exposures in the volatile macroeconomic environment. I'll now cover the progress we've been making in our cost transformation program. As at the end of June, we've achieved $213 million of savings under our transformation program, which means we've already overdelivered on the original $200 million target we set in March of 2023.

[Kathryn McLeland, CFO & Board of Director at M&G]

Given our strong progress, we're confident that we will meet our upgraded target of £230 million by the end of the year. I would like to reiterate that when we do achieve this target, our efforts to drive further cost transformation and simplification will continue. We will remain focused on improving the quality of our cost base, freeing up resources to invest in and grow our business. The strong progress achieved to date reflects the actions taken to create additional capacity and enhance our operational efficiency, as shown on this slide. For example, since the start of the program, we have transformed the operating model of our private markets teams, delivering £20 million of savings. With similar levers, we've achieved another £18 million of cost reductions in our life business.

[Kathryn McLeland, CFO & Board of Director at M&G]

We've also improved the efficiency of our tech environment by decommissioning over 500 applications and outsourcing IT services for further cost opportunities. Through these actions, we were able to fully offset inflation, invest to grow our businesses, and end the period with a cost base that was £8 million lower and of a better quality. We will continue to focus on improving our operational efficiency over the second half of this year and beyond as we transform the cost base of the group, deliver better customer outcomes, and, of course, drive profitable growth. In summary, the first half of 2023 reflects a period of disciplined execution, strategic progress, and financial resilience. We will continue to deliver for our clients and our shareholders, with our diversified business model positioned for long-term success.

[Kathryn McLeland, CFO & Board of Director at M&G]

I'm pleased with the results in the first six months of the year, which showed record net inflows in asset management and encouraging trends recently for PruFund. Strong operating profits, despite nearly £16 million of adverse headwinds, positive operating jaws in asset management, a resilient contribution from life with double-digit growth in PruFund, and finally, a good start on our £2.7 billion operating capital generation target. Thank you very much. Andrea and I will now take your questions.

[Andrea Rossi, Group CEO & Board of Director at M&G]

I'm going to take my table. I'll go stand here. I'll take my water. Thank you, Kathryn.

[Kathryn McLeland, CFO & Board of Director at M&G]

Thanks, Andrea.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Bye-bye, stand.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

Time frame limit? Always with this slide to head. It grills my head.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

This in front and screen behind you. Good. Just as a quick reminder, when you ask and Dom second, when you ask your question, please take out the microphone and you need to press and hold the button and please introduce yourself with name and firm you work for. Larissa, over to you.

[Larissa van Deventer, Equity Research Analyst at Barclays]

Thank you. Thank you, Luca, because the last time he did say I could go first, this time I was last. Larissa van Dijvenze from Barclays, two questions, please. The first one, congratulations on your Solvency II capital ratio, extremely robust. If you could please give us some color on how we should think about the strength of the ratio versus your capital allocation preference and how you keep the strong ratio from negatively impacting ROEs, please. The second, on your bulk annuities, we know that it's a seasonally slow start to the year, but how should we think now that you're gaining momentum, how should we think about margin and new business strain, please? Thank you.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

Paul, do you want to take the first one and Kathryn the second one?

[Andrea Rossi, Group CEO & Board of Director at M&G]

Yes. Thank you for reminding everyone that we have a capital management framework. We generally always put it back, but this time we didn't put it in the slides. Indeed, as you all know, we have been following this capital management framework and it's been a journey for us, really. If you remember well, our first priority was making sure financial strength and that we strengthen our balance sheet. We did the leveraging and we are now in a much better place. More importantly, we continue to deliver on our capital generation. At the same time, we wanted to deliver attractive dividends to our shareholders. We came up with a progressive dividend policy, as you know, in March this year. To do so, we need to underpin it by a growing business in terms of profitability.

[Andrea Rossi, Group CEO & Board of Director at M&G]

To do so, we have been doing the transformation program and we have been selectively also investing in the business to grow and also doing some selective acquisitions. What we want to focus on moving forward is making sure we deliver that sustainable, profitable growth to underpin the progressive dividend policy that we've come up with. I mean, we do not see at the moment the Solvency II ratio as an opportunity to do any capital returns. By the way, I think that if you do capital return, you should never do it from a stock. You should do it from a business that is doing much better. We're very much focused on improving and continuing the momentum of our business.

[Andrea Rossi, Group CEO & Board of Director at M&G]

As you saw today, when I look at some of the underlying KPIs, the fact that our fee-related earnings and asset management are improving by 14%, you saw the underlying capital generation growing by 11%. Pro Fund and with-profits, traditional with-profits also up. All that gives me confidence that we will continue on this journey and deliver on the progressive dividend policy.

[Kathryn McLeland, CFO & Board of Director at M&G]

Great. I think your second question, Larissa, was on BPAs and strain and margins. As we said, we've written $300 million so far this year, $200 million in the first half. You can see that the capital strain we had was a modest $13 million, where we delivered a margin on CSM of about 3.5%. What we've said is that we always have a double-digit RRR hurdle rate, which we want to do, and that's genuinely how we think about the economics for these transactions. It is very pleasing that we are participating in a lot of the transactions that come to the market. We are going to remain very disciplined in terms of the deals that we will do. We've not used reinsurance yet.

[Kathryn McLeland, CFO & Board of Director at M&G]

We've said we've got the capability to do that, but obviously, it makes sometimes more sense when we do it on larger transactions than smaller transactions. We like having the flexibility to reinsure, but that's partly reflected in the economics that you can see. We will remain very focused on delivering the double-digit RRRs. Obviously, having the ability to do BPAs now with-profits fund in 2026, that's a very exciting opportunity for us. We gave some guidance around the proportion of both with-profits BPAs and the value share BPAs for 2027 in March of about three quarters and one quarter. That also gives us confidence around the ability to participate in the expected volumes in the BPA market.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

Next one would be Dom, and then we've got the row here on the right. Thanks.

[Dominic O'Mahony, Managing Director at BNP Paribas]

Hi, Dom. I'm on EBNP Paramount XM. Three years, that's right for me. First, on institutional flows, really very strong indeed. I wonder if you could give us maybe the next layer down in terms of detail on where it's going, what you're seeing in the second half, and also whether the margin on the new business coming into the book is lower, higher, or in line with the margin on the inforce. Second point, just picking up again on the very strong solvency, and it's nice to see the tax man generously contribute to that. Can you think about what have you thought about using that more aggressively to take risk? If you're not thinking, don't use it for capital return, but could you be more aggressive about seed capital? Could you be more aggressive about underwriting risk maybe on the annuity side? Why bother doing longevity reinsurance?

[Dominic O'Mahony, Managing Director at BNP Paribas]

Your thoughts on that would be very interesting. The third question, over the last few years, we've got used to thinking through the impact of higher bond yields, but the curve has changed quite interestingly. What does that mean for your business? I don't really have a good feel at all, actually, for what that means for capital, cash, and indeed earnings. Thanks.

[Andrea Rossi, Group CEO & Board of Director at M&G]

I guess I'll take the first one, and the two other ones are for the CFO. Indeed, we were very pleased with the momentum, and indeed, you saw the institutional flows were very, very strong, particularly international, and you want to know in which asset classes they went. What we saw, we saw a renaissance and an interest again into Europe. There's no doubt the first half of the year, many investors have sort of allocated more into Europe. I think that also helped in our partnership with Dai-ichi Life because they clearly wanted to increase their allocation to Europe as well. In particular, when you look into Europe, we have seen both in public and on the private side flows, but in particular on public equities. Yes, there are still asset managers managing public equities. If they do so well, yeah, thank God. I mean, it's true.

[Andrea Rossi, Group CEO & Board of Director at M&G]

If they do so well, they get mandates and they get also flows in the wholesale side. On the institutional side, we saw significant interest into European equities, but also Article IX listed equities, which, of course, if you think of what is happening on the other side of the Atlantic, some American asset managers who have sort of, let's say, softened their stance on ESG, probably was also helpful. We've seen a lot of momentum on equities. Japanese equities, by the way, also continue to see inflows. On the private asset side, there was interest in particular on real estate, given where in the cycle valuations are, and more importantly, on the private credit and structured credit, in particular structured credit, where we have a strong franchise, been in that market since a long time on, for example, SRT.

[Andrea Rossi, Group CEO & Board of Director at M&G]

We had significant interest from pension funds, from Asia, but also from North America, in particular Canada, into these strategies. I would say well diversified. If you look at this number, you think you asked me about H2, we continue to have strong momentum. Of course, we also have Dai-ichi Life. There were no flows from Dai-ichi Life in the first half. They are doing due diligence on several strategies at the moment. We expect a mandate before the end of the year, so that will come. We continue to have a very strong capital queue, as you saw, $6.5 billion, but also a strong pipeline. You should expect positive net flows in the second half as well, but don't take the $2.2, oh, sorry, the $3.2 billion institutional number as a baseline.

[Andrea Rossi, Group CEO & Board of Director at M&G]

I think the first half was rather unique in the sense that many people increased their allocation to Europe. I'm not saying that they are going to decrease, but I don't think we're going to see the same increase in the second half.

[Kathryn McLeland, CFO & Board of Director at M&G]

Back to the choices around capital deployment across the group. As you rightly said, we've got a meaningful stock of capital at 230%. We've got the capital management framework that Andrea Rossi talked about more generally. You'll remember at the full year results, we also talked about the $2.7 billion and how we'd choose to use it. We have the option, we want to continue to simplify the business, investing in improving the operating leverage in the business and supporting the capabilities in life, for example. There was an allocation certainly towards traditional shareholder strain. Your point around automatically reinsuring or not, no, not necessarily. We will have a view. It really is about delivering the right returns on that capital, being thoughtful around where we use it. We do look at it group-wide.

[Kathryn McLeland, CFO & Board of Director at M&G]

We've got the tremendous $6.2 billion in surplus capital also in the with-profits funds that clearly go through very robust governance, but it's another source of capital for the with-profits bulk purchase annuities. We look at and evaluate options to deploy that capital, but it really is all around making the right choices around that capital. You've seen the guidance we've given around how we want to use it. It was pleasing to get the tax benefit, as you said, in the half, which is great that we've got stronger earnings and we can use the DTA in a solvency basis, which is really good. We did expect a question on rates and the steepening that we've seen this year. It's about 110 basis points between very short rates and long rates over the course of the year. The numbers in our financials are for June 30.

[Kathryn McLeland, CFO & Board of Director at M&G]

There's been pretty big moves in parts of the curve since June 30. One of the answers we gave actually this morning was we're lucky as a group that we do have a business model and a business mix that is successful through all interest rate cycles. When you think about, let's start perhaps with the insurance business, you've seen our sensitivities more generally around interest rates. We would expect obviously a benefit on the solvency II ratio when rates go up. The durations that we think about in terms of the balance sheet is not right at the long end. I mean, parts of the assets might be very long duration, but overall, because our annuities book was only reopened in the last couple of years, we do look at the 10-year part of the curve, which actually hasn't been as volatile this year.

[Kathryn McLeland, CFO & Board of Director at M&G]

We have seen a reduction at the short term, which I mentioned. Obviously, that may have plateaued now given inflation moves that we've seen in the UK and expectations for further rates. That was part of the reason we guided at full year around lower interest decretion and expect returns because of the one year. Generally, higher rates would benefit some of the earnings metrics for flow in the insurance business. Of course, we monitor what it does to the statutory shareholders' equity as well. We'd look at that. On the asset management side, it depends on where in the curve it is, again, because a large part of our asset management duration on the fixed income side won't be super long. It'll be sort of short, medium term. We think about impacts on AUM and the business. Again, we benefit, fortunately, as a group throughout different interest rate cycles.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

Maybe Dom, just to clarify for everyone's benefit, the tax impact. Clearly, you know, we pay taxes and in the IFRS results, you can see that there's the quote-unquote "tax bills" there. On our capital side, it is an SCR benefit because having made statutory profits, we've got more capacity to use deferred tax assets in stress scenarios, which reduces the SCR. It's a little bit technical, but you know, taxes have been paid. They're there on the IFRS side of things. It's just a quirk of Solvency II in the 1 in 200 stress case. Let's go to the row left to right. So, Andrew, Andrew, and Mandeep, and then I think there's also Naseeb and Andy.

[Andrew Crean, Senior Analyst - Insurance at Autonomous Research]

Okay, it's Andrew Crean in short comments. Can I ask three questions? Firstly, in terms of the BPAs, could you give us the margins on premiums as opposed to IRRs for your current BPAs versus the value-based ones and the with-profits ones? Secondly, for clarity, I think your excess capital over 190 is about £1.4 billion. Are you absolutely clear that you will never pay that out from stock buybacks and use? We'll need to go for regular buybacks from flow. Thirdly, I think on an annualized basis, the operating capital generation impact on the SCR was minus 8%. What is that likely to be long term? Do you continue to see, as your business grows, the SCR reducing?

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

I think yes, probably capital needs.

[Kathryn McLeland, CFO & Board of Director at M&G]

First question on margins, I think I mentioned that on the £200 million, we had 3.5% in terms of the CSM, so on premiums. We haven't given any guidance. Also, what we've said is, as we write more of these transactions and bigger ones, you will see more of the earnings or CSM margin and also more of the capital strain around the transaction. We've not given any more guidance. What's quite important is that when you obviously think about bulk purchase annuities in the with-profits fund and we think about hurdle rates, it's obviously a very different capital base that's being deployed for those bulk purchase annuities. We will have criteria around the profitability of those transactions and the sorts of risk and the sorts of transactions we want to do.

[Kathryn McLeland, CFO & Board of Director at M&G]

It won't be the same hurdle rates as we have or cost of capital as it is on the shareholder side. That's a really interesting piece of work that we're doing now as we get ready to write with-profits bulk purchase annuities in early 2025. I can see your.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Absolutely, I mean, given the fact you're going to try and write £3 billion to £4 billion a year, I think quite a large sum, it does matter to us to know what kind of margins relative to that 3.5% you're talking about.

[Kathryn McLeland, CFO & Board of Director at M&G]

Yeah, and of course, Andrea, when we start writing more and can, you know, we're hopeful around a better second half or an exclusivity on an additional £200 million, so that's about half a billion so far this year, fully appreciate. We are equally focused on margins for our shareholders on shareholder capital. I mentioned about with-profits. We're focused, so we think about the CSM and that's very important to us, but also around the returns on the shareholder capital that we're delivering. Absolutely, we understand that and we agree. When we give more, do more transactions, we'll give more color around that. The excess capital, I think Andrea's comment around distributions to shareholders from stock versus flow, the really critical thing for us is to drive sustainable earnings growth. We've got strong capital, strong capital generation, strong cash generation. We want to deliver earnings growth.

[Kathryn McLeland, CFO & Board of Director at M&G]

That's what will unlock any higher potential DPS growth. We've guided to progressive. We've done 2%. Being able to increase that further will depend on sustainable, consistent earnings growth. I think it was less a comment about share buybacks, which are not on the horizon for us at the moment. It was more around the DPS than actual share buybacks, I think. On the SCR, we have called out about £30 million of one-off benefits this year. Obviously, we do continually look to improve the efficiency of our capital base and look to optimize the capital requirements. Of course, we also, and there's, you know, market impacts on that that we have at the moment, given the rate moves that we're seeing. We also do want to deploy the business. That's hence the question earlier around strain, around using capital in the business.

[Kathryn McLeland, CFO & Board of Director at M&G]

We also benefit, as you saw, on the PruFund side by some improvements and changes we've made around pricing last year, which reduced some of the PruFund as well. More efficient writing that business, which is great. Yes, it will depend, but we're being very disciplined around shareholder capital management and capital across the group and got sufficient budgets, absolutely, to write profitable business with the right margins in terms of CSM and earnings, as well as capital.

[Andrew Baker, Head - European Insurance Research at Goldman Sachs]

Hi, thank you for taking my questions, Andrew Baker, Goldman Sachs. The first one, apologies, I'm going to go back to it, but excess capital, we're all looking at sort of Solvency II shareholder ratio to form the view on excess capital. Is that the right lens? Is there, just trying to get a sense of, is there another constraint on deployment of stock, whether that's the regulatory solvency ratio, local GAAP, equity, anything else that I hear you on, you're not looking to deploy it right now, but anything that could prevent you from deploying it going forward? Secondly, just a technical one, the $8 million charge that you call out related to the legacy annuity plan and the adjusted operating profit, what is that?

[Andrew Baker, Head - European Insurance Research at Goldman Sachs]

Thirdly, just on the underlying capital generation, the lower Treasury lending that you mentioned that gave the strong result at the center, should we expect Treasury lending to normalize going forward, or are these levels sort of sustainable? Thank you.

[Kathryn McLeland, CFO & Board of Director at M&G]

When we think about capital and what we're using that capital for, I go back to some of the guidance we gave, both a capital management framework and then the $2.7 billion over the next few years, where we talked where in the group we'd obviously use some of that capital that we do generate. We know that we've got a very strong solvency, which we do have. We also look at leverage, and that was one of the other questions I think we answered at the full year results around using that capital to buy back shares, which would impact owned funds. We know our leverage is very conservative versus peers. I would also say that we've done already the deleveraging last year on the whole co-debt. That's quite a meaningful amount of debt that we've redeemed.

[Kathryn McLeland, CFO & Board of Director at M&G]

We've got a call date coming up in 2028, a dollar bond, but we also need to think about the capital structure and the cost of it, and our debt is very cheap compared to, you've seen where rates are at the moment. So, 5.5% to 6.5% coupons for our whole co-debt. We look at the quality of the capital, we look at the ability to generate strong capital, strong cash earnings, and make sure that we've got a disciplined allocation framework with the right hurdle rates across the company. 230% solvency is absolutely one of the metrics that we look at. In terms of the balance sheet equity, that will be another lens. We look at, and both at the whole co, where I think we're at $3.3 billion in terms of shareholders' equity.

[Kathryn McLeland, CFO & Board of Director at M&G]

We've got strong retained earnings in the subsidiaries, strong capital, strong liquidity, pretty much at the whole co and at the subsidiaries. It's one thing we'll look at, and we talked before about impacts on rates, but we're very strongly positioned at the moment. We do look at a range of things, and we value financial flexibility. We want to have the capacity to write business. We want the capacity to deploy that capital across the group and to continue to deliver strong results for our customers and our policyholders. In terms of the one-off annuities impact of $8 million, it's just a one-off, and it's a legacy scheme, and it's really as simple as that. It's an old scheme that we had a payment that we made. Nothing more to read into that. It's a really good question.

[Kathryn McLeland, CFO & Board of Director at M&G]

On the benefit we saw in the corporate center in terms of capital, we do have Treasury activities where we can do, you know, very vanilla, but optimize the balance sheet. At the period end, it just happened to be lower market risk and rates and credit. That could definitely normalize. It's a point in time, and we're just thoughtful around, obviously, the longer-term expectations for that. It's very conservative, and it just happened to benefit that June 30 moment from a lower position.

[Mandeep Jagpal, Director - Equity Research at RBC Capital Markets]

Morning everyone. Mandeep Chagpal, RBC Capital Markets. Three questions as well, please. First on asset management. You've been able to keep absolute costs relatively flat over the last two and a half years, and you spoke about a continued improvement in the cost-to-income ratio in the second half. How should we think about the absolute growth in the cost base from here as you balance investment and growth versus operating efficiency, and how much flexibility do you have there? On BPA, you've reopened the bulk purchase annuities portfolio with the aim of doing more value share and with-profits bulk purchase annuity over time. What are you observing in terms of the level of competition in the traditional bulk purchase annuities market since you wrote your first deal in 2023, and how do you expect it to develop here following some M&A in the sector?

[Mandeep Jagpal, Director - Equity Research at RBC Capital Markets]

Finally, on DC pensions, how are you accessing the structural opportunity in the DC master trust space, given M&G's wide-ranging asset management proposition, including private assets? Could it be a particularly attractive option for you to have your own master trust?

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

Andrea, I don't know if you want both. You could go all the three of them if you want. Certainly, the top two.

[Andrea Rossi, Group CEO & Board of Director at M&G]

On the cost-to-income ratio, obviously, we're very pleased with how we have delivered the improvement over the last 18 months. Let's not forget, we moved from 79% to 75%. This was delivered thanks to both improvement in the revenue and, of course, managing costs in an inflationary environment, keeping it flat. We're pleased with that. We had a target. We have a target of 70%. We are committed to that target. We will not deliver it by the end of the year. If not, we will be super people, but we're not in that sense. We're doing well. We are committed to continue in that sense.

[Andrea Rossi, Group CEO & Board of Director at M&G]

When I look at how the business is doing and how we have momentum both in terms of pipeline in both private assets and public assets, when I see how we have been able to keep also margin, we're probably one of the few asset managers who have kept margin flat. I always like to show this. This is rather unique. There are not too many other asset managers who can show fee margins remaining flat as we have done. That is also thanks to a mix. I talked before where we see momentum. We see momentum in equities. Equities have higher bps. We see momentum a lot in private assets, higher bps as well. That will help. We are committed to continue to improve that cost-to-income ratio. We will do so, and we will continue to invest, but we will be careful also taking out costs.

[Andrea Rossi, Group CEO & Board of Director at M&G]

You should expect that you should see a similar momentum as you have seen so far in the last two years moving forward.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

second one on with-profits bulk purchase annuity?

[Andrea Rossi, Group CEO & Board of Director at M&G]

On BPA. On the BPA, as you have seen, we have a good, we launched a value share last year. What we wrote in the first half was plain vanilla BPAs. We've had interest in value share BPAs. They are actually larger in terms of size. We are in discussion with several schemes to see if we can arrive to a conclusion on them. I think what is key here is that you should look at what we can offer to schemes out there, because, of course, we can do plain vanilla. That's supported, of course, by a strong private assets franchise. More importantly, the value share, of course, gives a share of the rewards with the pension scheme. When we get to with-profits bulk purchase annuity, then we will have a significant competitive advantage because we will have a lower cost of capital.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Once again, when you look at competition, as you said, I'm not concerned about competition. I'm not even concerned that there are new entrants. Frankly, when I see the new entrants, they sort of have a similar business model to us because there are two alternative asset managers and they want that permanent capital side. It is effectively playing into our strength. Look at what we're doing. We reentered this market two years ago. We have written £1.7 billion of BPAs so far. We have significantly improved our capacity in order to originate, to price, to propose. We are very much committed to the £3.4 billion number by 2027. I think we will do so thanks to excellent asset manager. It is performing extremely well. More importantly, also thanks to the innovation that we bring. The with-profits bulk purchase annuity will be something very, very unique.

[Andrea Rossi, Group CEO & Board of Director at M&G]

The value share BPA still remains the only solution in the market.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

Last question on UK DC and master trust.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Yeah, do you want to? Can we?

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

If you want to.

[Andrea Rossi, Group CEO & Board of Director at M&G]

You want to take that? Or Joseph, I don't know who wants to.

[Kathryn McLeland, CFO & Board of Director at M&G]

I was going to say, as Kyle's getting the mic, the other fortunate ability we have around delivering the right returns in a market where there are a large number of players is also just having that private assets capability internally to make sure we optimize our asset returns, which is good for us.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

You have met Clive before, but Clive is the CEO of our Life business.

[Clive Bolton, CEO, M&G Life Insurance at M&G]

Good morning, everybody. Just a brief word on workplace. We do have a substantial workplace business. A master trust would be a step we are currently under review. Also, obviously, we are in conversation with the government around their proposed legislation. We actually think if we did do it, it would be a heavily with-profits sponsored and financed initiative because it has a long view. In actual fact, the piece that's missing in the workplace market is a convincing transition to retirement and retirement journey for those organizations. There has been a lot of really good work in the UK around accumulation. Actually, some of those, particularly post-auto enrollment, are coming to try and use their pension, which is a different set of skills where we have the number one drawdown product. We are entering into guaranteed income, which is particularly relevant.

[Clive Bolton, CEO, M&G Life Insurance at M&G]

We have one of the largest advice businesses in the industry as well. I think that's all we'll say for now. Thank you for that.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

We've got Naseeb and Andy.

[Nasib Ahmed, European Insurance Equity Research Analyst at UBS Group]

I'm from UBS. Just two questions from me, both on slide nine. You have a target of $100 billion of private assets by the end of the year. I know rates have gone up. What's that target looking like if you allow for higher rates? Are you tracking ahead of that target today on the $77 billion already, or do you still have a bit of catch-up to do? Second question on the same slide, the $6.5 billion. Does that have anything for Dai-ichi Life in it, or is that on top? Thank you.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Okay. I don't think we have a target of $100 billion of private assets by the end of the year.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

It was an ambition that we talked about in 2020.

[Andrea Rossi, Group CEO & Board of Director at M&G]

I think it was an ambition that we stated, but we don't have a strong target to it. I think what is important is you look at this slide and you look at the strength of our franchise. First of all, this is one of the largest private assets players in Europe. Both real estate, private and structured credit and infrastructure have been around for a very, very long time. We haven't just entered this. This was developed thanks to the support of the balance sheet. When you look here, we have actually moved into, I would say, more yielding strategies by doing acquisitions where we believe that we can grow significantly the business. When we did BauMont, the value-add real estate acquisition, this was to complement an already strong offering, but more importantly, also supported by the balance sheet. I think that's the way we're going to grow.

[Andrea Rossi, Group CEO & Board of Director at M&G]

We're going to grow our existing franchises organically, and we might look at potential bolt-on acquisition in order to grow this business going forward. Same thing with P Capital Partners. We had a commitment of $500 million for our balance sheet to grow that business. On the capital queue, no, there is no Dai-ichi Life in that capital queue.

[Andrea Rossi, Group CEO & Board of Director at M&G]

is when you have won the business, and obviously you need to deploy it. Maybe an important point on the capital queue, because we're showing this for the first time, I think.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

We used to three, four years ago, but yeah.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

What you just see on the capital queue is, of course, there will always be a capital queue. As a private asset manager, you always have a capital queue. What is important is that you need to make sure that the capital queue comes in with new flows and you deploy. What is the range? I would say the range is between five to seven. In this case, this increase of capital queue is because we have received new, we have won new business, not because we have not been able to deploy. I think that's the positive news you should take from here. No, Dai-ichi Life is not in there. I think I said it in the presentation. They're doing due diligence. We expect to get a mandate from them before the end of the year.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

As you all know, they have a commitment of $6 billion, not sterling, over the first five years.

[Andrea Rossi, Group CEO & Board of Director at M&G]

On bolt-ons, on those verticals, where else would you think of adding capability?

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

I think, you know, one has to be careful. We have done two small bolt-ons, and I think you need to see those develop. We have always had a way of saying, okay, we utilize part of our own balance sheet, and then we grow them even further. If I had to look, I would say I would look at private structured credit, which still is something which we will see Europe as being very interesting. There are big great opportunities. I probably would also look potentially at some on the infrastructure side. Overall, we have what we need at the moment. I mean, we want to grow organically, and we want to make sure that those two bolt-ons that we have been integrating, that they take off as well. Thank you.

[Andrew Sinclair, Managing Director at Bank of America Merrill Lynch]

Thanks. It's Addison Clare from Bank of America. First, we're just circling back to leverage. I get the points you've made on leverage, that conservative methodology, et cetera, but you do have a target for under 30% leverage. We're at 33% now, I guess that target's for the end of the year. Are we saying that this might take longer? What's the thoughts on our progress to under 30%? The second is on the annuity one-off. Sorry to come back to it, but I still don't understand it. This £8 million payment, I get you're saying it's one-off, but why is this payment being made? Why should we have confidence that it is just a one-off and that there's no other schemes that this is coming through for? The third was just on the FNZ platforms for PruFund. How many FNZ platforms have committed to offer PruFund so far? Thanks.

[Luca Gagliardi, Group Director - IR & Strategy at M&G]

Why don't I start with the end and then you can take the two first? Obviously, we're pleased to have done this agreement with FNZ. As you all know, FNZ roughly covers 40% of the platform market. We're talking £280 billion of AUMA and roughly 50% of the flows. We're talking £35 billion per year here. We're very pleased to have done this agreement. We are in discussion with some of the platforms utilizing that technology. I would say probably it's for 2026. We will see something happening there. Obviously, we're very, very excited to get there because this will substantially increase volumes on PruFund. Okay.

[Kathryn McLeland, CFO & Board of Director at M&G]

If I take leverage, perhaps, yes, we are not at 30%, but we also know that, as you said, we have got the most conservative. We'd be at 27%, I think, on an IFRS equity basis and 22% on using some of the approaches by some of our peers. We obviously want to get there through own funds growth because, as I said, the whole code that we're comfortable with, we also think, I mean, it is good quality, very long-term, and cheap capital and funding. We have got a call of the dollar bond in 2028. We do still, we have no concerns on that. We're very comfortable with it, and we get no feedback either from shareholders. You know that we are conservative. We will get there, but we will get there through own funds growth.

[Kathryn McLeland, CFO & Board of Director at M&G]

Obviously, we don't think we'll get there by the end of the year. We can do the math in terms of what's needed.

[Andrew Sinclair, Managing Director at Bank of America Merrill Lynch]

I was just going to say, with bond yields going higher, I guess that target gets a little bit harder. Is that still under 30, though?

[Kathryn McLeland, CFO & Board of Director at M&G]

Absolutely. In the first question around rates, one of the things we saw when we did have movements in rates is we get a benefit on the PBST, which is very good, but there can be an impact, a negative impact on own funds. That's why the key thing for us is delivering the own funds generation through consistent earnings growth and being able to withstand market volatility. Yes, you're right. The increase in rates would impact own funds as well. I go back to just being very comfortable in the leverage ratio in the stock of HoldCo debt. We've got another exit, we've got this opportunity in 2028, which we're mindful of. As I said, we're very, very conservative compared to peers. We have very unusually had a one-off payment to a very, very old contract that we've remedied, had zero impact on policyholders, and we've got no concerns. This is the one-off. We've answered FNZ.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Yes. Okay. I think we have taken all the questions from the analysts in the room. With that, let's say thank you very much for being with us today. Sorry, apologies. We received, let me read the one from Tom from Mediobanca. He would like to know if you could elaborate on why the cost of capital is lower for with-profits customers when writing with-profits BPAs. That's his first question. Then on the proof of FNZ, he's asking whether it's going to come through next year, which I think we answered, and what we talked about next year and the impact. Maybe without taking that question on the cost of capital with the with-profits fund, I don't know if Clive, you want to say two words on the with-profits fund and the cost of capital in the with-profits fund as opposed to what other peers would have in the market.

[Clive Bolton, CEO, M&G Life Insurance at M&G]

It's a question of different regulations and governance and environment. On a strict level, a with-profits fund doesn't actually have to make a profit because it's written in the context of the trust. However, it does have an expectation not to write it to loss. Therefore, there would be a level of margin creation above zero. Without going into too much of the numbers, that means that there would be a lower return on capital in order to make sure in most cases the fund is not writing with the expectation of a loss, but it would be nowhere near the level that a shareholder-based capital provision would be of double digits, 14% or certainly lower than a P Capital Partners-backed organization would be looking to return there. That gives you the different quality of capital. Also, it has no dividends to pay. It's lengthy.

[Clive Bolton, CEO, M&G Life Insurance at M&G]

It can deploy that capital before it needs its cycle back to the owner, which in this instance, the with-profits estate is much longer than you might see in a normal shareholder-based organization. I hope that gives you a feel of how the different dynamics work in the with-profits fund balance sheet as deployed compared to the shareholder balance sheet.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Very helpful. Farouk from JP Morgan, yes, whether we are still expecting to write £3 billion to £4 billion in this market and BPA, which I think we did address, and we are still committed to that because of the diversified proposition that we aim to launch. Update on the 75% cost incumbration and ambition, which we said we remain committed to, 70% is the right number, not by the end of the year. Thirdly, this one we haven't explicitly tackled. If we can talk a little bit more about 60% of our AUM being international, and you know that's the AUM side, but what's the contribution to revenue and profits? Very briefly, let's say that it's probably, it's all external money.

[Andrea Rossi, Group CEO & Board of Director at M&G]

In the UK, we've got a very big internal client that tends to have a lower fee margin attached to it, so it would be less profitable, et cetera, et cetera. You'd expect this international business to be slightly more profitable both from a revenue and bottom line perspective than what you would have in the UK. It is good quality growth. I think someone earlier asked, what are the margins on this business that we're winning? Is it similar or not to what we already have? You say it's brought in line with what we have. It's not money market. It's not passive. As Andrea said, there's a lot of interest in equities and structured credit, real estate debt. The margins that we're winning on this business are comparable to the stock of existing institutional business. Tom submitted another one from his bank, so he's following us live.

[Andrea Rossi, Group CEO & Board of Director at M&G]

That's good. Almost, why do we set the leverage target at 30% under our own calculations, given that it's so much more conservative vis-à-vis peers? I don't know, Catherine, if you want to.

[Kathryn McLeland, CFO & Board of Director at M&G]

We did set that target on a solvency basis. We evaluate what rating agencies use, what our peers use. We have to have the right one that we think is relevant for us and our business mix. We get feedback. We constantly reevaluate if a metric is the right one. It was set quite some time ago. That's not to say we'll never reconsider it, but it is the one for now. We also obviously look at other methodologies as well.

[Andrea Rossi, Group CEO & Board of Director at M&G]

Perfect. I think that now we are through all the questions. Thank you very much. Thank you. Thank you very much for joining.

[Kathryn McLeland, CFO & Board of Director at M&G]

Thank you.

[Clive Bolton, CEO, M&G Life Insurance at M&G]

Thank you very much.

Participants

Executives

• Luca Gagliardi, Group Director - IR & Strategy
• Andrea Rossi, Group CEO & Board of Director
• Kathryn McLeland, CFO & Board of Director
• Clive Bolton, CEO, M&G Life Insurance

Analysts

• Larissa van Deventer, Equity Research Analyst at Barclays
• Dominic O'Mahony, Managing Director at BNP Paribas
• Andrew Crean, Senior Analyst - Insurance at Autonomous Research
• Andrew Baker, Head - European Insurance Research at Goldman Sachs
• Mandeep Jagpal, Director - Equity Research at RBC Capital Markets
• Nasib Ahmed, European Insurance Equity Research Analyst at UBS Group
• Andrew Sinclair, Managing Director at Bank of America Merrill Lynch