Good morning, and welcome to M&G's full year 2025 results. I'm Luca Gagliardi, Group Director of Strategy and Investor Relations. If you don't know me, this is not my real voice. I just chosen the right day to be sick. I'm gonna keep a safe distance between me and all of you today. I'm joined today by Andrea Rossi and Kathryn McLeland, our CEO and CFO. As usual, we'll go through a short presentation and then we'll open up for question from the analysts. With that, thank you much, Andrea.
Let's hope my voice holds on because I have.
You spent too much time with me.
I spent too much time with you. Good morning, and welcome to M&G's 2025 full year results. It is a great pleasure to be here with you today. 12 months ago, we announced new targets and moved to a progressive dividend policy, underscoring our confidence in the outlook for the group. Over the course of last year, that confidence has been matched by solid progress against our strategy. Our investment for growth has paid off with excellent momentum on sales and record net inflows across both asset management and life annuities. Now, we are translating this success into profitable growth, which will be our main focus in 2026. Today, I will cover our operational progress and explain what gives me confidence in our growth trajectory. Kathryn will then take you through our financial results before I conclude by recapping our investment case.
Let's start by reviewing the main highlights from last year. We are committed to three strategic priorities, financial strength, simplification, and growth. Of these, growth is where we made the most significant progress in 2025. The GBP 7 billion net inflows from external clients in asset management is an outstanding result. It represent nearly 4.5% of opening assets. A remarkable achievement as we won business in high quality and high margin propositions. M&G has also become more international as we welcomed Dai-ichi Life as our strategic partner and largest shareholder. Our work together is off to a great start and has already generated GBP 400 million of net inflows in 2025. Momentum in our life business was also good.
We scaled our presence in the BPA market, achieving sales of GBP 1.5 billion, and returned PruFund to consistent net inflows in the second half of the year. Finally, we moved all with-profits new business to a fee-based model, accelerating our shift to capital-light growth, which we will cover later. I am in no doubt that our synergistic business model continues to be our main competitive advantage. With the support of our life business, we have built a first-class asset manager, which delivers superior investment performance and which is scaling through external clients. In 2025, assets under management grew to GBP 345 billion, of which GBP 81 billion is in private markets. We won high-value external business. Third-party clients now account for over half of total assets, testament to the quality of our proposition.
We also continue to expand internationally and to improve our profitability with more to come in 2026. At the same time, we're growing again in life with PruFund net inflows over GBP 400 million in the second half of the year and good BPA volumes, doubling our market share. We also expanded our proposition and distribution channels, launching a retail fixed term annuity solution and our with-profits BPA here in the U.K. Let's now take a closer look at our asset management results. In the second half, net inflows from external clients accelerated further. We had continued success in wholesale and internationally, but the most notable change was the GBP 1.4 billion of net inflows from U.K. institutional clients. Headwinds from UK DB pension schemes have reduced since 2023, with more clients considering run-off options.
While we remain cautious about the long-term prospects for this segment, we don't expect it to be a material drag going forward. With our U.K. business in a stronger position and continued momentum abroad, we will deliver sustained net inflows from external clients. Our continued international expansion is a real success story for M&G. Over the last six years, we have nearly doubled our assets outside the U.K. to GBP 107 billion. This equates to a consistent double digit growth rate. With nearly 60% of external assets from international clients, we are becoming a leader in European and Asian asset management. Our partnership with Dai-ichi Life will further support this progress. Partnering with our clients remain key to our success. On this slide, you can see some of the partners that are powering our international growth.
When I joined three years ago, we had around 800 institutional clients globally. Now, this number has grown to over 1,000. They are some of the most sophisticated allocators in the world who have chosen M&G for our compelling offering and commitment to investment excellence. The strong relationship between our asset management and life business is a crucial advantage to win in this space. We understand the needs of these institutions and can deploy capital at scale. We think like them, co-invest with them, and develop innovative solutions for them. It is exactly for these reasons that Dai-ichi, now M&G's largest shareholder, has chosen us as a long-term strategic partner and preferred asset manager in Europe. They are not the only ones who value our investment expertise.
Last year, we completed large transactions with CVC and PGGM, while also entering into an agreement with Guotai Junan for the distribution of our fixed income funds in China and Hong Kong. The quality of the business won in 2025 also makes me confident in our revenue outlook. The GBP 7 billion of net inflows came mainly from private markets and public equity mandates, which are of high quality and high value. The net new revenues from these flows equates to GBP 23 million annually, a fantastic outcome that helped us increase our overall asset management revenue margin by 1 basis point. Net inflows of GBP 3.9 billion in private assets lifted total assets in this area to GBP 81 billion. We are extremely confident in the quality of our private markets capabilities thanks to our focus on Europe and Asia, and discipline in asset sourcing.
With strong client demand in structured credits, a GBP 8.2 billion capital queue, and a healthy new business pipeline, we are well-positioned for the year ahead. Within public markets, our equities team delivered GBP 5.6 billion of net inflows, a stellar achievement. Their investment performance is second to none in Europe, with a scaled offering which is diversified across geographies and strategies. Active asset management is still very much in demand, and our public equities team have again delivered a superb performance with investment returns exceeding client expectations. Let's zoom in on our public equities business. We have excellent research capabilities, a rigorous investment process, and seeding from our life business. Through this, we have built a diversified proposition with a remarkable performance. 90% of our assets rank in the top two quartiles on a five-year basis.
Demand for sustainable strategies remains strong, and as investors increase their allocations to Europe and Asia, our high alpha solutions are well-aligned to our client needs. As you can see on the right-hand side of this slide, over the last five years, this team has delivered nearly GBP 12 billion of cumulative net inflows with a positive contribution in every single year, despite extremely volatile market conditions. Let's now turn to life, starting with the retail market. PruFund is our flagship proposition here, and I'm pleased to report that it has been back in positive territory since last June, with seven consecutive months of net inflows totaling just over GBP 400 million. This trend is encouraging, and we expect to see continued progress as PruFund's smoothing mechanism remain very much in demand given the volatile market environment.
Improving PruFund sales is only part of the solution as we build a holistic retirement proposition around this unique product. In doing so, we continue to expand both client access and our product offering. To expand client access, last year we integrated PruFund on FNZ technology. We will launch PruFund on the first FNZ platform in Q2 this year. It is our first step to access the large and growing digital platform market. From a product perspective, we added retail fixed term annuity solution, which will be followed by a lifetime version later this year. We also signed an agreement with Zurich Insurance Group for the distribution of a PruFund-like proposition in the UAE. All this activity will attract more assets to the with-profits funds and channel them to our asset manager. Moving on to the corporate segment.
Here, we continue to invest in our BPA capabilities, a market we are targeting annual sales of GBP 3-4 billion by the end of 2027. In 2025, we completed the build-out of our team, adding resources across origination, proposition, and pricing. As a result, we closed 11 deals totaling GBP 1.5 billion, a 65% increase in sales and doubling our market share. This business was written at attractive return levels, delivering double-digit IRRs above our cost of capital. We have a good pipeline for 2026 and are on track to achieve our 2027 target. Importantly, we can now leverage our With-Profits BPA, which we have recently launched. This proposition is very competitive, benefiting from the With-Profits fund lower cost of capital and its GBP 7.1 billion surplus.
We executed our first With-Profits BPA transaction a few weeks ago, and more will follow, fueling our growth and attracting flows to the group with a meaningful allocation to private markets. From this year, nearly all new business in Life will be written by the With-Profits fund with a simpler and more transparent profit signature. All With-Profits solutions, such as the With-Profits BPA, PruFund, fixed term, and lifetime retail annuities will operate on a fee-based model. We expect that these products will grow to at least GBP 50 billion in assets by 2030. M&G will service this business, providing customer admin and investment services in exchange for fees to both Life and Asset Management. Through this innovation, we are transforming traditional insurance into a capital-light business that generates two streams of fee-related earnings with minimal balance sheet risk and shareholder capital requirements.
Over time, this will improve the quality of our earnings, making them more transparent and predictable. From a strong financial position, we will deliver attractive dividends and business growth. This is a focus of our capital framework. Taking into account our business momentum and earnings trajectory, we are declaring a total dividend of 20.5 pence per share for 2025, a 2% increase year-on-year. To support our profitable growth, we will consider targeted investments to drive further simplification efforts and potential bolt-on acquisitions. AI will be a key enabler for business growth, and we are focused on increasing AI adoption across M&G with a clear strategy to transform our processes, improve productivity, and drive better customer outcomes.
Focused capital deployment will be instrumental to deliver on our ambition, and while we remain committed to return any excess capital over time, we are prioritizing disciplined investment that can deliver attractive returns above our cost of capital. Our commitment to investors is clear, yield and growth. Our capital allocation in 2025 closely aligned with our stated framework. More than half of operating capital was distributed to shareholders as dividends. This was complemented by simplification and growth investments targeting double-digit IRRs. This includes GBP 90 million for the acquisition of P Capital Partners and GBP 163 million to support Life new business. Going forward, we will maintain this disciplined capital allocation, underpinning long-term growth and attractive progressive dividends. Now, let's turn to our financial targets. Here, our commitment remains unchanged, to be highly capital generative, improve the efficiency of our business, and deliver sustainable earnings growth.
Over the course of 2025, we have moved forward on our targets, but more work is needed. The GBP 928 million of capital generated before new business strain is a good start to our three-year ambition. I'm also pleased by the progress on our transformation program as we once again beat our cost target by delivering cumulative savings of GBP 250 million. A great result. Progress on the cost-to-income ratio and group profit was marginal. Here, I expect a significant improvement supported by the strong momentum I see across the group. Over the last 12 months, we have invested for growth, adding distribution and investment capabilities. Now we will realize the benefits of these investments.
We remain firmly committed to delivering profit growth of at least 5% on average between 2025 and 2027. Therefore, you should expect a meaningful acceleration in our operating profit for 2026 and beyond. Profitability will improve in asset management, where we will achieve a cost-to-income ratio of 70% by 2027. We are confident we will meet this target thanks to strong top line growth and cost control that Kathryn will cover in more detail. By generating capital, being disciplined on costs, and growing profits, we have set in motion a positive cycle. This means we can invest in the business, secure its long-term success, and deliver attractive returns. With that, I will hand over to Kathryn, who will take you through the financial results.
Thanks, Andrea, and good morning, everyone. I'll now take you through our results, which highlight steady momentum across the group and disciplined execution. Covering first the key highlights. We delivered GBP 7.8 billion of net flows from open business, reflecting the strength of our asset management performance, the progress we continue to make on our international expansion, and improved sales in Life. Group-adjusted operating profit of GBP 838 million highlights the resilience and balance of our business model. In asset management, fee-related earnings increased by 12% year-on-year, while in Life, higher contributions from PruFund and traditional with-profits more than offset lower earnings in annuities, leading to a 2% increase in profits. The corporate center result deteriorated by GBP 8 million, impacted by lower investment income.
Operating capital generation of GBP 765 million reflected the higher strain from our strong BPA volumes, and excluding new business strain, capital generation was GBP 928 million, in line with our GBP 2.7 billion target. Supported by this strong operating performance, the Solvency II ratio reached 242%. Let's now turn to our flows. Closing AUMA stood at GBP 376 billion, and this reflected the GBP 7.8 billion of net inflows from open business, which improved by nearly GBP 10 billion year-on-year, favorable market movements, and the acquisition of P Capital Partners. You've just heard from Andrea about our very pleasing asset management flows, with our institutional franchise recording net inflows of GBP 4 billion, supported by the continued international expansion and easing headwinds here in the U.K.
The wholesale franchise also contributed meaningfully, delivering GBP 3 billion of net inflows, underpinned by excellent investment performance. Importantly, the continued growth in our international AUM further improves our diversification and resilience. Life open business also made a positive contribution of GBP 0.8 billion, and this reflects the strong growth in the BPA market, where we recorded the first net inflows since 2016 when the business was closed. We also saw improved momentum in PruFund, with gross inflows in the second half up nearly 28% versus the first half at GBP 3.6 billion, and with GBP 400 million of net inflows. Moving on now to profits. At GBP 838 million, operating profit was stable year-on-year, with the key features being, first, higher revenues and improving operating leverage in asset management, continuing to support a gradual reduction in the cost-to-income ratio.
Second, an increase of 2% in Life profits to GBP 764 million, with a stronger contribution from both PruFund and traditional with-profits, offsetting a GBP 25 million reduction in annuities due to lower returns on excess assets, which we previously flagged. Finally, the corporate center outcome was impacted by lower investment income, which was down by GBP 17 million, more than offsetting a reduction in debt interest costs of GBP 12 million following our 2024 deleveraging actions. One important feature of our results is the quality of our earnings, and today, 73% of operating profit comes from capital-light businesses, and this proportion will continue to rise over time. You will hear from Andrea shortly on how we also expect to grow the proportion of fee-related earnings across the group.
Finally, it's important to note that in 2025, we delivered after-tax profit of GBP 314 million compared to a GBP 347 million loss in 2024. Let's now look at each of our businesses, starting with asset management. Our asset management business delivered a 12% or GBP 27 million growth in fee-related earnings, driven by higher average assets and resilient margins. Looking ahead, the GBP 23 million of net new revenues delivered last year will provide a solid underpin to top-line growth. At GBP 345 billion, assets under management entered the year up by GBP 30 billion, supported by strong net in flows and favorable markets. Our average fee margin remained resilient at 33 basis points as we continue to prioritize high-value solutions for our clients. Higher average assets and stable margins resulted in revenue growth of 6%.
On costs, we continued to exercise discipline while making targeted investments to support our long-term growth, and most of the 4% increase in cost was driven by a broader perimeter of our asset management operations. In fact, 28 of the 31 million pound increase relate to the acquisitions of BauMont and PCP together with the reclassification of our direct book into Life, which we had previously highlighted. PCP and BauMont bring new capabilities to the group, further improving the quality of our earnings. Our cost transformation program facilitated these and other targeted investments, strengthened our operational efficiency, and helped us lower the cost-to-income ratio to 75%. The operating profit was down GBP 9 million year-on-year due to lower performance fees and investment income. Before moving on to Life, I want to address our cost-to-income ratio target.
Over the past three years, we have reshaped the cost base, demonstrating that we can continue to invest for growth while improving our fee-related earnings, and that gives us confidence that further progress is achievable as revenue scales. We are absolutely committed to our 70% cost-to-income ratio target, and achieving this does not depend on a single initiative or assumption, but on continued execution across a number of levers that we are already acting on. Our focus is firmly on delivery and on demonstrating steady, repeatable improvement over time. Let us now turn to Life and starting with PruFund. Here, operating profit increased by 17% to GBP 265 million, reinforcing its role as a growth engine within the group, supported by a higher opening CSM and slightly higher amortization rates.
Profits from our traditional with-profits business of GBP 258 million were up 16% year-on-year, reflecting the same positive dynamics. We're encouraged by this performance, particularly as was achieved against the backdrop of lower expected returns and risk-free rates, which we previously highlighted. Both PruFund and traditional with-profits continue to provide resilient earnings for the group, underpinning the sustainability of our profits. Let's now turn to shareholder annuities. Our annuities profits were down 8% year-on-year to GBP 283 million, which reflected the guidance we gave last March, specifically the combination of a smaller pool of surplus assets and lower expected returns of 5.2%, down from 5.6%.
These headwinds were partly offset by a higher CSM release, supported by the large longevity benefit we recognized in 2024 and a modest increase in the amortization rate. Turning to other Life, the loss of GBP 42 million was primarily driven by a GBP 26 million provision in relation to our Polish business, which we do not expect to repeat. Before moving on to capital generation, I would highlight the strength of our CSM, the details of which you can find in the appendix. Total CSM entered the year at GBP 6.6 billion, representing a meaningful store of future value and benefiting from GBP 144 million of new business generated from PruFund and annuities. I'll now cover capital generation, which supports the strong outcomes we continue to deliver for our shareholders.
Our operating capital generation, excluding new business strain, was GBP 928 million, and this represents a solid start towards our cumulative 2.7 billion target by 2027. The underlying result was GBP 529 million, GBP 115 million lower than last year, which largely reflects capital deployment to support the strong growth in our BPA volumes. Asset management contributed GBP 14 million more year-on-year, supported by the stronger fee-related earnings together with a small SCR reduction, driven primarily by lower market risk requirements. In Life, both PruFund and traditional with-profits benefited from a higher opening PBST, which partly offset the anticipated impact of lower expected returns.
As noted earlier, the annuities contribution declined due to the GBP 134 million we deployed to support the GBP 1.5 billion of new BPAs and due to the lower return on surplus assets in the in-force book. The corporate center benefited from a GBP 12 million SCR reduction, largely driven by reduced treasury lending activities. Management actions totaled GBP 236 million, just above our recurring long-term target of GBP 100 million-GBP 200 million per annum. Thanks to our strong operating performance, the Solvency II ratio closed the year at 242%, and our surplus increased to GBP 5 billion. Own funds remained stable at GBP 8.5 billion, including GBP 4.6 billion attributable to the with-profits PBST.
The SCR improved largely due to management actions, including model and data enhancements and a higher level of loss-absorbing capacity of deferred taxes, reflecting more favorable stress outcomes. After refining our estimates, we expect only a modest impact of less than 3% on our solvency ratio from the government's proposed changes to ground rents. This reflects the benefit of our prudent reserving approach. You can find more details on this in the appendix and also in our annual report. I'm very pleased with the continued strength of our balance sheet, underpinned by disciplined risk management in what remains a volatile and uncertain geopolitical and macroeconomic environment. I'll briefly cover the successful delivery of our cost transformation program. This slide shows the tangible progress we've made in delivering strategic operational efficiencies while continuing to invest for growth.
Since 2022, we have delivered GBP 250 million of cost capacity, exceeding our upgraded target of GBP 230 million. You can see here on this slide an update on the types of savings together with the targeted growth investments they have enabled while holding the cost base stable over time and materially improving the scalability of the group. As we look ahead, we see significant opportunities to create more capacity led by a new chief transformation officer. For example, with further refinement of our organizational structure, including greater integration of our recent acquisitions, more functional centralization, and optimizing our partnerships with outsourced suppliers. We are also continuing to refine our location strategy while driving AI adoption. Just a few words on our AI strategy, which is focused on three primary objectives. Firstly, enhancing our engagement with our clients.
Secondly, improving our productivity. Thirdly, transforming our end-to-end processes. By increasing AI adoption, we're giving our clients more time to focus on what really matters, our clients. Examples of where we see AI driving a step change in efficiency include across our research teams, our financial advisors, and the staff in our contact centers. Thanks to AI tooling, almost 40% of our code is now generated by AI, meaningfully increasing the productivity of our engineering team. I want to reiterate that we are firmly focused on maintaining a disciplined approach to operating efficiency and on achieving the 70% cost-to-income ratio target for the asset manager. Looking ahead now to 2026.
While of course we remain mindful of the volatile external environment, our focus for 2026 remains consistent, delivering strong outcomes for our clients, executing our plans with discipline, and sustaining the growth momentum we have established. Asset management is set to deliver a meaningful improvement in its operating leverage, underpinned by a robust GBP 30 billion increase in opening AUMA, resilient fee margins, and our unwavering commitment to cost efficiency. These factors combine to give us confidence in achieving a step change in our cost-to-income ratio target and in unlocking further profitability. Life is similarly well-positioned, with a substantial 9% increase in our opening CSM balance, which will drive improved operating profits more than offsetting lower expected investment returns.
These strong foundations, taken together with disciplined cost management, means we're confident of achieving strong profit growth in 2026 and an average growth over 2025-2027 of at least 5%. Finally, on capital generation. Here we expect to deliver an improving underlying result, new business drain of up to GBP 150 million, and management actions returning to our usual long-term range of GBP 100-200 million per year. This means we are well on track to deliver on our GBP 2.7 billion cumulative target by 2027 as we support new business growth while maintaining a strong balance sheet. These strong tailwinds, supported by the strategic building blocks we've put in place, give us the confidence that we're well-positioned to deliver sustainable values to our shareholders. With that, I'll now hand back to Andrea Rossi. Thank you.
Thank you, Kathryn. Before concluding, I want to summarize the key elements of M&G's investment case. Today, we are a growing and diversified savings and investment business. We leverage our unique With-Profits Fund to gather insurance assets in a capital-light way. We grow in asset management by externalizing funds that we seed with internal capital. This combination gives us scale and resilience. We operate in markets supported by strong client demand and are well-placed to capitalize on this growth, thanks to the strength of our franchises. The way they work together, our synergistic business model sits at the core of our right to win. The outcome is strong financial returns.
Life underpins our attractive dividend, and we are driving growth in fee-related earnings across asset management and with-profits. By combining an attractive yield, growth, and improving quality of earnings, we will deliver consistent returns to our shareholders. We will continue to do so as we unlock opportunities across several attractive markets. We have a GBP 81 billion private markets business and have raised GBP 107 billion from international clients. In both these areas, we have grown at double-digit rates. In the U.K., PruFund has now reached GBP 70 billion, and we continue to scale in the BPA market, with sales increasing by 65% year-over-year. This scale matters as it drives relevance with our clients and improve our operating leverage. Our businesses work together and will grow together.
Over 80% of our life assets are managed in-house, with around 30% of new business being allocated to private markets. We attract this new business deploying surplus capital from the With-Profits Fund. We also have the partnership with Dai-ichi Life, which supports our continued expansion in Europe and Asia. This integrated model gives us greater control, stronger economics, and a more resilient earnings profile. Since listing in 2019, M&G has delivered annual shareholder returns of over 15%. A remarkable achievement with GBP 4.2 billion return to investors through dividends, buybacks, and deleveraging. We have achieved double-digit returns through a mix of yield, growth, and quality. Looking ahead, we will extend this track record. The stable and predictable contribution from Life underpins our attractive yield. Asset management and fee-related with-profits will drive the group's growth.
The quality of our profit mix will improve as we shift to a greater share of fee-related earnings. Our message to investors is simple. We are operating in growing markets. We have the right business model to win, and we will deliver attractive returns. To conclude, 2025 was a strong year for M&G as we laid the foundations for profitable growth. New business momentum was fantastic, and we continued to expand internationally. We are now focused on translating this growth into higher operating profits in 2026. As we deliver profitable growth, we also shift life new business to an innovative fee-based model. Finally, we will achieve our capital generation target and remain disciplined as we invest in the business. We have started 2026 with good momentum. We are in the right markets, investing in the right asset classes with industry-leading investment performance.
I am energized by our strong performance and want to thank all our colleagues for their hard work. I am confident that we will continue to deliver, generating value for our clients and shareholders. Thank you. Q&A, right? Move this.
Before we start with the question, and Larissa and Michael are first, I have already seen your hands, so there you go.
Perfect.
I think Larissa beat Michael by about half a second. Remember to pull out the microphone, pull hard and press the button. Keep holding it down, otherwise the people on the line won't be able to hear you. Please introduce yourself before asking the questions.
Thank you. Larissa Deventer from Barclays. Two questions please from my side. The first one, you mentioned that you want to use a very strong capital position that you have for gross, and Kathryn also mentioned that you would like to refer to earnings [inaudible] businesses. Can you give us a little bit of more color on which areas you would like grow and if also if there are any areas where M&G would benefit from advancements. The city most terrifying brand prints, [audio distortion]. Could you please help us understand what is included in your provisions, and then what remains. Thank you.
Should take both.
Thank you very much. Probably, Andrea, do you want to start with kind of where we are focusing on our growth efforts, and if there's any area, if I read the question, whether we think we should invest a little bit more heavily? Then maybe Kathryn-
Yeah
If you want to go on the ground rent side of things.
Yeah. Obviously, you've seen in 2025 we have been investing for growth. We both have invested in the asset management business in distribution and investment capabilities, and hence also I would say the good momentum that we saw in terms of net new money and net new revenue. Same thing, of course, in the life business where we invested in order to support that growth, both on the corporate side because we strengthen our team, proposition pricing and origination for writing BPAs. But also to support our PruFund. Obviously, we are going to put PruFund on third party platforms in the second quarter of this year, given that we have integrated with FNZ technology. Very pleased with that.
More importantly, we also have supported PruFund in terms of marketing. Let's not forget that PruFund, during the Liberation Day month in April, performed as it was supposed to perform. We smoothed the volatility. Clients, unfortunately, they took out their money and then they came back, of course, afterwards. They should just have trusted us more. Clearly we want to continue to make sure that we support all the capital-light business, in particular, on the asset management side. I mean, I remember when I arrived three years ago, our investment performance was still very, very strong. I said, "Listen, the way we're gonna grow the asset management business is by investing in distribution capabilities." That's what we have done, and that's why you see the stellar net new money that we have delivered.
I mean, delivering 4.5% of external net new money over opening assets under management, I've been in the industry for decades, that's a stellar achievement. That's not money market, that's not passive. This is true active asset management. I mean, I look at peers, this is top decile, if not top percentile. We will continue to support, I would say, the capital-light businesses moving forward, but I would say most of the investment has been done already in 2025.
I think just obviously there's gonna be some more spend as we continue on the simplification program as well, just to add that, as well as these capabilities that Andrea talked about. Larissa, on ground rent, obviously the announcement by the government came out at the end of January, and you saw the RNS that we put out on the morning of it. Now, clearly there's a lot that needs to happen as it goes through committee stages and through the whole legislative process, and that's still quite uncertain and will take, you know, over the next couple of quarters. I think the most important thing is you see an update today.
It's on, it's in the appendix and it gives an update of all the numbers which are very much aligned to what you saw at the end of January. This is also in the results, and you can get a bit more detail. You can see that I mentioned in my script that the solvency ratio is up to a 3% impact on the ratio. You see the day one IFRS impact and the own funds impact, which obviously impacts leverage. We guided also in the RNS that the AOP impact is very modest, GBP 10-15 million in 2028.
Larissa, just on the provision side, these numbers are net of the provision. So after you take into account the provision that was already into balance sheet, this is the residual impact. I don't know, in your question on capabilities, maybe Andrea do you want to talk from an asset class perspective after BauMont and PCP? Do we feel that we are in the right places?
I mean, we have a... Obviously, when we're looking at investment capabilities, and I said this already in previous full year results, we want to expand our private assets franchise. We see significant demand, of course, in Europe in private assets, and by doing both BauMont and PCP, we strengthen already a very strong franchise, both on the private credit side, where we have a GBP 27 billion franchise, but also on the real estate side, where we have a GBP 35 billion franchise. We think we're well-placed there. I think there's gonna be another asset class where there's gonna be a lot of demand in Europe in the coming years.
Given also what is happening, I would say in the Middle East, I think Europe is gonna have to rely a bit less maybe on fossil fuel and accelerate on renewable energy. Therefore, there's gonna be more infrastructure projects in this sense. There will be more interest here. If we had to look at additional capabilities, probably that's where we would look to expand. Overall, you know, you look at our private assets franchise, it's doing extremely well. GBP 3.9 billion of net inflows in 2025. A lot of that was private credit and structured credit. Private credit still continues to be a very strong asset class in Europe, where there is this strong demand. I'm sure we're gonna talk about private credit in general, but Europe still remains very much in demand on private credit.
Michael, David, Dom and Tom.
Hi there. Michael Hartnett from Berenberg. Just two questions. You said there was more growth, so I wondered if you. I'm particularly interested in PruFund. If you could say the new platform, what that could bring. Also on the growth, if I'm right, the new business strain last year was GBP 160, and you're saying GBP 150.
Mm-hmm.
That doesn't sound like more growth. I'm asking this anyway.
Okay.
The other question I was interested in is you're leveraging your with-profits surplus, presumably that has a cost of capital. But I'd be interested to understand what the benefit is. Is there a number here where you could say, "Well, you know, we're paying them 5% or 2% or nothing," just to get a feel for it. Thank you.
Okay. Maybe Andrea, do you want to take?
I'll take.
PruFund
I'll take PruFund.
Kathryn, more on the new business trend for annuities and the with-profits fund side.
PruFund, you know I'm passionate about PruFund and very pleased that it has become a GBP 70 billion franchise here in the U.K. We had positive net inflows in the last seven months in 2025, and you should continue to see positive net inflows in 2026. I mean, the product is delivering what it should be. We see demand here in the U.K. on it. More importantly, as I anticipate before, we are going to put it on a third-party platform in Q2, and that's just gonna be the first one. By having done the integration with FNZ technology, we are covering roughly 40% of the GBP 700 billion digital platform market size here in the U.K.
We will put it on more platforms before the end of the year, and that will of course increase flows coming in. Very, very pleased with what we do in the U.K. Let's not forget also that we have international as well. You saw that we finally signed an agreement with Zurich Insurance Group in the UAE. This is sort of a blueprint where we are the default option for the DC scheme there, where Zurich is managing it. That will also bring flows and potential other clients. We see PruFund being one of our main growth engine going forward. Let's not forget, it's not only about access, but it's also about expanding the product offering.
We launched a fixed term annuity in 2025, and we will launch a lifetime annuity this year as well. More to come from PruFund, but you should expect positive net inflows in PruFund moving forward.
Covering capital and how we see the cost of capital and hurdle rates for the with-profits funds. Yes, it was GBP 163 million of strain across all products last year. GBP 134 million for BPAs. The key thing for us, as you know, is always looking at hitting our cost of capital. Double-digit IRRs is what really matters for us. I think as you also all know, we've not reinsured longevity on these deals, and we look at everything on a case-by-case basis. Now, the exciting opportunities for us that you've heard us talk about today with the GBP 7.1 billion surplus is that we can essentially grow Life with the diversification of these new products that we are talking about today. This is also in the interest of the with-profits fund.
We have a very strict With-Profits commttee. We know all the requirements and rules that they need to follow, and it is a different cost of capital. They absolutely have to do profitable, good quality business for current and future policy holders. It is very exciting for us to be able to do BPAs and these other products using With-Profits Fund capital. We have the two fee streams that you see coming into the Life and into the asset manager, which we'll build over time. It is really exciting for us to have the With-Profits Fund to be able to be the main insurance writer of risk going forward. Yes, they have slightly different hurdle rates, but for the shareholder balance sheet, we've remained very focused on double digit.
Michael, clearly, while the capital strain that we've indicated is up to 150 from a stronger balance sheet, the idea is that the more you do with-profits, the more you can leverage up the volumes with while keeping that same level of capital deployed.
To be clear, we are committed to write GBP 3 billion-GBP 4 billion of BPA by 2027. We have not changed our targets.
Yeah.
If you remember, we present, so that gives you some sort of growth trajectory.
We said, David, Tom, Andrew, Dom, and was it just in order of who raised their hand? Sorry. Or maybe just I looked the wrong way, but we'll get there. David, the microphone is in the seat in front of you. Can you press the button down, there's a big-
Now that I figure out how to operate the microphone, I guess asking the question should be the easy part. Dom from RBC, thank you for taking my questions. The first one on the GBP 27 billion structured in private credit AUM. Can you tell me what proportion is open to retail investors? Are you expecting taking any actions to NAVs of assets within those portfolios? Second, on the new business CSM profit, it was only GBP 23 million from GBP 1.5 billion of annuities, so the margin is around 2%. How should we think about it in the context of ultimate profit margin, and are your return on capital, and will your return on capitals for those deals? As a follow-up, what is NF doing with reinsuring the risk?
If all new deals were longevity reinsured, would this have a meaningful impact on bonds and therefore the leverage? Just lastly, on the M&G's capital deployment, can you just tell us how it will be deployed between private equity, structured credit, and infrastructure? More broadly, what are the characteristics of fundraising and deployment environment in 2026 so far? Thank you.
Perfect. We've got four in there. Let's split them between doing asset management and doing Life. Asset management was around the retail exposure in our private credit franchise and the capital Q, while in Life, we've got the new business CSM margin and the use of reinsurance.
Can I use?
Yeah, I mean, you're
I mean, maybe just on your first question, and I want you to talk. Joseph, you wanna take both? The first one is ELTIF, I guess.
I hope you can hear me. Out of effectively the exposure we have private credit, we have about less than GBP 1 billion in ELTIF, which is the European Long-Term Investment Fund. It's a private credit strategy. The regulation in Europe is extremely strict. No leverage is allowed. Which is extremely different from what you can read in the press on what's going on in the U.S. Indeed, we are probably on a much safer side in Europe than what's happening in the U.S. I think that's a massive difference, and we've been extremely cautious when it comes to private credit. You didn't ask the question, but I want also to add that when you look at what we read in the press in private credit, default rate, some expect default rate to increase.
Our default rate has been significantly below the average of the market, which is already at 2%. We are way below that level. We are extremely cautious on the investment across asset classes, the quality of research. We know how to deal with those deals. We are extremely selective, and we don't leverage, and we have high quality of selection ultimately that help us have a very low, let's say, level of default compared to the industry. Again, I invite you to always make the difference between Europe and U.S. in that private credit segment. I'm sorry, I forgot the second question.
Kathryn, in case you haven't met him, he is Joseph Pinto, the CEO.
Yeah, yeah.
...of our asset management business. The second question was around the capital Q-
Capital Q
of GBP 8 billion, how it grew since half year, how would we think about deployment, and in what asset classes is it focused?
It has grown pretty much everywhere in private credit, including structured credit. In real estate, I just want to call out real estate because this is an asset class that was probably on a negative side across the industry two years ago. We've been rebounding extremely well, won a lot of business in that space with our flagship fund, the M&G European Property Fund, but also with Asian strategies and Asian clients through mandates. Also here in the UK, very pleased to see how international clients are now interested more and more into UK real estate. That has been the second one where we've seen effectively a bigger and bigger capital Q. Also, I remind you that at the end of June, we were not integrating the capital Q of PCP and BauMont.
Yeah.
That has brought also about GBP 1 billion of capital to into it. We are extremely disciplined in deploying that money. We are very well organized into it. Each investment team has a specific team to work on deployment, but we are cautious on how we want to deploy. 'Cause at the end of the day, clients matter first. We want to deliver the best performance. That's why we do it very diligently in terms of deployment.
Thanks a lot, Joseph.
Good.
The other point on the ELTIF and retail exposure, while we have less than GBP 1 billion of assets there, a large proportion comes from our internal client.
Yeah.
Actually, the majority, which is a very, very stable investor.
87%.
87%.
Very stable.
I think while it is a vehicle that is open also to retail investor-
It is, yeah.
Nearly 90% is intended for our internal clients. It gives great stability to that vehicle as well, on top of all the good things that Joseph mentioned. Kathryn, do you want to take any of those points?
Just a couple of comments around last year's CSM margin, which you quoted, which you can see in today's numbers. There are probably two comments I'd make around the level. First of all, as we said, you know, we're delighted to have done GBP 1.5 billion and a really pleasing end to last year. We have invested meaningfully to get that platform reopen, and we've got all the capabilities to compete. We've got a lot of conversations happening at the moment. Obviously, as we scale, we become more profitable. I think that's, and I called out the cost, I think, in one of the slides around how the whole purpose of this simplification program is to invest, and supporting that BPA business is one of them. Secondly, we haven't reinsured longevity.
That's your second question. That obviously means we also have a higher risk margin, which clearly will flow into profits over time, but it will also affect the actual CSM margin that we deliver. There is a real meaningful element coming from our decision. Obviously, we're lucky on longevity that we can be very selective. We can be very disciplined. We've got capital. We've got a very strong also using the with-profits balance sheet in the future. We have deployed it in the past as a management action and will be very thoughtful, and it's lucky that we've got the options around longevity reinsurance. It could be one of those management actions that we use to deliver the GBP 100 million-GBP 200 million to support operating capital generation.
In terms of the impact of longevity, obviously, the relationship between the shareholder and the profit fund changes with these new fee-related products. Again, how we use that balance sheet, the respective balance sheets we'll determine on a case-by-case basis. We have always, as we said, got the flexibility of longevity. Now, I don't think of any impact, meaningful impact on own funds or on leverage. Obviously, you've seen our leverage ratio today and the progress we've made over the last couple of years. It's more a question of delivering the strong IRRs and importantly now improving our profitability. We've given clear guidance around 2026 and building over time these fee-related earnings.
Perfect. I think, Dom, you were next, and then Tom. Or did I say Dom and Tom? Prefer Dom? Dom.
All right. Thank you. As per usual, three questions, if that's all right. Thank you for the color on the private asset side. I guess just more broadly, it's been an interesting sort of three months in the markets. What is the mood amongst capital allocators? What are your conversations like?
Mm-hmm.
More broadly, do you think you can deliver the stellar level of flows you saw in 2025, again in 2026? Second sort of related question, just on the asset management revenue margins. Luca, you seem to have given me a cold already. On the revenue margins.
Very pleased to see them going up. Clearly the mix is in your favor.
Yeah
... coming into the next year. How much can revenue margins go up in 2026 in asset management? The third sort of technical point, I think the CSM amortization rate improved in all three of your major life segments.
Yeah.
Can you just walk us through why the amortization rate increased? Is that an assumption change? You seeing different customer behaviors? Anything going on?
Okay. I'll take the first two. Capital allocator, what's the mood of our clients? That's what you're asking. Obviously, we've only been 10 days into the Middle East crisis, but overall if you look at the beginning of the year and the strong momentum we had in 2025, we continue with strong momentum in 2026. Let's not forget strong capital inflows that Joseph talked about. More importantly, Dai-ichi Life continues to be a very strong partner with us. We did GBP 400 million in 2025, and we're continuing strong momentum with them as well. I think it's really a question about institutions are looking to diversify a bit out of the US, and therefore Europe and Asia is where they're looking at.
Obviously we are both strong on the public side. I showed the amazing numbers on equities. We actually see mandates, institutional mandates on equities, in where we are very, very strong, so, you know, European, Asian, emerging markets, et cetera. Then of course, on the private asset side, Joseph said real estate very much in demand again. Private credits, and this is an important point, continues to be attractive in Europe, and we see appetite to invest in private credit in Europe. This is not the situation in the US. Let me be very clear here, 'cause I get this question very often. I got it also this morning, at Bloomberg. It's a very, very different market, Europe versus US.
U.S. has much larger market, much more in the hands of capital markets, less so in banks, therefore much more mature, more competitive, overcrowded, more exposure to software. Europe is a very different place. The point, the key point here is we've been in this market over 25 years. We have a GBP 27 billion private credit franchise. It's not that we started five years ago. We know how to underwrite. We're extremely vigilant, strong guidance, strong risk management, very low default rates. We see strong momentum here and a lot of clients wants to invest alongside ourselves. Let's not forget, we have Prudential Insurance Company, our own balance sheet, very often investing in our strategy.
Now we also have another balance sheet, the GBP 390 billion Dai-ichi Life balance sheet, and of course big institutions wants to be together with those two balance sheets. We continue to see strong momentum for the first half of the year, but obviously it's only been 10 days into the crisis and, I mean, you all have seen the volatility. I mean, no one can predict is it gonna be a week, is it gonna be two months? This can all have different consequences. What I can tell you is we have a strong diversified business model. I mean, obviously the life business, as I said before, providing strong underpin for the dividends and of course the with-profits that is growing, asset management, all this is capital-light and well diversified. I'm relatively confident in the future for us.
30 seconds on the asset management, fee margins.
Oh, that's a very simple one. I mean, I wish every year we had margins going up like that. You correctly said, of course, it can be mixed, but the reality is things about fee pressures out there, most appears it goes down like this. I think you should, from sort of guidance, you should see it more like resilience. I mean, I don't expect it going up. I mean, that will be. You know, already at 33 basis points, I think it's a very good number.
And, uh, on the-
On amortization rates, I think they were up by 20 and 30 basis points, so very modest. We've not guided to anything changing in 2026. We gave some other guidance, it was about opening CSM. There weren't any methodology changes. It was just more the book. There has been some changes to what we're using for expected returns. I remember you asked about the shape of the curve in one year and 10 years. We've made a few refinements to that, but that's also reflected in the guidance we've given today.
We'll do Tom, and then we'll come across.
Hi. Good morning. Thomas Bateman from Mediobanca. A slight clarification. I think you put the illustrative profits from the with-profits fees, and I think you said there was GBP 50 billion that you're targeting.
Yep
... in assets there. What is the fee margin that you're expecting on that GBP 50 billion? It really would be great if you could give a cost of equity for the with-profits.
Oh, I didn't cover that.
You're saying it's the main risk carrier going forward.
Yeah
That is important. Just a second question. I think you've had another positive tax impact on the capital generation.
Yeah. Mm-hmm.
Can you just explain what's happening there? How likely is that to recur? Thank you.
Kathryn, all for you.
Okay. Yeah, I'll take those. What you see here is our expectations over the years to 2030 around these new fee-related earnings that we're gonna be delivering from this year. Obviously you still have the bulk of life earnings with the GBP 6.6 billion of CSM supporting the confidence in our AOP for 2026, obviously with the strong performing asset management but also contributing. These numbers are guidance for you. We've given 10-15 basis points of profit for these new products. That's profit. We've given the GBP 50 billion, and that's essentially if you think about the rough volumes that we're doing on a gross basis of about GBP 6 billion in PruFund, GBP 4 billion BPAs maybe by the end of 2027. That's ballpark.
We've also got our plan to 2030, but that can tell you why that GBP 50 billion number makes sense. It's 10-15 basis points on profit, plus the fees that the asset manager gets, which we've given a guidance to what we're currently seeing of around 20 basis points. We've said also before 30%-40% obviously goes into private markets. Now, really importantly, you asked about cost of capital, but this is very, very, very little capital. The quality of these, it's not just very transparent, very high quality, very recurring, but it is on very limited capital.
Kathryn, I think the cost of capital was more the cost of capital for the with-profits fund as opposed to the issue.
Sorry. Obviously their book and the capital that they take on for these transactions, in a previous question, we said we've not given an exact number. It's not the double-digit shareholder cost of capital that we need to deliver for all of the business that we're writing. It is lower. There's no precise number. Clive's here, and he has a lot of conversations with the with-profits committee. It's really important that all of these products have got very robust governance, and they have to deliver good, profitable business, but at a lower cost of capital.
The way to think about it, which is always I find both fascinating and interesting, is that the with-profits fund has got two objectives. Serve clients as well as you can and deliver the greatest value that you can. If you want to deliver great value, you want to bring down your price towards the clients to give them better outcome. At the same time, the other objective is that you want to survive forever. If the with-profits fund is a business, you want to make profits, otherwise you're not gonna exist in 200 years. While the with-profits fund is built to exist for another 200 years. That's why there is a cost of capital. It needs to be a positive number. Before someone have jokingly said, "Is it zero?
Yeah.
It's definitely not zero. It needs to be a profit. You take down that profit from the double digit rates that a publicly listed company like us would require to a rate that is more amenable to your end clients, effectively.
The second question was you saw that it was a very similar number to last year, you probably noticed, around the loss-absorbing capacity of our deferred tax assets. This obviously came from the statutory losses when rates backed up massively in 2022. We created a number of DTAs. Essentially what we've seen, and it is an interesting condition of the balance sheet and profits at year-end 2024 and year-end 2025, that we've been able to use more of this in the solvency stress due to higher future profits and also some movements in the SCR. We really wouldn't expect anything to repeat of this scale. It will depend a little bit on this time next year, but you should treat these as largely one-offs impacted by that original DTA that we put on back in 2022 and 2023.
Cool. Are you okay if we do Andrew and Nasib? Sorry, Nasib.
Andrew first.
Good morning. It's Andrew from Credit Suisse. A couple of questions. On that sort of GBP 50 billion.
Yep.
With-profits, going through 100 Northgate, can you tell us what the counterfactual is? I.e., your with-profits funds 90/10 are now in run-off.
Yep.
What rate of shrinkage in profitability would you anticipate over the next five years as that goes-
Mm-hmm.
Goes into a run-off situation? Secondly, I know it's been asked before, the PruFund opportunity within the platform market with FNZ. Clearly, I think you said in the second quarter you do your first position. Can you give us an idea longer term as to how big this opportunity is? How much do you expect PruFund to be able to sell through the platform market when you're fully up and running?
Good. Shall we pass the second question?
Yes.
To leave it to Clive, I want my CEO to speak, so, Clive, maybe you want to take the second question, then Kathryn , you take the first, right?
Yep.
Hello, Clive Bolton, CEO of the Life Business. What we're doing is following the trend of clients and their advisors wanting to transact on technology which we call platforms, and therefore we're moving and making it available. I see it as the equivalent of making sure that our brand is in all the supermarkets and probably the platform in this example are the biggest versions of the supermarkets. I think in specifically what that will allow us to do is move further into the affluent market for investors. We're very strong on the mass market side, and we're actually surprisingly strong in the high net worth wealth preservation market where people enjoy the stable returns.
It will enable us to push more strongly into that mass affluent market, which is probably the core market for the advised market. As we say, at the moment, PruFund remains an advised proposition. I think you've seen we've got some of the guys. There'll be a gradual shift, we think, into the platform market. I don't have a number for you today on the precise one.
Clive, you can say obviously that market is a GBP 700 billion market with roughly 10% of gross flows a year so GBP 70 billion. We will cover with FNZ technology roughly 50% of those gross flows. Of course, you need to be on the different platforms. First platform live in Q2 and more to come by the end of the year. I mean, it should be accretive for us, there's no doubt about it. Obviously we cannot give you more guidance than that.
We are talking to almost all the main platforms. Though we talk about the first one, but the first one's very important. We have some experience of that 'cause of our own IFDL platform is already PruFund enabled from that perspective. It's a strength of the PruFund franchise that we distribute to those advisors already, but they go through our own proprietary platform rather than their platform of which they built their business around. We think it'll be, from that basis, a significant uplift in the amount of PruFund we will sell.
Covering the direction around the CSM and the, I guess, the impact on profits. As we've given the guidance around the AOP margin of 10-15 basis points for the GBP 50 billion to 2030, and clearly what we have is confidence in hitting the AOP growth target. Whilst we are seeing fees that will contribute to profit that will build meaningfully over time, we have already got the 6.69% higher CSM, which will grow with interest accretion and expected returns. There'll be a small element of new business contribution, but that really does underpin a large part, clearly majority of our earnings and our confidence in hitting 2026. Obviously, we wanna grow CSM and have a strong contribution in 2027, which will deliver the 5% on average. It's really important.
This will take time for these fee-related earnings to build, but they will still deliver meaningful AOP growth. We will still hit our 5% AOP target. Over time, you saw the sort of shaded bar. We know what our fee-related earnings are now. They will move up quite meaningfully by 2030 because we have the additional also fees generated into the asset manager as well. We're confident clearly that, yes, this will build over time, and we've already got the real stock of 6.6 supporting profits this year and the next few years.
In terms of run-off, I think it's important to underline how slow the run-off is and how valuable this book is for an extremely long period of time. If you take the traditional with-profits book, which has been closed to new business for, I don't know, 10 years, 15 years, a long time, the contribution to profit in 2023 was GBP 263 million, and this year was GBP 258 million. Only GBP 5 million lower. In percentage terms is what? 2% lower over two years. It's just that because there's that big expected returns, as you know, PruFund and traditional with-profits, all the with-profits products have got this very strong component from the annual expected return. While in annuities, you would only have the interest accretion piece, right?
That's really something that extend the life of the product for a really long period of time. Finally, Andrew, Nasib, analysts. There always needs to be someone last.
Great.
Abid, that's gonna be you.
Thanks for taking my questions. It's Andrew Baker, Goldman Sachs. The first one just on flows. Are you able to just be a bit more explicit on your 2026 BPA expectations and then the mix between traditional and with-profits? I guess also your Dai-ichi Life flow expectations in 2026. Just curious, no mention of Future+ anywhere today. Any update there? Second one on ratings migration.
Mm-hmm.
I think the appendix shows 4.5% ratings migration.
Yep.
Which is a little, probably a little higher than I would have thought. It looks like some of it's related to ground rents. Curious why that came in 25? Just, is there anything we should be thinking about in 2026 related to ratings migration? Thirdly, just a quick one. M&A, we've obviously got Aon UK in the market. Is that something you guys are looking at or have any interest in? Thank you.
Okay. Should we start with M&A?
Yeah, I think why don't you start there and then.
Let's be clear. I mean, you've seen we have presented a clear strategy 3 years ago. We're delivering on the strategy. I think we have a very clear path of what we want to deliver moving forward. We are very much focused on that. When I see some of the M&A activities around us, what is it that they're trying to achieve? It's either significant scale, so you're talking 2-3 trillion, 4 trillion, passive, active, everything. And then you have another activity, which is alternative asset managers looking for permanent capital, particularly here in the U.K., we've seen two transactions. Well, when I look at that's effectively what we are doing already since a long time, with a big difference that we have also the with-profits funds, which is a competitive advantage.
I think we have a very clear competitive advantage, and given that we're delivering on our strategic drivers, given also that we have come out now with using the with-profits fund in a smarter way, we have a very strong independent future in front of us. You know, we are focused on continuing to deliver what you would like, which is growing profitable earnings.
We are not looking at AEON UK.
Oh, no. We're not looking at AEON UK. That we can say. No. We have what it takes. Now on flows. You asked, first of all, on BPAs. Well, I said it before, we are committed to the GBP 3 billion-GBP 4 billion of BPAs by 2027. We did GBP 1.5 billion in 2025. Of course, now with the with-profits BPA, we can do more. We have a competitive advantage from a cost of capital. Let's not forget also, we also have a diversified offering because we also do what we call the Value Share BPA. You remember we presented this where we are sharing the economics with the scheme sponsor. We will see more momentum this year.
Yes, we will write most With-Profits BPAs, but of course there will be also alignments from the shareholder and we will align ourselves and write some alongside those deals. There might be also cases where we would like to take all on our own balance sheet, right? From a return perspective. The guidance that we gave you already when we presented, I think it was last year, where we were saying 75% BPA, 25%, that sort of remains the guidance you should think. 25% our capital
Yes. 75%
75% either Value Share or With-Profits capital. You asked about flows on asset-
Dai-ichi.
Sorry?
Dai-ichi.
On Dai-ichi Life. Exactly. On Dai-ichi Life. I said it before, once again, partnership is going extremely well. Obviously they decided to be our partner because they went through all the possible partnerships in Europe and said, "Okay, who's the strongest asset manager?" Well, I think our numbers probably said that we are in terms of investment performance and reach. They wanted also to understand more about the BPA market since that's a possibility at a certain stage in Japan as well. We are really working extremely well with them and not only did we see the GBP 400 million of flows in 2025, but we see continued momentum in 2026 as well. Let's not forget that they had a commitment of $6 billion over five years.
We said that it would be good to have $1 billion the first year. First year anniversary is in May. I think we will do more than that number by May with Dai-ichi. Obviously we will have to see. There's still a couple of months to go. Good momentum with Dai-ichi and a very, very strong partnership. Then what was another?
Future+.
Future+. Future+. Yeah, I know. Future+. Future+, by the way, we can say Future+ sort of what we're doing in UAE is a bit of Future+-ic. Maybe it's not Europe. Remember what I said before here, Future+ for everyone is, it's PruFund in Europe, continues to be a very relevant opportunity, but you need to have the right distribution partner. I always said that the right distribution partner for us is probably a strong insurance group. We had done a partnership with a strong insurance group in the UAE. There are others, of course. There are several strong large one, pan-European ones. That's what we were working on. It will come. It will come.
Finally, Kathryn.
Certainly the question on the annuity book credit quality, yeah, you've seen that in the appendix. That's the typical slide we give. It still remains obviously 96% investment grade, 74% single-A and above. We anticipated there'd be a question on this as given the external environment at the moment. The 4.5% net downgrades was driven by that ground rent asset class. As you said, there were just one or two other small impacts as well on the book.
It overall remains very high quality, and I suppose given as, I think you said, because the announcement was in January, what we had, what we do and is essentially look at the valuation of that and when we see either you know, situation changing perhaps with where the government was in terms of potential imminent announcement coming as we enter 2025, there were some ratings moves. That's what it was.
Perfect. Thank you.
Thanks. Nasib Ahmed from UBS. Firstly on private assets, about more than GBP 80 billion, I think most asset managers out there would want a piece of the pie. Do you think that it's gonna be margin pressure as a result of other guys coming in and trying to access more of the private assets on the asset manager side? That's one part of it. Do you see commoditization of that product as well kind of impacting revenue margins as well? Second question, technical one for Kathryn McLeland.
Mm-hmm.
I'm trying to square the OCG growth versus the AOP growth.
Yep.
If you take the 928, keep it flat, you get to the GBP 2.7 billion target.
Yep.
Whereas AOP growth implied for the next two years is about 8% to get to the 5%, right? There's flat on OCG-
Yep
... applied by the guidance and 8% on AOP. What's the difference, any color on that? Thanks.
Okay. Private assets and what you're saying is are there any pressure on fees in private assets? Now, let's remember where our focus of private assets is. It's mainly Europe, and of course in real estate we also have roughly GBP 10 billion in Asia on the real estate side. Our franchises are leading franchises. Let's not forget GBP 35 billion in real estate, GBP 27 billion in private structured credits, and then we have GBP 6 billion in infra and another GBP 14 billion in
Impact
impact and private equity. We have strong franchises there, but I think the key message here is Europe is still under-penetrated when it comes down to private assets. There is still opportunities in Europe. I said it before on private credit, you know, roughly 70% still of loans are with the banks. Banks are retrenching, as you all know, here in Europe, so that's an opportunity. Not too many players playing in this field either because Europe is not a United States of Europe. Every country has its own rules and laws, so you need to have had that track record and knowledge, which we have. We've been in 25 years doing private credit. The same is with the other asset classes, so I don't see too much pressure there. We have some uniqueness as well.
I mean, we are with the PCP acquisition, we are the leader in the non-sponsored private credit space. We are clear leaders there, and we see significant appetite into that space. So no, I don't see any key pressure on margins on the private asset side given our focus in Europe. In particular also on private credit, I really see still significant demand here. Coming by the way from everyone, not only European clients, but also Asian and North American clients as well. So very, very important point. That was the first question. The second one was on-
Well, maybe in the first one on the, whether it's becoming a more commoditized product.
Oh.
Is it fair to say that we're moving also more to the higher margin part of the spectrum?
Yes
... with the-
You're right.
value add core plus type of
Exactly. We used to be more core given also that we had a large internal client that was looking for, let's say, less, let's not call it exotic, but less, value add. Yes, we're moving more towards that. PCP is a good example.
Mm-hmm.
BauMont is another one. No, I think we're in a good place, and we should see, thanks also to the proximity and the, I would say, the life business growing, but also having access to the HL Life, we should see strong momentum here. Because remember the slide as shown before on institutional clients. We had 800 institutional clients three years ago. Now they have 1,000. Now, that it's not because we're lucky. This is. We have invested in distribution people. Joseph and myself were out there seeing big, relevant, big asset allocators, and they want to invest alongside other big balance sheets. Now we have two balance sheets. No. You should see strong momentum on the private asset side moving forward.
I think the answer to the technical OCG versus AOP growth, as you averaged them to get to the 5%, I think if you look at underlying cap gen, where we did guide to it, growing over time, there will be a similarity, and clearly what you've seen is us try to align our approach for both CSM and PBST. You get a broadly similar approach, but that will be on an underlying basis, and they'll be similar. We've given the reiteration obviously of the management actions of GBP 100 million-GBP 200 million, and obviously we exceeded that a bit last year. That, I think, will bring you closer into line.
Clearly it will evolve addressing the question we got today around the CSM contributing to a meaningful proportion of profits while we see this really exciting fee earnings grow over time, which will change that equation again.
Importantly, the GBP 2.7 billion, it's a target that we just issued 12 months ago.
Yeah.
You know, we all have our incentives to do as well as we can. It's not a cap.
Yeah.
Abid.
Thank you. It's Abid Hussain from Panmure Gordon. I've got two questions. The first one was on margin. Thank you for the color on the fee business margins that you've given so far. I just wonder if you could give us a sense of the margin versus lifetime value on the bulk business that you've written last year, and sort of perhaps compare, cross that with the fee-based business that you hope to run. I'm trying to dimension the sort of 10-15 basis points on profit margin on fee-based business versus, I think sort of 100 basis points on profit margin on the traditional BPAs, which of course comes with a higher new business stream. Just trying to sort of square all of that. And then the second question is on private credit.
Just wondering if you are indeed expecting a tick up in the default rates across any of the private asset classes, and if you could help us with quantifying what you're seeing perhaps at the industry level in default rates across Europe versus U.S., any color on that would be helpful?
Okay. I mean, I can take the first one, and I think I explained before, we're talking two very different markets between U.S. and Europe, and I know there's a lot of focus on private credit lately. Most of the problems we see are mainly in the U.S. and it's linked to poor underwriting, overcrowding, but also a lot is linked to sponsor exposure. We know the U.S. market is a larger one than Europe. Europe is less mature, smaller, less players, and then it comes down also to the quality of the players. I mean, I don't wanna speak about peers, but we've been in this business since over 25 years. We start as a credit house. Let's not forget about that.
We moved into private credit 25 years ago as a private credit. If you look at our default rates, I mean, I think the European loan fund, we have looked. Yeah, it's less than. Yeah.
One.
Yeah. 1% exactly. Less than 1%. That shows the quality of how we are underwriting this. I'm not overly concerned. Joseph, I mean, we have not seen any trend in Europe of more defaults lately. Yes, of course, there are cases. Well, we have seen, you know, MFS and others. By the way, we have no exposure to MFS, to be very clear. Once again, it shows how good we are in also saying, I said that number. We turn away two-thirds of the businesses that are offered to us. I would be, well, cautious, let's call it cautiously optimistic. It's a good word I always have to use on Europe given our focus on Europe.
We have no real exposure to the U.S., so you should not be overly concerned on this. Of course, I don't know what's gonna happen in the Middle East. Maybe it goes on for another six months and we will see, but these are all things that we cannot control.
Exposure to software for us is absolutely.
Oh, yeah. Oh, yeah. Very good. Exposure to software for us is extremely limited. So if you look at our private credit book, it's less than 2% in the asset management business. Very, very, very low. I'm sure you can see some of our peers came out with much, much higher numbers there.
Kathryn, do you want to.
I think, yeah, just you'll probably get more color as we start to write more of these products. We've obviously talked about the CSM margin and the strain for the BPAs we did last year, and we're really pleased with the start of fixed term annuity and with individual annuities coming. For now, we've grouped all of these products together in that 10-15 basis points of profit. Obviously as volumes grow, we'll give, you know, more color to support the products that we're writing, but we're not gonna give individual product by product. Clearly what we've said very clearly is that we need to meet our cost of capital hurdle rates for shareholder business. The With-Profits Fund has got a different objective for the business that they write. Look, we see this as very high quality earnings, very transparent, very repeatable that will build over time.
Perfect. I think everyone has asked the question. Thank you very much and see you at our half year results.
Thank you.
Thank you.
Thank you.
Thank you very much.