Prudential Assurance and Unit Trusts in Malaysia

Keng Hooi

Thank you, Mark. Good afternoon and welcome to Malaysia. As Mark says we are the oldest business in Asia and also one of the youngest ones. You can see I am the old of the business and over there is the young handsome one, is Mark Toh, the CEO of one of our youngest businesses in Asia. Both are very successful business in Malaysia. Over the next twenty minutes or so Mark and me will talk about our business in Malaysia. But first a bit about the country and also the business environment in which we are operating in Malaysia.

Malaysia has been under the British influence for more than one hundred and fifty years until we gained our independence in 1957. So because of that a lot of things in Malaysia is modelled after the British system. The government system, the civil service, the legal system and also the education system are all modelled after the British system and later on, as you move about he town and all that, you will see that English is a very widely spoken language in the city.

In terms of the demographics, Malaysia has a population of twenty five million. Our reach around thirty five percent of the middle and upper middle-income group. And that is the market where Prudential Asia is getting most of its business. That is our target market, the middle and upper middle-income group.

A bit about the industry - the life insurance industry has sixteen players. The top floor players, as can be seen from the chart, is Great Eastern, Prudential, AIA and then there's ING. In total the top four life companies in the industry capture sixty six percent of the market share. This is in terms of new business and life premium market share and Prudential captures nineteen percent of the market share and we are the number two in terms of market share. Prudential, as Mark mentioned earlier, has been in Malaysia since 1924. Over the last ten to fifteen years we have gone through a period of very rapid growth. In fact we moved from number nine positions with a market share of three percent today where we are in a very strong number two position, with nineteen percent market share.

I would like to share with you some of our key milestone in Malaysia. In 1999 we pioneered the regular investment link product. And today we are still the market leader in regular premium investment link product. This investment link strategy has helped us to build a business, which is very capital efficient and also very profitable.

In the year 2001, we moved to our head office in the Golden Triangle area. It is a very prominent office within the Golden Triangle area of the city centre and this move has significantly enhanced Prudential's image in the country. It also has significantly enhanced our brand in the country as well. This year we celebrated our eightieth anniversary. Mina earlier on this morning shared with you our advertising advertisement for our eightieth anniversary and we are very proud to be able to say that we are one of the few companies, which has operated in this country for eighty years. There are very very few companies that can claim that they have been in this country for eighty years.

Attracting the best people is crucial for the success of our business and we are very pleased to be able to say that in Malaysia, Prudential is able to position itself strongly as an employee of choice and continue to attract the best talent in the market and continue to grow our business very very successfully.

Prudential in Malaysia has a strong and dynamic management team. Here, I'll show you a few of our key members of our team. Each one of them are very good in their own area of expertise. I just want to mention here and elaborate a bit on the team member, Bill Li who is the general manager, having worked in the UK, Canada, and more recently in Asia. And the Chief Financial Officer, Tony Cheung, graduated from the London School of Economics, and he is also a fellow of the Institute of Actuaries. And he has worked for Pru UK for ten years before returning to Malaysia to join Prudential Malaysia. Paul Lim, who is the Chief of Human Resources, is an expert in the field of human resource management area. Yu man Tin, the CIO, Chief Investment Officer, is a graduate from Cambridge University with many years of experience working in the fund management field. As for me, I was educated in North America, in the US, and I am also a Fellow of the Society of Actuaries. I worked for fifteen years for Prudential Malaysia; the last six years I have been the CEO of the company. So we have a very strong team with many years of experience in the financial services area.

We have thirty branches nation wide that cover all the urban centres that we need to cover through out Malaysia. And I want to say that although we have all the branches nation wide forty percent of our business still comes from Kuala Lumpur, the city centre area, and the surrounding area of the city centre. This is because of the concentration of wealth of Malaysia is still very much in the city centre, the capital city, Kuala Lumpur. There was quite a bit of discussion on agency productivity and also agency number. Malaysia is one market where several years ago, as we look at where the development of the market was taking us, we took a decision that we would put in place an agency strategy that was going to drive our business growth through increase in productivity of the agency force.

As you can see over the last five years or so our number of agents have stayed pretty much at the same number but we are pleased to say our productivity has more than doubled over the that five year period. You can see from the line chart that our productivity has more than double over that period. Because of this strategy we continue to be number one in agency productivity in the Malaysian market. In terms of productivity our agents more than double the industry average. This is a very important strategy because this positions us very strongly to be the best in terms of agency from the angle of professionalism and also productivity and because we are able to differentiate form most of our competitors and show that our productivity is much much higher than our competitors we are able to continue to attract the best people into sales force. In fact all the agents who join Prudential today, twenty five percent of them are graduates. Another twenty eight percent of them are diploma holders so out of every two agents one of the at least is either a diploma holder or a graduate. So we are able to attract very good agents and continue to improve on our productivity going forward.

Being one of the more established businesses of Prudential in Asia we become a centre of excellence in a few of theses areas in terms of system, in term of our products, in term of distribution and also in terms of the development of people. And Prudential Malaysia continues to grow healthily in terms of our profit as well, and because of our healthy profit growth we are able to become a net provider of capital for the group in Asia.

This is one chart, which we are very proud of. If you look at the last five years our new business annual premium has been growing at a compounded rate of around twenty one percent so we have a very good reputation in the market as one of the fastest life insurers - the fastest growth insurers in the market, so we are very proud of what we have achieved over that period. 2004 has not been a great year at the start. In the first quarter some of you may be aware Malaysia has a very slow start and that has been affected by some product changes and also some regulations relating to proper advice. I'm pleased to say we have over come most of those issues and we have put into place some very effective sells campaign which helped us to turn the business around in the second quarter as you can see in the chart, the second quarter turn around by quite a significant amount and that sells momentum continues to grow in the third quarter so we have a very impressive third quarter because of all the things that we have done.

Looking ahead there are four key areas we are going to look at. Looking at ahead in terms of our strategy with respect to products we are going to continue to grow our very successful investment link product and build on the success of the investment link product. In terms of distribution, as was mentioned by Ed earlier in his presentation, we are going to bring this sales force automation system which is a point of sales system into the Malaysia, and make our agents use this particular system and continue to drive up their productivity. In terms of customers we will enhance our customer experience as a strong competitive edge, and from the operation side we will be moving around two hundred of our staff into the regional shared services hub to start the shared services hub. With that also we will be outsourcing our back office operation in to the shared services hub. We believe that by doing so we could drive down our costs by letting the shared services hub concentrate all on the back office processing and by out sourcing our back office processing the business itself can concentrate on sales and marketing and continue to drive the success of the business going forward.

In summary Prudential is a wall known and trusted name in Malaysia. We have built a very strong business, we are number two in terms of market share and number one in terms of agency productivity and finally we have a very strong management team which is very passionate about the business, and continue to inspire the same sort of passion team work loyalty among our team.

I want to finish by saying that fifteen years a go we said and we set a vision, we want to be number one on the market - fifteen years ago. Although we were only in number nine position with only three percent market share. We even created a song called, 'We are number one', and we sing that song everywhere, wherever we have our function. And we are the number one song adopted by many other countries our company in other parts of Asia. You may have a chance of listening to it in Vietnam with many of our agents singing it. That song was created in Malaysia in 1990, fifteen years ago. About fifteen years ago. We set that vision to be number one. Today we are a strong number two but I want to let you know that our passion, our team passion to be number one continues and we will be number one. With that, thank you and I'm going to call my little brother up here, Mark Toh, to share with you the success of the unit trust business, thank you.

Mark Toh

Thank you very much, Keng Hooi. Ladies and gentlemen, good afternoon. Though the mutual fund business in Malaysia may not have had the same long colourful illustrious history as Keng Hooi life assurance business, it is probably because we started out as a green field operation just three years ago. Nonetheless we believe we have our own short and equally compelling story to tell. But before I begin to tell you that story let me being you up to speed by giving you in context an idea about the size and growth rate of the mutual fund industry here in Malaysia.

The mutual fund industry started taking off only in the early 1990's with the government's encouragement with the opening up of the securities sector in the country. Fifteen years prior to this, the government launched its first, and still today, the largest unit trust government sponsored trust fund. What is perhaps interesting in this chart is the recent rapid growth of the privately managed mutual funds compared to the government sponsored ones. And because the Prudential had seen and anticipated this trend more than three years ago when we first mooted the idea of starting our own mutual fund business here, and elsewhere in Asia, we succeeded in riding this wave in growth. As you can see we doubled and tripled not just our funds under management but our customer numbers as well. And what is better still is that our fund under management has a good balance of both equity and fixed income products and as you all know equities attract a higher fee income. This resulted in our business breaking even at the end of just the second year, and being positive from the third year onwards.

Now, this is one chart we are really especially proud of, having made it to the top five in terms of overall funds under management and in doing so, over taking many of the more established competitors in the market, and earning the reputation of being the fastest growing mutual fund company in Malaysia over these last few years.

Along the way we chalked a number of notable milestones as well. Two years a go we launched the countries first ever capital guaranteed fund, which was completely guaranteed by a third party bank. this one was completely taken up during the IPO period. last year we again saw another opportunity and that there was a demand then for an absolute returns fund, and this fund was completely subscribed in just one week. And following this great demand and success we took this opportunity to launch an Islamic version of this absolute returns fund, which was sold out in just two days of the launch.

You can clearly see now how innovation and customer centricity has its rewards. And to perhaps illustrate that we are not just great at selling funds just in our very second year of business we started also accumulating awards for being the very top in various fund award categories. The first four funds that we launched in 2001, won three number one awards in their respective categories. Whilst the fourth fund did not win the number one but was placed a very close second. Certainly you will agree with me that these achievements are testimony to our team of fund managers and to the strong and solid management pedigree that the Prudential has built over the years.

Ladies and gentlemen, one of the questions that you must be itching to ask me by now is, so, Mark how on Earth did you guys do this in such a short time? One of the first natural things we did when we first started was to leverage on the existing Prudential brand and agency infrastructure that Keng's life assurance team had built over these last eighty years in Malaysia. Today thirty two percent of our life agents are now licensed to sell unit trust funds, and you already know about the 'twenty eighty' rule. The Prudential Assurance has also by then built thirty eight branch and agency offices throughout the country, built an infrastructure for training, customer service, collection and IT resources. And most of all, ladies and gentlemen, they also have a customer base of more than half a million customers already in place.

All these competitive advantages gave us the perfect start that we needed to embark on our business despite being a late starter in a relatively closed and established market. And now that we have become a significant and material player in the Malaysian mutual funds industry you may then want to ask where else do we go? From what you have just seen from my presentation so far I do not think it is audacious that we want to move further ahead from the great start that we have had and our aim to be the largest mutual fund company in Malaysia by continuing to offering more innovative and customer centric products to the Malaysian public. This very same vision and credo is driving Prudential's businesses not just here in Malaysia, but for the rest of our mutual fund business in the region.

Ladies and gentlemen I would now like to leave you by summarising the key factors that I believe has made the success we are today. Clearly the strong Prudential brand has helped tremendously whether with our customers or our distributors, without which we would not be in the enviable position that we are now in. regional resources have also been crucial whether in helping us in develop and carry out strategic approaches in our business, launch innovative and customer centric products or even sharing time tested and reliable philosophies strategies. In the last three years, ladies and gentlemen we never once had to re-invent the wheel. The mutual fund business in Asia is a young, dynamic and exciting business, best exemplified by the young and talented teams that manage our business across the region. We have here in Malaysia a great blend of experience, youthful energy and dynamic talent. Together with Prudential’s sound and trusted pedigree in financial services we make a potent combination that drives this young and dynamic mutual fund business. The fourth point I would like to make here is that by leveraging on the existing Prudential assurance infrastructure that Keng and his team has built and not really starting from ground zero has also helped us to move quickly and efficiently into a leadership position in the local market. And finally ladies and gentlemen our multi-channel distribution strategy of dealing with both tied and third party distribution has really been crucial in helping us reach the depth and breath of the customers we wanted to reach. Fourth ranking in the industry, significant and material player in three years, profitable in just three years, remarkable you may say, but certainly very achievable, as we have indeed proven.

Ladies and gentlemen in his presentation earlier in the morning Mark Norbom talked about leveraging on Prudential’s inherent strengths and competitive advantages to successfully launch our mutual fund across the region, and I believe our story clearly indicates that this strategy can indeed work, and not just here in Malaysia but right across the countries that we already operate in. I’ve also given you just a bit of flavour about the mutual fund business I complimenting our life business but in two days time, in Vietnam, you’ll be getting the full story from the rest of my mutual fund colleagues in Asia about how we are today enhancing the over all value of Prudential’s business right across the region and with that ladies and gentlemen I thank you for your time and I would like to pass this back to Keng Hooi.

Keng Hooi

Thank you, Mark. With that I would like to invite all of you to go to our head office for a tour of our head office. The bus will leave in about five minute’s time so I would like to request all of you to go straight to the lobby of the hotel and leave for our head office. After the tour the bus will take you back to the hotel, and at some time in the evening at 7.05 we will gather again so the bus can take all of you to the dinner-...

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