Tidjane Thiam

Tidjane Thiam
Group Chief Executive

Prudential Plc

Tidjane Thiam has been Group Chief Executive since October 2009 having joined Prudential as Chief Financial Officer in March 2008. Prior to this, he was Chief Executive Officer, Europe at Aviva and a board member of Aviva plc. Tidjane spent the first part of his career with McKinsey & Company serving insurance companies and banks. He then spent a number of years in Africa where he was Chief Executive and later Chairman of the National Bureau for Technical Studies and Development in Côte d'Ivoire and a cabinet member as Secretary of Planning and Development.

Tidjane is a member of the Board of the Association of British Insurers (ABI), a member of the International Business Council (IBC) of the World Economic Forum (WEF) and a member of the Council of the Overseas Development Institute (ODI) in London. Tidjane sits on the Africa Progress Panel chaired by Kofi Annan and is a sponsor of Opportunity International. He also recently chaired the G20 High Level Panel for Infrastructure Investment.

 

Quotes

Tidjane Thiam

Tidjane Thiam

Group Chief Executive, Prudential Plc

Significantly, with the euro crisis, we have seen the market’s confidence in the ability of policymakers to make the right decisions decrease.

Tidjane Thiam

Tidjane Thiam

Group Chief Executive, Prudential Plc

The message that we’re going to take five to ten years to recover doesn’t get through at all and so readjustments between the expectations and the reality are painful. Maybe because we are a long term business, we tend to think about the long term a lot and our interpretation of the crisis was that it would take a long time. It’s just simple maths. If you destroy 10% to 15% of your GDP and you need to recover it and you’re growing at 1% or 2% per annum, it’s not difficult to figure out how much time it’s going to take to get back to where you started.

Tidjane Thiam

Tidjane Thiam

Group Chief Executive, Prudential Plc

More relevant to us, at Prudential, are the emerging economies, particularly in Asia, and there you see no fundamental decrease in confidence. Confidence and self-belief in those parts of the world is higher today because they’ve seen that, actually, there has been a fundamental change in the world economy and they’ve been able to ride that out much better than us.

Tidjane Thiam

Tidjane Thiam

Group Chief Executive, Prudential Plc

Europe is a very peculiar market where, in our industry, the markets are mature. There is fundamentally very little growth and there is very often over capacity. So there is too much capital chasing too little business and, generally, that leads to value destruction.

Tidjane Thiam

Tidjane Thiam

Group Chief Executive, Prudential Plc

In the US what you see is the big, big influence of the baby-boomers transition – 78 million people will be retiring over the next 20 years. That’s 10,000 a day for 20 years. Baby-boomers control $7.6 trillion of assets.

Tidjane Thiam

Tidjane Thiam

Group Chief Executive, Prudential Plc

Then you get Asia where it’s a young industry, a young story. It’s much more about penetration than about the macroeconomic context and that’s why we’ve been able to grow through the current difficulties because we’re really riding two waves: the GDP growth wave; and then the wave of increasing market penetration.

Tidjane Thiam

Tidjane Thiam

Group Chief Executive, Prudential Plc

We are in the period where, clearly, there is a feeling out there that there has been too little regulation. We have this fantastic proverb in French, which sums it up: le chat echaude craint l’eau froide. It means if the cat has been burnt by boiling water, it will shiver at the sight of cold water, which has never burnt anybody. So it’s about over reacting. That’s why I worry about regulation risk.

Tidjane Thiam

Tidjane Thiam

Group Chief Executive, Prudential Plc

We certainly invest a lot around regulation. If you look at the functions of finance, risk and compliance, they are our highest growth areas. We invest a lot in beefing up our resources and our capability to deal with regulators at the right level, because it is strategic for us.

Tidjane Thiam

Tidjane Thiam

Group Chief Executive, Prudential Plc

I am not going to sit in London and try to set the product strategy in Indonesia. It’s doomed to fail. The business model, the kind of people you get and the culture is very, very intimately linked. I believe that the fact we are a decentralised federal model allows us to have better quality people and, ultimately, to do better in the marketplace. The holy grail, if you wish, is when you can combine the federal model, which Pru has always had in its history, with financial discipline, which has been more the story over the last three or four years: the combination is very powerful. We consume 12% less capital than four years ago and generate 90% more profit. That’s the same business but with central management of capital. Linking those two aspects is important.

 

Read interview transcript

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What is your outlook for the global economy? How confident of growth are you in this environment?  

A year ago, a leading economist suggested the main risk for the world economy was policy error or mistake.  Unfortunately, that prediction has come true.  He felt that we had been through the worst and that things should be okay, provided there were no major policy mistakes on fiscal policy, interest rate policy and by central banks. Significantly, with the euro crisis, we have seen the market’s confidence in the ability of policymakers to make the right decisions decrease.  That’s what we have experienced.  A lot of what we see is fundamentally about that. And we’ve seen, continuously, this tension between the market and the policymakers, with the market trying to push the decision makers in a given direction.  That tension translates into a lot of volatility because every piece of news is interpreted one way or another.  If we look at the major Western economies, this issue of policy mix in Western Europe remains very, very significant.  We live by the meetings of the EU and the ministers of finance or leaders or the ECB: that’s what drives everything.  The same is true in the US because, clearly, the crisis in the banking system has been, rightly, transferred to the state balance sheet. The reality, after a banking crisis, is always going to be pretty grim.  The history of such events is very well known.  IMF and World Bank studies suggest they cost 10% to 15% of GDP and take five to ten years to absorb. But nobody said that when the crisis happened.

There has been a disconnect between reality and perception and we are in year three of the crisis.  The message that we’re going to take five to ten years to recover doesn’t get through at all and so readjustments between the expectations and the reality are painful.  Maybe because we are a long term business, we tend to think about the long term a lot and our interpretation of the crisis was that it would take a long time.  It’s just simple maths.  If you destroy 10% to 15% of your GDP and you need to recover it and you’re growing at 1% or 2% per annum, it’s not difficult to figure out how much time it’s going to take to get back to where you started.  It’s as simple as that.

 Do you think the situation has worsened in the past year?

People have mixed the old world with the new world, thinking that the potential for growth was intact.  If you do not adjust your growth expectations and invest in your budget, your recovery might seem much shorter but the reality is, because you have huge deficits, it’s kind of a self-defeating loop.  It also decreases your growth potential.  Not only is the hole very big but your ability to climb out of it is limited.  So it’s really about this whole debate of a mix between deficit reduction and growth.  I think the first reaction was to focus on deficit reduction and, very quickly, the debate moved to growth because people realised that the only medium term answer to that equation, if you don’t want to inflict too much pain on your society, is growth.  That’s what’s going to help you get out of it.  So, anyway, that’s what is happening with Western economies. More relevant to us, at Prudential, are the emerging economies, particularly in Asia, and there you see no fundamental decrease in confidence. Confidence and self-belief in those parts of the world  is higher today because they’ve seen that, actually, there has been a fundamental change in the world economy and they’ve been able to ride that out much better than us.  They’re starting with much better fiscal positions and good GDP growth.  So, of course, there is no decoupling or insulation from the West.  If a crisis lasts in the West it will affect the emerging economies but, again, it’s a relative game and, if you put yourself in their shoes, it is a situation where you’ve got two scenarios.  Scenario one: you are growing at 8% or 9% and others are growing at 2% or 3%.  Scenario two:  you’ve got to grow at 6% or 7% but western countries will be at minus one.  Which one is better? You’re playing catch-up.  So, from their perspective, in terms of rebalancing the world economy, it’s just a blip.

 How would you characterise the impact of the financial crisis on the insurance industry?

It’s very differentiated by region.  Europe is a very peculiar market where, in our industry, the markets are mature.  There is fundamentally very little growth and there is very often over capacity.  So there is too much capital chasing too little business and, generally, that leads to value destruction.  You’ve seen a migration of assets in business from the life industry towards the asset management industry and banking and that has been the case for decades.  I don’t really see that changing.  In Europe, we are only active in the UK and we are focused on our core business which is a risk-based product.  We’ve always believed that’s where an insurance company has a legitimate territory to grow or defend.  So, in the UK, what we do is annuities, which is a longevity based product, where we have a huge information advantage.  We think we’re better than anybody at pricing that.  We have 160 years of history to support that; we know the price of a pension, how to invest so we can pay it and we do it with profits which are very much about smooth returns, a bit like variable annuities in the US.  That’s again pure risk management.  We’ve never wanted to compete in the pure savings space which is much more exposed to the vagaries of the economy.  People do have to retire and annuities get sold, whatever happens. So it is a risk business but it’s also much less sensitive to interest rates and equity market levels and all the things that hit banks.  So, I think, in a nutshell, in Europe things are very difficult but we have positioned ourselves in good niches where we can create value and growth.

In the US what you see is the big, big influence of the baby-boomers transition - 78 million people will be retiring over the next 20 years. That’s 10,000 a day for 20 years.  Baby-boomers control $7.6 trillion of assets and have learned that your control over the date of your retirement is very limited because life expectancy may have increased, your ability to effectively and productively work beyond retirement age is limited, and you have to retire at some point anyway.  People can play with that date within a range of a few years but then they need to get out of the job market.  Our variable annuities in the US have done extremely well on the back of these trends. Take up of the type of guarantees we sell used to be around 10% five years ago.  It’s now 89%.  We know that the motivation for buying the product has completely changed and now it’s driven by retirement.  Our average customer is 62.  So it’s really people who have saved and want to retire and have a relatively safe retirement.  That works.  It’s been very good for us and, again, it’s relatively insulated from the macro-economic environment.  It’s driven by demography and ageing.  The macro context has an impact but at the margins.

Then you get Asia where it’s a young industry, a young story.  It’s much more about penetration than about the macroeconomic context and that’s why we’ve been able to grow through the current difficulties because we’re really riding two waves: the GDP growth wave; and then the wave of increasing market penetration.  In most of those countries, over ten years, GDP is going to grow by anywhere between five and ten times and penetration is going to go from 1% to 10%.  And that is 10% of a much bigger growth rate.  You grow by 20 or 40 times in each of those markets. The fundamental thing that happened in the West, as countries got wealthier, is that they made a policy decision to set-up social safety nets.  People always marvel at the savings rates in Asia.  They are high because people need to save and in countries with very large populations it’s a policy decision not to put a universal social safety net in place.  What they do, which is correct, I think, is to target their financial resources to those most in need rather than go out with blanket cover for the middle class.  Most of those countries have made a pure policy decision to let the private sector come in and provide health and protection and that’s really what we’re doing.  It’s a relatively secure business because you are in the virtuous circle. By contrast, in the West most economies’ growth consumption or expenditures grow faster than GDP. What happens is it bankrupts you and that’s what’s happened to welfare systems in the West.  It’s clear-sightedness on the part of the leadership of many Asian countries to have seen that and said we won’t make the same mistakes: those who can afford it should pay for protection and we will concentrate the public resources on those who are really needy and can’t afford it. It’s a pretty neat approach, where everyone plays his role. Those who can afford it buy Prudential products and that gives us really a huge growth potential, as those middle classes grow and as their need for protection also grows.  That’s really what’s driving the dynamics that you see in Indonesia and Vietnam.  In Vietnam, for example, we have an all-in-one family health and protection insurance which is our star product.  ‘Pru my Child’ in Malaysia, which we sell to women before their child is born, has also been a hugely successful product.

Looking forward, what is the one risk to your growth that you’re most concerned about? 

We’re very proactive in the way we think about risk.  We’ve created a risk committee at board level and I have appointed a Chief Risk Officer (CRO) to the Board. For me, that’s our core business - risk management.  Insurance is about risk management.  That’s what we do for a living.  So thinking about risk is part of our DNA.  We spend a lot of time monitoring, understanding, and looking at the trends.  So, in terms of risk generated by the economic environment, we are reasonably well positioned.  One thing I have certainly pushed very much as a theme is a risk strategy for all seasons.  It’s this notion that the strategy has to be viable across the cycle.  Investors are hearing it more and more.  Everything we do is road tested to ensure it will ride an economic cycle.  That is essential.  Our dividend policy, our cash generation, our product development, everything is always stress tested to resist a wide range of economic scenarios and I think that’s why we are relatively comfortable with the risks in the economic environment; we completely integrate them into our thinking, using interest rates.  It’s very challenging.  So the strategy must work very well, whether interest rates stay low for longer or if they rise for a long period of time.  That’s a very heavy constraint.  We do the same thing for equity volatility and for equity market levels.  That is what has driven a lot of our thinking in terms of product.  If you look at the makeup of our profits, there are three ways to make money in insurance.  There is spread income: I take your money; I pay you interest.  I reinvest it and I make a margin.  Then there is fee income: you give me your money.  It’s your risk but I take a clip on the money I manage for you. And there is underwriting or technical income, which is where I take a risk, you will pay more and I make a profit on that.  Those are profits of a completely different nature and that’s the way we run the business.  That’s the way we communicate about it and we’ve invested a lot of effort in the early years to develop disclosures in those terms, so we can explain to the market where our profits come from. The reality is that fee income and technical income is of much higher quality in terms of earnings.  So the way I’ve driven the strategy has been to increase the proportion of fee income and technical income in the makeup of our profits and we’ve done that quite successfully.  It makes the whole thing much more resilient to shocks, and gives us much higher quality earnings.  Frankly, this has been a good crisis for us at Prudential and our investors because insurance is a good business, provided you know how to manage risks.  We have been very proactive in terms of managing those risks and we are well hedged across scenarios.  So I am not overly concerned about market risks and I’m confident that, in most scenarios, we’ll do better than the competition. Some things, though, we really have very little control over.  Regulation is certainly a risk there.  We are in the period where, clearly, there is a feeling out there that there has been too little regulation. We have this fantastic proverb in French, which sums it up: Chat échaudé craint l'eau froide. It means if the cat has been burnt by boiling water, it will shiver at the sight of cold water, which has never burnt anybody.  So it’s about over reacting. That’s why I worry about regulation risk.

I’m a great believer in checks and balances but the reality is that the regulators are in a place today where there is this feeling that any increase in regulation is necessarily a good thing. That is a flawed piece of thinking because, while it is true that inadequate regulation played a role in the crisis, it doesn’t follow that regulation just for the sake of it is good.  So it’s about balance.  I completely recognise that there are inadequacies and they need to be addressed but going from there to blanket regulation is a concern for us. We are an industry based on trust and we couldn’t operate without regulation that the customer can believe in but, that said, we could reach a point where regulation becomes excessive and counterproductive.  For us that’s a real concern. 

What measures do you take to collaborate with the regulators?

We certainly invest a lot around regulation. If you look at the functions of finance, risk and compliance, they are our highest growth areas. We invest a lot in beefing up our resources and our capability to deal with regulators at the right level, because it is strategic for us.

Lack of availability of key skills can be seen as business threats to CEOs.  What’s your take on that? 

I’m always embarrassed to talk about it because there are some universal truths that are disbelieved because everybody repeats the same thing and it weakens the message. Every CEO says people are my most important asset, but the proof of the pudding is in the eating. I think we all say that. I think it’s more important to believe it.

I always say it is people who run companies; that has been my experience of life: we make the difference.  That is absolutely at the heart of everything we do. Fundamentally, it’s about culture. If you have the right culture, you can run a well-managed business, with limited risk, at a reasonable cost.  If you have the wrong culture then the cost of compliance is infinite. So the most effective tool to run a well-controlled business is culture and that’s about people.  When I was in government in Africa, like many African governments, we had a lot of trouble with corruption in the customs administration and we were invited by the prime minister at that time to invest millions of dollars in some fantastic technology: a huge x-ray machine which could tell what was in a container.  Our only question to the manufacturers was what happens if the guy who looks at the screen is corrupt? They didn’t have an answer.  That’s the thing with risk management.  It’s really the human element.  It’s vital.  We need all those processes and we spend a lot of time on them but, in the end, the ultimate risk management tool is to have the right people.  I know that is not some intellectually satisfactory answer but, practically, it’s very real.  Yes, having the right people in the job, people you can trust, is essential.  Then, of course, like everybody, I’m a believer in statistical analysis and probabilities so we do that too.

In your career, you must’ve seen a number of command and control type models. Tell us about that.

The key thing in business is to have very good CEOs in place.  I’ve always believed in a federal model.  It’s a very simple organisational principle. You need to decentralise your decision making as much as you can but the more decentralised it is, the more centralised the information needs to be.  I spend a lot of time talking to our people about management principles and I always say decentralisation combined with opacity is a model I don’t believe in. The more accountability I give you, the more power I give you, the more line of sight, the clearer the line of sight I need.  You can’t tell me, oh, it’s my business, I’ve got to do that and I have to give no account of what I have achieved.  We have always progressed the two in parallel.  I’ve always believed in devolving as much as possible on the one hand but, on the other hand, improving the visibility that the centre has immensely. The two go hand in hand.  So the reality is you will not get good people to come and do a non job. To draw an analogy, if you’re going to have a great army, you need really very good generals and good generals don’t like to be dictated to every step of the way. You need to give them a sense of the campaign.  You need to give them a sense of objectives and then you let them go. You don’t try to micromanage every hill they have to take.

Do you see the culture in the business model here as a competitive advantage to attracting and retaining talent?

Yes, I give them a real choice. The way you attract great people to be great CEOs is if that role is a real job with real content.  You get what you look for.  So it is a completely a virtuous circle.  I really believe that the more devolved the model is the better the quality of people you attract. It’s very interesting because I think a lot of European companies have run into trouble in the US.  If you’re American and you’re good, culturally you want to be number one. You’re not going to go into a company where you’ll be a second-class citizen and any European company that runs its business so that the US CEO is a second-class citizen will fail because they’ll attract the wrong kinds of Americans. It’s a very deep point. You’ll only get the right kind of CEO if a person is treated – whatever the nationality – as the chief of a total group. It links into diversity, meritocracy and transparency.  You have to empower people. You also have to be very clear.  I’ve said often that the US is a federal state but it does have a constitution. Federal doesn’t mean everyone just does whatever they want. We’ve done a lot of work qualifying this internally. We have 23 key processes which have been signed off at the group executive committee level. We’re very clear about what is decentralised, what is centralised, where the centre has a right to intervene, where the centre has a duty to intervene. On the other hand, from day one I have said that things around risks, around capital, around cash are centralised. That is not negotiable for plenty of reasons. I am not going to sit in London and try to set the product strategy in Indonesia. It’s doomed to fail. The business model, the kind of people you get and the culture is very, very intimately linked. I believe that the fact we are a decentralised federal model allows us to have better quality people and, ultimately, to do better in the marketplace.  The holy grail, if you wish, is when you can combine the federal model, which Pru has always had in its history, with financial discipline, which has been more the story over the last three or four years:  the combination is very powerful.  We consume 12% less capital than four years ago and generate 90% more profit.  That’s the same business but with central management of capital.  Linking those two aspects is important.

In what way has your strategy changed?

I’m going to disappoint you. As I said earlier, I don’t want a strategy that changes when the economy changes.  We have to steer a course that works. So when we designed all this, we stress tested everything in every possible direction. We are relatively confident on the strategy. Of course, there are adaptations: you can take any point too far. We are sensitive and have tweaked things, but at the margins. Our strategy is to focus on Asia; that is our primary destination for marginal capital investment. We want to grow in Asia. We want to continue to be a leader. The strategy in the US is to ride the wave of the baby-boomers and do that in a risk- controlled, predictable way. We don’t want to grow in the UK and that is a key inflection. We were clear with our staff about that.  It gives a credit rating and capital base to the group. Then there is asset management, which is vital for a large international insurance company strategically to succeed.  That is the achilles heel of the industry because investment performance is a huge part of our promise to our customers and too many insurance companies simply have not delivered. People give us their money at a given point in time.  They want it back.  So that’s a balance sheet part.  They want their money back so you can’t just make it disappear and they want more than they gave you initially. That’s what we do at Pru. Our M&G business is phenomenal; I believe it’s the best asset manager in the UK by any metric, and investment performance is second to none. So if you have that asset management leg, as an insurance company, you have a fighting chance. We’ve driven the group to continuously increase the resilience of our numbers on spread income, technical income and so on.

Sometimes we raise the dividend.  You know, everybody wants us to raise it more but my answer is always to stress test it and see.  Yes, I could take a higher path but, in 10% of scenarios, I’ll have to cut the dividend.  So do you want something that is safe and growing or do you want to take a gamble with the environment, which is not the business we’re in?

Focusing on Asia maybe, how would you characterise the progress you have made and the difficulties you have encountered in growing the business there?

The strategic analysis is simple. At a higher level, it’s what I shared with you earlier.  It’s around GDP growth rates; it’s around savings rates, which are linked to a policy framework; it’s around penetration and having the right product set.  In 2006 the penetration percentage of health and protection was 9%.  It’s now about 30% of a number that is three times bigger.  So it’s a huge explosion of our health and protection population and that’s been central to our strategy in Asia. It has the virtue of strengthening your relationship with your customers. It’s a long-term relationship. It’s very important. People don’t allow their health and protection to lapse, particularly in downtimes. Do you really want to be in a recession without your health and protection?  So it’s very resilient and it puts you at the heart of the life of the family you’re dealing with.  So it’s positioned us well in the market and it’s aligned with the policy of those countries. That’s what they wanted to see happen. We are on very good terms with all these governments and provide a valuable social benefit to a country and its economy. After that it’s just a question of putting the products, the service out there.  So that’s distribution.  It’s really about growing the agency force, which we’ve been doing, and we track very closely the growth in scale and the increase in productivity, keeping the two in balance. Our partnership distribution model also works very well.  We have Standard Chartered, which is the dream partner in the region, and we’ve added another great partner in the region, UOB. We’re very happy with that because we think that having regional partners is the best way to go.

 Is it a challenge to execute a local approach?

Absolutely. We have to have great country CEOs and the answer is to do that country by country.  We are a local company in every country where we operate because we are a people-intensive business.  We now have 131,000 staff in Indonesia. It’s an enormous number and they’re all Indonesian.  So there’s no doubt for Indonesian customers that we are an Indonesian company.

Rather than talking about Asia as a whole, those that invest today seem to focus on individual countries in Asia by the carousel.  Will we see more of that in terms of profiling?

That’s true.  We talk about our four top markets – Hong Kong, Singapore, Malaysia and Indonesia – in the carousel.  So that’s almost 80% of our profits in Asia.  It’s just getting people to accept that Asia makes up half the world’s population.  All the rest of us – America, Africa, Latin America, and Europe – make up the other half.  So getting people to realise how big Asia is, how diverse it is, is going to become increasingly important.

How important is building relationships and partnerships? 

It’s very important. Each market has a range of stakeholders which you’ve got to manage – governments, regulators, local business community, the media etc – and that starts by having the right kind of CEOs in place. That’s something we have devoted a lot of attention to and the appointment of a CEO is always a big decision. We also have a very flat organisation and know each other well.  I know all my CEOs in Asia, for example. For a company of our size, our corporate office is very small.  It has all the benefits that brings, in that everybody works very hard and we don’t have enough resources! Being a bit undersized keeps everybody busy and eliminates office politics as nobody has the time for them. And that’s by design. There are just two people between the CEO of Indonesia and me, which in our sector is pretty rare.

Our interim survey results show that insurance companies, as part of their restructuring activities, are planning to in-source previously outsourced business processes and function. Does that resonate with you at all?

Yes.  Culturally, we are a company focused on growth. For me cost is hygiene. It is necessary in the same way that breathing is, but breathing has never been your life strategy. It’s a necessary condition to be alive, no more.  That’s how I look at cost management.  You don’t cut your costs into greatness.  You achieve greatness by generating more profits, being a winning company in your market.  So the culture is very front-end driven.  We want to win.  We are number one in Indonesia.  We have a 22 percent market share.  We are number one in Malaysia, number one in Singapore.  We are the largest insurance company in Hong Kong.  We’re number one in Vietnam.  We’ve hit number one in the Philippines in the third quarter of 2010. That’s who we are and that’s commercial. That’s customer driven.  The rest follows.  If our policy doesn’t work we have absolutely no ideology to cling to. What we try to do is to create the maximum value for our customers because that’s how we’ll create the maximum value for our shareholders.  Innovation is important: if you look at many of our Asian countries, often between 20% and 40% of the revenue is from products that we did not have a year ago.  We’re very active and we’re always looking out there, marketing, going out with new products, getting a bigger share of wallets.  That’s really what we are focused on. The same thing is true in the US with variable annuities.  We’ve been very deliberate in positioning ourselves in the market.

Would you see innovation as localised?

Yes, it’s front-end driven.  Those who understand best the needs of the Malaysian customers are in Kuala Lumpur or even in the provinces rather than the centre.

Can you think of innovative products originally designed for those markets that are ‘exportable’ to western economies?

Yes, we talk to each other about that but the first priority is to address customers’ needs. Yes, you can optimise the margin once you’ve had a good idea.  If it’s worked somewhere, you can also transfer it.  We think about that.  Is there a market for variable annuities in the UK?  Maybe.

We are thinking about transferring some of the technology we have in Asia, for example in Indonesia, which is most advanced in terms of wireless etc, to the UK.  So, actually, it doesn’t always flow the way you would think intuitively.  But we’re very pragmatic.

Do you see the distribution model changing much in the next five years and what role technology might play in it?  For example, will people buy them off their TVs because the advert comes on and they click and they’re straight through the direct model?

In terms of technology, people will buy the way they like to buy, whatever insurance CEOs may think of that.  So we adjust to the local preferences of customers and what’s right with the agency model in Asia is the deep cultural aspects that are shared across countries there.    So all the talk about the agency model is based on false analogies: that because the agency model died in the UK it’s going to die in Asia.  Well, the name is the same but the concept is completely different.  The agency model for Pru in the UK has absolutely nothing to do with it. It’s a misnomer.  We should call our agents something else in Asia: they’re entrepreneurs.  They’re highly successful entrepreneurs with hundreds of employees. A top agent in Malaysia has 2,000 employees and he makes millions of pounds every year.   All the real estate, IT, etc is externalised. There are zero incentives to look for something else because it just works so well.  We’re making so much money with this general agency model in Vietnam and in Malaysia that everybody is copying it. It’s a franchise model and it’s very smart.  It’s the same thing as McDonald’s.  People set up shop, invest and they’re selling.  The key thing is, again, it’s not a mass market proposition. They are really selling in those countries to the emerging middle class with higher levels of income and that is not what the agency sales forces in Europe did.  I talk to a lot of our customers and we have done a lot of research which suggests it’s a very personal decision for Asians, with highly emotional content.  They like to buy it face to face. You need to understand each part of the world, how things work, and accept that they will work differently for all these neighbours.  So Asia is Asia. 

Have you found it difficult to acquire the right people with the right skills in the right markets?

It’s not been an issue for us because what we sell is a value proposition where you become an entrepreneur and that works very, very well.  People think it’s a privilege to be allowed into a room to listen to Prudential and to be given an opportunity to be a Prudential agent. They pay to come to these events. We’re talking about members of the Million Dollar Round Table (MDRT) not ‘foot in the door’ insurance agents.  A lot of our agents in Asia are millionaires, in dollars or in pounds.  Once a year we bring them together for a President’s event.  This year, I booked the Royal Naval College in Greenwich for our top agents in Asia.  There’s not a single one of them who’s not a multimillionaire, in pounds.  So you’re not dealing with people going from door to door, although that is very attractive in itself. The young people line up to join and have a chance.  They see it as a privilege.  They actually fight to see how they can become a Prudential agent because it’s a great opportunity. 

 Do you train them or do you collaborate with educational institutions and governments to create a pipeline?

Yes, a lot.  We recruit at a high level, which is partly why our sales force is so effective.  We hire university graduates. Your average Pru person now is an Asian woman with a university degree, around 27 years old with two or three languages.  So these are very impressive people.  I always enjoy meeting them. We also have academies training people with wireless technology and delivering degrees.  In Indonesia people call our university the Harvard of Indonesia because it’s so prestigious. 
The numbers produced are robust and the business model fits well with the local culture. That’s why we’ve been doing so well.

Do you feel the demands on your professional time have changed recently?

First of all, I’m very passionate about the business.  I think it’s at the heart of everything including my interest in the economy.  We are a machine to convert savings into investment, at a macroeconomic level.  Saving and supporting investment by ordinary people is very important and we turn the $20 per month into billions.  That’s very important for all those countries.  So we perform a very useful function.  We’re a long term industry, which I think is very valuable because it’s allows you not to simply live in the moment.  You can have long term strategies.  You can really build things over time and see whether they work.  So I try to spend most of my time worrying about this stuff.    I have a one-on-one with my business unit CEOs and in the UK, a one-on-one with the Group CFO.  We talk business results, products and people.  I love that.  That’s the most enjoyable part of what I do and I actually think that, if you get that right, then a lot of the other things become much easier.  If you go to see investors, it’s much easier if you’ve got good results.  So, rather than spending a lot of time honing my presentation skills for the investors, I spend my time producing good results.  That’s better use of the time in the long run.  So I’m a great believer in delivery first.  Delivery on numbers, then we can talk, always.  So I focus on the performance and allocate as much time as possible to it and then,0 yes, the rest will come.  Investors are important.  If they don’t support us or don’t believe in what we’re doing, it’s a nonstarter.  So we need to convince them.  We need to communicate.  Relationships with the regulators are also vital.  That’s something that takes a lot of my time.