PRUDENTIAL PLC (PUK) Q2 2020 Earnings Call Transcript

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PRUDENTIAL PLC (PUK -0.40%)
Q2 2020 Earnings Call
Aug 11, 2020, 6:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Michael Wells -- Group Chief Executive

Welcome to Prudential plc's 2020 Interim Results and our Strategic Update. I'm Mike Wells, Group Chief Executive.

So here is the agenda for today. I'll start with a strategic update, and including highlights of our first half performance. I'll then hand it over to Mark FitzPatrick, our Group CFO and COO, who'll provide a detailed financial Update. I'll then complete the presentation with some closing remarks.

So, here are the key points. This has been an important and purposeful half year, characterized by substantial operational and strategic progress. Our financial performance was resilient in spite of challenging and volatile operating environment. The business is evolving and innovating at pace and from a position of strength. Across the Group, our people have done a great job adapting rapidly to remote working and its challenges. At the same time, we have been active in supporting our customers and communities.

In an important strategic development, the Board has decided that we intend to pursue the separation and full divestment of Jackson. Once completed, this means the Group will be exclusively focused on our high-growth businesses of Asia and Africa. This growth is underpinned by low-insurance penetration, large populations in need of our service, and rising Gross Domestic Product per capita. And the Group is well-positioned to deliver long-term profitable growth for shareholders with a new dividend policy that reflects the Group's evolving strategy.

Let's move to the financial highlights. These need to be seen in the context of extreme volatility in equities, foreign exchange and bond markets, geopolitical uncertainty, and the operational impact of COVID-19. Our performance highlights the resilience of our business model, our scale and our ability to adapt and act with agility. In Asia, IFRS operating earnings increased by 14% to $1.7 billion. Sales growth was inevitably impacted by disruptions caused by the pandemic. However, if you exclude Hong Kong, we saw resilient new business profits, down only 6%. And we saw increases in our new business profits in four markets, importantly including China.

From a capital point of view, the LCSM surplus strengthened to $12.4 billion since the full year with a coverage ratio of 334%. Our US business was above 425% RBC, when including Athene's $500 million investment, which completed in July.

Asia embedded value is $37.3 billion at the half year, despite forex and interest rate impacts. We delivered a Group operating return on equity of 21%.

So let me now go to the operating profit performance in more detail. You may recall, I characterized our 2019 performance as having three key features: resilience, diversification and growth. Our performance in the first half of 2020 demonstrated these three strengths once again. Resilience, high levels of recurring premium with high retention rates and high-quality revenue sources, with almost 70% of new business profits from health and protection. And from diversification, our $1.7 billion of operating profits is generated by a broad spread of markets operating at scale, with seven businesses contributing more than $100 million of earnings in the period. And growth, operating profit growth of 14% was delivered by nine life markets increasing earnings by double digits.

In addition, Eastspring, our $220 billion asset manager, delivered 10% earnings growth. Our strength in health and protection is a significant competitive advantage. The services we offer in this category are not only valued by the consumer, they support the healthcare and financial inclusion agendas of regulators and governments. COVID-19, if anything has increased both the need for what we do and awareness of our positive social role. And from a commercial perspective, health and protection has the added benefit of being a high-quality source of earnings.

The diversification of our distribution and product capabilities came to the fore during the half-year. We were able to successfully manage changes in customer activity because of our growing ability to service customers where and how they want to interact with us. This gave us resilience and additional stability in our business performance. You can see this in the way we responded week by week as markets went into and came out of lockdown at different times. At the start of Q1, we reported good momentum outside of Hong Kong. Indonesia, Singapore and Thailand saw particularly positive APE growth and the mix shifting to protection sales.

The banca channel in China continued to perform well even through the lockdown there. And domestic Hong Kong sales were supported by tax-efficient seasonal products. However, as we moved into March, excluding Hong Kong, sales tailed off as lockdowns were implemented across the region. And again, excluding Hong Kong, sales then improved sequentially month-on-month during Q2, as several markets emerged from lockdown. China, in particular, had a strong second quarter with sales up 20%.

In July, we saw our sales outside Hong Kong exceed prior year levels. These cumulative improvements reflect two things: our growing confidence in executing virtual sales; and the speed with which we are able to ramp up face-to-face activity as local regulations relax. Hong Kong sales have continued to be impacted by border control measures, which led to the lack of any meaningful traffic from Mainland China.

Looking at the half-year overall, a shift in mix to more health and protection in markets outside Hong Kong helped new business profit perform better than sales. Eastspring closed the half with $122 billion of internal AUM, up 15%, with our broad distribution supporting its flows.

So now let's go a bit deeper into how we're building resilience and developing the capabilities that will support future growth. I'll start here with our new virtual capabilities. Working closely with regulators, we can now sell 90% of products, including our higher value products without face-to-face contact. This capability has been rolled out across 11 markets. For our agents, this is an added tool in their kit. They use it when the situation requires it or when the customer prefers it. During April and May, over two-fifths of the agency-sourced policies were sold virtually. We also now have end-to-end virtual agency management. We can hire, train and license agents and operational staff online. Compared to half year 2019, we have grown our agency force by 7%. This translates into a total of 72,000 new agents brought onboard during this challenging period. We continue to improve our agent productivity management, Indonesia has been particularly successful here.

Million Dollar Round Table agents, or MDRTs, are up 19% outside Hong Kong. An Million Dollar Round Table agent typically demonstrates higher productivity with higher sales margin. We continued to strengthen our core capabilities. We've entered new bancassurance partnerships in established and developing markets, such as Vietnam and Thailand. We are forging new distribution relationships with digital service providers, such as OVO in Indonesia. And we are driving our penetration deeper in China to capitalize on our broad geographic footprint.

We are also successfully entering new distribution segments, for example, the SME market. And we are expanding the reach of our distribution and products in order to cater for a full spectrum of household incomes. So lots of action, innovation and progress, all done in the face of COVID disruption. At the same time, we've also been busy at a corporate and strategic level.

To recap our key strategic actions over the past few months, we've brought the highlights together on this one slide. We delivered both the US reinsurance and anchor investment transactions with Athene, adding over 90 RBC points on a pro forma basis. In the large and affluent market of Thailand, we have made excellent progress. We signed an important bancassurance deal, and we are already seeing a positive impact on sales. We have strengthened management, and began integration of the two asset management purchases with speed and care.

Corporately, we raised $1 billion of Group debt in three days of global marketing using three different teams all virtually. This was our first deal in the US debt market for many years, and was another example of our competent preparation and execution.

We have accelerated digital development, in particular our customer-focused ecosystem, which is now fully integrated into our regular operations. In Asia, new business submissions are now 88% electronic and we receive 54% of our premium electronically.

In the United States, our day-to-day engagement with distribution partners is now largely electronic, with 7,000 joining our last virtual monthly sales convention.

In Asia and the US, we are increasingly integrating our products directly into the sales processes of our major third-party distributors. Our new tech hub in Shenzhen is up and running and we expect it will be a major source of future ideas and competitive advantage. The facility was staffed and trained almost 100% virtually.

Clearly, we are all using work-at-home technology both in Asia and the US. And this is performing extremely well. An important part of this process has been the launch, rollout and development of Pulse by Prudential, which now has 8 million installs. Pulse is not just an app that gives medical guidance and information. It has become an important source of customer acquisition and new business sales. It is now available in 11 markets and 10 languages. It is fully integrated with the life value chain, encompassing new business fulfillment and client servicing. It provides referrals to doctors for virtual consultation, improving access to healthcare for customers in remote areas across the region.

Our data gathering and AI are now used both to target users directly with simplified propositions and to refer warm leads to agents. Crucially, Pulse has helped us reach new demographic and income groups, including young people at the start of their working lives. They want very quick and simple service, and flexibility on the ticket size and policy duration. 70% of Pulse users are new to Prudential and about 1.7 million policies have been issued direct through the Pulse platform. Leads generated from Pulse to agents since April have led to APE sales of $60 million. Internally, Pulse is encouraging a culture of innovation and scaling best practices at pace, which will generate benefits across the organisation. So again lots of action, lots of progress. As I look back over the year so far, it does feel like we have crammed years of profound development into just six short months.

As I mentioned at the time of the AGM, we have extended benefits to existing customers to help them get through these difficult times. And we have enhanced the benefits available to consumers in multiple markets. We have not seen a meaningful level of COVID-19-related claims. We have supported our colleagues and agents during this extended period. Remember, Asia has been managing COVID business impact since the fourth quarter of last year. We are keenly aware of the challenges a work-at-home model has created for our people and have taken steps to support their mental and physical wellbeing. And we've directly supported communities both through the health features available on Pulse and through a Groupwide COVID-19 relief fund. We continue our long-established community programs focused on financial literacy and public health, which have moved online where possible.

The next slide brings all of these last few sections together and describes our sustainable business model. We have a clear purpose, to help people get the most out of their lives, giving them the freedom to face their future with confidence. And that purpose aligns to our strategy. We serve Asian and African consumers, across a full range of household incomes. We offer heath and protection insurance and long-term savings products and we use digital, bank distribution and agency distribution. We see powerful long-term economic and demographic drivers, as well as strong alignment with government priorities. In particular, the promotion of access to healthcare, financial protection and long-term savings. This business model has delivered a great long-term track record in Asia.

In the 10 years to the end of last year, we have delivered double-digit compound annual growth rates in new business profits, IFRS operating profits, and operating free surplus and embedded value. We've done this by investing large amounts of capital, about $11 billion in those -- that 10-year period. And by earning high rates of return on that capital, over 20% return on equities and mid-teens returns on embedded value. We have achieved this through doing the right thing, at the right time and in the right geographies. For example, we adapted our unique, with-profits platform in Hong Kong to service the Mainland Chinese visitors and offer them access to high-quality healthcare and conservative international investment choices. Since 2009, we have built our asset management business into a regional powerhouse. As I mentioned earlier, Eastspring now has $220 billion of funds under management and profits of over $140 million for this first Half.

We developed pioneering Sharia-compliant products in order to serve the huge Muslim populations of Malaysia and Indonesia. And most recently, we've upgraded our agency productivity management system in Indonesia. In 2019, this helped us grow our elite agent production by 57%. Our track record of success is founded on a well-thumbed playbook: identify attractive opportunities early; execute with discipline and nerve; and using our learning to scale and at pace. The operational success is supported by a strong structural growth.

The Asian insurance market is not only growing, it's close to an inflection point of even faster growth. When income per capita reaches around $10,000 per capita, this is when insurance penetration takes off. The chart on the left is from Swiss Re and based on 2018 GDP per capita. It shows in red dots for our operation and the fastest path of insurance development for Asian markets in red compared to Western markets in blue. So we have great opportunities in the right markets like China, which are close to or at an inflection point when demand increases rapidly. And we expect the current COVID crisis to accelerate this trend further, by reminding individuals and governments of the need to increase provision for financial protection and health. The recent surveys conducted by us and other firms confirm this.

Looking at the chart on the right, the expected growth of the global market is disproportionately going to be in China and Asia, with two-thirds of the future global growth concentrated in these markets, where we have enduring competitive advantage. This is $1.3 trillion worth of expected premiums, more than half of the existing level of global premiums.

So now we move to how we are going to deliver you, our shareholders, more concentrated access to this growth. Prudential seeks to focus in particular on those markets in Asia where we see the largest growth opportunities. This strategic clarity enable us to focus on deploying our capabilities rapidly across businesses, and further increase the pace of product rollouts, the drive into new channels and the use of new technology. The pivot to Asia began with the demerger of M&G Prudential. The Board has decided that we intend to pursue the full exit from Jackson over time. This full separation process began with the sale of an 11.1% equity stake to Athene, and is expected to continue with a minority IPO targeting the first half of 2021. We will seek any required shareholder approvals before execution. And this is all subject to market conditions and we retain the demerger option. Proceeds from anticipated new Jackson debt issuance would be expected to reduce Group leverage. Proceeds from further sell-down in Jackson following the IPO would provide additional resources to the Group for investment in Asia.

We've also determined that a new dividend policy, which is aligned with this evolving strategic focus, will be implemented with immediate effect. This policy supports the Asia and African growth strategy and the intended separation of Jackson. We believe our ability to deploy capital in Asia in the medium- and long-term is enhanced by market trends, and by our expanding capability. We'll continue seeking high returns with a view to achieving sustained double-digit growth in embedded value per share. Going forward dividends are expected to grow broadly in line with the growth in Asia's operating free surplus generation net of right-sized central costs. Dividends will be set taking into account financial prospects, market conditions and investment opportunities. Mark will cover some of this in more detail shortly.

So before rounding up, let me remind you of what Jackson is, as it prepares for an IPO. Jackson is a leading provider in the large US annuity market. Many millions of Americans are moving from working lives to retirement, and the annuity industry is a crucial part of the financial solutions which support people in this transition. Total sales for the US industry exceeded $100 billion of annuities for the first half of this year. JNL has capabilities across the annuity product spectrum and a long record of successful risk management and product innovation. This past half year has shown this again, with Jackson's RBC ratio is higher despite historic moves in market volatility, growing bond spreads, and the decreases in interest rates. It has a highly efficient and leverageable operating model with a history of value accretive bolt-on acquisitions.

The core administrative cost ratio at the first half of the year was 35 basis points and it continues to lead the industry. Jackson's distribution and service are also industry leading. And Jackson will continue to explore further opportunities to diversify its business over time, though an IPO is its immediate strategic priority.

Moving back up to the Group-level, let me try to sum up our strategy. Our aim is to deliver attractive and sustainable shareholder returns, primarily through capital appreciation. Our businesses in Asia are well positioned in the growing protection and saving markets. We want to build and maintain our competitive advantage and scale. In Hong Kong and in ASEAN, we have leadership positions and are broadening them further with new products and virtual distribution. We have significant operations in the largest scale markets of China, India, Indonesia, Malaysia, and Thailand. These represent huge long-term opportunities and we have significant investment appetites for growth in these markets. We are focused on operational discipline, maintaining product pricing, efficiency and the ability to self-disrupt through innovation and implementation of technology.

Another source of competitive advantage comes from our longevity. We have been in Asia for almost a century and we have established a brand, we've established trusted relationships and a high-quality team that are very difficult for a newcomer to replicate. Crucially, we believe in a multi-channel approach to distribution. And the benefit of the diversification of our operations comes through in the resilience of our earnings, particularly in times like this. Over many years, we have made substantial investments in Asia and now we have a diversified, scaled and scalable business.

Our capital allocation will be rebalanced for reinvestment in growth. This means a focus on growth with a view toward achieving sustained double-digit growth in embedded value per share. For shareholders, this means direct and focused exposure to this powerful value creator, from a unique and proven business model.

With that, I'm turning over to my colleague Mark.

Mark FitzPatrick -- Group Chief Financial Officer and Chief Operating Officer

Thank you, Mike, and good day to all of you. I'm speaking to you from our rather empty offices in London, where the vast majority of our team are working from home. In this session, I will be covering the following three topics: firstly, some brief insights into the drivers of our financial performance and the operating environment we have experienced, as different markets have reacted to COVID-19 differently over the first half; secondly, some key highlights of our first half results for Asia, the US and the Group; and thirdly, I will cover the proposed separation and divestment of Jackson, our capital allocation priorities and our new dividend policy.

Starting with the first topic, the drivers of our financial performance and the operating environment we experienced in our different markets. We entered the period with a highly resilient business model, which is built on quality and diversification. Quality in Asia through high regular premium, 95% retention rates, and 87% of our IFRS life income derived from fee and insurance margin, the latter, increasing by 19%. Diversification across product, channel and market.

Now, while COVID-19 and its related containment measures inevitably affected our sales and new business profitability, the teams in every market responded to help and support our customers and our people. This new way of living for many people created an environment where virtual ways of engaging were more accepted and encouraged and where Pulse met a real need in the market.

During the half year, macro conditions were extremely volatile. For example, the S&P finished 4% below where it started, but within that, it fell 34% from its high in February to its low in March, before rising 39% by the end of June. Interest rates fell sharply, with the US 10-year treasury yield down 126 bps to stand at 67 bps at the 30 of June. Notwithstanding all this, our capital and liquidity position remains strong. This provides the underpin which allows us to make substantial operational and strategic progress, even in more challenging conditions.

I thought it would be helpful to include this next slide to provide some of the context in which our businesses have been operating. China went into lockdown at the end of January, which was then lifted at the end of March. Vietnam applied a full lockdown over April, lifting at the beginning of May and has just reimposed containment measures, while Taiwan did not apply a lockdown but imposed significant containment restrictions over the period until the beginning of May. Hong Kong has not imposed a formal lockdown, but applied significant restrictions from January to early May and then reintroduced them in July as a result of a third wave. Most of our other markets entered lockdown toward the end of the first quarter, and those lockdowns remained in place over much of the second quarter, albeit with varying degrees of severity. Since the period-end, we continue to see a range of moderate to significant containment measures across our markets.

With that context in mind, I'll now move onto the second topic, that of our half year results. This slide provides a summary of the key metrics. And there are three points here that I would like to highlight. The COVID disruption in Asia on new sales is evident in the lower level of new business profit. Lower new business profits mechanically reduced our Asia EEV operating profit as well. Our Asia in-force business remains resilient, which is evident from a 13% growth in operating free surplus generation and a 14% growth in IFRS operating profit.

Our US capital position remains robust, reflecting strong management of the book in very testing market conditions. Post the Athene reinsurance and allowing for the equity injection, the 30 of June RBC ratio is above 425%.

Moving now to look at Asia in more detail. New sales numbers reflect the implementation of COVID-related measures in all markets. Overall, new APE sales were 34% lower in the period, with new sales in Hong Kong down by 64% and those outside Hong Kong 12% lower. In our China business, the strict lockdown from the end of January to the end of March adversely impacted sales in the first quarter. As restrictions eased, the sales environment began to normalize, with second quarter sales up 20%. We benefited from our diverse distribution footprint, with banca really helping us in the first quarter and agency coming back strongly in the second quarter, up 15%. The benefit of our banca distribution strength is echoed across the business, particularly in China, given bank branches have been widely deemed as an essential service. Overall, ex Hong Kong, banca APE was only down 6% over the first half. And we see a similar pattern elsewhere.

Sales slow down when restrictions are imposed and then bounce back when they are released. To this end, we have seen improving sales trends in June across all 13 markets, compared with those in April and May. July 2020 sales continued to show an improving trend relative to prior year. Five businesses achieved growth as compared to July last year, led by China, which recorded its fourth consecutive month of year-on-year growth. Excluding Hong Kong, PCA's July sales were up 1% year-on-year.

We remain very focused on driving quality business. For example, seven markets, including India, increased their proportion of health and protection sales, with health and protection business generating 69% of overall new business profits during the first half. This has contributed to the positive jaws where we saw a reduction in new business profit of only 6% in markets outside Hong Kong where sales were 12% lower. In Hong Kong, our domestic business was relatively resilient in the first quarter, supported by sales of new tax advantaged products.

Our sales to Mainland China customers were very low reflecting the impact of border restrictions. This has led to, and continues to lead to, very low levels of visitors from Mainland China, with consequent implications for new sales. The border with Mainland China may not reopen in 2020.

The building blocks of our EEV operating performance are our new business profit, the in-force return and the after tax profit on our asset management business, Eastspring. The in-force return reflects the impact of lower period-end interest rates under our active basis, EEV methodology, and this reduced our return by $165 million. However, experience variances and assumption changes remained positive, contributing $245 million. Combined, these drove an annualized 11% operating return on embedded value, which in our view, is a credible performance in difficult market conditions. This underpins our belief in the ability of our Asia business to help us achieve sustained double-digit growth in embedded value per share after the separation of the US business. We then true-up for the impact of macro movements in the period, principally lower interest rates.

Now, under our active basis approach, we immediately take into account the effect on all future cash flows of the lower interest rates at the period end. So this reflects the impact of lower assumed fund earned rates only partially offset by a reduction in risk discount rate. Clearly, as for any long-term business, we continue to actively manage through a period of sharply reduced interest rates.

In terms of interest rate sensitivities, which only allow for very limited management actions, such as changes to policyholder bonuses, a further 50 bps interest rate fall would reduce our Asia life embedded value by $730 million against an overall Asia embedded value of over $37 billion at the 30 of June.

Our in-force business has remained resilient, with customer retention levels remaining very high at 95%. You can see the benefit of this here in respect of operating free surplus generation, and shortly in terms of the IFRS operating result.

In the left-hand chart, our renewal premiums remain a good proxy for our in-force progress and illustrate the benefit of our high-quality, recurring premium strategy. Within the renewal premiums, we have higher margin, protection renewal premiums up 10%.

In the middle chart, our in-force free surplus return of $1.2 billion is broadly in-line with expected levels. Asset management earnings, which flow directly into the OFSG calculation as non-covered business, added a further $126 million.

Operating capital generation was also supported by lower new business strain of $298 million, with the impact of lower new sales volumes partly offset by the effect of lower interest rates. Over time, growth in operating free surplus generation supports the trajectory of remittances. These increased to $400 million in the period. The 2019 comparative included the proceeds from reducing our holding in ICICI Prudential to comply with its listing requirements. These same factors underpin the development of IFRS operating earnings.

The benefit of our focus on health and protection, and our broad portfolio of businesses comes through, particularly in a period of considerable macro volatility. This is very evident from the 90% [Phonetic] growth in insurance margin, which accounts for nearly 80% of insurance income. We also benefited from relatively favorable claims experience. As things stand and based on history, we expect some of this favorable claims experience to unwind over time. However, as you would expect, we have been prudent in the determination of the related reserves.

Similarly, on a market basis, our performance remains broad-based. At the half year, we have nine life markets delivering growth of 15% or more. There are six life businesses producing earnings in the period of over $100 million and of these, three are well over $200 million.

Eastspring's operating profit after tax was 10% higher. A 12% increase in average assets under management supported a 6% increase in operating revenues. Robust cost control improved the cost-to-income ratio to 50%.

Eastspring's net flow picture reflects a combination of continued steady in flows from internal insurance funds of nearly $3 billion and modest outflows in respect of our third-party institutional business. This was offset by more significant outflows on the third-party retail side, and outflows in relation to funds managed on behalf of M&G plc. The third-party retail net outflows, notably in a number of retail bond funds, increased with broader market volatility.

In respect of the outflows on funds, managed on behalf of M&G plc, $7.3 billion was redeemed in the first half of 2020 and we expect a further outflow of around $6 billion in the second half of this year. Although Eastspring is taking broader cost mitigation actions, you should consider this effect, alongside the level and mix of the closing June AUM position when working on your forecast revenues and costs.

To sum up on Asia, our business model did what it was supposed to do. It delivered for our customers, our employees and our shareholders. Our financial performance really demonstrates this. While new sales and associated new business profits were clearly impacted by COVID-related disruption, the business responded very well, maintaining new business profits outside Hong Kong, only 6% below those in the prior period with an improved margin. Our in-force business is resilient and the capital position remains robust with a cover ratio of 308%.

And we are at scale in Asia. Notwithstanding the sales slowdown, our total Asia weighted premiums of $11.4 billion were almost at prior year levels. Eastspring's total AUM was a robust $220 billion, and our EEV shareholder's equity is over $37 billion, and our Company level LCSM regulatory surplus was over $19.6 billion. And at the same time, we have made rapid progress in building and in-fusing digital muscle. We have honestly accomplished more in the last six months, than we thought possible in as many years. All of this builds additional capability and capacity for a recovery in sales when conditions normalize.

Turning now to the US results, starting with sales. The pricing actions we have taken in respect of our FA and FIA business, in line with the declining interest rate environment, contributed to a sharp drop in new sales of these products. The second quarter was 83% below the first quarter. If interest rates remain at current low levels, I would expect similarly low levels of new general account sales over the balance of the year. Overall, new sales over the first half were 9% lower than the prior period, with VA sales, including Elite Access, 1% higher.

It is important to note, though, that Jackson retained its leading position in its chosen segments of the US VA market. We've seen encouraging growth come through our new distribution relationship with State Farm, and more broadly, significantly increased digital interaction with our advisors. For

Example, some 7,000 advisors have attended webcast Jackson National Live events. The reduction of 134 bps in risk-free rates compared to the end of June 2019, reduced the projected level of future separate account return. This accounted for the majority of the 45% reduction in new business profits.

Turning now to look at our US business through an IFRS performance lens. You can see that at an operating level, our headline numbers were impacted by the effects of unfavorable DAC acceleration in the current period, and favorable DAC deceleration in the prior period. Excluding this effect, operating profit was 6% lower. Fee income was stable year-on-year, while the average fee margin was slightly down.

The relative stability of the average separate account balance, despite very volatile market conditions, shows the benefit of our VA product design and risk management approach, because by staying invested, customers benefited from the subsequent market recovery.

Spread income was down 8% compared with 2019, reflecting a lower spread margin. Given the Athene reinsurance transaction, and the effect of low interest rates, we expect spread income to decline further.

The core administrative cost ratio is broadly flat year-on-year at 35 bps, illustrating the benefit of Jackson's lean model.

Turning now to the non-operating components. The key drivers in this period are our hedging results and particularly the impact of lower interest rates on the FAS 157 component of the US guarantee liabilities. Now, FAS 157 is a fair value approach using market consistent-type economic assumptions. The projected market returns, or drift rates, if you will, are based on current, very low, risk-free interest rates. The consequently increased level of projected claims are discounted on rates that also reflect current spreads and low interest rates.

The pre-tax impact of the reinsurance agreement with Athene was $846 million. This reflects the ceding commission received alongside various adjustments to deferred acquisition costs and other factors related to asset and liability valuations at the 1 June effective date. There is a summary of the various impacts of the transactions with Athene in the appendix. As a reminder, the liabilities transferred contributed about $100 million to the 2019 year US IFRS operating profit.

From an RBC perspective, the estimated end June RBC ratio was over 425% after taking the Athene equity investment into account. We invested $60 million of statutory surplus in writing new business in the period. This is 58% less than the strain we incurred in the first half of 2019 and we expect the level of strain in the second half of 2020 to be significantly lower than in the second half of 2019.

In-force statutory operating surplus generation was broadly consistent with the circa $1 billion per annum we have referred to previously and this contributed 29 RBC points in the period. Looking ahead, we expect the reinsurance transaction to lower annual statutory operating surplus generation by about $150 million.

The positive non-operating impact of $1.1 billion you can see on the slide is due to hedging gains outweighing reserve and capital increases. The Jackson treasury team worked well once again to protect the underlying capital position during a period of huge market volatility.

Turning now to the asset book. The reinsurance transaction with Athene reduced our overall US general account asset exposure by about 25%. Jackson's investment portfolio is positioned more conservatively now than at the beginning of previous cycles, illustrated by the bullets on the slide. To add a little color to this. The US high yield corporate debt portfolio is equivalent to 2% of the total US investment portfolio excluding cash and compares with an equivalent weighting of over 5% in 2007. The average holding size is just $5 million. If you look out our BBB- corporate debt exposures, these account for only about 5% of the US investment portfolio, again excluding cash, and are very well diversified with an average holding of $23 million.

So summarizing the US performance. Operating capital generation was broadly in-line with our expectations, and in addition, an effective hedging program and proactive actions have allowed us to build the RBC capital position over the period. In particular, the hedging strategy has once again been effective in extremely volatile conditions. We maintained pricing discipline while retaining our leading position in our key markets, and the two transactions with Athene have materially improved Jackson's statutory capital position and reduced overall credit exposure.

Turning now to the Group view of our financial performance, starting with central Group items. The total central operating overhead before restructuring and IFRS 17 costs is 25% below the prior period. This reflects materially lower interest costs as compared to the pre-demerger position. We remain on track to deliver the $180 million reduction in annual corporate expenditure by the 1 of January 2021. We have made strong progress, with plans completed to deliver $160 million of these annual savings. This reflects a review of the target operating model of our corporate functions post the demerger of M&G and the change of our lead regulator.

Both restructuring and IFRS 17 implementation costs are higher in the period, with IFRS 17 costs accounting for about half of the charge you see here. As a reminder, for the full-year 2020, you should expect central restructuring costs of around $180 million and allow for a broadly similar level of IFRS 17 cost in the second half of this year as in the first half, as we continue with the build of the systems. Overall, the Group IFRS operating profit for continuing operations is up 7% compared with the prior period, excluding the US DAC effects I mentioned earlier.

Moving onto Group capital. Our Group shareholder regulatory capital position increased further in the period, to a closing surplus of $12.4 billion, representing a cover ratio of 334%. Please note that our senior debt, potentially representing a further 27 solvency points, is not currently reflected as capital in our LCSM results, pending further GWS guidance.

So starting with the movement analysis on the left of the slide. In-force capital generation continues to compound in line with expectations, with $1.2 billion of capital generated in the period, providing funding for investment in new business, as well as supporting shareholder dividends and inorganic investment in Asia.

In addition, non-operating effects were strongly positive in the period. This reflects negative market impacts, the benefit of Jackson's hedging program, the Athene reinsurance transaction, reserving changes in Hong Kong, and the solvency regime changes in Asia. As we have previously said, our local solvency regimes become more economic and risk-based, we typically see beneficial outcomes for our Asia businesses. By way of example, the new Singapore RBC framework was introduced at the end of the first quarter, which added $2.2 billion to our LCSM surplus.

On the right-hand side -- slide, our LCSM sensitivities continue to show the resilience of our business to economic shocks, even at these very low levels of interest rates. This resilience reflects our continued focus on health and protection products in Asia, as well as our proactive risk management of products with guarantees, including effective hedging, and disciplined product design and pricing.

Finally, to contextualize these LCSM results, the Hong Kong Legislative Council approved the enabling primary legislation for the new GWS in July of this year. Although the timing of the finalization of GWS remains uncertain, further implementation guidance is expected later in 2020 and GWS is expected to become effective in early 2021. Subject to this further guidance, we currently expect GWS to be largely consistent with the methodology we already apply for LCSM.

I'll finish the half year results section of the presentation with holding company cash developments. The key point to note on this slide is that the Group continues to support strategic growth in Asia. In this six-month period, we have made investments of over $750 million, primarily reflecting payments for bancassurance arrangements, including those with UOB and TMB Bank. Jackson did not pay a regular dividend in the period and is not currently expected to pay regular dividends before a potential IPO.

We continue to see our local business units as the natural home of cash and capital given the attractive investment opportunities available to them. Meanwhile, we finished the period with a very strong $1.9 billion central cash position, which when combined with our $2.6 billion of undrawn external liquidity facilities, provides us with a large buffer of central liquidity to withstand potential stresses in these very volatile markets.

So, onto my final topic of the day. As Mike said earlier, the Board has decided to pursue the full separation and divestment of Jackson. This will enable the Group to focus exclusively on its high-growth Asia and Africa businesses. Now, we expect to commence separation by way of a minority IPO followed by future sell-downs over time, subject to market conditions. If market conditions are not supportive of an IPO, the Group's current intention is that separation would be facilitated through a demerger of the Group's stake in Jackson to our existing shareholders. You can see the timeline of expected events set out on the slide.

We are targeting the first half of 2021 for the potential IPO, and preparations continue to progress well. The recent completion of the two transactions with Athene represent an important step on Jackson's path to independence. Jackson intends to seek a strong credit rating and capitalization. It is expected to target an RBC ratio in the circa 425% to 475% range at the point of the proposed listing. This would include the proceeds of any primary equity issued by Jackson at or before the IPO, and the benefit of target financial leverage raised at the Jackson holding company level in advance of the IPO.

Jackson holding company would currently be expected to target financial leverage in the circa 20% to 25% range, with this financial leverage defined as debt to debt plus equity. These ranges are subject to market conditions and will be kept under review. As I just mentioned, this target financial leverage would be expected to be raised at the Jackson holding company level in advance of the IPO. The Group intends to maintain its very strong financial strength rating in the AA range following separation and will manage its debt levels accordingly. Any pre-separation returns of capital, including from Jackson's debt issuance, would principally support related Group debt management activities through redemption of some debt, at par.

The Group will also continue to align its head office costs with the evolving footprint of the business. We aim to deliver a further annual cost reduction of around $70 million by 2023 on top of the $180 million cost savings by 2021 previously announced.

Under our new strategy, we intend to prioritize investment in Asia, and particularly in our largest markets where we see the greatest opportunities. We continue to expect them to generate profitable and sustainable compounding growth, and high risk adjusted returns for our shareholders. This virtuous circle is represented on the left-hand chart. So starting at the right of this cog, it represents how capital is invested at attractive returns, building value.

Moving clockwise, it shows how management proactively conserves and further develops that value. And then how value monetizes into capital available for further reinvestment. This demonstrates how investment in profitable new business in turn drives growth in embedded value. And with new business profit growth rates that are expected to substantially exceed GDP growth, the post-separation Group would focus on growth, with a view to achieving sustained double-digit growth in embedded value per share.

Our framework continues to apply internal hurdle rates to organic and inorganic investment opportunities ensuring attractive risk adjusted returns. In Asia, over the first half of this year, for example, we delivered IRR's on new business above 30%. This discipline also applies to the mechanism by which we invest, for example, our history of investing in partnerships and JVs, such as in India and China.

To help demonstrate the value uplift, we show here the value multiplier in respect of the new business profit generated per unit of capital invested. For 2019, with Asia stand-alone, this was 5.7 times, and over the four years between 2016 and 2019, this averaged 5 times. And even in the testing conditions of the first half of this year, this multiple was over 3 times.

So considering the significant opportunities in Asia, the new dividend policy looks to rebalance the allocation of capital, from cash dividends to reinvestment into the Asia business and will apply with immediate effect.

This slide sets out the policy wording and the considerations, which the Board will apply when determining the dividend path going forward. We carefully considered the appropriate and prudent way to finance the opportunities available to us in light of the new strategy. In developing this new policy, we have also been conscious that many investors place considerable importance on the validation of value conversion that a cash dividend provides, particularly for a long-term business such as ours. So we have tried to strike the appropriate balance.

In respect of the new dividend policy, the key points to bear in mind are that: the new policy will apply with immediate effect, with an estimated 2020 total dividend of around $420 million. The total 2020 dividend will be subject to market conditions and financial performance in 2020 remaining in line with expectations, and is based on current estimates of Asia's full-year 2020 operating capital generation. The dividend is expected to grow broadly in line with the growth in Asia operating free surplus generation net of right-sized central costs, namely after the announced cost savings.

Using the multiplier of new business profit created per dollar of capital invested, based on the 2019 experience, every dollar of capital invested organically in Asia new business created nearly six dollars of value. While this ratio will clearly vary, it's an indication of how powerful each marginal dollar of investment can be, given our opportunity set.

So to close, I want to leave you with these key messages. Our strategic priority is to drive Asia growth. We have set out a clear path to the full separation and divestment of our US business. COVID is clearly acting to disrupt new sales. However, our in-force business remains resilient and we have maintained our focus on quality. We have accelerated our digital capability and reach with customers, agents and operationally by enhancing our efficiency. Our capital positions, and the capital generation which supports these, remains robust and in-line with expectations. And our new dividend policy is aligned with the revised Group strategy.

I will now hand you back to Mike.

Michael Wells -- Group Chief Executive

Thanks, Mark. So to close off, let me set out our investment case. We see multi-decade structural growth opportunities ahead of us in Asia. We are diversified and have the scale with leadership positions across our products, channels and geographies. We have a business model that delivers efficiency and increasingly digitally advantaged results with quality earnings. So we have learned, experimented and tailored our product suites. We have created whole new forms of distribution. We have dramatically accelerated the cycle of innovation, testing and rolling out at speed. Our long record of capital allocation and robust risk management and governance underpins a resilient capital position. With the separation completed, Prudential will be focused on growth with a view toward achieving sustained double-digit growth in embedded value per share.

Thank you for your attention. And I look forward to speaking to you in due course.

Operator

Ladies and gentlemen, welcome to the Prudential 2020 Half Year Results Call. My name is Bethany and I'll be coordinating your call today. [Operator Instructions]

I will now hand over to your host, Mike Wells, Group Chief Executive to begin. Mike, please go ahead.

Michael Wells -- Group Chief Executive

Bethany, thank you. Hello, everybody. Welcome to the Prudential plc 2020 Interim Results and Strategy Update. This year, we've recorded our full presentation in advance and it's up on our website with the transcript already. So today, we can use most of the call then to take your questions. And given the nature of our news this morning, we would expect that that will take up the full hour at least.

So, to give you an idea who is with me, I'm joining you from Lansing, Michigan, the home of Jackson. Also in US, you've got Michael Falcon, CEO of Jackson; Axel Andre, CFO of Jackson. And in London, we have Mark FitzPatrick, our Group CFO and COO and the IR team. In Hong Kong, we have Group Risk Director, James Turner; CEO of our Asian business, Nic Nicandrou; and CEO of Asia, Raghu was with us as well.

And the -- I think, out of respect to time, instead of going through a summary of the comments we made on the video, I'm going to go straight to Q&A, and just see where we are. And if need to, I'll bridge back to some of the key themes and key things we've accomplished in the first half of this year.

But Patrick, if you're OK, let's just go ahead and go straight to Q&A.

Patrick Bowes -- Head of Investor Relations

Sure. Okay. Bethany, can you bring the first question?

Questions and Answers:

Operator

Our first question comes from David Motemaden from Evercore ISI. Apologies. David, please go ahead. Your line is open.

David Motemaden -- Evercore ISI -- Analyst

Thanks. Good morning. Just wanted to maybe just get a little bit of background in terms of what made you think the full separation of Jackson is best achieved through an IPO. That's the first question.

Second, do you foresee the need to inject any additional capital into Jackson to facilitate this transaction?

And then third, if I may. If I look at the org chart, it looks like Jackson is stacked under PCA. So, I'm wondering if the Hong Kong RBC ratio currently benefits at all on a local basis from having Jackson as a wholly owned subsidiary. And if so, is there anything that needs to be put into Hong Kong to help replace that? Thank you.

Michael Wells -- Group Chief Executive

Thanks, David. So, Mark, I'm going to let you take the last one. On the -- David, on the -- so if you think of this journey to Asia, it started with the demerger of M&G PRU. And I think there is a sell-down obviously to Athene of 11.1% to now the announcement today. So, what we've said all along is we maintain optionality and how we execute, and the statements today, we talked about the fact we still could do with the demerger if we thought markets required that. That said, what you've seen us do with the Athene transactions, plural, is you've got Jackson's capital levels to a range that we think is appropriate for a stand-alone entity versus an entity that's part of a group. We don't anticipate the need to put capital in Jackson. Actually, you'll have, if you look at the M&G transaction, there would be some debt activity, some movement back and forth with capital to reduce leverage in the Group. All those things coming in the next months to get Jackson ready to be stand-alone. So, the answer to your second question is, it's not anticipated.

Mark -- and in the IPO, the advantage to an IPO is that you get more capital for reinvestment in Asia over time. The advantage of the demerger, obviously, would be less of that but faster. So, again, that -- we maintain that option, but the IPO is the route we're pursuing at pace now.

Mark, do you want to talk about the regulatory structure of Hong Kong and...

Mark FitzPatrick -- Group Chief Financial Officer and Chief Operating Officer

Yeah. David, so the LCSM for Asia is 308%. That is not affected in any way by the US piece, specifically the stand-alone tranche, if you will. So, a separation of that would not change the Asia LCSM number. So that would continue, if we were to do it at 30 of June, that would still be at 308% number for Asia.

David Motemaden -- Evercore ISI -- Analyst

Got it. Thanks. And if I could just follow-up with Mike and maybe for Axel as well. Just the RBC, the 425% -- in the 425% to 475% range, how should I think about any sort of changes to your hedge strategy within Jackson maybe from more of an option-based approach to more of a futures-based approach that would help reduce the upfront costs and improve capital generation?

Michael Wells -- Group Chief Executive

Well, David, Jackson's bias is a futures-based approach and that was done at the time, not so much cost focused as it was counterparty risk-focused. So to concentrate the counterparty risk on upmarket and equity, not on downmarket and equity. One of the learnings from a previous crisis is -- was the fact that we look back at some of the bank counterparties and realized that some of the risks that an insurer has, they are highly correlated to the same one. So, we wanted to separate that. So the organization uses both. And at higher capital levels, you have more options on hedge strategy. So, there is a trade-off there of return on equity, capital intensity, hedge intensity, but it's across that range.

Axel, do you want to add any color to that?

Axel Andre -- Chief Financial Officer of Jackson National Life Insurance Co.

I think you're right on, Mike. So, essentially, when we are in a more benign environment, we would be hedging more with options. And as we -- as the first quarter unraveled the options, essentially the put options that came in the money, we gradually rebalanced more into futures. The profile of the liability was more linear, so the futures were better match. And as now we're tracing back, we're using a mix of futures and options.

David Motemaden -- Evercore ISI -- Analyst

Thank you.

Operator

Our next question comes from Kailesh Mistry from HSBC. Kailesh, please go ahead.

Kailesh Mistry -- HSBC -- Analyst

Hi. Good morning, afternoon, everyone. Thank you for taking my question. Few on Asia. First one is on Hong Kong. What's your base case for the border reopening? Is it fourth quarter or 2021? On the domestic business, thank you for the information on Slide 64. It seems to indicate a slowdown in the run rate between the first quarter and the second quarter. Is that COVID related? Or is that just the high base because of the launch of QDAP and VHIS this time last year? And specifically, what was the momentum like in July? Because, obviously, the insurance authority approved the sale of par online. Has there been a strong pickup? And also, has there been pent-up demand there?

Second question is just on agency. Obviously, you flagged that there is 7% growth in the agency force excluding India. Can you provide a little bit more color, especially what was the growth in Hong Kong, China and Indonesia?

And then on Pulse, seems to be some very strong progress there with 70% of customers being new and younger than your existing customer set. Can you talk a little bit about average case size, business mix compared with traditional business or your historic business? And any impact that's had on the IRR that you're writing? Thank you.

Michael Wells -- Group Chief Executive

So, Kailesh, just a couple of general comments, and Nic, I'll ask you and Raghu to comment as well. So, as you've seen consumer interest in health and protection by -- both in action, buying policies and also in -- just in general interest, shows there has been increased interest in joining firms that supply those products, and we're clearly an attractive player in that space. I'll let Nic tell you some of the more specifics around the growth. To scale the growth, just from my point of view, adding 70,000 plus agents in this period is -- most of our top 10 competitors agents in the region, it's larger than their agency force, right? And not to say, all these agents will be successful or productive. We're getting better and better at agency management. It's all virtual now. There's some great tools to improve the likelihood of success. But I just -- I want to add some scale to that, I think it's an incredible effort by the team.

But Nic, do you want to comment on some of the specific questions Kailesh has on Hong Kong? Domestic run rate? The -- I would say, the other one, Kailesh, we don't have a forecast now given how fluid governments opening and closing borders and travel on COVID. I think it's pretty hard for anybody to credibly predict. What I can tell you, I think in all markets with COVID, globally, we are much faster at responding to whatever the opportunity set is. So, for example, we didn't have all of our products, as you mentioned, par approved until well into the second quarter virtually. We now have agency up and running with that. We have the leads coming off of Pulse. So, in a lockdown, we're much more effective week-by-week than we were previously, and therefore, less affected by a lockdown and we're much faster at coming back up to speed when a market opens. And we're assuming that this is the environment we work in for foreseeable few quarters at least.

And Nic, do you want to answer the question specifically, please?

Nicolaos Nicandrou -- Chief Executive, Prudential Corporation Asia

Okay. Thanks, Mike, and Kailesh. We stand ready when they open -- when the border opens in relation to the Mainland China. The -- it's possible that it may not, but once if it was to open, then we stand ready to go. And we know when we've seen opening up in other parts of the region, there is a rush to buy. So the minute the border opens, we think there'll be a rush to buy. We included a slide in the deck on 65. So that shows the information around our latest survey on purchasing intentions and why Mainland Chinese customers prefer Hong Kong and really it reinforces all the structural advantages that Chinese consumers see when they buy product in Hong Kong. So, I'm not going to predict when it will open, but we stand ready to take advantage of that.

In relation to the domestic, we had a good first quarter. First quarter, and these are published stats, we were down 8%, and we did better than the rest of the market that was down 25%. It was on the back of us. So, we're doing really well in connection with the Qualifying Deferred Annuity Plan. Having added up all the information, we secured 17% share of that market, that speaks to the business' ability to leverage an opportunity to innovate, move fast, use the distribution channels, both agency and banca to deliver growth. VHIS was smaller around the sector in terms of APE, clearly important in terms of case count and we've got a fair share there as well.

In Q2, to your question, there was a slowdown. There were -- there was more social distancing than we saw in the first quarter, particularly as students came back in March and place -- yeah, the containment measures tightened up, as you know, Kailesh, you are in this market. So that slow things down a little. Branches, SCB branches and generally banks reduced their capacity as we went into the second quarter. In fact, it didn't -- capacity wasn't fully restored until the back end of June. So, that was another factor.

And to your point, yes, QDAP having been outside its first year also had, if you like, the uplift that was given to Q1 and the first full quarters of this product reduced. So QDAP made up around 28% of our sales in Q1 and only 14% of our sales in Q2. The ability to sell virtually really only came in earnest toward the back end of June. It has been utilized in July. Sales in July were kind of roughly at the same level as those in June in terms of comparison with prior year, roughly a third down because we had momentum as the -- with new products and a new push on a number of areas, but we had effectively a third reinfection rate here and it's -- so now in Hong Kong, we are experiencing the tighter of all the constraints that we've seen. Nevertheless, there are -- there remain important opportunities for us. Domestic, we've got a sizable agency force.

To your question on agency numbers, our Hong Kong agency force at 24,500 is up 7% compared to what it was a year ago. Most of that uplift and a lot of the recruitment this year was domestically focused. We're celebrating our 20th year with SCB, so an important relationship. And we've launched Pulse, linking that to your last question. Not only have -- we've got 400,000 members now, users of Pulse and the business has done a really good job in using that membership as a lead referral, if you like, to agency and have managed to -- we haven't yet farmed the full amount, but we've managed to convert since the -- since April around 12,500 at full premium, full margin. So, that's where we are in Hong Kong.

On agency, the increase in the account, it's coming from Hong Kong. We said 7% increase in count relative to a year ago is coming in Hong Kong, and I referenced that. Indonesia was up 13%, agency count year-on-year. Philippines was another area. China was also up. And in most other places, we've kind of held, notwithstanding the fact that for large parts of the second quarter because licensing is done by government authorities, a lot of licensing was shut. But nevertheless, we -- 72,000 new recruits, mostly from those markets.

On Pulse, the -- OK, there are -- we've done 1.7 million policies. Again, there is a slide in the appendix. 1.5 million of those were kind of offers, very short-term, whether it's personal accident, some short-term life. There were freemium, if you like, some COVID-related covers. So that's that. We've done about 165,000 cases of small micro insurance or mini insurance, if you can call it that. Case sizes are around $12 a year, so $1 a month. So that gives you a sense now we're able to effectively make money. These are protection policies and the margins are fine, but literally, very small. But we can make profits on $1 a month now, which is something that we couldn't do two years or three years ago. And the plans to do much more across all 11 markets where we've launched Pulse, we'll do at least three digital products in the market by the end of the year.

And then we've had around 28,000 of referrals. This is nurtured leads that were passed on to agents that were followed up face-to-face or some of them were done virtually. And they translated, as you can see in the slide, around $60 million of APE. That's the average case size, where it was done in Hong Kong, was of the order of $3,000, where it was done elsewhere was $1,000. And these are the full loaded, if you like, policies that an agent would sell, had the referral not come through Pulse, had it come through another channel. So, the margins on those are the same as we do through other channels. So, high-margin products. So, we can do the introductory offers to get a second point of engagement. We can do micro or mini products to act as a second point of engagement. And then once these are nurtured, they can be passed on to agents using new sophisticated lead management systems and converted into fully fledged products.

Kailesh Mistry -- HSBC -- Analyst

Thank you. If I may just ask a slight follow-up on that Pulse thing. Your offering is pretty advanced versus some of your competitors across the region. Are there other functions that you feel you need to add to this? Or are you kind of done with that and now it's about acquisition and then cost referral and the rest of model that you've highlighted?

Nicolaos Nicandrou -- Chief Executive, Prudential Corporation Asia

No, we are only just starting. We are only just starting the -- we're going to add -- there is a lot -- look, there is a lot more we can do. The next phase of this is, we said earlier that 90% of our products across the region can be sold virtually. This is done through a combination of technologies at the moment, as we've joined it up together two or three different platforms. By the end of the year, that virtual sale will be able to be done via Pulse with video, with being able to attach document. That's already up and live in the Philippines. It's just up and live now in Malaysia. So, the 38%, to the extent, that we have another 38% in a future quarter will be done through Pulse. So it's becoming a fulfillment to -- for the agency, as well as a referral to, as well as a tool where people can buy directly. We're going to be adding a lot more mini projects -- products across the piece.

And also, we are trying to bring more aspects of the value chain onto this. So Indonesia, alongside the launch of Pulse, which attracted 3 million downloads earlier in the year. At the same time, we incorporated a minor claims processing functionality. So, we've integrated Pulse with the hospital portals, so that -- and issued kind of e-medical cards, which can admit someone onto the hospital. The bill can be submitted electronically by the hospital through Pulse to ourselves. We've connected to 570 of the 1,700 hospitals in our medical network, and we can process a claim in less than a day. We're also using it for reservicing. Again, in Indonesia, in Hong Kong, in-force customers can use it to go in and do inquiries and small servicing on their policy.

Now, from here, we will add more services. We'll look at mental health. We'll look at diabetes. We will broaden the direct offering. We'll be tuning up the online-to-online everywhere. We will integrate PRUworks, which is our SME employer benefit into this. In fact, we will rebrand that to Pulse by Prudential -- oh, I'm sorry, business at Pulse. We'll be attaching it to other ecosystem. We've done that with OVO. We'll be doing that with UOB. We made another announcement with the -- one of the biggest e-commerce platforms in Thailand today, Central. Again, we will be integrating it with that. And we'll look to see if we can broaden the geographical reach beyond the 11 markets that we're in. So, a lot of development and thought is going into this, both offering another route to market for us, but also integrating it with our end-to-end, if you like, with our traditional business model and through that gaining efficiencies.

Sorry, long-winded answer but it's a big and a long answer, but it's an important differentiator for us. I mean, look, the other thing it gives us and what we've learned through the crisis is that, people are now asking for services to be bundled with protection. So, the fact that we can offer protection across the piece and now work services to go with it, again, puts us in a unique position.

Michael Wells -- Group Chief Executive

Thanks, Nic.

Kailesh Mistry -- HSBC -- Analyst

Thank you.

Operator

Our next question comes from Jon Hocking from Morgan Stanley. Jon, please go ahead.

Jonathan Hocking -- Morgan Stanley -- Analyst

Thank you. Good morning, everybody. I've got three questions, please. Firstly, on Asian new business strain, can you comment on why that was down at a much lower rate than sales? I think it was down 7% year-on-year. Is it purely the mix shift away from Hong Kong? But it doesn't seems to be something else going on there. So how should we think about that going forward? This is first question.

And second question, when are we likely to get some more visibility on the Hong Kong Groupwide supervisory regime? And do you still expect that by year-end?

And then final question, just looking at Slide 20, where you've got the phasing of the movement restrictions, etc. It does seem that a lot of markets have actually gone into a more restrictive phase either in June or subsequent to the quarter end. You mentioned, obviously, the ability to transact online in Hong Kong, but that seems to be one market. Could you comment a little bit about how we should think about the sort of sales tempo 3Q versus 2Q? Thank you.

Michael Wells -- Group Chief Executive

Yeah. So, let me give a general comment on the third one and then, James, I'm going to have you comment on Groupwide supervision, and Raghu, how about you discuss new business strain in Asia. I'm trying to get everybody involved in the call today. So, the -- we have 11 markets now, Jon, that we can transact virtually as we finished the second quarter. So, basically, all of our product sets in those markets. And it's a -- and as Nic referred to, one of the other pieces that's gone on is development of technology and tools for the agency force to be able to transact virtually and best practice virtually and things. So, again, we're much better at that than we were. And those learnings are shared real time. I mean, one of the -- our pace at being able to develop now and to be able to share something that's working across the region is historic for PRU.

One of the agent lead -- one of the pieces in technology that helps an agent work with the Pulse lead to a full -- one of the full client relationships that Nic referenced, for example, was developed in a hot-house over three days virtually. People -- not just tech people, people all over the region and our digital team, they finished on a Sunday night. Again, none of these people could be in the same room. And Wednesday, the app was up in the iStore and Google Store, etc. So, there is a pace now that's unique. So when I say we're getting better weekly, there is -- that means improvements in the tools, as well as sharing what's working. But you have 11 markets now across Asia. And the US is virtualized, its sales processes, its statements. It's always been an industry leader in its technology platform. That's -- it's clearly using that to its advantage in this environment as well. So, this is not just an Asian story for us.

But Raghu, do you want to talk about new business strain and James, do you want to talk about Groupwide supervision, please? Both briefly. We've got to keep the pace going, guys.

Raghu Hariharan -- Chief Financial Officer of Prudential Corporation Asia

Yeah. Sure. Good afternoon, morning as it might apply. I think, Jon, it just reflects two things. One is, it reflects a higher product, better product mix. So, we have more non-par and protection sales and par sales, as the proportion of sales are lower. That's one. And the second one is just the effect of lower rates. So that explains the strain levels, which have gone from 13% of APE to 18%.

James Turner -- Group Chief Risk and Compliance Officer

Okay. And on the GWS, the primary legislation enabling the new GWS framework was passed by the LegCo before the end of last season -- the last session in July. The subsidiary legislation is required. And with the announcements today to extend the LegCo, it remains our expectation. So the GWS framework will come into force in Q1 2021.

Jonathan Hocking -- Morgan Stanley -- Analyst

Thank you. Can I just come back on the sales point, Mike. You mentioned 11 markets have got the ability to transact virtually. What proportion of the product range? Would it be fair to say that you've got most of your best-selling products with virtual execution capability?

Nicolaos Nicandrou -- Chief Executive, Prudential Corporation Asia

Shall I take that, Mike? So, the only -- the reason it's not 100 is Taiwan hasn't approved the use of virtual. It didn't need to because the impact in Taiwan of the pandemic wasn't that severe. So that was one. And the other one that hasn't been -- that hasn't virtualized is the use of linked products in Thailand. Vast majority of what we sell is linked. So that's the reason it's not 100. So it's one market and one product type in another market. So -- and the other one is linked products also in Hong Kong. But that's less than 1% share of the industry, less than 1% share of our numbers.

To your question on -- some markets are increasing restrictions in terms of impact on Q3. I referenced Hong Kong, we're now having the tighter set of restriction here. In Indonesia, Indonesia is struggling to contain this. So, the number of cases now is increasing as is India. So, that situation is live at the moment. In Vietnam, actually part of the reason Vietnam shut and opened up very quickly because they were decisive at the beginning. The minute they got a few cases, they shutdown. So having gone three months with almost no infections, when they've had a few, they immediately introduced social distancing. So, look, if the situation is live and it's volatile like everywhere else in the world at the moment, and -- but we have more strengths. We referenced a few in the call so far in our presentation and therefore, we should be able to mitigate better than we did immediately at the outset.

Jonathan Hocking -- Morgan Stanley -- Analyst

Okay. Excellent. Thank you.

Operator

The next question comes from Andrew Crean from Autonomous. Andrew, please go ahead.

Andrew Crean -- Autonomous Research LLP -- Analyst

Thank you. Good morning, all.

Michael Wells -- Group Chief Executive

Hey, Andrew.

Andrew Crean -- Autonomous Research LLP -- Analyst

Two questions, if I can. Firstly, you were talking about debt capacity of Jackson being between 20% and 25%. And you were saying that Jackson doesn't need capital put into it. By my math and it may well be wrong, that suggests debt raisings of between $2 billion and $2.7 billion to get to the 20%, 25%. Is it fair to say that that money is earmarked for a pre -- that level of money is earmarked for a pre-IPO dividend?

And the second question is to do with where you've set the dividend going forward. It's really difficult for us to judge the capital position of the Company because we just don't have any ideas on our LCSM and that sort of thing. But I think you said that you've invested a $1 billion a year over the last decade. Do you require to invest more than the $1 billion a year organically going forward? And also, do you need to reduce your Group debt beyond that bit, which will be repaid as a result of the pre-closed dividend on Jackson?

Michael Wells -- Group Chief Executive

Okay. Thanks, Andrew. Good questions. Let me start generally and Mark FitzPatrick, I'm going to ask you to comment on the various debt pieces. So, on the ability to deploy capital organically, Andrew, the -- if you look at even just the last six months, you've now got a scale position in Thailand, you've got an increase as we've been talking in Pulse and the ability to do business through a digital channel and we've grown agency again. You're moving further from par product as Raghu mentioned, I think in his comment. So, the breadth of products we're selling are incrementally more capital intensive. Now, this is not suggesting we're going to a heavy spread-based sort of strategy across the region. That's not the message I want to land at all. But these are products that are non-par disproportionately. So, they are more capital intensive. The -- we published the IRRs. You see where -- it is very profitable, and well received by the consumers, etc. So, we believe we can deploy more capital organically in Asia. And we don't want -- the dividend policy doesn't want to constrain the organic growth.

The inorganic stuff is, as we've talked before is opportunistic. We have two or three places, we look there. It's increase in -- we're in the markets we want to be in. We have a great footprint. It's things that are related to earnings, that something improve the actual operating earnings of the firm, that's the variety of lenses there, improved distribution, first, so banca deal, for example, or improves capability, which you've seen us do with the Pulse platform. And those sorts of options are outside of our business plans and we view them -- as they approach us one at a time and so we don't -- we couldn't forecast them because we pursue a lot of that all the time, but we don't know what's going to land when, it's counterparty dependent basically.

But, Mark FitzPatrick, would you comment, please, on the questions on debt, pre-IPO dividend, those pieces? As you can.

Mark FitzPatrick -- Group Chief Financial Officer and Chief Operating Officer

Yeah. Good afternoon. So, in terms of the debt numbers that you spoke about, I think, kind of 20%, 25% leverage based on the Jackson half year IFRS equity and also if you add in the additional $0.5 billion from Athene that closed last month in terms of its equity investment, that would get you somewhere in the $1.8 billion to kind of $2.5 billion debt type range. And effectively, we would expect that that would be -- that that would come up to plc or to the shareholders during the course of kind of the pre-IPO dividend. So, that would be then used by Group to effectively repay -- as we mentioned, repay some of our debt at the center. We have quite a lot of debt that we can redeem that is kind of 2020-2021 call date. So we have the option. And we're looking to be able to do that, to be able to repay some of our debt, to be able to ensure that our leverage ratio stays at a good and sensible level.

Andrew Crean -- Autonomous Research LLP -- Analyst

Great. Thanks for answering.

Operator

The next question comes from Blair Stewart from Bank of America. Blair, please go ahead.

Blair Stewart -- Bank of America Merrill Lynch -- Analyst

Thanks very much, and good afternoon. Just a couple of follow-ups. I was also interested in Andrew's questions. Can you tell us what the level of organic RBC build is at Jackson now that it's not paying a dividend back to Group? That's the first question. Just give us an idea of where the RBC might land, everything else being equal.

The second question just relates to the equity story, I guess, for Jackson as we stand today. We've gone from various levels of appetite on sales and new business and also on objective. I think from Michael to improve the stock capital and cash generation. Just wonder where we are in all that. I think those two things are linked to my first question.

And my final question is just an observation on Indonesia. It was definitely a stand out in terms of IFRS profits growth across the region. It was very strong in all countries except for Indonesia. I'm sure there are some obvious reasons for that. But perhaps you could just comment on that? Thank you very much.

Michael Wells -- Group Chief Executive

So, Blair, where -- remember, where we are with the SEC in a pending S-1. So, forecasting RBC would fall into that over-the-line category. But I've got Mark FitzPatrick first, then Michael on -- Mark on what we can say on capital generation, let's call it that. Michael just a little bit on equity story and then Nic will come back to you on Indonesia, please, on IFRS.

Mark FitzPatrick -- Group Chief Financial Officer and Chief Operating Officer

Okay. Blair, good afternoon. So, in terms of organic RBC build, effectively, you've heard us say and you've heard say for a while in terms of approximately about the $1 billion -- $1.1 billion in terms of organic capital creation. And effectively, post the Athene reinsurance transaction, we've indicated that that would probably take about $150 million of that level. So, the guidance would probably be kind of somewhere between the $850-ish million kind of element. So, that's on an -- on kind of the half. So, that's $425 million. So that's about 20% to 25% kind of RBC points in terms of the half that we would ordinarily kind of look at on that particular patch. So can't guide in terms of a forward piece, other than that component. But when you look at the element of the RBC role and you look at the capital generation during the component of the first half, you see that that's a strong number. And that's a strong contributor in the first half and very much in line with the levels that we've spoken about in the past.

Blair Stewart -- Bank of America Merrill Lynch -- Analyst

Sorry, Mark, can you just clarify? Did you say 20% to 25% RBC points, is that in the half year?

Mark FitzPatrick -- Group Chief Financial Officer and Chief Operating Officer

Correct. That's in the -- so, in the half year. Yeah. So, the ordinarily, we would operate at about, I said, about $1 billion in terms of operating capital generation pre-Athene. Post-Athene, we're guiding that that's effectively closer to the $850 million mark per annum. So that's where you get the $425 million for the half year and at the half year, that circa kind of 20% to 25% RBC points.

Blair Stewart -- Bank of America Merrill Lynch -- Analyst

Yeah. Thank you.

Michael Falcon -- Chief Executive Officer, Jackson Holdings LLC

Yeah. So, Blair, good morning or good afternoon there. Michael Falcon here. And thanks for the question. So, I'm going to stay away, as Mike said, given the announcement that we've made and SEC rules, I'm going to stay away from forward-looking statements or a projection or a indication of what that equity story might be. But I can talk to where we are now and build on what we've said in the past, which is consistent with our view, which is that, there is a big demand for protection products around retirement in the US, particularly around income and replacement income guarantee, as well as principal protection. And those are markets that we're in. We're the leading player in variable, and we've demonstrated our ability to quickly lead in other categories. So, we don't see any change in terms of the market demand. In fact, in many indications that that can increase with demographics and certainly volatility reminds people of why they want and need and use our products to begin with.

I think we have excellent capabilities around distribution in that place and a low-cost platform that allows us to effectively and profitably write business. And a proven historic ability to price and manage the risks associated with those. So, I can't go forward, obviously, as we go through the process, at appropriate times, there'll be more information about the nuance of the go-forward strategy as we can get into that detail. But I think the fundamentals that we rely on today are still there and they're consistent with what's built the Company to this point.

Michael Wells -- Group Chief Executive

And Indonesia, Nic? Thanks, Michael.

Nicolaos Nicandrou -- Chief Executive, Prudential Corporation Asia

Thanks, Mike. Blair, it's -- what you're seeing is the lag effect from past years, where we were seeing a decline in sales. So, as we picked up last year, then that should change. I guess, the other factor is, we are investing heavily in that business in terms of automation with tooling, the agency force, in terms of some of the developments we're doing with Pulse. Indonesia is a little ahead of other markets. So, they are doing -- they are developing a lot of things on behalf of the region as we look to developing ones that standardize and use it elsewhere. And we've done a lot of work in the last year to launch -- to refresh the entire product set and launch new ones. We have 17 new product launches and all that requires investment in technology to pull through.

Indonesia, now all our recruitment is done virtually. So, again, that's more investment that we're making in that business. The -- it's a shame on a number of levels. But certainly, for Indonesia, sales on COVID, but the underlying improvement in that business over the last year, a year and a bit has been phenomenal. But as soon as things normalize, we see a lot of demand coming back and -- with -- into a business that is much better placed now to fulfill that demand on a number of dimensions.

Michael Wells -- Group Chief Executive

Thanks, Nic.

Operator

I'll now hand back to Patrick for web questions, if there are any.

Patrick Bowes -- Head of Investor Relations

Thanks. Thank you, Bethany. I've got two different questions. One from Thomas Wang in Goldman's in Asia. The first part of it is, are you providing any financial support to agents that used to sell to Mainland customers? And do you think you can continue to provide financial support if Mainland customers don't turn in any meaningful way until H2 2021?

And secondly, what's the impact of expense overruns on operating profit and new business profit in H1? That's Thomas Wang's question. So, I'll pause there, probably to Nic.

Michael Wells -- Group Chief Executive

Yeah, agreed. Nic?

Nicolaos Nicandrou -- Chief Executive, Prudential Corporation Asia

We are -- yes, we're allowing Mainland customers to defer payments. Our normal periods are 60 days to 90 days. Some of them are availing of that but nothing that impacts our overall figures. You saw the profits grow in Hong Kong strongly. The other -- the thing though that we've seen is and we've always knew that and known that, a lot of Mainland customers that transact with us have other business interest and other sources of income in Hong Kong. So, we've seen a switch away or rather a switch up in the electronic payment. So, it was around 65% of payments were received electronically. Now, it's in the high-80s. So, yes, it's there to provide relief, but it's -- that's on the customer side.

Now, on agents, the -- there are a number of initiatives that we have in place. Clearly, a lot of them are benefiting from trail commission from sales that they've done in the past. We do have financial support schemes available. They are available to all agents. They need to be, though, underwritten by leaders. We haven't seen a big take up in those in the last six months. And if -- as I said, they are there for people to use.

And on expenses, the -- it's not impacted. It's -- I mean, clearly, some -- not all our sales costs are direct, but it's not giving us any cause for concern or indeed impacting the financials as you see them.

Michael Wells -- Group Chief Executive

Thank you, Nic.

Patrick Bowes -- Head of Investor Relations

Thanks, Nic. I've got one more. And it's one for -- actually for Nic again and then the second one for Mark FitzPatrick from Waverton Investments. The first one is, as businesses increasingly done online, has this reduced barriers to entry in your view for the market? And for Mark, which is, could you just run through the differences that existing investors should think about between a minority IPO and the demerger?

So, Nic, first?

Nicolaos Nicandrou -- Chief Executive, Prudential Corporation Asia

I mean, a lot of the business that we've -- is human support at the moment. All the virtualization still requires a trained agent, albeit via video to engage -- to prospect engage with a customer. Yes, there is more research that is now done online. There are simple products that are made available and can be made available, and we're doing that as well. It's producing a lot of number of cases, but not necessarily a lot of premium at the moment until such time as a -- as further engagement is made. So, no, I don't -- I mean, I don't think it's reducing the barriers to entry, not for the fuller policies, the fuller sized policies.

Patrick Bowes -- Head of Investor Relations

Thank you. Then over to Mark.

Mark FitzPatrick -- Group Chief Financial Officer and Chief Operating Officer

So, minority IPO and demerger, ultimately, this is going to be driven by our desire to maximize shareholder value in terms of where we're at. Clearly, the element of an IPO, there is an aspect of sell-down proceeds to be able to fund future growth in Asia and that's a very important consideration. And also the aspect of an IPO would actually target Jackson's natural owners for the future on that particular piece. So, I can't really go into anything much more than that particular patch. But hopefully, that gives you a sense of how we're looking at it in our primary lens, which is ensuring we maximize shareholder value.

Patrick Bowes -- Head of Investor Relations

Thank you, Mark. Now, Bethany, that's all from the online. So back to you, I think.

Operator

Okay. The next question comes from Greig Paterson from KBW. Greig, please go ahead. Your line is open.

Greig Paterson -- Keefe, Bruyette & Woods Limited -- Analyst

Good morning, everybody. Can you hear me?

Michael Wells -- Group Chief Executive

We can, Greig. Good morning.

Greig Paterson -- Keefe, Bruyette & Woods Limited -- Analyst

I actually went -- lost the call when Andrew asked the question about the Group debt. So, I don't know to what degree that was answered. But if it wasn't, I wonder if you could talk to the mechanics of the journey, how one would -- one should think about how much of the Group debt will reduce considering money coming up from Jackson organic -- inorganic growth, etc., and Moody's leverage ratios, fixed charge coverage, etc? And that's question one.

The second two questions is, one is, I wonder if you could provide us the sensitivity of the RBC ratio to changes in interest rates. And the second one is, you did provided the first quarter an RBC ratio for downgrades but subsequently, you've obviously transferred $28 billion of assets over to Athene. So, I was wondering how that sensitivity would have changed post the reinsurance contract. Thank you.

Michael Wells -- Group Chief Executive

So, Greig, thanks for the questions. We did answer the debt piece. I'll let Mark address that again in a moment, give you a summary. The -- you have a flooring of rates in RBC, and we did not give -- we gave a greater than number at the half year, just given everything now we are announcing. We wanted to make sure you knew it's in the target range. And, again, we want to see that continue to move up.

So, I don't think -- Mark, why don't you do the debt first and then Axel, why don't you -- quick overview of how the -- where rates are in the US floors and how that affects RBC in general? Let's not get into specifics on Jackson, but I think there is a clear mechanical piece, Greig, that's important in that. Mark?

Mark FitzPatrick -- Group Chief Financial Officer and Chief Operating Officer

Okay. Greig, hey. So, in terms of the debt, Greig, first and foremost, there aren't any -- we don't have any concerns with the ratings agencies or the ratings headroom. And we have been in conversations with the rating agencies in the run-up to today as you would expect and would expect to hear something from the rating agencies in terms of them providing some update on today's news imminently to the market.

So, I think in terms of the pre-IPO debt, that would cut -- or that Jackson would raise and then dividend up to the Group, it's in kind of the area of kind of the $1.8 billion to $2.5 billion debt. It's in that kind of range to the 20% to 25% leverage. And that would be predominantly used to an element of debt repayment. We've got lots of flexibility, and that's in terms of the debt that we have, and a lot of debt that is available in terms of the call dates that is there and that is available. So, no issues in terms of the debt and no issue in terms of rating agencies from a debt perspective as well, whether that be Moody's or any of the lot.

Michael Wells -- Group Chief Executive

So, Axel, impact of the derisking, the credit portfolio with Athene and then the -- why don't you get a little bit on the flooring rates in this RBC model.

Axel Andre -- Chief Financial Officer of Jackson National Life Insurance Co.

Sure. Yeah. Let's start with the easy ones on credit. So, we disclosed at the end of the first quarter that if -- we did a hypothetical, that if 20% of the debt portfolio was downgraded by one whole letter rating, the RBC ratio impact of that would be 16 points of RBC, that was at the end of Q1. So post the transfer of a significant amount of assets as part of the reinsurance contract, that sensitivity has decreased now to 12 points versus the 16.

On the rate piece, as Mike said, the RBC methodology has an inherent flooring of interest rates. So, the reality is, given where rates are today, they are essentially below that floor that's embedded in those scenarios. So, from a liability perspective, the reserves and capital requirements have relatively little sensitivity to interest rates at this point in time, whereas on the hedge and asset side, derivative hedges would be mark-to-market. And interest rate derivatives would be mark-to-market. And to the extent that we have some great protection embedded in fixed income assets, such as long duration US treasuries, as we've mentioned in the past, those are carried on the stat balance sheet and book value.

Michael Wells -- Group Chief Executive

Thanks, Axel.

Operator

The next question comes from Ashik Musaddi from J.P. Morgan. Ashik, please go ahead.

Ashik Musaddi -- J.P. Morgan -- Analyst

Thank you, and good morning, everyone. Just I had a couple of questions, if you can help me. The first one is, if I look at the embedded value report, I mean, there is a bit of economic assumption changes in Hong Kong business and that has resulted in $3.5 billion reduction in embedded value. I'm a bit surprised with that big number, because if I look at the embedded value of Asia, it's about $35 billion. So, even if we say that Hong Kong is about a third, let's say, $10 billion, OK, so it feels like the interest rate drop has wiped out a third of Hong Kong's embedded value. Can you get some clarity on that? What sort of assumptions were used in past and what has changed? I mean, it looks like a massive drop.

The second question is on the demerger. I mean, you mentioned that if the IPO is not successful for market reasons, then you would demerge the US business. What does that mean for capital for Asia? Because on one hand, you're suggesting that you might need that capital that comes from US to help the growth, to accelerate the growth in Asia but at the same time, if you demerge, then you're not going to get that. So, how should we get that?

And lastly, can we get some sensitivities on RBC for equity market as well? I think you gave, like clear answers on interest rates, but anything on equity market would be helpful as well. Thank you.

Michael Wells -- Group Chief Executive

Okay. Raghu, do you want to explain to Ashik the embedded value changes in the half year, Hong Kong?

Raghu Hariharan -- Chief Financial Officer of Prudential Corporation Asia

Sure. Thanks. Hi, Ashik.

Ashik Musaddi -- J.P. Morgan -- Analyst

Yeah.

Raghu Hariharan -- Chief Financial Officer of Prudential Corporation Asia

So first thing, I would do is consider both the -- as you know, the short-term flux and the effect of the economic assumption changes together to gauge the total impact. So that's point one.

Second, as you know, we updated assumptions on an active basis. So here, what's essentially happened is that, the risk discount rates have undershot the fall in risk-free rates. As you know, the US 10-year is down 126 bps. Risk-free -- risk discount rates had only come down 100 bps. So, we are holding some for market risk. And while the SCR has actually overshot the fall in risk-free rates. So the earned rates are lower. To give you a sense, it's about 1.5 times, the 126 bps fall in risk-free rates. And this is because of two reasons. One, we do not assume a mean reversion. And this is an important point. And the second, so we assume June levels stay forever. And clearly, we also do not assume a dynamic rebalancing of the assets. So as bond values go up, proportionately you have more bonds and therefore, your earned rates are lower. So, it's purely a mechanical impact of the assumptions coming through our EV.

Michael Wells -- Group Chief Executive

And then on demerger, so, I think the -- we've been pretty clear on the advantages and disadvantages of both. I don't think we're looking at a scenario where it to be a failed IPO. I would disagree with your choice of language there. I think if we looked at a market and thought we can create more shareholder value by a demerger, you still have the debt that's been discussed on the call, that transference of an internal dividend, if you will, up to Group. And it would be a decision by the Board and management that that was more accretive to value than an IPO, given the unique market sickness. I think we're pretty clear that we think we can do a market -- an IPO in the first half of next year and we have the work streams, Ashik, that are consistent with an IPO, are consistent with the demerger on timing and on effort. So, we don't anticipate any issues with an IPO, but we're just making sure everyone knows we're maintaining the option and we have a backup plan, if we don't think the market.

So, I think of like March of last year -- of this year, that was difficult environment, we still got off a with the largest reinsurance transaction's ever done and we got off an equity sale in that climate. So, I think we're confident we can do this. But we're also maintaining optionality, which I think is appropriate given the importance of the transaction.

On RBC, Axel, do you want to comment? I'm not sure what our last public comment is on RBC sensitivity. So, I want to -- let's keep to what we've said publicly, please. Keep the SEC...

Axel Andre -- Chief Financial Officer of Jackson National Life Insurance Co.

Yeah. So, I think on RBC, I would simply say that we've -- as we've indicated in the past, we are essentially in capital preservation mode. So really, we're on any one day, you would have us look at interest rates and at equity sensitivities and putting on hedges to reduce, to minimize that sensitivity as much as possible. On any one day, we may be more exposed to the up than to the down. But essentially we're attempting to stabilize that.

Michael Wells -- Group Chief Executive

Okay. We've got just time --. Thanks, Ashik. Any last questions? I know we're coming up on the full hour here.

Operator

The next question comes from Abid Hussain from Credit Suisse. Abid, please go ahead.

Abid Hussain -- Credit Suisse -- Analyst

Hi. Good morning. Well, thank you for taking my question. I think I've got three questions left. Firstly, just coming back to the capital extraction and the debt leverage within the interaction between the US and the Group. You said, you will take out around $2 billion of debt from the US. And you're looking to use those proceeds to retire debt, I think at the Group. And I'm just wondering what is the right level of debt leverage that you are thinking at the Group. I know there's a sort of separate conversation that's going on with the rating agencies. But just in terms of Group debt leverage, where are you sort of aiming for on that? And just sort of linked to that, can you just confirm that any debt raise you do with Jackson will count available capital? So that's just the first question.

And then the second question is on the RBC ratio. Just wondering why you feel 425% to 475% is the right level and how does that compare to peers. So what sort of metric are you sort of thinking when you step up at that level?

And then the final question is on China, it's more of a broader question really. I was just wondering if you could perhaps talk through some of the growth initiatives in China and in particular, how you might reduce the reliance on Hong Kong?

Michael Wells -- Group Chief Executive

Okay. Thanks, Abid. Mark, I'm going to have you handle the first one, and Nic, I will have you some of the initiatives in China. I think on RBC, let me just make a general statement. And Michael, if you think -- so the range comes from a number of things. It's relative to market and what we see going on there. It's discussion with key stakeholders. So, think of rating agencies and others that would opine on this and the financial strength in commercial rating of the entity. And it's a -- I think we've discussed. So, you're into a new RBC regime, which Jackson adopted early. I've said before, I think it's personally a better regime than the old one. And I think it's more conservative than the old one. So, we think that creates a well-capitalized, still high return on equity business, still generating capital and again, at very attractive returns and allows Jackson to operate as a stand-alone entity without the Group. So, that was the lens at which we looked at what capital level we wanted for Jackson as a stand-alone listed entity.

Michael, did you want to add anything to that? Is that...

Michael Falcon -- Chief Executive Officer, Jackson Holdings LLC

Mike, I think you captured it right in terms of the mechanics and the direction and how the range was set and come to. I mean, our focus -- our principal focus is on economic and economic value creation, economic risk management. We obviously have accounting earnings and statutory capital that are really important measures and we need to focus on them as well. But there is a number of things that go into it, and the RBC is only one component.

Michael Wells -- Group Chief Executive

Okay. So let's go to Mark, please, on debt, US Group leverage.

Mark FitzPatrick -- Group Chief Financial Officer and Chief Operating Officer

So in terms of debt, we are looking at and we plan on holding on to our current AA rating. We think we've got lots of headroom today. Ideally look to use some of the proceeds that come up to reduce the debt, as I've said. That will be the essence of how we're looking to use that kind of the proceeds from the Jackson debt rate as it comes up. So the AA rating for us, financial strength rating is a very -- is an important piece. We've got that today and we plan on holding on to that. And as I've said, we've got plenty of scope for that.

In terms of the debt raise for Jackson counting as available capital? Yes, it does on that particular piece.

And as regards to leverage target, I haven't commented or I haven't set necessarily a particular target. But I think it's fair to say that we'll be aiming to make sure that in the medium, long-term that we are comfortably within the leverage range that Moody's set for that type of rating.

Michael Wells -- Group Chief Executive

Thank you, Mark. And Nic, do you want to give a little color on the growth we're seeing in China? Maybe a little bit on sequential as well, if you don't mind, just to give him a feel for a recovering market.

Nicolaos Nicandrou -- Chief Executive, Prudential Corporation Asia

Okay. Thanks, Mike. But before I do that, let me just correct the point, it's not Hong Kong or China or Hong Kong or China instead of Hong Kong. Hong Kong will compound strongly. The needs are real. On the medical side, we see them now, on the retirement side and the savings. And the same is true in China, but on a much small -- a much bigger scale with 1.3 billion people.

So a few comments on progress in China. And to Mike's point, China has been a highlight for us so far in 2020. Actually showcasing the power of our franchise, not only in that market but the potential everywhere else. Now, the resilience in the depths of the crisis, if you like, at the start of the year and our recovery since is really underpinned by three things. The first is the broad geographic reach. We're in 20 provinces. So not all were affected in the same way at the same time. The second is the balanced channel strategy. With 36,000 agents and now 40 bank relationships, giving us access to 4,000 outlets. And the third one is the diverse product strategy.

So, we saw sales rebound strongly in the second quarter as restrictions were eased. We grew by 20%. Agency grew by 15% in the second quarter. Three drivers. The first was boosted by the recruitment that we did in the first part of the year. In the first four months, we upped our recruitment by 32% through January and April. The higher agency productivity that came from the use of virtual tools, 67% of our sales were virtual and a higher focus on H&P. H&P mix in agency increased from 40% to 60%, fulfilling demand that was kind of obviously there.

On the banca side, we built on the first quarter growth to deliver a 25% increase in the second quarter, as we made further inroads in, not only the existing amount of new relationship. So that's what drove that.

The -- looking at how we fared versus competitors, we had a better March through June than the rest of the market. And when we look at how we've done in each of our provinces, we grew market share in the first half of the year in 17 out of the 20 provinces. NBP fared better, so to a minus 5 overall in APE, we were plus 4 NBP. Agency margins, because of the higher health and protection mix are now north of 80%. Just to give you a sense of how well our agency is now doing with increased productivity, more focus on H&P. And the banca channel, as I've said before, we managed that on an IRR basis given that it's selling mostly investment products and IRR stayed healthy in the 20s with a very short payback period. So overall in China, our IRRs are 30%-plus and payback period three to four years.

We are growing the platform. We're looking to enter our 21st province. We've expanded the number of cities by three. We've expanded the number of sales offices. So, it's product initiatives, it's channeled initiatives, it's footprint initiatives and it's depth initiatives. And all this thing is -- has made for a very strong progression in all the financial and business indicators of that market.

Michael Wells -- Group Chief Executive

Great. Thanks, Nic. And, Abid, thank you for the question. Patrick, back to you.

Patrick Bowes -- Head of Investor Relations

Yeah. Thank you very much, everyone, on the call. For those who still got questions, you know how to get hold of us at the Prudential. And we look forward to speaking to you in due course with the -- as we come forward with the next stages. Thank you very much, everyone, and good afternoon.

Operator

[Operator Closing Remarks]

Duration: 123 minutes

Call participants:

Michael Wells -- Group Chief Executive

Mark FitzPatrick -- Group Chief Financial Officer and Chief Operating Officer

Patrick Bowes -- Head of Investor Relations

Axel Andre -- Chief Financial Officer of Jackson National Life Insurance Co.

Nicolaos Nicandrou -- Chief Executive, Prudential Corporation Asia

Raghu Hariharan -- Chief Financial Officer of Prudential Corporation Asia

James Turner -- Group Chief Risk and Compliance Officer

Michael Falcon -- Chief Executive Officer, Jackson Holdings LLC

David Motemaden -- Evercore ISI -- Analyst

Kailesh Mistry -- HSBC -- Analyst

Jonathan Hocking -- Morgan Stanley -- Analyst

Andrew Crean -- Autonomous Research LLP -- Analyst

Blair Stewart -- Bank of America Merrill Lynch -- Analyst

Greig Paterson -- Keefe, Bruyette & Woods Limited -- Analyst

Ashik Musaddi -- J.P. Morgan -- Analyst

Abid Hussain -- Credit Suisse -- Analyst

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