TIDMPRU
RNS Number : 9437I
Prudential PLC
14 August 2019
European Embedded Value (EEV) Basis Results
SUMMARISED CONSOLIDATED INCOME STATEMENT
Half year 2019 GBPm 2018 GBPm
----------------------- --------------------------------
Half year Full year
Note Asia US Group total Group total Group total
notes (ii)(iii) notes (ii)(iii)
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
Continuing operations:
New business 3 1,295 348 1,643 1,588 3,525
Business in force 4 832 445 1,277 1,170 2,977
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
Long-term business 2,127 793 2,920 2,758 6,502
Asset management 91 11 102 75 162
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
Operating profit from long-term business and asset
management 2,218 804 3,022 2,833 6,664
Other income and expenditurenote (i) (361) (340) (726)
Restructuring costs (20) (18) (47)
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
Operating profit from continuing operations 2,641 2,475 5,891
Short-term fluctuations in investment returns 5 2,229 (965) (2,498)
Effect of changes in economic assumptions 6 (1,371) 610 312
Mark-to-market value movements on core structural
borrowings 7 (492) 579 549
Loss attaching to corporate transactions 14 (24) (48) (75)
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
Non-operating profit (loss) from continuing
operations 342 176 (1,712)
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
Profit for the period from continuing operations 2,983 2,651 4,179
Profit for the period from discontinued
operationsnote (iii) 1,281 317 409
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
Profit for the period attributable to equity
holders of the Company 4,264 2,968 4,588
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
Attributable to:
Equity holders of the Company:
From continuing operations 2,978 2,650 4,176
From discontinued operations 1,281 317 409
Non-controlling interests from continuing
operations 5 1 3
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
4,264 2,968 4,588
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
EEV basis basic earnings per share
2019 2018
----------- --------------------------------
Half year Half year Full year
notes (ii)(iii) notes (ii)(iii)
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
Based on operating profit from continuing
operations, after non-controlling interests (in
pence) 102.1p 96.2p 228.7p
Based on profit for the period attributable to
equity holders of the Company (in pence)
----------- --------------- ---------------
From continuing operations 115.3p 103.0p 162.2p
From discontinued operations 49.6p 12.3p 15.9p
----------- --------------- ---------------
164.9p 115.3p 178.1p
Weighted average numbers of shares in the period
(millions) 2,583 2,573 2,575
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
Annualised return on embedded value* 17% 13% 10%
--------------------------------------------------- ---- ----- --- ----------- --------------- ---------------
* Annualised return on embedded value is based on EEV profit for
the period attributable to equity holders of the Company, after
non-controlling interests, as a percentage of opening EEV basis
shareholders' equity. Half year profits are annualised by
multiplying by two.
Notes
(i) EEV basis other income and expenditure represents the
post-tax IFRS basis results for other operations (including Group
and Asia Regional Head Office, holding company borrowings, Africa
operations and Prudential Capital) less the unwind of expected
margins on the internal management of the assets of the covered
business (as explained in note 11(i)(g)).
(ii) The comparative results have been prepared using previously
reported average exchange rates for the period.
(iii) The Group's UK and Europe operations have been classified
as discontinued operations as at 30 June 2019 as described in note
A2 of the Group IFRS basis results. 2018 comparative results have
been re-presented from those previously published accordingly in
line with the Group IFRS basis results. This approach has been
adopted consistently throughout this supplementary information.
MOVEMENT IN SHAREHOLDERS' EQUITY
Half year 2019 GBPm 2018 GBPm
------------------------------------------------------------ --------------------------
Discontinued UK and Europe Group Half year Full year
Asia US Other operations total Group total Group total
note (iii) note (iii) note (iii)
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Continuing operations:
Operating profit from
long-term and asset
management businesses 2,218 804 - 3,022 2,833 6,664
Other income and
expenditure - - (361) (361) (340) (726)
Restructuring costs (13) (1) (6) (20) (18) (47)
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Operating profit from
continuing operations 2,205 803 (367) 2,641 2,475 5,891
Non-operating profit
(loss) from continuing
operationsnote (v) 863 145 (666) 342 176 (1,712)
Non-controlling interests (4) - (1) (5) (1) (3)
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Profit for the period from
continuing operations 3,064 948 (1,034) 2,978 2,650 4,176
Profit for the period from
discontinued
operationsnote (iii) - - - 1,281 1,281 317 409
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Profit for the period
attributable to equity
holders of the Company 3,064 948 (1,034) 1,281 4,259 2,967 4,585
Exchange movements on
foreign operations and
net investment hedges 219 18 (14) 2 225 523 1,706
Intra-group dividends and
investment in
operationsnote (i) (362) (406) 1,124 (356) - - -
External dividends - - (870) - (870) (840) (1,244)
Mark-to-market value
movements on Jackson
assets backing surplus
and required capital - 137 - - 137 (32) (95)
Other movementsnote (ii) (154) (8) 797 (752) (117) 127 132
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Net increase in
shareholders' equity 2,767 689 3 175 3,634 2,745 5,084
Shareholders' equity at
beginning of period 25,132 14,690 (3,624) 13,584 49,782 44,698 44,698
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Shareholders' equity at
end of period 27,899 15,379 (3,621) 13,759 53,416 47,443 49,782
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Representing:
Long-term business 27,080 15,329 - 11,749 54,158 47,659 50,388
Asset management and other 309 50 (3,621) 857 (2,405) (1,675) (2,257)
Goodwill 510 - - 1,153 1,663 1,459 1,651
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Shareholders' equity at
end of period 27,899 15,379 (3,621) 13,759 53,416 47,443 49,782
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Shareholders' equity per
share at end of
periodnote (iv) 1,073p 592p (139)p 529p 2,055p 1,830p 1,920p
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Long-term business 24,329 14,650 - 11,409 50,388 45,917 45,917
Asset management and other 305 40 (3,624) 1,022 (2,257) (2,677) (2,677)
Goodwill 498 - - 1,153 1,651 1,458 1,458
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Shareholders' equity at
beginning of period 25,132 14,690 (3,624) 13,584 49,782 44,698 44,698
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Shareholders' equity per
share at beginning of
periodnote (iv) 969p 567p (140)p 524p 1,920p 1,728p 1,728p
-------------------------- ------ ------ ------- -------------------------- ------- ------------ ------------
Notes
(i) Intra-group dividends represent dividends that have been
declared in the period. Investment in operations reflects movements
in share capital. The amounts included for these items in the
analysis of movement in free surplus (note 9) are as per the
holding company cash flow at transaction rates. The difference
primarily relates to intra-group loans, foreign exchange and other
non-cash items.
(ii) Other movements include reserve movements in respect of the
shareholders' share of actuarial gains and losses on defined
benefit pension schemes, share capital subscribed, share-based
payments, treasury shares and intra-group transfers between
operations which have no overall effect on the Group's
shareholders' equity.
(iii) The 2018 comparative results have been re-presented from
those previously published to reflect the Group's UK and Europe
operations classified as discontinued operations as at 30 June
2019.
(iv) Based on the number of issued shares at 30 June 2019 of
2,600 million shares (30 June 2018: 2,592 million shares; 31
December 2018: 2,593 million shares).
(v) The GBP(666) million non-operating loss recorded for other
operations comprises GBP(484) million of mark-to-market value
movements on core structural borrowings, GBP(162) million for
demerger costs (net of tax) and GBP(20) million for short term
fluctuations.
SUMMARY STATEMENT OF FINANCIAL POSITION
2019 GBPm 2018 GBPm
--------- --------------------
30 Jun 30 Jun 31 Dec
----------------------------------------------------------------------------- --------- --------- ---------
Assets less liabilities before deduction of insurance funds 470,884 429,035 431,269
Less insurance funds:*
--------- --------- ---------
Policyholder liabilities (net of reinsurers' share) and unallocated surplus of
with-profits
funds (451,189) (413,145) (414,002)
Less shareholders' accrued interest in the long-term business 33,744 31,561 32,533
--------- --------- ---------
(417,445) (381,584) (381,469)
Less non-controlling interests (23) (8) (18)
------------------------------------------------------------------------------ --------- --------- ---------
Total net assets attributable to equity holders of the Company 53,416 47,443 49,782
------------------------------------------------------------------------------ --------- --------- ---------
Share capital 130 129 130
Share premium 1,974 1,954 1,964
IFRS basis shareholders' reserves 17,568 13,799 15,155
------------------------------------------------------------------------------ --------- --------- ---------
IFRS basis shareholders' equity 19,672 15,882 17,249
Additional EEV basis retained profit 33,744 31,561 32,533
------------------------------------------------------------------------------ --------- --------- ---------
EEV basis shareholders' equity 53,416 47,443 49,782
------------------------------------------------------------------------------ --------- --------- ---------
* Including liabilities in respect of insurance products
classified as investment contracts under IFRS 4.
NOTES ON THE EEV BASIS RESULTS
1 Basis of preparation
The EEV basis results have been prepared in accordance with the
EEV Principles issued by the European Insurance CFO Forum in 2016.
Where appropriate, the EEV basis results include the effects of
adoption of EU-endorsed IFRS.
The Directors are responsible for the preparation of the
supplementary information in accordance with the EEV Principles.
The EEV basis results for half year 2019 and half year 2018 are
unaudited. Except for re-presenting the results for UK and Europe
operations as discontinued operations, the full year 2018 results
have been derived from the EEV basis results supplement to the
Company's statutory accounts for 2018. The supplement included an
unqualified audit report from the auditors.
A detailed description of the EEV methodology and accounting
presentation is provided in note 11.
2 Results analysis by business area
The half year 2018 comparative results are shown below on both
actual exchange rates (AER) and constant exchange rates (CER)
bases. The half year 2018 CER comparative results are translated at
half year 2019 average exchange rates.
Annual premium equivalents (APE) from continuing operations(note
13)
Constant exchange
Actual exchange rate rate
-------------------- ---------- -------- ---------- -------- --------------------
Half year 2019 GBPm Half year 2018 GBPm Change % Half year 2018 GBPm Change %
-------------------- -------------------- -------------------- -------------------- --------------------
Annual New Annual New Annual New Annual New Annual New
premium business premium business premium business premium business premium business
equivalent profit equivalent profit equivalent profit equivalent profit equivalent profit
------ ---------- -------- ---------- -------- ---------- -------- ---------- -------- ---------- --------
Asia 1,978 1,295 1,736 1,122 14% 15% 1,806 1,178 10% 10%
US 831 348 816 466 2% (25)% 868 495 (4)% (30)%
------ ---------- -------- ---------- -------- ---------- -------- ---------- -------- ---------- --------
Group
total 2,809 1,643 2,552 1,588 10% 3% 2,674 1,673 5% (2)%
------ ---------- -------- ---------- -------- ---------- -------- ---------- -------- ---------- --------
Profit for the period attributable to equity holders of the
Company
Actual exchange rate Constant exchange rate
------------------------------ ------------------------------
Half year 2019 GBPm Half year 2018* GBPm Change % Half year 2018* GBPm Change %
----------------------------- ------------------- -------------------- -------- -------------------- --------
Continuing operations:
Asia
Long-term business 2,127 1,753 21% 1,834 16%
Asset management 91 77 18% 79 15%
----------------------------- ------------------- -------------------- -------- -------------------- --------
Total 2,218 1,830 21% 1,913 16%
----------------------------- ------------------- -------------------- -------- -------------------- --------
US
Long-term business 793 1,005 (21)% 1,068 (26)%
Asset management 11 (2) 650% (2) 650%
----------------------------- ------------------- -------------------- -------- -------------------- --------
Total 804 1,003 (20)% 1,066 (25)%
----------------------------- ------------------- -------------------- -------- -------------------- --------
Operating profit from
long-term business and asset
management 3,022 2,833 7% 2,979 1%
Other income and expenditure (361) (340) (6)% (341) (6)%
Restructuring costs (20) (18) (11)% (18) (11)%
----------------------------- ------------------- -------------------- -------- -------------------- --------
Operating profit from
continuing operations 2,641 2,475 7% 2,620 1%
----------------------------- ------------------- -------------------- -------- -------------------- --------
Short-term fluctuations in
investment returns 2,229 (965) (1,021)
Effect of changes in economic
assumptions (1,371) 610 656
Mark-to-market value
movements on core structural
borrowings (492) 579 580
Loss attaching to corporate
transactions (24) (48) (50)
----------------------------- ------------------- -------------------- -------- -------------------- --------
Total non-operating profit
from continuing operations 342 176 165
----------------------------- ------------------- -------------------- -------- -------------------- --------
Profit for the period from
continuing operations 2,983 2,651 13% 2,785 7%
Profit for the period from
discontinued operations 1,281 317 304% 317 304%
----------------------------- ------------------- -------------------- -------- -------------------- --------
Profit for the period
attributable to equity
holders of the Company 4,264 2,968 44% 3,102 37%
----------------------------- ------------------- -------------------- -------- -------------------- --------
* The half year 2018 comparative results have been re-presented
from those previously published to reflect the Group's UK and
Europe operations classified as discontinued operations as at 30
June 2019.
EEV basis basic earnings per share
Actual exchange rate Constant exchange rate
------------------------- -------------------------
Half year 2019 Half year 2018* Change % Half year 2018* Change %
----------------------------------------- -------------- --------------- -------- --------------- --------
Based on operating profit from continuing
operations after non-controlling
interests (in pence) 102.1p 96.2p 6% 101.8p 0%
Based on profit for the period
attributable to equity holders of the
Company (in pence):
-------------- --------------- ---------------
From continuing operations 115.3p 103.0p 12% 108.2p 7%
From discontinued operations 49.6p 12.3p 303% 12.3p 303%
-------------- --------------- ---------------
164.9p 115.3p 43% 120.5p 37%
----------------------------------------- -------------- --------------- -------- --------------- --------
* The half year 2018 comparative results have been re-presented
from those previously published to reflect the Group's UK and
Europe operations classified as discontinued operations as at 30
June 2019.
3 Analysis of new business contribution from continuing operations
Half year 2019
-------------------------------------------------------------------------
Present value
Annual premium of new business New business New business margin
---------------------
equivalents (APE) premiums (PVNBP) contribution APE PVNBP
GBPm GBPm GBPm % %
note 13 note 13 note (i)
---------------------- ----------------- ----------------- ------------ -------- -----------
Asianote(ii) 1,978 10,988 1,295 65% 11.8%
US 831 8,310 348 42% 4.2%
---------------------- ----------------- ----------------- ------------
Group totalnote (iii) 2,809 19,298 1,643 58% 8.5%
---------------------- ----------------- ----------------- ------------
Half year 2018*
-------------------------------------------------------------------------
Present value
Annual premium of new business New business New business margin
---------------------
equivalents (APE) premiums (PVNBP) contribution APE PVNBP
GBPm GBPm GBPm %%
note 13 note 13 note (i)
---------------------- ----------------- ----------------- ------------ -------- -----------
Asianote(ii) 1,736 9,132 1,122 65% 12.3%
US 816 8,163 466 57% 5.7%
---------------------- ----------------- ----------------- ------------
Group totalnote (iii) 2,552 17,295 1,588 62% 9.2%
---------------------- ----------------- ----------------- ------------
Full year 2018*
-------------------------------------------------------------------------
Present value
Annual premium of new business New business New business margin
---------------------
equivalents (APE) premiums (PVNBP) contribution APE PVNBP
GBPm GBPm GBPm %%
note 13 note 13
---------------------- ----------------- ----------------- ------------ -------- -----------
Asianote(ii) 3,744 20,754 2,604 70% 12.5%
US 1,542 15,423 921 60% 6.0%
---------------------- ----------------- ----------------- ------------
Group totalnote (iii) 5,286 36,177 3,525 67% 9.7%
---------------------- ----------------- ----------------- ------------
* The 2018 comparative results have been re-presented from those
previously published to reflect the Group's UK and Europe
operations classified as discontinued operations as at 30 June
2019.
Notes
(i) The movement in new business contribution of GBP55 million
from GBP1,588 million for half year 2018 to GBP1,643 for half year
2019 is analysed as follows:
Effect of changes in
interest rates and Sales volume,
Foreign exchange other economic business and product
New business Half year 2018 movement assumptions mix and other items Half year 2019
contribution GBPm GBPm GBPm GBPm GBPm
--------------------- -------------- ---------------- -------------------- -------------------- --------------
Asia 1,122 56 (21) 138 1,295
US 466 29 (75) (72) 348
--------------------- -------------- ---------------- -------------------- -------------------- --------------
Group 1,588 85 (96) 66 1,643
--------------------- -------------- ---------------- -------------------- -------------------- --------------
(ii) Asia new business contribution by business unit is shown
below:
2019 GBPm 2018 GBPm
--------- ----------------------------------
AER CER AER
Half year Half year Half year Full year
---------- --------- ---------- ---------- ----------
China JV 98 76 76 149
Hong Kong 826 731 777 1,729
Indonesia 66 59 61 122
Taiwan 22 21 21 46
Other 283 235 243 558
---------- --------- ---------- ---------- ----------
Total 1,295 1,122 1,178 2,604
---------- --------- ---------- ---------- ----------
(iii) Details of new business contribution from discontinued
operations are shown in note 13.
4 Operating profit from long-term business in force from continuing operations
Half year 2019 GBPm
--------------------------------
Asia US Group
operations operations total
-------------------------------------------------------- ----------- ----------- ------
Unwind of discount and other expected returnsnote (i) 622 355 977
Effect of changes in operating assumptionsnote (ii) 131 - 131
Experience variances and other itemsnote (iii) 79 90 169
-------------------------------------------------------- ----------- ----------- ------
Total operating profit from long-term business in force 832 445 1,277
-------------------------------------------------------- ----------- ----------- ------
Half year 2018* GBPm
--------------------------------
Asia US Group
operations operations total
-------------------------------------------------------- ----------- ----------- ------
Unwind of discount and other expected returnsnote (i) 601 433 1,034
Experience variances and other items 30 106 136
-------------------------------------------------------- ----------- ----------- ------
Total operating profit from long-term business in force 631 539 1,170
-------------------------------------------------------- ----------- ----------- ------
Full year 2018* GBPm
--------------------------------
Asia US Group
operations operations total
-------------------------------------------------------- ----------- ----------- ------
Unwind of discount and other expected returns 1,218 881 2,099
Effect of changes in operating assumptions 342 115 457
Experience variances and other items 223 198 421
-------------------------------------------------------- ----------- ----------- ------
Total operating profit from long-term business in force 1,783 1,194 2,977
-------------------------------------------------------- ----------- ----------- ------
* The 2018 comparative results have been re-presented from those
previously published to reflect the Group's UK and Europe
operations classified as discontinued operations as at 30 June
2019.
Notes
(i) The movement in unwind of discount and other expected
returns of GBP(57) million from GBP1,034 million for half year 2018
to GBP977 million for half year 2019 comprises:
Half year 2019 GBPm
-----------------------
Asia US Group total
------------------------------------------------------------------- ---- ---- -----------
Growth in opening value of in-force business 69 (51) 18
Effect of changes in interest rates and other economic assumptions (71) (56) (127)
Foreign exchange movements 23 29 52
-------------------------------------------------------------------- ---- ---- -----------
Total movement in unwind of discount and other expected returns 21 (78) (57)
-------------------------------------------------------------------- ---- ---- -----------
(ii) The half year 2019 effect of changes in operating
assumptions of GBP131 million in Asia principally reflects the
beneficial effect on the effective tax rate for China from changes
to tax legislation in the first half of 2019.
(iii) In Asia, the half year 2019 effect of experience variances
and other items of GBP79 million is driven by positive mortality
and morbidity experience in a number of local business units,
together with a positive persistency variance from participating
and health and protection products.
In the US, the effect of experience variances and other items
include items as shown below. Other items includes the effects of
positive persistency experience in the period.
2019 GBPm 2018 GBPm
--------- --------------------
Half year Half year Full year
----------------------------------------------------------- --------- --------- ---------
Spread experience variance 12 26 39
Amortisation of interest-related realised gains and losses 36 45 92
Other items 42 35 67
------------------------------------------------------------ --------- --------- ---------
Total US experience variances and other items 90 106 198
------------------------------------------------------------ --------- --------- ---------
5 Short-term fluctuations in investment returns from continuing operations
2019 GBPm 2018* GBPm
--------- --------------------
Half year Half year Full year
-------------------------------------------------------------------------------- --------- --------- ---------
Asia
Hong Kong 897 (212) (552)
Singapore 153 (126) (233)
Other 230 (177) (244)
-------------------------------------------------------------------------------- --------- --------- ---------
Total Asianote (i) 1,280 (515) (1,029)
--------------------------------------------------------------------------------- --------- --------- ---------
US
Investment return related experience on fixed income securitiesnote (ii) (16) 15 60
Investment return related impact due to changed expectation of profits on
in-force variable
annuity business in future periods based on current period separate account
return, net of
related hedging activity and other itemsnote (iii) 985 (543) (1,541)
-------------------------------------------------------------------------------- --------- --------- ---------
Total US 969 (528) (1,481)
--------------------------------------------------------------------------------- --------- --------- ---------
Other operations (20) 78 12
--------------------------------------------------------------------------------- --------- --------- ---------
Total continuing operations 2,229 (965) (2,498)
--------------------------------------------------------------------------------- --------- --------- ---------
* The 2018 comparative results have been re-presented from those
previously published to reflect the Group's UK and Europe
operations classified as discontinued operations as at 30 June
2019.
Notes
(i) For half year 2019, the credit of GBP1,280 million mainly
represents the increase in bond and equity values in Hong Kong and
higher than expected investment returns on participating and
unit-linked business in Singapore and Taiwan.
(ii) The net result relating to fixed income securities reflects
a number of offsetting items as follows:
- The impact on portfolio yields of changes in the asset portfolio
in the period;
- The difference between actual realised gains and losses and the
amortisation of interest-related realised gains and losses that
is recorded within operating profit; and
- Credit experience versus the longer-term assumption.
(iii) This item reflects the net impact of:
- Changes in projected future fees and future benefit costs arising
from the difference between the actual growth in separate account
asset values of 15.2 per cent and that assumed of 2.8 per cent
(half year 2018: actual growth of 2.2 per cent compared to assumed
growth of 3.2 per cent; full year 2018: actual growth of negative
5.4 per cent compared to assumed growth of positive 6.2 per cent);
and
- Related hedging activity arising from realised and unrealised gains
and losses on equity-related hedges and interest rate derivatives
and other items.
6 Effect of changes in economic assumptions from continuing operations
2019 GBPm 2018* GBPm
--------- --------------------
Half year Half year Full year
----------------------------------------------------------- --------- --------- ---------
Asia
Hong Kong (478) 400 165
Indonesia 33 (89) (94)
Malaysia 34 (41) (19)
Singapore (101) (32) 70
Other (45) 5 (7)
----------------------------------------------------------- --------- --------- ---------
Total Asianote (i) (557) 243 115
------------------------------------------------------------ --------- --------- ---------
US
Variable annuity businessnote (ii) (1,129) 497 365
Fixed annuity and other general account businessnote (iii) 315 (130) (168)
----------------------------------------------------------- --------- --------- ---------
Total US (814) 367 197
------------------------------------------------------------ --------- --------- ---------
Total continuing operations (1,371) 610 312
------------------------------------------------------------ --------- --------- ---------
* The 2018 comparative results have been re-presented from those
previously published to reflect the Group's UK and Europe
operations classified as discontinued operations as at 30 June
2019.
Notes
(i) In half year 2019, the negative effect of GBP(557) million
largely arises from movements in long-term interest rates,
resulting in lower assumed fund earned rates for participating
business in Hong Kong and Singapore, partially offset by the
positive effect of lower risk discount rates in Indonesia and
Malaysia in valuing future profits for health and protection
business and a refinement to the methodology in Vietnam as
described in note 11(i)(h).
(ii) In half year 2019, the charge of GBP(1,129) million mainly
reflects the effect of a decrease in the assumed separate account
return, following the 70 basis points decrease in the US 10-year
treasury yield over the period, resulting in lower projected fee
income and an increase in projected benefit costs for variable
annuity business.
(iii) For fixed annuity and other general account business, the
impact reflects the effect on the present value of future projected
spread income from the combined decrease in interest rates and
credit spreads in the period.
7 Net core structural borrowings of shareholder-financed businesses
2019 GBPm 2018 GBPm
------- ---------- ------- ------------------------------------------------------------
30 Jun 30 Jun 31 Dec
------- ---------- ------- ----------------------------- -----------------------------
EEV
Mark-to basis Mark-to EEV Mark-to EEV
-market at -market basis at -market basis at
IFRS value market IFRS value market IFRS value market
basis adjustment value basis adjustment value basis adjustment value
--------------------- ------- ---------- ------- ------- ---------- -------- ------- ---------- --------
Holding company cash
and short-term
investmentsnote (i) (2,365) - (2,365) (2,210) - (2,210) (3,236) - (3,236)
---------------------- ------- ---------- ------- ------- ---------- -------- ------- ---------- --------
Holding company
borrowings:
------- ---------- ------- ------- ---------- -------- ------- ---------- --------
Subordinated debt
with no options to
substitute to
M&GPrudentialnote
(ii) 3,362 163 3,525 4,067 (119) 3,948 3,757 (108) 3,649
Senior debt 519 177 696 549 143 692 517 174 691
Bank loan 275 - 275 - - - 275 - 275
------- ---------- ------- ------- ---------- -------- ------- ---------- --------
Central funds before
amounts capable of
being substituted to
M&GPrudential 4,156 340 4,496 4,616 24 4,640 4,549 66 4,615
Subordinated debt
capable of being
substituted to
M&GPrudential (as at
30 Jun 2019)note
(iii) 3,089 209 3,298 1,287 80 1,367 2,919 64 2,983
---------------------- ------- ---------- ------- ------- ---------- -------- ------- ---------- --------
Total holding company
borrowings 7,245 549 7,794 5,903 104 6,007 7,468 130 7,598
---------------------- ------- ---------- ------- ------- ---------- -------- ------- ---------- --------
Holding company net
borrowings 4,880 549 5,429 3,693 104 3,797 4,232 130 4,362
Prudential Capital
bank loan - - - 275 - 275 - - -
Jackson Surplus Notes 196 62 258 189 47 236 196 53 249
---------------------- ------- ---------- ------- ------- ---------- -------- ------- ---------- --------
Net core structural
borrowings of
shareholder-financed
businessesnote (iv) 5,076 611 5,687 4,157 151 4,308 4,428 183 4,611
---------------------- ------- ---------- ------- ------- ---------- -------- ------- ---------- --------
Notes
(i) Holding company includes central finance subsidiaries.
(ii) In May 2019, the Company redeemed its GBP400 million 11.375 per cent subordinated notes.
(iii) In October 2018, the Company issued three tranches of
substitutable debt as part of the process required before the
proposed demerger, to rebalance debt across M&GPrudential and
Prudential plc. Total proceeds, net of costs, were GBP1.6 billion.
In the first half of 2019, the Group agreed with the holders of two
subordinated debt instruments to alter the terms and conditions of
these instruments in exchange for an upfront fee of GBP141 million
and an increase in the coupon of the instruments. The loss arising
from the change in fair value in the period of GBP100 million has
been treated as an expense attributable to the discontinued UK and
Europe operations and the GBP141 million fee, which has been paid
by Prudential plc, has been treated as a non-operating expense.
(iv) The movement in the value of core structural borrowings
includes foreign exchange effects for US dollar denominated debts,
which are included in 'Exchange movements on foreign operations and
net investment hedges'. The movement in the mark-to-market value
adjustment can be analysed as follows:
2019 GBPm 2018 GBPm
--------- --------------------
Half year Half year Full year
-------------------------------------------------------------------------------- --------- --------- ---------
Mark-to-market value adjustment at beginning of period 183 743 743
Change in fair value of debt under IFRS as a result of consent process (169) - -
Charge (credit) in respect of market movements included in the income statement* 592 (579) (549)
Effect of changes in US$ exchange rate for US$ denominated debts included in
reserves 5 (13) (11)
-------------------------------------------------------------------------------- --------- --------- ---------
Mark-to-market value adjustment at end of period 611 151 183
-------------------------------------------------------------------------------- --------- --------- ---------
* The total income statement charge of GBP592 million relates to
GBP492 million from continuing operations and GBP100 million
note(iii) from discontinued operations
Further details are explained in note D2.1 of the Group's IFRS
basis results
8 Analysis of movement in total net worth and value of in-force for long-term business
Half year 2019 GBPm
-------------------------------------------------------------
Total
Free Required Total Value of embedded
surplus capital net worth in-force business value
-------------------------------------------------- -------- -------- ---------- ------------------ ---------
Group
Shareholders' equity at beginning of period from
continuing operations 3,856 4,734 8,590 30,389 38,979
New business contribution(note 3) (516) 358 (158) 1,801 1,643
Existing business - transfer to net worth 1,533 (296) 1,237 (1,237) -
Expected return on existing business(note 4) 59 64 123 854 977
Changes in operating assumptions and experience
variances(note 4) 338 108 446 (146) 300
Restructuring costs (1) - (1) - (1)
--------------------------------------------------- -------- -------- ---------- ------------------ ---------
Operating profit from continuing operations 1,413 234 1,647 1,272 2,919
Non-operating profit (loss) from continuing
operations 268 (146) 122 886 1,008
--------------------------------------------------- -------- -------- ---------- ------------------ ---------
Profit for the period from continuing operations 1,681 88 1,769 2,158 3,927
Exchange movements on foreign operations and net
investment hedges 58 19 77 151 228
Intra-group dividends and investment in operations (701) - (701) - (701)
Other movements (24) - (24) - (24)
--------------------------------------------------- -------- -------- ---------- ------------------ ---------
Shareholders' equity at end of period from
continuing operations 4,870 4,841 9,711 32,698 42,409
Shareholders' equity at end of period from
discontinued operations 3,705 5,175 8,880 2,869 11,749
--------------------------------------------------- -------- -------- ---------- ------------------ ---------
Shareholders' equity at end of period 8,575 10,016 18,591 35,567 54,158
--------------------------------------------------- -------- -------- ---------- ------------------ ---------
Asia
New business contribution(note 3) (250) 99 (151) 1,446 1,295
Existing business - transfer to net worth 779 (169) 610 (610) -
Expected return on existing business(note 4) 35 29 64 558 622
Changes in operating assumptions and experience
variances(note 4) 30 107 137 73 210
--------------------------------------------------- -------- -------- ---------- ------------------ ---------
Operating profit based on longer-term investment
returns 594 66 660 1,467 2,127
Non-operating profit (loss) 674 37 711 152 863
--------------------------------------------------- -------- -------- ---------- ------------------ ---------
Profit for the period 1,268 103 1,371 1,619 2,990
--------------------------------------------------- -------- -------- ---------- ------------------ ---------
US
New business contribution(note 3) (266) 259 (7) 355 348
Existing business - transfer to net worth 754 (127) 627 (627) -
Expected return on existing business(note 4) 24 35 59 296 355
Changes in operating assumptions and experience
variances(note 4) 308 1 309 (219) 90
Restructuring costs (1) - (1) - (1)
--------------------------------------------------- -------- -------- ---------- ------------------ ---------
Operating profit based on longer-term investment
returns 819 168 987 (195) 792
Non-operating profit (loss) (406) (183) (589) 734 145
--------------------------------------------------- -------- -------- ---------- ------------------ ---------
Profit for the period 413 (15) 398 539 937
--------------------------------------------------- -------- -------- ---------- ------------------ ---------
Note
The net value of in-force business comprises the value of future
margins from current in-force business less the cost of holding
required capital for long-term business as shown below:
30 Jun 2019 GBPm 31 Dec 2018 GBPm
--------------------------------- ---------------------------------
UK and Group UK and Group
Asia US Europe total Asia US Europe total
------------------------------------------- ------ ------- ------- ------- ------ ------- ------- -------
Value of in-force business before deduction
of cost of
capital and time value of options and
guarantees 23,035 12,267 3,334 38,636 21,867 11,811 3,083 36,761
Cost of capital (681) (237) (465) (1,383) (566) (296) (459) (1,321)
Time value of options and guarantees* (278) (1,408) - (1,686) (981) (1,446) - (2,427)
-------------------------------------------- ------ ------- ------- ------- ------ ------- ------- -------
Net value of in-force business 22,076 10,622 2,869 35,567 20,320 10,069 2,624 33,013
Total net worth 5,004 4,707 8,880 18,591 4,009 4,581 8,785 17,375
-------------------------------------------- ------ ------- ------- ------- ------ ------- ------- -------
Total embedded value 27,080 15,329 11,749 54,158 24,329 14,650 11,409 50,388
-------------------------------------------- ------ ------- ------- ------- ------ ------- ------- -------
* The time value of options and guarantees arises from the
variability of economic outcomes in the future and is, where
appropriate, calculated as the difference between a full stochastic
valuation and a single deterministic valuation as described in note
11(i)(d). Both valuations reflect the level of policyholder
benefits (including guaranteed benefits and discretionary bonuses)
and associated charges, together with management actions in
response to emerging investment and fund solvency conditions. The
reduction in the time value of options and guarantees for Asia
operations from GBP(981) million at 31 December 2018 to GBP(278)
million at 30 June 2019 reflects the interaction between these
effects on the two valuations at the respective level of interest
rates and equity markets.
9 Analysis of movement in free surplus
For EEV covered business, free surplus is the excess of the
regulatory basis net assets for EEV reporting purposes (total net
worth) over the capital required to support the covered business.
Where appropriate, adjustments are made to total net worth so that
backing assets are included at fair value rather than at cost to
comply with the EEV Principles. In the Group's Asia and US
operations, assets deemed to be inadmissible on a local regulatory
basis are included in net worth where considered fully recognisable
on an EEV basis. Free surplus for asset management operations is
taken to be IFRS basis post-tax earnings and shareholders' equity,
net of goodwill. Free surplus for other operations (including Group
and Asia Regional Head Office, holding company borrowings, Africa
operations and Prudential Capital) is taken to be EEV basis
post-tax earnings and shareholders' equity net of goodwill, with
subordinated debt recorded as free surplus to the extent that it is
classified as available capital under Solvency II.
Half year 2019
--------------------------------------------------------------------------------
Continuing operations
------------------------------------------
Total insurance
and asset Discontinued UK and Europe Group
Asia US management Other operations total
note (a) note (b)
----------------------------- -------- -------- --------------- ----- ---------------------------- ------
Operating free surplus
generated before
restructuring costsnote (e) 685 831 1,516 (361) 1,155
Restructuring costs (13) (1) (14) (6) (20)
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Operating free surplus
generated 672 830 1,502 (367) 1,135
Non-operating profit (loss)
from continuing
operationsnote (f) 674 (406) 268 (185) 83
Free surplus generated from
discontinued operations 974 974
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Free surplus generated in the
period 1,346 424 1,770 (552) 974 2,192
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Net cash flows to parent
companynote (g) (451) (400) (851) 1,212 (361) -
External dividends - - - (870) - (870)
Exchange movements on foreign
operations, timing
differences and other
itemsnote (h) (15) 124 109 304 (744) (331)
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Net movement in free surplus 880 148 1,028 94 (131) 991
Balance at beginning of period 2,034 2,167 4,201 3,008 4,693 11,902
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Balance at end of period 2,914 2,315 5,229 3,102 4,562 12,893
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Half year 2018* GBPm
------------------------------------------------------------------------ ------
Continuing operations
------------------------------------------
Total insurance
and asset Discontinued UK and Europe Group
Asia US management Other operations total
note (a) note (b)
----------------------------- -------- -------- --------------- ----- ---------------------------- ------
Operating free surplus
generated before
restructuring costs 590 593 1,183 (340) 843
Restructuring costs (10) - (10) (8) (18)
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Operating free surplus
generated 580 593 1,173 (348) 825
Non-operating profit (loss)
from continuing
operationsnote (f) (167) (489) (656) 97 (559)
Free surplus generated from
discontinued operations 726 726
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Free surplus generated in the
period 413 104 517 (251) 726 992
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Net cash flows to parent
companynote (g) (391) (342) (733) 1,111 (378) -
External dividends - - - (840) - (840)
Exchange movements on foreign
operations, timing
differences and other
itemsnote (h) (359) 12 (347) 413 77 143
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Net movement in free surplus (337) (226) (563) 433 425 295
Balance at beginning of period 2,470 1,928 4,398 1,774 3,180 9,352
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Balance at end of period 2,133 1,702 3,835 2,207 3,605 9,647
------------------------------ -------- -------- --------------- ----- ---------------------------- ------
Full year 2018* GBPm
-------------------------------------------------------------------------------
Continuing operations
--------------------------------------
Total insurance
and asset Discontinued UK and Europe Group
Asia US management Other operations total
------------------------------- ----- ----- --------------- ------- ------------------------------ -------
Operating free surplus
generated before
restructuring costs 1,171 1,419 2,590 (726) 1,864
Restructuring costs (19) (17) (36) (11) (47)
------------------------------- ----- ----- --------------- ------- ------------------------------ -------
Operating free surplus
generated 1,152 1,402 2,554 (737) 1,817
Non-operating profit (loss)
from continuing operationsnote
(f) (393) (842) (1,235) (22) (1,257)
Free surplus generated from
discontinued operations 1,965 1,965
------------------------------- ----- ----- --------------- ------- ------------------------------ -------
Free surplus generated in the
year 759 560 1,319 (759) 1,965 2,525
------------------------------- ----- ----- --------------- ------- ------------------------------ -------
Net cash flows to parent
companynote (g) (699) (342) (1,041) 1,732 (691) -
External dividends - - - (1,244) - (1,244)
Exchange movements on foreign
operations, timing
differences and other
itemsnote (h) (496) 21 (475) 1,505 239 1,269
------------------------------- ----- ----- --------------- ------- ------------------------------ -------
Net movement in free surplus (436) 239 (197) 1,234 1,513 2,550
Balance at beginning of year 2,470 1,928 4,398 1,774 3,180 9,352
------------------------------- ----- ----- --------------- ------- ------------------------------ -------
Balance at end of year 2,034 2,167 4,201 3,008 4,693 11,902
------------------------------- ----- ----- --------------- ------- ------------------------------ -------
* The 2018 comparative results have been re-presented from those
previously published to reflect the Group's UK and Europe
operations classified as discontinued operations as at 30 June
2019.
Notes
(a) Operating free surplus generated by Asia insurance and asset
management operations before restructuring costs can be analysed as
follows:
Half year 2019 GBPm Half year 2018* GBPm % change
------------------- ---------------------- ----------
AER CER AER CER
--------------------------------------- ------------------- ---------- ---------- ---- ----
Operating free surplus generated from
in-force life business 844 773 797 9% 6%
Investment in new businessnote (c) (250) (260) (269) (4)% (7)%
--------------------------------------- ------------------- ---------- ---------- ---- ----
Long-term business 594 513 528 16% 13%
Asset management 91 77 79 18% 15%
--------------------------------------- ------------------- ---------- ---------- ---- ----
Total Asia 685 590 607 16% 13%
--------------------------------------- ------------------- ---------- ---------- ---- ----
* The half year 2018 comparative results are shown on both
actual exchange rates (AER) and constant exchange rates (CER)
bases. The half year 2018 CER comparative results are translated at
half year 2019 average exchange rates.
(b) Operating free surplus generated by US insurance and asset
management operations before restructuring costs can be analysed as
follows:
Half year 2019 GBPm Half year 2018* GBPm % change
------------------- ---------------------- ----------
AER CER AER CER
--------------------------------------- ------------------- ---------- ---------- ---- ----
Operating free surplus generated from
in-force life businessnote (d) 1,086 775 824 40% 32%
Investment in new businessnote (c) (266) (180) (192) 48% 39%
--------------------------------------- ------------------- ---------- ---------- ---- ----
Long-term business 820 595 632 38% 30%
Asset management 11 (2) (2) 650% 650%
--------------------------------------- ------------------- ---------- ---------- ---- ----
Total US 831 593 630 40% 32%
--------------------------------------- ------------------- ---------- ---------- ---- ----
* The half year 2018 comparative results are shown on both
actual exchange rates (AER) and constant exchange rates (CER)
bases. The half year 2018 CER comparative results are translated at
half year 2019 average exchange rates.
(c) Free surplus invested in new business primarily represents
acquisition costs and amounts set aside for required capital.
(d) The increase in the US in-force free surplus generation
includes a GBP274 million benefit following the integration of the
recently acquired John Hancock business.
(e) Other operating free surplus generated for "other business"
includes GBP(69) million (net of tax) of interest costs on debt
that is capable of being substituted to M&GPrudential.
(f) Non-operating items include short-term fluctuations in
investment returns, the effect of changes in economic assumptions
for long-term business and the effect of corporate transactions as
described in note 14. In particular, for other business it includes
GBP(162) million for demerger costs (post-tax) and GBP(20) million
for short term fluctuations. In addition, for 2018 this included
the impact in the US of changes to RBC factors following the US tax
reform, which were formally approved by the National Association of
Insurance Commissioners (NAIC) in June 2018.
(g) Net cash flows to parent company for long-term business
reflect the flows as included in the holding company cash flow at
transaction rates.
(h) Exchange movements on foreign operations, timing differences and other items represent:
Half year 2019 GBPm
-----------------------------------------------------------------------------
Continuing operations
-----------------------------------
Total insurance
and asset Discontinued UK and Europe Group
Asia US management Other operations total
---------------------------------- ----- ---- --------------- ----- -------------------------------- ------
Exchange movements on foreign
operations 54 1 55 (8) 2 49
Mark-to-market value movements on
Jackson
assets backing surplus and
required capital - 137 137 - - 137
Other itemsnote (i) (69) (14) (83) 312 (746) (517)
---------------------------------- ----- ---- --------------- ----- -------------------------------- ------
(15) 124 109 304 (744) (331)
--------------------------------- ----- ---- --------------- ----- -------------------------------- ------
Half year 2018 GBPm
-----------------------------------------------------------------------------
Continuing operations
-----------------------------------
Total insurance
and asset Discontinued UK and Europe Group
Asia US management Other operations total
---------------------------------- ----- ---- --------------- ----- -------------------------------- ------
Exchange movements on foreign
operations 3 38 41 9 (5) 45
Mark-to-market value movements on
Jackson
assets backing surplus and
required capital - (32) (32) - - (32)
Other itemsnote (i) (362) 6 (356) 404 82 130
---------------------------------- ----- ---- --------------- ----- -------------------------------- ------
(359) 12 (347) 413 77 143
--------------------------------- ----- ---- --------------- ----- -------------------------------- ------
Full year 2018 GBPm
-----------------------------------------------------------------------------
Continuing operations
-----------------------------------
Total insurance
and asset Discontinued UK and Europe Group
Asia US management Other operations total
---------------------------------- ----- ---- --------------- ----- -------------------------------- ------
Exchange movements on foreign
operations 88 131 219 (6) - 213
Mark-to-market value movements on
Jackson
assets backing surplus and
required capital - (95) (95) - - (95)
Other itemsnote (i) (584) (15) (599) 1,511 239 1,151
---------------------------------- ----- ---- --------------- ----- -------------------------------- ------
(496) 21 (475) 1,505 239 1,269
--------------------------------- ----- ---- --------------- ----- -------------------------------- ------
(i) Other items include the effect of the net issuance of GBP1.2
billion of subordinated debt for other operations in full year
2018, intra-group loans and other intra-group transfers between
operations and other non-cash items.
10 Sensitivity of results to alternative economic
assumptions
The tables below show the sensitivity of the embedded value as
at 30 June 2019 and 31 December 2018 and the new business
contribution after the effect of required capital for half year
2019 and full year 2018 for long-term business to:
- 1 per cent increase in the discount rates;
- 1 per cent increase in interest rates and risk discount rates,
including consequential changes in assumed investment returns for
all asset classes and market values of fixed interest assets, but
excluding changes in the allowance for market risk;
- 0.5 per cent decrease in interest rates and risk discount
rates, including consequential changes in assumed investment
returns for all asset classes and market values of fixed interest
assets, but excluding changes in the allowance for market risk;
- 1 per cent rise in equity and property yields;
- 10 per cent fall in market value of equity and property assets (embedded value only);
- The statutory minimum capital level in contrast to EEV basis
required capital (embedded value only); and
- 5 basis points increase in the UK long-term expected defaults (embedded value only).
The sensitivities shown below are for the impact of
instantaneous (and permanent) changes on the embedded value of
long-term business operations and include the combined effect on
the value of in-force business and net assets (including
derivatives) held at the valuation dates indicated. No change in
assets held at the period end is assumed when calculating
sensitivities. If the changes in assumptions shown in the
sensitivities were to occur, the effect shown below would be
recorded within two components of the profit analysis for the
following period, namely the effect of changes in economic
assumptions and short-term fluctuations in investment returns. In
addition to the sensitivity effects shown below, the other
components of the profit for the following period would be
calculated by reference to the altered assumptions, for example new
business contribution and unwind of discount and other expected
returns, together with the effect of other changes such as altered
corporate bond spreads. In addition, for changes in interest rates,
the effect shown below for US (Jackson) would also be recorded
within mark-to-market value movements on Jackson assets backing
surplus and required capital, which are taken directly to
shareholders' equity.
New business contribution from continuing long-term business
Half year 2019 GBPm Full year 2018* GBPm
----------------------- ------------------------
Group Group
Asia US total Asia US total
------------------------------------------------- -------- ----- ------ ------- ----- --------
New business contribution(note 3) 1,295 348 1,643 2,604 921 3,525
------------------------------------------------- -------- ----- ------ ------- ----- --------
Discount rates - 1% increase (281) (17) (298) (549) (42) (591)
Interest rates - 1% increase (35) 54 19 (202) 94 (108)
Interest rates - 0.5% decrease (33) (41) (74) 58 (66) (8)
Equity/property yields - 1% rise 67 55 122 130 115 245
------------------------------------------------- -------- ----- ------ ------- ----- --------
* The full year 2018 comparative results have been re-presented
from those previously published to reflect the Group's UK and
Europe operations classified as discontinued operations as at 30
June 2019.
Embedded value of long-term business
30 Jun 2019 GBPm 31 Dec 2018 GBPm
----------------------------------- -----------------------------------
UK and Group UK and Group
Asia US Europe total Asia US Europe total
------------------------------------------ -------- ------ ------- -------- -------- ------ ------- --------
Shareholders' equity(note 8) 27,080 15,329 11,749 54,158 24,329 14,650 11,409 50,388
------------------------------------------ -------- ------ ------- -------- -------- ------ ------- --------
Discount rates - 1% increase (3,718) (346) (682) (4,746) (3,292) (513) (648) (4,453)
Interest rates - 1% increase (984) (604) (748) (2,336) (1,564) 119 (668) (2,113)
Interest rates - 0.5% decrease (19) (10) 451 422 366 (273) 363 456
Equity/property yields - 1% rise 1,122 1,107 424 2,653 1,041 1,011 377 2,429
Equity/property market values - 10% fall (537) (305) (536) (1,378) (473) (498) (461) (1,432)
Statutory minimum capital 142 166 - 308 110 217 - 327
Long-term expected defaults - 5 bps
increase - - (72) (72) - - (76) (76)
------------------------------------------ -------- ------ ------- -------- -------- ------ ------- --------
11 Methodology and accounting presentation
(i) Methodology
Overview
The embedded value is the present value of the shareholders'
interest in the post-tax earnings distributable from assets
allocated to the covered business after sufficient allowance has
been made for the aggregate risks in that business. The
shareholders' interest in the Group's long-term business
comprises:
- The present value of expected future shareholder cash flows
from the in-force covered business (value of in-force business)
less deductions for:
- The cost of locked-in required capital; and
- The time value of financial options and guarantees;
- Locked-in required capital; and
- The shareholders' total net worth in excess of required capital (free surplus).
The value of future new business is excluded from the embedded
value. No smoothing of market or account balance values, unrealised
gains or investment return is applied in determining the embedded
value or profit. Separately, the analysis of profit is delineated
between operating profit based on longer-term investment returns
and non-operating items, as explained in note (ii)(a) below.
(a) Covered business
The EEV basis results for the Group are prepared for 'covered
business' as defined by the EEV Principles. Covered business
represents the Group's long-term insurance business (including the
Group's investments in joint venture and associate insurance
operations), for which the value of new and in-force contracts is
attributable to shareholders, with the following exceptions:
- The exclusion of the closed Scottish Amicable Insurance Fund
(SAIF) from covered business. SAIF is a ring-fenced sub-fund of The
Prudential Assurance Company Limited (PAC) long-term fund,
established by a Court Approved Scheme of Arrangement in October
1997. SAIF is closed to new business and the assets and liabilities
of the fund are wholly attributable to the policyholders of the
fund; and
- A small amount of UK group pensions business is also not
modelled for EEV reporting purposes.
The EEV basis results for the Group's covered business are then
combined with the post-tax IFRS basis results of the Group's asset
management and other operations (including Group and Asia Regional
Head Office, holding company borrowings, Africa operations and
Prudential Capital). Under the EEV Principles, the results for
covered business incorporate the projected margins of attaching
internal asset management, as described in note (g) below.
The definition of long-term insurance business comprises those
contracts falling under the definition for regulatory purposes
together with, for US operations, contracts that are in substance
the same as guaranteed investment contracts (GICs) but do not fall
under the technical definition.
(b) Valuation of in-force and new business
The EEV basis results are prepared incorporating best estimate
assumptions about all relevant factors including levels of future
investment returns, persistency, mortality, morbidity and expenses,
as described in note 12(iii)(a). These assumptions are used to
project future cash flows. The present value of the projected
future cash flows is then calculated using a discount rate, as
shown in note 12(i), which reflects both the time value of money
and the non-diversifiable risks associated with the cash flows that
are not otherwise allowed for.
For M&GPrudential, the embedded value incorporates Solvency
II transitional measures, which are recalculated using management's
estimate of the impact of operating and market conditions at each
valuation date.
New business
In determining the EEV basis value of new business, premiums are
included in projected cash flows on the same basis of
distinguishing regular and single premium business as set out for
statutory basis reporting.
New business premiums reflect those premiums attaching to the
covered business, including premiums for contracts classified as
investment contracts under IFRS. New business premiums for regular
premium products are shown on an annualised basis. Internal vesting
business is classified as new business where the contracts include
an open market option.
New business contribution represents profit determined by
applying operating and economic assumptions as at the end of the
period. New business profitability is a key metric for the Group's
management of the development of the business. In addition, new
business margins are shown by reference to annual premium
equivalents (APE) and the present value of new business premiums
(PVNBP). These margins are calculated as the percentage of the
value of new business profit to APE and PVNBP. APE is calculated as
the aggregate of regular premiums on new business written in the
period and one-tenth of single premiums. PVNBP is calculated as the
aggregate of single premiums and the present value of expected
future premiums from regular premium new business, allowing for
lapses and the other assumptions made in determining the EEV new
business contribution.
Valuation movements on investments
With the exception of debt securities held by Jackson,
investment gains and losses during the period (to the extent that
changes in capital values do not directly match changes in
liabilities) are included directly in the profit for the period and
shareholders' equity as they arise.
The results for any covered business conceptually reflect the
aggregate of the post-tax IFRS basis results and the movements in
the additional shareholders' interest recognised on an EEV basis.
Therefore, the start point for the calculation of the EEV basis
results for Jackson, as for other businesses, reflects the market
value movements recognised on an IFRS basis.
In determining the movements in the additional shareholders'
interest, for Jackson's debt securities backing liabilities, the
aggregate EEV basis results reflect the fact that the value of
in-force business incorporates the discounted value of expected
future spread earnings. This value is not affected generally by
short-term market movements in debt securities that, broadly
speaking, are held for the longer term. Consequently, within EEV
total net worth, Jackson's debt securities backing liabilities are
held on a statutory basis (largely at book value), while those
backing surplus and required capital are accounted for at fair
value. Consistent with the treatment applied under IFRS, for
Jackson's debt securities classified as available-for-sale,
movements in unrealised appreciation and depreciation on these
securities are accounted for directly in equity rather than in the
income statement, as shown in 'Mark-to-market value movements on
Jackson assets backing surplus and required capital' in the
statement of movement in shareholders' equity.
(c) Cost of capital
A charge is deducted from the embedded value for the cost of
locked-in required capital supporting the Group's long-term
business. The cost is the difference between the nominal value of
the capital held and the discounted value of the projected releases
of this capital, allowing for post-tax investment earnings on the
capital.
The result is affected by the movement in this cost from period
to period, which comprises a charge against new business profit and
generally a release in respect of the reduction in capital
requirements for business in force as this runs off.
Where required capital is held within a with-profits long-term
fund, the value placed on surplus assets in the fund is already
discounted to reflect its expected release over time and no further
adjustment is necessary in respect of required capital.
(d) Financial options and guarantees
Nature of financial options and guarantees in Prudential's
long-term business
Asia
Participating products in Asia, principally written in Hong
Kong, Singapore and Malaysia, have both guaranteed and
non-guaranteed elements. These products provide returns to
policyholders through bonuses that are smoothed. There are two
types of bonuses: regular and final. Regular bonuses are declared
once a year and, once credited, are guaranteed in accordance with
the terms of the particular products. Final bonuses are guaranteed
only until the next bonus declaration.
There are also various non-participating long-term products with
guarantees. The principal guarantees are those for whole-of-life
contracts with floor levels of policyholder benefits that accrue at
rates set at inception and do not vary subsequently with market
conditions.
US (Jackson)
The principal financial options and guarantees in Jackson are
associated with the variable annuity and fixed annuity lines of
business.
Jackson issues variable annuity (VA) contracts for which it
contractually guarantees to the contract holder, subject to
specific conditions, either: a) a return of no less than total
deposits made to the contract, adjusted for any partial
withdrawals; b) total deposits made to the contract, adjusted for
any partial withdrawals plus a minimum return; or c) the highest
contract value on a specified anniversary date, adjusted for any
withdrawals following the specified contract anniversary. These
guarantees include benefits that are payable upon depletion of
funds (Guaranteed Minimum Withdrawal Benefits (GMWB)) or as death
benefits (Guaranteed Minimum Death Benefits (GMDB)). These
guarantees generally protect the policyholders' contract value in
the event of poor equity market performance. Jackson hedges the
GMWB and GMDB guarantees through the use of equity options and
futures contracts with an expected long-term future hedging cost
allowed for within the EEV value of in-force business. Jackson
historically issued a small amount of income benefits (Guaranteed
Minimum Income Benefits (GMIB)), which are now materially fully
reinsured.
Fixed annuities provide that, at Jackson's discretion, it may
reset the interest rate credited to policyholders' accounts,
subject to a guaranteed minimum return, which varies from 1.0 per
cent to 5.5 per cent for all periods shown, depending on the
particular product, jurisdiction where issued and the date of
issue. At 30 June 2019, 86 per cent (30 June and 31 December 2018:
88 per cent) of the account values on fixed annuities are for
policies with guarantees of 3 per cent or less and the average
guarantee rate is 2.7 per cent (30 June and 31 December 2018: 2.6
per cent).
Fixed annuities also present a risk that policyholders will
exercise their option to surrender their contracts in periods of
rapidly rising interest rates, possibly requiring Jackson to
liquidate assets at an inopportune time.
Jackson also issues fixed index annuities that enable
policyholders to obtain a portion of an equity-linked return while
providing a guaranteed minimum return, which is of a similar nature
to those described above for fixed annuities.
UK and Europe (M&GPrudential)
The only significant financial options and guarantees in
M&GPrudential's covered business arise in the with-profits
fund, for which the guarantee features described above in respect
of Asia business broadly apply. The UK with-profits fund also held
a provision of GBP49 million at 30 June 2019 (30 June 2018: GBP52
million; 31 December 2018: GBP49 million) to honour guarantees on a
small number of guaranteed annuity option products.
The Group's main exposure to guaranteed annuity options in
M&GPrudential is through the non-covered business of SAIF. A
provision of GBP372 million was held in SAIF at 30 June 2019 (30
June 2018: GBP467 million; 31 December 2018: GBP361 million) to
honour the guarantees. As described in note (i)(a) above, the
assets and liabilities are wholly attributable to the policyholders
of the fund. Therefore, the movement in the provision has no direct
impact on shareholders' funds.
Time value
The value of financial options and guarantees comprises the
intrinsic value (arising from a deterministic valuation on best
estimate assumptions) and the time value (arising from the
variability of economic outcomes in the future).
Where appropriate, a full stochastic valuation has been
undertaken to determine the time value of financial options and
guarantees. The economic assumptions used for the stochastic
calculations are consistent with those used for the deterministic
calculations. Assumptions specific to the stochastic calculations
reflect local market conditions and are based on a combination of
actual market data, historic market data and an assessment of
long-term economic conditions. Common principles have been adopted
across the Group for the stochastic asset models, for example,
separate modelling of individual asset classes with an allowance
for correlations between various asset classes. Details of the key
characteristics of each model are given in note 12(ii).
In deriving the time value of financial options and guarantees,
management actions in response to emerging investment and fund
solvency conditions have been modelled. Management actions
encompass, but are not confined to, investment allocation
decisions, levels of regular and final bonuses and credited rates.
Bonus rates are projected from current levels and varied in
accordance with assumed management actions applying in the emerging
investment and fund solvency conditions.
In all instances, the modelled actions are in accordance with
approved local practice and therefore reflect the options actually
available to management. For the UK with-profits fund, the actions
assumed are consistent with those set out in the Principles and
Practices of Financial Management, which explain how regular and
final bonus rates within the discretionary framework are
determined, subject to the general legislative requirements
applicable.
(e) Level of required capital
In adopting the EEV Principles, Prudential has based required
capital on the applicable local statutory regulations, including
any amounts considered to be required above the local statutory
minimum requirements to satisfy regulatory constraints.
For with-profits business in Asia and the UK, the available
capital in the fund is sufficient to meet the capital requirements.
For the UK, a portion of future shareholder transfers expected from
the with-profits fund is recognised within total net worth,
together with the associated capital requirements.
For shareholder-backed businesses, the following capital
requirements for long-term business apply:
- Asia: the level of required capital has been set to an amount
at least equal to local statutory notification requirements. For
China life operations, the level of required capital follows the
approach for EEV reporting issued by the China Association of
Actuaries (CAA) reflecting the C-ROSS regime;
- US: the level of required capital has been set at 250 per cent
of the risk-based capital (RBC) required by the National
Association of Insurance Commissioners (NAIC) at the Company Action
Level (CAL); and
- UK and Europe: the capital requirements are set at the
Solvency II Solvency Capital Requirement (SCR) for
shareholder-backed business as a whole.
(f) With-profits business and the treatment of the estate
For the Group's relevant Asia operations and the UK operations,
the proportion of surplus allocated to shareholders from the
with-profits funds has been based on the applicable profit
distribution between shareholders and policyholders. The EEV
methodology includes the value attributed to the shareholders'
interest in the residual estate of the in-force with-profits
business. In any scenarios where the total assets of the life fund
are insufficient to meet policyholder claims in full, the excess
cost is fully attributed to shareholders.
(g) Internal asset management
The in-force and new business results from long-term business
include the projected future profit or loss from asset management
and service companies that support the Group's covered insurance
businesses. The results of the Group's asset management operations
include the current period profit from the management of both
internal and external funds. EEV basis shareholders' other income
and expenditure is adjusted to deduct the unwind of the expected
margins on the internal management of the assets of the life funds
for the period as included in 'Other' operations. In half year
2019, the deduction of the unwind of the expected M&GPrudential
internal asset management margin is included within the result of
discontinued operations. The deduction is on a basis consistent
with that used for projecting the results for covered insurance
business. Accordingly, Group operating profit based on longer-term
investment returns includes the variance between actual and
expected profit margin in respect of the management of the assets
for the covered business.
(h) Allowance for risk and risk discount rates
Overview
Under the EEV Principles, discount rates used to determine the
present value of expected future cash flows are set by reference to
risk-free rates plus a risk margin.
For Asia and the US, the risk-free rates are based on 10-year
local government bond yields. For the UK and Europe, the risk-free
rate is based on the full-term structure of interest rates, ie a
yield curve, which is used to determine the embedded value at the
end of the reporting period.
The risk margin reflects any non-diversifiable risk associated
with the emergence of distributable earnings that is not allowed
for elsewhere in the valuation. In order to better reflect
differences in relative market risk volatility inherent in each
product group, Prudential sets the risk discount rates to reflect
the expected volatility associated with the expected future cash
flows for each product group in the embedded value model, rather
than at a Group level.
Since financial options and guarantees are explicitly valued
under the EEV methodology, risk discount rates are set excluding
the effect of these product features.
The risk margin also represents the aggregate of the allowance
for market risk, additional allowance for credit risk where
appropriate, and allowance for non-diversifiable non-market risk.
No allowance is required for non-market risks where these are
assumed to be fully diversifiable.
Market risk allowance
The allowance for market risk represents the beta multiplied by
an equity risk premium. Except for the UK shareholder-backed
annuity business (as explained below), such an approach has been
used for the Group's covered business.
The beta of a portfolio or product measures its relative market
risk. The risk discount rates reflect the market risk inherent in
each product group and hence the volatility of product-specific
cash flows. These are determined by considering how the profit from
each product is affected by changes in expected returns on various
asset classes. By converting this into a relative rate of return,
it is possible to derive a product-specific beta.
Product level betas reflect the most recent product mix to
produce appropriate betas and risk discount rates for each major
product group.
At 30 June 2019, the Group reconsidered the application of this
methodology for certain Asia businesses to reflect a more granular
assessment of the underlying market risks when determining the
beta, alongside other refinements. These refinements resulted in
the change in the risk discount rate for Vietnam shown in note
12(i)(a), and had an impact of GBP110 million via the effect of
change in economic assumptions as shown in note 6. There were small
consequential effects on new business contribution and in-force
operating profit, which were overall not material in the context of
the Group's results.
Additional credit risk allowance
The Group's methodology is to allow appropriately for credit
risk. The allowance for total credit risk is to cover expected
long-term defaults, credit risk premium (to reflect the volatility
in downgrade and default levels) and short-term downgrades and
defaults.
These allowances are initially reflected in determining best
estimate returns and through the market risk allowance described
above. However, for those businesses largely backed by holdings of
debt securities, these allowances in the projected returns and
market risk allowances may not be sufficient and an additional
allowance may be appropriate.
The practical application of the allowance for credit risk
varies depending on the type of business as described below:
Asia
For Asia, the allowance for credit risk incorporated in the
projected rates of return and the market risk allowance is
considered to be sufficient. Accordingly, no additional allowance
for credit risk is required.
The projected rates of return for holdings of corporate bonds
comprise the risk-free rate plus an assessment of long-term spread
over the risk-free rate.
US (Jackson)
For Jackson, the allowance for long-term defaults of 0.17 per
cent at 30 June 2019 (30 June 2018: 0.18 per cent; 31 December
2018: 0.17 per cent) is reflected in the risk margin reserve charge
that is deducted in determining the projected spread margin between
the earned rate on the investments and the policyholder crediting
rate.
The risk discount rate incorporates an additional allowance for
credit risk premium and short-term downgrades and defaults, as
shown in note 12(ii). In determining this allowance, a number of
factors have been considered, in particular, including:
- How much of the credit spread on debt securities represents an
increased short-term credit risk not reflected in the risk margin
reserve long-term default assumptions and how much is liquidity
premium (which is the premium required by investors to compensate
for the risk of longer-term investments that cannot be easily
converted into cash at the fair market value). In assessing this
effect, consideration has been given to a number of approaches to
estimate the liquidity premium by considering recent statistical
data; and
- Policyholder benefits for Jackson fixed annuity business are
not fixed. It is possible, in adverse economic scenarios, to pass
on a component of credit losses to policyholders (subject to
guarantee features), through lower investment returns credited to
policyholders. Consequently, it is only necessary to allow for the
balance of the credit risk in the risk discount rate.
The level of the additional allowance is assessed at each
reporting period to take account of prevailing credit conditions
and as the business in force alters over time. The additional
allowance for variable annuity business has been set at one-fifth
of the non-variable annuity business to reflect the proportion of
the allocated holdings of general account debt securities.
The level of allowance differs from that for the UK annuity
business for investment portfolio differences and to take account
of management actions available in adverse economic scenarios to
reduce crediting rates to policyholders, subject to guarantee
features of the products.
UK and Europe (M&GPrudential)
(1) Shareholder-backed annuity business
For shareholder-backed annuity business, Prudential has used a
market consistent embedded value (MCEV) approach to derive an
implied risk discount rate, which is then applied to the projected
best estimate future cash flows.
In the annuity MCEV calculations, as the assets are generally
held to maturity to match liabilities, the projected future cash
flows are discounted using the swap yield curve plus an allowance
for liquidity premium based on the Solvency II allowance for credit
risk. The Solvency II allowance is set by the European Insurance
and Occupational Pensions Authority (EIOPA), using a prudent
assumption that all future downgrades will be replaced annually and
allowing for the credit spread floor.
For the purposes of presentation in the EEV basis results, the
results produced under the approach above are reconfigured. Under
EEV, the projected rates of return on debt securities held are
determined after allowing for a best estimate credit risk
allowance. The remaining elements of prudence within the Solvency
II allowance are incorporated into the risk margin included in the
discount rate shown in note 12(iii).
(2) Non-profit annuity business in the with-profits fund
For non-profit annuity business attributable to the UK
with-profits fund, the basis for determining the aggregate
allowance for credit risk is consistent with that applied for the
UK shareholder-backed annuity business as described above. The
allowance for credit risk for this business is taken into account
in determining the projected future cash flows from the
with-profits fund, which are in turn discounted at the risk
discount rate applicable to all of the projected cash flows from
the fund.
(3) With-profits fund holdings of debt securities
The with-profits fund holds debt securities as part of its
investment portfolio backing policyholder liabilities and
unallocated surplus. The assumed earned rates for with-profits
holdings of corporate bonds is defined as the risk-free rate plus
an assessment of the long-term spread over risk-free, net of
expected long-term defaults. This approach is similar to that
applied for equities and properties for which the projected earned
rate is defined as the risk-free rate plus a long-term risk
premium.
Allowance for non-diversifiable non-market risks
The majority of non-market and non-credit risks are considered
to be diversifiable. An allowance for non-diversifiable non-market
risks is estimated as set out below.
A base level allowance of 50 basis points is applied to cover
the non-diversifiable non-market risks associated with the Group's
covered business. For the Group's Asia businesses in Indonesia, the
Philippines, Taiwan, Thailand and Vietnam, additional allowances
are applied for emerging market risk ranging from 100 to 250 basis
points. The level of these allowances are reviewed and updated
based on an assessment of a range of pre-defined emerging market
risk indicators, as well as the Group's exposure and experience in
the markets. For the Group's US business and UK and Europe
business, no additional allowance is necessary.
(i) Foreign currency translation
Foreign currency profits and losses have been translated at
average exchange rates for the period. Foreign currency assets and
liabilities have been translated at period-end exchange rates. The
principal exchange rates are shown in note A1 of the Group IFRS
basis results.
(j) Taxation
In determining the post-tax profit for the period for covered
business, the overall tax rate includes the impact of tax effects
determined on a local regulatory basis. Tax payments and receipts
included in the projected future cash flows to determine the value
of in-force business are calculated using tax rates that have been
announced and substantively enacted by the end of the reporting
period.
(k) Inter-company arrangements
The EEV results for covered business incorporate annuities
established in the PAC non-profit sub-fund from vesting pension
policies in SAIF and the effect of the reinsurance arrangement of
non-profit immediate pension annuity liabilities of SAIF to the PAC
non-profit sub-fund.
(ii) Accounting presentation
(a) Analysis of post-tax profit
To the extent applicable, the presentation of the EEV basis
profit for the period is consistent with the classification between
operating and non-operating results that the Group applies for the
analysis of IFRS basis results. Operating results based on
longer-term investment returns are determined as described in note
(b) below and incorporate the following:
- New business contribution, as defined in note (i)(b) above;
- Unwind of discount on the value of in-force business and other
expected returns, as described in note (c) below;
- The impact of routine changes of estimates relating to
operating assumptions, as described in note (d) below; and
- Operating experience variances, as described in note (e) below.
Non-operating results comprise:
- Short-term fluctuations in investment returns;
- Mark-to-market value movements on core structural borrowings;
- Effect of changes in economic assumptions; and
- The impact of corporate transactions undertaken in the period.
In addition, operating results include the effect of changes in
tax legislation, unless these changes are one-off and structural in
nature or primarily affect the level of projected investment
returns, in which case they are reflected as a non-operating
result.
Total profit in the period attributable to shareholders and
basic earnings per share include these items, together with actual
investment returns. The Group believes that operating profit, as
adjusted for these items, better reflects underlying
performance.
(b) Investment returns included in operating profit
For the investment element of the assets covering the total net
worth of long-term insurance business, investment returns are
recognised in operating results at the expected long-term rates of
return. These expected returns are calculated by reference to the
asset mix of the portfolio.
For the purpose of determining the long-term returns for debt
securities of Jackson for fixed annuity and other general account
business, a risk margin reserve charge is included, which reflects
the expected long-term rate of default based on the credit quality
of the portfolio. For Jackson, interest-related realised gains and
losses are amortised to the operating results over the maturity
period of the sold bonds; for equity-related investments, a
long-term rate of return is assumed (as disclosed in note 12(b)),
which reflects the aggregation of end-of-period risk-free rates and
the equity risk premium. For variable annuity separate account
business, operating profit includes the unwind of discount on the
opening value of in-force business adjusted to reflect
end-of-period projected rates of return, with the excess or deficit
of the actual return recognised within non-operating results,
together with related hedging activity variances.
(c) Unwind of discount and other expected returns
The Group's methodology in determining the unwind of discount
and other expected returns is by reference to the value of in-force
business at the beginning of the period (adjusted for the effect of
changes in economic and operating assumptions in the current
period) and required capital and surplus assets.
(d) Effect of changes in operating assumptions
Operating profit includes the effect of changes to non-economic
assumptions on the value of in-force business at the end of the
period. For presentational purposes the effect of changes is
delineated to show the effect on the opening value of in-force
business as operating assumption changes, with the experience
variances subsequently being determined by reference to the
end-of-period assumptions, as discussed below.
(e) Operating experience variances
Operating profit includes the effect of experience variances on
non-economic assumptions, such as persistency, mortality,
morbidity, expenses and other factors, which are calculated with
reference to the end-of-period assumptions.
(f) Effect of changes in economic assumptions
Movements in the value of in-force business at the beginning of
the period caused by changes in economic assumptions, net of the
related changes in the time value of financial options and
guarantees, are recorded in non-operating results.
12 Assumptions
(i) Principal economic assumptions
The EEV basis results for the Group's covered business have been
determined using economic assumptions where the long-term expected
rates of return on investments and risk discount rates are set by
reference to period-end risk-free rates of return (defined below
for each of the Group's insurance operations). Expected returns on
equity and property asset classes and corporate bonds are derived
by adding a risk premium to the risk-free rate, based on the
Group's long-term view. As described in note 11(i)(h), the
resulting risk discount rates incorporate allowances for market
risk, additional credit risk and non-diversifiable non-market risks
appropriate to the features and risks of the underlying products
and markets, after considering risks allowed for explicitly
elsewhere in the EEV basis, such as cost of capital and the time
value of the cost of options and guarantees.
The total profit that emerges over the lifetime of an individual
contract as calculated under the EEV basis is the same over time as
that calculated under the IFRS basis. Since the EEV basis reflects
discounted future cash flows, under the EEV methodology the profit
emergence is advanced, thus more closely aligning the timing of the
recognition of profit with the efforts and risks of current
management actions, particularly with regard to business sold
during the period.
(a) Asianotes(2)(3)
The risk-free rates of return are defined as the 10-year
government bond yields at the end of the period.
Risk discount rate %
-----------------------------------------------------------------------
New business In-force business
----------------------------------- ----------------------------------
2019 2018 2019 2018
----------- ---------------------- ---------- ----------------------
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
------------------------------- ----------- ---------- ---------- ---------- ---------- ----------
China JV 8.0 9.3 8.1 8.0 9.3 8.1
Hong Kongnotes (2)(4) 3.8 4.3 4.4 3.8 4.4 4.4
Indonesia 11.8 12.1 12.4 11.8 12.1 12.4
Malaysianote (4) 6.2 6.8 6.6 6.2 6.8 6.6
Philippines 12.5 14.1 14.5 12.5 14.1 14.5
Singaporenote (4) 3.5 3.9 3.4 4.3 4.9 4.2
Taiwan 4.3 4.5 4.5 4.2 4.0 4.4
Thailand 9.6 10.1 10.0 9.6 10.1 10.0
Vietnam 9.1 12.2 12.6 9.0 12.2 12.6
Total weighted averagenote (1) 5.0 5.6 5.4 5.2 6.0 5.8
------------------------------- ----------- ---------- ---------- ---------- ---------- ----------
10-year government bond yield % Expected long-term inflation %
----------------------------------- ----------------------------------
2019 2018 2019 2018
----------- ---------------------- ---------- ----------------------
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
------------------------------- ----------- ---------- ---------- ---------- ---------- ----------
China JV 3.3 3.5 3.3 3.0 3.0 3.0
Hong Kongnotes (2)(4) 2.0 2.9 2.7 2.5 2.5 2.5
Indonesia 7.5 7.9 8.2 4.5 4.5 4.5
Malaysianote (4) 3.7 4.2 4.1 2.5 2.5 2.5
Philippines 5.0 6.6 7.0 4.0 4.0 4.0
Singaporenote (4) 2.0 2.6 2.1 2.0 2.0 2.0
Taiwan 0.7 0.9 0.9 1.5 1.5 1.5
Thailand 2.1 2.6 2.5 3.0 3.0 3.0
Vietnam 4.7 4.7 5.1 5.5 5.5 5.5
------------------------------- ----------- ---------- ---------- ---------- ---------- ----------
Notes
(1) Total weighted average risk discount rates for Asia shown
above have been determined by weighting each business's risk
discount rates by reference to the EEV basis new business
contribution and the net closing value of in-force business. The
changes in the risk discount rates for individual Asia businesses
reflect the movements in the 10-year government bond yields,
changes in the allowance for market risk as described in note
11(i)(h) and changes in product mix.
(2) For Hong Kong, the assumptions shown are for US dollar
denominated business. For other businesses, the assumptions shown
are for local currency denominated business.
(3) Equity risk premiums in Asia range from 4.0 per cent to 9.5
per cent (30 June and 31 December 2018: 4.0 per cent to 9.4 per
cent).
(4) The mean (arithmetic) equity return assumptions for the most
significant equity holdings of the Asia businesses are:
2019 % 2018 %
------ --------------
30 Jun 30 Jun 31 Dec
---------- ------ ------ ------
Hong Kong 6.0 6.9 6.7
Malaysia 10.1 10.7 10.6
Singapore 8.5 9.1 8.6
---------- ------ ------ ------
(b) US
The risk-free rate of return is defined as the 10-year treasury
bond yield at the end of the period.
2019 % 2018 %
------ --------------
30 Jun 30 Jun 31 Dec
--------------------------------------------------------------------------------- ------ ------ ------
Risk discount rate:
Variable annuity:
Risk discount rate 6.4 7.3 7.1
Additional allowance for credit risk included in risk discount ratenote 11(i)(h) 0.2 0.2 0.2
Non-variable annuity:
Risk discount rate 3.7 4.6 4.4
Additional allowance for credit risk included in risk discount ratenote 11(i)(h) 1.0 1.0 1.0
Total weighted average:
New business 6.1 7.1 6.9
In-force business 6.1 7.0 6.8
Allowance for long-term defaults included in projected spreadnote 11(i)(h) 0.17 0.18 0.17
US 10-year treasury bond yield 2.0 2.9 2.7
Equity risk premium (arithmetic) 4.0 4.0 4.0
Pre-tax expected long-term nominal rate of return for US equities (arithmetic) 6.0 6.9 6.7
Expected long-term rate of inflation 2.8 3.1 2.9
S&P equity return volatilitynote (ii)(b) 17.5 18.0 17.5
----------------------------------------------------------------------------------- ------ ------ ------
Note
Assumed new business spread margins are as follows:
2019 % 2018 %
---------------------- -----------------------------------------------
January to June issues January to June issues July to December issues
----------------------------- ---------------------- ---------------------- -----------------------
Fixed annuity business* 1.50 1.75 1.75
Fixed index annuity business 0.50 2.00 2.00
Institutional business 0.50 0.50 0.50
----------------------------- ---------------------- ---------------------- -----------------------
* Including the proportion of variable annuity business invested
in the general account. The assumed spread margin grades up
linearly by 25 basis points to a long-term assumption over five
years.
The assumed spread margin grades up linearly by 100 basis points
over five years, increasing by a further 50 basis points to a
long-term assumption at the end of the index option period (2018
issues: grades up linearly by 25 basis points to a long-term
assumption over five years).
(c) UK and Europe
The risk-free rate is based on the full term structure of
interest rates, ie a yield curve, which is used to determine the
embedded value at the end of the reporting period. These yield
curves are used to derive pre-tax expected long-term nominal rates
of investment return and risk discount rates.
This single implied risk discount rate is shown, along with the
15-year nominal rate of investment return and 15-year rate of
inflation based on the inflation yield curve.
2019 % 2018 %
---------- ------------------------
30 Jun 30 Jun 31 Dec
--------------------------------------------------------------------------- ---------- ----------- -----------
Shareholder-backed annuity in-force business:note (1)
Risk discount rate 3.8 4.1 4.7
Pre-tax expected 15-year nominal rates of investment return 2.5 2.9 3.1
With-profits and other business:
Risk discount rate:note (2)
New business 4.6 4.8 4.9
In-force business 4.5 4.9 5.0
Pre-tax expected 15-year nominal rates of investment return (arithmetic):
Overseas equities 5.8 to 9.7 6.6 to 10.3 6.5 to 10.1
Property 4.0 4.4 4.4
15-year gilt yield 1.3 1.7 1.7
Corporate bonds 3.0 3.5 3.5
Expected 15-year rate of inflation 3.6 3.4 3.6
Equity risk premium (arithmetic) 4.0 4.0 4.0
--------------------------------------------------------------------------- ---------- ----------- -----------
Notes
(1) For shareholder-backed annuity business, the movements in
the pre-tax long-term nominal rates of return and risk discount
rates reflect the effect of changes in asset yields.
(2) The risk discount rates for with-profits and other business
shown above represent a weighted average total of the rates applied
to determine the present value of future cash flows, including the
portion of future shareholders' transfers from the with-profits
business recognised in total net worth.
(3) The table below shows the pattern of the UK Solvency II
risk-free spot yield curve at the end of each reporting period:
1 year 5 year 10 year 15 year 20 year
------------ ------ ------ ------- ------- -------
30 Jun 2019 0.7% 0.8% 0.9% 1.1% 1.1%
31 Dec 2018 1.0% 1.2% 1.3% 1.4% 1.5%
30 Jun 2018 0.8% 1.2% 1.4% 1.5% 1.6%
------------ ------ ------ ------- ------- -------
(ii) Stochastic assumptions
Details are given below of the key characteristics of the models
used to determine the time value of financial options and
guarantees as referred to in note 11(i)(d).
(a) Asia
- The stochastic cost of guarantees is primarily of significance
for the Hong Kong, Malaysia, Singapore, Taiwan and Vietnam
businesses;
- The principal asset classes are government bonds, corporate bonds and equity;
- Interest rates are projected using a stochastic interest rate
model calibrated to the current market yields;
- Equity returns are assumed to follow a log-normal distribution;
- The corporate bond return is calculated based on a risk-free
return plus a mean-reverting spread;
- The volatility of equity returns ranges from 18 per cent to 35
per cent for all periods shown; and
- The volatility of government bond yields ranges from 1.1 per
cent to 2.0 per cent for all periods shown.
(b) US (Jackson)
- Interest rates and equity returns are projected using a
log-normal generator reflecting historical market data;
- Corporate bond returns are based on treasury yields plus a
spread that reflects current market conditions;
- The volatility of equity returns ranges from 17 per cent to 26
per cent (half year 2018: from 18 per cent to 27 per cent; full
year 2018: from 17 per cent to 26 per cent); and
- The standard deviation of interest rates ranges from 3.3 per
cent to 3.5 per cent (half year 2018: from 2.6 per cent to 2.9 per
cent; full year 2018: from 3.4 per cent to 3.7 per cent).
(c) UK and Europe (M&GPrudential)
- Interest rates are projected using a stochastic interest rate
model calibrated to the current market yields;
- Equity returns are assumed to follow a log-normal distribution;
- The corporate bond return is calculated based on a risk-free
return plus a mean-reverting spread;
- Property returns are modelled based on a risk-free return plus
a risk premium with a stochastic process reflecting total property
returns; and
- The standard deviation of equities and property ranges from 14
per cent to 20 per cent for all periods shown.
(iii) Operating assumptions
(a) Best estimate assumptions
Best estimate assumptions are used for projecting future cash
flows, where best estimate is defined as the mean of the
distribution of future possible outcomes. The assumptions are
reviewed actively and changes are made when evidence exists that
material changes in future experience are reasonably certain.
Assumptions required in the calculation of the value of
financial options and guarantees, for example relating to
volatilities and correlations, or dynamic algorithms linking
liabilities to assets, have been set equal to the best estimates
and, wherever material and practical, reflect any dynamic
relationships between the assumptions and the stochastic
variables.
Demographic assumptions
Persistency, mortality and morbidity assumptions are based on an
analysis of recent experience, and also reflect expected future
experience. Where relevant, when calculating the time value of
financial options and guarantees, policyholder withdrawal rates
vary in line with the emerging investment conditions according to
management's expectations. When projecting future cash flows for
medical reimbursement business that is repriced annually, explicit
allowance is made for expected future premiums inflation and
separately for future medical claims inflation.
Expense assumptions
Expense levels, including those of the service companies that
support the Group's long-term business, are based on internal
expense analysis and are appropriately allocated to acquisition of
new business and renewal of in-force business. For mature business,
it is Prudential's policy not to take credit for future cost
reduction programmes until the actions to achieve the savings have
been delivered. An allowance is made for short-term required
expenses, that are not representative of the longer-term expense
loadings of the relevant businesses. At 30 June 2019, the allowance
held for these costs across the Group was GBP(353) million mainly
arising in Asia. Expense overruns are reported where these are
expected to be short-lived, including businesses that are growing
rapidly or are sub-scale.
For Asia, the expenses comprise costs borne directly and costs
recharged from the Asia Regional Head Office that are attributable
to the covered business. The assumed future expenses for these
businesses also include projections of these future recharges.
Development expenses are charged as incurred.
Corporate expenditure, which is included in other income and
expenditure, comprises:
- Expenditure of Group Head Office, together with restructuring
costs incurred across the Group; and
- Expenditure of the Asia Regional Head Office that is not
allocated to the covered business or asset management. These costs
are primarily for corporate related activities and are charged as
incurred.
(b) Tax rates
The assumed long-term effective tax rates for operations reflect
the incidence of taxable profit and loss in the projected future
cash flows as explained in note 11(i)(j).
The local statutory corporate tax rates applicable for the most
significant businesses are as follows:
%
Asia:
Hong Kong 16.5 per cent on 5 per cent of premium income
Indonesia 25.0
Malaysia 24.0
Singapore 17.0
US 21.0
UK 19.0; from 1 April 2020: 17.0
----------------- ----------------------------------------------
13 Total insurance and investment products new business
(i) Insurance new business premiumsnote (a)
Present value of new
Annual premium business premiums
Single premiums Regular premiums equivalents (APE) (PVNBP)
---------------------- ------------------- ---------------------- -------------------------
2019 2019 2019 2019
GBPm 2018 GBPm GBPm 2018 GBPm GBPm 2018 GBPm GBPm 2018 GBPm
------ -------------- ----- ------------ ----- --------------- ------ -----------------
Half Half Full Half Half Full Half Half Full Half Half Full
year year year year year year year year year year year year
------------------- ------ ------ ------ ----- ----- ----- ----- ----- -------- ------ ------ ---------
Continuing
operations:
Asia
Cambodia - - - 11 8 20 11 8 20 51 37 89
Hong Kong 165 157 343 813 726 1,663 830 742 1,697 5,178 4,210 10,200
Indonesia 94 118 205 111 101 215 121 113 236 515 434 910
Malaysia 70 31 84 115 114 243 122 117 251 681 583 1,322
Philippines 11 22 43 54 36 83 55 38 87 185 134 296
Singapore 386 420 930 192 163 369 231 205 462 1,623 1,529 3,611
Thailand 74 124 217 41 41 95 48 53 117 246 289 609
Vietnam 10 8 20 67 60 144 68 61 146 363 305 708
------------------- ------ ------ ------ ----- ----- ----- ----- ----- -------- ------ ------ ---------
South-east Asia
including Hong
Kong 810 880 1,842 1,404 1,249 2,832 1,486 1,337 3,016 8,842 7,521 17,745
China JVnote (b) 360 30 103 234 184 292 270 187 302 1,185 759 1,313
Taiwan 196 180 292 97 90 182 116 108 211 483 426 788
Indianote (c) 60 31 79 100 101 207 106 104 215 478 426 908
------------------- ------ ------ ------ ----- ----- ----- ----- ----- -------- ------ ------ ---------
Total Asia 1,426 1,121 2,316 1,835 1,624 3,513 1,978 1,736 3,744 10,988 9,132 20,754
------------------- ------ ------ ------ ----- ----- ----- ----- ----- -------- ------ ------ ---------
US
Variable annuities 4,854 5,439 10,810 - - - 485 544 1,081 4,854 5,439 10,810
Elite Access
(variable annuity) 743 898 1,681 - - - 74 89 168 743 898 1,681
Fixed annuities 177 166 340 - - - 18 17 34 177 166 340
Fixed index
annuities 930 125 251 - - - 93 13 25 930 125 251
Institutional 1,606 1,535 2,341 - - - 161 153 234 1,606 1,535 2,341
------------------- ------ ------ ------ ----- ----- ----- ----- ----- -------- ------ ------ ---------
Total US 8,310 8,163 15,423 - - - 831 816 1,542 8,310 8,163 15,423
------------------- ------ ------ ------ ----- ----- ----- ----- ----- -------- ------ ------ ---------
Total continuing
operationsnote (d) 9,736 9,284 17,739 1,835 1,624 3,513 2,809 2,552 5,286 19,298 17,295 36,177
------------------- ------ ------ ------ ----- ----- ----- ----- ----- -------- ------ ------ ---------
Discontinued
UK and Europe
operations
Bonds 1,799 1,650 3,539 - - - 180 165 354
Corporate pensions 44 43 69 61 70 117 65 75 124
Individual pensions 2,170 2,989 5,681 18 17 35 235 316 603
Income drawdown 1,248 1,226 2,555 - - - 125 123 256
Other products 854 782 1,538 14 14 25 100 91 179
------------------- ------ ------ ------ ----- ----- ----- ----- ----- --------
Total discontinued
UK and Europe
operations 6,115 6,690 13,382 93 101 177 705 770 1,516
------------------- ------ ------ ------ ----- ----- ----- ----- ----- --------
Group totalnote (d) 15,851 15,974 31,121 1,928 1,725 3,690 3,514 3,322 6,802
------------------- ------ ------ ------ ----- ----- ----- ----- ----- --------
Notes
(a) The tables shown above are provided as an indicative volume
measure of transactions undertaken in the reporting period that
have the potential to generate profit for shareholders. The amounts
shown are not, and not intended to be, reflective of premium income
recorded in the Group IFRS income statement. A reconciliation of
APE and gross premiums earned on an IFRS basis is provided in note
II(vi) within the additional financial information.
The format of the tables shown above is consistent with the
distinction between insurance and investment products as applied
for previous financial reporting periods. With the exception of
some US institutional business, products categorised as 'insurance'
refer to those classified as contracts of long-term insurance
business for regulatory reporting purposes, ie falling within one
of the classes of insurance specified in Part II of Schedule 1 to
the Regulated Activities Order under Prudential Regulation
Authority regulations.
The details shown above for insurance products include
contributions for contracts that are classified under IFRS 4,
'Insurance Contracts' as not containing significant insurance risk.
These products are described as investment contracts or other
financial instruments under IFRS. Contracts included in this
category are primarily certain unit-linked and similar contracts
written in UK insurance operations and Guaranteed Investment
Contracts and similar funding agreements written in US
operations.
(b) New business in China JV is included at Prudential's 50 per
cent interest in the China joint venture.
(c) New business in India is included at Prudential's interest
in the India associate (with effect from 27 March 2019: 22 per
cent; 30 June 2018 and 31 December 2018: 26 per cent).
(d) In half year 2019, the Africa business sold new business APE
of GBP30 million (half year 2018: GBP18 million; full year 2018:
GBP38 million). Given the relative immaturity of the Africa
business, it is incorporated into the Group's EEV basis results on
an IFRS basis and is excluded from new business sales and profit
metrics.
(ii) Investment products - funds under managementnotes (a)(b)(c)
Half year 2019 GBPm
------------------------------------------------------------------------------------
Market Market exchange translation
1 Jan 2019 gross inflows Redemptions and other movements 30 Jun 2019
-------------------------------- ---------- -------------- ----------- ------------------------------ -----------
Eastspring Investments -
continuing 49,455 16,454 (13,396) 3,959 56,472
M&GPrudential - discontinued 146,946 17,793 (22,379) 10,601 152,961
-------------------------------- ---------- -------------- ----------- ------------------------------ -----------
Group total 196,401 34,247 (35,775) 14,560 209,433
-------------------------------- ---------- -------------- ----------- ------------------------------ -----------
Half year 2018 GBPm
------------------------------------------------------------------------------------
Market Market exchange translation
1 Jan 2018 gross inflows Redemptions and other movements 30 Jun 2018
-------------------------------- ---------- -------------- ----------- ------------------------------ -----------
Eastspring Investments 46,568 10,456 (11,319) (3,335) 42,370
M&GPrudential 163,855 21,401 (17,853) (1,913) 165,490
-------------------------------- ---------- -------------- ----------- ------------------------------ -----------
Group total 210,423 31,857 (29,172) (5,248) 207,860
-------------------------------- ---------- -------------- ----------- ------------------------------ -----------
Notes
(a) Investment products referred to in the tables for funds
under management above are unit trusts, mutual funds and similar
types of retail fund management arrangements. These are unrelated
to insurance products that are classified as 'investment contracts'
under IFRS 4, although similar IFRS recognition and measurement
principles apply to the acquisition costs and fees attaching to
this type of business.
(b) Investment flows for half year 2019 exclude Eastspring Money
Market Funds gross inflows of GBP103,337 million (half year 2018:
gross inflows of GBP95,336 million) and net outflows of GBP978
million (half year 2018: net inflows of GBP665 million).
(c) New business and market gross inflows and redemptions have
been translated at an average exchange rate for the period
applicable. Funds under management at points in time are translated
at the exchange rate applicable to those dates.
14 Gain (loss) attaching to corporate transactions undertaken by
continuing operations
2019 GBPm 2018* GBPm
--------- --------------------
Half year Half year Full year
-------------------------------------- --------- --------- ---------
Gain on disposalsnote (i) 140 - -
Other corporate transactionsnote (ii) (164) (48) (75)
-------------------------------------- --------- --------- ---------
Total (24) (48) (75)
-------------------------------------- --------- --------- ---------
* The 2018 comparative results have been re-presented from those
previously published to reflect the Group's UK and Europe
operations classified as discontinued operations as at 30 June
2019.
Notes
(i) In half year 2019, the GBP140 million gain on disposals
mainly relates to profits arising from a reduction in the Group's
stake (from 26 per cent to 22 per cent) in its associate in India,
ICICI Prudential Life Insurance Company, and the disposal of
Prudential Vietnam Finance Company Limited, a wholly owned
subsidiary that provides consumer finance.
(ii) In half year 2019, other corporate transactions undertaken
by continuing operations resulted in an EEV loss of GBP(164)
million (half year 2018: GBP(48) million; full year 2018: GBP(75)
million). This primarily reflects costs related to the preparation
for the proposed demerger of M&GPrudential from Prudential plc,
including a fee of GBP141 million (before tax) paid to the holders
of two subordinated debt instruments as discussed in note 7. In
2018, these additionally included costs from exiting the NPH
broker-dealer business in the US.
Additional EEV financial information*
A New business
Basis of preparation
The format of the schedules is consistent with the distinction
between insurance and investment products as applied for previous
reporting periods. With the exception of some US institutional
business, products categorised as 'insurance' refer to those
classified as contracts of long-term insurance business for
regulatory reporting purposes, ie falling within one of the classes
of insurance specified in Part II of Schedule 1 to the Regulated
Activities Order under the Prudential Regulation Authority (PRA)
regulations.
The details shown for insurance products include contributions
for contracts that are classified under IFRS 4 'Insurance
Contracts' as not containing significant insurance risk. These
products are described as investment contracts or other financial
instruments under IFRS. Contracts included in this category are
primarily certain unit-linked and similar contracts written in UK
and Europe Insurance Operations, and Guaranteed Investment
Contracts and similar funding agreements written in US Insurance
Operations.
New business premiums reflect those premiums attaching to
covered business, including premiums for contracts designed as
investment products for IFRS reporting and for regular premium
products are shown on an annualised basis.
Investment products referred to in the tables for funds under
management are unit trusts, mutual funds and similar types of
retail fund management arrangements. These are unrelated to
insurance products that are classified as investment contracts
under IFRS 4, as described in the preceding paragraph, although
similar IFRS recognition and measurement principles apply to the
acquisition costs and fees attaching to this type of business.
Post-tax New Business Profit has been determined using the
European Embedded Value (EEV) methodology set out in our EEV basis
results supplement.
In determining the EEV basis value of new business written in
the period when policies incept, premiums are included in projected
cash flows on the same basis of distinguishing annual and single
premium business as set out for statutory basis reporting.
Annual premium equivalent (APE) sales are subject to
rounding.
* The additional financial information is not covered by the
KPMG LLP independent review opinion.
Notes to Schedules A(i) to A(v)
(1) Prudential reports its results using both actual exchange
rates (AER) and constant exchange rates (CER) to eliminate the
impact of foreign exchange translation.
Average rate* Closing rate
---------------------------------------- ----------------------------------------
% appreciation % appreciation
(depreciation) of (depreciation) of
Half year Half year local currency 30 Jun 30 Jun local currency
Local currency : GBP 2019 2018 against GBP 2019 2018 against GBP
--------------------- --------- --------- ------------------ --------- --------- ------------------
China 8.78 8.76 (0)% 8.74 8.75 0%
Hong Kong 10.15 10.78 6% 9.94 10.36 4%
Indonesia 18,364.05 18,938.64 3% 17,980.07 18,919.18 5%
Malaysia 5.33 5.42 2% 5.26 5.33 1%
Singapore 1.76 1.83 4% 1.72 1.80 5%
Thailand 40.91 43.66 7% 39.06 43.74 12%
US 1.29 1.38 7% 1.27 1.32 4%
Vietnam 30,087.11 31,329.01 4% 29,660.27 30,310.96 2%
--------------------- --------- --------- ------------------ --------- --------- ------------------
Average rate* Closing rate
---------------------------------------- ----------------------------------------
% appreciation % appreciation
(depreciation) of (depreciation) of
Half year Full year local currency 30 Jun 31 Dec local currency
Local currency : GBP 2019 2018 against GBP 2019 2018 against GBP
--------------------- --------- --------- ------------------ --------- --------- ------------------
China 8.78 8.82 0% 8.74 8.74 0%
Hong Kong 10.15 10.46 3% 9.94 9.97 0%
Indonesia 18,364.05 18,987.65 3% 17,980.07 18,314.37 2%
Malaysia 5.33 5.38 1% 5.26 5.26 0%
Singapore 1.76 1.80 2% 1.72 1.74 1%
Thailand 40.91 43.13 5% 39.06 41.47 6%
US 1.29 1.34 4% 1.27 1.27 0%
Vietnam 30,087.11 30,732.53 2% 29,660.27 29,541.15 (0)%
--------------------- --------- --------- ------------------ --------- --------- ------------------
(*) Average rate is for the 6 month period to 30 June.
(2) Annual premium equivalents (APE) are calculated as the
aggregate of regular premiums on business written in the period and
one-tenth of single premiums. Present value of new business
premiums (PVNBP) are calculated as the aggregate of single premiums
and the present value of expected future premiums from regular
premium new business, allowing for lapses and the other assumptions
applied in determining the EEV new business profit.
(3) New business in China JV is included at Prudential's 50 per
cent interest in the China joint venture.
(4) New business in India is included at Prudential's interest
in the India associate (with effect from 27 March 2019: 22 per
cent; 30 June 2018 and 31 December 2018: 26 per cent).
(5) Investment flows for the period exclude period-to-date
Eastspring Money Market Funds (MMF) gross inflow of GBP103,337
million (half year 2018: gross inflow of GBP95,336 million; full
year 2018: gross inflow of GBP191,523 million) and net outflow of
GBP978 million (half year 2018: net inflow of GBP665 million; full
year 2018: net inflow of GBP1,500 million).
(6) Total Group Investment Operations funds under management
exclude MMF funds under management of GBP10,492 million at 30 June
2019 (30 June 2018: GBP10,067 million; 31 December 2018: GBP11,602
million).
(7) Mandatory Provident Fund (MPF) product sales in Hong Kong
are included at Prudential's 36 per cent interest in the Hong Kong
MPF business.
(8) Balance sheet figures have been calculated at the closing
exchange rates.
(9) Balance includes segregated and pooled pension funds,
private finance assets and other institutional clients.
Schedule A(i) New Business Insurance Operations (Actual Exchange
Rates)
Note: The half year 2018 comparative results are shown below on
actual exchange rates as previously reported.
Single premiums Regular premiums APEnote(2) PVNBPnote(2)
2019 2018 +/(-) 2019 2018 +/(-) 2019 2018 +/(-) 2019 2018 +/(-)
Half Half Half Half Half Half Half Half
year year year year year year year year
GBPm GBPm % GBPm GBPm % GBPm GBPm % GBPm GBPm %
--------------------------- ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ------ -----
Continuing operations:
Asia
Cambodia - - - 11 8 38% 11 8 38% 51 37 38%
Hong Kong 165 157 5% 813 726 12% 830 742 12% 5,178 4,210 23%
Indonesia 94 118 (20)% 111 101 10% 121 113 7% 515 434 19%
Malaysia 70 31 126% 115 114 1% 122 117 4% 681 583 17%
Philippines 11 22 (50)% 54 36 50% 55 38 45% 185 134 38%
Singapore 386 420 (8)% 192 163 18% 231 205 13% 1,623 1,529 6%
Thailand 74 124 (40)% 41 41 - 48 53 (9)% 246 289 (15)%
Vietnam 10 8 25% 67 60 12% 68 61 11% 363 305 19%
------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ------ -----
South-east Asia
including Hong Kong 810 880 (8)% 1,404 1,249 12% 1,486 1,337 11% 8,842 7,521 18%
China JVnote (3) 360 30 1,100% 234 184 27% 270 187 44% 1,185 759 56%
Taiwan 196 180 9% 97 90 8% 116 108 7% 483 426 13%
Indianote (4) 60 31 94% 100 101 (1)% 106 104 2% 478 426 12%
------ ----- ----- ----- ----- -----
Total Asia 1,426 1,121 27% 1,835 1,624 13% 1,978 1,736 14% 10,988 9,132 20%
------ ------ ----- ----- ----- ----- ----- ------ ------
US
Variable annuities 4,854 5,439 (11)% - - - 485 544 (11)% 4,854 5,439 (11)%
Elite Access (variable
annuity) 743 898 (17)% - - - 74 89 (17)% 743 898 (17)%
Fixed annuities 177 166 7% - - - 18 17 6% 177 166 7%
Fixed index annuities 930 125 644% - - - 93 13 615% 930 125 644%
Wholesale 1,606 1,535 5% - - - 161 153 5% 1,606 1,535 5%
------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ------ -----
Total US 8,310 8,163 2% - - - 831 816 2% 8,310 8,163 2%
------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ------ -----
Total continuing
operations* 9,736 9,284 5% 1,835 1,624 13% 2,809 2,552 10% 19,298 17,295 12%
------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ------ -----
Discontinued
UK and Europe operations:
Bonds 1,799 1,650 9% - - - 180 165 9%
Corporate pensions 44 43 2% 61 70 (13)% 65 75 (13)%
Individual pensions 2,170 2,989 (27)% 18 17 6% 235 316 (26)%
Income drawdown 1,248 1,226 2% - - - 125 123 2%
Other products 854 782 9% 14 14 - 100 91 10%
------ ------ ------ ------ ----- ----- ----- ----- -----
Total discontinued
UK and Europe operations 6,115 6,690 (9)% 93 101 (8)% 705 770 (8)%
------ ------ ------ ------ ----- ----- ----- ----- -----
Group total* 15,851 15,974 (1)% 1,928 1,725 12% 3,514 3,322 6%
--------------------------- ------ ------ ------ ------ ----- ----- ----- ----- -----
* In half year 2019, the Africa business operations sold APE new
business of GBP30 million (half year 2018: GBP18 million). Given
the relative immaturity of the Africa business, it is incorporated
into the Group's EEV basis results on an IFRS basis and is excluded
from new business sales and profit metrics.
Schedule A(ii) New Business Insurance Operations (Constant
Exchange Rates)
Note: The half year 2018 comparative results are shown below on
constant exchange rates, ie translated at half year 2019 average
exchange rates.
Single premiums Regular premiums APEnote (2) PVNBPnote (2)
2019 2018 +/(-) 2019 2018 +/(-) 2019 2018 +/(-) 2019 2018 +/(-)
Half Half Half Half Half Half Half Half
year year year year year year year year
GBPm GBPm % GBPm GBPm % GBPm GBPm % GBPm GBPm %
-------------------------- ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ------ -----
Continuing operations:
Asia
Cambodia - - - 11 9 22% 11 9 22% 51 40 28%
Hong Kong 165 167 (1)% 813 771 5% 830 788 5% 5,178 4,473 16%
Indonesia 94 122 (23)% 111 104 7% 121 116 4% 515 448 15%
Malaysia 70 31 126% 115 116 (1)% 122 119 3% 681 592 15%
Philippines 11 24 (54)% 54 38 42% 55 41 34% 185 142 30%
Singapore 386 436 (11)% 192 169 14% 231 213 8% 1,623 1,587 2%
Thailand 74 132 (44)% 41 43 (5)% 48 57 (16)% 246 308 (20)%
Vietnam 10 9 11% 67 63 6% 68 64 6% 363 318 14%
------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ------ -----
South-east Asia
including Hong Kong 810 921 (12)% 1,404 1,313 7% 1,486 1,407 6% 8,842 7,908 12%
China JVnote (3) 360 30 1,100% 234 183 28% 270 186 45% 1,185 758 56%
Taiwan 196 182 8% 97 92 5% 116 110 5% 483 432 12%
Indianote (4) 60 31 94% 100 100 - 106 103 3% 478 425 12%
------ ------ ----- -----
Total Asia 1,426 1,164 23% 1,835 1,688 9% 1,978 1,806 10% 10,988 9,523 15%
------ ------ ------ ----- ----- ----- ----- ----- ------ ------
US
Variable annuities 4,854 5,783 (16)% - - - 485 578 (16)% 4,854 5,783 (16)%
Elite Access (variable
annuity) 743 954 (22)% - - - 74 95 (22)% 743 954 (22)%
Fixed annuities 177 177 - - - - 18 18 - 177 177 -
Fixed index annuities 930 134 594% - - - 93 14 564% 930 134 594%
Wholesale 1,606 1,632 (2)% - - - 161 163 (1)% 1,606 1,632 (2)%
------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ------ -----
Total US 8,310 8,680 (4)% - - - 831 868 (4)% 8,310 8,680 (4)%
------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ------ -----
Total continuing
operations 9,736 9,844 (1)% 1,835 1,688 9% 2,809 2,674 5% 19,298 18,203 6%
------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ------ -----
Total discontinued
UK and Europe operations 6,115 6,690 (9)% 93 101 (8)% 705 770 (8)%
------ ------ ------ ------ ----- ----- ----- ----- -----
Group total 15,851 16,534 (4)% 1,928 1,789 8% 3,514 3,444 2%
-------------------------- ------ ------ ------ ------ ----- ----- ----- ----- -----
Schedule A(iii) Total Insurance New Business APE (Actual and
Constant Exchange Rates)
Note: Comparative results for the first half (H1) and second
half (H2) of 2018 are presented on both actual exchange rates (AER)
and constant exchange rates (CER). The H2 amounts are presented on
year-to-date average exchange rates (including the effect of
retranslating H1 results for movements in average exchange rates
between H1 and the year-to-date).
2018 2019
AER CER AER
H1 GBPm H2 GBPm H1 GBPm H2 GBPm H1 GBPm
------------------------------------------------------ ------- ------- ------- ------- -------
Continuing operations
Asia
Cambodia 8 12 9 11 11
Hong Kong 742 955 788 962 830
Indonesia 113 123 116 128 121
Malaysia 117 134 119 134 122
Philippines 38 49 41 49 55
Singapore 205 257 213 260 231
Thailand 53 64 57 67 48
Vietnam 61 85 64 85 68
------- ------- ------- ------- -------
South-east Asia including Hong Kong 1,337 1,679 1,407 1,696 1,486
China JVnote (3) 187 115 186 118 270
Taiwan 108 103 110 102 116
Indianote (4) 104 111 103 114 106
------- ------- ------- ------- -------
Total Asia 1,736 2,008 1,806 2,030 1,978
------- ------- ------- ------- -------
US
Variable annuities 544 537 578 537 485
Elite Access (variable annuity) 89 79 95 78 74
Fixed annuities 17 17 18 17 18
Fixed index annuities 13 12 14 13 93
Wholesale 153 81 163 79 161
------- ------- ------- ------- -------
Total US 816 726 868 724 831
------- ------- ------- ------- -------
Total continuing operations 2,552 2,734 2,674 2,754 2,809
Discontinued UK and Europe operations
Bonds 165 189 165 189 180
Corporate pensions 75 49 75 49 65
Individual pensions 316 287 316 287 235
Income drawdown 123 133 123 133 125
Other products 91 88 91 88 100
------- ------- ------- ------- -------
Total discontinued UK and Europe insurance operations 770 746 770 746 705
------- ------- ------- ------- -------
Group total 3,322 3,480 3,444 3,500 3,514
------------------------------------------------------ ------- ------- ------- ------- -------
Schedule A(iv) Investment Operations (Actual Exchange Rates)
Note: The H1 and H2 of 2018 comparative results are shown below
on actual exchange rates (AER) as previously reported.
2018 2019
------------------ --------
H1 GBPm H2 GBPm H1 GBPm
------------------------------------------------ -------- -------- --------
Opening funds under management (FUM) 210,423 207,860 196,401
Net flows:note (5) 2,685 (14,186) (1,528)
-------- -------- --------
- Gross inflows 31,857 26,227 34,247
- Redemptions (29,172) (40,413) (35,775)
-------- -------- --------
Other movements* (5,248) 2,727 14,560
-------- -------- --------
Group totalnote (6) 207,860 196,401 209,433
-------- -------- --------
Continuing operations:
Eastspring - excluding MMF
Third party retail:note (7)
Opening FUM 38,676 36,086 43,340
Net flows:note (5) 25 (692) 2,073
-------- -------- --------
- Gross inflows 10,118 9,125 15,170
- Redemptions (10,093) (9,817) (13,097)
-------- -------- --------
Other movements* (2,615) 7,946 3,649
-------- -------- --------
Closing FUMnote (8) 36,086 43,340 49,062
-------- -------- --------
Third party institutional:
Opening FUM 7,892 6,284 6,115
Net flows: (888) (31) 985
-------- -------- --------
- Gross inflows 338 965 1,284
- Redemptions (1,226) (996) (299)
-------- -------- --------
Other movements (720) (138) 310
-------- -------- --------
Closing FUMnote (8) 6,284 6,115 7,410
-------- -------- --------
Total Eastspring investment operations
(excluding MMF) 42,370 49,455 56,472
-------- -------- --------
Discontinued M&GPrudential operations:
Retail:
Opening FUM 79,697 79,821 69,465
Net flows: 2,154 (7,022) (4,251)
-------- -------- --------
- Gross inflows 16,471 8,113 11,867
- Redemptions (14,317) (15,135) (16,118)
-------- -------- --------
Other movements (2,030) (3,334) 4,267
-------- -------- --------
Closing FUM 79,821 69,465 69,481
-------- -------- --------
Comprising amounts for:
UK 33,786 30,600 30,483
Europe (excluding UK) 44,571 37,523 37,520
South Africa 1,464 1,342 1,478
-------- -------- --------
79,821 69,465 69,481
------------------------------------------------ -------- -------- --------
Institutional:note (9)
Opening FUM 84,158 85,669 77,481
Net flows: 1,394 (6,441) (335)
-------- -------- --------
- Gross inflows 4,930 8,024 5,926
- Redemptions (3,536) (14,465) (6,261)
-------- -------- --------
Other movements 117 (1,747) 6,334
-------- -------- --------
Closing FUM 85,669 77,481 83,480
-------- -------- --------
Total discontinued M&GPrudential operations: 165,490 146,946 152,961
PPM South Africa FUM included
in total discontinued M&GPrudential operations 5,452 5,144 5,696
------------------------------------------------- -------- -------- --------
* Other movements in H2 2018 for Eastspring investments included
an inflow of GBP8.7 billion funds under management (ex MMF) from
the acquisition of TMB Asset Management Co., Ltd. ('TMBAM') in
Thailand.
Schedule A(v) Total Insurance New Business Profit (Actual and
Constant Exchange Rates)
Note: Comparative results for half year (HY) and full year (FY)
2018 are presented on both actual exchange rates (AER) and constant
exchange rates (CER). The half year 2019 results are presented on
AER.
2018 2019
AER CER AER
------
HY FY HY FY HY
GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- ------ ------ ------ ------ ------
New business profit
Asia 1,122 2,604 1,178 2,675 1,295
US 466 921 495 951 348
------ ------ ------ ------ ------
Total continuing operations 1,588 3,525 1,673 3,626 1,643
Total discontinued UK and Europe operations 179 352 179 352 152
------ ------
Group total 1,767 3,877 1,852 3,978 1,795
------ ------ ------
APEnote (2)
Asia 1,736 3,744 1,806 3,836 1,978
US 816 1,542 868 1,592 831
------ ------ ------ ------ ------
Total continuing operations 2,552 5,286 2,674 5,428 2,809
Total discontinued UK and Europe operations 770 1,516 770 1,516 705
------ ------ ------ ------ ------
Group total 3,322 6,802 3,444 6,944 3,514
------ ------ ------ ------ ------
New business margin (NBP as % of APE)
Asia 65% 70% 65% 70% 65%
US 57% 60% 57% 60% 42%
------ ------ ------ ------ ------
Total continuing operations 62% 67% 63% 67% 58%
Total discontinued UK and Europe operations 23% 23% 23% 23% 22%
------ ------ ------ ------ ------
Group total 53% 57% 54% 57% 51%
------ ------ ------ ------ ------
PVNBPnote (2)
Asia 9,132 20,754 9,523 21,284 10,988
US 8,163 15,423 8,680 15,916 8,310
------ ------ ------ ------ ------
Total continuing operations 17,295 36,177 18,203 37,200 19,298
------ ------ ------ ------ ------
New business margin (NBP as % of PVNBP)
Asia 12.3% 12.5% 12.4% 12.6% 11.8%
US 5.7% 6.0% 5.7% 6.0% 4.2%
------ ------ ------ ------ ------
Total continuing operations 9.2% 9.7% 9.2% 9.7% 8.5%
-------------------------------------------- ------ ------ ------ ------ ------
B Calculation of return on embedded value
Return on embedded value is calculated as the total post-tax EEV
profit for the period as a percentage of opening EEV basis
shareholders' equity.
Half year 2019
------------------------------------------------------------------------------------------
Total continuing Discontinued UK and
Asia US Other operations Europe operations Total Group
-------------------------- ------ ------ ------- ------------------------- ------------------------- -----------
EEV basis profit for the
period, net of tax and
non-controlling interests
(GBP million) 3,064 948 (1,034) 2,978 1,281 4,259
Opening EEV basis
shareholders' equity
(GBPmillion) 25,132 14,690 (3,624) 36,198 13,584 49,782
-------------------------- ------ ------ ------- ------------------------- ------------------------- -----------
Annualised total return on
shareholders' funds (%)* 24% 13% n/a 16% 19% 17%
-------------------------- ------ ------ ------- ------------------------- ------------------------- -----------
* Half year profits are
annualised by multiplying
by two.
Half year 2018
------------------------------------------------------------------------------------------
Total continuing Discontinued UK and
Asia US Other operations Europe operations Total Group
-------------------------- ------ ------ ------- ------------------------- ------------------------- -----------
EEV basis profit for the
period, net of tax and
non-controlling interests
(GBP million) 1,538 822 290 2,650 317 2,967
Opening EEV basis
shareholders' equity
(GBPmillion) 21,592 13,492 (4,013) 31,071 13,627 44,698
-------------------------- ------ ------ ------- ------------------------- ------------------------- -----------
Annualised total return on
shareholders' funds (%)* 14% 12% n/a 17% 5% 13%
-------------------------- ------ ------ ------- ------------------------- ------------------------- -----------
* Half year profits are
annualised by multiplying
by two.
Full year 2018
------------------------------------------------------------------------------------------
Asia US Other Total continuing Discontinued UK and Total Group
operations Europe operations
-------------------------- ------ ------ ------- ------------------------- ------------------------- -----------
EEV basis profit for the
period, net of tax and
non-controlling interests
(GBP million) 3,601 788 (213) 4,176 409 4,585
Opening EEV basis
shareholders' equity
(GBPmillion) 21,592 13,492 (4,013) 31,071 13,627 44,698
-------------------------- ------ ------ ------- ------------------------- ------------------------- -----------
Total return on
shareholders' funds (%) 17% 6% n/a 13% 3% 10%
-------------------------- ------ ------ ------- ------------------------- ------------------------- -----------
C Calculation of EEV shareholders' funds per share
EEV shareholders' funds per share is calculated as closing EEV
shareholders' equity divided by the number of issued shares at the
end of the period (30 June 2019: 2,600 million shares; 30 June
2018: 2,592 million shares; 31 December 2018: 2,593 million
shares). EEV shareholders' funds per share excluding goodwill
attributable to shareholders is calculated in the same manner,
except goodwill attributable to shareholders is deducted from
closing EEV shareholders' equity.
30 Jun 2019
-----------------------------------------------------------------------------------------
Discontinued UK and Europe Total
Asia US Other Total continuing operations operations Group
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
Closing EEV shareholders'
equity (GBP million) 27,899 15,379 (3,621) 39,657 13,759 53,416
Less: Goodwill attributable
to shareholders (GBP
million) (510) - - (510) (1,153) (1,663)
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
Closing EEV shareholders'
equity excluding goodwill
attributable to
shareholders (GBP million) 27,389 15,379 (3,621) 39,147 12,606 51,753
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
Shareholders' funds per
share (in pence) 1,073p 592p (139)p 1,526p 529p 2,055p
Shareholders' funds per
share excluding goodwill
attributable to
shareholders (in pence) 1,053p 592p (139)p 1,506p 485p 1,991p
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
30 Jun 2018
-----------------------------------------------------------------------------------------
Discontinued UK and Europe Total
Asia US Other Total continuing operations operations Group
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
Closing EEV shareholders'
equity (GBP million) 22,608 14,300 (3,108) 33,800 13,643 47,443
Less: Goodwill attributable
to shareholders (GBP
million) (306) - - (306) (1,153) (1,459)
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
Closing EEV shareholders'
equity excluding goodwill
attributable to
shareholders (GBP million) 22,302 14,300 (3,108) 33,494 12,490 45,984
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
Shareholders' funds per
share (in pence) 872p 552p (120)p 1,304p 526p 1,830p
Shareholders' funds per
share excluding goodwill
attributable to
shareholders (in pence) 860p 552p (120)p 1,292p 482p 1,774p
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
31 Dec 2018
-----------------------------------------------------------------------------------------
Discontinued UK and Europe Total
Asia US Other Total continuing operations operations Group
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
Closing EEV shareholders'
equity (GBP million) 25,132 14,690 (3,624) 36,198 13,584 49,782
Less: Goodwill attributable
to shareholders (GBP
million) (498) - - (498) (1,153) (1,651)
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
Closing EEV shareholders'
equity excluding goodwill
attributable to
shareholders (GBP million) 24,634 14,690 (3,624) 35,700 12,431 48,131
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
Shareholders' funds per
share (in pence) 969p 567p (140)p 1,396p 524p 1,920p
Shareholders' funds per
share excluding goodwill
attributable to
shareholders (in pence) 950p 567p (140)p 1,377p 479p 1,856p
--------------------------- ------ ------ ------- --------------------------- -------------------------- -------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR PJMRTMBJBBIL
(END) Dow Jones Newswires
August 14, 2019 04:30 ET (08:30 GMT)
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