5 Net cash remitted by business units are included in the Holding company cash flow, which is disclosed in detail in note II(a) of the Additional unaudited financial information. This comprises dividends and other transfers from business units that are reflective of emerging earnings and capital generation.
We�serve�this�purpose�through�our�clear,� consistent�strategy,�which�is�focused�on� long-term�structural�trends�and�gives�us� unrivalled�access�to�the�world’s�largest�and� fastest-growing�markets.�In�Asia,�our� distinguished�brand,�extensive�footprint� and�broad�product�and�distribution�reach� across�14�markets�leaves�us�well�positioned� to�serve�the�health,�protection�and�savings� needs�of�the�rapidly�growing�and� increasingly�affluent�population.�We�are� also�a�leading�provider�of�retirement� products�in�the�US,�where�the�number�of� people�aged�65�and�older�is�expected�to� grow�from�55�million�in�2020�to�72�million� by�20301,�and�we�are�continuing�to� enhance�our�product�set�and�distribution� reach�to�capture�the�opportunity�in�this� market.�In�the�UK�and�Europe,�where� ageing�populations�provide�growing� demand�for�managed�savings�solutions,� M&GPrudential�is�transforming�itself�to� meet�those�needs�in�new�ways.�In�Africa� we�are�building�a�presence�in�one�of�the� world’s�most�under-penetrated�insurance� markets,�with�operations�in�five�markets.
— Meeting the savings and retirement needs of an ageing UK and continental European population.
Distribution Distribution plays a key role in our ability to reach, attract and retain customers in different parts of the world. Building out and diversifying our distribution capabilities, including adding digital tools, helps ensure that we fully capitalise on the opportunities available to us in each of our markets.
#1 selling variable annuity contract3 in the independent channel since 2003 4 million customers
Notes 1 The comparative results shown above have been prepared using an actual exchange rate (AER) basis except where otherwise stated. Comparative results on a constant exchange rate (CER) basis are also shown in financial tables in the Chief Financial Officer’s report on our 2018 financial performance. CAGR is compound annual growth rate.
We are steadfast in our conviction that the structural drivers of consumer demand in this region are of greater significance to our business than short-term market or regulatory driven events. We also recognise that the insurance industry is not immune to the pervasive impact of technology and the way this is shaping our customers’ expectations and behaviours with regards to accessibility, service and overall experience. These perspectives are instrumental in guiding the decisions we take to position our business for future success.
PRUworks PRUworks is a digital ecosystem designed to help small and medium-sized enterprises (SMEs) grow their businesses, and attract and retain talent. A first-of-its-kind platform by an insurer in Singapore, PRUworks gives business owners and their employees easy and convenient access to insurance, employee benefits and business solutions in one seamless digital experience.
Taiwan Life insurance Market ranking3 13th Population 24m Penetration16 17.9% Average health protection gap per household9 US$4,823
See note III of the additional unaudited financial information for reconciliation to IFRS balances.
6 Adjusted IFRS operating profit based on longer-term investment returns. See note B1 of the IFRS financial statements for reconciliation to IFRS profit.
The Alliance shares its mission through a breakthrough national educational campaign, including online and offline media engagement and advertising, digital and social media communication, content marketing, live events, virtual reality experiences, new financial planning tools, and much more.
— Total assets under management of £321 billion1 including a rise in PruFund assets to £43 billion from £36 billion last year
— Luxembourg SICAV fund range launched with £21 billion assets under management as an investment in international growth and to minimise disruption of Brexit for customers
In March 2018, the Board of Prudential plc announced its intention to demerge M&GPrudential. The Prudential Board believes the demerger will further strengthen two already strong businesses. For M&GPrudential, the demerger will enable our leadership team to focus solely on what is important to our customers, give us direct control over our own capital and enable us to pursue growth opportunities without competing for resources with other Prudential plc businesses. M&GPrudential is expected to have a premium listing on the London Stock Exchange.
Building on these competitive advantages, M&GPrudential’s priorities in 2019 will be: — to continue to serve our customers well, by improving outcomes and service levels, and widening product choice; — to advance our merger and transformation programme, to modernise the business so that we become a simpler, lower-cost, digital organisation; and
Customers in our markets demand easy access to savings and investment solutions, as well as guidance and advice from trusted providers. In addition, persistently low rates of return on bank cash deposits are fuelling demand for effective solutions, whether clients are saving for retirement, building a lump sum or protecting their wealth from inflation.
8 Quartile ranking based on ranking of the funds representative share class, net of fees, within their respective Investment Association (IA) or Morningstar sectors. Closed funds excluded. M&G total wholesale AUM was £69.5 billion as at 31 December 2018, representing 22 per cent of the total M&GPrudential AUM. One year figures represent £67.8 billion AUM, three year figures represent £67.5 billion AUM, five year figures represent £49.6 billion AUM, fund manager tenure figures represent £67.8 billion AUM. Performance figures in GBP, bid to bid, net income reinvested. Average fund manager tenure December 2017 = 5.7 years. Source: M&GPrudential, December 2018. IA and Morningstar Inc. combined UK and Pan-European peer groups as at end December 2018.
Investment for growth Investing in our infrastructure to improve customer service and business efficiency and drive long-term growth.
(11 per cent on an actual exchange rate basis), after financing new business growth. This was driven by in-force growth of 10 per cent combined with a lower level of investment in new UK and Europe business as a result of management actions to optimise capital absorption.
Policyholder liabilities in our with-profits business have increased by 3 per cent to £166.3 billion reflecting the popularity of our participating funds in Asia and PruFund in the UK, as consumers seek protection from some of the short-term ups and downs of direct stock market investments by using an established smoothing process. Across our Asia and UK and Europe operations, net liability flows increased to £8.4 billion. As returns from these funds are smoothed and shared with customers, the emergence of shareholder profit is more gradual. This business, nevertheless, remains an important source of future shareholder value.
Analysis of long-term insurance business operating profit by driver £m (% vs 2017)
Asia £2,604m, +14% (+10% AER) US £921m, +5% (+2% AER) M&GPrudential £352m, +3%
Local statutory capital All of our subsidiaries continue to hold appropriate capital levels on a local regulatory basis. In the UK and Europe, at 31 December 2018 The Prudential Assurance Company Limited and its subsidiaries had an estimated Solvency II shareholder surplus19 of £3.7 billion (equivalent to a cover ratio of 172 per cent), reflecting the impact from the reinsurance of £12 billion of annuity liabilities and the transfer of the Group’s Hong Kong insurance subsidiaries. The UK with-profits surplus20 is estimated at £5.5 billion (equivalent to a cover ratio of 231 per cent). In the US, operational capital formation and the strong performance of our hedging programme as equity markets weakened during the fourth quarter of 2018 more than offset remittances to Group and a 35 percentage point ratio impact from the incorporation of tax reform into the statutory capital requirement, resulting in a risk-based capital ratio of 458 per cent (2017: 409 per cent).
Prior to the demerger, the Group expects to rebalance its debt capital across Prudential and M&GPrudential. This will include the ultimate holding company of M&GPrudential becoming an issuer of new debt, including debt substituted from Prudential, and Prudential redeeming some of its existing debt. Following these actions, the overall absolute quantum of debt across Prudential and M&GPrudential is currently expected to increase, by an amount which is not considered to be material in the context of the Group’s total outstanding debt as at 30 June 2018, before any substitutable debt had been issued, of £7.6 billion (comprising the Group’s core structural borrowings of £6.4 billion and shareholder borrowings from short-term fixed income securities programme of £1.2 billion).
Entrance into Thailand mutual fund market In July 2018, Eastspring reached an agreement to acquire initially 65 per cent of TMB Asset Management Co., Ltd. (TMBAM), a leading asset management company in Thailand, from the TMB Bank Public Company Limited (TMB). Thailand is the largest fund management market within the Association of Southeast Asian Nations (ASEAN) with total assets under management of £115 billion at 31 December 201824. Eastspring has an option to increase its ownership to 100 per cent in the future. As part of this acquisition, Eastspring has also entered into a distribution agreement with TMB to provide best-in-class investment solutions to their customers. The acquisition of TMBAM, with £9 billion of assets under management as at 31 December 2018, reinforces Prudential’s commitment to the Thai market.
Our Group Risk Framework and risk appetite have allowed us to control our risk exposure successfully throughout the year. Our governance, processes and controls enable us to deal with uncertainty effectively, which is critical to the achievement of our strategy of helping our customers achieve their long-term financial goals.
The US imposes tariffs on Chinese exports worth US$50 billion in July, prompting Beijing to respond in kind. Despite a temporary truce agreed at the G20 summit on 1 December 2017, trade tensions between the two nations remains high.
R is ks f ro m o ur b us in ess operations
M onitor and report Manage an d c on tr ol
Efforts to curb systemic risk and promote financial stability are also underway. At the international level, the Financial Stability Board (FSB) continues to develop recommendations for the asset management and insurance sectors, including on-going assessment of systemic risk measures. The International Association of Insurance Supervisors (IAIS)
In March 2018, the UK and EU agreed the terms of a transition agreement for the UK’s exit from the bloc, which will last from the termination of the UK’s membership of the EU (at 11.00pm GMT 29 March 2019) until 31 December 2020 (although a legally binding text is yet to be agreed). The outcome of negotiations on the final terms of the UK’s relationship with the EU remains highly uncertain. In particular, depending on the nature of the UK’s exit from the EU, the following effects may be seen. The UK and EU may experience a downturn in economic activity, which is expected to be more pronounced for the UK, particularly in the event of a disorderly exit by the UK from the EU. Market volatility and illiquidity may increase in the period leading up to, and following, the UK’s withdrawal, and property values (including the liquidity of property funds, where redemption restrictions may be applied) and interest rates may be impacted. In particular, downgrades in
In Asia, the shareholder exposure to equity price movements results from unit-linked products, where fee income is linked to the market value of the funds under management. Further exposure arises from with-profits businesses where bonuses declared are based broadly on historical and current rates of return from the Asia business’ investment portfolios, which include equities.
The Group has significant internal sources of liquidity, which are sufficient to meet all of our expected cash requirements for at least 12 months from the date the financial statements are approved, without having to resort to external sources of funding. The Group has a total of £2.6 billion of undrawn committed facilities that can be made use of, expiring in 2023. Access to further liquidity is available through the debt capital markets and an extensive commercial paper programme in place, and Prudential has maintained a consistent presence as an issuer in the market for the past decade.
The Group’s persistency assumptions reflect similarly a combination of recent past experience for each relevant line of business and expert judgement, especially where a lack of relevant and credible experience data exists. Any expected change in future persistency is also reflected in the assumption. Persistency risk is managed by appropriate training and sales processes and managed locally post-sale through regular experience monitoring and the identification of common characteristics of business with high lapse rates. Where appropriate, allowance is made for the relationship (either assumed or observed historically) between persistency and investment returns and any additional risk is accounted for. Modelling this dynamic policyholder behaviour is particularly important when assessing the likely take-up rate of options embedded within certain products. The effect of persistency on the Group’s financial results can vary but depends mostly on the value of the product features and market conditions.
Outputs from these processes and activities performed by individual business units are monitored by the Group Risk function, which provides an aggregated view of the risk profile across the business to the Group Risk Committee and Board.
The Group Operational Risk Policy, standards and operational risk appetite framework sit alongside other risk policies and standards that individually engage with key operational risks, including outsourcing and third-party supply, business continuity, technology and data, operations processes and extent of transformation.
Technology — Privacy Policy governs the protection of data. The policy became operational in 2018 and complies with the General Data Protection Regulation.
— Talent Policy demonstrates how we attract and select the best people for roles that will ensure high performance in the short term and improve the longer-term succession and talent pipeline. It sets out our fair and effective approach to pursuing this.
In 2018 our Group Responsible Investment Standards, which underpin our Group Responsible Investment Framework and Principles, were in the road-testing phase with our businesses, which focused on developing internal monitoring and reporting capabilities to support the implementation of the Standards. Prudential Corporation Asia, for example, has implemented a new investment portfolio and risk management system as part of the ongoing enhancement of its approach to ESG integration. This provides its regional and local investment offices with increased transparency of how ESG factors are being incorporated into its investment decisions, manager selection and manager reporting process, in line with its commitment to responsible investing. Eastspring has also embraced technology solutions in 2018, with Group Digital working in partnership with the investment teams to develop tools that utilise artificial intelligence and learning to facilitate faster and scalable ESG screening of investee companies. During 2018, M&G signed up to using the new MSCI Carbon Portfolio Analytics tool, enabling portfolio managers to monitor a portfolio’s carbon emissions, carbon intensity and fossil fuel reserves and to support the better management of carbon risks.
Prudential plc – greenhouse gas emissions statement We have compiled our global GHG emissions statement in accordance with the Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2013. GHG emissions are broken down into three scopes; we have included full reporting for Scope 1 and 2 and select Scope 3 reporting as best practice.
We offer a range of programmes that enable our people to grow and develop. Most programmes are managed by our business units. In 2018, 113 senior high-potential individuals participated in our established and well respected Group-wide leadership development programmes ‘Impact’ and ‘Agility’ and the ‘Next Generation’ emerging talent programme. These programmes were developed in partnership with worldleading academic institutions and co-delivered with business school thought leaders. Across our businesses there are many more examples of our continuing commitment to talent development. For example, in 2018 Prudential Corporation Asia built on its strategic workforce planning initiative to develop and upgrade capabilities and reshape some critical roles to ensure continued success. Prudential Corporation Asia has implemented a senior leadership behaviours framework, taking a significant step towards creating a purpose-led culture to help all employees embrace the transformation of their business.
Using a newly developed set of Groupwide cyber key performance indicators (KPIs) that map to international standards such as National Institute of Standards and Technology (NIST), senior executives are provided with a monthly update from Group-wide Information Security regarding the Group’s cyber performance in key areas of cyber risk management. Our Group-wide cyber KPIs track a broad range of security domains on a monthly basis, including infrastructure oversight, asset management, incident response, awareness and compliance. An annual in-depth, evidence-based analysis of our Group-wide cyber capabilities, aligning to international standards was also completed. This information is brought together and further augmented by regular threat update papers and a benchmarking of ourselves against our peers across the globe to facilitate timely decision-making by senior business leaders across the Group. The analysis we conduct and the KPIs we gather are kept under constant review to ensure that they remain aligned to the business and that they continue to facilitate business decision-making and thus reduce cyber risk. Throughout the year, Board members, including nonexecutives, have received one-to-one training on cyber threats, including privacy, by a senior manager of the Group-wide Information Security team.
Communities We take an active approach to managing ESG-related risks and tackling environmental and social challenges. Our strong contribution, harnessing the commitment of our people, continues to improve lives and build communities, wherever we work.
Local governance We believe that corporate responsibility is best managed on the ground by our people running the businesses. In M&GPrudential and Jackson there are governance committees in place – with senior management representation – that agree strategy and spend. In Asia, the Prudence Foundation has been established as a unified charitable platform to align and maximise the impact of community efforts across the region. The Prudence Foundation is governed by a statutory Board of Directors, under which a Board of Trustees operates as a decision-making forum, directing the management of the programmes in collaboration with our local markets, and ensuring that we maximise the value of our spend to local communities. The Material Subsidiary Boards oversee the business unit corporate responsibility initiatives. All business units submit comprehensive Board reports to the Subsidiary Board and to the Prudential plc Board annually providing detailed information on major strategic initiatives.
Relevant skills and experience Nic�has�a�finance�background�and�having�built� up�deep�knowledge�of�the�Group,�moved�to� the�position�of�Chief�Executive�of�Prudential� Corporation�Asia�in�July�2017.�Nic�is�responsible� for�Prudential�Corporation�Asia’s�life�insurance� and�asset�management�business�across� 14�markets�in�the�region.���
A�full�programme�of�engagement�with� shareholders,�potential�investors�and� analysts,�in�the�UK�and�overseas,�is� conducted�each�year�by�the�Group�Chief� Executive�and�the�Chief�Financial�Officer,� led�by�the�Investor�Relations�team.�A� conference�for�investors�and�analysts�is� held�on�a�regular�basis,�including�in-depth� business�presentations�and�opportunities� for�attendees�to�meet�with�members�of� the�Board�and�senior�executives�and�an� opportunity�for�the�executive�team�to� communicate�progress�and�strategy� outside�of�the�financial�reporting�cycle.�The� most�recent�event�was�held�in�November� 2018�and�feedback�was�provided�to�the� Board�in�November�and�December�2018.
Notice�of�a�Standing�Committee�meeting� is�sent�to�all�Directors�and�if�an�individual� is�unable�to�attend,�he/she�can�give� comments�to�the�Chairman�or�Group� Company�Secretary�ahead�of�the�meeting� for�consideration�by�the�Standing� Committee.�Before�taking�decisions�on� any�matter,�the�Standing�Committee�must� first�determine�that�the�business�it�is� considering�is�appropriate�for�a� Committee�of�the�Board�and�does�not� properly�need�to�be�brought�before�the� whole�Board.�All�Standing�Committee� meetings�are�reported�in�full�to�the�next� scheduled�Board�meeting.�
With�regard�to�the�Group’s�financial� reporting,�the�Committee’s�work�is� focused�on�ensuring�appropriate�financial� accounting�policies�are�adopted�and� implemented�and�on�assessing�key� judgements�and�disclosures.�The� introduction�of�financial�accounting� standard�IFRS�17,�which�is�now�anticipated� to�come�into�effect�in�2022,�will�be�a� significant�challenge�and�change�and�as� a�consequence�the�Committee�received� updates�during�2018�on�the�Group’s� progress�towards�its�implementation.�
Stretching operating profit ranges set with reference to business plans approved by the Board for in-flight awards2
The�Committee�is�satisfied�that�the�maximum�potential�remuneration�of�the�Executive�Directors�is�appropriate.�Prudential’s�policy�is�to� offer�Executive�Directors�remuneration�which�reflects�the�performance�and�experience�of�the�executive,�internal�relativities�and�Group� and/or�business�unit�financial�performance.�In�order�for�the�maximum�illustrated�total�remuneration�to�be�payable: �— Financial�performance�must�exceed�the�Group�and/or�business�unit’s�stretching�business�plan; �— Relative�TSR�must�be�at�or�above�the�upper�quartile�relative�to�the�peer�group;� �— The�balanced�scorecard,�aligned�to�the�Group’s�strategic�priorities,�must�be�fully�satisfied;� �— Functional�and�personal�performance�objectives�must�be�fully�met; �— Performance�must�be�achieved�within�the�Group’s�and�business�units’�risk�framework�and�appetites;�and �— The�Company’s�share�price�must�grow�by�50�per�cent�over�three�years.
Save As You Earn (SAYE) schemes UK-based�Executive�Directors�are�normally�eligible�to�participate�in�the�HM�Revenue�and�Customs�(HMRC)�approved�Prudential� Savings-Related�Share�Option�Scheme.�This�scheme�allows�all�eligible�employees�to�save�towards�the�exercise�of�options�over� Prudential�plc�shares�with�the�option�price�set�at�the�beginning�of�the�savings�period�at�a�discount�of�up�to�20�per�cent�of�the�market�price.� Since�2014�participants�have�been�able�to�elect�to�enter�into�savings�contracts�of�up�to�£500�per�month�for�a�period�of�three�or�five�years.� At�the�end�of�this�term,�participants�may�exercise�their�options�within�six�months�and�purchase�shares.�If�an�option�is�not�exercised�within� six�months,�participants�are�entitled�to�a�refund�of�their�cash�savings�plus�interest�if�applicable�under�the�rules.�Shares�are�issued�to�satisfy� those�options�which�are�exercised.�No�options�may�be�granted�under�the�schemes�if�the�grant�would�cause�the�number�of�shares�which� have�been�issued,�or�which�remain�issuable�pursuant�to�options�granted�in�the�preceding�10�years�under�the�scheme�and�any�other�option� schemes�operated�by�the�Company,�or�which�have�been�issued�under�any�other�share�incentive�scheme�of�the�Company,�to�exceed� 10�per�cent�of�the�Company’s�ordinary�share�capital�at�the�proposed�date�of�grant.�In�anticipation�of�the�demerger�of�the�M&GPrudential� business�the�Company�did�not�operate�the�SAYE�in�2018.�
C12.2 Local capital regulations 293 C12.3 Transferability of available capital 295
Available-for-sale securities The�Group’s�review�of�fair�value�involves�several�factors,�including�economic�conditions,� credit�loss�experience,�other�issuer-specific�developments�and�future�cash�flows.�These� assessments�are�based�on�the�best�available�information�at�the�time.�Factors�such�as� market�liquidity,�the�widening�of�bid/ask�spreads�and�a�change�in�cash�flow�assumptions� can�contribute�to�future�price�volatility.�If�actual�experience�differs�negatively�from�the� assumptions�and�other�considerations�used�in�the�consolidated�financial�statements,� unrealised�losses�currently�in�equity�may�be�recognised�in�the�income�statement�in�future� periods.�Additional�details�on�the�methodology�and�estimates�used�to�determine� impairments�of�the�available-for-sale�securities�of�Jackson�are�described�in�note�C3.2(g).
�— The calculation of the impairment charge relevant for financial assets held at amortised cost or FVOCI A�new�impairment�model�based�on�an�expected�credit�loss�approach�replaces�the�existing�IAS�39�incurred�loss�impairment�model,� resulting�in�earlier�recognition�of�credit�losses�compared�to�IAS�39.�
Other new accounting pronouncements In�addition�to�the�above,�the�following�new�accounting�pronouncements�have�also�been�issued�and�are�not�yet�effective�but�the�Group� is�not�expecting�them�to�have�a�significant�impact�on�the�Group’s�financial�statements: �— IFRIC�Interpretation�23,�‘Uncertainty�over�income�tax�treatments’,�issued�in�June�2017�and�effective�from�1�January�2019.� This�interpretation�has�been�endorsed�by�the�EU; �— Amendments�to�IAS�28,�‘Long-term�Interests�in�Associates�and�Joint�Ventures’,�issued�in�October�2017�and�effective�from� 1�January�2019;�
Total�UK�and�Europe�insurance�operations 1,157 878 878 32% 32% UK�and�Europe�asset�management note (v) 477 500 500 (5)% (5)%
Asia�operations note (i) (512) (1) US�operations note (ii) (100) (1,568) UK�and�Europe�operations note (iii) 34 (14) Other�operations note (iv) 20 20
(d) UK and Europe insurance operations (i) Shareholder-backed annuity business For�this�business,�policyholder�liabilities�are�determined�by�reference�to�current�interest�rates.�The�value�movements�of�the�assets� covering�liabilities�are�closely�correlated�with�the�related�change�in�liabilities.�Accordingly,�asset�value�movements�are�recorded�within� the�‘adjusted�IFRS�operating�profit�based�on�longer-term�investment�returns’.�Policyholder�liabilities�include�a�margin�for�credit�risk.� Variations�between�actual�and�best�estimate�expected�impairments�are�recorded�as�a�component�of�short-term�fluctuations�in� investment�returns.
on�shareholder-backed�business (100) – – (100) (1,568) Amortisation�of�acquisition�accounting�adjustments (42) – – (42) (56) (Loss)�gain�on�disposal�of�businesses�and�corporate�
B2.2 Share-based payment (a) Description of the plans The�Group�operates�a�number�of�share�award�and�share�option�plans�that�provides�Prudential�plc�shares,�or�ADRs,�to�participants�upon� vesting.�The�plans�in�operation�include�the�Prudential�Long�Term�Incentive�Plan�(PLTIP),�Annual�Incentive�Plan�(AIP),�savings-related� share�option�schemes,�share�purchase�plans�and�deferred�bonus�plans.�Some�of�these�plans�are�participated�in�by�Executive�Directors,� the�details�of�which�are�described�in�the�Directors’�remuneration�report.�In�addition,�the�following�information�is�provided.
Effects�of�non-recurring�tax�reconciliation�items: Adjustments�to�tax�charge�in�relation�to�prior�years (3) (15) (3) (3) (24) (0.7)% Movements�in�provisions�for�open�tax�matters 19 25 – – 44 1.3% Impact�of�US�tax�reform – 445 – – 445 13.5% Adjustments�in�relation�to�business�disposals (8) 12 – – 4 0.1%
Assets�held�for�sale* – – 10,578 – – 10,578 Cash�and�cash�equivalents note (ii) 2,189 3,005 4,749 2,182 – 12,125
(iii)� Accruals, deferred income and other liabilities 2018� £m 2017� £m
Unit-linked and variable annuity separate account Equity�securities�and�portfolio�holdings�in�unit�trusts 152,987 505 9 153,501
held�at�fair�value – (16,054) – (16,054) Borrowings�attributable�to�with-profits�businesses – – (1,606) (1,606) Net�asset�value�attributable�to�unit�holders�of�consolidated�unit�trusts�
(d) Fair value measurements for level 3 fair valued assets and liabilities Reconciliation of movements in level 3 assets and liabilities measured at fair value The�following�table�reconciles�the�value�of�level�3�fair�valued�assets�and�liabilities�at�1�January�2018�to�that�presented�at�31�December�2018.�
Other assets at fair value – investment properties The�investment�properties�of�the�Group�are�principally�held�by�the�UK�and�Europe�insurance�operations�that�are�externally�valued�by� professionally�qualified�external�valuers�using�the�Royal�Institution�of�Chartered�Surveyors�(RICS)�valuation�standards.�An�‘income� capitalisation’�technique�is�predominantly�applied�for�these�properties.�This�technique�calculates�the�value�through�the�yield�and�rental� value�depending�on�factors�such�as�the�lease�length,�building�quality,�covenant�and�location.�The�variables�used�are�compared�to�recent� transactions�with�similar�features�to�those�of�the�Group’s�investment�properties.�As�the�comparisons�are�not�with�properties�that�are� virtually�identical�to�the�Group’s�investment�properties,�adjustments�are�made�by�the�valuers�where�appropriate�to�the�variables�used.� Changes�in�assumptions�relating�to�these�variables�could�positively�or�negatively�impact�the�reported�fair�value�of�the�properties.�
Net�asset�value�attributable� to�unit�holders�of� consolidated�unit�trusts� and�similar�funds� 8,889 8,889 – – – – – – 8,889
C3.4(c) Derecognition, collateral and offsetting�continued Offsetting assets and liabilities The�Group’s�derivative�instruments,�repurchase�agreements�and�securities�lending�agreements�are�subject�to�master�netting� arrangements�and�collateral�arrangements.�A�master�netting�arrangement�with�a�counterparty�creates�a�right�of�offset�for�amounts�due�to� and�due�from�that�same�counterparty�that�is�enforceable�in�the�event�of�a�default�or�bankruptcy.�The�Group�recognises�amounts�subject� to�master�netting�arrangements�on�a�gross�basis�within�the�consolidated�balance�sheets.
Valuation interest rates Valuation�interest�rates�used�to� discount�the�liabilities�are�based�on�the� yields�as�at�the�valuation�date�on�the� assets�backing�the�technical�provisions.� For�fixed�interest�securities�the�internal� rate�of�return�of�the�assets�backing�the� liabilities�is�used.�Properties�are�valued� using�the�redemption�yield,�and�for� equities�it�is�the�greater�of�the�dividend� yield�and�the�average�of�the�dividend� yield�and�the�earnings�yield.�An� adjustment�is�made�to�the�yield�on� non-risk-free�fixed�interest�securities� and�property�to�reflect�credit�risk.�
(including�charge�for�provision�for�asset�shares�and�excluding�policyholder�bonuses) (6,985) (16,389) Earned�premiums,�net�of�reinsurance 12,505 12,508 Other�income 36 35 Acquisition�costs�and�other�expenditure (1,170) (1,732) Share�of�profits�from�investment�joint�ventures 36 106 Tax�credit�(charge) 273 (440)
Jackson uses free-standing derivative instruments for hedging purposes. Additionally, certain liabilities, primarily trust instruments supported by funding agreements, fixed index annuities, certain variable annuity guaranteed benefit features and reinsured Guaranteed Minimum Income Benefit variable annuity features are similar to derivatives. Jackson does not account for such items as either fair value or cash flow hedges as might be permitted if the specific hedge documentation requirements of IAS 39 were followed. Financial derivatives are carried at fair value, including derivatives embedded in certain host liabilities where these are required to be valued separately.
Related effect on movement in deferred tax (868) (493) 493 868 (643) (357) 357 643
These sensitivities are shown for interest rates in isolation only and do not include other movements in credit risk that may affect credit spreads and valuations of debt securities. Similar to the sensitivity to equity risk, the sensitivity movements provided in the table above are at a point in time and reflect the hedging programme in place on the balance sheet date, while the actual impact on financial results would vary contingent upon a number of factors.
For term business, acquisition costs are deferred and amortised in line with expected premiums. For annuity and interest-sensitive life business, acquisition costs are deferred and amortised in line with expected gross profits on the relevant contracts. For interest-sensitive business, the key assumption is the expected long-term spread between the earned rate and the rate credited to policyholders. In addition, expected gross profits depend on mortality assumptions, assumed unit costs and terminations other than deaths (including the related charges) all of which are based on a combination of actual experience of Jackson, industry benchmarking and future expectations. A detailed analysis of actual experience is measured by internally developed expense, mortality and persistency studies.
Total available capital resources of life assurance businesses on a local regulatory basis 4,333 3,143 *�Other�adjustments�include�the�removal�of�entities�recorded�as�US�insurance�operations�in�the�IFRS�statements�which�fall�outside�the�scope�of�Jackson�National�Life�Insurance�Company.
D1.2 Acquisition of TMB Asset Management Co., Ltd. in Thailand In�September�2018,�the�Group�completed�its�initial�acquisition�of�65�per�cent�of�TMB�Asset�Management�Co.,�Ltd.�(TMBAM),�an�asset� management�company�in�Thailand,�from�TMB�Bank�Public�Limited�(TMB)�for�£197�million.�
A dditional inform ation being�re-engaged�to�ensure�that�they�have�the�opportunity�to�take�part�in�the�review.�Costs�arising�from�this�review�are�met�by�the� excess�assets�of�the�UK�with-profits�sub-fund�and�hence�have�not�been�charged�to�the�asset�shares�used�in�the�determination�of� policyholder�bonus�rates.�Prudential�has�given�an�assurance�that�these�deductions�from�excess�assets�will�not�impact�its�bonus�or� investment�policy�for�policies�within�the�with-profits�sub-funds�that�were�in�force�at�31�December�2003.�This�assurance�does�not� apply�to�new�business�since�1�January�2004.�In�the�unlikely�event�that�such�deductions�would�affect�the�bonus�or�investment�policy�for� the�relevant�policies,�Prudential�has�stated�it�would�make�available�support�to�the�sub-fund�from�shareholder�resources�for�as�long�as� the�situation�continued,�so�as�to�ensure�that�policyholders�were�not�disadvantaged; �— Scottish�Amicable�Insurance�sub-fund�–�policies�within�this�sub-fund�(a�with-profits�sub-fund�closed�to�new�business)�contain� minimum�levels�of�guaranteed�benefit�to�policyholders.�Should�the�assets�of�the�sub-fund�be�inadequate�to�meet�the�guaranteed� benefit�obligations�of�the�policyholders�of�SAIF,�the�UK�with-profits�sub-fund�would�be�liable�to�cover�any�such�deficiency�in�the�first� instance.�In�addition,�certain�pensions�products�within�this�sub-fund�have�guaranteed�annuity�rates�at�retirement,�for�which�a� provision�of�£361�million�was�held�within�the�sub-fund�(31�December�2017:�£503�million);�and�
Notes on the EEV basis results 1� Basis�of�preparation 347 2� Results�analysis�by�business�area 347 3� Analysis�of�new�business�contribution 348 4� Operating�profit�from�business�in�force 349 5� Short-term�fluctuations�in�investment�returns 351 6� Effect�of�changes�in�economic�assumptions 352 7� Net�core�structural�borrowings�of�shareholder-financed�businesses 353 8� Reconciliation�of�movement�in�shareholders’�equity 354 9 Analysis�of�movement�in�net�worth�and�value�of�in-force�for�long-term�business 356 10 Analysis�of�movement�in�free�surplus 358 11 Expected�transfer�of�value�of�in-force�business�and�required�capital�to�free�surplus 361 12 Sensitivity�of�results�to�alternative�assumptions 361 13 Methodology�and�accounting�presentation 363 15 Insurance�new�business�premiums 373 16 Impact�of�US�tax�reform� 374 17 Corporate�transactions 374 18 Post�balance�sheet�events 374
Operating profit based on longer-term investment returns 7,563 6,598 Short-term�fluctuations�in�investment�returns 5 (3,219) 2,111 Effect�of�changes�in�economic�assumptions 6 146 (102) Mark�to�market�value�movements�on�core�structural�borrowings 549 (326) Impact�of�US�tax�reform 16 – 390 (Loss)�profit�attaching�to�corporate�transactions 17 (451) 80 Total�non-operating�(loss)�profit (2,975) 2,153
Unwind�of�discount�and�other�expected�returns note (a) 881 694 Effect�of�changes�in�operating�assumptions note (b) 115 196 Experience�variances�and�other�items: Spread�experience�variance 39 71 Amortisation�of�interest-related�realised�gains�and�losses 92 91 Other note (c) 67 185
Longevity�reinsurance – (6) Impact�of�specific�management�actions�to�improve�solvency�position 141 127 Provision�for�cost�of�undertaking�past�non-advised�annuity�sales�review�and�related�redress note (d) – (187) Insurance�recoveries�in�respect�of�the�above�costs note (d) 138 – Provision�for�guaranteed�minimum�pension�equalisation note (e) (48) –
Shareholders’ equity at end of year 24,881 14,690 13,584 (3,373) 49,782
Notes on the EEV basis results continued 13 Methodology and accounting presentation continued
Margin�on�revenues 2,098 – 189 2,287 Expenses: Expected�return�on�shareholder�assets 126 4 104 234
I(b) Asia operations – analysis of IFRS operating profit by business unit Operating�profit�based�on�longer-term�investment�returns�for�Asia�operations�is�analysed�as�follows: 2018� £m AER
Impact of: 20%�instantaneous�fall�in�equity�markets (1.6) (10)% 0.7 9% 40%�fall�in�equity�markets1 (4.0) (28)% (2.1) (11)% 50�basis�points�reduction�in�interest�rates2,3 (1.8) (21)% (1.0) (14)% 100�basis�points�increase�in�interest�rates3 1.2 20% 1.2 21% 100�basis�points�increase�in�credit�spreads4 (1.7) (9)% (1.4) (6)%
Asia renewal insurance premium 12,856 11,482 11,087 Add:�General�insurance�premium 90 89 87 Add:�IFRS�gross�earned�premium�from�new�regular�and�single�
Earned premiums, net of reinsurance as shown in the IFRS financial statements B1.4 33,201 41,943
A�number�of�risk�factors�affect�Prudential’s� operating�results�and�financial�condition� and,�accordingly,�the�trading�price�of�its� shares.�The�risk�factors�mentioned�below� should�not�be�regarded�as�a�complete�and� comprehensive�statement�of�all�potential� risks�and�uncertainties.�The�information� given�is�as�of�the�date�of�this�document,� and�any�forward-looking�statements�are� made�subject�to�the�reservations�specified� under�‘Forward-looking�statements’.
Such�events�could,�among�other�things,� harm�Prudential’s�ability�to�perform� necessary�business�functions,�result�in� the�loss�of�confidential�or�proprietary�data� (exposing�it�to�potential�legal�claims�and� regulatory�sanctions)�and�damage�its� reputation�and�relationships�with�its� customers�and�business�partners.�Similarly,� any�weakness�in�administration�systems� (such�as�those�relating�to�policyholder� records�or�meeting�regulatory� requirements)�or�actuarial�reserving� processes�could�have�a�material�adverse� effect�on�its�results�of�operations�during� the�effective�period.
Details of the 2018 AGM, including the major items discussed at the meeting and the results of the voting, can be found on the Company’s website.
ADRs JPMorgan Chase Bank N.A, PO Box 64504, St. Paul, MN 55164-0504, USA.
The Orions were used to streamline the administration of customer policy records. Prior to computerisation, records were maintained using mechanical punch cards and punching, sorting and tabulating machines. Computerisation was a huge step forward: 300 cards could be mechanically punched in an hour, but the Orion could carry out 100,000 calculations every second.