• Headquartered in Lansing, Michigan, and employing 2,400 people, JNL markets its products in 50 states through independent agents, brokerdealers and financial institutions (in New York as Jackson National Life Insurance Company of New York).
The future is very exciting for companies like Prudential with its financial strength, trusted brand name, strong joint venture partners, track record of success in the region, and a commitment to meet local customer needs with innovative products.
Cofunds, the fund supermarket for intermediaries which was founded as a joint venture between M&G, Threadneedle, Jupiter and Gartmore, achieved over £200 million of PEP and ISA sales during the year, with over 40 providers offering nearly 500 funds and over 2,000 IFA firms now signed up. Cofunds gained nearly a five per cent share of IFA ISA sales and over three per cent of PEP transfers during 2001.
Underlying total operating profit 1,250 1,029 21% Re-engineering costs (64) 0
Europe broke even at the in force level, compared to £8 million profit in 2000, due to negative experience variances relating to the newly launched French branch and operational costs in Dublin and Frankfurt.
Modified Statutory Basis Results – Profit After Tax MSB profit after tax and minority interests was £389 million, reflecting a tax charge of £21 million. The effective rate of tax on MSB total profit in 2001 was five per cent, compared to 33 per cent in 2000, due to tax payable on the American General break fee being relieved against capital losses available to the Group acquired during the year.
However, we believe that it would be beneficial if there were to be greater clarity as to the status of the inherited estate. We continue to pursue opportunities to resolve its ultimate attribution between policyholders and shareholders, and have, since 1996, been discussing this attribution with the relevant UK supervisory authorities. The attribution of inherited estates has also been a subject of public debate in the UK.
However, we have not been discussing or considering any actual distribution of the inherited estate. Our current expectation is that, for the foreseeable future, the entire inherited estate will need to be retained within the long-term fund for the purposes described earlier.
Financial position The Board receives regular reports from the Group Finance Director on financial matters and receives annual reports from the relevant senior actuaries on the financial condition of the Group’s principal long-term insurance businesses.
• In the US, Jackson National Life continued to be a leading contributor to the United Way in Lansing, a local umbrella fundraising organisation which disperses funds to charitable organisations improving the quality of life of local people. In addition, JNL employees donated their own money to the United Way.
In addition Internal Audit execute a comprehensive risk based audit plan throughout the Group, from which all significant issues are reported to the Audit Committee.
In addition, to reflect his role as Chief Executive UK & Europe, Mark Wood also participates in a long-term incentive plan designed to provide reward contingent upon the rate of growth in appraisal value of UK and Europe over a three-year period. The threshold performance criteria under the 2001 plan is that the growth in appraisal value must be greater than eight per cent per annum over the period. Any award above threshold performance is made following the end of the performance period. The on-target payout is 75 per cent of basic salary at the end of the period, for which an annual growth rate of 11.5 per cent per annum is required.
Clark Manning held 2,500 shares at the date of his appointment as a director on 2 January 2002.
**As Keith Bedell-Pearce has retired from the Board, the augmentation to pension described in previous reports is now incorporated in the accrued pension figures shown above.
Directors The present directors are shown on pages 22 and 23. Bridget Macaskill resigned as a director on 16 March 2001. Keith Bedell-Pearce retired as a director on 31 December 2001. Mark Wood and Clark Manning were appointed directors on 21 June 2001 and 2 January 2002 respectively and in accordance with the Articles of Association retire and offer themselves for election at the Annual General Meeting. Rob Rowley, Mark Tucker and Ann Burdus retire by rotation at the Annual General Meeting and offer themselves for reelection. Details of directors’ interests in the share capital of the Company and its listed subsidiary Egg plc are set out in the Remuneration Report on page 30.
Items excluded from operating profit before amortisation of goodwill: Amortisation of goodwill (95) (84) Short-term fluctuations in investment returns (480) (48) Merger break fee (net of related expenses) 338 – Profit on business disposals – 239
Amounts owed to subsidiary undertakings (204) (260) Tax payable – (20) Final dividend (332) (322) Sundry creditors (31) – Accruals and deferred income (44) (47)
Pension costs These financial statements have been prepared in accordance with the provisions of SSAP 24, ‘Pension costs’. Disclosures of the balance sheet position at 31 December 2001 of the Company’s defined benefit schemes, applying the methodology prescribed by FRS 17, are shown in note 19. Contributions to the Group’s defined benefit plans are calculated and expensed on a basis that spreads the costs over the service lives of participants. Further details are provided in note 19. Contributions in respect of defined contribution plans are accrued by the Group when incurred.
Shareholders' funds 3,950 3,971 Fund for future appropriations 13,202 20,917 Deferred tax provision 2,005 2,777 Technical provisions and other liabilities 137,612 127,285
(b) Shareholders’ funds Core Core structural structural borrowings of Restated† borrowings of
Total banking liabilities 7,465 7,386 Intragroup liabilities 3 1 Tax balances 16 23 Debenture loans (note 31) 124 –
(ii) The valuation basis of hedging derivative instruments Effective 1 January 2001, for US GAAP reporting purposes, Jackson National Life was obliged to implement FAS 133 ‘Accounting for derivative instruments and hedging activities’. Under FAS 133, all derivative instruments are recognised in the balance sheet at their fair values, and changes in such fair values are recognised immediately in earnings unless specific hedging criteria are met. Jackson National Life uses derivatives (primarily interest rate swaps) to hedge certain risks in conjunction with its asset/liability management programme. However, Jackson National Life has elected not to incur the costs of restructuring its derivative contracts, segregating investment portfolios and adding the systems and personnel required to qualify for much stricter hedge accounting treatment.
(d) Factors affecting tax charge for period The tax assessed in the period is lower than the standard rate of corporation tax in the UK and the differences are explained below. The standard rate of tax has been determined by using the UK rate of corporation tax enacted for the period for which the profits will be taxed.
Comparative figures for 2000 have been restated for the implementation of FRS 19 on deferred tax.
Current value: Leasehold with a term of over 50 years 4,071 4,033 Leasehold with a term of less than 50 years 107 159
Operating profit for the year after tax – (4) – – (4)
Shares and other variable yield securities and units in unit trusts 25,790 27,542 40,948 51,232 Debt securities and other fixed income securities – carried at market value 36,767 28,476 37,845 30,105 Debt securities and other fixed income securities – carried at amortised cost 21,669 18,548 21,336 18,489 Loans secured by mortgages 2,656 2,865 2,658 2,895 Loans to policyholders secured by insurance policies 804 758 804 758
The arrangements for distribution to employees of shares held in trusts relating to employee incentive plans and for entitlement to dividends depend upon the particular terms of each plan. The cost of share awards under the plans are charged to the profit and loss account over the period of service to which awards are made. Shares held in these trusts are conditionally gifted to employees. At 31 December 2001, the 4.1m shares held by trusts under employee incentive plans have been accounted for in the consolidated balance sheet as own shares. The carrying value of the shares is £19m which represents the cost of purchase less the cumulative amounts charged to the profit and loss account.
(iii) Non-recourse borrowings issued by investment subsidiaries managed by PPM America include secured senior and subordinated debt and a revolving credit facility. The senior debt is secured on the investments held by the relevant subsidiaries. The interests of the holders of the subordinated debt issued by these subsidiaries are subordinate to the entitlements of the holders of the senior debt. The terms of the revolving credit facility include a cross default provision with the subordinated notes. In addition to the debt of these subsidiaries, PPM America manages investment companies with liabilities of £1,353m (£1,030m) pertaining to debt instruments issued to external parties. In all instances the holders of the debt instruments issued by these subsidiaries and other companies do not have recourse beyond the assets of those subsidiaries.
Litigation In December 2000, proceedings were issued against The Prudential Assurance Company Limited (Prudential Assurance) by a policyholder. These proceedings essentially ask the Court to decide whether and, if so, to what extent the Prudential Assurance’s inherited estate should be distributed to or applied for the benefit of policyholders and/or shareholders. We continue to consider the proceedings and the issues raised by them with our legal advisers. Further details are given in the paragraph on Prudential Assurance’s inherited estate on page 69.
General business and shareholders (as above) 193 209 Long-term business 1,243 1,193
Basis of Audit Opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.
UK Operations Long-term business including investment products: New business: Operating profit, before re-engineering costs: Statutory basis capital and reserves* 1,203 1,247 1,229 533 404 Additional achieved profits basis retained profit* 3,162 3,882 3,884 3,386 3,321
Prudential Europe Long-term business: New business: Operating profit before development expenses 5 8 6 4 1
Operating profit (based on long-term investment returns) before amortisation of goodwill 1,186 1,029
(Loss) profit for the financial year before minority interests (242) 487 Minority interests 25 24
Retained (loss) profit for the financial year (721) 27 *For the purposes of this analysis, operating profit is determined on a long-term investment return basis and before amortisation of goodwill. Management consider this to be the most meaningful definition of operating profit.
UK long-term business operations (426) – Jackson National Life (including revised spread assumption) 1 – Prudential Asia (57) –