many talented people, particularly the management team, ably led by Jonathan Bloomer, who succeeded Sir Peter Davis as Group Chief Executive in February. We also said farewell to Michael Abrahams, a director since 1984 and Deputy Chairman since 1991, who retired in May, and Derek Higgs, a director since 1996, who retired in November. Each of them made a significant contribution to the development of the Group and I wish them well for the future.
With over 50 per cent of our new business revenue and 60 per cent of our new business achieved profits in 2000 coming from outside the UK, we have established our position as a leading international retail financial services group, with a focus on long-term savings.
By improving communications between our staff throughout all of our businesses, we can ensure the sharing of best practice and knowledge as well as achieving economies of scale. Internet communication has been improved for each of our businesses through enhancements to our many internet sites. These are now linked and can be accessed through one brand and one entry portal, thereby allowing customers easy access to our individual brands. Additionally, we have also developed an intranet system that links our businesses throughout the world.
Total insurance sales of £504 million in 2000 were 75 per cent up on 1999. New business achieved profits were 70 per cent higher at £153 million, and statutory basis operating profit rose 47 per cent to £22 million.
Jackson National Life has continued to expand distribution, both by adding representatives to its broker-dealer network and through strategic acquisitions.
Product innovation is key for M&G. In June 2000, we launched the Innovator fund which aims to pick fast-growing companies with the potential to become the market heavyweights of the future. During 2000, Innovator was ranked second in the UK Smaller Companies sector and outperformed the sector average by over 17 per cent†. Our Global Technology fund was also first out of all technology funds since its launch in October 1999 having grown 56 per cent to the end of 2000‡.▲ Building on our success in this area, M&G has expanded its range of global thematic funds with the launch of Global Financials and Global Media and Communications funds in February 2001.
PPM Ventures (PPMV) has continued to build its global private equity investment capability and now has over £600 million invested on behalf of its clients. PPMV has also continued its successful investment record during 2000.
* Source: Standard & Poor’s Micropal, bid to bid (with net income reinvested) as at 21/12/2000.
In France, we have established a branch of the Prudential Assurance Company in Paris, clearly demonstrating our commitment to becoming a major long-term player in the French market. Our first product launched in France was Prudential Europe Vie, an innovative equity-backed single premium savings product that offers a choice of investment through the Prudential life fund or Réactif, a unit-linked fund provided by
■ UK and Europe ■ Asia ■ JNL ■ New Business
at JNL. In addition, there were positive contributions from the US fund manager, PPM America, and the independent brokerage network, National Planning Holdings, and a favourable movement in the exchange rate. The 1999 result benefited from a one-off positive of £17 million arising from a change in accounting for guarantee assessments.
• Prudential Property Investment Managers Ltd (PruPIM), is running the Pru Youth Action Shopping Centre Programme, in partnership with Crime Concern. This is moving from strength to strength and now has 10 centres 1 Pupils from Pendeford High School, Wolverhampton, at the launch of their report ‘Young People & Shop Theft’, part of the Pru Youth Action Shopping Centre Programme 2 Successful New Deal Retail Routeway candidate John Craggs takes up his new role as trainee opthalmic technician with Specsavers at The Galleries, Washington, England 3 Children’s Theatre Festival in Singapore.
Benefits Executive directors receive certain non-pensionable benefits, principally the provision of company cars, security arrangements and participation in medical insurance schemes. These benefits are not pensionable.
Michael McLintock participates in a separate funded scheme, the intention of which is to fund a 2/3rds pension at age 60 taking into account the benefits from the M&G Group Pension Scheme and participates in a separate life assurance scheme which provides additional life assurance benefits based on salary in excess of the earnings cap.
Additional Accrued entitlement Pre-tax contribution pension based on normal to FURBS or salary earned retirement age supplement
Service Contracts of Directors Proposed for Election or Re-election Philip Broadley and Michael McLintock, who are proposed for election, and Jonathan Bloomer, who is proposed for re-election, have service contracts of 12 months. Roberto Mendoza, who is proposed for election, and Sir David Barnes and Sandy Stewart, who are proposed for re-election, do not have service contracts.
Net operating expenses (including re-engineering costs of £nil (£12m)) 13 (79) (93)
An unexpired risks provision is established for any excess of expected claims and deferred acquisition costs over unearned premiums and investment returns. The assessment of expected claims involves consideration of claims experience up to the end of the accounting period. No specific provision is made for major events occurring after this date. In addition to the liability for outstanding claims, an equalisation provision has been established in accordance with the requirements of the UK Insurance Companies (Reserves) Act 1995 to reduce the impact of claims volatility. Increases in the equalisation provision are limited to certain percentages of premiums written for different lines of business as specified by statute and are charged to claims incurred.
For the Group’s continuing operations with investment portfolios that are both attributable to shareholders and subject to short-term volatility, a comparison of actual and longer-term gains is as follows: 1996 to 1995 to
Held within US operations relating to purchase of broker dealer and banking businesses 65 Other operations principally relating to M&G 1,546 *** Other US operations relate to broker dealer, fund management, intragroup funding arrangements and certain tax balances
Shareholders’ Funds Jackson National Life US GAAP shareholders’ funds 2,930 2,461 1,962 1,527 Investment value and related adjustments 432 500 289 311
The Group operates a number of pension schemes around the world. The largest scheme is the Prudential Staff Pension Scheme which is the Group’s main UK scheme and covers approximately 57% of members of all Group pension schemes. This scheme is of the defined benefit type with scheme assets held in separate trustee administered funds and was last valued as at 5 April 1999 by P N Thornton, a qualified actuary and a partner in the firm of Watson Wyatt Partners.
For those debt securities and other fixed income securities valued at amortised cost where the maturity value exceeded purchase price, the unamortised difference at the year end was £186m (£26m). There were no investments valued at amortised cost where the purchase price exceeded maturity value.
A summary of the changes in the pension mis-selling liability is set out below: At beginning of year 1,700 1,100 Cases added due to expanded scope of the review – 202 Changes to actuarial assumptions and method of calculation (117) 261 Increase in provision for administrative expenses 50 190 Discount accretion 102 66 Redress to policyholders (134) (73) Payments of administrative expenses (126) (46)
The increase in the provision for administrative expenses reflects the additional administrative costs the Group expected to incur predominantly due to the shortening of the deadline for completing the Phase 2 cases by the UK regulator from December 2004 to June 2002.
Profit on ordinary activities before tax (including actual investment returns) 947 750 1,141 1,169 1,614
Profit after tax and minority interests: Operating profit (including post-tax longer-term investment returns) 617 567 654 618 636 Profit for the year (including post-tax actual investment returns) 688 542 880 837 1,407
Achieved profits basis capital and reserves 2,756 2,533 2,166 1,846 1,536
Based on operating profit after tax and related minority interests before amortisation of goodwill of £749m (£762m) 38.2p 39.1p Adjustment for amortisation of goodwill (4.3)p (2.8)p Adjustment from post-tax longer-term investment returns to post-tax actual investment returns
Shareholders’ capital and reserves at end of year 10,11 8,833 8,342
UK Operations Unwind of discount on smoothed opening net shareholder assets (including smoothed return on surplus assets retained within the PAC with-profits fund and shareholders assets held in long-term business operations)* 429 384
Intragroup dividends (including accrued statutory transfers)* (333) 24 309 Adjustment for European new business sold by Prudential