Notes on the EEV basis results 300 1 Basis of preparation 300 2 Analysis of pre-tax new business contribution 301 3 Pre-tax operating profit from business in force 303 4 Business acquisitions and disposals 303 5 Short-term fluctuations in investment returns 305 6 Effect of changes in economic assumptions 306 7 Net core structural borrowings of shareholder-financed operations 307 8 Analysis of movement in free surplus 309 9 Reconciliation of movement in shareholders’ equity 310 10 Tax attributable to shareholders’ profit 310 11 Earnings per share 311 12 Reconciliation of post-tax movements in net worth and value of in-force for long-term business 313 13 Expected transfer of value of in-force business to free surplus 314 14 Sensitivity of results to alternative assumptions 316 15 Methodology and accounting presentation 327 17 New business premiums and contributions 328 18 Additional information on the effect of the agreement to sell Japan life business and adoption of new and amended IFRS accounting standards 331 Statement of directors’ responsibilities in respect of the European Embedded Value (EEV) basis supplementary information 332 Independent auditor’s report to Prudential plc on the European Embedded Value (EEV) basis supplementary information
The European Embedded Value principles were published by the CFO Forum of major European insurers in October 2005. The principles provide consistent definitions, a framework for setting actuarial assumptions and an approach to the underlying methodology and disclosures.
Long-term business* 2,387 1,958 Eastspring investments* 74 69 Development expenses (2) (7)
Total UK insurance operations 1,062 899 M&G (including Prudential Capital) 441 371
Other income and expenditure Investment return and other income 10 13 Interest payable on core structural borrowings (305) (280) Corporate expenditure (263) (231) Unwind of expected asset management margin note (i) (61) (56)
* The Group has adopted the new accounting standard on ‘Joint arrangements’ (IFRS 11) from 1 January 2013. This has resulted in a reallocation of £(8) million in 2013 (2012: £(6) million) from the tax charge on operating profit based on longer-term investment returns to the pre-tax result for Eastspring investments, with no effect on the net of tax EEV basis results. In addition, the Group agreed in July 2013 to sell, dependent on regulatory approval, its closed book life insurance business in Japan. Accordingly, the presentation of the 2012 comparative EEV basis results and related notes have been adjusted from those previously published for the retrospective application of this standard and for the reclassification of the result attributable to the held for sale Japan life business, as described in note 18. This approach has been adopted consistently throughout this supplementary information.
Notes (i) The value of profits or losses from asset management and service companies that support the Group’s covered insurance businesses (as defined in note 15(a))
are included in the profits for new business and the in-force value of the Group’s long-term business. The results of the Group’s asset management operations include the profits from the management of internal and external funds. For EEV basis reporting, Group shareholders’ other income is adjusted to deduct the unwind of the expected profit margin for the year arising from the management of the assets of the covered business by the Group’s asset management businesses. The deduction is on a basis consistent with that used for projecting the results for covered insurance business. Group operating profit accordingly includes the variance between actual and expected profit in respect of management of the covered business assets.
Other income and expenditure (619) (554) Solvency II implementation costs (31) (50) Restructuring costs (12) (22)
Pre-tax operating profit based on longer-term investment returns* 5,580 4,313 (Loss) profit attaching to held for sale Japan life business* 4 (35) 21 Short-term fluctuations in investment returns* 5 (819) 510 Effect of changes in economic assumptions* 6 821 (2) Mark to market value movements on core borrowings 152 (380) Costs of domestication of Hong Kong branch 12 (35) – Gain on acquisition of REALIC† 4 – 453 Gain on dilution of Group’s holdings† – 42 Total non-operating profit* 9 84 644
Profit before tax attributable to shareholders (including actual investment returns)* 5,664 4,957 Tax attributable to shareholders’ profit* 10 (1,306) (1,188)
Based on post-tax operating profit including longer-term investment returns of £4,204 million (2012*: £3,174 million) 11 165.0p 124.9p
Dividends relating to reporting year: Dividends declared and paid in reporting year: Current year interim dividend 9.73p 8.40p Final dividend for prior year 20.79p 17.24p
Profit for the year attributable to equity shareholders* 4,358 3,769 Items taken directly to equity: Exchange movements on foreign operations and net investment hedges: Exchange movements arising during the year (1,077) (467) Related tax – (2)
New share capital subscribed 6 17 Post-tax shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes* (53) 44 Reserve movements in respect of share-based payments 98 42 Treasury shares: Movement in own shares in respect of share-based payment plans (10) (13) Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS (31) 36 Mark to market value movements on Jackson assets backing surplus and required capital: Mark to market value movements arising during the year (149) 53 Related tax 52 (18)
Shareholders’ equity at end of year 24,844 12 24,856 22,505 (62) 22,443
Based on EEV basis shareholders’ equity of £24,856 million (2012: £22,443 million) (in pence) 971p 878p Number of issued shares at year end (millions) 2,560 2,557
* Return on embedded value is based on EEV post-tax operating profit, as shown in note 11, as a percentage of opening EEV basis shareholders’ equity.
Total assets less liabilities, before deduction for insurance funds* 288,826 271,768 Less insurance funds†
Total IFRS basis shareholders’ equity 9 9,650 10,359 Additional EEV basis retained profit 9 15,206 12,084
Total EEV basis shareholders’ equity (excluding non-controlling interests) 9 24,856 22,443 * The 2012 comparative results have been adjusted retrospectively from those previously published for the adoption of IFRS 11 – see note 18. † Including liabilities in respect of insurance products classified as investment contracts under IFRS 4. For 2013 the policyholder liabilities of the held for sale
The supplementary information on pages 296 to 330 was approved by the Board of directors on 11 March 2014.
The EEV basis results have been prepared in accordance with the EEV Principles issued by the European Insurance CFO Forum in May 2004 and expanded by the Additional Guidance on EEV Disclosures published in October 2005. Where appropriate, the EEV basis results include the effects of adoption of International Financial Reporting Standards (IFRS).
The directors are responsible for the preparation of the supplementary information in accordance with the EEV Principles. Except for the presentational change for the results of the held for sale Japan life business and the consequential effects of the changes in accounting policies for IFRS reporting in respect of employee benefits (IAS 19) and joint venture operations (IFRS 11), as described in note 18, the 2012 results have been derived from the EEV basis results supplement to the Company’s statutory accounts for 2012.
V b asis resu lts 3 Pre-tax operating profit from business in force
Unwind of discount and other expected returns note (a) 846 595 Effect of changes in operating assumptions: Mortality and morbidity note (b) 35 79 Persistency and withdrawals note (c) (30) (24) Expense note (d) (7) (45)
Total Asia operations 927 692 * The 2012 comparative results have been adjusted retrospectively from those previously published for the reclassification of the result attributable to the held for sale Japan life business – see note 18.
(b) In 2013 the credit of £35 million for mortality and morbidity assumption changes mainly reflects a beneficial effect arising from the renegotiation of a reinsurance agreement in Indonesia. The 2012 credit of £79 million primarily reflected mortality improvements in Hong Kong and Singapore and revised assumptions for critical illness business in Singapore.
Indonesia. (g) The negative expense experience variance of £(26) million in 2013 (2012: £(30) million) principally reflects expense overruns for operations which are currently sub-scale (China, Malaysia Takaful and Taiwan) and in India where the business model is being adapted in response to the regulatory changes introduced in recent years.
Experience variances and other items: Spread experience variance note (d) 274 205 Amortisation of interest-related realised gains and losses note (e) 89 91 Other note (f) 48 (6)
Notes (a) The increase in unwind of discount and other expected returns of £196 million from £412 million for 2012 to £608 million in 2013 includes a £125 million effect of the increase in opening value of in-force business (after assumption changes), together with the positive effect of higher risk discount rates of £65 million and a £6 million increase in the return on net worth.
(b) The effect of changes in persistency assumptions of £72 million in 2013 (2012: £45 million) primarily relates to a reduction in lapse rates following the end of the surrender charge period, principally for variable annuity business.
(e) The amortisation of interest-related gains and losses reflects the fact that when bonds that are neither impaired nor deteriorating are sold and reinvested there will be a consequent change in the investment yield. The realised gain or loss is amortised into the result over the period when the bonds would have otherwise matured to better reflect the long-term returns included in operating profits.
V b asis resu lts 4 Business acquisitions and disposals a Acquisition of Thanachart Life Assurance Company Limited and bancassurance partnership agreement with Thanachart Bank On 3 May 2013, the agreement Prudential plc, through its subsidiary Prudential Life Assurance (Thailand) Public Company Limited (Prudential Thailand), entered into in November 2012 to establish an exclusive 15-year partnership with Thanachart Bank Public Company limited (Thanachart Bank) to develop jointly their bancassurance business in Thailand was launched. At the same time Prudential Thailand completed the acquisition of 100 per cent of the voting interest in Thanachart Life Assurance Company Limited (Thanachart Life), a wholly-owned life insurance subsidiary of Thanachart Bank.
Acquired assets: Net worth (including acquisition of distribution rights) 386 Value of in force acquired 26
c Agreement to sell Japan life business On 16 July 2013, the Group reached an agreement to sell, subject to regulatory approval, the life insurance business in Japan, PCA Life Insurance Company Limited, which was closed to new business in 2010, to SBI Holdings Inc. for US$85 million (£51 million at 31 December 2013 closing exchange rate) with related expenses of £3 million. Consistent with the ‘held for sale’ classification of the business for IFRS reporting, the EEV carrying value has been set to £48 million at 31 December 2013. For 2013 the result for the year, together with the adjustment to the carrying value have given rise to an aggregate loss of £(35) million which has been included in non-operating profit. Consistent with this treatment, the presentation of the comparative results has been adjusted retrospectively from those previously published.
Short-term fluctuations in investment returns, net of the related change in the time value of cost of options and guarantees, arise as follows: (i) Group Summary
Other operations: Other* note (v) (27) 119 Economic hedge value movement note (vi) – (32)
* The 2012 comparative results have been adjusted retrospectively from those previously published for the adoption of revised IAS 19 and for the reclassification of the results attributable to the held for sale Japan life business – see note 18.
(ii) Asia operations For 2013, the negative short-term fluctuations in investment returns of £(405) million principally arise in Hong Kong of £(223) million and in Singapore of £(96) million, due to unrealised value reductions on bonds, arising from the increase in long-term interest rates, and in Indonesia of £(52) million for a decrease in future expected fee income for unit-linked business, driven by falls in equity markets.
For 2012, the positive short-term fluctuations in investment returns of £362 million in Asia operations were driven by unrealised gains on bonds and higher equity markets which principally arose in Hong Kong of £139 million mainly relating to positive returns on bonds backing participating business, Singapore of £114 million primarily relating to increasing future expected fee income for unit-linked business and unrealised gains on bonds, Taiwan of £56 million for unrealised gains on bonds and CDOs and India of £30 million.
Other items including actual less long-term return on equity based investments note (c) 137 28
Notes (a) The credit (charge) relating to fixed income securities comprises the following elements: (1) the excess of actual realised gains (losses) over the amortisation of interest related realised gains and losses recorded in the profit and loss account; (2) credit loss experience (versus the longer-term assumption); and (3) the impact of de-risking activities within the portfolio.
(b) This item reflects the net impact of variances in projected future fees and future benefit costs arising from the effect of market fluctuations on the growth in separate account asset values in the current reporting period and related hedging activity arising from realised and unrealised gains and losses on equity related hedges and interest rate options.
(iv) UK insurance operations The short-term fluctuations in investment returns for UK insurance operations arise from the following types of business: Shareholder-backed annuity note (a) (72) (3) With-profits, unit-linked and other note (b) 107 318
(b) The short-term fluctuations in investment returns for with-profits, unit-linked and other business primarily arise from the excess of actual over expected returns for with-profits business. The total return on the fund (including unallocated surplus) in 2013 was 8 per cent compared to an assumed rate of return of 6 per cent (2012: 10 per cent total return compared to assumed rate of 5 per cent). In addition, the amount for 2013 includes the effect of a partial hedge of future shareholder transfers expected to emerge from the UK’s with-profits sub-fund taken out during the year. This hedge reduces the risks arising from equity market declines.
(ii) Asia operations The effect of changes in economic assumptions for Asia operations in 2013 of £283 million primarily reflects the overall impact of the increase in long-term interest rates in the year, principally arising in Hong Kong of £361 million, Singapore of £107 million and Taiwan of £99 million mainly due to the increase in fund earned rates for participating business. There are partial offsets arising in Indonesia of £(237) million and in Malaysia of £(77) million, mainly reflecting the negative impact of calculating health and protection future profits at a higher discount rate.
Decrease in additional allowance for credit risk note (c) 160 148
(c) For 2013 the £160 million (2012: £148 million) effect of the decrease in the additional allowance for credit risk within the risk discount rate reflected the reduction in credit spreads and represented a 50 basis points decrease for spread business and a 10 basis points decrease for variable annuity business, representing the proportion of business invested in the general account (as described in note 15(b)(iii)).
(d) The total effect of changes in economic assumptions for US operations of a credit of £372 million for 2013 includes a pre-tax charge of £(20) million for the effect of the change in required capital from 235 per cent to 250 per cent of risk-based capital (see note 15(b)(ii)).
(iv) UK insurance operations The effect of changes in economic assumptions of a credit of £166 million for UK insurance operations for 2013 comprises the following: Effect of changes in expected long-term rates of return, risk discount rates and other changes: Shareholder-backed annuity business note (a) (70) 140 With-profits and other business note (b) 236 (46)
Notes (a) For shareholder-backed annuity business the overall effect of changes in expected long-term rates of return and risk discount rates reflect the combined effects of the changes in economic assumptions, which incorporate a default allowance for both best estimate defaults and in respect of the additional credit risk provisions (as shown in note 16(iii)).
(b) For with-profits and other business the total credit in 2013 of £236 million (2012: charge of £(46) million) includes the net effect of the changes in fund earned rates and risk discount rate (as shown in note 16(iii)), driven by the 120 basis points increase (2012: a reduction of 20 basis points) in the 15-year government bond rate.
Holding company* cash and short-term investments (2,230) – (2,230) (1,380) – (1,380)
Core structural borrowings – Prudential Capital 275 – 275 275 – 275
Net core structural borrowings of shareholder-financed operations 2,406 430 2,836 2,174 579 2,753 * Including central finance subsidiaries. † In January 2013, the Company issued US$700 million (£423 million at 31 December 2013 closing exchange rate) perpetual subordinated capital securities. In addition the Company issued £700 million subordinated notes in December 2013.
V b asis resu lts 8 Analysis of movement in free surplus
Net cash flows to parent company note (v) (1,069) (272) (1,341) (1,200) Bancassurance agreement and purchase of Thanachart Life notes 4 ,12 365 – 365 – Exchange movements, timing differences and other items note (vi) (187) (165) (352) (412)
Net movement in free surplus 263 51 314 268 Balance at 1 January 2013 note (viii) 2,957 732 3,689 3,421
Balance at 31 December 2013 note (viii) 3,220 783 4,003 3,689
Representing: Balance at 1 January 2013/1 January 2012 representing: * The 2012 comparative results have been adjusted retrospectively from those previously published for the adoption of the revised IAS 19 and for the reclassification of the result attributable to the Japan life business – see note 18.
(iv) Changes in non-operating items principally represent short-term fluctuations in investment returns and the effect of changes in economic assumptions for long-term business operations. (v) Net cash flows to parent company for long-term business operations reflect the flows as included in the holding company cash flow at transaction rates.
Mark to market value movements on Jackson assets backing surplus and required capital note 9 (97) – (97) Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes note 9 (22) (18) (40) Other note (vii) 96 (119) (23)
(vii) Other primarily reflects the effect of intra-group loans, contingent loan funding, as shown in note 12(i), timing differences and other non-cash items. (viii) The free surplus balance at 31 December 2013 includes £392 million (2012: £177 million) representing unamortised amounts advanced to bancassurance partners for securing exclusive distribution rights. The annual amortisation charge is recorded within ‘investment in new business’ each year at a rate that is determined by reference to the actual sales levels achieved.
Long-term business: Pre-tax operating profit based on longer-term investment returns 2,385 2,220 1,017 5,622 (42) 5,580 4,313
Intra-group dividends (including statutory transfers) note (ii) (433) (300) (339) (1,072) 1,072 – – Investment in operations note (iii) 40 – – 40 (40) – –
Representing: Statutory IFRS basis shareholders’ equity 2,564 3,446 2,976 8,986 664 9,650 10,359 Additional retained profit (loss) on an EEV basis note (iv) 7,741 3,520 4,366 15,627 (421) 15,206 12,084
Notes (i) For the purposes of the table above, goodwill related to Asia long-term operations is included in other operations. (ii) Intra-group dividends (including statutory transfers) represent dividends that have been declared in the year and amounts accrued in respect of statutory transfers. The amounts included in note 8 for these items are as per the holding company cash flow at transaction rates. The difference primarily relates to intra-group loans, timing differences arising on statutory transfers, and other non-cash items.
Total tax charge on operating profit based on longer-term investment returns† 1,376 1,139 Tax (credit) charge on non-operating profit† (70) 49
Average number of shares (millions) 2,548 2,548 2,541 2,541 * The 2012 comparative results have been adjusted retrospectively from those previously published for the adoption of IFRS 11, revised IAS 19 and for the reclassification of the result attributable to the held for sale Japan life business – see note 18.
V b asis resu lts 12 Reconciliation of post-tax movements in net worth and value of in-force for long-term business 2013 £m
New business contribution notes (ii), (iii) (637) 461 (176) 2,258 2,082 Existing business – transfer to net worth 2,017 (347) 1,670 (1,670) – Expected return on existing business 133 90 223 1,277 1,500 Changes in operating assumptions and experience variances* 478 (7) 471 182 653 Increase in EEV assumed level of required capital note (vi) (58) 58 – (13) (13) Loss attaching to held for sale Japan life business (40) – (40) 5 (35)
Post-tax profit from long-term business 1,154 152 1,306 2,939 4,245 Exchange movements on foreign operations and net investment hedges (164) (117) (281) (868) (1,149) Bancassurance agreement and purchase of Thanachart Life notes 4 and (v) 365 21 386 26 412 Intra-group dividends (including statutory transfers) and investment in operations note (i) (963) – (963) (69) (1,032)
Shareholders’ equity at 31 December 2013 note(viii) 3,220 3,954 7,174 17,439 24,613
Post-tax profit from long-term business 399 70 469 1,334 1,803 Exchange movements on foreign operations and net investment hedges (155) (84) (239) (735) (974) Bancassurance agreement and purchase of Thanachart Life notes 4 and (v) 365 21 386 26 412 Intra-group dividends (including statutory transfers) and investment in operations (393) – (393) – (393)
Shareholders’ equity at 31 December 2013 note (viii) 1,185 977 2,162 8,143 10,305
Post-tax profit from long-term business 136 40 176 1,315 1,491 Exchange movements on foreign operations and net investment hedges (9) (33) (42) (133) (175) Intra-group dividends (including statutory transfers) (300) – (300) – (300)
New business contribution note (iii) (29) 66 37 200 237 Existing business – transfer to net worth 508 (80) 428 (428) – Expected return on existing business 18 38 56 381 437 Changes in operating assumptions and experience variances* 154 (19) 135 10 145
Post-tax profit from long-term business 619 42 661 290 951 Intra-group dividends (including statutory transfers) note (i) (270) – (270) (69) (339)
Notes on the EEV basis results continued 12 Reconciliation of post-tax movements in net worth and value of in-force for long-term business continued
(ii) The movements arising from new business contribution are as follows: Free surplus invested in new business (637) (618) Increase in required capital 461 454
Reduction in total net worth (176) (164) Increase in the value associated with new business 2,258 1,955
Free surplus invested in new business (310) (298) (29) (637) (292) (281) (45) (618)
Post-tax new business contribution per £1 million free surplus invested 3.7 2.4 8.2 3.3 3.4 2.0 5.4 2.9
Value of in-force business before deduction of cost of capital and time value of guarantees 8,540 4,769 5,135 18,444 7,903 3,992 4,916 16,811
Cost of time value of guarantees note (vii) (50) (146) – (196) (33) (650) – (683)
Adjustment to shareholders’ equity at 1 January 2014 Free surplus Required capital Total net worth
V b asis resu lts 13 Expected transfer of value of in-force business to free surplus
The discounted value of in-force business and required capital can be reconciled to the 2013 and 2012 totals in the tables below for the emergence of free surplus as follows: Required capital note 12 3,954 3,898 Value of in-force (VIF) note 12 17,439 15,411 Add back: deduction for cost of time value of guarantees note 12 196 683 Expected cash flow from sale of Japan life business (25) – Other items note (1,157) (1,401)
The table below shows how the VIF generated by the in-force business and the associated required capital is modelled as emerging into free surplus over future years.
US operations 6,234 3,326 1,845 653 271 139 – UK insurance operations 5,152 1,915 1,326 870 536 487 18 * Following its reclassification as held for sale, the Asia cash flows exclude any cash flows in respect of Japan.
Expected period of conversion of future post tax distributable earnings and required capital flows to free surplus 2012 total as shown above 1-5 years 6 -10 years 11-15 years 16 -20 years 21-40 years 40+ years
Notes on the EEV basis results continued 14 Sensitivity of results to alternative assumptions
(a) Sensitivity analysis – economic assumptions The tables below show the sensitivity of the embedded value as at 31 December 2013 (31 December 2012) and the pre-tax new business contribution after the effect of required capital for 2013 and 2012 to: — 1 per cent increase in the discount rates; — 1 per cent increase and decrease in interest rates, including all consequential changes (assumed investment returns for all asset classes, market values of fixed interest assets, risk discount rates); — 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 (by contrast to EEV basis required capital), (for embedded value only); — 5 basis point increase in UK long-term expected defaults; and — 10 basis point increase in the liquidity premium for UK annuities.
(b) Sensitivity analysis – non-economic assumptions The tables below show the sensitivity of the embedded value as at 31 December 2013 and 31 December 2012 and the pre-tax new business contribution after the effect of required capital for 2013 and 2012 to: — 10 per cent proportionate decrease in maintenance expenses (a 10 per cent sensitivity on a base assumption of £10 per annum would represent an expense assumption of £9 per annum); — 10 per cent proportionate decrease in lapse rates (a 10 per cent sensitivity on a base assumption of 5 per cent would represent a lapse rate of 4.5 per cent per annum); and
Notes on the EEV basis results continued 15 Methodology and accounting presentation
Covered business comprises the Group’s long-term business operations, with two exceptions: — The closed Scottish Amicable Insurance Fund (SAIF) which is excluded from covered business. SAIF is a ring-fenced sub-fund of the Prudential Assurance Company (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.
— The presentational treatment of the Group’s principal defined benefit pension scheme, the Prudential Staff Pension Scheme (PSPS). The partial recognition of the surplus for PSPS is recognised in ‘Other’ operations, as described in note 15(c)(vi).
(b) Methodology (i) Embedded value Overview The embedded value is the present value of the shareholders’ interest in the earnings distributable from assets allocated to 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: — Present value of future shareholder cash flows from in-force covered business (value of in-force business), less deductions for: – the cost of locked-in required capital; – the time value of cost of options and guarantees; — Locked-in required capital; and — Shareholders’ net worth in excess of required capital (free surplus).
Best estimate assumptions Best estimate assumptions are used for the cash flow projections, 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.
Expense assumptions Expense levels, including those of service companies that support the Group’s long-term business operations, are based on internal expense analysis investigations and are appropriately allocated to acquisition of new business and renewal of in-force business. Exceptional expenses are identified and reported separately. For mature business, it is Prudential’s policy not to take credit for future cost reduction programmes until the savings have been delivered. For businesses which are currently sub-scale (China, Malaysia Takaful and Taiwan) and India (where the business model is being adapted in response to the regulatory changes introduced in recent years), expense overruns are permitted where these are expected to be short-lived.
Principal economic assumptions The EEV basis results for the Group’s operations 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 year end rates of return on government bonds.
The contribution from new business represents profits determined by applying operating assumptions as at the end of the year. For UK immediate annuity business and single premium Universal Life products in Asia, primarily Singapore, the new business contribution is determined by applying economic assumptions reflecting point of sale market conditions. This is consistent with how the business is priced as crediting rates are linked to yields on specific assets and the yield is locked-in when the assets are purchased at the point-of-sale of the policy. For other business within the Group, end of period economic assumptions are used.
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 new business amounts and one-tenth of single new business amounts. PVNBP is calculated as equalling single premiums plus the present value of expected premiums of new regular premium business, allowing for lapses and other assumptions made in determining the EEV new business contribution.
Fixed annuities provide that, at Jackson’s discretion, it may reset the interest rate credited to policyholders’ accounts, subject to a guaranteed minimum. The guaranteed minimum return varies from 1.0 per cent to 5.5 per cent for 2013 and 2012, depending on the particular product, jurisdiction where issued, and date of issue. For 2013 and 2012, 86 per cent of the account values on fixed annuities are for policies with guarantees of 3 per cent or less. The average guarantee rate is 2.8 per cent for 2013 and 2012.
Jackson issues VA contracts where it contractually guarantees to the contract holder either: 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 at specified dates during the accumulation period (Guaranteed Minimum Withdrawal Benefit (GMWB)), as death benefits (Guaranteed Minimum Death Benefits (GMDB)) or as income benefits (Guaranteed Minimum Income Benefits (GMIB)). These guarantees generally protect the policyholder’s value in the event of poor equity market performance. Jackson hedges the GMDB and GMWB guarantees through the use of equity options and futures contracts, and fully reinsures the GMIB guarantees.
The only material guaranteed surrender values relate to investments in the PruFund range of with-profits funds. For these products the policyholder can choose to pay an additional management charge. In return, at the selected guarantee date, the fund will be increased if necessary to a guaranteed minimum value (based on the initial investment adjusted for any prior withdrawals). The with-profits fund held a reserve of £36 million at 31 December 2013 (31 December 2012: £52 million) in respect of this guarantee.
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 reversionary and terminal 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.
— UK insurance operations: the capital requirements are set to an amount at least equal to the higher of Pillar I and Pillar II requirements for shareholder-backed business of UK insurance operations as a whole.
(iii) Allowance for risk and risk discount rates Overview Under the EEV Principles, discount rates used to determine the present value of future cash flows are set by reference to risk-free rates plus a risk margin. The risk margin should reflect any non-diversifiable risk associated with the emergence of distributable earnings that is not allowed for elsewhere in the valuation. Prudential has selected a granular approach to better reflect differences in market risk inherent in each product group. The risk discount rate so derived does not reflect an overall Group market beta but instead reflects the expected volatility associated with the cash flows for each product category in the embedded value model.
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.
Asia operations For Asia operations, the allowance for credit risk incorporated in the projected rates of return and the market risk allowance are sufficient. Accordingly no additional allowance for credit risk is required.
Notes on the EEV basis results continued 15 Methodology and accounting presentation continued
The risk discount rate incorporates an additional allowance for credit risk premium and short-term downgrades and defaults as shown in note 16(ii). In determining this allowance a number of factors have been considered. These factors, in particular, include: — How much of the credit spread on debt securities represents an increased credit risk not reflected in the RMR long-term default assumptions, and how much is liquidity premium (which is the premium required by investors to compensate for the risk of longerterm investments which cannot be easily converted into cash, and converted at the fair market value). In assessing this effect, consideration has been given to a number of approaches to estimating the liquidity premium by considering recent statistical data; and
The level of allowance differs from that for UK annuity business for investment portfolio differences and to take account of the management actions available in adverse economic scenarios to reduce crediting rates to policyholders, subject to guarantee features of the products.
For the purposes of presentation in the EEV results, the results on this basis are reconfigured. Under this approach the projected earned rate of return on the debt securities held is determined after allowing for expected long-term defaults and, where necessary, an additional allowance for an element of short-term downgrades and defaults to bring the allowance in the earned rate up to best estimate levels. The allowances for credit risk premium, 1 notch downgrade and the remaining element of short-term downgrade and default allowances are incorporated into the risk margin included in the discount rate, as shown in note 16(iii)(b).
(2) With-profits fund non-profit annuity business For UK non-profit annuity business including that written by Prudential Annuities Limited (PAL) the basis for determining the aggregate allowance for credit risk is consistent with that applied for UK shareholder-backed annuity business (as described above). The allowance for credit risk in PAL is taken into account in determining the projected cash flows to the with-profits fund, which are in turn discounted at the risk discount rate applicable to all of the projected cash flows of the fund.
In addition, the 2013 operating profit excludes the loss attaching to the held for sale Japan life business and the costs associated with the domestication of the Hong Kong branch. The 2012 operating profit excluded the gain arising on the acquisition of REALIC, the profit attaching to the Japan life business and the dilution of the Group’s holding in PPM South Africa. The amounts for these items are included in total EEV profit attributable to shareholders. The Company believes that operating profit, as adjusted for these items, better reflects underlying performance. Profit before tax and basic earnings per share include these items, together with actual investment returns.
Post-tax results The Group intends to alter its basis of presentation of EEV results for 2014 and subsequent reporting periods to a post-tax basis, in line with the approach adopted by a number of international insurance groups. An analysis of the Group’s profit and loss account and key accompanying notes on a pre-tax and post-tax basis for the most recent reporting periods are shown in the additional unaudited financial information section in note III(c).
(iv) Unwind of discount and other expected returns The unwind of discount and other expected returns is determined by reference to: — The value of in-force business at the beginning of the period (adjusted for the effect of current period economic and operating assumption changes); and
(vii) 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 change in the time value of cost of option and guarantees, are recorded in non-operating results.
bond yield %New business In force 31 Dec 31 Dec 31 Dec 31 Dec
(c) The mean equity return assumptions for the most significant equity holdings in the Asia operations were: Hong Kong 7.1 5.8
Allowance for long-term defaults included in projected spread note (b) 0.25 0.28 Risk discount rate: Variable annuity: Risk discount rate 7.6 6.5 Additional allowance for credit risk included in risk discount rate note (b) 0.2 0.3 Non-variable annuity: Risk discount rate 4.8 4.0 Additional allowance for credit risk included in risk discount rate note (b) 1.0 1.5 Weighted average total: note (c)
US 10-year treasury bond rate at end of year 3.1 1.8 Pre-tax expected long-term nominal rate of return for US equities 7.1 5.8 Expected long-term rate of inflation 2.6 2.5 Equity risk premium 4.0 4.0 Assumed tax rate for value of in-force business 35.0 35.0 * Including the proportion of variable annuity business invested in the general account.
Notes (a) The assumed new business spread margins represent the difference between the earned rate on investments, after allowance for long-term defaults, and the policy holder crediting rate. The spread margins shown above are the rates at inception. For fixed annuity business (including the proportion of variable annuity business invested in the general account) and fixed index annuity business, the assumed spread margin grades up linearly by 25 basis points to a long-term assumption over five years.
(c) The weighted average risk discount rates reflect the mix of business between variable annuity and non-variable annuity business. The increase in the weighted average risk discount rates from 2012 to 2013 primarily reflects the increase in the US 10-year Treasury bond rate of 130 basis points, partly offset by the effect of the decrease in additional allowance for credit risk.
Bond spread over swap rates 127 150 133 161 Total credit risk allowance 36 35 62 65 * The new business liquidity premium is based on the weighted average of the point of sale liquidity premia.
— The mean stochastic returns are consistent with the mean deterministic returns for each country. The expected volatility of equity returns ranges from 18 per cent to 35 per cent in both years, and the volatility of government bond yields ranges from 0.9 per cent to 2.3 per cent in both years.
— Variable annuity equity returns and bond interest rates have been stochastically generated using a log-normal model with parameters determined by reference to historical data. The volatility of equity fund returns ranges from 19 per cent to 32 per cent for both 2013 and 2012, depending on the risk class and the class of equity, and the standard deviation of interest rates ranges from 2.2 per cent to 2.5 per cent for both years.
— Property returns are modelled in a similar fashion to corporate bonds, namely as the return on a risk-free bond, plus a risk premium, plus a process representative of the change in residual values and the change in value of the call option on rents.
UK and Europe insurance operations Direct and partnership annuities 284 297 – – 28 30 284 297 Intermediated annuities 488 653 – – 49 65 488 653 Internal vesting annuities 1,305 1,456 – – 131 146 1,305 1,456
Total individual annuities 2,077 2,406 – – 208 241 2,077 2,406 Corporate pensions 120 303 161 159 173 189 686 1,045 Onshore bonds 1,754 2,275 – – 176 228 1,756 2,277 Other products 901 894 51 48 140 137 1,183 1,175 Wholesale 276 408 – – 28 41 276 408
Notes (i) The tables shown above are provided as an indicative volume measure of transactions undertaken in the reporting period that have the potential to generate profits for shareholders. The amounts shown are not, and not intended to be, reflective of premium income recorded in the IFRS income statement. (ii) New business in China is included at Prudential’s 50 per cent interest in the China Life operation. (iii) New business in India is included at Prudential’s 26 per cent interest in the India Life operation.
Notes on the EEV basis results continued 18 Additional information on the effect of the agreement to sell Japan life business and adoption of new and amended IFRS accounting standards
Profit for the year attributable to shareholders 4,305 – 53 4,358 Items taken directly to shareholders’ equity (1,892) – (53) (1,945)
Total EPS based on post-tax profit (in pence) 169.0p – 2.0p 171.0p
Pre-tax operating profit based on longer-term investment returns Asia operations Long-term business: Before reclassification of held for sale Japan life business 1,960 – – 1,960 Reclassification of Japan life business (2) – – (2)
Profit before tax 5,020 (6) (57) 4,957 Tax attributable to shareholders’ profit (1,207) 6 13 (1,188)
Total EPS based on post-tax profit (in pence) 150.1p – (1.8)p 148.3p
Notes on the EEV basis results continued 18 Additional information on the effect of the agreement to sell Japan life business and adoption of new and amended IFRS accounting standards continued
Less insurance funds: Policyholder liabilities (net of reinsurers’ share) and unallocated surplus of with-profits funds (264,504) 3,095 – (261,409) Less shareholders’ accrued interest in the long-term business 12,084 – – 12,084
Notes (i) Following the agreement in July 2013 to sell the Group’s life insurance business in Japan, the results for the Japan life business have been shown separately in the Group’s analysis of profit – see note 4. (ii) Consistent with the requirements of IFRS 11, the Group’s EEV pre-tax results now incorporate the post-tax results for asset management joint venture operations.
) b asis resu lts Statem en t o f d irecto rs’ resp o n sib ilities
When compliance with the EEV Principles is stated, those principles require the directors to prepare supplementary information in accordance with the Embedded Value Methodology (EVM) contained in the EEV Principles and to disclose and explain any non-compliance with the EEV guidance included in the EEV Principles.
Rees Aronson for and on behalf of KPMG Audit Plc, Chartered Accountants London
A d d itio n al in fo rm atio n 333 Prudential plc Annual Report 2013
III. Other information 345 a Holding company cash flow 346 b Funds under management 348 c Additional information on pre and post-tax EEV
basis results 350 d Reconciliation of expected transfer of value of in-force (VIF) and required capital business to free surplus 354 e Foreign currency source of key metrics 354 f Economic capital position 359 g Option schemes
The following table sets forth Prudential’s selected consolidated financial data for the periods indicated. Certain data is derived from Prudential’s audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU) and European Embedded Value (EEV).
Year ended 31 December 2013 £m 2012* £m 2011* £m 2010* £m 2009* £m
Profit before tax (being tax attributable to shareholders’ and policyholders’ returns)note (1) 2,082 3,117 1,859 1,890 1,482
Tax (charge) credit attributable to policyholders’ returns (447) (370) 7 (607) (829)
Based on profit for the year attributable to the equity holders of the Company: Basic earnings per share (in pence) 52.8p 85.1p 57.1p 52.4p 24.9p Diluted earnings per share (in pence) 52.7p 85.0p 57.0p 52.3p 24.8p
Operating profit based on longer-term investment returnsnote (2) 2,954 2,520 2,017 1,823 1,444 Short-term fluctuations in investment returns on
Costs of terminated AIA transaction – – – (377) – Gain on dilution of Group’s holdings – 42 – 30 – Amortisation of acquisition accounting adjustments (72) (19) – – – (Loss) profit attaching to held for sale Japan life business (102) 17 6 8 3 Costs of domestication of Hong Kong branch (35) – – – – Loss on sale and results of Taiwan agency business – – – – (621)
Operating earnings per share (reflecting operating profit based on longer-term investment returns after related tax and non-controlling interests and excluding 2010 exceptional tax credit) (in pence) 90.9p 76.9p 62.7p 58.8p 43.3p
Operating earnings per share (reflecting operating profit based on longer-term investment returns after related tax and non-controlling interests and including 2010 exceptional tax credit) (in pence) 90.9p 76.9p 62.7p 65.1p 43.3p * The Group has adopted new accounting standards on consolidated financial statements and joint arrangements, and amendments to the employee benefits accounting standard, from 1 January 2013, as described in note A2. Accordingly, the 2009 to 2012 comparative results and related notes have been adjusted retrospectively from those previously published.
Operating profit based on longer-term investment returnsnote (2) 5,580 4,313 3,981 3,702 3,093 Short-term fluctuations in investment returns on
Mark to market value movements on core borrowings 152 (380) (14) (164) (795) Effect of changes in economic assumptions 821 (2) (141) 11 (908) Costs of terminated AIA transaction – – – (377) – Gain on dilution of Group’s holdings – 42 – 3 – Costs of domestication of Hong Kong branch (35) – – – – Gain on acquisition on REALIC – 453 – – – (Loss) profit attaching to held for sale Japan life business (35) 21 (19) (10) 27 Profit on sale and results of Taiwan agency business – – – – 91
Profit from continuing operations before tax attributable to shareholders 5,664 4,957 2,977 3,113 1,823
Annual premium equivalent (APE) sales: EEV new business profit (NBP) 2,843 2,452 2,151 2,028 1,619
Expenses: Expected return on shareholder assets 58 – 58 24 134 – 216
Long-term business operating profit 1,009 (8) 1,001 1,243 706 – 2,950 Asset management operating profit 82 (8) 74 59 441 – 574 GI commission – – – – 29 – 29 Other income and expenditurenote (i) – – – – – (599) (599)
A d d itio n al in fo rm atio n 339 Prudential plc Annual Report 2013 2012 £m
Long-term business operating profit 913 (7) 906 964 703 – 2,573 Asset management operating profit 75 (6) 69 39 371 – 479 GI commission – – – – 33 – 33 Other income and expenditurenote (i) – – – – – (565) (565)
Total operating profit based on longer-term investment returns 988 (13) 975 1,003 1,107 (565) 2,520
Notes (i) Including restructuring and Solvency II implementation costs. (ii) The analysis excludes the results of the held for sale life insurance business of Japan. The results of Japan life business excluded in 2013 were: profit of £3 million
(2012: loss of £2 million). (iii) The Group has adopted new accounting standards on joint arrangements, as described in note A2. The only impact of the resulting change on the analysis above is to deduct the associated tax expense from the joint ventures’ operating profit by treating it as an administration expense. This contributed to an additional expense, as follows: – Long-term business – 2013: £5 million (2012: £9 million); and – Asset management business – 2013: £8 million (2012: £6 million).
All other lines continue to include the Group’s share of the relevant part of the joint ventures’ pre-tax operating profit.
Insurance margin 1,356 1,027 Margin on revenues 1,749 1,655 Expenses: DAC adjustments 334 418
Notes (i) The ratio for acquisition costs is calculated as a percentage of APE including with-profits sales. Acquisition costs include only those relating to shareholder-backed business. (ii) Margin represents the operating return earned in the year as a proportion of the relevant class of policyholder liabilities excluding unallocated surplus. (iii) For UK and Asia, opening and closing policyholder liabilities have been used to derive an average balance for the year, as a proxy for average balances throughout the year. The calculation of average liabilities for Jackson is derived from month-end balances throughout the year, as opposed to opening and closing balances only. Average liabilities for spread income are based on the general account liabilities to which spread income attaches. In addition, for REALIC (acquired in 2012), which are included in the average liability to calculate the administration expense margin, the calculation excludes the liabilities reinsured to third parties prior to the acquisition by Jackson. Average liabilities are adjusted for business acquisitions and disposals in the year.
(v) The 2013 analysis excludes the results of the held for sale life insurance business of Japan in both the individual profit and average liability amounts shown in the table above. The comparative results have been presented on a consistent basis.
Insurance margin 679 589 Margin on revenues 1,562 1,439 Expenses: DAC adjustments 35 (16)
(iii) The analysis excludes the 2012 and 2013 results of the life insurance business of Japan in both the individual profit and the average liability amounts shown in the table above.
(iv) Opening and closing policyholder liabilities, adjusted for corporate transactions, have been used to derive an average balance for the year, as a proxy for average balances throughout the year.
Analysis of Asia operating profit drivers — Spread income has increased by £22 million from £93 million in 2012 to £115 million in 2013, an increase of 24 per cent, predominantly reflecting the growth of the Asian non-linked policyholder liabilities.
— Acquisition costs have increased from £903 million in 2012 to £1,015 million in 2013, in line with the 12 per cent increase in sales, resulting in a stable acquisition cost ratio. The analysis above uses shareholder acquisition costs as a proportion of total APE. If with-profits sales were excluded from the denominator the acquisition cost ratio would become 65 per cent (2012: 63 per cent) reflecting changes to product and country mix.
Notes (i) The ratio for acquisition costs is calculated as a percentage of APE. (ii) The calculation of average liabilities for Jackson is derived from month-end balances throughout the year, as opposed to opening and closing balances only.
Analysis of US operating profit drivers — Spread income has increased by 4 per cent to £730 million in 2013 from £702 million in 2012. The reported spread margin increased to 246 basis points from 239 basis points in 2012, primarily as a result of lower crediting rates. In addition, spread income benefited from swap transactions previously entered into to more closely match the overall asset and liability duration. Excluding this effect, the spread margin would have been 182 basis points (2012: 186 basis points).
— Fee income has increased by 34 per cent to £1,172 million in 2013, compared to £875 million in 2012, primarily due to higher average separate account balances due to positive net cash flows from variable annuity business and market appreciation. Fee income margin has remained broadly consistent with the prior year at 196 basis points (2012: 199 basis points), with the decrease primarily attributable to the change in the mix of business.
— Insurance margin represents operating profits from insurance risks, including variable annuity guarantees and other sundry items. Positive net flows into variable annuity business with life contingent and other guarantee fees, coupled with a benefit in the year from re-pricing actions, have increased the insurance margin from £399 million in 2012 to £588 million in 2013. This includes a benefit due to the inclusion of the full year of operations for REALIC, which contributed £188 million in 2013, compared to £87 million in 2012.
— Acquisition costs, which are commissions and expenses incurred to acquire new business, including those that are not deferrable, have decreased by £58 million compared to 2012, due largely to the discontinuation of certain policy enhancement options on annuity business. As a percentage of APE, acquisition costs have decreased to 58 per cent for 2013, compared to 66 per cent in 2012. This is due to the discontinuation of contract enhancements mentioned above and the continued increase in producers selecting asset-based commissions which are treated as an administrative expense in this analysis, rather than front end commissions.
— DAC adjustments decreased to £313 million in 2013 compared to £442 million in 2012, due to lower levels of current year acquisition costs being deferred and higher DAC amortisation being incurred following higher gross profits. Certain acquisition costs are not fully deferrable, resulting in new business strain of £198 million for 2013 (2012: £174 million) mainly reflecting the increase in sales in the period.
Total operating profit before acquisition costs and DAC adjustments 1,844 1,844 1,494 1,494
Insurance margin 89 39 Margin on revenues 187 216 Expenses: DAC adjustments (14) (8)
Notes (i) The ratio for acquisition costs is calculated as a percentage of APE including with-profits sales. Acquisition costs include only those relating to shareholderbacked business. (ii) Opening and closing policyholder liabilities have been used to derive an average balance for the year, as a proxy for average balances throughout the year.
— Margin on revenues represents premium charges for expenses and other sundry net income received by the UK. 2013 income was £187 million, £29 million lower than in 2012, reflecting lower premium volumes in the year.
— Acquisition costs as a percentage of new business sales are in line with 2012 at 15 per cent. Lower commission payments from the implementation of the recommendations of the Retail Distribution Review have been more than offset by the effect of lower bulk annuity sales in the year, which traditionally are less capital intensive.
A d d itio n al in fo rm atio n 343 Prudential plc Annual Report 2013
Notes (i) Analysis of operating profit between new and in-force business The result for insurance operations comprises amounts in respect of new business and business in force as follows: New business strain (15) (46) Business in force 974 860 Non-recurrent items:note (ii)
Other non-recurrent items 44 48 Gain on sale of stake in China Life (Taiwan) – 51 * The 2012 comparative results have been adjusted from those previously published for the retrospective application of the new and amended accounting standards described in note A2.
The IFRS new business strain corresponds to approximately 1 per cent of new business APE premiums for 2013 (2012: approximately 2 per cent of new business APE). The improvement is driven by a shift in overall sales mix to lower strain products and countries.
(ii) During 2012, the Group sold its 7.74 per cent stake in China Life (Taiwan) for £97 million crystallising a gain of £51 million. Other non-recurrent items of £44 million in 2013 (2012: £48 million) represent a small number of items that are not anticipated to re-occur in subsequent years. (iii) To facilitate comparisons of operating profit based on longer-term investment returns that reflect the Group’s retained operations, the results attributable to the held for sale Japan life business are not included within the long-term business operating profit for Asia. The 2012 comparative results have also been adjusted. The Japan life business contributed a profit of £3 million in 2013 (2012: loss of £(2) million).
II(c) Analysis of asset management operating profit based on longer-term investment returns 2013 £m
Operating income(net of commission)note (i) 888 216 121 362 1,587 Operating expensenote (i) (505) (134) (75) (303) (1,017) Share of associate’s results 12 – – – 12 Group’s share of tax on joint ventures’ operating profit – (8) – – (8)
Operating profit based on longer-term investment returns 395 74 46 59 574
Average funds under management £233.8bn £61.9bn Margin based on operating income* 37 bps 35 bps Cost/income ratio† 59% 62%
Operating income (net of commission)note (i) 743 203 120 296 1,362
Notes (i) Operating income and expense includes the Group’s share of contribution from joint ventures (but excludes any contribution from associates). In the income statement, as shown in note B2 of the IFRS financial statements, these amounts are netted and tax deducted and shown as a single amount. (ii) M&G and Eastspring Investments can be further analysed as follows: M&G
bps * Margin represents operating income before performance related fees as a proportion of the related funds under management (FUM). Monthly closing internal and external funds managed by the respective entity have been used to derive the average. Any funds held by the Group’s insurance operations which are managed by third parties outside of the Prudential Group are excluded from these amounts.
Net cash remitted by business units: UK net remittances to the Group 206 216
Net remittances to the Group from business units 1,341 1,200 Net interest paid (300) (278) Tax received 202 194 Corporate activities (185) (158) Solvency II costs (32) (47)
Operating holding company cash flow after dividend* 245 256 Issue of hybrid debt, net of costs 1,124 – Acquisition of Thanachart Life (397) – Hedge purchase cost (equity tail risks) – (32) Costs of the domestication of the Hong Kong branch (31) – Other net cash payments (83) (43)
Cash and short-term investments at end of year 2,230 1,380 * Including central finance subsidiaries.
Business area: Asia operations 38.0 38.9 US operations 104.3 91.4 UK operations 157.3 154.0
Prudential Group funds under management 299.6 284.3 External fundsnote (ii) 143.3 121.4
Total funds under management 442.9 405.7 * The 2012 comparative results have been adjusted from those previously published for the retrospective application of the new and amended accounting standards described in note A2.
b Prudential Group funds under management – analysis by business area
Internally managed funds held in insurance join ventures 3.2 3.3 – – 0.5 0.3 3.7 3.6
External funds under management 126.0 111.9 Internal funds under management 118.0 116.4
External funds under managementnote 22.2 21.6 Internal funds under management 37.7 36.5
Asia operations New businessnotes (ii), (iii) 1,460 1,266 659 1,139 982 502 Business in force*: Unwind of discount and other expected returns 846 595 400 668 465 315
Long-term business 2,221 1,610 1,016 1,526 1,097 707 Broker-deal and asset management 59 39 34 39 18 21
Long-term business 1,033 866 404 832 691 304 General insurance commission 29 33 15 22 25 11
Total UK insurance operations 1,062 899 419 854 716 315 M&G (including Prudential Capital) 441 371 225 346 285 175
Other income and expenditure (619) (554) (304) (482) (476) (235) Solvency II and restructuring costs (43) (72) (26) (34) (55) (21)
Analysed as profits (losses) from: New businessnotes (ii), (iii) 2,843 2,452 1,268 2,082 1,791 913 Business in force* 2,798 1,982 1,231 2,168 1,533 927
Long-term business* 5,641 4,434 2,499 4,250 3,324 1,840 Asset management* 574 479 297 449 361 228 Other results (635) (600) (317) (495) (511) (247)
III(d) Reconciliation of expected transfer of value of in-force (VIF) and required capital business to free surplus The tables below show how the VIF generated by the in-force long-term business and the associated required capital is modelled as emerging into free surplus over the next 40 years. Although a small amount (less than 2 per cent) of the Group’s embedded value emerges after this date, analysis of cash flows emerging in the years shown in the tables is considered most meaningful. The modelled cash flows use the same methodology underpinning the Group’s embedded value reporting and so are subject to the same assumptions and sensitivities.
In addition to showing the amounts, both discounted and undiscounted, expected to be generated from all in-force business at 31 December 2013, the tables also present the expected future free surplus to be generated from the investment made in new business during 2013 over the same 40 year period.
Undiscounted expected free surplus generation for years 2014 to 2053 3,340 1,515 658 5,513
Less: Amounts expected to be realised in the current year (1,950) – – – – – – (1,950)
Add: expected free surplus to be generated in year 2053* – – – – – – 179 179
Asia £m £m £m £m £m £m Other £m Total £m 2012 expected free surplus generation for years 2013 to 2052 719 761 724 686 654 628 13,069 17,241
Add: expected free surplus to be generated in year 2053* – – – – – – 135 135
Less: amounts expected to be realised in the current year (785) – – – – – – (785)
New business – 260 113 114 40 108 880 1,515 Operating movements – (6) 3 6 18 21 Non-operating and other movements – 87 112 93 75 30 795 1,234 2013 expected free surplus generation for years 2014 to 2053 – 902 817 760 709 700 5,500 9,388 * Excluding 2013 new business. † Includes the removal of Japan life business following its reclassification as held for sale.
£m £m £m £m £m £m Other £m Total £m 2012 expected free surplus generation for years 2013 to 2052 446 483 464 444 430 415 7,680 10,362
Add: expected free surplus to be generated in year 2053* – – – – – – 44 44
Non-operating and other movements† – (27) (17) 7 23 44 1,523 1,527 2013 expected free surplus generation for years 2014 to 2053 – 462 471 467 467 479 9,799 12,145 * Excluding 2013 new business.
This increase primarily reflects the new business written in 2013, which is expected to generate £1,357 million of free surplus over the next five years. Operating, non-operating and other items are expected to increase free surplus generation by £570 million over the next five years, but this has been offset by adverse foreign exchange movements of £389 million.
Actual underlying free surplus generated in 2013 from life business in force at the end of 2012 was £2.6 billion inclusive of £0.5 billion of changes in operating assumptions and experience variances. This compares with the expected 2013 realisation at the end of 2012 of £2.0 billion. This can be analysed further as follows: Asia £m
Underlying free surplus generated from in-force life business in 2013 819 1,129 680 2,628 2013 free surplus expected to be generated at 31 December 2012 719 785 446 1,950
A d d itio n al in fo rm atio n 353 Prudential plc Annual Report 2013
Total discounted free surplus expected to emerge in the next 40 years 8,646 6,234 5,134 20,014 1,242 999 261 2,502
Discounted expected generation from all in-force business for years 2014 to 2053 20,014 Discounted expected generation from all in-force business for years after 2053 393
Discounted expected generation from all in-force business (excluding Japan) at 31 December 2013 20,407 Add: free surplus of life operations held at 31 December 2013 3,220 Less: time value of guarantees (196) Expected cash flow from the sale of Japan life business* 25 Other non-modelled items† 1,157
Total EEV for life operations 24,613 * Upon completion of the sale of the Japan life business £25 million of free surplus will be released. See note 4 of the EEV basis results section for further details. † These relate to items where there is no definitive timeframe for when the payments will be made or receipts received and are, consequently, excluded from the amounts incorporated into the tables above showing the expected generation of free surplus from in-force business at 31 December 2013. In particular, it excludes the value of the shareholders’ interest in the estate.
US$ linkednote 1 29 26 28 Other Asia currencies 22 18 15
Notes 1 US$ linked – comprising the Hong Kong and Vietnam operations where the currencies are pegged to the US dollar and the Malaysia and Singapore operations where the currencies are managed against a basket of currencies including the US dollar. 2 Includes long-term, asset management business and other businesses. 3 For operating profit and shareholders’ funds UK sterling includes amounts in respect of central operations as well as UK insurance operations and M&G. 4 For shareholders’ funds, the US$ grouping includes US$ denominated core structural borrowings. Sterling operating profits include all interest payable as sterling denominated, reflecting interest rate currency swaps in place.
III(f) Economic capital position Following provisional agreement on the Omnibus II Directive on 13 November 2013, Solvency II is now expected to come into force on 1 January 2016. Therefore, our economic capital results are based on outputs from our Solvency II internal model. Although the Solvency II and Omnibus II Directives, together with draft Level 2 ‘Delegated Acts’ provide a viable framework for the calculation of Solvency II results, there remain material areas of uncertainty and in many areas the methodology and assumptions are subject to review and approval by the Prudential Regulation Authority, the Group’s lead regulator. We do not expect to submit our Solvency II internal model to the Prudential Regulation Authority for approval until 2015 and, therefore, the economic capital results shown below should not be interpreted as outputs from an approved Solvency II internal model.
At 31 December 2013, the Group had an economic capital surplus of £11.3 billion and an economic solvency ratio of 257 per cent (before taking into account the 2013 final dividend). A summary of the capital position is shown in the table below: £bn
Available capital 18.5 Economic Capital Requirement 7.2 Surplus 11.3 Economic solvency ratio 257%
The best estimate liability is calculated by taking the average of future risk-adjusted best estimate cash flows, taking into account the time value of money and the relative liquidity of those liabilities. The best estimate liability allows for the value of options and guarantees embedded in existing contracts as well as the value of future discretionary benefits payable to policyholders. Realistic management actions and policyholder behaviour are allowed for where relevant. In addition, since capital requirements are only derived to cover risks over a one year horizon, a risk margin is added to the best estimate liability to cover the cost of ceding liabilities to a third party after one year, assuming a 6 per cent per annum cost of capital, in line with Solvency II requirements.
Prudential’s US insurance entities are included in the economic capital position on a local RBC basis under the assumption of US equivalence and the assumed permitted use of the ’deduction and aggregation’ method. This is in line with our view of the most likely outcome of Solvency II given the agreement reached in the Omnibus II Directive. The contribution of US insurance entities to the Group surplus is that in excess of 250 per cent of the US RBC Company Action Level, which is in line with the level at which we measure both the Group’s IGD surplus and the Group’s reported free surplus amount. In line with the draft Solvency II requirements under the ’deduction and aggregation’ method, no diversification benefit is allowed for between US insurance entities and other parts of the Group.
(iii) The credit risk adjustment to the risk-free rate, which is currently set at 10 basis points, consistent with the specification in Quantitative Impact Study 5, but where discussions are ongoing at a European level as part of the process to agree the more detailed Solvency II rules.
Further, current drafts of the Solvency II rules remain unclear in relation to capital tiering requirements and, therefore, tiering limits are not yet applied. Prudential’s methodology in the areas highlighted above will evolve in the future as the final Solvency II requirements become clearer.
In addition, there are a range of other calibration issues which will remain unclear until Solvency II requirements have been finalised and our Solvency II internal model has been reviewed and approved by the Prudential Regulation Authority. Therefore, the capital position may change as methodology is refined in the lead up to 2016 when Solvency II is expected to formally replace the current IGD regime.
The risk-free curve at which best estimate liability cash flows are discounted is based on market swap rates (with the exception of Vietnam where no liquid swap market exists and government bond yields are therefore used), with a deduction of 10 basis points to allow for a ‘credit risk adjustment’ to swap rates. In addition, a liquidity premium is added to the liability discount rate for UK annuities, in both the base balance sheet and in the stressed conditions underlying the Economic Capital Requirement. In the absence of a Matching Adjustment calibration, the liquidity premium has been derived by reference to existing Solvency I allowances and a range of other industry benchmarks. The allowances vary by fund reflecting the nature of the respective asset portfolios and the extent of asset-liability cash flow matching, which are also likely to be key inputs into the Solvency II Matching Adjustment calculation. The resulting liquidity premium allowances are summarised in the table below. The final Solvency II discount curve is subject to considerable uncertainties and may vary significantly from these assumptions.
Reconciliation of IFRS equity to economic available capital Available capital note
IFRS shareholders' equity at 31 December 2013 9.7 Adjustment to restate US insurance entities onto a US Risk Based Capital basis (0.6) Remove DAC, goodwill and intangibles (2.7) Add subordinated debt treated as economic available capital 3.8 Insurance contract valuation differences 5.8 Add value of shareholder transfers 4.1 Increase in value of net deferred tax liabilities (resulting from valuation differences above) (1.3) Other (0.3)
The key differences between the two metrics are: — £0.6 billion represents the adjustment required to the Group’s shareholders’ funds in order to convert Jackson’s contribution from an IFRS basis to the local statutory valuation basis which underpins the US Risk Based Capital regime; — £2.7 billion due to the removal of DAC and goodwill from the IFRS balance sheet; — £3.8 billion due to the addition of subordinated debt which is treated as available capital on an economic basis but as a liability under IFRS; — £5.8 billion due to differences in insurance valuation requirements between economic capital and IFRS, with available capital partially capturing the economic value of in-force business which is excluded from IFRS, offset to some extent by the inclusion of a risk margin which is not required under IFRS; — £4.1 billion due to the inclusion of the value of future shareholder transfers from with-profits business on the economic balance sheet in the UK and Asia, which is excluded from the determination of the Group’s IFRS shareholders’ funds; and
Analysis of movement in the economic capital position The table below shows the movement during the financial year in the Group’s economic capital surplus.
Economic solvency position as at 1 January 2013 8.8 215% Model changes 0.1 2% Operating experience 2.1 31% Non-operating experience 0.9 12% Other capital movements: Acquisitions/disposals (0.5) (8)% Foreign currency translation movements (0.4) 0% Subordinated debt issuance 1.1 16%
Notes 1 The Group Economic Capital Requirement by risk type includes capital requirements in respect of Jackson’s risk exposures, based on 250% of the US RBC
Company Action Level. 2 Based on the Group’s Solvency II internal model which has not been reviewed or approved by the Prudential Regulation Authority.
— A 100 basis points increase in credit spreads2 would reduce surplus by £1.3 billion and reduce the economic solvency ratio to 254 per cent.
The adverse impact of falling equity markets mainly results from a reduction in the value of with-profits shareholder transfers and future fund management charges in the UK and Asia. Equity hedging reduces the impact of these exposures and a dynamic equity hedging programme is also in place to manage the equity risk arising in Jackson’s variable annuities business.
A fall in yields has a material adverse impact on Group surplus which largely arises from a decrease in the value of future with-profits shareholder transfers and an increase in the size of risk margins. Falling yields also increases the value of the Group’s external debt, reducing the Group surplus. However, these impacts are partially offset by an increase in the value of future insurance profits and changes in the value of hedging assets.
Widening credit spreads adversely impacts on the annuity business in the UK since this is deemed to represent an increase, to some extent, in the expected level of future defaults. Jackson is not exposed to credit spread widening on a US RBC basis, but an increase in defaults in the Jackson credit book would have a negative impact on the Group capital position and is reflected in the credit stress test above.
Statement of independent review The methodology, assumptions and overall result have been subject to examination by KPMG LLP.
Note 2 For the credit spread widening stress 10 times expected defaults are assumed for Jackson since credit spread movements do not directly impact on the
The weighted average share price of Prudential plc for the year ended 31 December 2013 was £11.14 (2012: £7.69). Particulars of options granted to directors are included in the Directors’ Remuneration Report on page 89. The closing price of the shares immediately before the date on which the options were granted during the current period was £12.02. The following analyses show the movement in options for each of the option schemes for the year ended 31 December 2013.
26 Apr 07 5.72 01 Jun 12 30 Nov 12 14,489 – – – – (14,489) – 25 Apr 08 5.51 01 Jun 13 30 Nov 13 4,192 – (2,739) – – – 1,453 27 Apr 09 2.88 01 Jun 12 30 Nov 12 63,474 – – – – (63,474) – 27 Apr 09 2.88 01 Jun 14 30 Nov 14 78,133 – (1,372) – (1,188) – 75,573
The total number of securities available for issue under the scheme is 1,873,315 which represents 0.073 per cent of the issued share capital at 31 December 2013.
27 Apr 09 2.88 01 Jun 12 30 Nov 12 3,646 – – – – (3,646) – 27 Apr 09 2.88 01 Jun 14 30 Nov 14 6,567 – – – – – 6,567
The total number of securities available for issue under the scheme is 6,567 which represents 0.0003 per cent of the issued share capital at 31 December 2013.
Date of grant Exercise price £ Beginning End Beginning of period Granted Exercised Cancelled Forfeited Lapsed End of period
The weighted average fair value of options granted under the plan in the period was £9.01.
Global financial markets are subject to uncertainty and volatility created by a variety of factors, including concerns over sovereign debt, general slowing in world growth from subdued or slowdown in demand and the timing and scale of quantitative easing programmes of central banks. Upheavals in the financial markets may affect general levels of economic activity, employment and customer behaviour. For example, insurers may experience an elevated incidence of claims, lapses, or surrenders of policies, and some policyholders may choose to defer or stop paying insurance premiums. The demand for insurance products may also be adversely affected. If sustained, this environment is likely to have a negative impact on the insurance sector over time and may consequently have a negative impact on Prudential’s business and profitability. New challenges related to market fluctuations and general economic conditions may continue to emerge.
For some non-unit-linked investment products, in particular those written in some of the Group’s Asian operations, it may not be possible to hold assets which will provide cash flows to match those relating to policyholder liabilities. This is particularly true in those countries where bond markets are not developed and in certain markets where regulated surrender values are set with reference to the interest rate environment prevailing at the time of policy issue. This results in a mismatch due to the duration and uncertainty of the liability cash flows and the lack of sufficient assets of a suitable duration. While this residual asset/liability mismatch risk can be managed, it cannot be eliminated. Where interest rates in these markets remain lower than interest rates used to calculate surrender values over a sustained period, this could have an adverse impact on Prudential’s reported profit.
Jackson also writes a significant amount of variable annuities that offer capital or income protection guarantees. The value of these guarantees is affected by market factors including interest rates, equity levels, bond spreads and volatility. There could be market circumstances where the derivatives that Jackson enters into to hedge its market risks may not fully cover its exposures under the guarantees. The cost of the guarantees that remain unhedged will also affect Prudential’s results.
Prudential is subject to the risk of potential sovereign debt credit deterioration owing to the amounts of sovereign debt obligations held in its investment portfolio Prudential is subject to the risk of potential sovereign debt credit deterioration on the amounts of sovereign debt obligations held in its investment portfolio. In recent years, rating agencies have downgraded the sovereign debt of some countries. There is a risk of further downgrades.
Investing in sovereign debt creates exposure to the direct or indirect consequences of political, social or economic changes (including changes in governments, heads of states or monarchs) in the countries in which the issuers are located and the creditworthiness of the
In addition, if a sovereign default or other such events described above were to occur, other financial institutions may also suffer losses or experience solvency or other concerns, and Prudential might face additional risks relating to any debt of such financial institutions held in its investment portfolio. There is also risk that public perceptions about the stability and creditworthiness of financial institutions and the financial sector generally might be affected, as might counter party relationships between financial institutions. If a sovereign were to default on its obligations, or adopt policies that devalue or otherwise alter the currencies in which its obligations are denominated this could have a material adverse effect on Prudential’s financial condition and results of operations.
Currently there are also a number of other global regulatory developments which could impact the way in which Prudential is supervised in its many jurisdictions. These include the DoddFrank Act in the US, the work of the Financial Stability Board (FSB) on Global Systemically Important Insurers (G-SIIs) and the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) being developed by the International Association of Insurance Supervisors (IAIS).
ComFrame is also being developed by the IAIS to provide common global requirements for the supervision of insurance groups. The framework is designed to develop common principles and standards for group supervision and so may increase the focus of regulators in some jurisdictions. It is also expected to include some prescriptive requirements, including an Insurance Capital Standard (ICS). A revised draft ComFrame proposal was released for consultation in October 2013. The IAIS will undertake a field testing exercise from 2014 to 2018 to assess the impacts of the quantitative and qualitative requirements proposed under ComFrame. ComFrame is expected to be implemented in 2019.
The Group’s accounts are prepared in accordance with current International Financial Reporting Standards (IFRS) applicable to the insurance industry. The International Accounting Standards Board (IASB) introduced a framework that it described as Phase I, which permitted insurers to continue to use the statutory basis of accounting for insurance assets and liabilities that existed in their jurisdictions prior to January 2005. In July 2010, the IASB published its first Exposure Draft for its Phase II on insurance accounting, which would introduce significant changes to the statutory reporting of insurance entities that prepare accounts according to IFRS. A revised Exposure Draft was issued in June 2013. It remains uncertain whether the proposals in the Exposure Draft will become the final IASB standard. The timing of the changes taking effect is uncertain but not expected to be before 2018.
The resolution of several issues affecting the financial services industry could have a negative impact on Prudential’s reported results or on its relations with current and potential customers Prudential is, and in the future may be, subject to legal and regulatory actions in the ordinary course of its business, both in the UK and internationally. These actions could involve a review of types of business sold in the past under acceptable market practices at the time, such as the requirement in the UK to provide redress to certain past purchasers of pension and mortgage endowment policies, changes to the tax regime affecting products and regulatory reviews on products sold and industry practices, including, in the latter case, lines of business it has closed.
Prudential’s businesses are conducted in highly competitive environments with developing demographic trends and continued profitability depends on management’s ability to respond to these pressures and trends The markets for financial services in the UK, US and Asia are highly competitive, with several factors affecting Prudential’s ability to sell its products and continued profitability, including price and yields offered, financial strength and ratings, range of product lines and product quality, brand strength and name recognition, investment management performance, historical bonus levels, developing demographic trends and customer appetite for certain savings products. In some of its markets, Prudential faces competitors that are larger, have greater financial resources or a greater market share, offer a broader range of products or have higher bonus rates or claims paying ratios. Further, heightened competition for talented and skilled employees and agents with local experience, particularly in Asia, may limit Prudential’s potential to grow its business as quickly as planned.
Prudential’s short-term debt is rated as P-1 by Moody’s, A-1 by Standard & Poor’s and F1 by Fitch.
In addition, changes in methodologies and criteria used by rating agencies could result in downgrades that do not reflect changes in the general economic conditions or Prudential’s financial condition.
Adverse experience in the operational risks inherent in Prudential’s business could have a negative impact on its results of operations Operational risks are present in all of Prudential’s businesses, including the risk of direct or indirect loss resulting from inadequate or failed internal and external processes, systems and human error or from external events. Prudential’s business is dependent on processing a large number of transactions across numerous and diverse products, and is subject to a number of different legal and regulatory regimes. Further, because of the long-term nature of much of the Group’s business, accurate records have to be maintained for significant periods.
Although Prudential’s IT, compliance and other operational systems and processes incorporate controls designed to manage and mitigate the operational risks associated with its activities, there can be no assurance that such controls will always be effective. For example, although Prudential has not experienced a material failure or breach in relation to its legacy and other IT systems and processes to date, it has been, and likely will continue to be, subject to computer viruses, attempts at unauthorised access and cyber-security attacks.
Prudential has not experienced or identified any operational risks in its systems or processes during 2013, which have subsequently caused, or are expected to cause, a significant negative impact on its results of operations.
Available-for-sale (AFS) Securities that have been acquired neither for short-term sale nor to be held to maturity. AFS securities are measured at fair value on the statement of financial position with unrealised gains and losses being booked in Other Comprehensive Income instead of the income statement.
Back book of business The insurance policies sold in past periods that are still in-force and hence are still recorded on the insurer’s balance sheet.
Core structural borrowings Borrowings which Prudential considers to form part of its core capital structure and exclude operational borrowings.
Currency risk The risk that asset or liability values, cash flows, income or expenses will be affected by changes in exchange rates. Also referred to as foreign exchange risk.
Group free surplus Group free surplus at the end of the period comprises free surplus for the insurance businesses, representing the excess of the net worth over the required capital included in the EEV results, and IFRS net assets for the asset management businesses excluding goodwill. The free surplus generated during the period comprises the movement in this balance excluding foreign exchange, capital, and other reserve movements. Specifically, it includes amounts maturing from the in-force operations during the period less the investment in new business, the effect of market movements and other one-off items.
Guaranteed minimum income benefit (GMIB) (US) A guarantee that ensures, under certain conditions, that the owner may annuitise the variable annuity contract based on the greater of (a) the actual account value or (b) a pay-out base equal to premiums credited with some interest rate, or the maximum anniversary value of the account prior to annuitisation.
Immediate annuity An annuity in which payments to the annuitant or beneficiary start at once upon establishment of the annuity plan or scheme. Such annuities are almost always purchased with a single (lump sum) payment.
Investment grade Investments rated BBB- or above for S&P, Baa3 or above for Moody’s. Generally they are bonds that are judged by the rating agency as likely enough to meet payment obligations that banks are allowed to invest in them.
Liquidity premium This comprises the premium that is required to compensate for the lower liquidity of corporate bonds relative to swaps and the mark to market risk premium that is required to compensate for the potential volatility in corporate bond spreads (and hence market values) at the time of sale.
Money Market Fund (MMF) An MMF is an open-ended mutual fund that invests in short-term debt securities such as US treasury bills and commercial paper. The purpose of an MMF is to provide investors with a safe place to invest easily accessible cash-equivalent assets characterised as a low-risk, low-return investment.
OEIC Open ended investment company A collective investment fund structured as a limited company in which investors can buy and sell shares.
Prudential Regulation Authority or PRA The PRA is a UK regulatory body responsible for Prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms.
Rider A supplemental plan that can be attached to a basic insurance policy, with payment of additional premium.
Surrender charge or surrender fee The fee charged to a policyholder when a life insurance policy or annuity contract is surrendered for its cash surrender value prior to the end of the surrender charge period.
Variable annuity (VA) (US) An annuity whose value is determined by the performance of underlying investment options that frequently includes securities. A variable annuity’s value is not guaranteed and will fluctuate, depending on the value of its underlying investments. The holder of a variable annuity assumes the investment risk and the funds backing a variable annuity are held in the insurance companies separate account. VAs are similar to unit-linked annuities in the UK.
Ex dividend date 26 March 2014 27 March 2014 26 March 2014 26 March 2014 Record date 28 March 2014 28 March 2014 28 March 2014 28 March 2014
Payment date 22 May 2014 22 May 2014 On or about 2 June 2014
If you are an overseas shareholder then you may be able to make use of the overseas payment service provided by Equiniti which enables your dividends to be paid in local currency direct to your bank account. This service is currently available to over 90 countries worldwide. To obtain further information about this service please call Equiniti on the number above or alternatively visit www.shareview.com/ overseaspayments
Equiniti shareview service Information on how to manage shareholdings can be found at The pages at this web address provide the following: — Answers to commonly-asked questions regarding shareholder registration; — Links to downloadable forms, guidance notes and Company history fact sheets; and
ShareGift Shareholders who have only a small number of shares, the value of which makes them uneconomic to sell, may wish to consider donating them to ShareGift (Registered Charity 1052686). The relevant share transfer form may be downloaded from our website www.prudential.co.uk/ prudential-plc/investors/shareholder_ services/forms or obtained from Equiniti. Further information about ShareGift may be obtained on +44 (0)20 7930 3737 or from www.ShareGift.org
There are no implications for capital gains tax purposes (no gain or loss) on gifts of shares to charity and it is also possible to obtain income tax relief.
American Depositary Receipts (ADRs) The Company’s ordinary shares are listed on the New York Stock Exchange in the form of American Depositary Shares, evidenced by ADRs and traded under the symbol PUK. Each American Depositary Share represents two ordinary shares. All enquiries regarding ADR holder accounts should be directed to J.P. Morgan, the authorised depositary bank, at J.P. Morgan Chase Bank N.A, PO Box 64504, St. Paul, MN 55164-0854, USA. Telephone General +1 800 990 1135 or from outside the US +1 651 453 2128 or log on to www.adr.com
Singapore shareholder enquiries Shareholders who have shares standing to the credit of their securities accounts with CDP in Singapore may refer queries to the CDP at 4 Shenton Way, #02-01, SGX Centre 2, Singapore 068807, telephone +65 6535 7511. Enquiries regarding shares held in Depository Agent Sub-accounts should be directed to your Depository Agent or broker.
Prudential plc is a holding company, subsidiaries of which are authorised and regulated by the Prudential Regulation Authority and the Financial Conduct Authority.
Any forward-looking statements contained in this document speak only as of the date on which they are made. Prudential expressly disclaims any obligation to update any of the forward-looking statements contained in this document or any other forward-looking statements it may make, whether as a result of future events, new information or otherwise except as required pursuant to the UK Prospectus Rules, the UK Listing Rules, the UK Disclosure and Transparency Rules, the Hong Kong Listing Rules, the SGX-ST listing rules or other applicable laws and regulations.