• Prudential offers single premium savings products in France, as well as critical illness cover and mutual funds in Germany.
• Prudential Europe employs some 620 staff at its offices in Dublin, Frankfurt and Paris.
We have some really outstanding operations across the Group and can look to the future with a great deal of confidence. A more detailed commentary about our businesses in the UK, Europe, the United States and Asia can be found in the Group Chief Executive's and Business Reviews.
Source: The Research Department – Group weighted performance over rolling 1 year periods (M&G unit trusts).
Pru Vie is initially being sold through independent financial advisers approved by Centre Français du Patrimoine (CFP), which is one of the largest multi-brokerage networks in France. In January 2002, Prudential announced a similar arrangement with Espace Patrimoine Conseil (a subsidiary of Crédit Mutuel de Bretagne), and is expecting to enter into further distribution arrangements later this year.
Our emphasis has been and will continue to be on profitable growth. Historical results demonstrate our ability to grow sales while maintaining pricing discipline, and in the last four years we have consistently earned above-industry rates of return (as measured by US GAAP operating return on capital).
Share of investable assets Number of households Jackson National Life’s (JNL) current market positioning
ASIA THROUGH ITS EXTENSIVE NETWORK OF LIFE INSURANCE AND MUTUAL FUNDS OPERATIONS, PRUDENTIAL CORPORATION ASIA IS STRONGLY POSITIONED TO CAPTURE A MAJOR PART OF THE REGION’S FAST-GROWING FINANCIAL SERVICES MARKET.
view. Passive assumptions are revised only when it is judged that the economic environment has changed substantially. Results prepared under the Modified Statutory Basis were not affected by this change.
National Planning Holdings, our US broker dealer, and PPM America, our US fund manager, together delivered profits of £16 million, up from £7 million in 2000.
Longer-term investment loss 0 (74) 0 (74) Other items and experience variances (15) (2) 16 (1)
Economic assumption changes include the effect of the change to active assumptions mentioned earlier, together with changes to the long-term assumption in Asia and the in force spread assumption for Jackson.
Any proposal which resulted in a portion of the inherited estate being attributed solely to shareholders would require the interests of policyholders in the inherited estate to be taken into account. Such proposals may or may not be made.
Procurement Over the past year we have increased our focus on expenditure with third parties, implementing procurement processes and strategies to reduce significantly our operating expenses. Opportunities have been identified to capture synergies across the Group, and e-procurement is being implemented across the UK businesses to reduce transactional costs. Greater value for money is now being secured in marketing, IT and other business areas, through the use of professional procurement best practice.
• Jackson National Life helps to meet the costs of continuing education opportunities for staff, in addition to providing a range of training options including courses delivered via computer technology.
11. Rob Rowley (Age 52) A director since 1999. Retired as a director of Reuters Group PLC in December 2001. Previously Chief Executive of the Reuterspace Division and Finance Director of Reuters Group PLC.
2. Philip Broadley FCA (Age 41) Group Finance Director since May 2000. Previously he was with the UK firm of Arthur Andersen where he became a partner in 1993. He specialised in providing services to clients in the financial services industry, including regulators and government agencies in the UK and US.
Authority is delegated to the Group Chief Executive for implementing the strategy and for managing the Group. In discharging his responsibility, the Group Chief Executive works with a group executive committee, comprising all the business unit heads and is also assisted by a Group head office team of functional specialists.
The Remuneration Committee of the Board is made up wholly of independent non-executive directors and is responsible for setting remuneration policy and individual remuneration packages for executive directors. The Board has adopted the principles of good corporate governance relating to directors’ remuneration as set out in the Combined Code (‘the Code’) and complies with the provisions of Section 1B of and Schedules A and B to the Code.
Annual incentive plans The annual incentive plan for directors is designed to encourage value creation over the performance period while supporting sustained long-term value creation. The awards for all executive directors are based on performance against stretching quantitative financial and business targets in the business plans as well as personal performance. Annual bonus awards are non-pensionable.
Employee Involvement The Group has effective communication channels through which employees’ views can be sought on issues which concern them. Prudential’s European Employee Forum provides an opportunity for elected staff representatives to consult with senior management on strategic European business issues. Each Prudential business in Europe is represented on the Forum. M&G’s Staff Consultative Committee promotes communication throughout M&G and is the forum for dialogue on a range of issues of interest to staff.
The trustees of each of the Group’s UK pension schemes include individuals elected by the members of those schemes.
Tax on profit on ordinary activities: Tax on operating profit before amortisation of goodwill (174) (260) Tax on items excluded from operating profit before amortisation of goodwill 153 (54)
Gross premiums written 6 390 333 Outwards reinsurance premiums 35 (333) (12)
Allocated investment return transferred from the non-technical account 10(a) 37 47
Diluted earnings per share Based on profit for the financial year after minority interests of £389m (£657m) and 1,982m (1,968m) shares 5 19.6p 33.4p
Servicing of finance Interest paid on core structural shareholder borrowings (103) (119)
1. Nature of Operations Prudential plc (the ‘Company’) together with its subsidiaries (collectively, the ‘Group’ or ‘Prudential’) is an international financial services group with its principal operations in the United Kingdom, the United States, Asia and continental Europe. The Group operates in the UK through its subsidiaries, primarily The Prudential Assurance Company Limited (‘PAC’), Prudential Annuities Limited, Scottish Amicable Life plc, M&G Group plc, and Egg plc; and in the US through Jackson National Life Insurance Company. The Group also has operations in Singapore, Hong Kong, Malaysia, Taiwan and other Asian countries. In Europe, the Group has operations in Ireland, France and Germany. Prudential offers a wide range of retail financial products and services and fund management services throughout these territories. The retail financial products and services principally include life insurance, pensions and annuities as well as collective investments and deposit and mortgage banking services.
The consolidated profit and loss account comprises a general business technical account (property and casualty insurance business); a long-term business technical account (life insurance, pension, disability and sickness insurance and annuity business); and a nontechnical account. The non-technical account includes the results of the Group’s insurance operations. The insurance operations are presented by category of income and expenditure in each respective technical account. The balances (profits on insurance activities for the year) from the general and long-term business technical accounts are then included in the non-technical account and combined with the Group’s non-insurance businesses (principally banking and fund management) to determine the consolidated profit for the financial year.
(note 8) (note 16) interests Net per share £m £m £m £m Pence
Weighted average shares for diluted earnings per share 1,982 1,968 6. Segmental Information – Gross Premiums Written and Investment Product Contributions by Product Provider
Operating profit Under US GAAP, the convention is to refer to operating income as income before realised gains and losses and related amortisation of acquisition costs. Under UK GAAP, consistent with FRS 3 and the ABI SORP, operating profit is determined after inclusion of longerterm investment returns ie investment income and estimated longer-term capital gains. Details of the method for determining longerterm returns for Jackson National Life are explained in note 5. For equity based investments a longer-term rate of return of 7.75% based on average monthly carrying values has been assumed.
Amortisation of present value of acquired in force business (note 18): Adjustments in respect of in force business of M&G (20) 47 – – Other in force business 18 18 – –
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (30%) 116 284 Effects of: Non-taxable book losses (gains) on sales of subsidiaries/associates 0 (44) Utilisation of acquired capital losses against merger break fee (95) – Other capital gains and utilisation of acquired capital losses (22) 27 Different local basis of tax on overseas profits 6 23 Utilisation of brought forward tax losses (1) 0 UK tax bases of insurance profits (8) (8) Non-taxable foreign exchange losses 5 9 Non-taxable amortisation of goodwill 29 25 Deferred tax credit (charge) for the period 54 (24)
At 31 December 2001, applying FRS 17 with these assumptions, all three schemes are in surplus as shown in aggregate in the table below: £m
At end of year 5,179 2,920 29. Profit of the Company The profit of the Company for the year was £295m (£256m). After dividends of £504m (£484m) and a transfer from the share premium account of £20m (£20m) in respect of shares issued in lieu of cash dividends, retained profit at 31 December 2001 amounted to £1,245m (£1,434m).
Jackson National Life Insurance Company* Insurance USA M&G Investment Management Limited* Investment management England and Wales Prudential Annuities Limited* Insurance England and Wales The Prudential Assurance Company Limited Insurance England and Wales Prudential Assurance Company Singapore (Pte) Limited* Insurance Singapore Prudential Banking plc* Banking England and Wales Prudential Retirement Income Limited* Insurance Scotland Scottish Amicable Life plc* Insurance Scotland * Owned by a subsidiary undertaking of the Company.
Jackson National Life: Total core structural borrowings of shareholder financed operations 2,020 1,485 – 20 132 230 2,152 1,735
Non-recourse borrowings issued by investment subsidiaries managed by PPM America (note (iii)) 449 126 81 – 530 126
The Company and its subsidiaries are involved in other litigation arising in the normal course of business. Whilst the outcome of such matters cannot be predicted with certainty, management believe that the ultimate outcome of such litigation will not have a material adverse effect on the Group’s financial condition, results of operations or cash flows.
The Group has provided, from time to time, other guarantees and commitments to third parties entered into in the normal course of business but management do not consider that the amounts involved are significant.
36. Transactions with Directors At 31 December 2001, transactions, arrangements and agreements entered into by the Group with directors and connected persons included: Number of persons £000
We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law or the Listing Rules regarding directors’ remuneration and transactions with the Group is not disclosed.
Shareholders’ funds and borrowings Statutory basis: Borrowings of holding company and related finance subsidiaries (1,980) (1,568) (1,760) (1,223) (1,002)
Statutory basis capital and reserves* 2,498 2,333 1,945 1,660 1,422 Additional achieved profits basis retained profit* 319 423 588 506 424
Other income and expenditure Investment return and other income 51 70 Interest payable (118) (131) Corporate expenditure: Group Head Office (39) (42) Asia Regional Head Office (24) (14)
Operating profit before tax before amortisation of goodwill* 1,186 1,029 Operating profit before amortisation of goodwill: Continuing operations 1,114 996 Discontinued general business operations (including re-engineering costs) 72 33
2. Methodology The achieved profits basis results incorporate best estimate forecasts of future rates of investment return, proprietor’s spread (in the case of Jackson National Life), policy discontinuances, mortality, expenses, expense inflation, taxation, bonus rates, surrender and paid up bases, and statutory valuation bases. In preparing these forecasts, account has been taken of recent experience and general economic conditions, together with inherent uncertainty. It has been assumed that the bases and rates of taxation, both direct and indirect, will not change materially in the countries in which the Group operates.
Prudential Asia Weighted pre-tax expected long-term nominal rates of investment return 7.3% 8.0% Weighted expected long-term rate of inflation 3.0% 3.2% Weighted risk discount rate* 10.1% 10.4% The Prudential Asia economic returns have been determined by weighting each country's economic assumptions by reference to the Achieved Profits basis operating results for new business written in 2001.
11. Effect of Revised Economic Assumptions (Losses) profits on change in economic assumptions included within the (loss) profit on ordinary activities before tax arise as follows: £m £m
Short-term fluctuations in investment returns (764) (521) (9) (1,294) (108) (1,402) Effect of changes of economic assumptions (426) 1 (57) (482) (482) Merger break fee, net of expenses 338 338
(Loss) profit on ordinary activities before tax (including actual investment gains and losses) (615) (220) 330 (21) (526) 71 (455)
Intragroup dividends (including statutory transfer) (313) (91) (14) (418) 418 External dividends (504) (504) Investment in operations/changes in Prudential stake 178 206 89 14 487 (487) Proceeds from issues of share capital by parent company 42 42 Adjustment for European new business sold by UK operations (5) 5
16. Results Sensitivity to Alternative Assumptions (i) Estimated results for 2000 based on economic assumptions applied for the 2001 results