Form 6-K PRUDENTIAL PLC For: Aug 10
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of August,
2022
PRUDENTIAL PUBLIC LIMITED COMPANY
(Translation
of registrant's name into English)
1 Angel Court, London,
England, EC2R 7AG
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual
reports
under
cover Form 20-F or Form 40-F.
Form
20-F X
Form 40-F
Indicate
by check mark whether the registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
No X
If
"Yes" is marked, indicate below the file number assigned to the
registrant
in
connection with Rule 12g3-2(b): 82-
NEWS RELEASE
10
August 2022
PRUDENTIAL PLC HALF YEAR 2022 RESULTS
PRUDENTIAL CONTINUES TO DELIVER RESILIENT OPERATIONAL PERFORMANCE
AMIDST MARKET VOLATILITY
Performance highlights for the continuing business1 on a constant (and
actual) exchange rate basis2
●
APE
sales3 up
9 per cent (6 per cent) to $2,213 million reflecting diversified
geographic footprint, product mix and distribution
channels
●
New business
profit4
fell by (5) per cent ((7) per cent) to $1,098 million following the
impact of higher interest rates and differences in geographical and
channel mix
●
Adjusted operating
profit5 up
8 per cent (6 per cent) to $1,661 million
●
Shareholder GWS
capital surplus over GMCR, following Hong Kong and China regulatory
changes, remains strong and resilient with a coverage ratio of 548
per cent6.
Shareholder GWS capital surplus over GPCR was $16.2
billion7,
equivalent to a coverage ratio of 317 per cent8
Mark
FitzPatrick, Group Chief Executive, said: “Our resilient
operational performance demonstrates the strength of our well
positioned and well diversified franchise across the Asia region,
driven by our multi-channel, digitally enhanced distribution
platform. This enabled us to maintain APE sales growth over the
first quarter, despite considerable Covid-19-related disruption in
many markets. We achieved stronger APE sales growth in the second
quarter as conditions started to normalise in most markets. New
business profit was (5) per cent9 lower as the benefit
of higher APE sales was offset by the impact of higher interest
rates under our EEV methodology, lower sales in Hong Kong, where
margins have traditionally been higher, and an increase in
bancassurance sales. Excluding
the effects of interest rates and other economic changes, new
business profit was broadly flat when compared with the
corresponding period in 2021.
“The
Group’s adjusted operating profit was up 8 per
cent9,
driven by a 6 per cent9 increase in
life and
asset management adjusted operating profit combined with a 32 per
cent9
reduction in central costs, as interest costs fell following our
$2.25 billion debt redemption programme that completed in January
2022. We are on track to deliver a $70 million10 reduction in head
office costs by the start of 2023 in addition to the $180 million
saving achieved following the demerger of the UK business. The
first 2022 interim dividend is 5.74 cents per share, up 7 per
cent11,
equating to one third of the prior year full-year dividend of 17.23
cents per share.
“We
continue to invest in the business including extending Pulse beyond
a consumer app so that it covers Prudential’s key business
processes, from enabling agents by using tools designed to enhance
productivity, to fulfilment of policy sales and servicing.
Ultimately we believe this will help drive greater customer
centricity and efficiency. In
addition, via the Pulse platform, we are able to add additional
distribution capability, allowing access to new channels and new
customer segments which extend beyond our existing distribution
footprint.
“Our
Group-wide Supervision Framework (GWS) capital position is strong
and resilient. The Hong Kong Insurance Authority (IA) approved our
application to early adopt the RBC framework in Hong Kong, and this
is incorporated within our GWS position at 30 June 2022. The
Group’s shareholder surplus above the Group Minimum Capital
Requirement (GMCR) was $19.4 billion12, representing a
cover ratio of 548 per cent6. The Group aligns
its established EEV and free surplus framework with the
Group’s Prescribed Capital Requirement (GPCR). At 30 June
2022, our shareholder surplus above the GPCR was $16.2
billion7
and results in a coverage ratio of 317 per cent8.
“The
first half of the year saw considerable macroeconomic volatility,
characterised in many markets by lower equity index levels,
material increases in government bond yields and widening corporate
bond spreads. The combined impact of these factors on our balance
sheet, with the fall in investments exceeding the reduction in
liabilities, led to a significant fall in IFRS profit after tax for
continuing operations from $1,070 million11 in the first half
of 2021 to $106 million in the first half of 2022 and also led to a
reduction in EEV under our active economic
methodology.
“Our
Moody’s total leverage ratio at 30 June 2022 was estimated to
be 22 per cent, well within our target range of 20-25 per cent,
demonstrating our financial flexibility following recent
actions.
“From
a leadership perspective, as previously announced, we are delighted
that Anil Wadhwani will join Prudential as Group CEO in February
2023. He will join a growth business, with a multi-channel
distribution model and a distinctive geographic footprint, combined
with the agility to grow and serve its customers even against the
backdrop of the challenges of the Covid-19 pandemic. Although there
are signs that Covid-19-related impacts in many of our markets are
stabilising, over the remainder of the year we expect that
operating conditions may continue to be challenging. We remain
confident that Prudential has the financial resilience, capital
strength and capability to meet the growing health and savings
needs of our customers in Asia and Africa. By doing so, we believe
we will deliver on our purpose to help people get the most out of
life and also build value for our shareholders over the
long-term.”
|
Summary financials
|
Half year
2022 $m
|
Half year
2021 $m
|
Change on
AER basis2
|
Change on
CER basis2
|
|
New
business profit from continuing operations1,4
|
1,098
|
1,176
|
(7)%
|
(5)%
|
|
Operating
free surplus generated from continuing operations1,13
|
1,224
|
1,112
|
10%
|
12%
|
|
Adjusted
operating profit from continuing operations1,5
|
1,661
|
1,571
|
6%
|
8%
|
|
IFRS
profit after tax from continuing operations1
|
106
|
1,070
|
(90)%
|
(90)%
|
|
|
|
|
|
|
|
|
30 Jun 2022
|
31 Dec 2021
|
||
|
|
Total
|
Per share
|
Total
|
Per share
|
|
EEV
shareholders’ equity
|
$42.3bn
|
1,539¢
|
$47.4bn
|
1,725¢
|
|
IFRS
shareholders’ equity
|
$16.1bn
|
586¢
|
$17.1bn
|
622¢
|
Notes
1
Continuing
operations represents the Asia, Africa and head office functions of
the Group following the demerger of Jackson.
2
Further information
on actual and constant exchange rate bases is set out in note A1 of
the IFRS financial results.
3
APE sales is a
measure of new business activity that comprises the aggregate of
annualised regular premiums and one-tenth of single premiums on new
business written during the period for all insurance products,
including premiums for contracts designated as investment contracts
under IFRS 4. It is not representative of premium income recorded
in the IFRS financial statements. See note II of the Additional
financial information for further explanation.
4
New business
profit, on a post-tax basis, on business sold in the period,
calculated in accordance with EEV Principles.
5
In this press
release ‘adjusted operating profit’ refers to adjusted
IFRS operating profit based on longer-term investment returns from
continuing operations. This alternative performance measure is
reconciled to IFRS profit for the period in note B1.1 of the IFRS
financial results.
6
GWS coverage ratio
of capital resources over Group minimum capital requirement
attributable to the shareholder business.
7
GWS capital
resources in excess of the Group prescribed capital requirement
attributable to the shareholder business, before allowing for the
2022 first cash interim dividend. The shareholder position excludes
the contribution to Group eligible capital resources and the Group
prescribed capital requirements from participating business in Hong
Kong, Singapore and Malaysia. Under the GWS Framework, all debt
instruments (senior and subordinated) issued by Prudential plc at
30 June 2022, except the $350 million senior debt issued in the
first half of 2022, are included as GWS eligible group capital
resources.
8
GWS coverage ratio
of capital resources over Group prescribed capital requirement
attributable to the shareholder business. Prescribed capital
requirements are set at the level at which the local regulator of a
given entity can impose penalties, sanctions or intervention
measures. The GWS group capital adequacy requirements require that
total eligible group capital resources are not less than the Group
Prescribed Capital Requirements (GPCR) and that GWS Tier 1 group
capital resources are not less than the Group Minimum Capital
Requirements (GMCR).
9
On a constant
exchange rate basis.
10
Annual saving from
full year 2021 costs, based on full year 2021 exchange
rates.
11
On an actual
exchange rate basis.
12
GWS capital
resources in excess of the Group minimum capital requirement
attributable to the shareholder business, before allowing for the
2022 first cash interim dividend. The shareholder position excludes
the contribution to Group eligible capital resources and Group
minimum capital requirement of participating business in Hong Kong,
Singapore and Malaysia. Under the GWS Framework, all debt
instruments (senior and subordinated) issued by Prudential plc at
30 June 2022, except the $350 million senior debt issued in the
first half of 2022, are included as GWS eligible group capital
resources.
13
Operating free
surplus generated from insurance and asset management operations
before restructuring costs. For insurance operations, operating
free surplus generated represents amounts emerging from the
in-force business during the period net of amounts reinvested in
writing new business and excludes non-operating items. For asset
management businesses, it equates to post-tax operating profit for
the period. Restructuring costs are presented separately from the
business unit amount. Further information is set out in
‘movement in Group free surplus’ of the EEV financial
results.
Contact:
|
Media
|
|
Investors/analysts
|
|
|
Simon
Kutner
|
+44
(0)7581 023260
|
Patrick
Bowes
|
+44
(0)20 3977 9702
|
|
Tan
Ping Ping
|
+65
9845 8904
|
William
Elderkin
|
+44
(0)20 3977 9215
|
|
|
|
Darwin
Lam
|
+852
2918 6348
|
Notes to editors:
a.
The results in this
announcement are prepared on two bases: International Financial
Reporting Standards (IFRS) and European Embedded Value (EEV). The
results prepared under IFRS form the basis of the Group’s
statutory financial statements. The supplementary EEV financial
results have been prepared in accordance with the amended European
Embedded Value Principles issued by the European Insurance CFO
Forum in 2016. The Group’s EEV financial results are stated
on a post-tax basis and include the post-tax IFRS financial results
of the Group’s asset management and other operations. The
IFRS and EEV results are presented in US dollars and the basis of
translation is discussed in note A1 of the IFRS financial
statements. Period-on-period percentage increases are stated on a
constant exchange rate basis unless otherwise stated. Constant
exchange rates are calculated by translating prior period results
using the current period foreign exchange rate ie current period
average rates for the income statement and current period closing
rates for the balance sheet.
b.
EEV and adjusted
IFRS operating profit for continuing operations is based on
longer-term investment returns and is stated after excluding the
effect of short-term fluctuations in investment returns against
long-term assumptions and other corporate transactions.
Furthermore, for EEV financial results, operating profit based on
longer-term investment returns excludes the effect of changes in
economic assumptions and the mark-to-market value movement on core
borrowings. Separately on the IFRS basis, adjusted operating profit
also excludes amortisation of acquisition accounting
adjustments.
c.
Total number of
Prudential plc shares in issue as at 30 June 2022 was
2,749,314,856.
d.
We are expected to
announce our Half Year 2022 Results to the Hong Kong Stock Exchange
and to the UK Financial Media at 12.00pm HKT – 5.00am UKT – 12.00am
ET on Wednesday, 10 August 2022.
The
announcement will be released on the London Stock Exchange at
2.00pm HKT – 7.00am UKT
– 2.00am ET on Wednesday, 10 August.
A
pre-recorded presentation for analysts and investors will be
available on-demand from 12.00pm
HKT – 5.00am UKT – 12.00am ET on Wednesday, 10 August
2022 using the following link: https://www.investis-live.com/prudential/62d51c1fd9438014009aa544/hebae.
A copy of the script used in the recorded video will also be
available from 12.00pm HKT –
5.00am UKT – 12.00am ET on Wednesday, 10 August 2022
on Prudential plc’s website.
A
Q&A video conference for analysts and investors will be held at
1.00pm HKT – 6.00am UKT
– 1.00am ET on Wednesday, 10 August.
Registration
to view the video conference online
To
register to watch the video conference and submit questions online,
please do so via the following link: https://www.investis-live.com/prudential/62d52566d9438014009d4b1b/bmppi.
The webcast will be available to replay afterwards using the same
link.
Dial-in
details
A
dial-in facility will be available to listen to the call and ask
questions: please allow 15 minutes ahead of the start time to join
the call (lines open half an hour before the call is due to start,
i.e. from 12.30pm HKT –
5.30am UKT – 12.30am ET).
Dial-in: 580 33 413
(HK) / +44 (0) 20 3936 2999 (UK and international) / 010 5387 5828
(China), Toll free: 800 908 350 (HK) / 0800 640 6441 (UK),
Participant access code: 570192. Once participants have entered
this code their name and company details will be
taken.
Transcript
Following the call
a transcript will be published on the results centre page of the
Prudential plc’s website on Friday 12 August
2022.
Playback
facility
Please
use the following for a playback facility: +44 (0) 20 3936 3001 (UK
and international), replay code 744029. This will be available from
approximately 10.00pm HKT – 3.00pm UKT – 10.00am ET on
10 August until 6.59am HK time on 25 August 2022 – 11.59pm
UKT – 6.59pm ET on 24 August.
e.
2022
First interim ordinary dividend
|
|
Ex-dividend
date
|
18
August 2022 (Hong Kong, UK and Singapore)
|
|
|
Record
date
|
19
August 2022
|
|
|
Payment
of dividend
|
27
September 2022 (Hong Kong, UK and ADR holders)
On or
around 4 October 2022 (Singapore)
|
f.
About
Prudential plc
Prudential plc
provides life and health insurance and asset management in Asia and
Africa. The business helps people get the most out of life, by
making healthcare affordable and accessible and by promoting
financial inclusion. Prudential protects people’s wealth,
helps them grow their assets, and empowers them to save for their
goals. The business has more than 19 million life customers and is
listed on stock exchanges in London (PRU), Hong Kong (2378),
Singapore (K6S) and New York (PUK). Prudential is not affiliated in
any manner with Prudential Financial, Inc. a company whose
principal place of business is in the United States of America, nor
with The Prudential Assurance Company Limited, a subsidiary of
M&G plc, a company incorporated in the United
Kingdom. https://www.prudentialplc.com/.
g.
Discontinued
operations
Throughout this
results announcement ‘discontinued operations’ refers
to the US operations (Jackson). All amounts presented refer to
continuing operations unless otherwise stated, which reflect the
Group following the completed demerger of Jackson.
h.
Prudential will
file an Interim Report on Form 6-K with the Securities and Exchange
Commission shortly and it will be available in due course on the
Prudential plc website.
i.
Forward-looking
statements
This document may contain
'forward-looking statements' with respect to certain of
Prudential's (and its wholly and jointly owned businesses’)
plans and its goals and expectations relating to its future
financial condition, performance, results, strategy and objectives.
Statements that are not historical facts, including statements
about Prudential's (and its wholly and jointly owned
businesses’) beliefs and expectations and including, without
limitation, statements containing the words 'may', 'will',
'should', 'continue', 'aims', 'estimates', 'projects', 'believes',
'intends', 'expects', 'plans', 'seeks' and 'anticipates', and words
of similar meaning, are forward-looking statements. These
statements are based on plans, estimates and projections as at the
time they are made, and therefore undue reliance should not be
placed on them. By their nature, all forward-looking statements
involve risk and uncertainty.
A
number of important factors could cause Prudential's actual future
financial condition or performance or other indicated results of
the entity referred to in any forward-looking statement to differ
materially from those indicated in such forward-looking statement.
Such factors include, but are not limited to, current and future
market conditions including fluctuations in interest rates and
exchange rates, inflation
(including interest rate rises as a response), sustained high or
low interest rate environments, the performance of financial and
credit markets generally and the impact of economic uncertainty,
slowdown or contraction, (including as a result of the
Russia-Ukraine conflict and related or other geopolitical tensions
and conflicts) which
may also impact policyholder behaviour and reduce product
affordability, asset valuation impacts from the transition to a
lower carbon economy, derivative instruments not effectively
mitigating any exposures; global political uncertainties, including
the potential for increased friction in cross-border trade and the
exercise of laws, regulations and executive powers to restrict
trade, financial transactions, capital movements and/or
investment; the
impact of Covid-19 outbreaks, including adverse financial market
and liquidity impacts, responses and actions taken by governments,
regulators and supervisors, the impact on sales, claims and
assumptions and increased product lapses, disruption to
Prudential’s operations (and those of its suppliers and
partners), risks associated with new sales processes and
technological and information security risks; the policies and
actions of regulatory authorities, including, in particular, the
policies and actions of the Hong Kong Insurance Authority, as
Prudential's Group-wide supervisor, as well as the degree and pace
of regulatory changes and new government initiatives generally;
given its designation as an Internationally Active Insurance Group,
the impact on Prudential of systemic risk and other group
supervision policy standards adopted by the International
Association of Insurance Supervisors; the physical, social and
financial impacts of climate change and global health crises on
Prudential's business and operations; the impact of not adequately
responding to environmental, social and governance issues
(including not properly considering the interests of
Prudential’s stakeholders or failing to maintain high
standards of corporate governance); the impact of competition and
fast-paced technological change; the effect on Prudential's
business and results from, in particular, mortality and morbidity
trends, lapse rates and policy renewal rates; the timing, impact
and other uncertainties of future acquisitions or combinations
within relevant industries; the impact of internal transformation
projects and other strategic actions failing to meet their
objectives or adversely impacting the Group’s employees; the
availability and effectiveness of reinsurance for
Prudential’s businesses; the risk that Prudential's
operational resilience (or that of its suppliers and partners) may
prove to be inadequate, including in relation to operational
disruption due to external events; disruption to the availability,
confidentiality or integrity of Prudential's information
technology, digital systems and data (or those of its suppliers and
partners) including the Pulse platform; any ongoing impact on
Prudential of the demerger of Jackson Financial Inc.; the increased
operational and financial risks and uncertainties associated with
operating joint ventures with independent partners, particularly
where joint ventures are not controlled by Prudential; the impact
of changes in capital, solvency standards, accounting standards or
relevant regulatory frameworks, and tax and other legislation and
regulations in the jurisdictions in which Prudential and its
affiliates operate; and the impact of legal and regulatory actions,
investigations and disputes. These and other important factors may,
for example, result in changes to assumptions used for determining
results of operations or re-estimations of reserves for future
policy benefits. Further discussion of these and other important
factors that could cause actual future financial condition or
performance to differ, possibly materially, from those anticipated
in Prudential's forward-looking statements can be found under the
'Risk Factors' heading of this document and the ‘Risk
Factors’ heading in Prudential’s 2021 Annual Report.
Prudential’s 2021 Annual Report is available on its website
at www.prudentialplc.com.
These
factors are not exhaustive as Prudential operates in a continually
changing business environment with new risks emerging from time to
time that it may be unable to predict or that it currently does not
expect to have a material adverse effect on its
business.
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 Guidance
and Transparency Rules, the Hong Kong Listing Rules, the SGX-ST
Listing Rules or other applicable laws and
regulations.
j.
Cautionary
statements
This document does not constitute or form part
of any offer or invitation to purchase, acquire, subscribe for,
sell, dispose of or issue, or any solicitation of any offer to
purchase, acquire, subscribe for, sell or dispose of, any
securities in any jurisdiction nor shall it (or any part of it) or
the fact of its distribution, form the basis of, or be relied on in
connection with, any contract therefor.
Strategic and operating review
2022 is
the first year in which the Group is focused entirely on the
long-term opportunities we have identified in Asia and Africa
across life insurance and asset management. Our purpose remains to
help people get the most out of life. Across Asia, a growing middle
class, forecast to increase by 1.5 billion1 by 2030, is combined
with a low level of insurance penetration and a high level of
out-of-pocket health and protection spending, driving an estimated
$1.8 trillion health protection gap2. We continue to
focus on developing our range of products and distribution as well
as enhancing and embedding our digital capabilities so we can
expand our capacity to help protect our customers from threats to
their health and wellbeing, as well as support them to achieve
their savings goals.
The
Group’s total life customer3 base at 30 June 2022
was 19.3 million (31 December 2021: 18.6 million). Our customers
are core to what we do and our products are tailored to meet their
fast-changing needs as well as the developing requirements of local
markets. Our continued focus on the needs of customers is
demonstrated by the launch of Prudential Syariah, a standalone
Syariah life insurance entity in Indonesia, launched in April,
becoming the first global insurer to do so. Building on our leading
position in the Syariah market in Indonesia18, Prudential Syariah
has a designated Syariah board which confirms that products have
complied with Syariah principles. Prudential Syariah’s
innovative product capabilities, coupled with a strong
multi-channel distribution network, puts it in a strong position to
grow our Syariah business in Indonesia, and expand our customer
reach. In Malaysia we have maintained our leading position in the
Takaful segment4.
We have
a multi-channel and integrated distribution strategy that is able
to adapt flexibly to changing local market conditions and supports
our growth ambitions. This distribution network encompasses agency,
bancassurance and non-traditional partnerships, including digital.
Our continued investment in our agency channel positions us well
for sustainable growth. We have over 530,000 licenced tied agents
(31 December 2021: over 540,000) across our life insurance markets.
Our bancassurance channel has access to over 170 bancassurance
partners, of which 32 are exclusive arrangements, giving us access
to circa 27,600 bank branches. We continue to believe that the
Group’s multi-channel, digitally enabled distribution model
positions us well to capture the opportunities open to us, and this
competitive advantage, alongside our distinctive geographical
footprint, has enabled us to deliver a resilient operational
performance despite continuing Covid-19-related disruption in many
markets during the first half of 2022.
The
operating environment of the Group in the first half of 2022 has
continued to be impacted by the volatility caused by the
consequences of Covid-19-related government imposed movement
restrictions in most of our markets. During the first quarter of
2022, a number of our markets saw increases in incidence of the
Omicron variant, with cases peaking in India and the Philippines in
January, in Indonesia in February and Thailand, Vietnam, Malaysia,
Singapore and Hong Kong in March 2022. Trading conditions largely
normalised in these markets over the course of the second quarter.
In the Chinese Mainland, cases peaked in April5 and associated
restrictions have
gradually reduced in July. The border with Hong Kong however
remains closed. In the
first half of 2019 (prior to the Covid-19 pandemic) new business
profit6
from our Chinese Mainland business contributed $694
million7
to Hong Kong’s total new business profit in that period,
compared with close to nil in the first half of 2022.
Against
this backdrop, in the first half of 2022 Prudential delivered APE
sales8 of
$2,213 million an increase of 9 per cent9 compared with the
first half of 2021. Our growth was broad-based, with 9 of our 12
Asia life markets, together with our Africa business, seeing growth
in the period. APE sales are balanced across product types, with
our four product categories (health and protection, participating
contracts, non-participating savings and investment-linked
savings), each contributing over 20 per cent of APE sales. CITIC
Prudential Life (CPL), our Chinese Mainland business, increased APE
sales 13 per cent9, Singapore was up 5
per cent9
and within our Growth Markets segment, Taiwan was up 55 per
cent9,
Vietnam was up 19 per cent9 and Africa was up 17
per cent9.
This more than offset the lower sales in Hong Kong, where agency
sales were disrupted by Covid-19-related restrictions over much of
the first quarter. We achieved stronger APE sales growth in the
second quarter as conditions normalised in most markets. New
business profit was $1,098 million, (5) per cent9 lower as the benefit
of higher overall APE sales was offset by the impact of higher
interest rates under our EEV methodology, particularly in Hong
Kong, together with lower sales in Hong Kong, where margins have
traditionally been higher and an increase in bancassurance sales
mix which tends to have a higher proportion of savings
products. Our
continued customer focus has contributed to our customer retention
rate remaining high at over 90 per cent23 in the first half
of 2022 (2021 full year: 89 per cent).
APE
sales and new business profit reflect our multi-channel
distribution with bancassurance providing 53 per cent of APE sales
and 42 per cent of new business profit and agency providing 36 per
cent of APE sales and 53 per cent of new business profit. Over the
first half of 2022 bancassurance sales increased by 25 per
cent9,
driven by new products and momentum from our recently established
partnerships, including TSB in Taiwan. Agency channel APE sales
fell (13) per cent9, adversely affected
by Covid-19-related restrictions. Our agency channel is a key
component of our success, given the high proportion of high-margin
protection products sold through this channel.
We
continue to equip our agency force with the advanced methods needed
to be connected with customers, to build trust and provide
personalised advice. We are re-engineering each facet of the
‘prospect, engage and advise’ chain to suit the digital
citizens of today as well as maintaining the direct contact that
customers want. The decline of overall agency APE sales of (13) per
cent9 was
driven both by Covid-19-related restrictions and as a result of
lower average case sizes, as agents have been focused on relatively
smaller ticket health and protection propositions that were top of
mind for our customers during the period affected by Covid-19.
While overall health and protection as a proportion of APE sales
fell, the number of health and protection cases sold via agency
increased by 13 per cent and resulted in case productivity per
agent growing 4 per cent compared with that of the first half of
2021. We are reinvigorating our agency force through our flagship
recruitment programme targeting professional and experienced
agents, which has led to a 5 per cent increase in new recruits in
the period compared with the first half of 2021. We continue to
focus on the training and retraining of both our agents and their
leaders to increase our customer orientation and to maintain a high
standard of professionalism across the agency force.
Eastspring,
our pan-Asia asset manager with presence in 11 Asian markets as
well as distribution offices in North America and Europe, is well
placed to address the saving and investment needs of customers
across the region via a team of 300 investment professionals with
local market expertise. Eastspring also benefits from reliable and
stable fund inflows from the Group’s life business which,
together with its broad regional footprint, it can leverage to meet
the long-term opportunity to grow mutual fund penetration from the
market’s current low base.
Despite
recent Covid-19-related disruption, the Group’s life
businesses delivered growth in adjusted IFRS operating profit based
on longer-term investment returns (adjusted operating
profit10)
of 7 per cent9. Investment losses
in the period contributed to a fall in Eastspring’s adjusted
operating profit of (15) per cent9. Collectively our
life and asset management businesses delivered 6 per
cent9
growth in adjusted operating profit and 12 per cent9 growth in operating
free surplus generation. After central costs, total Group adjusted
operating profit was up 8 per cent9, and total Group
operating free surplus generation11 increased 22 per
cent9. The
total IFRS profit after tax for 2022 was $106 million (2021: $1,025
million profit after tax from continuing operations on a constant
exchange rate basis, $1,070 million profit after tax from
continuing operations on an actual exchange rate basis). This
reflects the net impact from an increase in interest rates on bond
asset values and on the valuation interest rates used for
policyholder liabilities, decreases in equity values and the
benefit from refinements to the reserving basis following the
adoption of the Hong Kong Risk-Based Capital regime. The
Group’s financial performance for the period is further
discussed in the Financial Review below.
Pulse and our digital offerings
The
Pulse digital platform is focused on the health, wealth and
servicing needs of our customers. It extends beyond the Pulse app
to include the Group’s key business processes, from enabling
agents by using tools designed to enhance hiring and productivity,
to fulfilment of policy sales and servicing, helping to drive
greater customer centricity and efficiency. The Pulse platform
complements our agents, allowing customers to interact both online
and in person, helping to improve persistency. Our digital strategy
is wholly focused on our customers and distribution partners,
delivering products and services in an effective and efficient way.
The foundation of this digital strategy is built on four core
pillars, supported by the Pulse platform:
●
Accelerating our
digitally enabled model of distribution: via PruForce, our
all-in-one agency platform that aggregates data to provide insight
on customers and supports improved agent productivity, and
augmenting other existing and new distribution
channels.
●
Improving servicing
to new and existing customers: via PruServices, our platform that
enables customers to manage their policy details and payments in
real time, as well as enabling digital claims and selection of
investment funds for linked policies.
●
Strengthening our
direct digital insurance product suite: broadening range,
functionality and availability via digital channels.
●
Creating new
business verticals, ecosystems and strategic partnerships: to drive
future customer acquisition opportunities.
Via the
Pulse app, we are able to add additional distribution capability,
allowing access to new channels and new customer segments which
extend beyond our existing distribution footprint. The app is
designed to connect with customers and in turn enable our
distribution channels to connect, maintain and better serve new and
existing customers. The Pulse strategy of selling bite-sized
insurance products directly and leveraging our agency force to
convert leads also extends to our non-traditional partners, by
helping them engage with their customers (on financial needs)
despite not having a sales force of their own.
Our
digital systems recorded 4.8 million leads12 for the six months
ending 30 June 2022 (year to 31 December 2021: 4.3 million) and APE
sales associated with these leads13 were
stable7
period-on-period at $158 million. These sales represented circa 25
per cent (half year 2021: 21 per cent7) of our agency APE
sales in markets where Pulse is available.
We
continue to see increased agent adoption of the Pulse platform
across the region and expect this to continue for the remainder of
2022, as the latest iteration of the platform modules are
rolled-out. The growing number of leads generated continues to be
nurtured by our agents for potential future cross-sell and upsell
opportunities.
Environmental, Social and Governance (ESG)
Our
role in the lives of our customers, colleagues and communities, and
our commitment to being a responsible leader, lie at the heart of
our business strategy and our future. We recognise the significant
role Prudential can continue to play across Asia and Africa, as
well as in the long-term success, resilience and health of the
global community.
During
2021, Prudential strengthened its focus on ESG, building on the new
ESG strategic framework that we developed in 2020. This framework
is aligned to our business strategy and our purpose of helping
people to get the most out of their lives by making healthcare
affordable and accessible and by promoting financial inclusion.
During the first half of 2022, we continued to work towards our
ambition of being an ever more responsible and sustainable
business, advancing our ESG priorities across a broad range of
activities. Our ESG strategy remains resolutely focused on making
progress against our three pillars of making health and financial
security accessible, stewarding the human impacts of climate change
and building social capital. These are underpinned by our approach
to responsible investment, good governance and responsible business
practices, and community engagement and investment and have clear
alignment with our business strategy.
While
we have made good progress in just a couple of years, we must
continue to maintain the pace, as the needs of the customers and
communities we serve evolve rapidly, the expectations of our
stakeholders rightly grow and climate change brings unprecedented
challenges to our future.
Making health and financial security accessible
Digital
innovation is key to this pillar. To help people thrive, we seek to
make health and financial security accessible and affordable and we
do this in a number of ways. These include making healthcare
services and financial management tools easily available, and
developing more inclusive products and services for underserved
segments of society, for example by making products suitable for a
wider range of income groups through our lower premium
‘bite-sized’ insurance products. We also seek to meet
the changing needs of our customers by ensuring they have the best
access to our products through our multi-channel and integrated
distribution approach. Finally we promote financial literacy so
that people gain knowledge of financial management and have a
deeper understanding of protection benefits. During the first half
of 2022, we launched our ‘Made For Every Family’
campaign across Asia. This recognises that modern families exist in
many forms, such as grandparents-grandchildren families,
single-parent families, stepfamilies and same-sex families. To
support this diversity of family structures with inclusive
protection solutions, we are rolling out a range of insurance
products that are ‘Made For Every Family’, and have
expanded the list of beneficiaries for our life insurance policies
to give greater flexibility to protect all those that our customers
care about. Our focus on ensuring inclusive offerings in all our
markets was epitomised when we became the first global insurer to
set up a dedicated, standalone Syariah entity in Indonesia. This
underscored our deep commitment to support the growth of
Indonesia’s Syariah economy and the country’s vision to
become the global hub for Islamic financial solutions. Prudential
Syariah offers solutions that are based on the ‘Syariah for
All’ principles. This set of principles embraces the concept
that Syariah values are universal, inclusive and relevant to all
Indonesians.
Stewarding the human impacts of climate change
Prudential
is well placed to contribute to the transition to a low-carbon
economy. To support building a greener future, during 2021, we
underscored our commitment to decarbonising our investment
portfolio14 through the setting
of a long-term net zero target and a short-term carbon reduction
target. We remain on track with our commitment to reduce our
Weighted Average Carbon Intensity (WACI) by 25 per cent by 2025 and
to engage with companies responsible for more than 65 per cent of
our emissions. Having divested from all direct equity investments
in businesses that derive more than 30 per cent of their income
from coal in 2021, we are on track to be fully divested from all
fixed income investments meeting the same criteria by the end of
2022. As part of our ongoing embedding of climate considerations
into our risk management processes, our annual Own Risk and
Solvency Assessment report, reviewed by our Group Risk Committee in
May 2022, included both the potential financial and operational
impact of the Network for Greening the Financial System
(NGFS)-informed climate scenarios. As we support the move to
low-carbon economies in our emerging markets, we strive to ensure
that the transition is a just and inclusive one for all of society,
a transition that supports sustainable growth and economic health
within our local markets and communities.
Building social capital
As we
do all of this, we seek to build trusted relationships with our
people, on whom our success depends. Our commitment to diversity
and inclusion, together with gender equality and women's
empowerment within our broader activity was further emphasised in
the first half of 2022 by our adoption of the United Nation’s
Women’s Empowerment Principles.
As
digital innovation is central to our aim of helping our customers
to be healthier and wealthier, we are ambitious and we act with
integrity in regard to digital responsibility. We safeguard the
public’s trust in us through digital responsibility and
responsible business practices. Strong governance remains the
foundation of our business and critical to maintaining trust with
our stakeholders.
Leadership Changes
During
the first half of 2022, the Board completed its executive
succession planning with the announcement that it had appointed
Anil Wadhwani as Group Chief Executive Officer (CEO) with effect
from 25 February 2023, subject to final regulatory approval.
Following his appointment, the Group’s executive directors
will be based in Hong Kong, alongside the lead regulator, closer to
the Group’s Asia operations.
The
internal promotions of Mark FitzPatrick to Group CEO, James Turner
to Group Chief Financial Officer and Avnish Kalra to Group Chief
Risk and Compliance Officer, demonstrate Prudential’s
bench-strength and ability to focus on operational delivery by
leveraging continuity in executive leadership. The Group continues
to benefit from broad based and experienced local leadership teams
who are deep rooted in their markets.
To
support the ongoing evolution of the Group, Seck Wai-Kwong, CEO,
Eastspring; Dennis Tan, CEO, Prudential Singapore; Lilian Ng, CEO,
Insurance; and Solmaz Altin, Group Chief Strategy and
Transformation Officer, have all been promoted to the Group
Executive Committee (GEC) with effect from 1 July 2022. Mr Tan, Ms
Ng and Mr Altin have been promoted to Managing Directors of the
Strategic Business Groups, which consist of selected markets. Mr
Seck remains responsible for the growth of Eastspring’s
business and the delivery of its investment performance.
Prudential’s leadership team has been further enhanced with
the appointment, from 4 July 2022, of Lawrence Lam as the new CEO
of the Hong Kong insurance business.
Outlook
Prudential
is a growth business, with a multi-channel distribution model and a
distinctive geographic footprint, combined with the agility to grow
and serve our customers even against the backdrop of the challenges
of the Covid-19 pandemic. Although there are signs that
Covid-19-related impacts in many of our markets are stabilising,
over the remainder of the year we expect that operating conditions
may continue to be challenging. We remain confident that Prudential
has the financial resilience, capital strength and capability to
meet the growing health and savings needs of our customers in Asia
and Africa. By doing so, we believe we will deliver on our purpose
to help people get the most out of life and also build value for
our shareholders over the long-term.
New business performance by market
The
following commentary provides an update on the new business
performance for each of the Group’s segments. Discussion of
the wider financial performance of the Group and its segments,
including adjusted operating profit and IFRS profit after tax, is
contained separately in the Financial Review section of this
report.
Chinese Mainland – CITIC Prudential Life (CPL)
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|||
|
|
Half year 2022
|
Half year 2021
|
Change
|
|
Half year 2021
|
Change
|
|
APE sales ($m)
|
507
|
448
|
13%
|
|
447
|
13%
|
|
New business profit ($m)
|
217
|
228
|
(5)%
|
|
227
|
(4)%
|
|
New business margin (%)
|
43
|
51
|
(8)ppts
|
|
51
|
(8)ppts
|
|
Adjusted operating profit ($m)
|
149
|
139
|
7%
|
|
139
|
7%
|
|
IFRS (loss)/profit after tax ($m)
|
(28)
|
148
|
(119)%
|
|
149
|
(119)%
|
|
Amounts included in the table above represent the Group’s 50
per cent share
|
|
|
|
|||
CPL saw
APE sales growth of 13 per cent9 to $507 million
despite headwinds from Covid-19-related restrictions. This growth
has been underpinned by CPL’s nationwide footprint of 23
branches15, covering 99
cities, and its well-diversified distribution network, with
strength in both agency and bancassurance, and balanced product
range of wealth, protection and education solutions.
CPL’s
bancassurance channel delivered APE sales growth of 28 per
cent9 over
the period with strong sales of long-term savings products. This
was supported by 11 new bancassurance partnerships over the past 12
months, and the number of bank branches increasing by 50 per cent
to over 6,100. Our agents focused on innovative medical plans
during the first 6 months of 2022, which were extremely popular
with our customers, resulting in health and protection policies
growing by 53 per cent. Overall, agency sales fell by (11) per
cent9,
mainly due to lower average case size. The prior period benefited
from strong critical illness product sales ahead of regulatory
driven definition changes which did not recur in the current
period. In
December 2021, CPL launched a new critical illness plan tailored to
the Greater Bay Area (GBA). In the first half of 2022, this plan
accounted for 12 per cent of CPL's total critical illness
sales.
Despite
the increase in new business volumes, new business profit declined
(4) per cent9 compared with the
same period in 2021 following a fall in the new business margin of
(8) percentage points to 43 per cent. This decrease is in part the
result of an adverse shift in both channel mix and product mix,
with the former the result of a shift in mix towards bancassurance
sales highlighted above and the latter driven by exceptional levels
of sales of critical illness business in the comparator, in line
with industry wide trends.
CPL
continues to outgrow the sector as a whole. In the first half of
2022, CPL increased its overall market share to 0.77 per
cent16,
from 0.71 per cent16 in the equivalent
period in 2021.
Hong Kong
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|||
|
|
Half year 2022
|
Half year 2021
|
Change
|
|
Half year 2021
|
Change
|
|
APE sales ($m)
|
227
|
253
|
(10)%
|
|
251
|
(10)%
|
|
New business profit ($m)
|
211
|
306
|
(31)%
|
|
304
|
(31)%
|
|
New business margin (%)
|
93
|
121
|
(28)ppts
|
|
121
|
(28)ppts
|
|
Adjusted operating profit ($m)
|
501
|
460
|
9%
|
|
457
|
10%
|
|
IFRS (loss)/profit after tax ($m)
|
(613)
|
441
|
(239)%
|
|
430
|
(243)%
|
Overall
APE sales declined by (10) per cent9 during the first
half of 2022 impacted by the fifth wave of the pandemic. Throughout
the first quarter of 2022 and into April 2022 Hong Kong's economic
activity and businesses struggled.
The
fifth wave had a significant impact on agency activity, resulting
in a (23) per cent9 decline in APE
sales. With the fifth wave gradually receding, we saw a rebound in
agency activity. We continued to drive activity through needs-based
selling and implementing capabilities to drive improvement in
productivity. This has increased our health and protection mix
through agency to over 40 per cent. Product mix enhancements
improved the agency new business profit margin by 11 percentage
points.
Bancassurance
sales grew by 5 per cent9 over the period. We
successfully launched a new multi-currency solution to diversify
the portfolio to address the wealth accumulation and legacy
planning needs of affluent customers. We have re-engineered the
different facets of the customer and sales journey to increase
insurance penetration and shift the mix to health and
protection.
Customer
retention in Hong Kong business remains solid at over 98 per
cent.
New
business profit declined (31) per cent9 driven by the impact
of increases in interest rates on the risk discount rate applied
under our EEV methodology, the reduction in sales volume and
adverse channel mix. This impact is then partially offset by an
improvement in product mix for both channels.
Indonesia
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|||
|
|
Half year 2022
|
Half year 2021
|
Change
|
|
Half year 2021
|
Change
|
|
APE sales ($m)
|
110
|
117
|
(6)%
|
|
116
|
(5)%
|
|
New business profit ($m)
|
52
|
57
|
(9)%
|
|
56
|
(7)%
|
|
New business margin (%)
|
47
|
49
|
(2)ppts
|
|
48
|
(1)ppts
|
|
Adjusted operating profit ($m)
|
196
|
225
|
(13)%
|
|
222
|
(12)%
|
|
IFRS profit after tax ($m)
|
131
|
179
|
(27)%
|
|
172
|
(24)%
|
Overall
APE sales fell by (5) per cent9 with sales activity
in the period restricted due to a further wave of Covid-19-related
restrictions, with recorded cases peaking in February17. These restrictions
in particular affected agent sales activity with sales through this
channel down (8) per cent9 on the prior period.
Bancassurance sales remained flat in the period.
Indonesia’s
four-level Covid-19 public activity restriction system, with
regional variations, remain in place. More
moderate restrictions are in place throughout much of the country
relative to the higher levels seen at the height of the pandemic.
As an illustration Jakarta’s restriction was reduced from
level 3 at the start of March to level 1 in late May. As
restrictions have eased, we have seen some recovery in sales, for
example APE sales in June were 33 per cent9 higher than the
previous month.
Prudential
Syariah Life Assurance (PSLA) successfully obtained a business
license and was legally separated from the conventional business on
1 April 2022. This marks our commitment to penetrate further the
Syariah market, a segment where we continue to be the market
leader18.
Overall APE sales within our Syariah business fell by (8) per
cent9
year-on-year, reflecting Covid-19 restrictions, with this business
continuing to contribute over a quarter of the overall Indonesia
APE sales.
The
reduction in new business profit reflects the reduction in APE
sales together with a small decrease in margin. New business profit
margins reduced as a result of increases in interest rates, a lower
agency mix and changes in taxation, with the government reversing
its decision to lower the corporate tax rate from 22 per cent to 20
per cent from 2022 onwards.
Malaysia
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|||
|
|
Half year 2022
|
Half year 2021
|
Change
|
|
Half year 2021
|
Change
|
|
APE sales ($m)
|
172
|
211
|
(18)%
|
|
202
|
(15)%
|
|
New business profit ($m)
|
70
|
113
|
(38)%
|
|
109
|
(36)%
|
|
New business margin (%)
|
41
|
54
|
(13)ppts
|
|
54
|
(13)ppts
|
|
Adjusted operating profit ($m)
|
190
|
184
|
3%
|
|
175
|
9%
|
|
IFRS profit after tax ($m)
|
119
|
135
|
(12)%
|
|
124
|
(4)%
|
APE
sales decreased by (15) per cent9, with a (31) per
cent9
decline in agency APE sales which was partially offset by 33 per
cent9
growth in the bancassurance segment.
The
decline in agency sales reflected repricing actions that benefited
sales in the prior period (as previously highlighted) and have not
recurred in the current period. We continue to support our agency
channel through agent and customer campaigns following the end of
the most significant Covid-19-related movement restrictions, and
the business continues to increase its sales force quality and
footprint, with recruitment of new agents in the first half of 2022
representing more than 10 per cent of 2021 closing agent numbers
contributing to our total agency force of over 24,300.
Bancassurance
sales grew strongly driven by client events and branch activities,
as well as tailored virtual appointments. Sales through bank
partnerships increased significantly as the business continued to
increase sales of health and protection products, in addition to
new investment-linked product offerings. Prudential continues to
leverage its multi-channel distribution across its bank partners,
with bancassurance sales contributing 37 per cent of total APE
sales in the first half of 2022 compared with 24 per cent in the
equivalent period in 2021.
APE
sales for the Takaful business declined by (22) per
cent9
reflecting the impact of repricing actions in the prior year that
have not recurred. The Takaful business continues to invest in its
agency force with agent numbers increasing by 15 per cent compared
with 30 June 2021 and we have maintained our leading position in
the segment4. The Takaful
bancassurance channel has been supported by the launch of new
products, such
as the BSN Sakinah health and protection product, helping
to increase the proportion of Takaful’s new business sold
that is classified as health and protection to 67 per cent (2021:
64 per cent).
The
decline in new business profit reflects the decline in APE sales as
described above, changes in product and channel mix and an adverse
impact from higher interest rates and other economic
changes.
Singapore
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|||
|
|
Half year 2022
|
Half year 2021
|
Change
|
|
Half year 2021
|
Change
|
|
APE sales ($m)
|
390
|
379
|
3%
|
|
370
|
5%
|
|
New business profit ($m)
|
244
|
215
|
13%
|
|
210
|
16%
|
|
New business margin (%)
|
63
|
57
|
6ppts
|
|
57
|
6ppts
|
|
Adjusted operating profit ($m)
|
340
|
320
|
6%
|
|
312
|
9%
|
|
IFRS profit after tax ($m)
|
63
|
141
|
(55)%
|
|
135
|
(53)%
|
APE
sales grew by 5 per cent9 year-on-year,
supported by a 22 per cent9 growth in sales
within our bancassurance channel. Agency sales contracted (11) per
cent9 over
the same period, with Covid-19-related social movement restrictions
hampering agent activity in the first quarter of 2022. Covid-19-related
restrictions eased from the end of March, leading to improved
agency sales in the second quarter, although sales in this quarter
were lower than the equivalent period in the prior year which
benefited from elevated sales of participating business prior to a
change in regulation.
The mix
of single premium business has increased from 30 per cent to 44 per
cent over the period. This reflects the growth in sales to the high
net-worth customer segment, through the bancassurance channel, with
a focus on savings and legacy planning products. The growth in this
business segment is in line with the wider industry19, which has seen an
increase in demand for such products. This business is of high
quality and is generally long-term in nature.
Increased
sales of investment-linked products led to a favourable shift in
product mix contributing to a 16 per cent9 increase in new
business profit, together with higher sales volumes and a shift in
mix within participating business sales towards higher margin
product offerings. The increase in new business profit was also
supported by the effect of interest rate increases on participating
business sales.
Growth Markets and Other
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|||
|
|
Half year 2022
|
Half year 2021
|
Change
|
|
Half year 2021
|
Change
|
|
APE sales ($m)
|
807
|
675
|
20%
|
|
650
|
24%
|
|
New business profit ($m)
|
304
|
257
|
18%
|
|
249
|
22%
|
|
New business margin (%)
|
38
|
38
|
-
|
|
38
|
-
|
|
Adjusted operating profit ($m)
|
522
|
479
|
9%
|
|
463
|
13%
|
|
IFRS profit after tax ($m)
|
617
|
330
|
87%
|
|
305
|
102%
|
The
businesses comprising our growth markets and other segment saw APE
sales up 24 per cent9 compared with the
first half of 2021 with Taiwan, India, Vietnam and Africa all
delivering double-digit growth. New business profit was up 22 per
cent9
broadly in line with the growth in sales.
In
India, APE sales grew 11 per cent9 as the easing of
restrictions arising from Covid-19 facilitated increased sales
activity. New business profit increased by 29 per cent9 driven by favourable
product mix changes, with a greater proportion of sales of higher
margin group and non-participating business, compared with the
prior period.
In
Thailand, APE sales rose 9 per cent9 following the easing
of Covid-19-related restrictions which had been in place in 2021,
and which resulted in significant branch closures. APE sales growth
also reflected the success of new investment products, such as TTB
Senior Saver and TTB Value Saver products, launched in the second
half of 2021. Group business sales have grown strongly over the
first half of the year with the addition of staff
plans. The
success of these new products alongside a sizeable benefit from
higher interest rates on profit margins drove a 72 per
cent9
increase in new business profit.
In
Vietnam, APE sales increased 19 per cent9 reflecting the
easing of Covid-19-related restrictions and was driven by both
agency and bancassurance channels, in particular through our
SeABank partnership. New
business profit was broadly flat with the increase in volumes
offset by product mix and economic effects.
In the
Philippines, where Prudential remains one of the largest players in
the market20, 2022 APE sales
were up 5 per cent9. New business profit
declined by (13) per cent9 mainly due to a
substantial increase in interest rates.
In
Taiwan, APE sales grew 55 per cent9 driven by strong
momentum from a new, non-exclusive bank partner TSB, as well as a
new participating product and campaigns undertaken by our existing
bank partner TBB. New business profit rose strongly driven by the
increase in sales and favourable product mix changes.
In
Africa, APE sales have grown by 17 per cent9 year-on-year,
supported by double-digit growth in six of our eight markets. APE
sales growth was driven by a 32 per cent9 increase in Group
sales and 8 per cent9 growth in agency
sales.
Eastspring - funds under management
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|||
|
|
Half year 2022
|
Half year 2021
|
Change
|
|
Half year 2021
|
Change
|
|
Total funds under management ($bn)
|
222.3
|
254.0
|
(12)%
|
|
241.6
|
(8)%
|
|
Adjusted operating profit ($m)
|
131
|
162
|
(19)%
|
|
155
|
(15)%
|
|
Fee margin based on operating income (bps)
|
28
|
30
|
(2)ppts
|
|
n/a
|
n/a
|
|
Cost/income ratio (%)
|
55
|
52
|
(3)ppts
|
|
n/a
|
n/a
|
|
IFRS profit after tax ($m)
|
117
|
147
|
(20)%
|
|
142
|
(18)%
|
Adverse
market, currency and other movements of $(27.6) billion during the
first half of 2022 were the main cause of the of (12) per
cent7
decline in Eastspring’s funds under management21. These effects were
partially dampened by year-to-date net inflows of $2.3 billion,
underpinned by the stable and predictable flows from the life
business of $4.5 billion. The overall asset mix has remained stable
and diversified across both clients and asset classes.
Overall
net outflows from third parties of $(1.8) billion (excluding money
market funds and funds managed on behalf of M&G plc) are
principally due to net withdrawals by retail clients from fixed
income funds following rises in interest rates. The net outflows
from retail bond funds were moderated by net inflows into retail
equity funds, including strategies focused on China. Institutional
flows were broadly flat. The redemption of funds managed on behalf
of M&G plc, net of inflows, totalled $(0.7) billion during the
period, materially completing the anticipated equity fund transfers
out of Eastspring previously highlighted.
Eastspring’s
fund performance reflected market volatility, with 44 per cent (31
December 2021: 46 per cent) of assets under management
outperforming benchmarks over a weighted average of the past one
and three years22.
Notes
1
Source: The
Unprecedented Expansion of the Global Middle Class, Global Economy
and Development program at the Brookings Institution, Feb 2017.
Forecast growth of Asia Pacific middle class 2020 to
2030.
2
Source: Swiss Re
Institute: The health protection gap in Asia, October
2018.
3
A life customer is
defined as an individual or entity who holds one or more policy
with a Prudential life entity, including 100 per cent of customers
of the Group’s joint ventures and associate. Group business
is considered to be a single customer for the purpose of this
definition.
4
Based on market
share APE at Q1 2022 from the Life Insurance Association of
Malaysia.
5
Source: Our World
in Data, China confirmed Covid-19 cases.
6
New business
profit, on a post-tax basis, on business sold in the period,
calculated in accordance with EEV Principles.
7
On an actual
exchange rate basis.
8
APE sales is a
measure of new business activity that comprises the aggregate of
annualised regular premiums and one-tenth of single premiums on new
business written during the year for all insurance products,
including premiums for contracts designated as investment contracts
under IFRS 4. It is not representative of premium income recorded
in the IFRS financial statements. See note II of the Additional
financial information for further explanation.
9
On a constant
exchange rate basis.
10
‘Adjusted
operating profit’ refers to adjusted IFRS operating profit
based on longer-term investment returns from continuing operations.
This alternative performance measure is reconciled to IFRS profit
for the period in note B1.1 of the IFRS financial
statements.
11
Operating free
surplus generated from insurance and asset management operations
before restructuring costs. For insurance operations, operating
free surplus generated represents amounts emerging from the
in-force business during the period net of amounts reinvested in
writing new business and excludes non-operating items. For asset
management businesses, it equates to post-tax operating profit for
the period. Restructuring costs are presented separately from the
business unit amount. Further information is set out in
‘movement in Group free surplus’ of the EEV financial
results.
12
Leads that
originate from a digital platform, digital campaign or partner; and
other leads, including leads from agents, recorded on digital leads
management systems.
13
APE sales completed
by agents on leads from digital campaigns captured within the
digital customer management systems or on leads from Pulse
registrations, together with a small number of policies purchased
via Pulse online.
14
Our investment
portfolio includes both listed equities and corporate bonds, while
excluding assets held by joint venture businesses and assets in
unit-linked funds as we do not have full authority to change the
investment strategies of these.
15
Includes Wuxi,
Ningbo and Qingdao which were upgraded from sub-branches to
branches, approved by the CBIRC.
16
Based on life
insurance sector gross written premiums data from the China Banking
and Insurance Regulatory Commission.
17
Our World in Data
Indonesia confirmed Covid-19 cases.
18
First Quarter
Indonesia Syariah Market Share.
19
Source: The Life
Insurance Association Singapore: Industry Performance, May
2022.
20
Based on unaudited
first quarter statistics of new business weighted
premiums.
21
Half year 2022
total funds under management, including external funds under
management, money market funds, funds managed on behalf of M&G
plc and internal funds under management.
22
A weighted average
of the value of assets under management at 30 June 2022 in funds
which outperform their performance benchmark on a 1 year basis (20
per cent weighting) and the value of assets under management at 30
June 2022 in funds which outperform their performance benchmark on
a 3 year basis (80 per cent weighting), as a percentage of total
assets under management at 30 June 2022, excluding assets in funds
with no performance benchmark.
23
Excludes
India.
Financial review
The
first half of 2022 has seen the Group deliver a continued resilient
performance despite the expected headwind of ongoing
Covid-19-related disruption with APE sales1, operating free
surplus generation2 and adjusted IFRS
operating profit based on longer-term investment returns (adjusted
operating profit3) all higher in the
period, with the latter two measures dampened by our continued
investment in the Group.
The
first half of the year saw considerable macroeconomic volatility,
characterised in many markets by lower equity index levels,
material increases in government bond yields and widening corporate
bond spreads. The MSCI Asia excluding Japan equity index fell (17)
per cent, the Hang Seng index fell by (7) per cent and the CSI 300
index fell by (9) per cent while the S&P 500 index fell by (21)
per cent. Government bond yields in many of our markets ended the
period higher with the US 10-year yield increasing by 146 basis
points to 3.0 per cent. This resulted in lower associated asset
values and consequent impact on fee generating account balances
which, together with the impact of higher discount rates under our
active EEV methodology, contributed to a fall in our embedded value
in the period. Increases in interest rates and decreases in equity
market values also negatively impacted our IFRS profit for the
period, as further discussed in the IFRS basis non-operating items
section below.
The
period also saw the US dollar increase in value relative to many
currencies globally, resulting in a translation headwind. As in
previous years, we comment on our performance in local currency
terms (expressed on a constant exchange rate basis) to show the
underlying business trends in periods of currency movement, unless
otherwise noted.
Over
the first half of 2022, the Group delivered a 9 per
cent4
increase in APE sales as discussed earlier in the Strategic and
operating review. Despite this, new business profit5 was (5) per
cent4
lower in the period reflecting the combined impact on the
Group’s new business profit margin of a shift in geographical
mix, notably a shift away from Hong Kong towards the business units
within our Growth Markets segment (including Taiwan and
Vietnam) and a
higher proportion of bancassurance sales, which tends to have a
higher mix of savings type products and hence lower
margin. Under
our active basis EEV methodology, higher government bond yields
lead to both higher assumed fund earned rates but also higher risk
discount rates which had an overall negative impact on EEV new
business margins in many markets, particularly in Hong Kong.
Excluding the effects of interest rate movements and other economic
changes, new business profit was broadly flat4 when compared with
the corresponding period in 2021.
Our
Group EEV operating profit increased by 6 per cent4 driven by a higher
expected return, reflecting the impact of continued in-force growth
and higher period end interest rates, equating to an annualised
operating return6 on embedded value of
8 per cent. The result includes adverse operating assumption
changes and experience effects of $(182) million, largely driven by
our continued investment in the business to ensure we maintain
existing, and build future, capacity to serve 50 million customers
by 2025. Asset management post-tax profit was (18) per
cent4
lower in the period, as a result of adverse market movements,
explained further in the asset management section below. Central
costs improved, reflecting lower interest costs. We remain on track
to reduce annual head office expenses by a further $70
million7
from 2023. Restructuring and IFRS 17 costs were higher in the
period as a result of increased spend as the IFRS 17 project nears
completion as well as actions undertaken to reduce head office
costs. After allowing for economic effects, currency movements and
the payment of the 2021 second interim dividend, the Group’s
embedded value was $42.3 billion at 30 June 2022 (31 December 2021:
47.4 billion8), equivalent to
1,539 cents per share (31 December 2021: 1,725 cents per
share8).
The
Group generated adjusted operating profit of $1,661 million, up 8
per cent4.
Adjusted operating profit from the life and asset management
business was up 6 per cent4 to $2,029 million
with the increase in life operating profit of 7 per
cent4
being partly offset by a market-driven decline in
Eastspring’s profitability. The Group’s total IFRS
profit after tax from continuing operations was $106 million (2021:
profit of $1,025 million on a constant exchange rate basis and
$1,070 million on an actual exchange rate basis) reflecting
negative short-term market effects in many markets, with the fall
in asset values from higher interest rates and lower equity markets
exceeding the fall in policyholder liabilities. These
negative effects were offset by the benefit from refinements to the
reserving basis following adoption of the Hong Kong Risk-Based
Capital regime (HK RBC) as discussed below.
In
April, we received approval from the regulator to early adopt HK
RBC, effective from 1 January 2022. The C-ROSS II requirements in
the Chinese Mainland also became effective in the first quarter of
2022. The impacts of these changes improved the shareholder GWS
capital surplus of total eligible group capital resources over the
Group Minimum Capital Requirements (GMCR) at 1 January 2022 by $9.3
billion9,
increasing the coverage ratio10 from 408 per cent
to 545 per cent (after allowing for the debt redemption in January
2022). Further details on the Group’s capital position post
this change are set out in the Group capital position later in this
report. At 30
June 2022 the Group’s shareholder surplus above the GMCR was
$19.4 billion9, representing a
cover ratio of 548 per cent10. The Group aligns
its established EEV and free surplus framework with the
Group’s Prescribed Capital Requirement (GPCR) as
explained further in the capital management section below. At 30
June 2022, our shareholder surplus above the GPCR was $16.2
billion11
and cover ratio 317 per cent12.
As well
as the impact on capital, changes arising from HK RBC impact on our
EEV and IFRS metrics which are underpinned by measurement
techniques that are closely linked with regulatory reporting. The
Group’s free surplus increased by $1.4 billion as a result of
the change on 1 January 2022. This is less than the increase in GWS
surplus as free surplus excludes regulatory surplus that arises
where HK RBC technical provisions are lower than policyholder asset
shares or cash surrender floors, to reflect more realistically the
surplus which can be remitted. Total EEV increased by $0.2
billion.
The
IFRS reserving basis for Hong Kong has been refined at 30 June 2022
to reflect better the measurement techniques applied within HK RBC,
leading to a reduction in policyholder liabilities (net of
reinsurance) and an increase in profit before tax for the first
half of 2022 of $945 million. This has been allocated between
operating and non-operating profit in line with the Group’s
usual principles.
|
IFRS profit
|
|
|
|
|
|
|
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|||
|
|
Half year 2022 $m
|
Half year 2021 $m
|
Change %
|
|
Half year 2021 $m
|
Change %
|
|
Adjusted operating profit based on longer-term investment returns
before tax from continuing operations
|
|
|
|
|
|
|
|
CPL
|
149
|
139
|
7
|
|
139
|
7
|
|
Hong Kong
|
501
|
460
|
9
|
|
457
|
10
|
|
Indonesia
|
196
|
225
|
(13)
|
|
222
|
(12)
|
|
Malaysia
|
190
|
184
|
3
|
|
175
|
9
|
|
Singapore
|
340
|
320
|
6
|
|
312
|
9
|
|
Growth markets and other
|
522
|
479
|
9
|
|
463
|
13
|
|
Long-term business adjusted operating profit
|
1,898
|
1,807
|
5
|
|
1,768
|
7
|
|
Eastspring
|
131
|
162
|
(19)
|
|
155
|
(15)
|
|
Total segment profit from continuing operations
|
2,029
|
1,969
|
3
|
|
1,923
|
6
|
|
|
|
|
|
|
|
|
|
Investment return and other income
|
39
|
-
|
n/a
|
|
-
|
n/a
|
|
Interest payable on core structural borrowings
|
(103)
|
(164)
|
37
|
|
(164)
|
37
|
|
Corporate expenditure
|
(150)
|
(157)
|
4
|
|
(151)
|
n/a
|
|
Other income (expenditure)
|
(214)
|
(321)
|
33
|
|
(315)
|
32
|
|
Total adjusted operating profit before tax and restructuring and
IFRS 17 implementation costs
|
1,815
|
1,648
|
10
|
|
1,608
|
13
|
|
Restructuring and IFRS 17 implementation costs
|
(154)
|
(77)
|
(100)
|
|
(77)
|
(100)
|
|
Total adjusted operating profit before tax
|
1,661
|
1,571
|
6
|
|
1,531
|
8
|
|
Non-operating items:
|
|
|
|
|
|
|
|
Short-term fluctuations in investment returns on shareholder-backed
business
|
(1,383)
|
(212)
|
(552)
|
|
(234)
|
(491)
|
|
Amortisation of acquisition accounting adjustments
|
(5)
|
(2)
|
(150)
|
|
(2)
|
(150)
|
|
Profit (loss) attaching to corporate transactions
|
27
|
(94)
|
n/a
|
|
(94)
|
n/a
|
|
Profit before tax attributable to shareholders
|
300
|
1,263
|
(76)
|
|
1,201
|
(75)
|
|
Tax charge attributable to shareholders' returns
|
(194)
|
(193)
|
(1)
|
|
(176)
|
(10)
|
|
Profit from continuing operations for the period
|
106
|
1,070
|
(90)
|
|
1,025
|
(90)
|
|
Loss from discontinued US operations for the period, net of related
tax
|
-
|
(5,707)
|
n/a
|
|
(5,707)
|
n/a
|
|
Profit (loss) for the period
|
106
|
(4,637)
|
n/a
|
|
(4,682)
|
n/a
|
|
IFRS earnings per share
|
|
|
|
|
|
|
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|||
|
|
Half year 2022 cents
|
Half year 2021 cents
|
Change %
|
|
Half year 2021 cents
|
Change %
|
|
Basic earnings per share based on adjusted operating profit after
tax from continuing operations
|
49.2¢
|
51.6¢
|
(5)
|
|
50.5¢
|
(3)
|
|
|
|
|
|
|
|
|
|
Basic earnings per share based on:
|
|
|
|
|
|
|
|
Total profit after tax from continuing operations
|
3.8¢
|
40.9¢
|
(91)
|
|
39.2¢
|
(90)
|
|
Total loss after tax from discontinued operations
|
0.0¢
|
(195.1)¢
|
n/a
|
|
(195.1)¢
|
n/a
|
Segment
profit from continuing long-term and asset management business
increased by 6 per cent4 to $2,029 million
despite a challenging environment over recent periods, with all our
major life segments, other than Indonesia, delivering growth,
demonstrating the resilient and diversified nature of our business.
The 7 per cent4 growth in the
adjusted operating profit of our life business was partially offset
by a decline in Eastspring adjusted operating profit, following
adverse market movements on shareholder investments. After allowing
for a 32
per cent4
reduction in central costs and higher restructuring and IFRS 17
implementation costs, total adjusted operating profit before tax
increased to $1,661 million, an 8 per cent4 increase compared
with the prior period.
CPL,
our joint venture business in the Chinese Mainland, delivered a 7
per cent4
increase in adjusted operating profit compared with the same period
in 2021, reflecting growth in the underlying portfolio, evident
from a 22 per cent4 increase in gross
premiums earned13 in the
period.
In Hong
Kong, our adjusted operating profit increased 10 per
cent4 to
$501 million benefitting from growth in shareholder-backed renewal
premiums of 2 per cent4, higher levels of
profits from our with-profits business given the ageing of certain
cohorts and the impact on underlying product profit profiles as a
result of the adoption of the risk-based capital regime previously
discussed.
In
Indonesia, adjusted operating profit reduced by (12) per
cent4,
reflecting lower sales volumes in recent years and higher claims
levels as medical claims began to normalise to pre-pandemic
levels.
In
Malaysia, adjusted operating profit growth of 9 per
cent4 was
supported by the growth of our in-force health and protection
business, with shareholder-backed renewal premiums increasing by 7
per cent4,
and an increase in spread profits given higher interest
rates.
In
Singapore, adjusted operating profit increased 9 per
cent4,
reflecting the continued growth of our in-force business evidenced
by 9 per cent4 growth in
shareholder-backed renewal premiums alongside higher profits from
our with-profits business following its growth over recent
years.
The
businesses comprising our growth markets and other segment
generated adjusted operating profit growth of 13 per
cent4,
driven by Thailand and India. Thailand achieved double-digit growth
in adjusted operating profit following increases in new business in
recent years as we upscaled the business through our bank
partnerships with TTB and UOB. India
saw improved claims experience in the period, given the spike in
Covid-19 cases seen in 202114.
Adjusted
operating profit for growth markets and other includes other items
of $160 million (2021: $167 million on an actual exchange rate
basis and $161 million on a constant exchange rate basis) which in
the first half of 2022 comprised largely the impact of the adoption
of Risk-Based Capital regime in Hong Kong (as discussed further in
note C3.2 of the IFRS financial results) offset by corporate taxes
for life joint ventures and associates and provisions for sales and
premium tax.
Long-term insurance business adjusted operating profit
drivers
Profit margin analysis of long-term insurance continuing
operations15
|
|
Actual exchange rate
|
|
Constant exchange rate
|
||||
|
|
Half year 2022
|
Half year 2021
|
|
Half year 2021
|
|||
|
|
|
Margin
|
|
Margin
|
|
|
Margin
|
|
|
$m
|
bps
|
$m
|
bps
|
|
$m
|
bps
|
|
Spread income
|
156
|
73
|
153
|
67
|
|
150
|
67
|
|
Fee income
|
172
|
103
|
169
|
103
|
|
164
|
102
|
|
With-profits
|
75
|
18
|
62
|
15
|
|
61
|
15
|
|
Insurance margin
|
1,683
|
|
1,467
|
|
|
1,434
|
|
|
Other income
|
1,649
|
|
1,533
|
|
|
1,495
|
|
|
Total life insurance income
|
3,735
|
|
3,384
|
|
|
3,304
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Acquisition
costs
|
(1,129)
|
(51)%
|
(990)
|
(48)%
|
|
(968)
|
(48)%
|
|
Administration
expenses
|
(899)
|
(235)
|
(804)
|
(203)
|
|
(780)
|
(201)
|
|
DAC
adjustments
|
223
|
|
238
|
|
|
233
|
|
|
Share of related tax charges from joint ventures and
associates
|
(32)
|
|
(21)
|
|
|
(21)
|
|
|
Long-term insurance business pre-tax adjusted operating
profit
|
1,898
|
|
1,807
|
|
|
1,768
|
|
Our
adjusted operating profit continues to be based on high-quality
drivers including our ongoing focus on recurring premium health and
protection products and the associated continued growth of our
in-force business. The overall 7 per cent4 growth in life
insurance adjusted operating profit to $1,898 million (half year
2021: $1,768 million4) was driven
principally by 17 per cent4 growth in insurance
margin-related revenues following the early-adoption of HK RBC and
lower claim costs in India, as well as business growth. At the same
time there continues to be a normalisation of medical claims
towards pre-pandemic levels following the lower incidence seen in
2021 and 2020.
Fee
income increased by 5 per cent4, reflecting premium
contributions partly offset by unfavourable market movements, while
spread income increased by 4 per cent4 reflecting in-force
business growth, with an improvement in margin primarily due to
rising interest rates.
With-profits
earnings relate to the shareholders’ share in bonuses
declared to policyholders. As these bonuses are typically weighted
to the end of a contract, under IFRS, with-profit earnings
consequently emerge only gradually over time. The 23 per
cent4
growth in with-profits earnings reflects the ongoing growth and
ageing of certain cohorts within these portfolios.
Other
income primarily represents amounts deducted from premiums to cover
acquisition costs and administration expenses. As such, the growth
of 10 per cent4 from half year 2021
reflects premium growth in the period for our shareholder backed
business. Acquisition costs increased in the year, driven by higher
APE sales as compared with the prior period. Administration
expenses increased by 15 per cent4 reflecting in-force
business growth and sales and premium tax related provisions. Both
acquisition costs and administration expenses were also impacted by
our investment to maintain our capabilities and develop the
capacity to serve 50 million customers by 2025.
Asset management
|
|
|
Actual exchange rate
|
|
|
|
Half year 2022 $m
|
Half year 2021 $m
|
Change %
|
|
Total external net
flows*,16
|
(1,786)
|
(509)
|
n/a
|
|
|
|
|
|
|
External funds under management* ($bn)
|
81.5
|
96.1
|
(15)
|
|
Funds managed on behalf of M&G plc ($bn)
|
9.3
|
16.1
|
(42)
|
|
Internal funds under management ($bn)
|
131.5
|
141.8
|
(7)
|
|
Total funds under management ($bn)
|
222.3
|
254.0
|
(12)
|
|
|
|
|
|
|
Analysis of adjusted operating profit
|
|
|
|
|
Retail operating income
|
196
|
225
|
(13)
|
|
Institutional operating income
|
136
|
149
|
(9)
|
|
Operating income before performance-related fees
|
332
|
374
|
(11)
|
|
Performance-related fees
|
4
|
6
|
(33)
|
|
Operating income (net of commission)
|
336
|
380
|
(12)
|
|
Operating expense
|
(184)
|
(196)
|
6
|
|
Group's share of tax on joint ventures' adjusted operating
profit
|
(21)
|
(22)
|
5
|
|
Adjusted operating profit
|
131
|
162
|
(19)
|
|
Adjusted operating profit after tax
|
117
|
147
|
(20)
|
|
|
|
|
|
|
Average funds managed by Eastspring
|
241.8
|
247.6
|
(2)%
|
|
Fee margin based on operating income
|
28bps
|
30bps
|
(2)bps
|
|
Cost/income ratio17
|
55%
|
52%
|
(3)ppts
|
*
Excluding funds
managed on behalf of M&G plc.
Eastspring’s
total funds under management18 were $222.3 billion
at 30 June 2022 (30 June 2021: $254.0 billion8), reflecting adverse
currency and market movements. Eastspring’s
average funds under management for the period 1 January 2022 to 30
June 2022 were $241.8 billion (2021: $247.6 billion on an
actual exchange rate basis).
Eastspring
saw total net inflows of $2.3 billion over the first half of 2022
(2021: $3.6 billion8) which included
internal net inflows from our life businesses of $4.5 billion
(2021: $4.5 billion8) partially offset by
third-party outflows (excluding money market funds) of $(1.8)
billion, primarily from retail business, and $(0.7) billion of net
outflows for funds managed on behalf of M&G plc.
Eastspring’s
adjusted operating profit of $131 million was down (19) per cent
compared with the prior period on an actual exchange rate basis
(down (15) per cent on a constant
exchange rate basis). Operating
income before performance related fees was (11) per cent
lower8,
driven largely by a net realised and unrealised loss (as compared
with a net gain in the prior year) on shareholder investments,
including its seed capital in its retail funds. Before these
movements on shareholder investments and performance fees,
operating income was (4) per cent8 lower compared with
a decline of (2) per cent8 in average funds
under management over the same period. The cost/income ratio
increased to 55 per cent (2021: 52 per cent) despite a 6 per
cent8
reduction in operating costs, due to the effect of mark-to-market
movements on shareholder investments in each period discussed
above.
Other income and expenditure
Central
costs were 32 per cent4 lower than the prior
period reflecting
the benefit of the debt reduction programme
completed in January 2022, with a fall in interest payable on core
structural borrowings of $61 million compared with the prior
period. We remain on track to deliver the benefit of our activities
to right-size head office costs with annual head office costs
targeted to reduce by around $70 million7 from
2023. The
Group received gross dividend income from its residual interest in
Jackson Financial Inc. of $16 million in the first half of 2022
(2021: nil) and
also benefitted from unrealised gains upon retranslation of its
sterling debt, as the dollar strengthened.
Restructuring
costs of $(154) million (2021: $(77) million8) reflect both the
Group’s substantial and ongoing IFRS 17 project with costs
increasing, as planned, as implementation approaches in 2023, and
actions taken in the period to right-size our head office
footprint.
IFRS basis non-operating items
Non-operating
items from continuing operations in the year consist mainly of
short-term fluctuations in investment returns on shareholder-backed
business of negative $(1,383) million, (2021: negative $(234)
million4),
and a gain of $27 million from corporate transactions (2021: loss
of $(94) million4).
The
increase in the level of short-term fluctuations reflects the fall
in equity markets in the first half of the year, compared with
equity market gains in the prior period, along with interest rates
increasing significantly more in the current period than in the
first half of 2021. Decreases in bond values from rising interest
rate losses are not fully offset by reductions in policyholder
liabilities as assets held will exceed liabilities, given the need
to hold capital in line with local regulations and because some
regimes have policyholder liabilities that do not directly reflect
changes in interest rates or reprice more slowly than
assets.
Gains
from corporate transactions of $27 million includes profit of $60
million on the sale of 4.2 million shares in Jackson Financial Inc.
during the first half of 2022 at an average price of $40.79 per
share. Our investment in Jackson Financial Inc. is held at fair
value in the balance sheet, with movements in fair value recognised
initially in other comprehensive income, and recycled to the income
statement on sale. At 30
June 2022, we held 14.3 per cent of the shares in Jackson Financial
Inc. which had a fair value of $325 million. We have undertaken
further sales of Jackson Financial Inc. and as at 5 August 2022 our
remaining holding has a fair value of $215 million. In total,
proceeds of $376 million have been received from reducing our
holding in Jackson Financial Inc. from 19.7 per cent at the time of
the demerger in 2021 to approximately 9.0 per cent at 5 August
2022, in addition to the quarterly dividends received on our
holdings. Further information on corporate transactions is
presented in note D1.1 to the IFRS financial results.
IFRS effective tax rates for continuing operations
In the
first half of 2022, the effective tax rate on adjusted operating
profit was 19 per cent (2021: 14 per cent). The increase from the
2021 effective tax rate reflects the first half of 2021 having
benefited from the resolution of some historic issues at lower
amounts than had been provided for.
The
effective tax rate on total IFRS profit in the first half of 2022
was 65 per cent (2021: 17 per cent), reflecting the mathematical
combination of a normal tax charge on operating profit and a much
lower tax credit on non-operating losses, most of which are not tax
deductible.
The
effective tax rate on adjusted operating profit is likely to be
impacted by a combination of the OECD proposals to implement a
global minimum tax rate of 15 per cent and some jurisdictions where
Prudential operates implementing a domestic minimum tax based on
the OECD proposals. Current indications are that these proposed new
rules will most likely take effect in 2024. The OECD rules and
associated guidance are complex and require detailed analysis and
consideration which is ongoing. In addition, a further OECD
document (the GloBE Implementation Framework) together with
relevant domestic tax legislation are required in order to complete
the analysis. We expect to be in a position to give an indicative
impact to the effective tax rate in the full year 2022
results.
Shareholders’ equity
|
Group IFRS shareholders' equity
|
|
|
|
|
|
Half year 2022 $m
|
Half year 2021 $m
|
Full year 2021 $m
|
|
Adjusted operating profit after tax attributable to shareholders
from continuing operations
|
1,343
|
1,342
|
2,668
|
|
|
|
|
|
|
Profit from continuing operations for the period
|
106
|
1,070
|
2,214
|
|
Less non-controlling interest from continuing
operations
|
(2)
|
(7)
|
(22)
|
|
Profit after tax for the period attributable to shareholders from
continuing operations
|
104
|
1,063
|
2,192
|
|
Net decrease in shareholders’ equity from discontinued
operations (see note D1.2 in the IFRS financial
statements)
|
-
|
(5,844)
|
(6,283)
|
|
Demerger dividend in-specie of Jackson
|
-
|
-
|
(1,735)
|
|
Exchange movements, net of related tax
|
(513)
|
(158)
|
(165)
|
|
Other external dividends
|
(320)
|
(283)
|
(421)
|
|
Issue of equity shares
|
-
|
-
|
2,382
|
|
Other (including revaluation and sale of Jackson residual interest
since demerger)
|
(250)
|
57
|
240
|
|
Net decrease in shareholders’ equity
|
(979)
|
(5,165)
|
(3,790)
|
|
Shareholders’ equity at beginning of the period
|
17,088
|
20,878
|
20,878
|
|
Shareholders’ equity at end of the period
|
16,109
|
15,713
|
17,088
|
|
Shareholders' value per
share17
|
586¢
|
601¢
|
622¢
|
Group
IFRS shareholders’ equity decreased from $17.1
billion8
at the start of 2022 to $16.1 billion at 30 June 2022 reflecting
dividend payments of $(0.3) billion, adverse exchange movements of
$(0.5) billion and movements from the revaluation and sale of
shares in Jackson Financial Inc. of $(0.3) billion offset by
profits generated in the period.
Greater
China presence
Prudential
has a significant footprint in the Greater China region, with
businesses in the Chinese Mainland (through its holding CPL), Hong
Kong and Taiwan. The Group is dual-headquartered in London and Hong
Kong and its regulator is the Hong Kong Insurance Authority. From
February 2023 the Group Chief Executive Officer, Chief Financial
Officer and Chief Risk and Compliance Officer will all be based in
Hong Kong.
The
table below demonstrates the significant proportion of the
Group’s financial measures that were contributed by our Hong
Kong, CPL and Taiwan businesses.
|
|
Gross premiums earned**
|
New business profit
|
||||
|
|
Half year
|
Full year
|
Half year
|
Full year
|
||
|
|
2022 $m
|
2021 $m
|
2021 $m
|
2022 $m
|
2021 $m
|
2021 $m
|
|
Total Greater China*
|
6,983
|
6,677
|
14,335
|
503
|
575
|
1,181
|
|
Total Group* (continuing operations)
|
14,609
|
13,587
|
28,796
|
1,098
|
1,176
|
2,526
|
|
|
|
|
|
|
|
|
|
Percentage of total
|
48%
|
49%
|
50%
|
46%
|
49%
|
47%
|
*
Total Greater China
represents the amount contributed by the life business in Hong
Kong, Taiwan and the Group's share of the amounts earned by CPL.
The Group total includes the Group's share of the amounts earned by
all life associates and JVs.
**
The gross earned
premium amount shown above differs from that shown in the income
statement as it includes the Group's share of amounts earned by
associates and JVs. The gross earned premium amount reflects the
Group’s IFRS accounting policies. A reconciliation to the
amount included in the income statements is included in note II of
the Additional financial information.
EEV financial results
|
EEV financial results from continuing operations
|
||||||
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|||
|
|
Half year 2022 $m
|
Half year 2021 $m
|
Change %
|
|
Half year 2021 $m
|
Change %
|
|
New business profit
|
1,098
|
1,176
|
(7)
|
|
1,155
|
(5)
|
|
Profit from in-force business
|
1,001
|
857
|
17
|
|
838
|
19
|
|
Operating profit from long-term business
|
2,099
|
2,033
|
3
|
|
1,993
|
5
|
|
Asset management
|
117
|
147
|
(20)
|
|
142
|
(18)
|
|
Other income and expenditure19
|
(410)
|
(431)
|
5
|
|
(425)
|
4
|
|
Operating profit for the period from continuing
operations
|
1,806
|
1,749
|
3
|
|
1,710
|
6
|
|
Non-operating (loss) profit
|
(5,314)
|
158
|
(3,463)
|
|
178
|
(3,085)
|
|
(Loss) profit for the period from continuing
operations
|
(3,508)
|
1,907
|
(284)
|
|
1,888
|
(286)
|
|
Dividends paid
|
(320)
|
(283)
|
|
|
|
|
|
Other movements
|
(1,456)
|
(388)
|
|
|
|
|
|
Net (decrease) increase in EEV shareholders' equity from continuing
operations
|
(5,284)
|
1,236
|
|
|
|
|
|
EEV shareholders' equity from continuing operations at 1
Jan
|
47,355
|
41,926
|
|
|
|
|
|
Effect of HK RBC
|
229
|
-
|
|
|
|
|
|
EEV shareholders' equity from continuing operations at 30
Jun
|
42,300
|
43,162
|
|
|
|
|
|
% Annualised new business profit/average EEV shareholders’
equity
for insurance and asset management business
operations*
|
5%
|
5%
|
|
|
|
|
|
% Annualised operating profit/average EEV shareholders’
equity
for continuing operations
|
8%
|
8%
|
|
|
|
|
|
* Excluding goodwill attributable to equity holders
|
|
|
|
|
|
|
|
|
|
Actual exchange rate
|
|
EEV shareholders' equity
|
30 Jun 2022 $m
|
31 Dec 2021 $m
|
|
Represented by:
|
|
|
|
CPL
(Prudential’s share)
|
3,302
|
3,114
|
|
Hong
Kong
|
17,246
|
21,460
|
|
Indonesia
|
1,956
|
2,237
|
|
Malaysia
|
3,524
|
3,841
|
|
Singapore
|
6,712
|
7,732
|
|
Growth
markets and other
|
6,225
|
6,262
|
|
Embedded value from long-term business excluding
goodwill
|
38,965
|
44,646
|
|
Asset management and other excluding goodwill
|
2,586
|
1,931
|
|
Goodwill attributable to equity holders
|
749
|
778
|
|
Group EEV shareholders' equity
|
42,300
|
47,355
|
|
Group EEV shareholders' equity per share
|
1,539¢
|
1,725¢
|
EEV
operating profit from continuing operations increased by 6 per
cent4 to
$1,806 million (2021: $1,710 million4) with the favourable
effect of economics on in-force long-term business partially offset
by a decline in the contribution from new business
profit.
New business performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EEV new business profit and APE new business sales (APE
sales)
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual exchange rate
|
|
|
|
Constant exchange rate
|
||||
|
|
Half year 2022 $m
|
Half year 2021 $m
|
Change %
|
|
Half year 2021 $m
|
Change %
|
|||||
|
|
APE sales
|
New business profit
|
APE sales
|
New business profit
|
APE sales
|
New business profit
|
|
APE sales
|
New business profit
|
APE sales
|
New business profit
|
|
CPL (Prudential’s share)
|
507
|
217
|
448
|
228
|
13
|
(5)
|
|
447
|
227
|
13
|
(4)
|
|
Hong Kong
|
227
|
211
|
253
|
306
|
(10)
|
(31)
|
|
251
|
304
|
(10)
|
(31)
|
|
Indonesia
|
110
|
52
|
117
|
57
|
(6)
|
(9)
|
|
116
|
56
|
(5)
|
(7)
|
|
Malaysia
|
172
|
70
|
211
|
113
|
(18)
|
(38)
|
|
202
|
109
|
(15)
|
(36)
|
|
Singapore
|
390
|
244
|
379
|
215
|
3
|
13
|
|
370
|
210
|
5
|
16
|
|
Growth markets and other
|
807
|
304
|
675
|
257
|
20
|
18
|
|
650
|
249
|
24
|
22
|
|
Total
|
2,213
|
1,098
|
2,083
|
1,176
|
6
|
(7)
|
|
2,036
|
1,155
|
9
|
(5)
|
|
Total new business margin
|
|
50%
|
|
56%
|
|
|
|
|
57%
|
|
|
APE
sales increased by 9 per cent4 to $2,213 million
and related new business profit decreased by (5) per
cent4.
Detailed discussion of new business performance by segment is
presented in the Strategic and operating review.
EEV in-force profit
The
profit from in-force long-term business is driven by the expected
return and effects of operating assumption changes, if any, and
operating experience variances. The expected return increased by 36
per cent4
above the prior year reflecting the combined effects of underlying
business growth and the impact of higher interest rates increasing
the risk discount rate under our active basis EEV methodology.
Operating assumption changes and experience variances were negative
$(182) million on a net basis driven largely by the decision to
continue to invest in the business to ensure as we maintain
existing and build future capacity to serve 50 million customers in
2025 as
well as including additional provisions for sales and premium taxes
in the period.
The
non-operating loss of $(5,314) million (2021: $178
million4
profit) is driven largely by falling equity markets and rising
interest rates over the period leading to reduced asset values with
a consequential impact on future profits. Higher interest rates
also increased risk discount rates, which have a negative effect on
health and protection profits. This
negative effect more than outweighed the benefit on our savings
products of increases to the assumed level of future investment
returns.
Overall,
EEV shareholders' equity from continuing operations decreased at 30
June 2022 to $42.3 billion (31 December 2021: $47.4
billion8).
Of this, $39.0 billion (31 December 2021: $44.6 billion8) relates to the
value of the long-term business. This amount includes our share of
our India associate valued using embedded value principles. The
market capitalisation of this associate at 30 June 2022
was circa
$8.9 billion, which compares with a last publicly reported embedded
value of circa $4.2 billion at 31 March 2022.
As well
as the long-term business amounts (which includes relevant
intangibles), EEV includes the IFRS basis net asset value of the
asset management businesses,
central holding companies and the goodwill attributable to
shareholders. Included within these amounts at 30 June 2022 is $325
million for our 14.3 per cent economic interest in Jackson, which
is measured at fair value. EEV shareholders' equity on a per share
basis at 30 June 2022 was 1,539 cents (31 December 2021: 1,725
cents8).
Group free surplus generation from continuing
operations
Operating
free surplus generation is the financial metric we use to measure
the internal cash generation of our business operations and for our
life operations is generally based on (with adjustments as
discussed below) the capital regimes that apply locally in the
various jurisdictions in which the Group operates. It represents
amounts emerging from the in-force business during the period, net
of amounts reinvested in writing new business. For asset management
businesses, it equates to post-tax adjusted operating profit for
the period.
For
long-term business, free surplus is generally based on (with
adjustments including recognition of certain intangibles and other
assets that may be inadmissible on a regulatory basis) the excess
of the regulatory basis net assets (EEV total net worth) over the
EEV capital required to support the covered business. For
shareholder-backed businesses, the level of EEV required capital
has been based on the Group prescribed capital requirements used in
our GWS reporting as set out in our EEV statements note
7.1(e).
Adjustments
are also made to enable free surplus to be a better measure of
shareholders’ resources available for distribution as
described in the reconciliation to GWS surplus as disclosed in note
I(i) of the Additional financial information. For asset management
and other non-insurance operations (including the Group’s
central operations), free surplus is taken to be IFRS basis
shareholders’ equity, net of goodwill attributable to
shareholders, with central Group debt recorded as free surplus to
the extent that it is classified as capital resources under the
Group’s capital regime. Following the application of the GWS
Framework, both subordinated and senior debt (excluding the amount
issued in the first half of 2022) are treated as capital for the
purposes of free surplus at 30 June 2022.
|
Analysis of movement in Group free
surplus2
|
||||||
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|||
|
|
Half year 2022 $m
|
Half year 2021 $m
|
Change %
|
|
Half year 2021 $m
|
Change %
|
|
Expected transfer from in-force business and return on existing
free surplus
|
1,446
|
1,249
|
16
|
|
1,224
|
18
|
|
Changes in operating assumptions and experience
variances
|
(60)
|
35
|
(271)
|
|
35
|
(271)
|
|
Operating free surplus generated from in-force life business before
restructuring costs
|
1,386
|
1,284
|
8
|
|
1,259
|
10
|
|
Investment in new business
|
(279)
|
(319)
|
13
|
|
(312)
|
11
|
|
Asset management
|
117
|
147
|
(20)
|
|
142
|
(18)
|
|
Operating free surplus generated from life business and asset
management before restructuring costs
|
1,224
|
1,112
|
10
|
|
1,089
|
12
|
|
Central costs and eliminations (net of tax):
|
|
|
|
|
|
|
|
Net
interest paid on core structural borrowings
|
(103)
|
(164)
|
37
|
|
(164)
|
37
|
|
Corporate
expenditure
|
(150)
|
(149)
|
(1)
|
|
(143)
|
(5)
|
|
Other
items and eliminations
|
(10)
|
(46)
|
78
|
|
(46)
|
78
|
|
Restructuring and IFRS 17 implementation costs (net of
tax)
|
(146)
|
(70)
|
(109)
|
|
(70)
|
(109)
|
|
Net Group operating free surplus generated for continuing
operations
|
815
|
683
|
19
|
|
666
|
22
|
|
Non-operating and other movements, including foreign
exchange
|
(1,805)
|
109
|
|
|
|
|
|
External cash dividends
|
(320)
|
(283)
|
|
|
|
|
|
Treatment of grandfathered debt instruments under the GWS
Framework20
|
-
|
1,995
|
|
|
|
|
|
(Decrease) increase in Group free surplus from continuing
operations before net subordinated debt redemption
|
(1,310)
|
2,504
|
|
|
|
|
|
Net subordinated debt redemption
|
(1,699)
|
-
|
|
|
|
|
|
(Decrease) increase in Group free surplus from continuing
operations
|
(3,009)
|
2,504
|
|
|
|
|
|
Change in amounts attributable to non-controlling
interests
|
(5)
|
(13)
|
|
|
|
|
|
Free surplus at 1 Jan from continuing operations
|
14,049
|
8,344
|
|
|
|
|
|
Effect of HK RBC
|
1,360
|
-
|
|
|
|
|
|
Free surplus at 30 Jun from continuing operations
|
12,395
|
10,835
|
|
|
|
|
|
Free surplus at 30 Jun excluding distribution rights and other
intangibles
|
8,589
|
6,920
|
|
|
|
|
The
in-force business generated $1,386 million of free surplus in the
first half of 2022, an increase of 10 per cent4 from prior period
with growth reflecting the increasing size of our inforce book and
the positive effect of interest rates, curtailed by adverse
operating experience reflecting our decision to continue to invest
in the business to ensure we maintain and build future capacity to
serve 50 million customers in 2025. Despite the overal increase in
APE sales, up 9 per cent4 as discussed
previously, the cost of investment in this new business reduced by
11 per cent4 reflecting
favourable economics, and the impact of regulatory changes in Hong
Kong, partially offset by product mix changes. After
allowing for an (18) per cent4 decrease in asset
management earnings on an after tax basis (discussed in the
commentary on IFRS above), operating
free surplus generated from our life and asset management business
increased by 12 per cent4 to $1,224
million.
Combining
operating free surplus generated by the life and asset management
business with a
reduction in central costs of 25 per cent4 offset by higher
restructuring and IFRS 17 implementation costs, total Group
operating free surplus generation was 22 per cent4 higher at $815
million.
Operating
free surplus generated was offset by the negative impact of market
and currency movements in the period. After allowing for these
losses, the redemption of debt (which is treated as capital for
free surplus purposes), the 2021 second interim dividend payment
and the $1.4 billion benefit from adopting HK RBC at 1 January
2022, free surplus at 30 June 2022 was $12.4 billion. Excluding
distribution rights and other intangibles it was $8.6
billion.
Dividend
Reflecting
the Group’s capital allocation priorities, a portion of
capital generation will be retained for reinvestment in the
business, and dividends will be determined primarily based on the
Group’s operating capital generation after allowing for the
capital strain of writing new business and recurring central costs.
Dividends are expected to grow broadly in line with the growth in
the Group’s operating free surplus generation net of
right-sized central costs, and will be set taking into account
financial prospects, investment opportunities and market
conditions.
The
Board applies a formulaic approach to first interim dividends,
calculated as one-third of the previous year’s full-year
ordinary dividend. Accordingly, the Board has approved a 2022 first
interim ordinary cash dividend of 5.74 cents per share (2021 first
interim dividend: 5.37 cents per share).
Group capital position
Prudential
applies the Insurance (Group Capital) Rules set out in the GWS
Framework issued by the Hong Kong IA to determine group regulatory
capital requirements (both minimum and prescribed levels). More
information is set out in note I(i) of the Additional financial
information. The GWS group capital adequacy requirements require
that total eligible group capital resources are not less than the
Group Prescribed Capital Requirements (GPCR) and that GWS Tier 1
group capital resources are not less than the Group Minimum Capital
Requirements (GMCR). Following the trend to move to risk-based
capital regimes (discussed further below), from this reporting
period onwards, the headline Group solvency position will be
presented by comparing the total eligible group capital resources
to the GPCR, rather than to the GMCR, which is more comparable to
other global risk-based measures. The Hong Kong IA is currently
consulting on whether such disclosures should become a requirement
for all groups under its supervision. The GPCR also remains the
basis of our EEV capital requirements.
The
Group holds material participating business in Hong Kong, Singapore
and Malaysia. Alongside the regulatory GWS capital basis, a
shareholder GWS capital basis is also presented which excludes the
contribution to the Group GWS eligible group capital resources, the
GMCR and the GPCR from these participating funds.
Regulatory updates
The
recent trend to more risk-based capital regimes being adopted in
many of the Group’s markets is continuing and this impacts on
the Group’s GWS capital measure, which is underpinned by the
local regulatory regimes of the Group’s subsidiaries, joint
ventures and associates. C-ROSS Phase II became effective in the
Chinese Mainland in the first quarter of 2022, and in April 2022
Prudential Hong Kong Limited received approval from the Hong Kong
IA to early-adopt the new Risk-Based Capital regime effective from
1 January 2022.
These
changes are estimated to have increased the GWS shareholder surplus
over the GMCR by $9.3 billion9 and to have
increased the corresponding coverage ratio from 408 per cent to 545
per cent10
as at 31 December 2021, after allowing for the $1.7 billion debt
redemption in January 2022.
Going
forwards, the GWS capital position will be primarily shown relative
to the GPCR rather than the GMCR. On this basis, and allowing for
the regulatory changes above, as at 31 December 2021 the GWS
shareholder capital surplus over the GPCR is estimated to have been
$17.5 billion11 with a
corresponding GWS coverage ratio of 320 per cent12. When including the
contribution from ring-fenced policyholder funds, the total surplus
over the GPCR is estimated to have been $21.4 billion11, with a
corresponding GWS coverage ratio of 204 per cent12. These impacts are
shown below:
|
|
Shareholder GMCR basis
|
|
GPCR basis
(post regulatory updates)
|
||||
|
31 December 202121
|
As disclosed
|
Impact of Hong Kong RBC and
C-ROSS II
|
Post regulatory updates
|
|
Shareholder
|
Policyholder
|
Total
|
|
Group capital resources ($bn)
|
15.2
|
+10.3
|
25.5
|
|
25.5
|
16.5
|
42.0
|
|
Required capital ($bn)
|
3.7
|
+1.0
|
4.7
|
|
8.0
|
12.6
|
20.6
|
|
GWS capital surplus over GMCR/GPCR ($bn)
|
11.5
|
+9.3
|
20.8
|
|
17.5
|
3.9
|
21.4
|
|
GWS coverage ratio over GMCR/GPCR (%)
|
408%
|
+137%
|
545%
|
|
320%
|
|
204%
|
Estimated GWS capital position
As at
30 June 2022, the estimated shareholder GWS capital surplus over
the GPCR is $16.2 billion11 (31 December 2021:
$17.5 billion21), representing a
coverage ratio of 317 per cent12 (31 December 2021:
320 per cent21) and the total GWS
capital surplus over the GPCR is $19.1 billion11 (31
December 2021: $21.4 billion21) representing a
coverage ratio of 205 per cent12 (31 December 2021:
204 per cent21).
For
comparison to previous periods, as at 30 June 2022, the estimated
shareholder GWS capital surplus over the GMCR was $19.4
billion9
representing a coverage ratio of 548 per cent10 (31 December 2021:
$20.8 billion representing a coverage ratio of 545 per
cent21).
The
Group shareholder GWS capital surplus over the GPCR reduced by
$(1.3) billion since 31 December 2021 to $16.2 billion at 30 June
2022. Operating capital generation in the period was $0.8 billion
after allowing for central costs and investment in new business.
The impact of non-operating experiences, including market
movements, were negative overall and reduced surplus by $(1.8)
billion. Dividends of $0.3 billion were paid to shareholders in
respect of the 2021 second interim dividend.
The
Group’s GWS position is resilient to external macro movements
as demonstrated by the sensitivity disclosure contained in note
I(i) of the Additional financial information, alongside further
information on the basis of calculation of the GWS
measure.
|
|
30 Jun 2022
|
|
31 Dec 202121
|
||||
|
|
(post regulatory updates)
|
|
(post regulatory updates)
|
||||
|
|
Shareholder
|
Policyholder*
|
Total
|
|
Shareholder
|
Policyholder*
|
Total
|
|
Group capital resources ($bn)
|
23.7
|
13.6
|
37.3
|
|
25.5
|
16.5
|
42.0
|
|
of which: Tier 1 capital
resources22
($bn)
|
16.3
|
2.1
|
18.4
|
|
17.9
|
3.5
|
21.4
|
|
|
|
|
|
|
|
|
|
|
Group Minimum Capital Requirement ($bn)
|
4.3
|
1.3
|
5.6
|
|
4.7
|
1.8
|
6.5
|
|
Group Prescribed Capital Requirement ($bn)
|
7.5
|
10.7
|
18.2
|
|
8.0
|
12.6
|
20.6
|
|
|
|
|
|
|
|
|
|
|
GWS capital surplus over GPCR ($bn)
|
16.2
|
2.9
|
19.1
|
|
17.5
|
3.9
|
21.4
|
|
GWS coverage ratio over GPCR (%)
|
317%
|
|
205%
|
|
320%
|
|
204%
|
|
|
|
|
|
|
|
|
|
|
GWS Tier 1 surplus over GMCR ($bn)
|
|
|
12.8
|
|
|
|
14.9
|
|
* This allows for any associated diversification impacts between
the shareholder and policyholder positions reflected in the total
company results where relevant
|
|||||||
GWS risk appetite and capital management
The Group’s capital management framework focuses on achieving
sustainable, profitable growth and retaining a resilient balance
sheet.
The
Group monitors regulatory capital, economic capital and rating
agency capital metrics and manages the business within its risk
appetite by remaining within its economic and regulatory capital
limits. In
respect of regulatory capital limits, a capital buffer above the
GPCR is held to ensure the Group can withstand volatility in
markets and operational experience, with capital resources
remaining sufficient to cover the GPCR even after significant
stresses. The calibration of the capital buffer reflects the
Group’s risk profile and the external economic environment,
and is set and reviewed regularly by the Board. Typically, this
requires a Group shareholder coverage ratio of above 150 per cent
of the shareholder GPCR to be maintained and de-risking management
actions will be taken as necessary to maintain this
buffer.
No
maximum limit on the GWS coverage ratio has been set. While the GWS
shareholder capital position is a key metric for assessing
regulatory solvency, and for risk management, there are some
elements of the shareholder GWS capital surplus which will only
become available as cash flow for distribution over time. The
Group’s free surplus metric is a better measure of the
shareholder capital available for distribution, and is used as the
primary metric for assessing the Group’s sources and uses of
capital in the Group’s capital management framework, and
underpinning the Group’s dividend policy. At 30 June 2022 the
Group’s free surplus (excluding distribution rights and other
intangibles) was $8.6 billion, compared with the GWS shareholder
surplus of $16.2 billion and a reconciliation is shown in note I(i)
of the Additional financial information.
The
uses of capital, for both organic and inorganic opportunities, are
assessed by reference to expected shareholder returns and payback
periods, relative to risk-adjusted hurdle rates which are set
centrally.
Reflecting
the Group’s capital allocation priorities, a portion of the
free surplus generated in each period will be retained for
reinvestment in the business, and dividends will be determined
primarily based on the Group’s operating free surplus
generation after allowing for the capital strain of writing new
business and recurring central costs (on a right-sized basis). To
the extent that free surplus arises which is not required to
support organic and inorganic growth opportunities, consideration
will be given to returning capital to shareholders.
Financing and liquidity
At 30
June 2022, the Group’s net gearing ratio as defined in the
table below was 12 per cent (31 December 2021: 13 per cent). The
Group manages its leverage on a Moody’s total leverage basis,
which differs from the above by taking into account gross debt,
including commercial paper, and also allows for a proportion of the
surplus within the Group’s with-profits funds. We estimate
the Moody’s total leverage at 30 June 2022 to be 22 per
cent.
Prudential
is targeting a Moody’s total leverage ratio of around 20 to
25 per cent over the medium term. Prudential may operate outside
this range temporarily to take advantage of growth opportunities
with attractive risk-adjusted returns as they arise, while still
preserving its strong credit ratings.
Prudential
seeks to maintain its financial strength rating with applicable
credit rating agencies which derives, in part, from its high level
of financial flexibility to issue debt and equity instruments,
which is intended to be maintained in the future.
|
Net core structural borrowings of shareholder-financed
businesses
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 Jun 2022 $m
|
|
30 Jun 2021 $m
|
|
31 Dec 2021 $m
|
||||||
|
|
IFRS
basis
|
Mark-to-market value
|
EEV
basis
|
|
IFRS
basis
|
Mark-to-market value
|
EEV
basis
|
|
IFRS
basis
|
Mark-to-market value
|
EEV
basis
|
|
Borrowings of shareholder-financed businesses
|
4,266
|
(193)
|
4,073
|
|
6,404
|
625
|
7,029
|
|
6,127
|
438
|
6,565
|
|
Less: holding company cash and short-term investments
|
(2,143)
|
-
|
(2,143)
|
|
(1,393)
|
-
|
(1,393)
|
|
(3,572)
|
-
|
(3,572)
|
|
Net core structural borrowings of shareholder-financed
businesses
|
2,123
|
(193)
|
1,930
|
|
5,011
|
625
|
5,636
|
|
2,555
|
438
|
2,993
|
|
Net gearing ratio*
|
12%
|
|
|
|
28%
|
|
|
|
13%
|
|
|
*
Net core structural
borrowings from continuing operations as proportion of IFRS
shareholders’ equity from continuing operations plus net core
structural borrowings from continuing operations, as set out in
note II of the Additional financial information.
The
total borrowings of the shareholder-financed businesses from
continuing operations were $4.3 billion at 30 June 2022 (31
December 2021: $6.1 billion8). The Group had
central cash resources of $2.1 billion at 30 June 2022 (31 December
2021: $3.6 billion8), resulting in net
core structural borrowings of the shareholder-financed businesses
of $2.1 billion at end of June 2022 (31 December 2021: $2.6 billion
for continuing operations8). We have not
breached any of the requirements of our core structural borrowings
nor modified any of their terms during the first half of
2022.
In
addition to its net core structural borrowings of
shareholder-financed businesses set out above, the Group is able to
access funding via the medium-term note programme, the US shelf
programme (the platform for issuance of SEC registered bonds in the
US market), a commercial paper programme and committed revolving
credit facilities. All of these are available for general corporate
purposes. Proceeds
from the Group’s commercial paper programme are not included
in the holding company cash and short-term investment
balance.
Prudential
plc has maintained a consistent presence as an issuer in the
commercial paper market for the past decade and had $544 million in
issue at 30 June 2022 (31 December 2021: $500 million8).
As at
30 June 2022, the Group had a total of $2.6 billion of undrawn
committed facilities, expiring in 2026. Apart from small drawdowns
to test the process, these facilities have never been drawn, and
there were no amounts outstanding at 30 June 2022.
Cash remittances
|
Holding company cash flow
|
|
|
|
|
|
Actual exchange rate
|
||
|
|
Half year 2022 $m
|
Half year 2021 $m
|
Change %
|
|
Net cash remitted by businesses23
|
1,009
|
1,035
|
(3)
|
|
Net interest paid
|
(117)
|
(163)
|
28
|
|
Corporate expenditure (including IFRS 17 implementation and
restructuring costs)
|
(124)
|
(216)
|
43
|
|
Centrally funded recurring bancassurance fees
|
(220)
|
(176)
|
(25)
|
|
Total central outflows
|
(461)
|
(555)
|
17
|
|
Holding company cash flow before dividends and other
movements
|
548
|
480
|
|
|
Dividends paid
|
(320)
|
(283)
|
|
|
Operating holding company cash flow after dividends but before
other movements
|
228
|
197
|
|
|
Issuance and redemption of debt
|
(1,729)
|
-
|
|
|
Other corporate activities
|
159
|
(256)
|
|
|
US demerger costs
|
-
|
(28)
|
|
|
Total other movements
|
(1,570)
|
(284)
|
|
|
Net movement in holding company cash flow
|
(1,342)
|
(87)
|
|
|
Cash and short-term investments at the beginning of the
year
|
3,572
|
1,463
|
|
|
Foreign exchange and other movements
|
(87)
|
17
|
|
|
Cash and short-term investments at the end of the year
|
2,143
|
1,393
|
|
Remittances
from our businesses were $1,009 million (2021: $1,035
million8).
The value of cash received in the period reflects the timing of
remittances from individual businesses and is not expected to recur
at the same level in the second half of the year. Remittances were
used to meet central outflows of $(461) million (2021: $(555)
million8)
and to pay dividends of $(320) million. Central outflows include
corporate expenditure of $(124) million (2021: $(216)
million8),
centrally funded recurring bancassurance fees of $(220) million
(2021: $(176) million8), and net interest
paid of $(117) million (2021: $(163) million8).
Other
cash flow movements included net receipts from other corporate
activities of $159 million (2021: $(256) million8 net payments)
comprising proceeds of $171 million received from the sales of
shares in Jackson Financial Inc. together with dividends from
Jackson Financial Inc., partially offset by cash provided for
investment by the businesses mainly in digital infrastructure.
Further information is contained in note I(v) of the Additional
financial information. Our
debt redemption and refinancing programme was completed in January
2022 at a cost of $1,725 million. We also settled a bank loan in
the period funded by the issue of new senior debt at a net outflow
of $4 million.
Cash
and short-term investments totalled $2.1 billion at 30 June 2022
(31 December 2021: $3.6 billion8).
The
Group will continue to seek to manage its financial condition such
that it has sufficient resources available to provide a buffer to
support the retained businesses in stress scenarios and to provide
liquidity to service central outflows.
Notes
1
APE sales is a
measure of new business activity that comprises the aggregate of
annualised regular premiums and one-tenth of single premiums on new
business written during the year for all insurance products,
including premiums for contracts designated as investment contracts
under IFRS 4. It is not representative of premium income recorded
in the IFRS financial statements. See note II of the Additional
financial information for further explanation.
2
For insurance
operations, operating free surplus generated represents amounts
emerging from the in-force business during the year net of amounts
reinvested in writing new business and excludes non-operating
items. For asset management businesses, it equates to post-tax
operating profit for the year. Restructuring costs are presented
separately from the business unit amount. Further information is
set out in ‘movement in Group free surplus’ of the EEV
financial results.
3
‘Adjusted
operating profit’ refers to adjusted IFRS operating profit
based on longer-term investment returns from continuing operations.
This alternative performance measure is reconciled to IFRS profit
for the period in note B1.1 of the IFRS financial
results.
4
On a constant
exchange rate basis.
5
New business
profit, on a post-tax basis, on business sold in the period,
calculated in accordance with EEV Principles.
6
Operating return
calculated as annualised operating profit (calculated by
multiplying half year profits by two) divided by the average EEV
shareholders' equity for continuing operations. See note II(x) of
the Additional financial information for definition and
calculation.
7
Annual saving from
full year 2021 costs, based on full year 2021 exchange
rates.
8
On an actual
exchange rate basis.
9
GWS capital
resources in excess of the Group minimum capital requirement
attributable to the shareholder business, before allowing for the
2022 first cash interim dividend. The shareholder position excludes
the contribution to Group eligible capital resources and the Group
minimum capital requirement from participating business in Hong
Kong, Singapore and Malaysia. Under the GWS Framework, all debt
instruments (senior and subordinated) issued by Prudential plc at
30 June 2022, except the $350 million senior debt issued in the
first half of 2022, are included as GWS eligible group capital
resources.
10
GWS coverage ratio
of capital resources over Group minimum capital requirement
attributable to shareholder business.
11
GWS capital
resources in excess of the Group prescribed capital requirement
attributable to the shareholder business, before allowing for the
2022 first cash interim dividend. The shareholder position excludes
the contribution to Group eligible capital resources and the Group
prescribed capital requirement from participating business in Hong
Kong, Singapore and Malaysia. Prescribed capital requirements are
set at the level at which the local regulator of a given entity can
impose penalties, sanctions or intervention measures. The GWS group
capital adequacy requirements require that total eligible Group
capital resources are not less than the Group Prescribed Capital
Requirements (GPCR) and that GWS Tier 1 group capital resources are
not less than the Group Minimum Capital Requirements
(GMCR).
12
GWS coverage ratio
of capital resources over Group prescribed capital requirement
attributable to the shareholder business. Prescribed capital
requirements are set at the level at which the local regulator of a
given entity can impose penalties, sanctions or intervention
measures. The GWS group capital adequacy requirements require that
total eligible Group capital resources are not less than the Group
Prescribed Capital Requirements (GPCR) and that GWS Tier 1 group
capital resources are not less than the Group Minimum Capital
Requirements (GMCR).
13
Calculated in
accordance with the Group’s IFRS accounting policies, which
includes the full premium for insurance contracts classified under
IFRS 4.
14
Our World in Data,
India confirmed Covid-19 cases.
15
For discussion on
the basis of preparation of the sources of earnings in the table
see note I(ii) of the Additional financial
information.
16
Excludes Money
Market Funds.
17
See note II of the
Additional financial information for definition and reconciliation
to IFRS balances.
18
Half year 2022
total funds under management, including external funds under
management, money market funds, funds managed on behalf of M&G
plc and internal funds under management.
19
Other income and
expenditure includes restructuring and IFRS 17 implementation
costs.
20
Debt not
denominated in USD is translated using exchange rates as at 31
December 2020 for the purposes of grandfathering.
21
31 December 2021
comparative amounts include the effect of the adoption of HK RBC
and the redemption of $1,725 million of sub-ordinated debt
completed in January 2022.
22
The classification
of tiering of capital under the GWS framework reflects the
different local regulatory regimes along with guidance issued by
the Hong Kong IA.
23
Net cash amounts
remitted by businesses are included in the holding company cash
flow, which is disclosed in detail in note I(v) of the Additional
financial information. This comprises dividends and other transfers
from businesses that are reflective of earnings and capital
generation.
Risk review
Enabling decisions to be taken with confidence
Prudential’s
Group Risk Framework and risk appetite have allowed the business to
control its risk exposure throughout the first half of 2022. Its
governance, processes and controls enable the Group to deal with
uncertainty effectively, which is critical to the achievement of
its strategy of capturing long-term structural opportunities and
helping customers achieve their long-term financial goals. This
section explains the main risks inherent in the business and how
Prudential manages those risks, with the aim of ensuring an
appropriate risk profile is maintained.
1.
Introduction
The Group
Following
key actions taken in 2021 to reshape the Group into an Asia and
Africa-focused business, the Group is transforming its leadership
structure and strategic and operating models as it continues its
focus on its customers and adapting its multi-channel distribution
model to changed markets and external operating conditions. The
Group Risk, Compliance and Security (RCS) function continues to
provide risk opinions, guidance, assurance and engagement with
Prudential’s Group-wide supervisor, the Hong Kong Insurance
Authority (IA), on these critical change activities, while
overseeing the risks and implications to the ongoing business in
order to ensure the Group remains within risk appetite, especially
during the first half of 2022, where we have seen an increase in
the complexity of the macro-economic, geopolitical and regulatory
environments. During the first half of 2022, the Group achieved
notable milestones with the delivery of transitional arrangements
to significantly progress the implementation of the GWS Framework
and implementation of the C-ROSS II, with agreed transitional
arrangements, and RBC capital standards at CPL, its Chinese
Mainland joint venture, and Hong Kong businesses
respectively.
Over
the past months, the confluence of a number of factors have
impacted the world. The global community may be entering an era
that many of its inhabitants will not have experienced before, a
potentially prolonged period characterised by high inflation, high
interest rates and economic uncertainties, set against reconfigured
national alliances and competition between blocs where resource,
energy and fiscal security become central to government policies.
The impacts to the Group are many-fold and may be pronounced. These
include increased strategic and business risks, as well as
increasing insurance, product and customer conduct risks. For its
customers, this period may increase uncertainty over livelihoods,
elevating costs of living and challenges in affordability for
essential needs and services, including insurance products and
perhaps at times when they may be most needed. The complexity of
meeting regulatory expectations on these issues, as governments
increasingly focus on them, is expected to increase. Prudential
will need to meet these challenges for its business and those of
its customers in a fair and equitable way. At the same time, the
Group will be expected to navigate the volatile financial market
environment in its markets in order to ensure it remains robustly
capitalised to sustainably deliver for the additional needs of its
customers and the societies in which it operates. These are the key
themes underpinning this report, with details included
below.
Against
this changed backdrop, the Group continues to effectively leverage
its risk management and compliance experience in more mature
markets, applying it to its growth markets appropriate to their
respective risks and the extent of their uncertainties in this
changed world, and reflective of opportunities, customer issues and
needs and local customs. With the appointment of the new Group
Chief Risk and Compliance Officer (CRCO), supported by a wider
leadership team across the businesses, Prudential will continue to
apply the holistic and coordinated approach in managing the
increasingly dynamic, multi-faceted and often inter-connected risks
facing its businesses.
Societal developments
The
global economic uncertainties and the rise in inflation are
increasingly putting pressure on household affordability for things
such as energy, materials, food and services. These pressures may
exacerbate existing structural inequalities within societies.
Government and supervisory attention is being increasingly focussed
on the cost of living crisis taking shape across many of the
Group’s markets. These developments have implications for
Prudential on how it engages with its customers, who will, in some
markets, experience real challenges in affording or maintaining
insurance products at their current level of coverage. This may
happen at times when that protection is needed most, and when such
customers increasingly represent the vulnerable in society. In
Asia, there is an increasing momentum in expectation from
governments on private companies to help with affordability issues
and to extend the regulatory definitions of
‘vulnerable’ customers to explicitly include those in
need due to the current economic pressures. It is notable that, in managing the
impact of recent sector-specific regulatory tightening in the
Chinese Mainland, the priority of government and industry
regulators has been the protection of end consumers, rather than of
companies or investors. A high inflation environment, combined with
recessionary concerns, and societal and regulatory expectations of
support, may also heighten existing challenges in persistency for
insurers. As has always been the case, Prudential will continue to
engage with governments, regulators and supervisors on these
issues. As a matter of course, the Group regularly assesses the
suitability and affordability of its products, and aims to reduce
their perceived complexity and increase the transparency of their
costs and benefits. These aims, as well as the Group’s
increasing focus on the sustainable digital distribution of its
health and protection products via its Pulse platform, help to
expand the financial inclusion of Prudential’s products and
improve customer outcomes as part of the conduct of the
Group’s businesses in its markets.
Most
markets have moved (or are moving), at difference paces, to an
endemic approach in managing Covid-19. The Group looks to retain
the positive changes that the pandemic accelerated, including those
related to changes in traditional working practices and the use of
digital services, technologies and distribution methods to
customers, while monitoring and mitigating the potential increase
in technology, data security or misuse and regulatory risks that
these may bring. Prudential is exploring new ways of working and,
as a responsible employer, is reflecting thematic trends through a
coordinated suite of activities related to the upskilling of its
workforce, and increasing flexibility, inclusivity and
psychological safety in the workplace. The Group continues to
monitor emerging social trends, including those linked to
environmental change and those associated with ensuring a
‘just and inclusive’ transition to a lower carbon
global economy, and their potential impact on its wide range of
stakeholders, and how its products and services meet the needs of
affected societies. Its risk management framework continues to
evolve in order to manage the changing nature of these wide-ranging
risks, including activities to promote a transparent culture, and
active encouragement of open discussion and learnings from
mistakes.
Macro-economic and market environment
Inflationary
pressures have increased in the first half of 2022. Covid-19
lockdowns in some of the Chinese Mainland’s major commercial
and industrial centres have contributed to supply chain risks
(although this has moderated to an extent since 2021) and have
driven market volatility in the first half of 2022. Geopolitical
tensions have become a key driver of economic conditions and
policy. The Russia-Ukraine conflict continues to cast a long
shadow, with economic and market stresses being particularly
intense in Europe given its dependence on Russian energy and
commodities. The lack of a clear pathway to resolving the conflict
and uncertainty on the longer term evolution of tensions, have kept
energy and commodity prices high and volatile. These factors have
contributed to increases in inflation expectations and inflation
rates, which have reached
decades-high levels and with peaks becoming increasingly
challenging to anticipate, constraining real incomes and growth to
an increasing extent.
Central
banks, led by those in major western economies, are responding to
inflationary pressures with monetary policy tightening and base
interest rate increases. Growth considerations are likely to
complicate the picture for further increases. While concerns on
inflation and growth having been lower in Asia in comparison,
rising commodity prices are also pushing many central banks in the
region to take action. Combined with the impacts of both tighter
financial conditions and higher inflation, this increased pressures
on risk asset prices in the first half of 2022, and consumer
confidence in both developed and emerging markets in Asia has
fallen sharply. The capital position of the Group and its local
businesses have been monitored with high cadence and have remained
robust throughout the first half of 2022. The Chinese Mainland
(along with Japan) remain the regional exceptions in retaining
relatively accommodative monetary policy. With fiscal policy and
levels of stimulus having remained relatively tight during the
global pandemic, and with further large scale sector-specific
regulatory tightening unlikely, the material uncertainties for
economic growth in the Chinese Mainland remains given its dynamic
zero-Covid-19 policy and whether or how the government may
eventually pivot away from it, as well as its ability to support
domestic consumption. The macro-economic landscape and financial
markets are expected to remain challenging and highly uncertain for
financial markets. Prudential will carefully balance affordability
and the impact on its customers with the need, and ability, to
re-price where necessary. Prudential will actively monitor any
medical reimbursement downgrade experience as such re-pricing is
carried out.
Geopolitical landscape
The
Russia-Ukraine conflict has resulted in a range of broader
geopolitical implications, some of which currently remain
uncertain. The direct implications were regularly monitored during
the first half of 2022 and were considered in the Group’s
broader scenario analysis and planning. The diplomatic consequences
of the conflict have driven an adjustment (and some reinforcement)
in regional security and trading blocs, with an increasing
conflation of economic issues with considerations of national
interest and security, and with implications for international
strategic competition. The Russia-Ukraine conflict may have
implications for, or result in a short-term slowing of, progress in
meeting global and
corporate decarbonisation targets, as markets prioritise
access to sufficient primary energy sources, potentially increasing
dependence on coal. In the medium term, a reduction in the reliance on
external gas and oil supplies may drive an acceleration in the
adoption of zero-carbon energy sources. However, challenges to
supply chains, technologies and access to raw materials and energy
will remain where national security concerns are heightened. Over
the longer term, the conflict, and the diplomatic and economic
reactions to it, could accelerate the trend towards
‘decoupling’ or the divergence of markets into more
distinct trading blocs, limiting the scope for flows of people,
capital and data between blocs, increasing the potential
operational and reputational risks for companies continuing to
trade and operate between these blocs.
The
US-China relationship has been reframed by events in Ukraine during
the first half of 2022, and the relationship continues to be a key
driver of levels of geopolitical tension, exerting pressure on
policymakers in other geographies, including the Asia markets in
which the Group operates. As the US and China prepare for key
domestic political events in second half of 2022 (the mid-term
Congressional elections in the US and the Communist Party Congress
in China), diplomatic tensions between the two countries remain
escalated and continue to be monitored, against a backdrop of
increasing strategic competition and sustained bilateral criticism.
While the pace of domestic regulatory reform in the Chinese
Mainland has abated in first half of 2022 relative to 2021, the
effects of reforms and their implementation, including those
relating to technology, data usage and capital market operations,
may create geopolitical implications which will require assessment.
Legislative or regulatory changes that adversely impact Hong
Kong’s economy or its international trading and economic
relationships, as a key market which also hosts Group head office
functions, could have an adverse impact on sales and distribution
and the operations of the Prudential Group. Meanwhile, Covid-19
outbreaks and the Chinese Mainland and Hong Kong governments’
continued application of their Covid-19 containment policies has
prolonged the uncertainty on the timing of the border relaxation
between the two territories.
Regulations
Prudential
operates in highly regulated markets, and as the nature and focus
of regulations and laws evolve, the complexity of regulatory
(including sanctions) compliance continues to increase and
represents a challenge for international businesses. Geopolitical
tensions have the potential to increase strategic risks and the
long-term complexity of legal and regulatory compliance for
businesses operating across multiple jurisdictions. The complexity
in sanctions compliance driven by the conflict remains high,
although the Group is experienced in managing this and has in place
risk tolerance frameworks to deal with complex and conflicting risk
trade-offs to guide executive decisions.
The
pace and volume of regulatory changes and interventions, and
swiftness of their application, seen in recent years in some of the
Group’s markets, including those driven by policy objectives
for certain sectors and industries, has the potential to increase
strategic and regulatory risks for businesses. There has been an
increased regulatory focus by Prudential’s Group-wide
supervisor, the Hong Kong IA, in particular on customer experience,
investment management, governance and sustainability and
climate-related topics. In the Chinese Mainland, various policy and
regulatory developments relevant to the provision of financial
services are in progress, as is the implementation of the
market’s data governance pillars. Regulatory focus on the
financial services industry remains broad and often concurrent, and
includes areas such as customer conduct and protection, information
security and data privacy and residency, third-party management,
systemic risk regulation, corporate governance and senior
management accountability. Climate and sustainability-related
regulatory developments continue to develop at pace, both globally
and in Asia, with recent examples of government and regulatory
enforcement and civil actions against companies for misleading
investors on ESG disclosures highlighting the disclosure and
reputational risks in this area for the financial services
industry. Developments in domestic and international capital
standards continue to move forward, for example C-ROSS II in the
Chinese Mainland and RBC in Hong Kong which were recently
implemented in the Group’s Chinese Mainland joint venture and
Hong Kong businesses respectively. Changes in regulations related
to capital have the potential to change the extent of capital sensitivity to market
factors. Prudential’s portfolio of transformation and
regulatory change programmes have the potential to introduce new,
or increase existing, regulatory risks and supervisory interest
while increasing the complexity of ensuring concurrent regulatory
compliance across markets driven by potential for increased
intra-Group connectivity and dependencies.
The
Hong Kong IA’s GWS Framework became effective for Prudential
following designation by the Hong Kong IA on 14 May 2021. With all
agreed transitional arrangements completed in the first half of
2022 (other than those relating to the grandfathering of debt),
Prudential will continue to engage constructively with the Hong
Kong IA as its Group-wide supervisor as it ensures ongoing
sustainable compliance.
2.
Risk governance
a
System
of governance
Prudential
has in place a system of governance that embeds a clear ownership
of risk, together with risk policies and standards to enable risks
to be identified, measured and assessed, managed and controlled,
monitored and reported. The Group Risk Framework, owned by the
Board, details Prudential’s risk governance, risk management
processes and risk appetite. The Group’s risk governance
arrangements are based on the ‘three lines’ model. The
‘first line’ is responsible for taking and managing
risk, while the ‘second line’ provides additional
challenge, expertise, oversight, and scrutiny. The role of the
‘third line’, assumed by the independent Group-wide
Internal Audit function, is to provide objective assurance on the
design, effectiveness and implementation of the overall system of
internal control. The Group-wide RCS function reviews, assesses,
oversees and reports on the Group’s aggregate risk exposure
and solvency position from an economic, regulatory and credit
ratings perspective.
During
2022 to date, the Group continued to review and update its policies
and processes and significantly progressed the implementation of
the Hong Kong IA’s Group-wide Supervision (GWS) Framework,
which became effective for the Group on 14 May 2021, with all
agreed transitional arrangements completed (other than those
relating to the grandfathering of debt). The Group constituted a
new Group Investment Committee, chaired by the Group CFO, which was
accompanied by the approval of a revised Group Investment Policy,
for the oversight of all investment activities and in line with GWS
Framework requirements. Among the first matters considered by the
Committee was potential investment impact to the Group from any
escalation in the Russia-Ukraine conflict. Prudential has also
focused on embedding climate change as a cross-cutting risk within
the Group Risk Framework and the embedding of its Group-wide
customer conduct risk (including the implementation of enhanced
monitoring metrics), third-party and outsourcing and data
management frameworks and policies.
b
Group
Risk Framework
i.
Risk
governance and culture
Prudential’s
risk governance comprises the Board organisational structures,
reporting relationships, delegation of authority, roles and
responsibilities, and risk policies that have been established to
make decisions and control activities on risk-related matters. The
risk governance structure is led by the Group Risk Committee,
supported by independent Non-executive Directors on the risk
committees of the Group’s major businesses. The Group Risk
Committee approves changes to the Group Risk Framework and the core
risk policies that support it. The Committee has direct lines of
communication, reporting and oversight of the risk committees of
the Group’s major businesses. Commencing in the second half
of 2022, the Chief Risk and Compliance Officers of the
Group’s major businesses will formally become members of the
Group Executive Risk Committee, the advisory committee to the Group
CRCO, and will attend Group Risk Committee meetings on a rotational
participating basis. The application of the Group’s Risk
Framework to the Pulse business is overseen by the Pulse Audit
& Risk Committee for Pulse Ecosystems Limited, the holding
company for Pulse, which has met regularly since its formation in
the first half of 2021.
Risk
culture is a strategic priority of the Board, which recognises its
importance in the way that the Group conducts business. A
Group-wide culture framework is in place, unifying the Group
towards its common purpose of helping people get the most out of
life. The Board-established Responsibility & Sustainability
Working Group supports its responsibilities in relation to
implementation of the culture framework, as well as the embedding
the Group’s ESG strategic framework and overseeing progress
on diversity and inclusion initiatives. The culture framework
provides principles and values that are embedded in the ways of
working across the Group’s locations and defines how
Prudential expects business to be conducted in order to achieve its
strategic objectives, informs expectations of leadership and
supports the resilience and sustainability of the Group. The
components of the culture framework support sound risk management
practices by requiring a focus on customers, longer-term goals and
sustainability, the avoidance of excessive risk taking, and
highlighting acceptable and unacceptable behaviours. This is
supported through the inclusion of risk and sustainability
considerations in performance management for key individuals; the
building of appropriate skills and capabilities in risk management;
and by ensuring that employees understand and care about their role
in managing risk through open discussions, collaboration and
engagement. The Group Risk Committee has a key role in providing
advice to the Remuneration Committee on risk management
considerations to be applied in respect of executive
remuneration.
Prudential’s
Group Code of Business Conduct and Group Governance Manual,
supported by risk-related policies, include guiding principles on
the day-to-day conduct of all its people and any organisations
acting on its behalf. Supporting policies include those related to
financial crime, covering anti-money laundering, sanctions,
anti-bribery and corruption and conduct. The Group’s
third-party and outsourcing policy requires that human rights and
modern slavery considerations are embedded across all of its
supplier and supply chain arrangements. Procedures to allow
individuals to speak out safely and anonymously against unethical
behaviour and conduct are also in place.
Further
details on the Group’s ESG governance arrangements and
strategic framework are included in the Group’s ESG
Report.
ii.
The
risk management cycle
Risk identification
In
accordance with provision 28 of the UK Corporate Governance Code
and the GWS guidelines issued by the Hong Kong IA, a top-down and
bottom-up process is in place to support Group-wide identification
of principal risks. An emerging risk identification framework
exists to support the Group’s preparations in managing
financial and non-financial risks expected to crystallise beyond
the short-term horizon. The Board performs a robust assessment and
analysis of these principal and emerging risk themes through the
risk identification process, the Group Own Risk and Solvency
Assessment (ORSA) report and the risk assessments undertaken as
part of the business planning review, including how they are
managed and mitigated, which supports decision-making.
The
ORSA is the ongoing process of identifying, measuring and
assessing, managing and controlling, monitoring and reporting the
risks to which the business is exposed. It includes an assessment
of capital adequacy to ensure that the Group’s solvency needs
are met at all times. Stress and scenario testing, which includes
reverse stress testing requiring the Group to ascertain the point
of business model failure, is another tool that helps to identify
the key risks and scenarios that may have a material impact on the
Group. The risk profile assessment is a key output from the risk
identification and risk measurement processes and is used as a
basis for setting Group-wide limits, management information,
assessment of solvency needs, and determining appropriate stress
and scenario testing. The Group’s annual set of principal
risks are given enhanced management and reporting
focus.
Risk measurement and assessment
All
identified risks are assessed based on an appropriate methodology
for that risk. Quantifiable risks, which are material and mitigated
by holding capital, are modelled in the Group’s internal
model, which is used to determine the Group Internal Economic
Capital Assessment (GIECA) and is subject to independent validation
and processes and controls around model changes and
limitations.
Risk management and control
The
Group’s control procedures and systems focus on aligning the
levels of risk-taking with the Group’s strategy and can only
provide reasonable, and not absolute, assurance against material
misstatement or loss. The Group’s risk policies define the
Group’s appetite to material risks and set out the risk
management and control requirements to limit exposure to these
risks, see below. These policies also set out the processes to
enable the measurement and management of these risks in a
consistent and coherent way, including the flows of management
information required. The methods and risk management tools
employed to mitigate each of its major categories of risks are
detailed in section 3 below.
Risk monitoring and reporting
The
Group’s principal risks inform the management information
received by the Group Risk Committee and the Board, which also
includes key exposures against appetite and developments in the
Group’s principal and emerging risks.
iii.
Risk
appetite, limits and triggers
The
Group recognises the interests of the broad spectrum of its
stakeholders (including customers, investors, employees,
communities and key business partners) and that a managed
acceptance of risk lies at the heart of the business. The Group
seeks to generate stakeholder value by selectively taking exposure
to risks, reduced to the extent it is cost-effective to do so, and
where these are an outcome of its chosen business activities and
strategy. Those risks for which the Group has no tolerance are
actively avoided. The Group’s systems, procedures and
controls are designed to manage risk appropriately, and its
approach to resilience and recovery aims to maintain the
Group’s ability and flexibility to respond in times of
stress.
Qualitative and
quantitative expressions of risk appetite are defined and
operationalised through risk limits, triggers and indicators. The
RCS function reviews the appropriateness of these measures at least
annually. The Board approves changes to the Group’s aggregate
risk appetite and the Group Risk Committee has delegated authority
to approve changes to the system of limits, triggers and
indicators.
Group
risk appetite is defined and monitored in aggregate by the setting
of objectives for its liquidity, capital requirements and
non-financial risk exposure, covering risks to stakeholders,
including those from participating and third-party businesses.
Group limits operate within these expressions of risk appetite to
constrain material risks, while triggers and indicators provide
additional defined points for escalation. The Group Risk Committee,
supported by the RCS function, is responsible for reviewing the
risks inherent in the Group’s business plan and for providing
the Board with a view on the risk/reward trade-offs and the
resulting impact to the Group’s aggregated position relative
to Group risk appetite and limits, including non-financial risk
considerations.
a.
Capital requirements. Limits on capital
requirements aim to ensure that in business-as-usual and stressed
conditions the Group maintains sufficient capital in excess of
internal economic capital requirements, achieves its desired target
credit rating to meet its business objectives, and supervisory
intervention is avoided. The two measures in use at the Group level
are the GWS group capital requirements and internal economic
capital requirements, determined by the Group Internal Economic
Capital Assessment (GIECA).
b.
Liquidity. The objective of the
Group’s liquidity risk appetite is to ensure that sufficient
cash resources are available to meet financial obligations as they
fall due in business-as-usual and stressed scenarios. This is
measured using a liquidity coverage ratio which considers the
sources of liquidity against liquidity requirements under stress
scenarios.
Non-financial risks. At the end of 2021
the Group approved a more streamlined and simplified Non-Financial
Risk Appetite Framework, which adopts an approach framed around the
perspectives of its varied stakeholders, taking into account
current and expected changes in the external environment. The
embedding of the revised Framework, as well as simplification of
the limit and trigger appetite thresholds for non-financial risk
categories across the Group’s locations commenced in the
first half of 2022. The Group accepts a degree of non-financial
risk exposure as an outcome of its chosen business activities and
strategy. It aims to manage these risks effectively to maintain its
operational resilience and its commitments to customers and all
stakeholders and avoid material adverse financial loss or impact to
its reputation.
3.
The Group’s principal risks
The
delivery of the Group’s strategy in building long-term value
for its shareholders and other stakeholders, focusing on
high-growth business in Asia and Africa, exposes Prudential to
risks. The materialisation of these risks within the Group or at
its joint ventures, associates or key third-party partners may have
a financial impact and may affect the performance of products or
services or the fulfilment of commitments to customers and other
stakeholders, with an adverse impact on Prudential’s brand
and reputation. This report is focused mainly on risks to the
shareholder but includes those which arise indirectly through
policyholder exposures and third-party business. The Group’s
principal risks, which are not exhaustive, are detailed below. The
Group’s Risk Factor disclosures can be found at the end of
this document.
|
Risks to the Group’s financial situation (including those
from the external macro-economic and geopolitical
environment)
The global economic and geopolitical environment may impact on the
Group directly by affecting trends in financial markets and asset
values, as well as driving short-term volatility.
Risks in this category include the market risks to our investments
and the credit quality of our investment portfolio as well as
liquidity risk.
|
Global economic and geopolitical conditions
With
geopolitical tensions high as national alliances and blocs evolve,
the current jostling of the current world order and the increasing
prioritisation of national and energy security has become a key
determinant of macro-economic policy, with geopolitical and
macro-economic uncertainties becoming intertwined. Geopolitical
developments and tensions, macro-economic conditions, and broad
policy-driven regulatory developments (see below), at times
interconnected in the speed and manner in which they evolve, drive
the operating environment and risk landscape for the Group and the
level of its exposure to the principal risks outlined
below.
Macro-economic
and geopolitical developments are considered material to the Group
and can increase the operational, business disruption, regulatory
and financial market risks, and with the potential to directly
impact Prudential’s sales and distribution networks, as well
as its reputation. The potential impacts to the Group are included
in the disclosures on Risk Factors.
Market risks to our investments
This is
the potential for reductions in the value of Prudential’s
investments driven by fluctuations in equity prices, interest
rates, credit spreads, foreign exchange rates and property prices.
With levels currently at decades-level highs, the Group’s
direct exposure to inflation, which remains modest, mainly arises
through medical claims inflation, with rising medical import prices
a factor under current market conditions, and can be managed by the
business’ well-established practice and ability to re-price.
Challenges for insurers linked to affordability and existing
challenges in persistency are detailed in the Insurance Risks
section below.
The
Group has appetite for market risk where it arises from
profit-generating insurance activities to the extent that it
remains part of a balanced portfolio of sources of income for
shareholders and is compatible with a robust solvency position. The
Group’s market risks are managed and mitigated by the
following:
-
The Group market
risk policy;
-
Risk appetite
statements, limits and triggers;
-
The Group’s
asset liability committees (ALCOs);
-
Asset and liability
management activities, which include management actions such as
changes in asset allocation, bonus revisions, repricing and the use
of reinsurance where appropriate;
-
The Group
Investment Committee and Group Investment Policy;
-
Hedging using
derivatives, including currency forwards, interest rate futures and
swaps, and equity futures;
-
The monitoring and
oversight of market risks through the regular reporting of
management information;
-
Regular deep dive
assessments; and
-
The Group Critical
Incident Procedure (GCIP), which defines specific governance to be
invoked in the event of a critical incident, such as a significant
market, liquidity or credit-related event. This includes, where
necessary, the convening of a Critical Incident Group (CIG) to
oversee, coordinate, and where appropriate, direct activities
during a critical incident.
●
Interest rate risk, including asset liability
management (ALM). Interest rate risk is driven by the
valuation of Prudential’s assets (particularly government and
corporate bonds) and liabilities, which are dependent on market
interest rates. Sustained inflationary pressures have driven higher
interest rates, which have the potential to increase further in the
near-to-medium term, and may impact the valuation of fixed income
investments and reduce fee income. Some of the Group’s
products are sensitive to movements in interest rates.
Prudential’s appetite for interest rate risk requires that
assets and liabilities should be tightly matched for exposures
where assets or derivatives exist that can cover these exposures.
Interest rate risk is accepted where this cannot be hedged,
provided that this arises from profitable products and to the
extent that interest rate risk exposure remains part of a balanced
exposure to risks and is compatible with a robust solvency
position.
The
Group’s risk exposure to rising interest rates arises from
the potential impact to the present value of future fees for
unit-linked based businesses, such as in Indonesia and Malaysia, as
well as the impact to the present value of the future profits for
accident and health products, such as in Hong Kong. Exposure to
higher interest rates also arises from the potential impact to the
value of fixed income assets in the shareholder funds.
The
Group’s risk exposure to lower/decreased interest rates
arises from the guarantees of some non-unit-linked products with a
savings component, including the Hong Kong and Singapore
with-profits and non-profit businesses. This exposure results from
the potential for an asset and liability mismatch, where long-dated
liabilities and guarantees are backed by short-dated assets. When
this mismatch is not eliminated, it is monitored and managed
through local risk and asset liability management committees and
Group risk limits consistent with the Group’s appetite for
interest rate risk.
The
Group-level ALCOs are risk management advisory committees
supporting the identification, assessment and management of key
financial risks to the achievement of the Group’s business
objectives. They also oversee ALM and solvency risks of the local
businesses as well as the declaration and management of
non-guaranteed benefits for participating and universal life lines
of business. Local business units are responsible for the
management of their own asset and liability positions.
The
objective of the local business unit ALM process is to meet
policyholder liabilities with the returns generated from the
investment assets held, while maintaining the financial strength of
capital and solvency positions. The ALM strategy adopted by the
local business units considers the liability profile and related
assumptions of in-force business and new products to appropriately
manage investment risk within ALM risk appetite, under different
scenarios in accordance with policyholders’ reasonable
expectations, and economic and local regulatory requirements.
Factors such as the availability of matching assets,
diversification, currency and duration are considered as
appropriate. The assumptions and methodology used in the
measurement of assets and liabilities for ALM purposes conform with
local solvency regulations. Assessments are carried out on an
economic basis which conforms to the Group’s internal
economic capital methodology.
●
Equity and property investment risk. The
shareholder exposure to equity price movements arises from various
sources, including from unit-linked products where fee income is
linked to the market value of funds under management. Exposure also
arises from with-profits businesses through potential fluctuations
in the value of future shareholders’ profits and where
bonuses declared are based broadly on historical and current rates
of return from the business’s investment portfolios, which
include equities. The Group has limited acceptance for exposures to
equity risk, but accepts the equity exposure that arises on future
fees (including shareholder transfers from the with-profits
business).
The
material exposures to equity risk in the Group’s businesses
include the following: CPL is exposed to equity risk through
investments in equity assets for most of its products, including
participating and non-participating savings products and protection
and investment-linked products. The Hong Kong business and, to a
lesser extent, the Singapore business contribute to the
Group’s equity risk exposure due to the equity assets backing
participating products. The Indonesia and Malaysia businesses are
exposed to equity risk through their unit-linked products, and in
the case of Malaysia exposure also arises from participating and
investment-linked business.
●
Foreign exchange risk. The geographical
diversity of Prudential’s businesses means that it has some
exposure to the risk of foreign exchange rate fluctuations. Some
entities within the Group write policies, invest in assets or enter
into other transactions in local currencies or currencies not
linked to the Group’s reporting/functional currency, the US
dollar. Although this limits the effect of exchange rate movements
on local operating results, it can lead to fluctuations in the
Group’s US dollar-reported financial statements. This risk is
accepted within the Group’s appetite for foreign exchange
risk. In cases where a non-US dollar denominated surplus arises in
an operation which is to be used to support Group capital, or where
a significant cash payment is due from a subsidiary to the Group,
this currency exposure may be hedged where considered economically
favourable. Further, the Group generally does not have appetite for
significant direct shareholder exposure to foreign exchange risks
in currencies outside the markets in which it operates, but it does
have some appetite for this on fee income and on equity investments
within the with-profits funds. Where foreign exchange risk arises
outside appetite, currency swaps and other derivatives are used to
manage the exposure.
Liquidity risk
Prudential’s
liquidity risk arises from the need to have sufficient liquid
assets to meet policyholder and third-party payments as they fall
due, considered under both business-as-usual and stressed
conditions. It includes the risk arising from funds composed of
illiquid assets and results from a mismatch between the liquidity
profile of assets and liabilities. Liquidity risk may impact on
market conditions and valuation of assets in a more uncertain way
than for other risks like interest rate or credit risk. It may
arise, for example, where external capital is unavailable at
sustainable cost, increased liquid assets are required to be held
as collateral under derivative transactions or where redemption
requests are made against Prudential’s external funds.
Liquidity risk is considered material at the level of the Group.
Prudential has no appetite for any business to have insufficient
resources to cover its outgoing cash flows, or for the Group as a
whole to not meet cash flow requirements from its debt obligations
under any plausible scenario. The Group has significant internal
sources of liquidity sufficient to meet its expected cash
requirements for at least 12 months from the date the financial
statements are approved, without having to resort to external
sources of funding. The Group has a total of $2.6 billion of
undrawn committed facilities that can be made use of, expiring in
2026. Access to further liquidity is available through the debt
capital markets and the Group’s extensive commercial paper
programme. Prudential has maintained a consistent presence as an
issuer in the market for the past decade.
A
number of risk management tools are used to manage and mitigate
liquidity risk, including the following:
-
The Group’s
liquidity risk policy;
-
Risk appetite
statements, limits and triggers;
-
Regular assessment
and reporting by the Group and business units of Liquidity Coverage
Ratios which are calculated under both base case and stressed
scenarios;
-
The Group’s
Liquidity Risk Management Plan, which includes details of the Group
Liquidity Risk Framework as well as analysis of Group and business
units liquidity risks and the adequacy of available liquidity
resources under business-as-usual and stressed
conditions;
-
Its contingency
plans and identified sources of liquidity;
-
The Group’s
ability to access the money and debt capital markets;
and
-
The Group’s
access to external committed credit facilities.
Credit risk
Credit
risk is the potential for loss resulting from a borrower’s
failure to meet its contractual debt obligation(s). Counterparty
risk, a type of credit risk, is the probability that a counterparty
to a transaction defaults on its contractual obligation(s) causing
the other counterparty to suffer a loss. These risks arise from the
Group’s investments in bonds, reinsurance arrangements,
derivative contracts with third parties, as well as its cash
deposits with banks. Invested credit and counterparty risks are
considered a material risk for the Group’s business
units.
The
Group’s holdings across its life portfolios are mostly in
local currency and with a largely domestic investor base, which
provides support to these positions. These portfolios are generally
positioned towards high quality names, including those with either
government or considerable parent company balance sheet support.
Areas which the Group is actively monitoring include the
developments in the Chinese Mainland property development sector
and the impacts of rising inflation and the tightening of monetary
policy in its key markets. The impacts of these trends, which are
being closely monitored, include potential for deterioration in the
credit quality of the Group’s invested credit exposures,
particularly due to rising funding costs and overall credit risks,
and the extent of downward pressure on the fair value of the
Group’s portfolios. The Group’s portfolio is generally
well diversified in relation to individual counterparties, although
counterparty concentration is monitored in particular in local
markets where depth (and therefore the liquidity of such
investments) may be low. Prudential actively reviews its investment
portfolio to improve the robustness and resilience of the solvency
position. The Group has appetite to take credit risk to the extent
that it remains part of a balanced portfolio of sources of income
for shareholders and is compatible with a robust solvency position.
Further detail on the Group’s debt portfolio is provided
below.
A
number of risk management tools are used to manage and mitigate
credit and counterparty credit risk, including the
following:
-
A credit risk
policy and dealing and controls policy;
-
Risk appetite
statements and portfolio-level limits that have been defined on
issuers, and counterparties;
-
Collateral
arrangements for derivative, secured lending reverse repurchase and
reinsurance transactions which aim to provide a high level of
credit protection;
-
The Group Credit
Risk Committee’s oversight of credit and counterparty credit
risk and sector and/or name-specific reviews;
-
Regular
assessments, including of individual and sector exposures subject
to elevated credit risks; and
-
Close monitoring or
restrictions on investments that may be of concern.
The
total debt securities at 30 June 2022 for the Group’s
continuing operations were $79.1 billion (30 June 2021: $92.7
billion; 31 December 2021: $99.1 billion). The majority (69 per
cent) of the portfolio is in unit-linked and with-profits funds.
The remaining 31 per cent of the debt portfolio is held to back the
shareholder business.
●
Group sovereign debt. Prudential invests
in bonds issued by national governments. This sovereign debt
holding of the Group’s operations represented 49 per cent or
$11.9 billion1 of the shareholder
debt portfolio of the Group’s operations as at 30 June 2022
(30 June 2021: 46 per cent or $13.0 billion of the shareholder debt
portfolio for the Group’s continuing operations; 31 December
2021: 47 per cent or $14.2 billion of the shareholder debt
portfolio for the Group’s continuing operations). The
particular risks associated with holding sovereign debt are
detailed further in the disclosures on Risk Factors.
The
exposures held by the shareholder-backed business and with-profits
funds in sovereign debt securities at 30 June 2022 are given in
note C1 of the Group’s IFRS financial
statements.
●
Corporate debt portfolio. In the
shareholder-backed business, corporate debt exposures totalled
$11.5 billion of which $10.1 billion or 88 per cent were investment
grade rated.
●
Bank debt exposure and counterparty credit
risk. The banking sector represents a material concentration
in the Group’s corporate debt portfolio which largely
reflects the composition of the fixed income markets across the
regions in which Prudential is invested. As such, exposure to banks
is a key part of its core investments, as well as being important
for the hedging and other activities undertaken to manage its
various financial risks. Exposure to the sector is considered a
material risk for the Group. Derivative and reinsurance
counterparty credit risk exposure is managed using an array of risk
management tools, including a comprehensive system of limits.
Prudential manages the level of its counterparty credit risk by
reducing its exposure, buying credit protection or using additional
collateral arrangements where appropriate.
At 30
June 2022:
-
88 per cent of the
Group’s shareholder portfolio (excluding all government and
government-related debt) is investment grade rated2. In particular, 54
per cent of the portfolio is rated2 A- and above (or
equivalent); and
-
The Group’s
shareholder portfolio is well diversified: no individual
sector3
makes up more than 13 per cent of the total portfolio (excluding
the financial and sovereign sectors).
|
The Group’s Sustainability and ESG-related risks
These include sustainability risks associated with environmental
considerations such as climate change (including physical and
transition risks), social risks arising from diverse stakeholder
commitments and expectations and governance-related
risks.
|
Material
risks associated with key ESG themes may undermine the
sustainability of a business by adversely impacting its reputation
and brand, ability to attract and retain customers, employees and
distribution and other business partners, and therefore the results
of its operations and delivery of its strategy and long-term
financial success. Prudential seeks to manage sustainability risks
and their potential negative impact on its business and
stakeholders through a focus on the Group’s purpose to
‘help people get the most out of life’, and transparent
and consistent implementation of its strategy in its key markets
and across operational, underwriting and investment activities. The
Group’s strategy includes a focus on ensuring a just and
inclusive transition includes providing greater and more inclusive
access to good health and financial security, responsible
stewardship in managing the human impact of climate change and
building human and social capital with its broad range of
stakeholders. It is enabled by strong internal governance, sound
business practices and a responsible investment approach, with ESG
considerations integrated into investment decisions and the
performance of fiduciary and stewardship duties, including voting
and active engagement decisions with respect to investee companies,
as both an asset owner and an asset manager.
Regulatory
interest and developments continue to increase globally and in
Asia, and ESG and sustainability-related risks are high on the
agenda of both local regulators and international supervisory
associations such as the International Association of Insurance
Supervisors (IAIS). The Group continues to actively engage with,
and respond to, discussions, consultations and supervisory
information-gathering exercises. International regulatory and
supervisory bodies, such as the International Sustainability
Standards Board (ISSB), are progressing on ESG and
sustainability-related disclosure requirements. Details of the
Group’s Sustainability and ESG-related risks are included in
the disclosure on Risk Factors.
The
Group continues to leverage and share its Group-wide experience and
knowledge with its local businesses on their ESG policies and
approaches, both to provide support as well as to help drive
consistency across Prudential’s businesses. The Group Risk
Framework continues to be critically evaluated to ensure both ESG
and sustainability-related risks to the Group, and the external
impact from the Group’s activities, are appropriately
captured.
Risk
management and mitigation of ESG sustainability risks at Prudential
include the following:
-
The Group’s
strategic focus on providing greater and more inclusive access to
good health and financial security, responsible stewardship in
managing the human impact of climate change and building human and
social capital with its broad range of stakeholders;
-
The Group Code of
Business Conduct and Group Governance Manual including ESG-linked
policies;
-
Activities to embed
ESG and sustainability risk within the Group Risk Framework
including:
o
Environmental and
social risk identification including through emerging risk
processes; and
o
Deep dives into ESG
themes, including climate-related risks;
-
Integrating ESG
considerations into investment processes and responsible supply
chain management; and
-
Participation in
networks to further develop understanding and support collaborative
action in relation to ESG sustainability risks such as climate
change.
Further
information on the Group’s ESG governance and ESG strategic
framework, as well as and the management of material ESG themes,
are included in the Group’s ESG Report.
|
Risks from the nature of our business and our industry
These include the Group’s non-financial risks (including
operational and financial crime risk), transformation risks from
significant change activity and the insurance risks assumed by the
Group in providing its products.
|
Transformation risk
Transformation
risk remains a material risk for Prudential, with a number of
significant change programmes under way which if not delivered to
defined timelines, scope and cost may negatively impact its
operational capability, control environment, reputation, and
ability to deliver its strategy and maintain market
competitiveness. Prudential’s current portfolio of
transformation and significant change programmes include the
implementation of large scale regulatory changes; the expansion of
the Group’s digital capabilities and use of technology,
platforms and analytics; and improvement of business efficiencies
through operating model changes, including those relating to the
Group’s central, asset management and investment oversight
functions. Programmes related to regulatory/industry change, such
as those required to effect the discontinuation of inter-bank
offered rates (IBORs) in their current form and the implementation
of IFRS 17, are also ongoing. Further detail on the risks to the
Group associated with large-scale transformation and complex
strategic initiatives is included in the disclosures on Risk
Factors.
The
Group therefore aims to ensure that, for both transformation and
strategic initiatives, strong programme governance is in place with
embedded risk expertise to achieve ongoing and nimble risk
oversight, with regular risk monitoring and reporting to risk
committees. Transformation risk oversight operates alongside the
Group’s existing risk policies and frameworks to ensure
appropriate governance and controls are in place to mitigate these
risks.
Risks associated with the Group’s joint ventures and
associates
Prudential
operates, and in certain markets is required by local regulation to
operate, through joint ventures and other joint ownership or
third-party arrangements (including associates). A material
proportion of the Group’s business comes from its joint
venture and associate in the Chinese Mainland and India
respectively. For such operations the level of control exercisable
by the Group depends on the terms of the contractual agreements
between participants. As such the level of oversight, control and
access to management information the Group is able to exercise over
the extent of the exposure to material risks at these operations
may be lower compared with the Group’s wholly owned
businesses. Further information on the risks to the Group
associated with its joint ventures and other shareholders and third
parties are included in the disclosures on Risk
Factors.
Non-financial risks
The
complexity of Prudential, its activities and the extent of
transformation in progress creates a challenging operating
environment and exposure to non-financial risks. The Group’s
appetite framework for non-financial risks considers risks across a
broad range of categories which are outlined below. These risks are
considered to be material at the level of the Group.
●
Operational risk. This is the risk of
loss (or unintended gain or profit) arising from inadequate or
failed internal processes, personnel or systems and external
events, and may arise from employee error, model error, system
failures, fraud or other events which disrupt business processes or
which have a detrimental impact to customers. Prudential accepts a
degree of non-financial risk exposure as an outcome of its chosen
business activities and strategy. It aims to manage these risks
effectively to maintain its operational resilience and its
commitments to customers and all stakeholders and avoid material
adverse financial loss or impact on its reputation.
●
Outsourcing and third-party risks. The
Group’s outsourcing and third-party relationships require
distinct oversight and risk management processes. The Group has a
number of important third-party relationships, both with market
counterparties and outsourcing partners, including distribution,
technology and ecosystem providers. In Asia, the Group maintains
material strategic partnerships and bancassurance arrangements.
These arrangements support the delivery of high level and
cost-effective services to customers, but also create a reliance on
the operational resilience and performance of outsourcing and
business partners. The Group’s requirements for the
management of material outsourcing arrangements have been
incorporated in its Group third-party supply and outsourcing
policy, aligned to the requirements of the Hong Kong IA’s GWS
Framework, and which outlines the governance in place in respect of
material outsourcing and third-party arrangements and the
Group’s monitoring and risk assessment framework. This
ensures that appropriate contract performance and risk mitigation
measures are in place over these arrangements. Third-party
management is also included and embedded in the Group-wide
operational risk framework (see below).
●
Information security and data privacy
risk. This includes risks related to malicious attack on
systems, network disruption and the infringement of data security,
integrity or privacy. The frequency and sophistication of intrusion
activities and criminal capability in this area, including in
ransomware (malicious software designed to block access to a
computer system until a sum of money is paid), continues to
increase globally. The technology landscape of Prudential is
transforming at a rapid pace and the underlying technology
infrastructure (and support services) has grown in scope and
complexity in recent years. This, combined with stakeholder
expectations and the potential for reputational and conduct risk
from cyber security breaches and data misuse, which can be
highly-publicised, mean that these risks are considered material at
the level of the Group. As well as having preventative risk
management processes in place, it is fundamental that the Group has
robust critical recovery systems in place in the event of a
successful attack on its infrastructure, a breach of its
information security or a failure of its systems in order to retain
its customer relationships and trusted reputation.
Prudential and the
insurance industry are making increasing use of emerging
technological tools and digital services, or partnering with third
parties that provide these capabilities. While these provide new
opportunities, opening up markets, improving insights and
increasing scalability, it also comes with additional risks,
including operational and data misuse risks, which are managed
within the Group’s existing governance and risk management
processes. Automated digital distribution channels increase the
criticality of system and process resilience in order to deliver
uninterrupted service to customers.
Globally,
ransomware and distributed denial of services (DDoS) attacks have
increased markedly in the first half of 2022, in part driven by the
Russia-Ukraine conflict. Prudential has a number of defences in
place to protect its systems from these types of attack, including
but not limited to: DDoS protection for the Group’s websites
via web application firewall services; AI-based endpoint security
software; continuous security monitoring; network-based intrusion
detection; and employee training and awareness campaigns to raise
understanding of attacks utilising email phishing techniques. Cyber
insurance coverage is in place to provide some protection against
potential financial losses and the Group conducts simulation
exercises for ransomware attacks to assess and develop the
effectiveness of incident responses across its businesses.
Cyber-attack simulation exercises are planned for the second half
of 2022 to enhance preparedness.
Data
protection requirements continue to evolve, and include
developments in the Chinese Mainland outlined in the overview of
the Group’s regulatory risks below. As well as protecting
data, stakeholders expect companies and organisations to use
personal information transparently and appropriately. Control of
data through national data security regimes has become an
increasing priority for governments amid the increase in global
strategic competition. This adds further complexity to regulatory
compliance in this area, in particular in the cross-border transfer
or use of data, for global organisations in addition to the
existing regulatory, financial and reputational risks of a breach
of Prudential’s (or third-party suppliers’) IT systems
or loss or misuse of data. In the first half of 2022 a key focus
has been the implementation of the Group’s Data Policy,
approved in 2021, which established Prudential’s principles
and requirements for effective and scalable data management in
light of the increase in volume and variety of data expected to be
held, as well as the speed at which it is collected, as part of the
Group’s digital aspirations.
The
Group’s Information Security and Data Privacy strategy has
four key objectives: business enablement; continuous improvement of
cyber defences; automation and optimisation; and governance and
assurance to ascertain ongoing robustness of cyber security and
privacy measures. A focus of Prudential has been ensuring
consistent global coverage of security controls, following the
operationalisation of a revised organisational structure and
governance model for cyber security management. The centralised
Technology Risk Management team leverages skills, tools and
resources across different technology domains to provide advisory,
assurance and operations support for holistic technology risk
management including information security and privacy. The Group
Technology Risk Committee provides group-wide oversight of
technology risks, including information security and privacy.
Technology risk management is also performed locally within
business units, with input from business information security
officers and with oversight from local risk committees. The Board
is briefed at least twice annually on cyber security by the Group
Chief Information Security Officer (CISO) to ensure that members
have the means to enable appropriate oversight and understand the
latest threats and regulatory expectations. The Group-wide
information security policy was developed to support a pragmatic
approach to the evolving regulatory environment globally and ensure
compliance with all applicable privacy laws and regulations and the
appropriate and ethical use of customer data. The policy was also
developed with reference to international standards, including ISO
27001/2, the NIST Cyber Security Framework and supervisory
guidelines. Local standards are aligned to local regulations and
laws.
●
Model and user developed application (UDA)
risk. Erroneous or misinterpreted tools used in core
business activities, decision-making and reporting may have adverse
consequences for Prudential. The Group utilises various tools to
perform a range of operational functions including the calculation
of regulatory or internal capital requirements, the valuation of
assets and liabilities, determining hedging requirements, and in
acquiring new business using artificial intelligence and digital
platforms. Many of these tools are an integral part of the
information and decision-making frameworks used at Prudential and
errors or limitations in these tools, or inappropriate usage, may
lead to regulatory breaches, inappropriate decision-making,
financial loss, customer detriment, inaccurate external reporting
or reputational damage.
The
Group has no appetite for model and UDA risk arising as a result of
failing to develop, implement and monitor appropriate risk
mitigation measures. Prudential’s model and UDA risk
framework and policy applies a risk-based approach from the point
of view of a broad range of stakeholders, including policyholders,
in order to ensure appropriate and proportionate risk management is
applied to all models and UDAs used across the business (including
those under development), depending on the materiality and nature
of the data used in these tools, as well as their
complexity.
Prudential’s
model and UDA risk is managed and mitigated using the
following:
-
The Group’s
Model and UDA Risk Policy and relevant guidelines;
-
Annual risk
assessment of all tools used for core business activities,
decision-making and reporting;
-
Maintenance of
appropriate documentation for tools used;
-
Implementation of
controls to ensure tools are accurate and appropriately
used;
-
Tools are subject
to rigorous and independent model validation; and
-
Regular reporting
to the RCS function and risk committees to support the measurement
and management of the risk.
The
Group’s Model and UDA Policy includes a broad range of
considerations when assessing model criticality, including
stakeholders such as policyholders (in addition to shareholders)
and associated reputational risk impacts. It also includes within
its scope models in development.
Technological
developments, in particular in the field of AI, pose new questions
on risk oversight provided under the Group Risk Framework. An
oversight forum for the use of AI and key ethical principles apply
to the use of AI by the Group.
●
Business disruption risk. The Group
continually seeks to increase business resilience through
adaptation, planning, preparation and testing of contingency plans
and its ability to respond effectively to disruptive incidents.
Business resilience is at the core of the Group’s embedded
Business Continuity Management (BCM) programme and framework that
help to protect the Group’s systems and its key stakeholders.
The BCM programme and framework covers business impact analyses,
risk assessments, and the maintenance and exercising of business
continuity, incident management and disaster recovery plans.
Business disruption risks are monitored by the Group Security
function, with key operational effectiveness metrics and updates on
specific activities being reported to the Group Risk
Committee.
●
Financial crime risk. As with all
financial services firms, Prudential is exposed to risks relating
to money laundering (the risk that the products or services of the
Group are used by customers or other third parties to transfer or
conceal the proceeds of crime); fraud (the risk that fraudulent
insurance claims, transactions, or procurement of services, are
made against or through the business); sanctions compliance
breaches (the risk that the Group undertakes business with
individuals and entities on the lists of the main sanctions
regimes); and bribery and corruption (the risk that employees or
associated persons seek to influence the behaviour of others to
obtain an unfair advantage or receive benefits from others for the
same purpose).
Prudential operates
in some high-risk markets where, for example, the acceptance of
cash premiums from customers may be common practice, large-scale
agency networks may be in operation where sales are incentivised by
commission and fees, there is a higher concentration of exposure to
politically-exposed persons, or which otherwise have higher
geopolitical risk exposure.
The
Group-wide policies in place on anti-money laundering, fraud,
sanctions and anti-bribery and corruption risks, which reflect the
values, behaviours and standards that are expected across the
business. Screening and transaction monitoring systems are in place
with ongoing improvements and upgrades being implemented where
required, and a programme of compliance control monitoring reviews
is in place across the Group. Proactive fraud capabilities are in
development and being rolled across local businesses. The Group has
continued to strengthen and enhance its financial crime risk
management capability through investment in advanced analytics and
artificial intelligence tools. Proactive detective capabilities are
being implemented across the Group, delivered through a centralised
monitoring hub, to further strengthen oversight of financial crime
risks in the areas of procurement and third-party management. Risk
assessments are performed annually at higher risk locations. Due
diligence reviews and assessments against Prudential’s
financial crime policies are performed as part of the Group’s
business acquisition process. The Group continues to undertake
strategic activity to monitor and evaluate the evolving fraud risk
landscape, mitigate the likelihood of fraud occurring and increase
the rate of detection.
The
Group has in place a mature confidential reporting system through
which employees and other stakeholders can report concerns relating
to potential misconduct. The process and results of this are
overseen by the Group Audit Committee.
Group-wide framework and risk management for operational and other
non-financial risks
The
risks outlined above form key elements of the Group’s
non-financial risk profile. A Group-wide operational risk framework
is in place to identify, measure and assess, manage and control,
monitor and report effectively on all material operational risks
across the business. The key components of the framework are listed
below. Outputs from these processes and activities performed by
individual business units are monitored by the RCS function, which
provides an aggregated view of the risk profile across the business
to the Group Risk Committee and the Board.
-
Application of a
risk and control self-assessment (RCSA) process, where risk
exposures are identified and assessed as part of a periodical
cycle;
-
An internal
incident management process, which identifies, quantifies and
monitors remediation conducted through root cause analysis and
application of action plans for risk events;
-
An annual scenario
analysis process for the quantification of extreme, yet plausible
manifestations of key operational risks across the business on a
forward-looking basis; and
-
A risk appetite
framework for non-financial risks that articulates the level of
risk exposure the business is willing to tolerate and defines
escalation processes for breaches of appetite.
These
core framework components are embedded across Prudential via the
Group Operational Risk Policy and accompanying standards, which set
out the key principles and minimum standards for the management of
operational risk within risk appetite. These sit alongside other
risk policies and standards that individually engage with specific
operational risks, including outsourcing and third-party supply,
business continuity, financial crime, technology and data,
operations processes and extent of transformation. These policies
and standards include subject matter expert-led processes that are
designed to identify, assess, manage and control operational risks,
detailed below. These activities are fundamental in maintaining an
effective system of internal control, and ensure that operational
risk considerations are embedded in key business decision-making,
including material business approvals and in setting and
challenging the Group’s strategy.
-
Reviews of key
operational risks and challenges within Group and business unit
business plans during the annual planning cycle, to support
business decisions;
-
Corporate insurance
programmes to limit the financial impact of operational
risks;
-
Oversight of risk
management during the transformation life cycle, project
prioritisation and the risks, interdependencies and possible
conflicts arising from a large portfolio of transformation
activities;
-
Regulatory change
teams to assist in proactively adapting and complying with
regulatory developments;
-
Group and business
unit-level compliance oversight and risk-based testing in respect
of adherence with regulations;
-
Screening and
transaction monitoring systems for financial crime and a programme
of compliance control monitoring reviews and regular risk
assessments;
-
Internal and
external review of cyber security capability and defences;
and
-
Regular updating
and risk-based testing of disaster-recovery plans and the Critical
Incident Procedure process.
Insurance risks
Insurance
risks make up a significant proportion of Prudential’s
overall risk exposure. The profitability of the Group’s
businesses depends on a mix of factors, including levels of, and
trends in, mortality (policyholders dying), morbidity
(policyholders becoming ill or suffering an accident) and
policyholder behaviour (variability in how customers interact with
their policies, including utilisation of withdrawals, take-up of
options and guarantees and persistency, ie lapsing/surrendering of
policies), and increases in the costs of claims over time (claim
inflation). The risks associated with adverse experience relative
to assumptions associated with product performance and customer
behaviour are detailed in the disclosures on Risk Factors. The
Group has appetite for retaining insurance risks in the areas where
it believes it has expertise and operational controls to manage the
risk and where it judges it to be more value-creating to do so
rather than transferring the risk, and only to the extent that
these risks remain part of a balanced portfolio of sources of
income for shareholders and is compatible with a robust solvency
position.
The
short-to-medium term impact of the Covid-19 pandemic to economic
activity and employment levels, as well as restrictions on movement
across the Group’s markets, has the potential to elevate the
incidence of claims, lapses, or surrenders of policies, and some
policyholders may defer or stop paying insurance premiums or reduce
deposits into retirement plans. In particular extended restrictions
on movement could affect product persistency. The pandemic may
also, in the longer-term, result in elevated claims and policy
lapses or surrenders in a less direct way, and with some delay in
time before being felt by the Group, due to factors such as
policyholders deferring medical treatment during the pandemic
(latent morbidity impacts), or policyholders lapsing or
surrendering their policies on the expiry of grace periods for
premium payments provided by the Group’s businesses.
Inflationary pressures driving higher interest rates may lead to
increased lapses for some guaranteed savings products where higher
levels of guarantees are offered by products of the Group’s
competitors, reflecting consumer demand for returns at the level
of, or exceeding, inflation. A high inflation environment, and the
broader economic effects of recessionary concerns, may also
increase lapses, surrenders and premium affordability. Mortality
claims in some markets have been elevated and can be attributed to
Covid-19. These have been closely monitored with targeted
management actions having been implemented where necessary. The
implications from other factors such as long-term post-Covid-19
symptoms (although there is currently no consensus on the
longer-term impact on morbidity) is being monitored.
The
principal drivers of the Group’s insurance risk vary across
its business units. In Hong Kong, Singapore, Indonesia and Malaysia
a significant volume of health and protection business is written
and the most significant insurance risks are persistency risk,
morbidity risk and medical claims inflation risk.
●
Medical claims inflation risk: A key
assumption in these markets is the rate of medical claims
inflation, which is often in excess of general price inflation,
while the cost of medical treatment increasing more than expected,
resulting in higher than anticipated medical claims cost passed on
to Prudential, is a key risk. This risk is best mitigated by
retaining the right to reprice products and appropriate overall
claims limits within policies, either per type of medical treatment
or in total across a policy, annually and/or over the policy
lifetime. Medical reimbursement downgrade experience (where
policyholder reduced the level of the coverage/protection in order
to reduce premium payments) following any re-pricing is also a
factor to be monitored by the Group’s businesses. The
risks to the Group’s ability to reprice are included in the
disclosures on Risk Factors.
●
Morbidity risk: Prudential’s
morbidity risk is managed through prudent product design,
underwriting and claims management, and for certain products, the
right to reprice where appropriate. Prudential’s morbidity
assumptions reflect its recent experience and expectation of future
trends for each relevant line of business.
●
Persistency risk: The Group’s
persistency assumptions reflect recent experience and expert
judgement, especially where a lack of experience data exists, as
well as any expected change in future persistency. Persistency risk
is managed by appropriate controls across the product life cycle.
This includes review and revisions to product design and incentive
structures where required, ensuring appropriate training and sales
processes, including those ensuring active customer engagement and
high service quality, appropriate customer disclosures and product collaterals, use of customer retention
initiatives as well as post-sale management through regular
experience monitoring. Strong risk
management and mitigation of conduct risk and the
identification of common characteristics of business with high
lapse rates is also crucial. Where appropriate, allowance is made
for the relationship (either assumed or observed historically)
between persistency and investment returns. Modelling this dynamic
policyholder behaviour is particularly important when assessing the
likely take-up rate of options embedded within certain
products.
Prudential’s
insurance risks are managed and mitigated using the
following:
-
The Group’s
insurance policy, which sets out the Group’s insurance risk
appetite; required standards for effective insurance risk
management by head office and local businesses, including processes
to enable the measurement of the Group’s insurance risk
profile, management information flows and escalation
mechanisms;
-
The Group’s
product and underwriting risk policy, which sets out the required
standards for effective product and underwriting risk management
and approvals for new, or changes to existing, products (including
the role of Group), and the processes to enable the measurement of
underwriting risk. The policy also describes how the Group’s
Customer Conduct Risk Policy is met in relation to new product
approvals and current and legacy products;
-
In product design
and appropriate processes related to the management of
policyholders’ reasonable expectations;
-
The risk appetite
statements, limits and triggers;
-
Using persistency,
morbidity and longevity assumptions that reflect recent experience
and expectation of future trends, and industry data and expert
judgement where appropriate;
-
Using reinsurance
to mitigate mortality and morbidity risks;
-
Ensuring
appropriate medical underwriting when policies are issued and
appropriate claims management practices when claims are received in
order to mitigate morbidity risk;
-
Maintaining the
quality of sales processes, training and using initiatives to
increase customer retention in order to mitigate persistency
risk;
-
The use of mystery
shopping to identify opportunities for improvement in sales
processes and training;
-
Using product
repricing and other claims management initiatives in order to
mitigate morbidity and medical expense inflation risk;
and
-
Regular deep dive
assessments.
Customer conduct risk
Prudential’s
conduct of business, especially in the design and distribution of
its products and the servicing of customers, is crucial in ensuring
that the Group’s commitment to meeting its customers’
needs and expectations is met. The Group’s customer conduct
risk framework, owned by the Group Chief Executive, reflects
management’s focus on customer outcomes.
Factors
that may increase conduct risks can be found throughout the product
life cycle, from the complexity of the Group’s products and
services to its diverse distribution channels, which include its
agency workforce, virtual face-to-face sales and sales via online
digital platforms. In alignment with the Group’s purpose of
helping people get the most out of life, Prudential strives towards
making health and protection coverage affordable and accessible to
all. Through Prudential’s Pulse platform, there is increased
focus on making insurance more inclusive to underserved segments of
society through bite-size low-cost digital products and services.
Prudential has developed a Group Customer Conduct Risk Policy which
sets out five customer conduct standards that the business is
expected to meet, being:
1
Treat customers
fairly, honestly and with integrity;
2
Provide and promote
products and services that meet customer needs, are clearly
explained and that deliver real value;
3
Manage customer
information appropriately, and maintain the confidentiality of
customer information;
4
Provide and promote
high standards of customer service; and
5
Act fairly and
timely to address customer complaints and any errors
found.
Prudential
manages conduct risk via a range of controls that are assessed
through the Group’s conduct risk assessment framework,
reviewed within its monitoring programmes, and overseen within
reporting to its Boards and Committees.
As the
pandemic-related initiatives and campaigns rolled out across
markets to support customers expire (including customer cash
benefits, goodwill payments, and extended grace periods for premium
payments), the Group is monitoring the impact to customers to
ensure they are treated fairly and with due care aligned with the
Group’s customer conduct risk framework. The virtual
face-to-face sales processes and digital product offerings, rolled
out in most markets during the pandemic, continue to be monitored
for customer conduct, operational, regulatory compliance and
commercial risks.
Management
of Prudential’s conduct risk is key to the Group’s
strategy. Prudential’s conduct risks are managed and
mitigated using the following:
●
The Group’s
code of business conduct and conduct standards, product
underwriting and other related risk policies, and supporting
controls including the Group’s fraud risk control
programme;
●
A culture that
supports the fair treatment of the customer, incentivises the right
behaviour through proper remuneration structures, and provides a
safe environment to report conduct risk related issues via the
Group’s internal processes and Speak Out;
●
Distribution
controls, including monitoring programmes relevant to the type of
business (insurance or asset management), distribution channel
(agency, bancassurance, or digital) and ecosystem, to ensure sales
are conducted in a manner that considers the fair treatment of
customers within digital environments;
●
Quality of sales
processes and training, and using other initiatives such as special
requirements for vulnerable customers, to improve customer
outcomes;
●
Appropriate claims
management and complaint handling practices; and
●
Regular deep dive
assessments on, and monitoring of, conduct risks and periodic
conduct risk assessments.
|
Risks related to regulatory and legal compliance
These include risks associated with prospective regulatory and
legal changes and compliance with existing regulations and laws
– including their retrospective application – with
which the Group must comply in the conduct of its
business.
|
Prudential
operates in highly-regulated markets and under the ever-evolving
requirements and expectations of diverse regulatory, legal and tax
regimes which may impact its business or the way it is conducted.
The complexity of legal and regulatory (including sanctions)
compliance continues to evolve and increase, representing a
challenge for international businesses. Compliance with the
Group’s legal or regulatory obligations (including in respect
of international sanctions), in one jurisdiction may conflict with
the law or policy objectives of another jurisdiction, or may be
seen as supporting the law or policy objectives of that
jurisdiction over another, creating additional legal, regulatory
compliance and reputational risks. These risks may be increased
where the scope of regulatory requirements and obligations are
uncertain, and where specific cases applicable to the Prudential
Group are complex. Regulatory risks cover a broad range of risks
including changes in government policy and legislation, capital
control measures, and new regulations at either national or
international level. The breadth of local and Group-wide regulatory
arrangements presents the risk that requirements are not fully met,
resulting in specific regulator interventions or actions including
retrospective interpretation of standards by regulators. As the
industry’s use of emerging technological tools and digital
services increases, this is likely to lead to new and unforeseen
regulatory issues and the Group is monitoring emerging regulatory
developments and standards on the governance and ethical use of
technology and data. In certain jurisdictions in which Prudential
operates there are also a number of ongoing policy initiatives and
regulatory developments which will impact the way Prudential is
supervised. These developments continue to be monitored by the
Group at a national and global level and these considerations form
part of the Group’s ongoing engagement with government policy
teams, industry groups and regulators. Further information on
specific areas of regulatory and supervisory focus and changes are
included in the disclosures on Risk Factors.
Risk
management and mitigation of regulatory risk at Prudential
includes:
-
Risk assessment of
the Business Plan which includes consideration of the Group’s
current strategies;
-
Close monitoring
and assessment of our business environment and strategic
risks;
-
The explicit
consideration of risk themes in strategic decisions;
-
Ongoing engagement
with national regulators, government policy teams and international
standard setters; and
-
Compliance
oversight to ensure adherence with in-force regulations and
management of new regulatory developments.
Notes
1
Excluding assets
held to cover linked liabilities and those of the consolidated
investment funds.
2
Based on middle
rating from Standard & Poor’s, Moody’s and Fitch.
If unavailable, other external ratings and then internal ratings
have been used.
3
Primary sources of
segmentation: Bloomberg Sector, Bloomberg Group and Merrill
Lynch.
Corporate governance
The
Directors confirm that the Company has complied with all the code
provisions of the Corporate Governance Code (HK Code) issued by The
Stock Exchange of Hong Kong Limited (the Hong Kong Stock Exchange)
set out in Appendix 14 to the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited (Hong Kong
Listing Rules) throughout the accounting period, except as
described below.
The
Company does not comply with provision E.1.2(d) of the HK Code
which requires companies, on a comply or explain basis, to have a
remuneration committee which makes recommendations to the board on
the remuneration of non-executive directors. This provision is not
compatible with provision 34 of the UK Corporate Governance Code
issued by the Financial Reporting Council which recommends that the
board determines the remuneration of non-executive directors.
Prudential has chosen to adopt a practice in line with the
recommendations of the UK Corporate Governance Code.
The
Company has adopted securities dealing rules relating to
transactions in Prudential securities by Directors on terms no less
exacting than those set out in Appendix 10 to the Hong Kong Listing
Rules except that a waiver in respect of certain requirements of
Appendix 10 to the Hong Kong Listing Rules was granted by the Hong
Kong Stock Exchange, originally on 28 February 2011, to take into
account accepted practices in the UK. Having made specific enquiry
of all Directors, the Directors of the Company have complied with
these rules throughout the accounting period.
The
Directors confirm that the financial results contained in this
document have been reviewed by the Audit Committee.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: 10 August 2022
|
|
PRUDENTIAL
PUBLIC LIMITED COMPANY
|
|
|
|
|
|
By:
/s/ Mark
FitzPatrick
|
|
|
|
|
|
Mark
FitzPatrick
|
|
|
Group
Chief Financial Officer and Chief Operating Officer
|
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