Form 6-K PRUDENTIAL PLC For: Mar 13
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 March, 2019
PRUDENTIAL PUBLIC LIMITED COMPANY
(Translation of registrant's name into English)
LAURENCE POUNTNEY HILL,
LONDON, EC4R 0HH, ENGLAND
(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-
European
Embedded Value (EEV) Basis Results
POST-TAX OPERATING
PROFIT BASED ON LONGER-TERM INVESTMENT RETURNS
|
|
|
2018 £m
|
2017 £m
|
|
|
Note
|
|
note
(iii)
|
Asia
operations
|
|
|
|
|
New
business
|
3
|
2,604
|
2,368
|
|
Business
in force
|
4
|
1,783
|
1,337
|
|
Long-term
business
|
|
4,387
|
3,705
|
|
Asset
management
|
|
159
|
155
|
|
Total
|
|
4,546
|
3,860
|
|
|
|
|
|
|
US
operations
|
|
|
|
|
New
businessUnwind of discount and expected returns
|
3
|
921
|
906
|
|
Business
in force
|
4
|
1,194
|
1,237
|
|
Long-term
business
|
|
2,115
|
2,143
|
|
Asset
management
|
|
3
|
7
|
|
Total
|
|
2,118
|
2,150
|
|
|
|
|
|
|
UK and Europe
operations
|
|
|
|
|
New
business
|
3
|
352
|
342
|
|
Business
in force
|
4
|
1,022
|
673
|
|
Long-term
business
|
|
1,374
|
1,015
|
|
General
insurance commission
|
|
15
|
13
|
|
Total
insurance operations
|
|
1,389
|
1,028
|
|
Asset
management
|
|
392
|
403
|
|
Total
|
|
1,781
|
1,431
|
|
|
|
|
|
|
Other
income and expenditurenote (i)
|
|
(726)
|
(746)
|
|
Restructuring
costsnote (ii)
|
|
(156)
|
(97)
|
|
Operating profit
based on longer-term investment returns
|
|
7,563
|
6,598
|
|
|
|
|
|
|
Analysed
as profit (loss) from:
|
|
|
|
|
New
business
|
3
|
3,877
|
3,616
|
|
Business
in force
|
4
|
3,999
|
3,247
|
|
Long-term
business
|
|
7,876
|
6,863
|
|
Asset
management and general insurance commission
|
|
569
|
578
|
|
Other
results
|
|
(882)
|
(843)
|
|
|
|
7,563
|
6,598
|
Notes
(i) EEV
basis other income and expenditure represents the post-tax IFRS
basis results for other operations (including Group and Asia
Regional Head Office, holding company borrowings, Africa operations
and Prudential Capital) less the unwind of expected margins on the
internal management of the assets of the covered business (as
explained in note 13(i)(g)).
(ii)
Restructuring costs comprise the post-tax charge recognised on an
IFRS basis and the additional amount recognised on an EEV basis for
the shareholders' share incurred by the with-profits funds,
representing the cost of business transformation and
integration.
(iii)
The comparative results have been prepared using previously
reported average exchange rates for the year.
POST-TAX SUMMARISED
CONSOLIDATED INCOME STATEMENT
|
|
|
|
|
|
|
|
|
Note
|
2018 £m
|
2017
£m
|
Asia
operations
|
|
4,546
|
3,860
|
US
operations
|
|
2,118
|
2,150
|
UK and
Europe operations
|
|
1,781
|
1,431
|
Other
income and expenditure
|
|
(726)
|
(746)
|
Restructuring
costs
|
|
(156)
|
(97)
|
Operating profit
based on longer-term investment returns
|
|
7,563
|
6,598
|
Short-term
fluctuations in investment returns
|
5
|
(3,219)
|
2,111
|
Effect
of changes in economic assumptions
|
6
|
146
|
(102)
|
Mark to
market value movements on core structural borrowings
|
|
549
|
(326)
|
Impact
of US tax reform
|
16
|
-
|
390
|
(Loss)
profit attaching to corporate transactions
|
17
|
(451)
|
80
|
Total
non-operating (loss) profit
|
|
(2,975)
|
2,153
|
Profit for the
year
|
|
4,588
|
8,751
|
|
|
|
|
Attributable
to:
|
|
|
|
Equity
holders of the Company
|
|
4,585
|
8,750
|
Non-controlling
interests
|
|
3
|
1
|
|
|
4,588
|
8,751
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
|
2018
|
2017
|
Based
on post-tax operating profit including longer-term investment
returns
after non-controlling interests (in pence)
|
|
293.6p
|
257.0p
|
Based
on post-tax profit attributable to equity holders of the Company
(in pence)
|
|
178.1p
|
340.9p
|
Weighted
average number of shares (millions)
|
|
2,575
|
2,567
|
MOVEMENT IN
SHAREHOLDERS' EQUITY
|
|
|
|
||
|
|
|
|
|
|
|
|
|
Note
|
2018 £m
|
2017
£m
|
Profit
for the year attributable to equity holders of the
Company
|
|
4,585
|
8,750
|
||
Items
taken directly to equity:
|
|
|
|
||
|
Exchange
movements on foreign operations and net investment
hedges
|
|
1,706
|
(2,045)
|
|
|
External
dividends
|
|
(1,244)
|
(1,159)
|
|
|
Mark to
market value movements on Jackson assets backing surplus and
required capital
|
|
(95)
|
40
|
|
|
Other
reserve movements
|
|
132
|
144
|
|
Net
increase in shareholders' equity
|
8
|
5,084
|
5,730
|
||
Shareholders'
equity at beginning of year
|
8
|
44,698
|
38,968
|
||
Shareholders'
equity at end of year
|
8
|
49,782
|
44,698
|
|
31 Dec 2018 £m
|
|
31 Dec 2017 £m
|
|||||
Comprising:
|
Long-term
business operations
|
Asset
management
and other operations
|
Group total
|
|
Long-term
business
operations
|
Asset
management
and other operations
|
Group total
|
|
Asia
operations
|
24,580
|
552
|
25,132
|
|
21,191
|
401
|
21,592
|
|
US
operations
|
14,650
|
40
|
14,690
|
|
13,257
|
235
|
13,492
|
|
UK and
Europe operations
|
11,409
|
2,175
|
13,584
|
|
11,713
|
1,914
|
13,627
|
|
Other
operations
|
-
|
(3,624)
|
(3,624)
|
|
-
|
(4,013)
|
(4,013)
|
|
Shareholders'
equity at end of year
|
50,639
|
(857)
|
49,782
|
|
46,161
|
(1,463)
|
44,698
|
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
Net
assets attributable to equity holders of the Company
|
|
|
|
|
|
|
|
|
|
excluding
acquired goodwill, holding company net
|
|
|
|
|
|
|
|
|
borrowings
and non-controlling interests
|
50,388
|
2,105
|
52,493
|
|
45,917
|
1,562
|
47,479
|
Acquired
goodwill*
|
251
|
1,400
|
1,651
|
|
244
|
1,214
|
1,458
|
|
Holding
company net borrowings at market valuenote 7
|
-
|
(4,362)
|
(4,362)
|
|
-
|
(4,239)
|
(4,239)
|
|
|
50,639
|
(857)
|
49,782
|
|
46,161
|
(1,463)
|
44,698
|
*
Acquired goodwill for asset management and other operations for
2018 includes goodwill recognised on acquisition of TMB Asset
Management Co., Ltd. as discussed in note D1.2 of the IFRS
statements.
SUMMARY STATEMENT
OF FINANCIAL POSITION
|
|
|
|
||
|
|
|
|
|
|
|
|
|
Note
|
31 Dec 2018 £m
|
31 Dec
2017 £m
|
Total assets less
liabilities, before deduction of insurance
funds*
|
|
431,269
|
434,615
|
||
Less
insurance funds:
|
|
|
|
||
|
Policyholder
liabilities (net of reinsurers' share) and unallocated
surplus
|
|
|
|
|
|
|
of
with-profits funds
|
|
(414,002)
|
(418,521)
|
|
Less
shareholders' accrued interest in the long-term
business
|
8
|
32,533
|
28,611
|
|
|
|
|
|
(381,469)
|
(389,910)
|
Less
non-controlling interests
|
|
(18)
|
(7)
|
||
Total net assets
attributable to equity holders of the Company
|
8
|
49,782
|
44,698
|
||
|
|
|
|
|
|
Share
capital
|
|
130
|
129
|
||
Share
premium
|
|
1,964
|
1,948
|
||
IFRS
basis shareholders' reserves
|
|
15,155
|
14,010
|
||
Total
IFRS basis shareholders' equity
|
8
|
17,249
|
16,087
|
||
Additional
EEV basis retained profit
|
8
|
32,533
|
28,611
|
||
Total EEV basis
shareholders' equity
|
8
|
49,782
|
44,698
|
* Including
liabilities in respect of insurance products classified as
investment contracts under IFRS 4.
Net asset value per
share
|
|
|
|
|
|
|
|
|
|
31 Dec 2018
|
31 Dec 2017
|
Based
on EEV basis shareholders' equity of £49,782 million (31
December 2017: £44,698 million) (in pence)
|
|
1,920p
|
1,728p
|
Number
of issued shares at year end (millions)
|
|
2,593
|
2,587
|
|
|
|
|
Annualised return
on embedded value*
|
|
17%
|
17%
|
* Annualised
return on embedded value is based on EEV post-tax operating profit
after non-controlling interests, as a percentage of opening EEV
basis shareholders' equity.
NOTES ON THE EEV
BASIS RESULTS
1 Basis
of preparation
The EEV
basis results have been prepared in accordance with the EEV
Principles dated April 2016, issued by the European Insurance CFO
Forum. Where appropriate, the EEV basis results include the effects
of adoption of EU-endorsed IFRS.
The
directors are responsible for the preparation of the supplementary
information in accordance with the EEV Principles. The auditors
have reported on the 2018 EEV basis results supplement to the
Company's statutory accounts for 2018. Their report was (i)
unqualified and (ii) did not include a reference to any matters to
which the auditors drew attention by way of emphasis without
qualifying their report. The 2017 results have been derived from
the EEV basis results supplement to the Company's statutory
accounts for 2017. The supplement included an unqualified audit
report from the auditors.
A
detailed description of the EEV methodology and accounting
presentation is provided in note 13.
2
Results analysis by business area
The
2017 comparative results are shown below on both actual exchange
rates (AER) and constant exchange rates (CER) bases. The 2017 CER
comparative results are translated at 2018 average exchange
rates.
Annual premium equivalents (APE)note
15
|
|
|
2018 £m
|
|
2017 £m
|
|
% change
|
||
|
Note
|
|
|
AER
|
CER
|
|
AER
|
CER
|
|
Asia
|
|
3,744
|
|
3,805
|
3,671
|
|
(2)%
|
2%
|
|
US
|
|
1,542
|
|
1,662
|
1,605
|
|
(7)%
|
(4)%
|
|
UK and
Europe
|
|
1,516
|
|
1,491
|
1,491
|
|
2%
|
2%
|
|
Group
total
|
3
|
6,802
|
|
6,958
|
6,767
|
|
(2)%
|
1%
|
Post-tax operating
profit
|
|
|
|
|
|
|
|
|
|
|
|
2018 £m
|
|
2017 £m
|
|
% change
|
|||
|
Note
|
|
|
AER
|
CER
|
|
AER
|
CER
|
|
Asia
operations
|
|
|
|
|
|
|
|
|
|
New
business
|
3
|
2,604
|
|
2,368
|
2,282
|
|
10%
|
14%
|
|
Business
in force
|
4
|
1,783
|
|
1,337
|
1,280
|
|
33%
|
39%
|
|
Long-term
business
|
|
4,387
|
|
3,705
|
3,562
|
|
18%
|
23%
|
|
Asset
management
|
|
159
|
|
155
|
150
|
|
3%
|
6%
|
|
Total
|
|
4,546
|
|
3,860
|
3,712
|
|
18%
|
22%
|
|
|
|
|
|
|
|
|
|
|
|
US
operations
|
|
|
|
|
|
|
|
|
|
New
business
|
3
|
921
|
|
906
|
874
|
|
2%
|
5%
|
|
Business
in force
|
4
|
1,194
|
|
1,237
|
1,195
|
|
(3)%
|
0%
|
|
Long-term
business
|
|
2,115
|
|
2,143
|
2,069
|
|
(1)%
|
2%
|
|
Asset
management
|
|
3
|
|
7
|
7
|
|
(57)%
|
(57)%
|
|
Total
|
|
2,118
|
|
2,150
|
2,076
|
|
(1)%
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
UK and Europe
operations
|
|
|
|
|
|
|
|
|
|
New
business
|
3
|
352
|
|
342
|
342
|
|
3%
|
3%
|
|
Business
in force
|
4
|
1,022
|
|
673
|
673
|
|
52%
|
52%
|
|
Long-term
business
|
|
1,374
|
|
1,015
|
1,015
|
|
35%
|
35%
|
|
General
insurance commission*
|
|
15
|
|
13
|
13
|
|
15%
|
15%
|
|
Total
insurance operations
|
|
1,389
|
|
1,028
|
1,028
|
|
35%
|
35%
|
|
Asset
management
|
|
392
|
|
403
|
403
|
|
(3)%
|
(3)%
|
|
Total
|
|
1,781
|
|
1,431
|
1,431
|
|
24%
|
24%
|
|
Other income and expenditure
|
|
(726)
|
|
(746)
|
(740)
|
|
3%
|
2%
|
|
Restructuring costs
|
|
(156)
|
|
(97)
|
(97)
|
|
(61)%
|
(61)%
|
|
Operating
profit based on
|
|
|
|
|
|
|
|
|
|
|
longer-term
investment returns
|
|
7,563
|
|
6,598
|
6,382
|
|
15%
|
19%
|
|
|
|
|
|
|
|
|
|
|
Analysed as profit
(loss) from:
|
|
|
|
|
|
|
|
|
|
New
business
|
3
|
3,877
|
|
3,616
|
3,498
|
|
7%
|
11%
|
|
Business
in force
|
4
|
3,999
|
|
3,247
|
3,148
|
|
23%
|
27%
|
|
Total
long-term business
|
|
7,876
|
|
6,863
|
6,646
|
|
15%
|
19%
|
|
Asset
management and general
|
|
|
|
|
|
|
|
|
|
|
insurance
commission
|
|
569
|
|
578
|
573
|
|
(2)%
|
(1)%
|
Other
results
|
|
(882)
|
|
(843)
|
(837)
|
|
(5)%
|
(5)%
|
|
|
|
|
7,563
|
|
6,598
|
6,382
|
|
15%
|
19%
|
* The
majority of the general insurance commission is not expected to
recur in future years.
Post-tax
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 £m
|
|
2017 £m
|
|
% change
|
||
|
Note
|
|
|
AER
|
CER
|
|
AER
|
CER
|
Operating
profit based on longer-term
investment returns
|
|
7,563
|
|
6,598
|
6,382
|
|
15%
|
19%
|
Short-term
fluctuations in investment returns
|
5
|
(3,219)
|
|
2,111
|
2,057
|
|
|
|
Effect
of changes in economic assumptions
|
6
|
146
|
|
(102)
|
(91)
|
|
|
|
Mark to
market value movements on
core structural borrowings
|
|
549
|
|
(326)
|
(326)
|
|
|
|
Impact
of US tax reform
|
16
|
-
|
|
390
|
376
|
|
|
|
(Loss)
profit attaching to corporate transactions
|
17
|
(451)
|
|
80
|
77
|
|
|
|
Total
non-operating (loss) profit
|
|
(2,975)
|
|
2,153
|
2,093
|
|
|
|
Profit for the
year
|
|
4,588
|
|
8,751
|
8,475
|
|
(48)%
|
(46)%
|
Basic earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
% change
|
|||
|
|
|
|
AER
|
CER
|
|
AER
|
CER
|
|
Based
on post-tax operating profit including
|
|
|
|
|
|
|
|
|
|
|
longer-term
investment returns after
|
|
|
|
|
|
|
|
|
|
non-controlling
interests (in pence)
|
|
293.6p
|
|
257.0p
|
248.6p
|
|
14%
|
18%
|
Based
on post-tax profit attributable to
|
|
|
|
|
|
|
|
|
|
|
equity
holders of the Company (in pence)
|
|
178.1p
|
|
340.9p
|
330.2p
|
|
(48)%
|
(46)%
|
3
Analysis of new business contribution
(i) Group summary for long-term business
operations
|
|
|
|
|
|
|
|
2018
|
|||||
|
Annual premium
|
Present value
of new business
|
New business
|
|
New business margin
|
|
|
equivalents (APE)
|
premiums (PVNBP)
|
contribution
|
|
APE
|
PVNBP
|
|
£m
|
£m
|
£m
|
|
%
|
%
|
|
note 15
|
note 15
|
|
|
|
|
Asianote
(ii)
|
3,744
|
20,754
|
2,604
|
|
70
|
12.5
|
US
|
1,542
|
15,423
|
921
|
|
60
|
6.0
|
UK and
Europe
|
1,516
|
14,073
|
352
|
|
23
|
2.5
|
Total
|
6,802
|
50,250
|
3,877
|
|
57
|
7.7
|
|
|
|
|
|
|
|
|
2017
|
|||||
|
Annual premium
|
Present value
of new business
|
New business
|
|
New business margin
|
|
|
equivalents (APE)
|
premiums (PVNBP)
|
contribution
|
|
APE
|
PVNBP
|
|
£m
|
£m
|
£m
|
|
%
|
%
|
|
note 15
|
note 15
|
|
|
|
|
Asianote
(ii)
|
3,805
|
20,405
|
2,368
|
|
62
|
11.6
|
US
|
1,662
|
16,622
|
906
|
|
55
|
5.5
|
UK and
Europe
|
1,491
|
13,784
|
342
|
|
23
|
2.5
|
Total
|
6,958
|
50,811
|
3,616
|
|
52
|
7.1
|
Note
After
allowing for foreign exchange effects of £(118) million, the
new business contribution has increased by £379 million on a
CER basis. The increase is driven by a beneficial effect of
pricing, product mix and other actions of £278 million
reflecting our strategic emphasis on increasing sales from health
and protection business in Asia, together with changes in long-term
interest rates and other economic assumptions (£83 million)
and higher sales volumes (a contribution of £18
million).
(ii) Asia new
business contribution by business unit
|
2018 £m
|
|
2017 £m
|
|
|
|
|
AER
|
CER
|
China
|
149
|
|
133
|
131
|
Hong
Kong
|
1,729
|
|
1,535
|
1,474
|
Indonesia
|
122
|
|
174
|
158
|
Taiwan
|
46
|
|
57
|
56
|
Other
|
558
|
|
469
|
463
|
Total
|
2,604
|
|
2,368
|
2,282
|
4
Operating profit from business in force
(i)
Group summary for long-term business operations
|
|
|
|
|
|
2018 £m
|
|||
|
Asia
|
US
|
UK and Europe
|
Total
|
|
note
(ii)
|
note
(iii)
|
note
(iv)
|
|
Unwind
of discount and other expected returns
|
1,218
|
881
|
474
|
2,573
|
Effect
of changes in operating assumptions
|
342
|
115
|
330
|
787
|
Experience
variances and other items
|
223
|
198
|
218
|
639
|
Group
total
|
1,783
|
1,194
|
1,022
|
3,999
|
|
|
|
|
|
|
2017
£m
|
|||
|
Asia
|
US
|
UK and Europe
|
Total
|
|
note
(ii)
|
note
(iii)
|
note
(iv)
|
|
Unwind
of discount and other expected returns
|
1,007
|
694
|
465
|
2,166
|
Effect
of changes in operating assumptions
|
241
|
196
|
195
|
632
|
Experience
variances and other items
|
89
|
347
|
13
|
449
|
Group
total
|
1,337
|
1,237
|
673
|
3,247
|
Note
The
movement in operating profit from business in force of £752
million from £3,247 million for 2017 to £3,999 million
for 2018 comprises:
|
|
|
£m
|
Movement
in unwind of discount and other expected returns:
|
|
||
|
|
Growth
in opening value of in-force business
|
368
|
|
|
Effect
of interest rates and other economic assumptions
|
101
|
|
|
Foreign
exchange movements
|
(62)
|
|
|
|
407
|
Movement
in effect of changes in operating assumptions, experience variances
and other items
|
345
|
||
Net
movement in operating profit from business in force
|
752
|
(ii)
Asia
|
|
2018 £m
|
2017 £m
|
Unwind
of discount and other expected returnsnote (a)
|
1,218
|
1,007
|
|
Effect
of changes in operating assumptionsnote (b)
|
342
|
241
|
|
Experience
variances and other itemsnote (c)
|
223
|
89
|
|
Total
|
1,783
|
1,337
|
Notes
(a) The
£211 million increase in unwind of discount and other expected
returns from £1,007 million in 2017 to £1,218 million in
2018 is primarily driven by the growth in the in-force book and a
positive £51 million impact from movements in long-term
interest rates and other economic assumptions, partially offset by
a negative effect of foreign exchange movements of £(38)
million.
(b) The
effects of changes in operating assumptions of £342
million reflects the outcome from the annual review of
persistency, claims and expense experience together with the
benefit of medical repricing management actions. It also reflects
profits arising after reflection of a number of tax changes across
a number of countries.
(c) The
£223 million effect of experience variances and other items in
2018 is driven by positive mortality and morbidity experiences in a
number of local business units, together with positive persistency
variances from participating and health and protection
products.
(iii)
US
|
|
2018 £m
|
2017 £m
|
Unwind
of discount and other expected returnsnote (a)
|
881
|
694
|
|
Effect
of changes in operating assumptionsnote (b)
|
115
|
196
|
|
Experience
variances and other items:
|
|
|
|
|
Spread
experience variance
|
39
|
71
|
|
Amortisation
of interest-related realised gains and losses
|
92
|
91
|
|
Othernote
(c)
|
67
|
185
|
|
|
198
|
347
|
Total
|
1,194
|
1,237
|
Notes
(a) The
£187 million increase in unwind of discount and other expected
returns from £694 million in 2017 to £881 million in 2018
reflects prior period growth in the in-force book, a £30
million benefit from a 30 basis point increase in the US 10-year
treasury yield in the year offset by a £(24) million negative
effect for foreign exchange movements.
(b) The
effect of operating assumption changes of £115 million (2017:
£196 million) mainly relates to routine updates for
persistency and policyholder utilisation.
(c) Other experience
variances of £198 million include the effects of positive
mortality and persistency experience in the year.
(iv) UK and
Europe
|
|
2018 £m
|
2017 £m
|
Unwind
of discount and other expected returnsnote (a)
|
474
|
465
|
|
Change
in longevity assumption basisnote (b)
|
330
|
195
|
|
Other
itemsnote (c)
|
218
|
13
|
|
Total
|
1,022
|
673
|
Notes
(a) Unwind
of discount and expected returns for 2018 is broadly consistent
with 2017 and reflects the benefit from a 10 basis point increase
in the 15-year swap yields offset by the impact from the
reinsurance of part of its shareholder annuity portfolio to
Rothesay Life as discussed in note 17.
(b) The
credit of £330 million (2017: £195 million) relates to
changes to annuitant mortality assumptions to reflect current
mortality experience, which has shown a slowdown in life expectancy
improvements in recent periods, and the adoption of the Continuous
Mortality Investigation (CMI) 2016 model (2017: CMI 2015 model) as
the basis for future mortality improvements.
(c) Other
items comprise the following:
|
|
2018 £m
|
2017
£m
|
|
Longevity
reinsurance
|
-
|
(6)
|
|
Impact
of specific management actions to improve solvency
position
|
141
|
127
|
|
Provision
for cost of undertaking past non-advised annuity sales review and
related redressnote (d)
|
-
|
(187)
|
|
Insurance
recoveries in respect of the above costsnote (d)
|
138
|
-
|
|
Provision
for guaranteed minimum pension equalisationnote (e)
|
(48)
|
-
|
|
Other
|
(13)
|
79
|
|
|
218
|
13
|
(d) The
UK business has agreed with the Financial Conduct Authority
(FCA) to review annuities sold without advice after 1 July
2008 to its contract-based defined contribution pension customers.
A gross provision of £(330) million, post-tax and before costs
incurred, was established at 31 December 2017, of which £(187)
million was charged in full year 2017. During 2018, the Group
agreed with its professional indemnity insurers that they will meet
£166 million of the Group's claims costs, which will be paid
as the Group incurs costs/redress. This has been recognised on the
Group balance sheet at 31 December 2018 and a post-tax credit of
£138 million is recognised in the EEV operating profit. For
more details, refer to note C11 of the IFRS financial
statements.
(e)
An allowance has been made for higher liabilities that may arise
when applying the recent High Court decision to equalise guaranteed
minimum pension (GMP) benefits between males and females for
certain pension products sold by the UK
business.
5 Short-term
fluctuations in investment returns
(i)
Group summary
|
2018 £m
|
2017 £m
|
Asia
operationsnote (ii)
|
(1,029)
|
887
|
US
operationsnote (iii)
|
(1,481)
|
582
|
UK and
Europe operationsnote (iv)
|
(721)
|
621
|
Other
operations
|
12
|
21
|
Group
total
|
(3,219)
|
2,111
|
(ii) Asia operations
|
2018 £m
|
2017 £m
|
Hong
Kong
|
(552)
|
531
|
Singapore
|
(233)
|
126
|
Other
|
(244)
|
230
|
Total
|
(1,029)
|
887
|
Note
For
2018, the charge of £(1,029) million mainly represents the
reduction of bond and equity values in Hong Kong and lower than
expected investment returns on participating and unit-linked
business in Indonesia, Singapore and Malaysia.
(iii) US
operations
|
|
2018 £m
|
2017 £m
|
Investment
return related experience on fixed income securitiesnote
(a)
|
60
|
(46)
|
|
Investment
return related impact due to changed expectation of profits on
in-force
|
|
|
|
|
variable
annuity business in future periods based on current
year
|
|
|
|
separate
account return, net of related hedging activity and other itemsnote
(b)
|
(1,541)
|
628
|
Total
|
(1,481)
|
582
|
Notes
(a)
The net result relating to fixed income securities reflects a
number of offsetting items as follows:
- The
impact on portfolio yields of changes in the asset portfolio in the
year;
- The
difference between actual realised gains and losses and the
amortisation of interest-related realised gains and losses that is
recorded within operating profit; and
- Credit
experience (versus the longer-term assumption).
(b)
This item reflects the net impact of:
- Changes
in projected future fees and future benefit costs arising from the
difference between the actual growth in separate account asset
values of negative (5.4) per cent and that assumed of 6.2 per cent
(2017: actual growth of 17.5 per cent compared to assumed growth of
5.9 per cent); and
- Related
hedging activity arising from realised and unrealised gains and
losses on equity-related hedges and interest rate options, and
other items.
(iv) UK and
Europe operations
|
2018 £m
|
2017 £m
|
|
Insurance
operations:
|
|
|
|
|
Shareholder-backed
annuity business
|
(151)
|
387
|
|
With-profits
and other business
|
(557)
|
229
|
Asset
management
|
(13)
|
5
|
|
Total
|
(721)
|
621
|
Note
The
£(721) million fluctuation in 2018 primarily represents the
impact of achieving a (2.5) per cent pre-tax return on the
with-profits fund (including unallocated surplus) compared to the
assumed rate of return of 4.2 per cent (2017: achieved return of 9
per cent compared to assumed rate of 5 per cent), partially offset
by the effect of a partial hedge of future shareholder transfers
expected to emerge from the UK's with-profits sub-fund entered into
to protect future shareholder with-profit transfers from movements
in the UK equity market. It also reflects losses on corporate
bonds backing shareholder annuity business, reflecting changes to
interest rates and credit spreads over the period.
6
Effect of changes in economic assumptions
(i)
Group summary for long-term business operations
|
2018 £m
|
2017 £m
|
Asianote
(ii)
|
115
|
(95)
|
USnote
(iii)
|
197
|
(136)
|
UK and
Europenote (iv)
|
(166)
|
129
|
Group
total
|
146
|
(102)
|
(ii)
Asia
|
2018 £m
|
2017 £m
|
Hong
Kong
|
165
|
(321)
|
Indonesia
|
(94)
|
81
|
Malaysia
|
(19)
|
59
|
Singapore
|
70
|
131
|
Other
|
(7)
|
(45)
|
Total
|
115
|
(95)
|
Note
The
positive effect in 2018 of £115 million largely arises from
movements in long-term interest rates, resulting in higher assumed
fund earned rates in Hong Kong and Singapore, partially offset by
the impact of valuing future profits for health and protection
business at higher discount rates in Indonesia and
Malaysia.
(iii) US
|
2018 £m
|
2017 £m
|
Variable
annuity business
|
365
|
(101)
|
Fixed
annuity and other general account business
|
(168)
|
(35)
|
Total
|
197
|
(136)
|
Note
For
2018, the credit of £197 million mainly reflects the increase
in the assumed separate account return following the 30 basis
points increase in the US 10-year treasury yield over the year,
resulting in higher projected fee income and a decrease in
projected benefit costs for variable annuity business. For fixed
annuity and other general account business, the impact reflects the
effect on the present value of future projected spread income from
the combined increase in interest rates and credit spreads in the
year. In June 2018, the National Association of Insurance
Commissioners (NAIC) formally approved changes to RBC capital
factors that reflected the December 2017 US tax reform.
Consequently, the effect of changes in economic assumptions for
2018 of £197 million includes a negative £(23) million
impact resulting from these changes.
(iv) UK and
Europe
|
2018 £m
|
2017 £m
|
Shareholder-backed
annuity business
|
1
|
28
|
With-profits
and other business
|
(167)
|
101
|
Total
|
(166)
|
129
|
Note
The
charge of £(166) million includes the impact of the movement
in expected long-term rates of investment return, resulting from
market movements and changes in asset mix in the year, and risk
discount rates. In addition, the effect of changes in economic
assumptions for with-profits and other business of £(167)
million includes a £(78) million charge for the effect on
lower fund earned rates on equities and property as a result of the
change in UK indexation of capital gains rules effective from 1
January 2018.
7 Net core structural borrowings of
shareholder-financed businesses
|
|
|
|
|
|
|
|
|
|
31 Dec 2018 £m
|
|
31 Dec 2017 £m
|
|||||
|
IFRS
basis
|
Mark to
market
value
adjustment
|
EEV
basis at
market
value
|
|
IFRS
basis
|
Mark to
market
value
adjustment
|
EEV
basis at
market
value
|
|
Holding
company (including central finance subsidiaries)
|
|
|
|
|
|
|
|
|
|
cash
and short-term investments
|
(3,236)
|
-
|
(3,236)
|
|
(2,264)
|
-
|
(2,264)
|
Central
funds
|
|
|
|
|
|
|
|
|
|
Subordinated
debt
|
6,676
|
(44)
|
6,632
|
|
5,272
|
515
|
5,787
|
|
Senior
debt
|
517
|
174
|
691
|
|
549
|
167
|
716
|
|
|
7,193
|
130
|
7,323
|
|
5,821
|
682
|
6,503
|
Bank
loan
|
275
|
-
|
275
|
|
-
|
-
|
-
|
|
Holding
company net borrowings
|
4,232
|
130
|
4,362
|
|
3,557
|
682
|
4,239
|
|
Prudential
Capital bank loan
|
-
|
-
|
-
|
|
275
|
-
|
275
|
|
Jackson
surplus notes
|
196
|
53
|
249
|
|
184
|
61
|
245
|
|
Group
total
|
4,428
|
183
|
4,611
|
|
4,016
|
743
|
4,759
|
Note
In
October 2018, the Company issued three tranches of substitutable
core structural borrowings as part of the process required before
demerger, to rebalance debt across M&GPrudential and Prudential
plc. Total proceeds, net of costs, were £1,630 million. In
December 2018, the Company paid £434 million to redeem its
US$550 million 7.75 per cent Tier 1 perpetual subordinated notes.
The movement in the value of core structural borrowings also
includes foreign exchange effects for US dollar denominated debts.
For more details on the core structural borrowings, refer to note
C6.1 of the IFRS financial statement.
8
Reconciliation of movement in shareholders'
equity
|
|
2018
£m
|
||||||||
|
Asia
operations
|
|
US
operations
|
|
UK and Europe operations
|
|
Other
operations
|
|
Group
total
|
|
|
note (i)
|
|
|
|
|
|
note (i)
|
|
note (iv)
|
|
Long-term
business:
|
|
|
|
|
|
|
|
|
|
|
|
New
businessnote 3
|
2,604
|
|
921
|
|
352
|
|
-
|
|
3,877
|
|
Business
in forcenote 4
|
1,783
|
|
1,194
|
|
1,022
|
|
-
|
|
3,999
|
|
4,387
|
|
2,115
|
|
1,374
|
|
-
|
|
7,876
|
|
Asset
management and general
insurance commission
|
159
|
|
3
|
|
407
|
|
-
|
|
569
|
|
Restructuring
costs
|
(19)
|
|
(17)
|
|
(109)
|
|
(11)
|
|
(156)
|
|
Other
results
|
-
|
|
-
|
|
-
|
|
(726)
|
|
(726)
|
|
Operating
profit based on
longer-term investment returns
|
4,527
|
|
2,101
|
|
1,672
|
|
(737)
|
|
7,563
|
|
Non-operating
items
|
(925)
|
|
(1,313)
|
|
(1,263)
|
|
526
|
|
(2,975)
|
|
Non-controlling
interests
|
(1)
|
|
-
|
|
-
|
|
(2)
|
|
(3)
|
|
Profit
for the year attributable to equity
holders of the Company
|
3,601
|
|
788
|
|
409
|
|
(213)
|
|
4,585
|
|
Other items taken directly to equity:
|
|
|
|
|
|
|
|
|
|
|
Exchange
movements on foreign operations
and net investment hedges
|
1,028
|
|
862
|
|
-
|
|
(184)
|
|
1,706
|
|
Intra-group
dividends and investment in
operationsnote (ii)
|
(1,177)
|
|
(337)
|
|
(447)
|
|
1,961
|
|
-
|
|
External
dividends
|
-
|
|
-
|
|
-
|
|
(1,244)
|
|
(1,244)
|
|
Mark to
market value movements on Jackson
assets backing surplus and required capital
|
-
|
|
(95)
|
|
-
|
|
-
|
|
(95)
|
|
Other
movementsnote (iii)
|
81
|
|
(20)
|
|
(5)
|
|
76
|
|
132
|
|
Net increase in shareholders' equity
|
3,533
|
|
1,198
|
|
(43)
|
|
396
|
|
5,084
|
|
Shareholders'
equity at beginning of year
|
21,348
|
|
13,492
|
|
13,627
|
|
(3,769)
|
|
44,698
|
|
Shareholders'
equity at end of year
|
24,881
|
|
14,690
|
|
13,584
|
|
(3,373)
|
|
49,782
|
|
|
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
IFRS
basis shareholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets (liabilities)
|
5,921
|
|
5,624
|
|
7,547
|
|
(3,494)
|
|
15,598
|
|
Goodwill
|
247
|
|
-
|
|
1,153
|
|
251
|
|
1,651
|
IFRS
basis shareholders' equity
|
6,168
|
|
5,624
|
|
8,700
|
|
(3,243)
|
|
17,249
|
|
Additional
retained profit (loss) on an
EEV basis
|
18,713
|
|
9,066
|
|
4,884
|
|
(130)
|
|
32,533
|
|
EEV
basis shareholders' equity
|
24,881
|
|
14,690
|
|
13,584
|
|
(3,373)
|
|
49,782
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year:
|
|
|
|
|
|
|
|
|
|
|
IFRS
basis shareholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets (liabilities)
|
5,620
|
|
5,248
|
|
7,092
|
|
(3,331)
|
|
14,629
|
|
Goodwill
|
61
|
|
-
|
|
1,153
|
|
244
|
|
1,458
|
IFRS
basis shareholders' equity
|
5,681
|
|
5,248
|
|
8,245
|
|
(3,087)
|
|
16,087
|
|
Additional
retained profit (loss) on an
EEV basis
|
15,667
|
|
8,244
|
|
5,382
|
|
(682)
|
|
28,611
|
|
EEV
basis shareholders' equity
|
21,348
|
|
13,492
|
|
13,627
|
|
(3,769)
|
|
44,698
|
Notes
(i)
Other operations of £(3,373) million represents the
shareholders' equity of £(3,624) million as shown in the
movement in shareholders' equity and includes goodwill of £251
million (2017: £244 million) related to Asia long-term
operations.
(ii)
Intra-group dividends represent dividends that have been declared
in the year and investment in operations reflect movements in share
capital. The amounts included for these items in the analysis of
movement in free surplus (note 10) are as per the holding company
cash flow at transaction rates. The difference primarily relates to
intra-group loans, foreign exchange and other non-cash
items.
(iii)
Other movements include reserve movements in respect of the
shareholders' share of actuarial gains and losses on defined
benefit pension schemes, share capital subscribed, share-based
payments and treasury shares and intra-group transfers between
operations which have no overall effect on the Group's embedded
value. Also included is the put option recognised on acquisition of
TMB Asset Management Co., Ltd. as discussed in note D1.2 of the
IFRS financial statements.
(iv)
Group total EEV basis shareholders' equity can be further analysed
as follows:
|
|
|
31 Dec 2018 £m
|
|
31 Dec 2017 £m
|
||||||
|
|
Total
long-term business operations
|
Asset management
and general
insurance
commission
|
Other
operations
|
Group
total
|
|
Total
long-term
business
operations
|
Asset management
and general
insurance
commission
|
Other
operations
|
Group
total
|
|
|
|
note
9
|
|
note
(v)
|
|
|
note
9
|
|
note
(v)
|
|
|
|
IFRS
basis shareholders' equity
|
17,725
|
2,767
|
(3,243)
|
17,249
|
|
16,624
|
2,550
|
(3,087)
|
16,087
|
|
|
Additional
retained profit (loss)
on an EEV basisnote (v)
|
32,663
|
-
|
(130)
|
32,533
|
|
29,293
|
-
|
(682)
|
28,611
|
|
|
EEV
basis shareholders' equity
|
50,388
|
2,767
|
(3,373)
|
49,782
|
|
45,917
|
2,550
|
(3,769)
|
44,698
|
(v)
The additional retained loss on an EEV basis for other operations
represents the mark to market value adjustment for
holding company net borrowings of a cumulative charge of
£(130) million (31 December 2017: £(682)
million) as shown in note 7.
9 Analysis of
movement in net worth and value of in-force for long-term
business
|
|
2018 £m
|
|||||
|
|
Free
surplus
|
Required
capital
|
Total
net worth
|
|
Value of
in-force business
|
Total
embedded
value
|
|
|
|
|
|
|
note (i)
|
|
Group
|
|
|
|
|
|
|
|
Shareholders'
equity at beginning of year
|
6,242
|
10,265
|
16,507
|
|
29,410
|
45,917
|
|
New
business contributionnote 3
|
(815)
|
619
|
(196)
|
|
4,073
|
3,877
|
|
Existing
business - transfer to net worth
|
3,439
|
(776)
|
2,663
|
|
(2,663)
|
-
|
|
Expected
return on existing businessnote 4
|
201
|
195
|
396
|
|
2,177
|
2,573
|
|
Changes
in operating assumptions and experience variancesnote
4
|
778
|
69
|
847
|
|
579
|
1,426
|
|
Restructuring
costs
|
(68)
|
-
|
(68)
|
|
(20)
|
(88)
|
|
Operating profit
based on longer-term investment returns
|
3,535
|
107
|
3,642
|
|
4,146
|
7,788
|
|
Non-operating
items
|
(720)
|
(730)
|
(1,450)
|
|
(2,008)
|
(3,458)
|
|
Profit for the
year
|
2,815
|
(623)
|
2,192
|
|
2,138
|
4,330
|
|
Exchange
movements on foreign operations and
net investment hedges
|
201
|
206
|
407
|
|
1,465
|
1,872
|
|
Intra-group
dividends and investment in operations
|
(1,654)
|
-
|
(1,654)
|
|
-
|
(1,654)
|
|
Other
movements
|
(77)
|
-
|
(77)
|
|
-
|
(77)
|
|
Shareholders'
equity at end of year
|
7,527
|
9,848
|
17,375
|
|
33,013
|
50,388
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
|
|
|
|
|
New
business contributionnote 3
|
(488)
|
158
|
(330)
|
|
2,934
|
2,604
|
|
Existing
business - transfer to net worth
|
1,370
|
(253)
|
1,117
|
|
(1,117)
|
-
|
|
Expected
return on existing businessnote 4
|
68
|
55
|
123
|
|
1,095
|
1,218
|
|
Changes
in operating assumptions and experience variancesnote
4
|
62
|
185
|
247
|
|
318
|
565
|
|
Operating profit
based on longer-term investment returns
|
1,012
|
145
|
1,157
|
|
3,230
|
4,387
|
|
Non-operating
items
|
(393)
|
15
|
(378)
|
|
(547)
|
(925)
|
|
Profit for the
year
|
619
|
160
|
779
|
|
2,683
|
3,462
|
|
|
|
|
|
|
|
|
|
US
|
|
|
|
|
|
|
|
New
business contributionnote 3
|
(225)
|
288
|
63
|
|
858
|
921
|
|
Existing
business - transfer to net worth
|
1,462
|
(171)
|
1,291
|
|
(1,291)
|
-
|
|
Expected
return on existing businessnote 4
|
54
|
69
|
123
|
|
758
|
881
|
|
Changes
in operating assumptions and experience variancesnote
4
|
125
|
6
|
131
|
|
182
|
313
|
|
Restructuring
costs
|
(17)
|
-
|
(17)
|
|
-
|
(17)
|
|
Operating profit
based on longer-term investment returns
|
1,399
|
192
|
1,591
|
|
507
|
2,098
|
|
Non-operating
itemsnote (ii)
|
(812)
|
164
|
(648)
|
|
(635)
|
(1,283)
|
|
Profit for the
year
|
587
|
356
|
943
|
|
(128)
|
815
|
|
|
|
|
|
|
|
|
|
UK and
Europe
|
|
|
|
|
|
|
|
New
business contributionnote 3
|
(102)
|
173
|
71
|
|
281
|
352
|
|
Existing
business - transfer to net worth
|
607
|
(352)
|
255
|
|
(255)
|
-
|
|
Expected
return on existing businessnote 4
|
79
|
71
|
150
|
|
324
|
474
|
|
Changes
in operating assumptions and experience variancesnote
4
|
591
|
(122)
|
469
|
|
79
|
548
|
|
Restructuring
costs
|
(51)
|
-
|
(51)
|
|
(20)
|
(71)
|
|
Operating profit
based on longer-term investment returns
|
1,124
|
(230)
|
894
|
|
409
|
1,303
|
|
Non-operating
items
|
485
|
(909)
|
(424)
|
|
(826)
|
(1,250)
|
|
Profit for the
year
|
1,609
|
(1,139)
|
470
|
|
(417)
|
53
|
Notes
(i)
The net value of in-force business comprises the value of future
margins from current in-force business less the cost of holding
required capital for long-term business as shown
below:
|
|
|
31 Dec 2018 £m
|
|
31 Dec 2017 £m
|
||||||
|
|
|
Asia
|
US
|
UK and Europe
|
Total
|
|
Asia
|
US
|
UK and Europe
|
Total
|
|
Value
of in-force business before
|
|
|
|
|
|
|
|
|
|
|
|
|
deduction
of cost of capital and
|
|
|
|
|
|
|
|
|
|
|
|
time
value of guarantees
|
21,867
|
11,811
|
3,083
|
36,761
|
|
17,539
|
10,486
|
3,648
|
31,673
|
|
Cost of
capital
|
(566)
|
(296)
|
(459)
|
(1,321)
|
|
(588)
|
(232)
|
(607)
|
(1,427)
|
|
|
Cost of
time value of guarantees
|
(981)
|
(1,446)
|
-
|
(2,427)
|
|
(186)
|
(650)
|
-
|
(836)
|
|
|
Net
value of in-force business
|
20,320
|
10,069
|
2,624
|
33,013
|
|
16,765
|
9,604
|
3,041
|
29,410
|
|
|
Total
net worth
|
4,009
|
4,581
|
8,785
|
17,375
|
|
4,182
|
3,653
|
8,672
|
16,507
|
|
|
Total
embedded valuenote 8(iv)
|
24,329
|
14,650
|
11,409
|
50,388
|
|
20,947
|
13,257
|
11,713
|
45,917
|
* The
cost of time value of guarantees arises from the variability of
economic outcomes in the future and is, where appropriate,
calculated as the difference between a full stochastic valuation
and a single deterministic valuation as described in note 13(i)(d).
Both valuations reflect the level of policyholder benefits
(including guaranteed benefits and discretionary bonuses) and
associated charges, together with management actions in response to
emerging investment and fund solvency conditions. The increase in
the cost of time value of guarantees for Asia operations from
£(186) million at 31 December 2017 to £(981) million at
31 December 2018 reflects the interaction between these effects on
the two valuations at the respective level of interest rates and
equity markets, as well as growth in the business over the year.
The increase in the cost of time value of guarantees for the US
operations from £(650) million at 31 December 2017 to
£(1,446) million at 31 December 2018 primarily reflects the
reduction in US equity markets during the fourth quarter of
2018.
(ii)
In June 2018, the National Association of Insurance Commissioners
(NAIC) formally approved changes to RBC capital factors that
reflected the December 2017 US tax reform. The 2018 EEV results
reflect these changes, with a resulting increase in required
capital and a corresponding reduction in free surplus of
£(165) million.
10 Analysis of movement in free
surplus
For EEV
covered business, free surplus is the excess of the regulatory
basis net assets for EEV reporting purposes (net worth) over the
capital required to support the covered business. Where
appropriate, adjustments are made to the net worth so that backing
assets are included at fair value rather than cost so as to comply
with the EEV Principles. In Asia and the US operations, assets
deemed to be inadmissible on local regulatory basis are included in
net worth where considered fully recognisable on an EEV basis. Free
surplus for asset management operations and the UK general
insurance commission is taken to be IFRS basis post-tax earnings
and shareholders' equity net of goodwill. Free surplus for other
operations (including Group and Asia Regional Head Office, holding
company borrowings, Africa operations and Prudential Capital) is
taken to be EEV basis post-tax earnings and shareholders' equity
net of goodwill, with subordinated debt recorded as free surplus to
the extent that it is classified as available capital under
Solvency II.
(i) Underlying free surplus generated - insurance
and asset management operations
The
2017 comparative results are shown below on both actual exchange
rates (AER) and constant exchange rates (CER) bases. The 2017 CER
comparative results are translated at 2018 average exchange
rates.
|
2018 £m
|
|
2017 £m
|
|
% change
|
|||
|
|
|
AER
|
CER
|
|
AER
|
CER
|
|
Asia
operations
|
|
|
|
|
|
|
|
|
Underlying
free surplus generated from
in-force life business
|
1,500
|
|
1,407
|
1,343
|
|
7%
|
12%
|
|
Investment
in new businessnote (iii)(a)
|
(488)
|
|
(484)
|
(466)
|
|
(1)%
|
(5)%
|
|
Long-term
business
|
1,012
|
|
923
|
877
|
|
10%
|
15%
|
|
Asset
management
|
159
|
|
155
|
150
|
|
3%
|
6%
|
|
Total
|
1,171
|
|
1,078
|
1,027
|
|
9%
|
14%
|
|
|
|
|
|
|
|
|
|
|
US
operations
|
|
|
|
|
|
|
|
|
Underlying
free surplus generated from
in-force life business
|
1,641
|
|
1,575
|
1,520
|
|
4%
|
8%
|
|
Investment
in new businessnote (iii)(a)
|
(225)
|
|
(254)
|
(245)
|
|
11%
|
8%
|
|
Long-term
business
|
1,416
|
|
1,321
|
1,275
|
|
7%
|
11%
|
|
Asset
management
|
3
|
|
7
|
7
|
|
(57)%
|
(57)%
|
|
Total
|
1,419
|
|
1,328
|
1,282
|
|
7%
|
11%
|
|
|
|
|
|
|
|
|
|
|
UK and
Europe operations
|
|
|
|
|
|
|
|
|
Underlying
free surplus generated from
in-force life business
|
1,277
|
|
1,070
|
1,070
|
|
19%
|
19%
|
|
Investment
in new businessnote (iii)(a)
|
(102)
|
|
(175)
|
(175)
|
|
42%
|
42%
|
|
Long-term
business
|
1,175
|
|
895
|
895
|
|
31%
|
31%
|
|
General
insurance commission
|
15
|
|
13
|
13
|
|
15%
|
15%
|
|
Total
insurance operations
|
1,190
|
|
908
|
908
|
|
31%
|
31%
|
|
Asset
management
|
392
|
|
403
|
403
|
|
(3)%
|
(3)%
|
|
Total
|
1,582
|
|
1,311
|
1,311
|
|
21%
|
21%
|
|
|
|
|
|
|
|
|
|
|
Underlying
free surplus generated from
insurance and asset management
operations before restructuring costs
|
4,172
|
|
3,717
|
3,620
|
|
12%
|
15%
|
|
Restructuring
costs
|
(125)
|
|
(77)
|
(77)
|
|
(62)%
|
(62)%
|
|
Underlying
free surplus generated from
insurance and asset management operations
|
4,047
|
|
3,640
|
3,543
|
|
11%
|
14%
|
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
Expected
in-force cash flows (including
expected return on net assets)
|
3,640
|
|
3,417
|
3,315
|
|
7%
|
10%
|
|
Effects
of changes in operating assumptions,
operating experience variances and other
items before restructuring costs
|
778
|
|
635
|
618
|
|
23%
|
26%
|
|
Underlying
free surplus generated from
in-force life business before restructuring costs
|
4,418
|
|
4,052
|
3,933
|
|
9%
|
12%
|
|
Investment
in new businessnote (iii)(a)
|
(815)
|
|
(913)
|
(886)
|
|
11%
|
8%
|
|
Total
long-term business
|
3,603
|
|
3,139
|
3,047
|
|
15%
|
18%
|
|
Asset
management and general insurance
commission
|
569
|
|
578
|
573
|
|
(2)%
|
(1)%
|
|
Restructuring
costs
|
(125)
|
|
(77)
|
(77)
|
|
(62)%
|
(62)%
|
|
|
4,047
|
|
3,640
|
3,543
|
|
11%
|
14%
|
(ii) Underlying free surplus generated - Group
total
|
|
|
|
|
|
|
|
|
|
2018 £m
|
|
2017 £m
|
|
% change
|
|||
|
|
|
AER
|
CER
|
|
AER
|
CER
|
|
Underlying
free surplus generated from
insurance and asset management operationsnote (i)
|
4,047
|
|
3,640
|
3,543
|
|
11%
|
14%
|
|
Other
income and expenditure
|
(737)
|
|
(756)
|
(750)
|
|
3%
|
2%
|
|
Group
total
|
3,310
|
|
2,884
|
2,793
|
|
15%
|
19%
|
(iii) Movement in free surplus
|
|
|
|
|
|
|
|
|
|
2018 £m
|
|||||
|
Asia
operations
|
US
operations
|
UK and
Europe
operations
|
Total insurance
and asset
management
operations
|
Other
operations
|
Group
total
|
|
Underlying
free surplus generated before
restructuring costs
|
1,171
|
1,419
|
1,582
|
4,172
|
(726)
|
3,446
|
|
Restructuring
costs
|
(19)
|
(17)
|
(89)
|
(125)
|
(11)
|
(136)
|
|
Underlying
free surplus generatednotes (i)(ii)
|
1,152
|
1,402
|
1,493
|
4,047
|
(737)
|
3,310
|
|
Non-operating
itemsnote (b)
|
(393)
|
(842)
|
472
|
(763)
|
(22)
|
(785)
|
|
|
759
|
560
|
1,965
|
3,284
|
(759)
|
2,525
|
|
Net
cash flows to parent companynote (c)
|
(699)
|
(342)
|
(691)
|
(1,732)
|
1,732
|
-
|
|
External
dividends
|
-
|
-
|
-
|
-
|
(1,244)
|
(1,244)
|
|
Exchange
rate movements, timing differences
and other itemsnote (d)
|
(496)
|
21
|
239
|
(236)
|
1,505
|
1,269
|
|
Net
movement in free surplus
|
(436)
|
239
|
1,513
|
1,316
|
1,234
|
2,550
|
|
Balance
at beginning of year
|
2,470
|
1,928
|
3,180
|
7,578
|
1,774
|
9,352
|
|
Balance
at end of year
|
2,034
|
2,167
|
4,693
|
8,894
|
3,008
|
11,902
|
|
|
2017 £m
|
|||||
|
Asia
operations
|
US
operations
|
UK and
Europe
operations
|
Total insurance
and asset
management
operations
|
Other
operations
|
Group
total
|
|
Underlying
free surplus generated before
restructuring costs
|
1,078
|
1,328
|
1,311
|
3,717
|
(746)
|
2,971
|
|
Restructuring
costs
|
(14)
|
-
|
(63)
|
(77)
|
(10)
|
(87)
|
|
Underlying
free surplus generatednotes(i)(ii)
|
1,064
|
1,328
|
1,248
|
3,640
|
(756)
|
2,884
|
|
Non-operating
itemsnote (b)
|
330
|
(1,203)
|
572
|
(301)
|
27
|
(274)
|
|
|
1,394
|
125
|
1,820
|
3,339
|
(729)
|
2,610
|
|
Net
cash flows to parent companynote (c)
|
(645)
|
(475)
|
(668)
|
(1,788)
|
1,788
|
-
|
|
External
dividends
|
-
|
-
|
-
|
-
|
(1,159)
|
(1,159)
|
|
Exchange
rate movements, timing differences
and other itemsnote (d)
|
(421)
|
(140)
|
22
|
(539)
|
226
|
(313)
|
|
Net
movement in free surplus
|
328
|
(490)
|
1,174
|
1,012
|
126
|
1,138
|
|
Balance
at beginning of year
|
2,142
|
2,418
|
2,006
|
6,566
|
1,648
|
8,214
|
|
Balance
at end of year
|
2,470
|
1,928
|
3,180
|
7,578
|
1,774
|
9,352
|
Notes
(a)
Free surplus invested in new business primarily represents
acquisition costs and amounts set aside for required
capital.
(b)
Non-operating items include short-term fluctuations in investment
returns, the effect of changes in economic assumptions for
long-term business operations and the effect of corporate
transactions as described in note 17. In addition, for 2018 this
includes the impact of a capital modelling enhancement in the UK
and in the US changes to RBC factors following the US tax reform,
which were formally approved by the National Association of
Insurance Commissioners (NAIC) in June 2018. For 2017 this included
the impact of US tax reform (see note 16).
(c)
Net cash flows to parent company for long-term business operations
reflect the flows as included in the holding company cash flow at
transaction rates.
(d)
Exchange rate movements, timing differences and other items
represent:
|
|
|
|
|
|
|
|
|
|
2018
£m
|
|||||
|
Asia
operations
|
US
operations
|
UK
and
Europe
operations
|
Total
insurance
and
asset
management
operations
|
Other
operations
|
Group
total
|
|
Exchange
rate movements
|
88
|
131
|
-
|
219
|
(6)
|
213
|
|
Mark to
market value movements on Jackson assets
backing surplus and required capital
|
-
|
(95)
|
-
|
(95)
|
-
|
(95)
|
|
Other
itemsnote (e)
|
(584)
|
(15)
|
239
|
(360)
|
1,511
|
1,151
|
|
|
|
(496)
|
21
|
239
|
(236)
|
1,505
|
1,269
|
|
|
|
|
|
|
|
|
|
|
2017
£m
|
|||||
|
Asia
operations
|
US
operations
|
UK and
Europe
operations
|
Total
insurance
and
asset management operations
|
Other
operations
|
Group
total
|
|
Exchange
rate movements
|
(113)
|
(190)
|
6
|
(297)
|
(13)
|
(310)
|
|
Mark to
market value movements on Jackson assets
backing surplus and required capital
|
-
|
40
|
-
|
40
|
-
|
40
|
|
Other
itemsnote (e)
|
(308)
|
10
|
16
|
(282)
|
239
|
(43)
|
|
|
|
(421)
|
(140)
|
22
|
(539)
|
226
|
(313)
|
(e)
Other items include the effect of the net issuance of £1.2
billion of subordinated debt for other operations in 2018,
intra-group loans and other intra-group transfers between
operations and other non-cash items.
11 Expected transfer of value of in-force business and
required capital to free surplus
The
discounted value of in-force business and required capital for
long-term business operations can be reconciled to the 2018 and
2017 total emergence of free surplus as follows:
|
2018 £m
|
2017 £m
|
Required
capitalnote 9
|
9,848
|
10,265
|
Value
of in-force business (VIF)note 9
|
33,013
|
29,410
|
Add
back: deduction for cost of time value of guaranteesnote
9
|
2,427
|
836
|
Other
items*
|
(2,169)
|
(1,371)
|
Total
long-term business operations
|
43,119
|
39,140
|
*
'Other items' represent amounts incorporated into VIF where there
is no definitive timeframe for when the payments will be made or
receipts received. In particular, other items include the deduction
of the shareholders' interest in the with-profits estate, the value
of which is derived by increasing final bonus rates so as to
exhaust the estate over the lifetime of the in-force with-profits
business. This is an assumption to give an appropriate valuation.
To be conservative this item is excluded from the expected free
surplus generation profile below.
Cash
flows are projected on a deterministic basis and are discounted at
the appropriate risk discount rate. The modelled cash flows use the
same methodology underpinning the Group's EEV reporting and so are
subject to the same assumptions and sensitivities.
The
table below shows how the VIF generated by the in-force business
and the associated required capital for long-term business
operations is modelled as emerging into free surplus over future
years.
|
|
2018 £m
|
|||||
|
|
Expected period of conversion of future post-tax distributable
earnings
and required capital flows to free surplus
|
|||||
|
2018 total as shown above
|
1-5 years
|
6-10 years
|
11-15 years
|
16-20 years
|
21-40 years
|
40+ years
|
Asia
|
23,332
|
6,276
|
4,185
|
2,762
|
2,053
|
5,399
|
2,657
|
US
|
13,294
|
6,928
|
4,094
|
1,771
|
378
|
123
|
-
|
UK and
Europe
|
6,493
|
2,616
|
1,713
|
1,053
|
633
|
476
|
2
|
Total
|
43,119
|
15,820
|
9,992
|
5,586
|
3,064
|
5,998
|
2,659
|
|
100%
|
37%
|
23%
|
13%
|
7%
|
14%
|
6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 £m
|
|||||
|
|
Expected period of conversion of future post-tax distributable
earnings
and required capital flows to free surplus
|
|||||
|
2017 total as shown above
|
1-5 years
|
6-10 years
|
11-15 years
|
16-20 years
|
21-40 years
|
40+ years
|
Asia
|
18,692
|
5,583
|
3,638
|
2,418
|
1,655
|
3,845
|
1,553
|
US
|
12,455
|
6,247
|
3,993
|
1,697
|
401
|
117
|
-
|
UK and
Europe
|
7,993
|
3,012
|
2,066
|
1,289
|
899
|
704
|
23
|
Total
|
39,140
|
14,842
|
9,697
|
5,404
|
2,955
|
4,666
|
1,576
|
|
100%
|
38%
|
25%
|
14%
|
7%
|
12%
|
4%
|
12 Sensitivity of results to alternative
assumptions
(i) Sensitivity analysis - economic
assumptions
The
tables below show the sensitivity of the embedded value as at 31
December 2018 and 31 December 2017 and the new business
contribution after the effect of required capital for 2018 and 2017
for long-term business operations to:
- 1
per cent increase in the discount rates;
- 1
per cent increase in interest rates and risk discount rates,
including consequential changes (assumed investment returns for all
asset classes, market values of fixed interest
assets);
- 0.5
per cent decrease in interest rates and risk discount rates,
including consequential changes (assumed investment returns for all
asset classes, market values of fixed interest
assets);
- 1
per cent rise in equity and property yields;
- 10
per cent fall in market value of equity and property assets
(embedded value only);
- The
statutory minimum capital level in contrast to EEV basis required
capital (embedded value only); and
- 5
basis points increase in UK long-term expected
defaults.
In each
sensitivity calculation, all other assumptions remain unchanged
except where they are directly affected by the revised economic
conditions.
New
business contribution from long-term business
operations
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
2018 £m
|
|
2017 £m
|
||||||
|
Asia
|
US
|
UK and
Europe
|
Total
|
|
Asia
|
US
|
UK and
Europe
|
Total
|
New
business contributionnote 3
|
2,604
|
921
|
352
|
3,877
|
|
2,368
|
906
|
342
|
3,616
|
Discount
rates - 1% increase
|
(549)
|
(42)
|
(33)
|
(624)
|
|
(477)
|
(34)
|
(48)
|
(559)
|
Interest
rates - 1% increase
|
(202)
|
94
|
43
|
(65)
|
|
(103)
|
124
|
44
|
65
|
Interest
rates - 0.5% decrease
|
58
|
(66)
|
(23)
|
(31)
|
|
(59)
|
(85)
|
(23)
|
(167)
|
Equity/property
yields - 1% rise
|
130
|
115
|
45
|
290
|
|
130
|
130
|
52
|
312
|
Long-term
expected defaults - 5 bps increase
|
-
|
-
|
-
|
-
|
|
-
|
-
|
(1)
|
(1)
|
Embedded
value of long-term business operations
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
31 Dec 2018 £m
|
|
31 Dec 2017 £m
|
||||||
|
Asia
|
US
|
UK and
Europe
|
Total
|
|
Asia
|
US
|
UK and
Europe
|
Total
|
Shareholders'
equitynote 8
|
24,329
|
14,650
|
11,409
|
50,388
|
|
20,947
|
13,257
|
11,713
|
45,917
|
Discount
rates - 1% increase
|
(3,292)
|
(513)
|
(648)
|
(4,453)
|
|
(2,560)
|
(440)
|
(774)
|
(3,774)
|
Interest
rates - 1% increase
|
(1,564)
|
119
|
(668)
|
(2,113)
|
|
(944)
|
26
|
(635)
|
(1,553)
|
Interest
rates - 0.5% decrease
|
366
|
(273)
|
363
|
456
|
|
121
|
(166)
|
384
|
339
|
Equity/property
yields - 1% rise
|
1,041
|
1,011
|
377
|
2,429
|
|
873
|
896
|
425
|
2,194
|
Equity/property
market values - 10% fall
|
(473)
|
(498)
|
(461)
|
(1,432)
|
|
(429)
|
(209)
|
(479)
|
(1,117)
|
Statutory
minimum capital
|
110
|
217
|
-
|
327
|
|
169
|
158
|
-
|
327
|
Long-term
expected defaults - 5 bps increase
|
-
|
-
|
(76)
|
(76)
|
|
-
|
-
|
(135)
|
(135)
|
The
sensitivities shown above are for the impact of instantaneous
changes on the embedded value of long-term business operations and
include the combined effect on the value of in-force business and
net assets at the balance sheet dates indicated. If the change in
assumptions shown in the sensitivities were to occur, then the
effect shown above would be recorded within two components of the
profit analysis for the following year, namely the effect of
economic assumption changes and short-term fluctuations in
investment returns. In addition to the sensitivity effects shown
above, the other components of the profit for the following year
would be calculated by reference to the altered assumptions, for
example new business contribution and unwind of discount, together
with the effect of other changes such as altered corporate bond
spreads. In addition for changes in interest rates, the effect
shown above for Jackson would also be recorded within the fair
value movements on assets backing surplus and required capital,
which are taken directly to shareholders' equity.
(ii) Sensitivity analysis - non-economic
assumptions
The
tables below show the sensitivity of the embedded value as at 31
December 2018 and 31 December 2017 and the new business
contribution after the effect of required capital for 2018 and 2017
for long-term business operations to:
- 10
per cent proportionate decrease in maintenance expenses (for
example a 10 per cent sensitivity on a base assumption of £10
per annum would represent an expense assumption of £9 per
annum);
- 10
per cent proportionate decrease in lapse rates (for example a 10
per cent sensitivity on a base assumption of 5 per cent would
represent a lapse rate of 4.5 per cent per annum); and
- 5
per cent proportionate decrease in base mortality and morbidity
rates (ie increased longevity).
New
business contribution from long-term business
operations
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 £m
|
|
2017 £m
|
||||||
|
|
Asia
|
US
|
UK and
Europe
|
Total
|
|
Asia
|
US
|
UK and
Europe
|
Total
|
New
business contributionnote 3
|
2,604
|
921
|
352
|
3,877
|
|
2,368
|
906
|
342
|
3,616
|
|
Maintenance
expenses - 10% decrease
|
40
|
11
|
2
|
53
|
|
38
|
14
|
3
|
55
|
|
Lapse
rates - 10% decrease
|
154
|
24
|
17
|
195
|
|
133
|
24
|
20
|
177
|
|
Mortality
and morbidity - 5% decrease
|
70
|
4
|
1
|
75
|
|
69
|
4
|
(2)
|
71
|
Embedded
value of long-term business operations
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
31 Dec 2018 £m
|
|
31 Dec 2017 £m
|
||||||
|
|
Asia
|
US
|
UK and Europe
|
Total
|
|
Asia
|
US
|
UK and Europe
|
Total
|
Shareholders'
equitynote 8
|
24,329
|
14,650
|
11,409
|
50,388
|
|
20,947
|
13,257
|
11,713
|
45,917
|
|
Maintenance
expenses - 10% decrease
|
254
|
178
|
80
|
512
|
|
213
|
169
|
64
|
446
|
|
Lapse
rates - 10% decrease
|
972
|
619
|
87
|
1,678
|
|
753
|
659
|
64
|
1,476
|
|
Mortality
and morbidity - 5% decrease
|
835
|
141
|
(294)
|
682
|
|
668
|
214
|
(442)
|
440
|
|
Change
representing effect on:
|
|
|
|
|
|
|
|
|
|
|
|
Life
business
|
835
|
196
|
13
|
1,044
|
|
668
|
214
|
13
|
895
|
|
Annuities
|
-
|
(55)
|
(307)
|
(362)
|
|
-
|
-
|
(455)
|
(455)
|
13 Methodology and accounting
presentation
(i) Methodology
Overview
The
embedded value is the present value of the shareholders' interest
in the earnings distributable from assets allocated to covered
business after sufficient allowance has been made for the aggregate
risks in that business. The shareholders' interest in the Group's
long-term business comprises:
- The
present value of future shareholder cash flows from in-force
covered business (value of in-force business), less deductions
for:
- The
cost of locked-in required capital; and
- The
time value of cost of options and guarantees;
- Locked-in
required capital; and
- The
shareholders' net worth in excess of required capital (free
surplus).
The
value of future new business is excluded from the embedded
value.
Notwithstanding
the basis of presentation of results as explained in
note 13(ii)(c), no smoothing of market or account balance
values, unrealised gains or investment return is applied in
determining the embedded value or profit. Separately, the analysis
of profit is delineated between operating profit based on
longer-term investment returns and other constituent items, as
explained in note 13(ii)(a).
(a) Covered business
The EEV
results for the Group are prepared for 'covered business', as
defined by the EEV Principles. Covered business represents the
Group's long-term insurance business, including the Group's
investments in joint venture and associate insurance operations,
for which the value of new and in-force contracts is attributable
to shareholders. The post-tax EEV basis results for the Group's
covered business are then combined with the post-tax IFRS basis
results of the Group's asset management and other operations
(including Group and Asia Regional Head Office, holding company
borrowings, Africa operations and Prudential Capital). Under the
EEV Principles, the results for covered business incorporate the
projected margins of attaching internal asset management, as
described in note 13(i)(g).
The
definition of long-term business operations comprises those
contracts falling under the definition for regulatory purposes
together with, for US operations, contracts that are in substance
the same as guaranteed investment contracts (GICs) but do not fall
within the technical definition.
Covered
business comprises the Group's long-term business operations, with
two exceptions:
- The
closed Scottish Amicable Insurance Fund (SAIF) which is excluded
from covered business. SAIF is a ring-fenced sub-fund of The
Prudential Assurance Company Limited (PAC) long-term fund,
established by a Court Approved Scheme of Arrangement in October
1997. SAIF is closed to new business and the assets and liabilities
of the fund are wholly attributable to the policyholders of the
fund; and
-
The presentational treatment of the Group's principal defined
benefit pension scheme, the Prudential Staff Pension Scheme (PSPS).
The partial recognition of the surplus for PSPS is recognised in
'Other' operations.
A small
amount of UK group pensions business is also not modelled for EEV
reporting purposes.
(b) Valuation of in-force and new
business
The
embedded value results are prepared incorporating best estimate
assumptions about all relevant factors including levels of future
investment returns, expenses, persistency, mortality and morbidity,
as described in note 14(vii). These assumptions are used to
project future cash flows. The present value of the future cash
flows is then calculated using a discount rate which reflects both
the time value of money and the non-diversifiable risks associated
with the cash flows that are not otherwise allowed
for.
New business
In
determining the EEV basis value of new business, premiums are
included in projected cash flows on the same basis of
distinguishing
annual and single premium business as set out for statutory basis
reporting.
New
business premiums reflect those premiums attaching to covered
business, including premiums for contracts classified as
investment products
for IFRS basis reporting. New business premiums for regular premium
products are shown on an annualised basis. Internal vesting
business is classified as new business where the contracts include
an open market option
The post-tax contribution
from new business represents profits determined by applying
operating and economic assumptions as at the end of the
year. New business profitability is a key metric for the Group's
management of the development of the business. In
addition, post-taxnew business margins are shown by reference
to annual premium equivalents (APE) and the present value of new
business premiums (PVNBP). These margins are calculated as the
percentage of the value of new business profit to APE and PVNBP.
APE is calculated as the aggregate of regular premiums on new
business written in the period and one-tenth of single premiums.
PVNBP is calculated as the aggregate of single premiums and the
present value of expected future premiums from regular premium new
business, allowing for lapses and the other assumptions made in
determining the EEV new business contribution.
Valuation movements on investments
With
the exception of debt securities held by Jackson, investment gains
and losses during the year (to the extent that changes in
capital values do not directly match changes in liabilities) are
included directly in the profit for the year and
shareholders' equity as they arise.
The
results for any covered business conceptually reflect the aggregate
of the IFRS results and the movements on the additional
shareholders' interest recognised on the EEV basis. Thus the start
point for the calculation of the EEV results for Jackson, as for
other businesses, reflects the market value movements recognised on
an IFRS basis.
However,
in determining the movements on the additional shareholders'
interest, the basis for calculating the EEV result for Jackson
acknowledges that, for debt securities backing liabilities, the
aggregate EEV results reflect the fact that the value of in-force
business instead incorporates the discounted value of future spread
earnings. This value is not affected generally by short-term market
movements on securities that, broadly speaking, are held for the
longer term.
Fixed
income securities backing the free surplus and required capital for
Jackson are accounted for at fair value. However, consistent with
the treatment applied under IFRS for Jackson securities classified
as available-for-sale, movements in unrealised
appreciation/depreciation on these securities are accounted for in
equity rather than in the income statement, as shown in the
movement in shareholders' equity.
(c)
Cost of capital
A
charge is deducted from the embedded value for the cost of
locked-in required capital supporting the Group's long-term
business. The cost is the difference between the nominal value of
the capital and the discounted value of the projected releases of
this capital, allowing for post-tax investment earnings on the
capital.
The
annual result is affected by the movement in this cost from year to
year which comprises a charge against new business profit and
generally a release in respect of the reduction in capital
requirements for business in force as this runs off.
Where
required capital is held within a with-profits long-term fund, the
value placed on surplus assets in the fund is already discounted to
reflect its expected release over time and no further adjustment is
necessary in respect of required capital.
(d) Financial options and
guarantees
Nature of financial options and guarantees in Prudential's
long-term business
Asia
Subject
to local market circumstances and regulatory requirements, the
guarantee features described below in respect of UK and Europe
business broadly apply to similar types of participating contracts
in Asia which are principally written in Hong Kong, Singapore and
Malaysia. Participating products have both guaranteed and
non-guaranteed elements.
There
are also various non-participating long-term products with
guarantees. The principal guarantees are those for whole-of-life
contracts with floor levels of policyholder benefits that accrue at
rates set at inception and do not vary subsequently with market
conditions.
US
(Jackson)
The
principal financial options and guarantees in Jackson are
associated with the fixed annuity (FA) and variable annuity (VA)
lines of business.
Fixed
annuities provide that, at Jackson's discretion, it may reset the
interest rate credited to policyholders' accounts, subject to a
guaranteed minimum. The guaranteed minimum return varies from 1.0
per cent to 5.5 per cent for both years, depending on the
particular product, jurisdiction where issued, and date of issue.
At 31 December 2018, 88 per cent of the account values on fixed
annuities are for policies with guarantees of 3 per cent or less
(31 December 2017: 87 per cent), and the average guarantee rate is
2.6 per cent for both years.
Fixed
annuities also present a risk that policyholders will exercise
their option to surrender their contracts in periods of rapidly
rising interest rates, possibly requiring Jackson to liquidate
assets at an inopportune time.
Jackson
issues variable annuity (VA) contracts for which it contractually
guarantees to the contract holder, subject to specific conditions,
either: a) return of no less than total deposits made to the
contract adjusted for any partial withdrawals; b) total deposits
made to the contract adjusted for any partial withdrawals plus a
minimum return; or c) the highest contract value on a specified
anniversary date adjusted for any withdrawals following the
specified contract anniversary. These guarantees include benefits
that are payable upon depletion of funds (Guaranteed Minimum
Withdrawal Benefit (GMWB)), as death benefits (Guaranteed
Minimum Death Benefits (GMDB)) or as income benefits (Guaranteed
Minimum Income Benefits (GMIB)). These guarantees generally protect
the policyholders' value in the event of poor equity market
performance. Jackson hedges the GMWB and GMDB guarantees through
the use of equity options and futures contracts, and essentially
fully reinsures the GMIB guarantees.
Jackson
also issues fixed index annuities (FIA) that enable policyholders
to obtain a portion of an equity-linked return while providing a
guaranteed minimum return. The guaranteed minimum returns are of a
similar nature to those described above for fixed
annuities.
UK and
Europe (M&GPrudential)
The
only significant financial options and guarantees in
M&GPrudential's covered business arise in the with-profits
fund.
With-profits
products provide returns to policyholders through bonuses that are
smoothed. There are two types of bonuses: annual and final. Annual
bonuses are declared once a year and, once credited, are guaranteed
in accordance with the terms of the particular product. Final
bonuses are guaranteed only until the next bonus declaration. The
UK with-profits fund also held a provision of £49 million at
31 December 2018 (31 December 2017: £53 million) to honour
guarantees on a small number of guaranteed annuity option
products.
The
Group's main exposure to guaranteed annuity options in
M&GPrudential is through the non-covered business of SAIF. A
provision of £361 million was held in SAIF at 31 December 2018
(31 December 2017: £503 million) to honour the guarantees. As
described in note 13 (i)(a), the assets and liabilities are wholly
attributable to the policyholders of the fund. Therefore the
movement in the provision has no direct impact on shareholders'
funds.
Time value
The
value of financial options and guarantees comprises two
parts:
- The
first part arises from a deterministic valuation on best estimate
assumptions (the intrinsic value); and
- The
second part arises from the variability of economic outcomes in the
future (the time value).
Where
appropriate, a full stochastic valuation has been undertaken to
determine the time value of the financial options and
guarantees.
The
economic assumptions used for the stochastic calculations are
consistent with those used for the deterministic calculations.
Assumptions specific to the stochastic calculations reflect local
market conditions and are based on a combination of actual market
data, historic market data and an assessment of long-term economic
conditions. Common principles have been adopted across the Group
for the stochastic asset models, for example, separate modelling of
individual asset classes but with an allowance for correlation
between the various asset classes. Details of the key
characteristics of each model are given in notes 14(iv), (v)
and (vi).
In
deriving the time value of financial options and guarantees,
management actions in response to emerging investment and fund
solvency conditions have been modelled. Management actions
encompass, but are not confined to, investment allocation
decisions, levels of reversionary and terminal bonuses and credited
rates. Bonus rates are projected from current levels and varied in
accordance with assumed management actions applying in the emerging
investment and fund solvency conditions.
In all
instances, the modelled actions are in accordance with approved
local practice and therefore reflect the options actually available
to management. For the UK with-profits fund, the actions assumed
are consistent with those set out in the Principles and Practices
of Financial Management which explains how regular and final bonus
rates within the discretionary framework are determined, subject to
the general legislative requirements applicable.
(e)
Level of required capital
In
adopting the EEV Principles, Prudential has based required capital
on the applicable local statutory regulations, including any
amounts considered to be required above the local statutory minimum
requirements to satisfy regulatory constraints.
For
with-profits business in Asia and the UK, the available capital in
the fund is sufficient to meet the capital requirements. For
M&GPrudential, a portion of future shareholder transfers
expected from the with-profits fund is recognised within net worth,
together with the associated capital requirements.
For
shareholder-backed business, the following capital requirements for
long-term business operations apply:
- Asia:
the level of required capital has been set to an amount at least
equal to local statutory notification requirements. For China
operations, the level of required capital follows the approach for
embedded value reporting issued by the China Association of
Actuaries (CAA) reflecting the C-ROSS regime;
- US:
the level of required capital has been set at 250 per cent of the
risk-based capital (RBC) required by the National Association of
Insurance Commissioners (NAIC) at the Company Action Level (CAL);
and
- UK
and Europe: the capital requirements are set at the Solvency II
Solvency Capital Requirement (SCR) for shareholder-backed business
as a whole. Following the announced demerger, from 1 January 2018
this does not allow for diversification outside the planned
perimeter of the business to be demerged.
(f) With-profits business and the treatment of
the estate
The
proportion of surplus allocated to shareholders from the UK
with-profits fund has been based on the present level of 10 per
cent. The value attributed to the shareholders' interest in the
estate is derived by increasing final bonus rates (and related
shareholder transfers) so as to exhaust the estate over the
lifetime of the in-force with-profits business. In any scenarios
where the total assets of the life fund are insufficient to meet
policyholder claims in full, the excess cost is fully attributed to
shareholders. Similar principles apply, where appropriate, for
other with-profits funds of the Group's Asia
operations.
(g) Internal asset management
The
in-force and new business results from long-term business include
the projected value of profits or losses from asset management and
service companies that support the Group's covered insurance
businesses. The results of the Group's asset management operations
include the current year profits from the management of
both internal and external funds. EEV basis shareholders' other
income and expenditure is adjusted to deduct the unwind of the
expected internal asset management profit margin for the year
as included in 'Other operations'. The deduction is on a basis
consistent with that used for projecting the results for covered
insurance business. Group operating profit accordingly includes the
variance between actual and expected profit in respect of
management of the assets for covered business.
(h) Allowance for risk and risk discount
rates
Overview
Under
the EEV Principles, discount rates used to determine the present
value of future cash flows are set by reference to risk-free rates
plus a risk margin.
For
Asia and the US, the risk-free rates are based on 10-year local
government bond yields. For UK and Europe, the EEV risk-free rate
is based on the full term structure of interest rates, ie a yield
curve, which is used to determine the embedded value at the end of
the reporting period.
The
risk margin should reflect any non-diversifiable risk associated
with the emergence of distributable earnings that is not allowed
for elsewhere in the valuation. In order to better reflect
differences in relative market risk volatility inherent in each
product group, Prudential sets the risk discount rates to reflect
the expected volatility associated with the cash flows for each
product category in the embedded value model, rather than at a
Group level.
Since
financial options and guarantees are explicitly valued under the
EEV methodology, risk discount rates under EEV are set excluding
the effect of these product features.
The
risk margin represents the aggregate of the allowance for market
risk, additional allowance for credit risk where appropriate, and
allowance for non-diversifiable non-market risk. No allowance is
required for non-market risks where these are assumed to be fully
diversifiable.
Market risk allowance
The
allowance for market risk represents the beta multiplied by an
equity risk premium. Except for UK shareholder-backed annuity
business (as explained below), such an approach has been used for
the Group's businesses.
The
beta of a portfolio or product measures its relative market risk.
The risk discount rates reflect the market risk inherent in each
product group and hence the volatility of product cash flows. These
are determined by considering how the profits from each product are
affected by changes in expected returns on various asset classes.
By converting this into a relative rate of return, it is possible
to derive a product-specific beta.
Product
level betas reflect the most recent product mix to produce
appropriate betas and risk discount rates for each major product
grouping.
Additional credit risk allowance
The
Group's methodology is to allow appropriately for credit risk. The
allowance for total credit risk is to cover:
- Expected
long-term defaults;
- Credit
risk premium (to reflect the volatility in downgrade and default
levels); and
- Short-term
downgrades and defaults.
These
allowances are initially reflected in determining best estimate
returns and through the market risk allowance described above.
However, for those businesses largely backed by holdings of debt
securities, these allowances in the projected returns and market
risk allowances may not be sufficient and an additional allowance
may be appropriate.
The
practical application of the allowance for credit risk varies
depending upon the type of business as described
below:
Asia
For
Asia, the allowance for credit risk incorporated in the projected
rates of return and the market risk allowance are considered to be
sufficient. Accordingly, no additional allowance for credit risk is
required.
The
projected rates of return for holdings of corporate bonds comprise
the risk-free rate plus an assessment of long-term spread over the
risk-free rate.
US
(Jackson)
For
Jackson business, the allowance for long-term defaults of 0.17 per
cent (31 December 2017: 0.19 per cent) is reflected in the risk
margin reserve (RMR) charge that is deducted in determining the
projected spread margin between the earned rate on the investments
and the policyholder crediting rate.
The
risk discount rate incorporates an additional allowance for credit
risk premium and short-term downgrades and defaults (0.2 per cent
for variable annuity business and 1.0 per cent for non-variable
annuity business for both years), as shown in note 14(ii). In
determining this allowance a number of factors have been
considered. These factors, in particular, include:
- How
much of the credit spread on debt securities represents an
increased short-term credit risk not reflected in the RMR long-term
default assumptions, and how much is liquidity premium (which is
the premium required by investors to compensate for the risk of
longer-term investments which cannot be easily converted into cash
at the fair market value). In assessing this effect, consideration
has been given to a number of approaches to estimating the
liquidity premium by considering recent statistical data;
and
-
Policyholder benefits for Jackson fixed annuity business are not
fixed. It is possible in adverse economic scenarios to pass on a
component of credit losses to policyholders (subject to guarantee
features) through lower investment returns credited to
policyholders. Consequently, it is only necessary to allow for the
balance of the credit risk in the risk discount rate.
The
level of the additional allowance is assessed at each
reporting period to take account of prevailing credit
conditions and as the business in force alters over time. The
additional allowance for variable annuity business has been set at
one-fifth of the non-variable annuity business to reflect the
proportion of the allocated holdings of general account debt
securities.
The
level of allowance differs from that for UK annuity business for
investment portfolio differences and to take account of the
management actions available in adverse economic scenarios to
reduce crediting rates to policyholders, subject to guarantee
features of the products.
UK and
Europe (M&GPrudential)
(1)
Shareholder-backed annuity business
For
shareholder-backed annuity business, Prudential has used a market
consistent embedded value (MCEV) approach to derive an implied risk
discount rate which is then applied to the projected best estimate
cash flows.
In the
annuity MCEV calculations, as the assets are generally held to
maturity to match liabilities, the future cash flows are
discounted using the swap yield curve plus an allowance for
liquidity premium based on the Solvency II allowance for credit
risk. The Solvency II allowance is set by the European Insurance
and Occupational Pensions Authority (EIOPA) using a prudent
assumption that all future downgrades will be replaced annually,
and allowing for the credit spread floor.
For the
purposes of presentation in the EEV results, the results produced
on this basis are reconfigured. Under this approach the projected
earned rate of return on the debt securities held is determined
after allowing for a best estimate credit risk allowance. The
remaining elements of prudence within the Solvency II allowance are
incorporated into the risk margin included in the discount rate,
shown in note 14(iii).
(2)
With-profits fund non-profit annuity business
For
non-profit annuity business attributable to the UK with-profits
fund, the basis for determining the aggregate allowance for credit
risk is consistent with that applied for UK shareholder-backed
annuity business (as described above). The allowance for credit
risk for this business is taken into account in determining the
projected cash flows from the with-profits fund, which are in turn
discounted at the risk discount rate applicable to all of the
projected cash flows from the fund.
(3)
With-profits fund holdings of debt securities
The
with-profits fund holds debt securities as part of its investment
portfolio backing policyholder liabilities and unallocated surplus.
The assumed earned rate for with-profit holdings of corporate bonds
is defined as the risk-free rate plus an assessment of the
long-term spread over riskfree, net of expected long-term defaults.
This approach is similar to that applied for equities and
properties for which the projected earned rate is defined as the
risk-free rate plus a long-term risk premium.
Allowance for non-diversifiable non-market
risks
The
majority of non-market and non-credit risks are considered to be
diversifiable. An allowance for non-diversifiable non-market risks
is estimated as set out below:
A base
level allowance of 50 basis points is applied to cover the
non-diversifiable non-market risks associated with the Group's
businesses. For the Group's Asia operations in Indonesia, the
Philippines, Taiwan, Thailand and Vietnam, additional allowances
are applied for emerging market risk ranging from 100 to 250 basis
points. The level of these allowances are reviewed and updated
based on an assessment of a range of pre-defined emerging market
risk indicators, as well as the Group's exposure and experience in
the business units. At 31 December 2018, the China allowance for
non-market risk was reduced reflecting the growth in the size of
the business, increasing management exposure and experience in the
country and an improvement in our risk assessment of the market.
For the Group's US business and UK and Europe business, no
additional allowance is necessary.
(i) Foreign currency translation
Foreign
currency profits and losses have been translated at average
exchange rates for the year. Foreign currency assets and
liabilities have been translated at year-end exchange rates.
The principal exchange rates are shown in note A1 of the IFRS
financial statements.
(j) Taxation
In
determining the post-tax profit for the year for covered
business, the overall tax rate includes the impact of tax effects
determined on a local regulatory basis. Tax payments and
receipts included in the projected cash flows to determine the
value of in-force business are calculated using rates that have
been announced and substantively enacted by the end of the
reporting period.
(k) Inter-company arrangements
The EEV
results for covered business incorporate annuities established in
the PAC non-profit sub-fund from vesting pension policies in SAIF
(which is not covered business). The EEV results also incorporate
the effect of the reinsurance arrangement of non-profit immediate
pension annuity liabilities of SAIF to the PAC non-profit
sub-fund.
(ii) Accounting presentation
(a) Analysis of post-tax profit
To the
extent applicable, the presentation of the EEV post-tax profit for
the year is consistent with the classification between
operating and non-operating results with the basis that the Group
applies for the analysis of IFRS basis results. Operating results
reflect underlying results including longer-term investment
returns, which are determined as described in note 13(ii)(b) and
incorporate the following:
- New
business contribution, as defined in note 13(i)(b);
- Unwind
of discount on the value of in-force business and other expected
returns, as described in note 13(ii)(c);
- The
impact of routine changes of estimates relating to operating
assumptions, as described in note 13(ii)(d); and
- Operating
experience variances, as described in note 13(ii)(e).
Non-operating
results comprise:
- Short-term
fluctuations in investment returns;
- The
mark to market value movements on core structural
borrowings;
- The
effect of changes in economic assumptions; and
- The
impact of corporate transactions undertaken in the
year.
In
addition, operating results include the effect of changes in tax
legislation, unless these changes are one-off and structural in
nature, such as the impact of the US tax reform in 2017 (see note
16), or primarily affect the level of projected investment returns,
in which case they are reflected as a non-operating
result.
Total
profit attributable to shareholders and basic earnings per share
include these items, together with actual investment returns. The
Group believes that operating profit, as adjusted for these items,
better reflects underlying performance.
For
M&GPrudential, the embedded value incorporates Solvency II
transitional measures, which are recalculated using management's
estimate of the impact of operating and market conditions at the
valuation date. The impact of this recalculation is recorded within
the corresponding component of the analysis of post-tax
profit.
(b) Investment returns included in operating
profit
For the
investment element of the assets covering the net worth of
long-term insurance business, investment returns are recognised in
operating results at the expected long-term rate of return. These
expected returns are calculated by reference to the asset mix of
the portfolio. For the purpose of calculating the longer-term
investment return to be included in the operating result of the
with-profits fund of M&GPrudential, where assets backing the
liabilities and unallocated surplus are subject to market
volatility, asset values at the beginning of the
reporting period are adjusted to remove the effects of
short-term market movements as explained in note
13(ii)(c).
For the
purpose of determining the long-term returns for debt securities of
US operations for fixed annuity and other general account business,
a risk margin reserve charge is included which reflects the
expected long-term rate of default based on the credit quality of
the portfolio. For Jackson, interest-related realised gains and
losses are amortised to the operating results over the
maturity period of the sold bonds and for equity-related
investments, a long-term rate of return is assumed, which reflects
the aggregation of end-of-period risk-free rates and the equity
risk premium. For US variable annuity separate account business,
operating profit includes the unwind of discount on the opening
value of in-force business adjusted to reflect end-of-period
projected rates of return with the excess or deficit of the actual
return recognised within non-operating profit, together with
related hedging activity.
For UK
annuity business, rebalancing of the asset portfolio backing the
liabilities to policyholders may, from time to time, take place to
align it more closely with the internal benchmark of credit quality
that management applies. Such rebalancing will result in a change
in the projected yield on the asset portfolio and the allowance for
default risk. The net effect of these changes is included in the
operating result for the year.
(c) Unwind of discount and other expected
returns
The
Group's methodology in determining the unwind of discount and other
expected returns is by reference to:
- The
value of in-force business at the beginning of
the year (adjusted for the effect of
current year economic and operating assumption changes);
and
- Required
capital and surplus assets.
In
applying this general approach, the unwind of discount included in
operating profit for M&GPrudential is described
below.
M&GPrudential
The
unwind is determined by reference to an implied single risk
discount rate. The EEV risk-free rate is based on a yield curve (as
set out in note 13(i)(h)), which is used to derive an implied
single discount rate which, if this rate had been used, would
reproduce the same embedded value as that calculated by reference
to the yield curve. The difference between the operating profit
determined using the single implied discount rate and that derived
using the yield curve is included within non-operating
profit.
For
with-profits business, the opening value of in-force is adjusted
for the effect of short-term investment volatility due to market
movements (ie smoothed). In the summary statement of financial
position and for total profit reporting, asset values and
investment returns are not smoothed. At 31 December 2018, the
shareholders' interest in the smoothed surplus assets used for this
purpose only were £12 million higher (31 December 2017:
£57 million lower) than the surplus assets carried in the
statement of financial position.
(d) Effect of changes in operating
assumptions
Operating
profit includes the effect of changes to non-economic assumptions
on the value of in-force at the end of the year. For
presentational purposes the effect of changes is delineated to show
the effect on the opening value of in-force as operating assumption
changes, with the experience variances subsequently being
determined by reference to the end-of-year assumptions (see
note 13(ii)(e)).
(e) Operating experience variances
Operating
profit includes the effect of experience variances on non-economic
assumptions, such as persistency, mortality and morbidity, expenses
and other factors, which are calculated with reference to the
end-of-year assumptions.
(f) Effect of changes in economic
assumptions
Movements
in the value of in-force business at the beginning of
the year caused by changes in economic assumptions, net
of the related change in the time value of cost of options and
guarantees, are recorded in non-operating
results.
14 Assumptions
Principal economic assumptions
The EEV
basis results for the Group's operations have been determined using
economic assumptions where the long-term expected rates of return
on investments and risk discount rates are set by reference
to year-end risk-free rates of return (defined below for each
of the Group's insurance operations). Expected returns on equity
and property asset classes and corporate bonds are derived by
adding a risk premium, based on the Group's long-term view, to the
risk-free rate.
The
total profit that emerges over the lifetime of an individual
contract as calculated using the embedded value basis is the same
over time as that calculated under the IFRS basis. Since the
embedded value basis reflects discounted future cash flows, under
the EEV methodology the profit emergence is advanced, thus more
closely aligning the timing of the recognition of profit with the
efforts and risks of current management actions, particularly with
regard to business sold during the year.
(i) Asia
The
risk-free rates of return for Asia are defined as 10-year
government bond yields at the end of the year.
|
Risk discount rate %
|
|
10-year government
bond yield %
|
|
Expected
long-term Inflation %
|
||||||
|
New business
|
|
In-force business
|
|
|
||||||
|
31 Dec
|
31 Dec
|
|
31 Dec
|
31 Dec
|
|
31 Dec
|
31 Dec
|
|
31 Dec
|
31 Dec
|
|
2018
|
2017
|
|
2018
|
2017
|
|
2018
|
2017
|
|
2018
|
2017
|
China
|
8.1
|
9.7
|
|
8.1
|
9.7
|
|
3.3
|
3.9
|
|
3.0
|
3.0
|
Hong
Kongnotes (b)(d)
|
4.4
|
4.1
|
|
4.4
|
4.1
|
|
2.7
|
2.4
|
|
2.5
|
2.5
|
Indonesia
|
12.4
|
10.6
|
|
12.4
|
10.6
|
|
8.2
|
6.4
|
|
4.5
|
4.5
|
Malaysianote
(d)
|
6.6
|
6.4
|
|
6.6
|
6.5
|
|
4.1
|
3.9
|
|
2.5
|
2.5
|
Philippines
|
14.5
|
12.7
|
|
14.5
|
12.7
|
|
7.0
|
5.2
|
|
4.0
|
4.0
|
Singaporenote
(d)
|
3.4
|
3.5
|
|
4.2
|
4.4
|
|
2.1
|
2.0
|
|
2.0
|
2.0
|
Taiwan
|
4.5
|
4.3
|
|
4.4
|
3.9
|
|
0.9
|
0.9
|
|
1.5
|
1.5
|
Thailand
|
10.0
|
9.8
|
|
10.0
|
9.8
|
|
2.5
|
2.3
|
|
3.0
|
3.0
|
Vietnam
|
12.6
|
12.6
|
|
12.6
|
12.6
|
|
5.1
|
5.1
|
|
5.5
|
5.5
|
Total
weighted risk discount ratenote (a)
|
5.4
|
5.3
|
|
5.8
|
5.7
|
|
|
|
|
|
|
Notes
(a)
The weighted risk discount rates for Asia operations shown above
have been determined by weighting each market's risk discount rates
by reference to the post-tax EEV basis new business contribution
and the closing value of in-force business. The changes in the risk
discount rates for individual Asia business units reflect the
movements in 10-year government bond yields, changes in the
economic basis and changes in product mix.
(b)
For Hong Kong the assumptions shown are for US dollar denominated
business. For other business units, the assumptions are for local
currency denominated business.
(c)
Equity risk premiums in Asia range from 4.0 per cent to 9.4 per
cent (2017: 4.0 per cent to 9.4 per cent).
(d)
The mean equity return assumptions for the most significant equity
holdings of the Asia operations are:
|
|
31 Dec
2018 %
|
31 Dec
2017 %
|
|
Hong
Kong
|
6.7
|
6.4
|
|
Malaysia
|
10.6
|
10.4
|
|
Singapore
|
8.6
|
8.5
|
(ii) US
The
risk-free rates of return for the US are defined as the 10-year
treasury bond yield at the end of the year.
|
|
|
31 Dec 2018 %
|
31 Dec 2017 %
|
Risk
discount rate:
|
|
|
||
|
Variable
annuity:
|
|
|
|
|
|
Risk
discount rate
|
7.1
|
6.8
|
|
|
Additional
allowance for credit risk included in risk discount ratenote
13(i)(h)
|
0.2
|
0.2
|
|
Non-variable
annuity:
|
|
|
|
|
|
Risk
discount rate
|
4.4
|
4.1
|
|
|
Additional
allowance for credit risk included in risk discount ratenote
13(i)(h)
|
1.0
|
1.0
|
|
Weighted
average total:
|
|
|
|
|
|
New
business
|
6.9
|
6.7
|
|
|
In-force
business
|
6.8
|
6.5
|
US
10-year treasury yield
|
2.7
|
2.4
|
||
Allowance
for long-term defaults included in projected spreadnote
13(i)(h)
|
0.17
|
0.19
|
||
Pre-tax
expected long-term nominal rate of return for US
equities
|
6.7
|
6.4
|
||
Expected
long-term rate of inflation
|
2.9
|
3.0
|
||
Equity
risk premium
|
4.0
|
4.0
|
||
S&P
equity return volatility
|
17.5
|
18.0
|
Note
Assumed
new business spread margins are as follows:
|
31 Dec 2018 %
|
|
31 Dec 2017 %
|
||
|
January to June issues
|
July to December issues
|
|
January to June issues
|
July to December issues
|
Fixed
annuity business*†
|
1.75
|
1.75
|
|
1.50
|
1.25
|
Fixed
index annuity business*
|
2.00
|
2.00
|
|
1.75
|
1.50
|
Institutional
business
|
0.50
|
0.50
|
|
0.50
|
0.50
|
* The
assumed spread margin grades up linearly by 25 basis points to a
long-term assumption over five years.
† Including
the proportion of variable annuity business invested in the general
account.
(iii) UK and Europe
The
risk-free rate is based on the full term structure of interest
rates, ie a yield curve, which is used to determine the embedded
value at the end of the reporting period. These yield curves are
used to derive pre-tax expected long-term nominal rates of
investment return and risk discount rates. For the purpose of
determining the unwind of discount in the analysis of operating
profit, these yield curves are used to derive a single implied risk
discount rate, as explained in note 13(i)(h).
This
single implied risk discount rate is shown, along with the 15-year
nominal rate of investment return and 15-year rate of inflation
based on the inflation yield curve.
|
|
31 Dec 2018 %
|
31 Dec 2017 %
|
Shareholder-backed annuity in-force business:note
(a)
|
|
|
|
Risk
discount rate
|
4.7
|
4.0
|
|
Pre-tax
expected 15-year nominal rates of investment return note
(c)
|
3.1
|
2.6
|
|
With-profits and other business:
|
|
|
|
Risk
discount rate:note (b)
|
|
|
|
|
New
business
|
4.9
|
4.7
|
|
In-force
business
|
5.0
|
4.8
|
Pre-tax
expected 15-year nominal rates of investment return:note
(c)
|
|
|
|
|
Overseas
equities
|
6.5 to 10.1
|
6.2 to
10.1
|
|
Property
|
4.4
|
4.4
|
|
15-year
gilt yield
|
1.7
|
1.6
|
|
Corporate
bonds
|
3.5
|
3.4
|
Expected
15-year rate of inflation
|
3.6
|
3.5
|
|
Equity
risk premium
|
4.0
|
4.0
|
Notes
(a)
For shareholder-backed annuity business, the movements in the
pre-tax long-term nominal rates of return and risk discount rates
reflect the effect of changes in asset yields.
(b)
The risk discount rates for with-profits and other business shown
above represents a weighted average total of the rates applied to
determine the present value of future cash flows, including the
portion of future with-profits business shareholders' transfers
recognised in net worth.
(c)
The table below shows the pattern of the UK risk-free Solvency II
spot yield curve at the end of 31 December:
|
|
1 year
|
5 year
|
10 year
|
15 year
|
20 year
|
|
31 Dec
2018
|
1.0%
|
1.2%
|
1.3%
|
1.4%
|
1.5%
|
|
31 Dec
2017
|
0.6%
|
0.9%
|
1.2%
|
1.3%
|
1.4%
|
Stochastic
assumptions
Details
are given below of the key characteristics of the models used to
determine the time value of the financial options and guarantees as
referred to in note 13(i)(d).
(iv)
Asia
- The
stochastic cost of guarantees is primarily of significance for the
Hong Kong, Malaysia, Singapore and Taiwan operations;
- The
principal asset classes are government and corporate
bonds;
- The
asset return models are similar to the models as described for
M&GPrudential below; and
- The
volatility of equity returns ranges from 18 per cent to 35 per cent
for both years, and the volatility of government bond yields ranges
from 1.1 per cent to 2.0 per cent (2017: from 1.1 per cent to 2.0
per cent).
(v) US (Jackson)
- Interest
rates and equity returns are projected using a log-normal generator
reflecting historical market data;
- Corporate
bond returns are based on treasury yields plus a spread that
reflects current market conditions; and
- The
volatility of equity returns ranges from 17 per cent to 26 per cent
(2017: from 18 per cent to 27 per cent), and the standard deviation
of interest rates ranges from 3.4 per cent to 3.7 per cent (2017:
from 2.5 per cent to 2.8 per cent).
(vi) UK and Europe (M&GPrudential)
- Interest
rates are projected using a stochastic interest rate model
calibrated to the current market yields;
- Equity
returns are assumed to follow a log-normal
distribution;
- The
corporate bond return is calculated based on a risk-free return
plus a mean-reverting spread;
- Property
returns are also modelled based on a risk-free return plus a risk
premium with a stochastic process reflecting total property
returns; and
- The
standard deviation of equities and property ranges from 14 per cent
to 20 per cent for both years.
Operating
assumptions
(vii)
Best estimate assumptions
Best
estimate assumptions are used for the cash flow projections, where
best estimate is defined as the mean of the distribution of future
possible outcomes. The assumptions are reviewed actively and
changes are made when evidence exists that material changes in
future experience are reasonably certain.
Assumptions
required in the calculation of the value of options and guarantees,
for example relating to volatilities and correlations, or dynamic
algorithms linking liabilities to assets, have been set equal to
the best estimates and, wherever material and practical, reflect
any dynamic relationships between the assumptions and the
stochastic variables.
Demographic
assumptions
Persistency,
mortality and morbidity assumptions are based on an analysis of
recent experience, but also reflect expected future experience.
Where relevant, when calculating the time value of financial
options and guarantees, policyholder withdrawal rates vary in line
with the emerging investment conditions according to management's
expectations. When projecting cash flows for medical
reimbursement business that is repriced annually, explicit
allowance is made for expected future premiums inflation and
separately for future medical claims inflation. The 2018 EEV
results reflect this approach. Previously, medical claims inflation
was implicitly allowed for by assuming that all increases in
medical claim costs were directly offset by future premium
increases with no impact on profits.
Expense
assumptions
Expense
levels, including those of service companies that support the
Group's long-term business operations, are based on internal
expense analysis and are appropriately allocated to acquisition of
new business and renewal of in-force business. For mature business,
it is Prudential's policy not to take credit for future cost
reduction programmes until the actions to achieve the savings have
been delivered. An allowance is made for short-term required
expenses, that are not representative of the longer-term expense
loadings of the relevant businesses. At 31 December 2018, the
allowance held for these costs across the Group was £(436)
million mainly arising in Asia. Expense overruns are reported where
these are expected to be short-lived, including businesses that are
growing rapidly or are sub-scale.
For
Asia operations, the expenses comprise costs borne directly and
recharged costs from the Asia Regional Head Office that are
attributable to covered business. The assumed future expenses for
these operations also include projections of these future
recharges. Development expenses are charged as
incurred.
Corporate
expenditure, which is included in other income and expenditure,
comprises:
- Expenditure
for Group Head Office, to the extent not allocated to the UK
with-profits funds, together with restructuring costs incurred
across the group; and
- Expenditure
of the Asia Regional Head Office that is not allocated to the
covered business or asset management operations which is charged as
incurred. These costs are primarily for corporate related
activities and are included within corporate
expenditure.
(viii) Tax rates
The
assumed long-term effective tax rates for operations reflect the
incidence of taxable profits and losses in the projected cash flows
as explained in note 13(i)(j).
The
local statutory corporate tax rates applicable for the most
significant operations for 2018 and 2017 are as
follows:
|
|
%
|
Asia
operations:
|
|
|
Hong
Kong
|
|
16.5
per cent on 5 per cent of premium income
|
Indonesia
|
|
25.0
|
Malaysia
|
|
24.0
|
Singapore
|
|
17.0
|
US
operations
|
|
2017:
35.0; 2018: 21.0
|
UK
operations
|
|
2017
and 2018: 19.0; from 1 April 2020: 17.0
|
15
Insurance new business premiumsnote
(i)
|
Single premiums
|
|
Regular premiums
|
|
Annual premium
equivalents
(APE)
|
|
Present value of
new business premiums
(PVNBP)
|
||||
|
|
|
|
|
|
|
note
13(i)(b)
|
|
note
13(i)(b)
|
||
|
2018 £m
|
2017 £m
|
|
2018 £m
|
2017 £m
|
|
2018 £m
|
2017 £m
|
|
2018 £m
|
2017 £m
|
Asia
|
2,316
|
2,299
|
|
3,513
|
3,575
|
|
3,744
|
3,805
|
|
20,754
|
20,405
|
US
|
15,423
|
16,622
|
|
-
|
-
|
|
1,542
|
1,662
|
|
15,423
|
16,622
|
UK and
Europe
|
13,382
|
13,044
|
|
177
|
187
|
|
1,516
|
1,491
|
|
14,073
|
13,784
|
Group
total
|
31,121
|
31,965
|
|
3,690
|
3,762
|
|
6,802
|
6,958
|
|
50,250
|
50,811
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
|
|
|
|
|
|
|
|
|
Cambodia
|
-
|
-
|
|
20
|
16
|
|
20
|
16
|
|
89
|
70
|
Hong
Kong
|
343
|
582
|
|
1,663
|
1,667
|
|
1,697
|
1,725
|
|
10,200
|
10,027
|
Indonesia
|
205
|
288
|
|
215
|
268
|
|
236
|
297
|
|
910
|
1,183
|
Malaysia
|
84
|
73
|
|
243
|
271
|
|
251
|
278
|
|
1,322
|
1,398
|
Philippines
|
43
|
62
|
|
83
|
71
|
|
87
|
77
|
|
296
|
287
|
Singapore
|
930
|
859
|
|
369
|
361
|
|
462
|
447
|
|
3,611
|
3,463
|
Thailand
|
217
|
139
|
|
95
|
70
|
|
117
|
84
|
|
609
|
421
|
Vietnam
|
20
|
8
|
|
144
|
133
|
|
146
|
134
|
|
708
|
659
|
South-east
Asia operations
including Hong Kong
|
1,842
|
2,011
|
|
2,832
|
2,857
|
|
3,016
|
3,058
|
|
17,745
|
17,508
|
Chinanote
(ii)
|
103
|
179
|
|
292
|
276
|
|
302
|
294
|
|
1,313
|
1,299
|
Taiwan
|
292
|
46
|
|
182
|
208
|
|
211
|
213
|
|
788
|
634
|
Indianote
(iii)
|
79
|
63
|
|
207
|
234
|
|
215
|
240
|
|
908
|
964
|
Total
|
2,316
|
2,299
|
|
3,513
|
3,575
|
|
3,744
|
3,805
|
|
20,754
|
20,405
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
|
|
|
|
|
|
|
|
|
Variable
annuities
|
10,810
|
11,536
|
|
-
|
-
|
|
1,081
|
1,154
|
|
10,810
|
11,536
|
Elite
Access (variable annuity)
|
1,681
|
2,013
|
|
-
|
-
|
|
168
|
201
|
|
1,681
|
2,013
|
Fixed
annuities
|
340
|
454
|
|
-
|
-
|
|
34
|
45
|
|
340
|
454
|
Fixed
index annuities
|
251
|
295
|
|
-
|
-
|
|
25
|
30
|
|
251
|
295
|
Wholesale
|
2,341
|
2,324
|
|
-
|
-
|
|
234
|
232
|
|
2,341
|
2,324
|
Total
|
15,423
|
16,622
|
|
-
|
-
|
|
1,542
|
1,662
|
|
15,423
|
16,622
|
|
|
|
|
|
|
|
|
|
|
|
|
UK and
Europe
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
3,539
|
3,509
|
|
-
|
-
|
|
354
|
351
|
|
3,540
|
3,510
|
Corporate
pensions
|
69
|
103
|
|
117
|
130
|
|
124
|
140
|
|
443
|
533
|
Individual
pensions
|
5,681
|
5,747
|
|
35
|
32
|
|
603
|
607
|
|
5,832
|
5,897
|
Income
drawdown
|
2,555
|
2,218
|
|
-
|
-
|
|
256
|
222
|
|
2,555
|
2,218
|
Other
products
|
1,538
|
1,467
|
|
25
|
25
|
|
179
|
171
|
|
1,703
|
1,626
|
Total
|
13,382
|
13,044
|
|
177
|
187
|
|
1,516
|
1,491
|
|
14,073
|
13,784
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
total
|
31,121
|
31,965
|
|
3,690
|
3,762
|
|
6,802
|
6,958
|
|
50,250
|
50,811
|
Notes
(i)
The tables shown above are provided as an indicative volume measure
of transactions undertaken in the reporting period that have the
potential to generate profits for shareholders. The amounts shown
are not, and not intended to be, reflective of premium income
recorded in the IFRS income statement.
(ii)
New business in China is included at Prudential's 50 per cent
interest in the China life operation.
(iii)
New business in India is included at Prudential's 26 per cent
interest in the India life operation.
16
Impact of US tax reform
On 22
December 2017, The Tax Cuts and Jobs Act in the US was enacted into
law effective from 1 January 2018. The tax reform package as a
whole, which included a reduction in the corporate income tax rate
from 35 per cent to 21 per cent and a number of specific measures
affecting US life insurers, resulted in a £390 million benefit
in non-operating profit reflected within the 2017 results. The
positive impact on an EEV basis represented the benefit of future
profits being taxed at a lower rate, partially offset by a
reduction in the net deferred tax asset held in the balance sheet
to reflect remeasurement at the new lower tax rate, together with a
reduction in the benefit from the dividend received deduction on
taxable profits from variable annuity business. In June 2018, the
National Association of Insurance Commissioners (NAIC) formally
approved changes to RBC capital factors that reflected the December
2017 US tax reform and the 2018 EEV results reflect these changes
as shown in notes 6 and 9.
17
Corporate transactions
Disposals and other corporate
transactions
|
2018
£m
|
|
2017
£m
|
Transactions
associated with M&GPrudentialnote (i)
|
(376)
|
|
-
|
Other
transactionsnote (ii)
|
(75)
|
|
80
|
|
(451)
|
|
80
|
Notes
(i) Transactions
associated with M&GPrudential
The following
transactions reduced the Group's EEV by £(376) million, which
primarily reflects the loss of profits on the portion of annuity
liabilities sold.
Intention to demerge the Group's UK and Europe business and
transfer of Hong Kong insurance subsidiaries
In
March 2018, the Group announced its intention to demerge its UK and
Europe business (M&GPrudential) from Prudential plc, resulting
in two separately listed companies. In preparation for the UK
demerger process, during December 2018, the legal ownership of
Prudential plc's Hong Kong insurance subsidiaries was transferred
from The Prudential Assurance Company Limited (M&GPrudential's
UK regulated Insurance entity) to Prudential Corporation Asia
Limited.
Sale of shareholder
annuity portfolio
In
March 2018, M&GPrudential reinsured £12.0 billion of its
shareholder annuity portfolio (IFRS liabilities valued as at 31
December 2017) to Rothesay Life. Under the terms of the agreement,
the reinsurance is expected to be followed by a Part VII transfer
of most of the reinsured portfolio by 30 June 2019. The 2018 EEV
results include the impact on EEV resulting from this
transfer.
(ii) Other transactions
In
2018, other corporate transactions resulted in an EEV loss of
£(75) million (2017: £80 million gain). This primarily
relates to additional costs incurred in exiting the US
broker-dealer business (which realised a post-tax gain of £80
million when the independent broker-dealer network was sold to LPL
Financial LLC in 2017) and costs related to the preparation for the
announced demerger discussed above.
18 Post
balance sheet events
Renewal of
strategic bancassurance alliance with United Overseas Bank
Limited
In
January 2019, the Group announced the renewal of its regional
strategic bancassurance alliance with United Overseas Bank Limited
(UOB). The new agreement extends the original alliance which
commenced in 2010 to 2034 and increases the geographical scope to
include a fifth market, Vietnam, alongside the existing markets
across Singapore, Malaysia, Thailand and Indonesia.
As part
of this transaction, Prudential has agreed to pay UOB an initial
fee of £662 million (translated using a Singapore dollar:
£ foreign exchange rate of 1.7360) for distribution rights
which is not dependent on future sales volumes. This amount will be
paid in three instalments of £230 million in February 2019,
£331 million in January 2020 and £101 million in January
2021. In line with the Group's policy, these amounts will be
capitalised as distribution rights intangible asset.
Additional EEV financial information*
A
New business
BASIS OF
PREPARATION
The
format of the schedules is consistent with the distinction between
insurance and investment products as applied for previous financial
reporting periods. With the exception of some US institutional
business, products categorised as 'insurance' refer to those
classified as contracts of long-term insurance business for
regulatory reporting purposes, ie falling within one of the classes
of insurance specified in Part II of Schedule 1 to the Regulated
Activities Order under Prudential Regulation Authority
regulations.
The
details shown for insurance products include contributions for
contracts that are classified under IFRS 4 'Insurance Contracts' as
not containing significant insurance risk. These products are
described as investment contracts or other financial instruments
under IFRS. Contracts included in this category are primarily
certain unit-linked and similar contracts written in UK and Europe
Insurance Operations, and Guaranteed Investment Contracts and
similar funding agreements written in US Insurance
Operations.
New
business premiums reflect those premiums attaching to covered
business, including premiums for contracts designed as investment
products for IFRS reporting and for regular premium products are
shown on an annualised basis.
Investment
products referred to in the tables for funds under management are
unit trusts, mutual funds and similar types of retail fund
management arrangements. These are unrelated to insurance products
that are classified as investment contracts under IFRS 4, as
described in the preceding paragraph, although similar IFRS
recognition and measurement principles apply to the acquisition
costs and fees attaching to this type of business.
Post-tax
New Business Profit has been determined using the European Embedded
Value (EEV) methodology set out in our EEV basis results
supplement.
In
determining the EEV basis value of new business written in the
period when policies incept, premiums are included in projected
cash flows on the same basis of distinguishing annual and single
premium business as set out for statutory basis
reporting.
Annual
premium equivalent (APE) sales are subject to
rounding.
* The
additional financial information is not covered by the KPMG LLP
independent audit opinion.
Notes to Schedules A(i) to A(v)
(1)
Prudential plc reports its results using both actual exchange rates
(AER) and constant exchange rates (CER) so as to eliminate the
impact of exchange translation.
|
|
Average rate*
|
|
Closing rate
|
||||
|
Local currency : £
|
2018
|
2017
|
% appreciation (depreciation) of local currency against
GBP
|
|
31 Dec
2018
|
31 Dec
2017
|
% appreciation (depreciation) of local currency against
GBP
|
|
China
|
8.82
|
8.71
|
(1)%
|
|
8.74
|
8.81
|
1%
|
|
Hong
Kong
|
10.46
|
10.04
|
(4)%
|
|
9.97
|
10.57
|
6%
|
|
Indonesia
|
18,987.65
|
17,249.38
|
(9)%
|
|
18,314.37
|
18,353.44
|
0%
|
|
Malaysia
|
5.38
|
5.54
|
3%
|
|
5.26
|
5.47
|
4%
|
|
Singapore
|
1.80
|
1.78
|
(1)%
|
|
1.74
|
1.81
|
4%
|
|
Thailand
|
43.13
|
43.71
|
1%
|
|
41.47
|
44.09
|
6%
|
|
US
|
1.34
|
1.29
|
(4)%
|
|
1.27
|
1.35
|
6%
|
|
Vietnam
|
30,732.53
|
29,279.71
|
(5)%
|
|
29,541.15
|
30,719.60
|
4%
|
*
Average rate is for the 12 month period to 31
December.
(2)
Annual premium equivalents (APE), calculated as the aggregate of
regular premiums on business written in the period and one-tenth of
single premiums, are subject to rounding. Present value of new
business premiums (PVNBP) are calculated as the aggregate of single
premiums and the present value of expected future premiums from
regular premium new business, allowing for lapses and the other
assumptions applied in determining the EEV new business
profit.
(3)
Balance includes segregated and pooled pension funds, private
finance assets and other institutional clients.
(4)
New business in India is included at Prudential's 26 per cent
interest in the India life operation.
(5)
Balance sheet figures have been calculated at the closing exchange
rates.
(6)
New business in China is included at Prudential's 50 per cent
interest in the China life operation.
(7)
Mandatory Provident Fund (MPF) product sales in Hong Kong are
included at Prudential's 36 per cent interest in Hong Kong MPF
operation.
(8)
Investment flows for the year exclude year-to-date Eastspring Money
Market Funds (MMF) gross inflow of £191,523 million (2017:
gross inflow of £192,662 million) and net inflow of
£1,500 million (2017: net inflow of £1,495
million).
(9)
Total Group Investment Operations funds under management exclude
MMF funds under management of £11,602 million at 31 December
2018 (31 December 2017: £9,317 million).
Schedule A(i) New Business Insurance Operations (Actual Exchange
Rates)
Note: The 2017 comparative
results are shown below on actual exchange rates (AER) as
previously reported.
|
Single premiums
|
Regular premiums
|
APEnote(2)
|
PVNBPnote(2)
|
||||||||
|
2018
|
2017
|
+/(-)
|
2018
|
2017
|
+/(-)
|
2018
|
2017
|
+/(-)
|
2018
|
2017
|
+/(-)
|
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
2,316
|
2,299
|
1%
|
3,513
|
3,575
|
(2)%
|
3,744
|
3,805
|
(2)%
|
20,754
|
20,405
|
2%
|
US
|
15,423
|
16,622
|
(7)%
|
-
|
-
|
-
|
1,542
|
1,662
|
(7)%
|
15,423
|
16,622
|
(7)%
|
UK and
Europe
|
13,382
|
13,044
|
3%
|
177
|
187
|
(5)%
|
1,516
|
1,491
|
2%
|
14,073
|
13,784
|
2%
|
Group
total
|
31,121
|
31,965
|
(3)%
|
3,690
|
3,762
|
(2)%
|
6,802
|
6,958
|
(2)%
|
50,250
|
50,811
|
(1)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
Cambodia
|
-
|
-
|
-
|
20
|
16
|
25%
|
20
|
16
|
25%
|
89
|
70
|
27%
|
Hong
Kong
|
343
|
582
|
(41)%
|
1,663
|
1,667
|
(0)%
|
1,697
|
1,725
|
(2)%
|
10,200
|
10,027
|
2%
|
Indonesia
|
205
|
288
|
(29)%
|
215
|
268
|
(20)%
|
236
|
297
|
(21)%
|
910
|
1,183
|
(23)%
|
Malaysia
|
84
|
73
|
15%
|
243
|
271
|
(10)%
|
251
|
278
|
(10)%
|
1,322
|
1,398
|
(5)%
|
Philippines
|
43
|
62
|
(31)%
|
83
|
71
|
17%
|
87
|
77
|
13%
|
296
|
287
|
3%
|
Singapore
|
930
|
859
|
8%
|
369
|
361
|
2%
|
462
|
447
|
3%
|
3,611
|
3,463
|
4%
|
Thailand
|
217
|
139
|
56%
|
95
|
70
|
36%
|
117
|
84
|
39%
|
609
|
421
|
45%
|
Vietnam
|
20
|
8
|
150%
|
144
|
133
|
8%
|
146
|
134
|
9%
|
708
|
659
|
7%
|
South-east
Asia
operations
including
Hong
Kong
|
1,842
|
2,011
|
(8)%
|
2,832
|
2,857
|
(1)%
|
3,016
|
3,058
|
(1)%
|
17,745
|
17,508
|
1%
|
Chinanote
(6)
|
103
|
179
|
(42)%
|
292
|
276
|
6%
|
302
|
294
|
3%
|
1,313
|
1,299
|
1%
|
Taiwan
|
292
|
46
|
535%
|
182
|
208
|
(13)%
|
211
|
213
|
(1)%
|
788
|
634
|
24%
|
Indianote
(4)
|
79
|
63
|
25%
|
207
|
234
|
(12)%
|
215
|
240
|
(10)%
|
908
|
964
|
(6)%
|
Total
Asia
|
2,316
|
2,299
|
1%
|
3,513
|
3,575
|
(2)%
|
3,744
|
3,805
|
(2)%
|
20,754
|
20,405
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
annuities
|
10,810
|
11,536
|
(6)%
|
-
|
-
|
-
|
1,081
|
1,154
|
(6)%
|
10,810
|
11,536
|
(6)%
|
Elite
Access (variable
annuity)
|
1,681
|
2,013
|
(16)%
|
-
|
-
|
-
|
168
|
201
|
(16)%
|
1,681
|
2,013
|
(16)%
|
Fixed
annuities
|
340
|
454
|
(25)%
|
-
|
-
|
-
|
34
|
45
|
(24)%
|
340
|
454
|
(25)%
|
Fixed
index annuities
|
251
|
295
|
(15)%
|
-
|
-
|
-
|
25
|
30
|
(17)%
|
251
|
295
|
(15)%
|
Wholesale
|
2,341
|
2,324
|
1%
|
-
|
-
|
-
|
234
|
232
|
1%
|
2,341
|
2,324
|
1%
|
Total
US
|
15,423
|
16,622
|
(7)%
|
-
|
-
|
-
|
1,542
|
1,662
|
(7)%
|
15,423
|
16,622
|
(7)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK and
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
3,539
|
3,509
|
1%
|
-
|
-
|
-
|
354
|
351
|
1%
|
3,540
|
3,510
|
1%
|
Corporate
pensions
|
69
|
103
|
(33)%
|
117
|
130
|
(10)%
|
124
|
140
|
(11)%
|
443
|
533
|
(17)%
|
Individual
pensions
|
5,681
|
5,747
|
(1)%
|
35
|
32
|
9%
|
603
|
607
|
(1)%
|
5,832
|
5,897
|
(1)%
|
Income
drawdown
|
2,555
|
2,218
|
15%
|
-
|
-
|
-
|
256
|
222
|
15%
|
2,555
|
2,218
|
15%
|
Other
products
|
1,538
|
1,467
|
5%
|
25
|
25
|
-
|
179
|
171
|
5%
|
1,703
|
1,626
|
5%
|
Total
UK and Europe
|
13,382
|
13,044
|
3%
|
177
|
187
|
(5)%
|
1,516
|
1,491
|
2%
|
14,073
|
13,784
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
total
|
31,121
|
31,965
|
(3)%
|
3,690
|
3,762
|
(2)%
|
6,802
|
6,958
|
(2)%
|
50,250
|
50,811
|
(1)%
|
During
2018, the Africa business operations sold £38 million APE of
new business. Given the relative immaturity of the Africa business,
it is incorporated into the Group's EEV results on an IFRS basis
and hence excluded from our new business metrics.
Schedule A(ii) New Business Insurance Operations (Constant Exchange
Rates)
Note: The 2017 comparative
results are shown below on constant exchange rates (CER), ie
translated at 2018 average exchange rates.
|
Single premiums
|
Regular premiums
|
APEnote (2)
|
PVNBPnote (2)
|
||||||||
|
2018
|
2017
|
+/(-)
|
2018
|
2017
|
+/(-)
|
2018
|
2017
|
+/(-)
|
2018
|
2017
|
+/(-)
|
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
2,316
|
2,230
|
4%
|
3,513
|
3,450
|
2%
|
3,744
|
3,671
|
2%
|
20,754
|
19,730
|
5%
|
US
|
15,423
|
16,045
|
(4)%
|
-
|
-
|
-
|
1,542
|
1,605
|
(4)%
|
15,423
|
16,045
|
(4)%
|
UK and
Europe
|
13,382
|
13,044
|
3%
|
177
|
187
|
(5)%
|
1,516
|
1,491
|
2%
|
14,073
|
13,784
|
2%
|
Group
total
|
31,121
|
31,319
|
(1)%
|
3,690
|
3,637
|
1%
|
6,802
|
6,767
|
1%
|
50,250
|
49,559
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
Cambodia
|
-
|
-
|
-
|
20
|
16
|
25%
|
20
|
16
|
25%
|
89
|
67
|
33%
|
Hong
Kong
|
343
|
558
|
(39)%
|
1,663
|
1,600
|
4%
|
1,697
|
1,655
|
3%
|
10,200
|
9,625
|
6%
|
Indonesia
|
205
|
262
|
(22)%
|
215
|
244
|
(12)%
|
236
|
270
|
(13)%
|
910
|
1,074
|
(15)%
|
Malaysia
|
84
|
75
|
12%
|
243
|
279
|
(13)%
|
251
|
286
|
(12)%
|
1,322
|
1,438
|
(8)%
|
Philippines
|
43
|
57
|
(25)%
|
83
|
65
|
28%
|
87
|
71
|
23%
|
296
|
266
|
11%
|
Singapore
|
930
|
849
|
10%
|
369
|
357
|
3%
|
462
|
442
|
5%
|
3,611
|
3,421
|
6%
|
Thailand
|
217
|
141
|
54%
|
95
|
71
|
34%
|
117
|
85
|
38%
|
609
|
426
|
43%
|
Vietnam
|
20
|
8
|
150%
|
144
|
127
|
13%
|
146
|
127
|
15%
|
708
|
628
|
13%
|
South-east
Asia operations
including
Hong Kong
|
1,842
|
1,950
|
(6)%
|
2,832
|
2,759
|
3%
|
3,016
|
2,952
|
2%
|
17,745
|
16,945
|
5%
|
Chinanote
(6)
|
103
|
177
|
(42)%
|
292
|
273
|
7%
|
302
|
290
|
4%
|
1,313
|
1,282
|
2%
|
Taiwan
|
292
|
45
|
549%
|
182
|
203
|
(10)%
|
211
|
208
|
1%
|
788
|
617
|
28%
|
Indianote
(4)
|
79
|
58
|
36%
|
207
|
215
|
(4)%
|
215
|
221
|
(3)%
|
908
|
886
|
2%
|
Total
Asia
|
2,316
|
2,230
|
4%
|
3,513
|
3,450
|
2%
|
3,744
|
3,671
|
2%
|
20,754
|
19,730
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
annuities
|
10,810
|
11,136
|
(3)%
|
-
|
-
|
-
|
1,081
|
1,114
|
(3)%
|
10,810
|
11,136
|
(3)%
|
Elite
Access (variable
annuity)
|
1,681
|
1,943
|
(13)%
|
-
|
-
|
-
|
168
|
194
|
(13)%
|
1,681
|
1,943
|
(13)%
|
Fixed
annuities
|
340
|
438
|
(22)%
|
-
|
-
|
-
|
34
|
44
|
(23)%
|
340
|
438
|
(22)%
|
Fixed
index annuities
|
251
|
285
|
(12)%
|
-
|
-
|
-
|
25
|
29
|
(14)%
|
251
|
285
|
(12)%
|
Wholesale
|
2,341
|
2,243
|
4%
|
-
|
-
|
-
|
234
|
224
|
4%
|
2,341
|
2,243
|
4%
|
Total
US
|
15,423
|
16,045
|
(4)%
|
-
|
-
|
-
|
1,542
|
1,605
|
(4)%
|
15,423
|
16,045
|
(4)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK and
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
3,539
|
3,509
|
1%
|
-
|
-
|
-
|
354
|
351
|
1%
|
3,540
|
3,510
|
1%
|
Corporate
pensions
|
69
|
103
|
(33)%
|
117
|
130
|
(10)%
|
124
|
140
|
(11)%
|
443
|
533
|
(17)%
|
Individual
pensions
|
5,681
|
5,747
|
(1)%
|
35
|
32
|
9%
|
603
|
607
|
(1)%
|
5,832
|
5,897
|
(1)%
|
Income
drawdown
|
2,555
|
2,218
|
15%
|
-
|
-
|
-
|
256
|
222
|
15%
|
2,555
|
2,218
|
15%
|
Other
products
|
1,538
|
1,467
|
5%
|
25
|
25
|
-
|
179
|
171
|
5%
|
1,703
|
1,626
|
5%
|
Total
UK and Europe
|
13,382
|
13,044
|
3%
|
177
|
187
|
(5)%
|
1,516
|
1,491
|
2%
|
14,073
|
13,784
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
total
|
31,121
|
31,319
|
(1)%
|
3,690
|
3,637
|
1%
|
6,802
|
6,767
|
1%
|
50,250
|
49,559
|
1%
|
Schedule A(iii) Total Insurance New Business APE (Actual and
Constant Exchange Rates)
Note: Comparative results for
the first half (H1) and second half (H2) of 2017 are presented on
both actual exchange rates (AER) and constant exchange rates (CER).
The H2 amounts are presented on year-to-date average exchange rates
(including the effect of retranslating H1 results for movements in
average exchange rates between H1 and the
year-to-date).
|
AER
|
CER
|
||||||
|
2017
|
2018
|
2017
|
2018
|
||||
|
H1
|
H2
|
H1
|
H2
|
H1
|
H2
|
H1
|
H2
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
|
|
|
|
|
|
|
Asia
|
1,943
|
1,862
|
1,736
|
2,008
|
1,840
|
1,831
|
1,765
|
1,979
|
US
|
960
|
702
|
816
|
726
|
906
|
699
|
841
|
701
|
UK and
Europe
|
721
|
770
|
770
|
746
|
721
|
770
|
770
|
746
|
Group
total
|
3,624
|
3,334
|
3,322
|
3,480
|
3,467
|
3,300
|
3,376
|
3,426
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
|
|
|
|
|
|
Cambodia
|
8
|
8
|
8
|
12
|
8
|
8
|
9
|
11
|
Hong
Kong
|
914
|
811
|
742
|
955
|
855
|
800
|
764
|
933
|
Indonesia
|
144
|
153
|
113
|
123
|
127
|
143
|
113
|
123
|
Malaysia
|
128
|
150
|
117
|
134
|
131
|
155
|
118
|
133
|
Philippines
|
36
|
41
|
38
|
49
|
32
|
39
|
39
|
48
|
Singapore
|
195
|
252
|
205
|
257
|
192
|
250
|
208
|
254
|
Thailand
|
42
|
42
|
53
|
64
|
43
|
42
|
54
|
63
|
Vietnam
|
62
|
72
|
61
|
85
|
58
|
69
|
62
|
84
|
South-east
Asia operations including Hong Kong
|
1,529
|
1,529
|
1,337
|
1,679
|
1,446
|
1,506
|
1,367
|
1,649
|
Chinanote
(6)
|
187
|
107
|
187
|
115
|
183
|
107
|
186
|
116
|
Taiwan
|
105
|
108
|
108
|
103
|
101
|
107
|
109
|
102
|
Indianote
(4)
|
122
|
118
|
104
|
111
|
110
|
111
|
103
|
112
|
Total
Asia insurance operations
|
1,943
|
1,862
|
1,736
|
2,008
|
1,840
|
1,831
|
1,765
|
1,979
|
|
|
|
|
|
|
|
|
|
US
|
|
|
|
|
|
|
|
|
Variable
annuities
|
604
|
550
|
544
|
537
|
570
|
544
|
560
|
521
|
Elite
Access (variable annuity)
|
110
|
91
|
89
|
79
|
104
|
90
|
93
|
75
|
Fixed
annuities
|
24
|
21
|
17
|
17
|
23
|
21
|
17
|
17
|
Fixed
index annuities
|
16
|
14
|
13
|
12
|
15
|
14
|
13
|
12
|
Wholesale
|
206
|
26
|
153
|
81
|
194
|
30
|
158
|
76
|
Total
US
|
960
|
702
|
816
|
726
|
906
|
699
|
841
|
701
|
|
|
|
|
|
|
|
|
|
UK and
Europe
|
|
|
|
|
|
|
|
|
Bonds
|
174
|
177
|
165
|
189
|
174
|
177
|
165
|
189
|
Corporate
pensions
|
75
|
65
|
75
|
49
|
75
|
65
|
75
|
49
|
Individual
pensions
|
279
|
328
|
316
|
287
|
279
|
328
|
316
|
287
|
Income
drawdown
|
106
|
116
|
123
|
133
|
106
|
116
|
123
|
133
|
Other
products
|
87
|
84
|
91
|
88
|
87
|
84
|
91
|
88
|
Total
UK and Europe
|
721
|
770
|
770
|
746
|
721
|
770
|
770
|
746
|
|
|
|
|
|
|
|
|
|
Group
total
|
3,624
|
3,334
|
3,322
|
3,480
|
3,467
|
3,300
|
3,376
|
3,426
|
Schedule A(iv) Investment Operations (Actual Exchange
Rates)
Note: The H1 and H2 of 2017
comparative results are shown below on actual exchange rates (AER)
as previously reported.
|
|
2017
|
|
|
2018
|
|
||
|
|
H1
|
H2
|
|
|
H1
|
H2
|
|
|
|
£m
|
£m
|
|
|
£m
|
£m
|
|
|
|
|
|
|
|
|
|
|
Opening
FUM
|
|
174,805
|
193,714
|
|
|
210,423
|
207,860
|
|
Net
Flows:note (8)
|
|
9,452
|
11,026
|
|
|
2,685
|
(14,186)
|
|
- Gross Inflows
|
|
34,213
|
35,201
|
|
|
31,857
|
26,227
|
|
- Redemptions
|
|
(24,761)
|
(24,175)
|
|
|
(29,172)
|
(40,413)
|
|
Other
Movements
|
|
9,457
|
5,683
|
|
|
(5,248)
|
2,727
|
|
Group
totalnote (9)
|
|
193,714
|
210,423
|
|
|
207,860
|
196,401
|
|
|
|
|
|
|
|
|
|
|
M&GPrudential
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
Opening
FUM
|
|
64,209
|
72,500
|
|
|
79,697
|
79,821
|
|
Net
Flows:
|
|
5,515
|
5,528
|
|
|
2,154
|
(7,022)
|
|
- Gross Inflows
|
|
15,871
|
15,078
|
|
|
16,471
|
8,113
|
|
- Redemptions
|
|
(10,356)
|
(9,550)
|
|
|
(14,317)
|
(15,135)
|
|
Other
Movements
|
|
2,776
|
1,669
|
|
|
(2,030)
|
(3,334)
|
|
Closing
FUM
|
|
72,500
|
79,697
|
|
|
79,821
|
69,465
|
|
|
|
|
|
|
|
|
|
|
Comprising
amounts for:
|
|
|
|
|
|
|
|
|
UK
|
|
35,201
|
35,740
|
|
|
33,786
|
30,600
|
|
Europe (excluding UK)
|
|
35,192
|
42,321
|
|
|
44,571
|
37,523
|
|
South Africa
|
|
2,107
|
1,636
|
|
|
1,464
|
1,342
|
|
|
|
72,500
|
79,697
|
|
|
79,821
|
69,465
|
|
|
|
|
|
|
|
|
|
|
Institutional:note
(3)
|
|
|
|
|
|
|
|
|
Opening
FUM
|
|
72,554
|
76,618
|
|
|
84,158
|
85,669
|
|
Net
Flows:
|
|
1,664
|
4,630
|
|
|
1,394
|
(6,441)
|
|
- Gross Inflows
|
|
6,806
|
8,414
|
|
|
4,930
|
8,024
|
|
- Redemptions
|
|
(5,142)
|
(3,784)
|
|
|
(3,536)
|
(14,465)
|
|
Other
Movements
|
|
2,400
|
2,910
|
|
|
117
|
(1,747)
|
|
Closing
FUM
|
|
76,618
|
84,158
|
|
|
85,669
|
77,481
|
|
|
|
|
|
|
|
|
|
|
Total
M&GPrudential
|
|
149,118
|
163,855
|
|
|
165,490
|
146,946
|
|
|
|
|
|
|
|
|
|
|
PPM
South Africa FUM included in total M&GPrudential
|
|
5,427
|
5,963
|
|
|
5,452
|
5,144
|
|
|
|
|
|
|
|
|
|
|
Eastspring
- excluding MMFnote (8)
|
|
|
|
|
|
|
|
|
Third
party retail:note (7)
|
|
|
|
|
|
|
|
|
Opening
FUM
|
|
30,793
|
36,093
|
|
|
38,676
|
36,086
|
|
Net
Flows:
|
|
2,186
|
1,567
|
|
|
25
|
(692)
|
|
- Gross Inflows
|
|
10,781
|
11,017
|
|
|
10,118
|
9,125
|
|
- Redemptions
|
|
(8,595)
|
(9,450)
|
|
|
(10,093)
|
(9,817)
|
|
Other
Movements*
|
|
3,114
|
1,016
|
|
|
(2,615)
|
7,946
|
|
Closing
FUMnote (5)
|
|
36,093
|
38,676
|
|
|
36,086
|
43,340
|
|
|
|
|
|
|
|
|
|
|
Third
party institutional:
|
|
|
|
|
|
|
|
|
Opening
FUM
|
|
7,249
|
8,503
|
|
|
7,892
|
6,284
|
|
Net
Flows:
|
|
87
|
(699)
|
|
|
(888)
|
(31)
|
|
- Gross Inflows
|
|
755
|
692
|
|
|
338
|
965
|
|
- Redemptions
|
|
(668)
|
(1,391)
|
|
|
(1,226)
|
(996)
|
|
Other
Movements
|
|
1,167
|
88
|
|
|
(720)
|
(138)
|
|
Closing
FUMnote (5)
|
|
8,503
|
7,892
|
|
|
6,284
|
6,115
|
|
|
|
|
|
|
|
|
|
|
Total
Eastspring investment operations (excluding MMF)
|
|
44,596
|
46,568
|
|
|
42,370
|
49,455
|
|
*
Other movements during the year for Eastspring investments include
an inflow of £8.7 billion funds under management (ex MMF) from
the acquisition of TMB Asset Management Co., Ltd. ('TMBAM') in
Thailand. See note D1.2 of the consolidated financial statements
for further details.
Schedule A(v) Total Insurance New Business Profit (Actual and
Constant Exchange Rates)
Note: Comparative results for
half year (HY) and full year (FY) 2017 are presented on both actual
exchange rates (AER) and constant exchange rates (CER). The full
year 2018 results are presented on actual exchange
rates.
|
AER
|
CER
|
||||||
|
2017
|
2018
|
2017
|
2018
|
||||
|
HY
|
FY
|
HY
|
FY
|
HY
|
FY
|
HY
|
FY
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
New
business profit (NBP)
|
|
|
|
|
|
|
|
|
Total
Asia insurance operations
|
1,092
|
2,368
|
1,122
|
2,604
|
1,030
|
2,282
|
1,147
|
2,604
|
Total
US insurance operations
|
436
|
906
|
466
|
921
|
412
|
874
|
480
|
921
|
Total
UK and Europe insurance operations
|
161
|
342
|
179
|
352
|
161
|
342
|
179
|
352
|
Group
total
|
1,689
|
3,616
|
1,767
|
3,877
|
1,603
|
3,498
|
1,806
|
3,877
|
|
|
|
|
|
|
|
|
|
APEnote
(2)
|
|
|
|
|
|
|
|
|
Total
Asia insurance operations
|
1,943
|
3,805
|
1,736
|
3,744
|
1,840
|
3,671
|
1,765
|
3,744
|
Total
US insurance operations
|
960
|
1,662
|
816
|
1,542
|
906
|
1,605
|
841
|
1,542
|
Total
UK and Europe insurance operations
|
721
|
1,491
|
770
|
1,516
|
721
|
1,491
|
770
|
1,516
|
Group
total
|
3,624
|
6,958
|
3,322
|
6,802
|
3,467
|
6,767
|
3,376
|
6,802
|
|
|
|
|
|
|
|
|
|
New
business margin (NBP as % of APE)
|
|
|
|
|
|
|
|
|
Total
Asia insurance operations
|
56%
|
62%
|
65%
|
70%
|
56%
|
62%
|
65%
|
70%
|
Total
US insurance operations
|
45%
|
55%
|
57%
|
60%
|
45%
|
55%
|
57%
|
60%
|
Total
UK and Europe insurance operations
|
22%
|
23%
|
23%
|
23%
|
22%
|
23%
|
23%
|
23%
|
Group
total
|
47%
|
52%
|
53%
|
57%
|
46%
|
52%
|
53%
|
57%
|
|
|
|
|
|
|
|
|
|
PVNBPnote
(2)
|
|
|
|
|
|
|
|
|
Total
Asia insurance operations
|
10,095
|
20,405
|
9,132
|
20,754
|
9,584
|
19,730
|
9,292
|
20,754
|
Total
US insurance operations
|
9,602
|
16,622
|
8,163
|
15,423
|
9,062
|
16,045
|
8,412
|
15,423
|
Total
UK and Europe insurance operations
|
6,616
|
13,784
|
7,088
|
14,073
|
6,616
|
13,784
|
7,088
|
14,073
|
Group
total
|
26,313
|
50,811
|
24,383
|
50,250
|
25,262
|
49,559
|
24,792
|
50,250
|
|
|
|
|
|
|
|
|
|
New
business margin (NBP as % of PVNBP)
|
|
|
|
|
|
|
|
|
Total
Asia insurance operations
|
10.8%
|
11.6%
|
12.3%
|
12.5%
|
10.7%
|
11.6%
|
12.3%
|
12.5%
|
Total
US insurance operations
|
4.5%
|
5.5%
|
5.7%
|
6.0%
|
4.5%
|
5.5%
|
5.7%
|
6.0%
|
Total
UK and Europe insurance operations
|
2.4%
|
2.5%
|
2.5%
|
2.5%
|
2.4%
|
2.5%
|
2.5%
|
2.5%
|
Group
total
|
6.4%
|
7.1%
|
7.2%
|
7.7%
|
6.3%
|
7.1%
|
7.3%
|
7.7%
|
B
Reconciliation of expected transfer of value of in-force business
and required capital to free surplus
The
tables below show how the value of in-force business (VIF)
generated by the in-force long-term business and the associated
required capital is modelled as emerging into free surplus over the
next 40 years. Although a small amount (circa 5 per cent) of the
Group's embedded value emerges after this date, analysis of cash
flows emerging in the years shown in the tables is considered most
meaningful. The modelled cash flows use the same methodology
underpinning the Group's embedded value reporting and so are
subject to the same assumptions and sensitivities used to prepare
our 2018 results.
In
addition to showing the amounts, both discounted and undiscounted,
expected to be generated from all in-force business at 31 December
2018, the tables also present the expected future free surplus to
be generated from the investment made in new business during 2018
over the same 40-year period for long-term business
operations.
|
|
|
||||||||
|
|
31 Dec
2018 £m
|
||||||||
|
|
Undiscounted
expected generation from
all
in-force business*
|
|
Undiscounted
expected generation from
new
business written*
|
||||||
Expected
period of emergence
|
Asia
|
US
|
UK and
Europe
|
Total
|
|
Asia
|
US
|
UK and
Europe
|
Total
|
|
2019
|
1,560
|
1,584
|
593
|
3,737
|
|
204
|
205
|
31
|
440
|
|
2020
|
1,504
|
1,674
|
609
|
3,787
|
|
200
|
153
|
34
|
387
|
|
2021
|
1,446
|
1,737
|
591
|
3,774
|
|
195
|
147
|
36
|
378
|
|
2022
|
1,441
|
1,674
|
572
|
3,687
|
|
206
|
154
|
38
|
398
|
|
2023
|
1,438
|
1,625
|
555
|
3,618
|
|
187
|
122
|
42
|
351
|
|
2024
|
1,371
|
1,629
|
537
|
3,537
|
|
166
|
73
|
38
|
277
|
|
2025
|
1,345
|
1,407
|
521
|
3,273
|
|
176
|
60
|
36
|
272
|
|
2026
|
1,332
|
1,249
|
497
|
3,078
|
|
167
|
166
|
35
|
368
|
|
2027
|
1,309
|
1,224
|
472
|
3,005
|
|
155
|
163
|
34
|
352
|
|
2028
|
1,266
|
1,143
|
448
|
2,857
|
|
163
|
147
|
34
|
344
|
|
2029
|
1,177
|
1,056
|
425
|
2,658
|
|
131
|
136
|
32
|
299
|
|
2030
|
1,169
|
962
|
402
|
2,533
|
|
134
|
129
|
31
|
294
|
|
2031
|
1,145
|
798
|
379
|
2,322
|
|
122
|
108
|
29
|
259
|
|
2032
|
1,131
|
645
|
465
|
2,241
|
|
120
|
97
|
30
|
247
|
|
2033
|
1,115
|
422
|
435
|
1,972
|
|
137
|
85
|
29
|
251
|
|
2034
|
1,061
|
448
|
405
|
1,914
|
|
119
|
74
|
27
|
220
|
|
2035
|
1,059
|
242
|
375
|
1,676
|
|
120
|
51
|
25
|
196
|
|
2036
|
1,081
|
135
|
346
|
1,562
|
|
120
|
49
|
24
|
193
|
|
2037
|
1,113
|
94
|
319
|
1,526
|
|
120
|
44
|
23
|
187
|
|
2038
|
1,104
|
102
|
292
|
1,498
|
|
129
|
44
|
22
|
195
|
|
2039-2043
|
6,131
|
320
|
1,137
|
7,588
|
|
884
|
84
|
83
|
1,051
|
|
2044-2048
|
5,843
|
-
|
696
|
6,539
|
|
944
|
-
|
49
|
993
|
|
2049-2053
|
5,452
|
-
|
329
|
5,781
|
|
922
|
-
|
31
|
953
|
|
2054-2058
|
4,964
|
-
|
157
|
5,121
|
|
897
|
-
|
17
|
914
|
|
Total
free surplus expected to
|
|
|
|
|
|
|
|
|
|
|
|
emerge
in the next 40 years
|
47,557
|
20,170
|
11,557
|
79,284
|
|
6,718
|
2,291
|
810
|
9,819
|
* The
analysis excludes amounts incorporated into VIF at 31 December 2018
where there is no definitive time frame for when the payments will
be made or receipts received. In particular, it excludes the value
of the shareholders' interest in the with-profits estate. It also
excludes any free surplus emerging after 2058.
The
above amounts can be reconciled to the new business amounts as
follows:
|
|
|
|
|
|
|
2018 £m
|
||||
|
|
Asia
|
US
|
UK and
Europe
|
Total
|
Undiscounted
expected free surplus generation for years 2019 to
2058
|
6,718
|
2,291
|
810
|
9,819
|
|
Less:
discount effect
|
(3,964)
|
(905)
|
(352)
|
(5,221)
|
|
Discounted
expected free surplus generation for years 2019 to
2058
|
2,754
|
1,386
|
458
|
4,598
|
|
Discounted
expected free surplus generation for years after 2058
|
863
|
-
|
1
|
864
|
|
Less:
Free surplus investment in new business
|
(488)
|
(225)
|
(102)
|
(815)
|
|
Other
items†
|
(525)
|
(240)
|
(5)
|
(770)
|
|
Post-tax
EEV new business profit for long-term business
operations
|
2,604
|
921
|
352
|
3,877
|
† Other
items represent the impact of the time value of options and
guarantees on new business, foreign exchange effects and other
non-modelled items. Foreign exchange effects arise as EEV new
business profit amounts are translated at average exchange rates
and the expected free surplus generation uses year end closing
rates.
The
undiscounted expected free surplus generation from all in-force
business at 31 December 2018 shown below can be reconciled to the
amount that was expected to be generated as at 31 December 2017 as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Group
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
|
Other
|
|
Total
|
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
£m
|
|
£m
|
2017
expected free surplus generation
for years 2018 to 2057
|
3,528
|
3,462
|
3,456
|
3,467
|
3,318
|
3,253
|
|
49,636
|
|
70,120
|
|
Less:
Amounts expected to be realised
in the current year
|
(3,528)
|
-
|
-
|
-
|
-
|
-
|
|
-
|
|
(3,528)
|
|
Add:
Expected free surplus to be
generated in year 2058*
|
-
|
-
|
-
|
-
|
-
|
-
|
|
649
|
|
649
|
|
Foreign
exchange differences
|
-
|
129
|
132
|
137
|
132
|
132
|
|
1,916
|
|
2,578
|
|
New
business
|
-
|
440
|
387
|
378
|
398
|
351
|
|
7,865
|
|
9,819
|
|
Operating
movements
|
-
|
(52)
|
(60)
|
(22)
|
23
|
56
|
|
|
|
|
|
Non-operating
and other movements
|
-
|
(242)
|
(128)
|
(186)
|
(184)
|
(174)
|
|
615
|
|
(354)
|
|
2018
expected free surplus generation
for years 2019 to 2058
|
-
|
3,737
|
3,787
|
3,774
|
3,687
|
3,618
|
|
60,681
|
|
79,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
|
Other
|
|
Total
|
Asia operations
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
£m
|
|
£m
|
|
2017
expected free surplus generation
for years 2018 to 2057
|
1,393
|
1,352
|
1,299
|
1,256
|
1,239
|
1,202
|
|
30,029
|
|
37,770
|
|
Less:
Amounts expected to be realised
in the current year
|
(1,393)
|
-
|
-
|
-
|
-
|
-
|
|
-
|
|
(1,393)
|
|
Add:
Expected free surplus to be
generated in year 2058*
|
-
|
-
|
-
|
-
|
-
|
-
|
|
610
|
|
610
|
|
Foreign
exchange differences
|
-
|
40
|
40
|
41
|
42
|
43
|
|
1,304
|
|
1,510
|
|
New
business
|
-
|
204
|
200
|
195
|
206
|
187
|
|
5,726
|
|
6,718
|
|
Operating
movements
|
-
|
(24)
|
(38)
|
(42)
|
(25)
|
(22)
|
|
|
|
|
|
Non-operating
and other movements
|
-
|
(12)
|
3
|
(4)
|
(21)
|
28
|
|
2,499
|
|
2,342
|
|
2018
expected free surplus generation
for years 2019 to 2058
|
-
|
1,560
|
1,504
|
1,446
|
1,441
|
1,438
|
|
40,168
|
|
47,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
|
Other
|
|
Total
|
US
operations
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
£m
|
|
£m
|
|
2017
expected free surplus generation
for years 2018 to 2057
|
1,464
|
1,425
|
1,483
|
1,551
|
1,441
|
1,433
|
|
9,847
|
|
18,644
|
|
Less:
Amounts expected to be realised
in the current year
|
(1,464)
|
-
|
-
|
-
|
-
|
-
|
|
-
|
|
(1,464)
|
|
Foreign
exchange differences
|
-
|
89
|
92
|
96
|
90
|
89
|
|
612
|
|
1,068
|
|
New
business
|
-
|
205
|
153
|
147
|
154
|
122
|
|
1,510
|
|
2,291
|
|
Operating
movements
|
-
|
(25)
|
(18)
|
27
|
58
|
85
|
|
|
|
|
|
Non-operating
and other movements
|
-
|
(110)
|
(36)
|
(84)
|
(69)
|
(104)
|
|
(93)
|
|
(369)
|
|
2018
expected free surplus generation
for years 2019 to 2058
|
-
|
1,584
|
1,674
|
1,737
|
1,674
|
1,625
|
|
11,876
|
|
20,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
|
Other
|
|
Total
|
|
M&GPrudential
insurance operations
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
£m
|
|
£m
|
|
2017
expected free surplus generation
for years 2018 to 2056
|
671
|
685
|
674
|
660
|
638
|
618
|
|
9,760
|
|
13,706
|
|
Less:
Amounts expected to be realised
in the current year
|
(671)
|
-
|
-
|
-
|
-
|
-
|
|
-
|
|
(671)
|
|
Add:
Expected free surplus to be
generated in year 2058*
|
-
|
-
|
-
|
-
|
-
|
-
|
|
39
|
|
39
|
|
New
business
|
-
|
31
|
34
|
36
|
38
|
42
|
|
629
|
|
810
|
|
Operating
movements
|
-
|
(3)
|
(4)
|
(7)
|
(10)
|
(7)
|
|
|
|
|
|
Non-operating
and other movements
|
-
|
(120)
|
(95)
|
(98)
|
(94)
|
(98)
|
|
(1,791)
|
|
(2,327)
|
|
2018
expected free surplus generation
for years 2019 to 2058
|
-
|
593
|
609
|
591
|
572
|
555
|
|
8,637
|
|
11,557
|
* Excluding
2018 new business.
At 31
December 2018, the total free surplus expected to be generated over
the next five years (2019 to 2023 inclusive), using the same
assumptions and methodology as those underpinning our 2018 embedded
value reporting was £18.6 billion, an increase of £1.4
billion from the £17.2 billion expected over an equivalent
period from the end of 2017.
This
increase primarily reflects the new business written in 2018, which
is expected to generate £1,954 million of free surplus over
the next five years.
At 31
December 2018, the total free surplus expected to be generated on
an undiscounted basis in the next 40 years is £79.3 billion,
up from the £70.1 billion expected at the end of 2017,
reflecting the effect of new business written across all three
business operations of £9.8 billion, a positive foreign
exchange translation effect of £2.6 billion and a £(0.4)
billion net effect reflecting operating, market assumption changes
and other items. The £2.3 billion impact in Asia of operating,
non-operating and other movements includes the net benefit from
changes in operating assumptions following the annual review of
experience, together with the benefit of management actions and
generally higher interest rates increasing projected returns. The
£(0.4) billion impact in the US mainly reflects the effect of
lower than expected separate account return in the year, partially
offset by the positive effect from persistency assumption updates
and higher interest rates increasing future separate account
return. The £(2.3) billion impact in the UK and Europe
reflects the effect of lower than assumed investment returns on
with-profits funds and the reinsurance of part of its shareholder
annuity portfolio to Rothesay Life as discussed in note 17. The
overall growth in the Group's undiscounted value of free surplus
reflects our ability to write both growing and profitable new
business
Actual
underlying free surplus generated in 2018 from life business in
force, before restructuring costs, at the end of 2018 was
£4.4 billion including £0.8 billion of changes in
operating assumptions and experience variances. This compares with
the expected 2018 realisation at the end of 2017 of £3.5
billion. In the UK and Europe, the difference between the transfer
to free surplus recognised in 2018 and the free surplus expected to
be generated at 31 December 2017 reflects the reinsurance of the
shareholder annuity portfolio to Rothesay Life (as discussed in
note 17) which was not known at 2017. This can be analysed further
as follows:
|
|
|
|
|
||||||||||
|
Asia
|
US
|
UK and Europe
|
Total
|
||||||||||
|
£m
|
£m
|
£m
|
£m
|
||||||||||
Transfer
to free surplus in 2018
|
1,370
|
1,462
|
607
|
3,439
|
||||||||||
Expected
return on free assets
|
68
|
54
|
79
|
201
|
||||||||||
Changes
in operating assumptions and
experience variances
|
62
|
125
|
591
|
778
|
||||||||||
Underlying
free surplus generated from
in-force
life business before restructuring
costs in 2018
|
1,500
|
1,641
|
1,277
|
4,418
|
||||||||||
|
|
|
|
|
||||||||||
2018
free surplus expected to be generated at
31 December 2017
|
1,393
|
1,464
|
671
|
3,528
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||
The
equivalent discounted amounts of the undiscounted expected
transfers from in-force business and required capital into free
surplus shown previously are as follows:
|
||||||||||||||
|
|
|
||||||||||||
|
|
31 Dec 2018 £m
|
||||||||||||
|
|
Discounted expected generation from all
in-force business
|
|
Discounted expected generation from
new business written
|
||||||||||
Expected
period of emergence
|
Asia
|
US
|
UK and Europe
|
Total
|
|
Asia
|
US
|
UK and Europe
|
Total
|
|||||
2019
|
1,495
|
1,497
|
579
|
3,571
|
|
194
|
198
|
31
|
423
|
|||||
2020
|
1,353
|
1,486
|
568
|
3,407
|
|
176
|
139
|
32
|
347
|
|||||
2021
|
1,217
|
1,447
|
531
|
3,195
|
|
161
|
126
|
33
|
320
|
|||||
2022
|
1,140
|
1,307
|
488
|
2,935
|
|
159
|
121
|
34
|
314
|
|||||
2023
|
1,071
|
1,191
|
450
|
2,712
|
|
138
|
92
|
35
|
265
|
|||||
2024
|
965
|
1,120
|
411
|
2,496
|
|
116
|
52
|
31
|
199
|
|||||
2025
|
895
|
910
|
379
|
2,184
|
|
118
|
41
|
28
|
187
|
|||||
2026
|
835
|
760
|
341
|
1,936
|
|
106
|
100
|
26
|
232
|
|||||
2027
|
776
|
694
|
308
|
1,778
|
|
92
|
92
|
24
|
208
|
|||||
2028
|
714
|
610
|
274
|
1,598
|
|
92
|
77
|
22
|
191
|
|||||
2029
|
624
|
527
|
245
|
1,396
|
|
68
|
67
|
20
|
155
|
|||||
2030
|
588
|
452
|
215
|
1,255
|
|
65
|
60
|
18
|
143
|
|||||
2031
|
548
|
355
|
187
|
1,090
|
|
56
|
46
|
16
|
118
|
|||||
2032
|
516
|
273
|
218
|
1,007
|
|
52
|
39
|
16
|
107
|
|||||
2033
|
486
|
164
|
188
|
838
|
|
56
|
32
|
14
|
102
|
|||||
2034
|
436
|
165
|
163
|
764
|
|
47
|
25
|
12
|
84
|
|||||
2035
|
415
|
93
|
139
|
647
|
|
45
|
16
|
10
|
71
|
|||||
2036
|
409
|
52
|
123
|
584
|
|
43
|
14
|
9
|
66
|
|||||
2037
|
407
|
33
|
110
|
550
|
|
41
|
12
|
8
|
61
|
|||||
2038
|
386
|
35
|
98
|
519
|
|
43
|
11
|
6
|
60
|
|||||
2039-2043
|
1,951
|
123
|
324
|
2,398
|
|
285
|
26
|
21
|
332
|
|||||
2044-2048
|
1,509
|
-
|
110
|
1,619
|
|
251
|
-
|
10
|
261
|
|||||
2049-2053
|
1,128
|
-
|
38
|
1,166
|
|
197
|
-
|
2
|
199
|
|||||
2054-2058
|
811
|
-
|
4
|
815
|
|
153
|
-
|
-
|
153
|
|||||
Total
discounted free surplus expected to emerge in the next 40
years
|
20,675
|
13,294
|
6,491
|
40,460
|
|
2,754
|
1,386
|
458
|
4,598
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
above amounts can be reconciled to the Group's EEV basis financial
statements as follows:
|
|
|
|
|
31 Dec
2018 £m
|
Discounted
expected generation from all in-force business for years 2019 to
2058
|
40,460
|
Discounted
expected generation from all in-force business for years after
2058
|
2,659
|
Discounted
expected generation from all in-force business at 31 December
2018
|
43,119
|
Add:
Free surplus of life operations held at 31 December
2018
|
7,527
|
Less:
Time value of guarantees
|
(2,427)
|
Other
non-modelled items
|
2,169
|
Total
EEV for long-term business operations
|
50,388
|
C Foreign
currency source of key metrics
The
tables below show the Group's free surplus, IFRS and EEV key
metrics analysis by contribution by currency group:
Free surplus and Group IFRS results
|
|
|
|
|
Underlying free surplus generated for total insurance and asset
management operations
|
IFRS pre-tax
operating profit
|
IFRS shareholders'
funds
|
|
note (iii)
|
notes (ii),(iv)
|
notes (ii),(iv)
|
US
dollar linkednote (i)
|
15%
|
28%
|
22%
|
Other
Asia currencies
|
13%
|
17%
|
15%
|
Total
Asia
|
28%
|
45%
|
37%
|
UK
sterlingnotes (ii),(iv)
|
39%
|
15%
|
49%
|
US
dollarnote (iv)
|
33%
|
40%
|
14%
|
Total
|
100%
|
100%
|
100%
|
Group EEV post-tax results
|
|
|
|
|
New business
profit
|
Operating profit
|
Shareholders' funds
|
|
|
notes (ii),(iv)
|
notes (i),(iv)
|
US
dollar linkednote (i)
|
57%
|
53%
|
40%
|
Other
Asia currencies
|
10%
|
7%
|
10%
|
Total
Asia
|
67%
|
60%
|
50%
|
UK
sterlingnotes (ii),(iv)
|
9%
|
12%
|
26%
|
US
dollarnote (iv)
|
24%
|
28%
|
24%
|
Total
|
100%
|
100%
|
100%
|
Notes
(i)
US dollar linked comprise the Hong Kong and Vietnam operations
where the currencies are pegged to the US dollar and the Malaysia
and Singapore operations where the currencies are managed against a
basket of currencies including the US dollar.
(ii)
For operating profit and shareholders' funds, UK sterling includes
amounts in respect of M&GPrudential and other operations
(including central operations and Prudential Capital). Operating
profit for central operations includes amounts for corporate
expenditure for Group Head Office as well as Asia Regional Head
Office which is incurred in HK dollars as well as restructuring
costs incurred by the Group.
(iii)
For operating free surplus generation, UK sterling includes amounts
in respect of restructuring costs incurred by insurance and asset
management operations.
(iv)
For shareholders' funds, the US dollar grouping includes US dollar
denominated core structural borrowings. Sterling operating profits
include all interest payable as sterling denominated, reflecting
interest rate currency swaps in place.
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: 13
March 2019
|
PRUDENTIAL
PUBLIC LIMITED COMPANY
|
|
|
|
By: /s/ Mark
FitzPatrick
|
|
|
|
Mark
FitzPatrick
|
|
Chief
Financial Officer
|