Bonus Declaration

Prudential PLC
26 February 2002





Embargo 07:00 hrs GMT - 26 February 2002


PRUDENTIAL ADDS £2.8 BILLION IN BONUSES TO WITH-PROFITS POLICIES


Highlights of the announcement:


  • Prudential customers to have total bonuses of £2.8 billion added to their
    with-profits policies;


  • Regular (annual) bonus rates of 4 per cent for Prudence Bond and 4.5 per
    cent for personal pensions;


  • Annual return of 9.1 per cent on a typical ten-year Prudence Bond maturing
    in 2002 (see notes to editors), well ahead of both inflation and deposit
    based returns;

  • Prudential is committed to greater transparency in the operation of
    with-profits.


This year's bonus figures

Prudential announced today that bonuses of £2.8 billion will be added to
policies in its main UK with-profits fund, providing returns on policies
maturing in 2002 that are significantly ahead of both inflation and
deposit-based returns.


Prudence Bond and personal pensions

Regular (annual) bonus rates of 4 per cent for Prudence Bond and 4.5 per cent
for personal pensions are 0.5 per cent lower than last year, to reflect the
lower long-term investment returns that can be expected in future in an
environment of low inflation and low interest rates.


What this means for customers

Including final bonuses, the returns on a typical ten-year policy maturing in
2002 are 9.1 per cent per annum for a £10,000 single premium Prudence Bond (see
notes to editors) and 7.7 per cent per annum for a £200 per month regular
premium personal pension.


The return on a typical 25-year £50 per month regular premium savings plan will
be 11.5 per cent per annum compared with an average inflation rate of 4.2 per
cent and a net average return from building societies of 5.1 per cent (see notes
to editors) per annum over the same period.


Prudential comment

Commenting on the bonus declaration, David Belsham, Prudential Assurance
Company's Appointed Actuary, said:


'Our policyholders continue to benefit from good real rates of return, and the
smoothing associated with Prudential's with-profits policies. The AAA strength
of the company's with-profits fund has enabled Prudential to provide smooth
returns on with-profits policies in 2001 that are significantly ahead of both
the underlying investment return of minus 3.5 per cent earned on the
with-profits fund and the FTSE 100 index which fell by more than 16 per cent in
the year.'


Prudential's financial strength

Financial strength is an important issue for customers, who want to be assured
that their money is safe. Prudential's long-term fund is rated AAA by Standard
and Poor's, the highest rating possible. Our customers benefited from this
financial strength following the turmoil in markets during 2001, particularly
following the events of 11 September, when Prudential:


  • maintained its bonuses;


  • was not forced to sell equities;


  • maintained its normal Market Value Reduction (MVR) policy, and did not
    introduce blanket MVRs.






Endorsing transparency

Prudential is committed to greater transparency in the management of
with-profits funds, and has already been accredited under the ABI's Raising
Standards initiative.


                                     -ENDS-

Media Enquiries:-                                    Investor/Analyst Enquiries:-
James Murray                                         Rebecca Burrows

UK Press Office                                      Tel: [phone]

Tel: [phone]

Mobile: [phone]



Notes to Editors:-


 1. The Prudence Bond return is based on 101 per cent allocation, 5 per cent bid/
    offer spread, invested for ten years to 1 May 2002.

 2. Building Society returns are based on accounts available for a deposit of
    £2,500. Data sourced from S&P Micropal. Past performance is not necessarily
    a guide to future performance.


 3. Bonus Tables: sample claim values are shown below, with figures for 2000 in
    brackets.

    Contract                Term       Premium               Claim Value                 Effective rate of
                                                                                         return p.a.
                            (yrs)
 
   Savings*                10         £50 per month (total  £8,188 (£9,096)             6.1% (8.0%)
                                       £6,000)

                            25         £50 per month         £78,302 (£88,976)           11.5% (12.3%)

                                       (total £15,000)
    Personal Pension        10         £200 per month        £35,640 (£38,968)           7.7% (9.4%)

                                       (£24,000)
                            20         £200 per month        £168,096 (£190,941)         11.3% (12.3%)

                                       (£48,000)

    *Based on a policy taken out by a male aged twenty-nine (industry standard
    example)

 4. With-profits continue to grow while stock markets fall: For the two sample
    savings policies, the claim values represent increases of 1 per cent and 5
    per cent respectively over the policy values a year earlier, after allowing
    for the premiums paid during the year. Customers have therefore seen an
    increase in the value of their with-profits savings in spite of the fall in
    stock markets in 2001.

 5. The effective rates of return on savings policies exclude the benefit of life
    assurance premium tax relief which would have been available for the 25 year
    policy. The rate of return on pensions policies ignores tax relief on
    premiums and tax on benefit payments.

 6. The total value of bonuses declared for 2001 is £2,790 million for the PAC
    main fund and a further £690 million for the closed Scottish Amicable Fund.

 7. Attached with this announcement is a with-profits factsheet.


This statement may contain certain 'forward-looking statements' with respect to
certain of Prudential's plans and its current goals and expectations relating to
its future financial condition, performance and results. By their nature, all
forward-looking statements involve risk and uncertainty because they relate to
future events and circumstances which are beyond Prudential's control including
among other things, UK domestic and global economic and business conditions,
market related risks such as fluctuations in interest rates and exchange rates,
the policies and actions of regulatory authorities, the impact of competition,
inflation, deflation, the timing, impact and other uncertainties of future
acquisitions or combinations within relevant industries, as well as the impact
of tax and other legislation and other regulations in the jurisdictions in which
Prudential and its affiliates operate.  As a result, Prudential's actual future
financial condition, performance and results may differ materially from the
plans, goals, and expectations set forth in Prudential's forward-looking
statements.






WITH PROFITS FACTSHEET

1. Bonus Policy

Prudential's bonus policy is set out in detail in its With-Profits Guide
(available on request from Prudential). The main aims of the company's bonus
policy are:


  • To give each with-profits policyholder a return on the premiums which he
    or she has paid that reflects the earnings of the underlying investments,
    whilst smoothing out the peaks and troughs of investment performance; and

  • To ensure that with-profits policyholders receive a fair share of the
    profits, (as decided by the Directors of PAC on the advice of the Appointed
    Actuary), distributed from the with-profits fund by way of bonus additions
    to their policies.

2. Types of Bonus

There are two types of bonus:

Regular bonuses (or annual bonuses) are added to policies each year in order to
gradually increase the guaranteed benefits under the policy.

Final bonuses (or terminal bonuses) are added when the benefits of a policy are
realised (ie on surrender, maturity or death). These bonuses are used to make up
the difference between the guaranteed benefits and the overall smoothed claim
value. Prudential uses these bonuses to return to each policyholder a fair share
of the assets of the with-profits fund, while reducing the impact of market
changes, especially around the date of maturity.

3. Determination of Bonus Rates

The balance between regular and final bonuses influences the investment strategy
that the fund can adopt. Regular bonuses increase the amounts guaranteed to
policyholders and so need to be backed by less risky (and so normally less
rewarding) investments. This, in turn, affects the overall level of return
achieved. Regular bonus rates are therefore targeted on a prudent proportion of
the investment return that we expect to earn in the future. Regular bonus rates
have been gradually reduced over the last twelve years in line with declining
inflation and the associated reduction in expected future investment returns, as
the chart below shows.


PRUDENTIAL REGULAR BONUS DECLARATION
Year                               Prudence Bond (%)                   Personal Pensions (%)

1991                               9.25                                10.5
1992                               8.75                                10
1993                               8                                   9
1994                               7                                   8.25
1995                               6.5                                 7.5
1996                               6.25                                7
1997                               6                                   6.75
1998                               5.75                                6.25
1999                               5.25                                5.75
2000                               4.75                                5.25
2001                               4.5                                 5
2002                               4                                   4.5

Total claim values are set by reference to 'asset shares', which are calculated
for typical policies by accumulating the premiums paid, less allowance for
expenses and charges, at the actual rates of return earned on the assets of the
with-profits fund over the life times of those policies. The asset shares also
include allowance for distributions to shareholders and profits from other
sources arising in the with-profits fund. These asset shares provide a target
level for claim values paid to customers.

4. What is smoothing?

Smoothing is applied so that the claim values actually paid change only
gradually over time. In normal investment conditions, we aim to ensure that
total payouts on equivalent policies do not change by more than 10 per cent from
one year to the next. 2001 was a turbulent year for the markets, the FTSE 100
falling by 16.2 per cent, following a fall of 10.2 per cent in 2000. It is also
the first time that the FTSE All Share Index has fallen in two successive years
since 1974. We have therefore reduced some payouts by more than the normal
smoothing limits.


Prudential's intention is that any smoothing of profits or losses should balance
out over time, so that in the long run with-profits policyholders neither gain
nor lose as a result of the smoothing policy.


Over the last five years, the aggregate claim values paid on maturing policies
have amounted to around 102 per cent of the corresponding asset shares.

5. Where do profits from the with-profits fund go?

Prudential's with-profits policyholders currently receive 90 per cent of the
profits distributed from the with-profits fund as bonus additions to their
policies and shareholders receive the remaining 10 per cent as dividend
payments. Since policyholders and shareholders share proportionately in these
profits, their interests are exactly aligned.


For the year 2001, profits distributed from Prudential's main with-profits fund
amounted to £3.1 billion, of which £2.8 billion (90 per cent) will be added to
policies as bonuses, and £310 million (10 per cent) will be distributed to
shareholders.

6. Prudential's with-profits investment strategy

The company's investment strategy is to seek to secure on behalf of its
policyholders the highest combination of income and growth in capital value
while maintaining the security of the fund.


The table below shows the investment mix of Prudential's with-profits fund.

                                                                                   End 2001       End 2000
                                                                                          %              %
Equity shares
-     UK shares                                                                          38             47
-     Non-UK shares                                                                      14             14
Fixed interest                                                                           28             20
Cash                                                                                      3              5
Property                                                                                 15             14
Alternative investments                                                                   2              -
Total                                                                                   100            100

Prior to the market falls in September 2001, the fund continued to reduce its
exposure to equities. There was also a re-weighting within equities out of the
UK and into overseas equities. This change in asset mix reflected our view that
equity valuations were high and that other assets, particularly corporate bonds,
were relatively attractive. The change within equities has also improved
diversification and reduced expected fund volatility.


The change in asset mix in recent years has had a substantial beneficial impact
on investment returns.


The broad asset mix will continue to be reviewed as the economic environment and
market valuations change.

7. Investment Returns - better than the FTSE in 2001

The underlying investment return on the Prudential with-profits fund was minus
3.5 per cent in 2001 compared with the decline of 16.2 per cent in the FTSE 100
index and a decline of 15.4 per cent in the FTSE all share index. Returns on the
with-profits fund in recent years have been as follows:

Year                                1997           1998           1999           2000           2001
Gross Return %                      19.8           12.6           19.3           3.0            -3.5



                      This information is provided by RNS
            The company news service from the London Stock Exchange