Prudential plc 2008 Full Year

RNS Number : 1052P

Prudential PLC

19 March 2009

 

Unaudited Supplementary Information

IFRS basis results - Analysis of life insurance pre-tax IFRS operating profit by driver

Notes

		2008 £m
		Asia	US	UK		Total
Investment spread		38	550	143		731
Asset management fees		53	292	57		402
Net expense margin		(59)	(192)	(114)		(365)
DAC amortisation (Jackson only)		-	(450)	-		(450)
Net insurance margin		259	122	(12)		369
With-profits business		30	0	395		425
Other		-	84	76		160
Total		321	406	545		1,272
		2007 £m
		Asia	US	UK		Total
Investment spread		36	533	219		788
Asset management fees		38	266	60		364
Net expense margin		(102)	(186)	(138)		(426)
DAC amortisation (Jackson only)			(286)			(286)
Net insurance margin		191	122	9		322
With-profits business		26	0	394		420
Other		-	(5)	(20)		(25)
Total		189	444	524		1,157

a) This schedule classifies the Group's pre-tax operating earnings from long-term insurance operations into the underlying drivers of those profits, using four broad categories:

(i) Investment spread and asset management fees - This represents profits driven by investment performance, being asset management fees that vary with the size of the underlying policyholder funds net of investment management expenses and profits derived from spread, being the difference between investment income (or premium income in the case of the UK annuities new business) and amounts credited to policyholder accounts. The table above separately identifies net spread income from net fee income.

(ii) Net expense margin - represents expenses charged to the profit and loss account (excluding those borne by the with-profits fund and those products where earnings are purely protection driven) including amounts relating to movements in deferred acquisition costs, net of any fees or premium loadings related to expenses. Jackson DAC amortisation (net of hedging effects), which is intended to be part of the expense margin, has been separately highlighted in the table above.

(iii) Insurance margin - profits derived from the insurance risks of mortality, morbidity and persistency including fees earned on variable annuity guarantees.

(iv) With-profits business - shareholders' transfer from the with-profits fund in the period.

b) Other represents a mixture of other income and expenses that are not directly allocated to the underlying drivers, including non-recurring items.

c) It has been assumed that operating assumption changes should be included within insurance margin unless another category is more suitable. In 2008 the only item included outside of insurance margin was the operating assumption changes for shareholder annuity business in the UK which was principally driven by changes to the credit default reserving methodology and hence was included within investment spread. No such allocations were made in 2007.

Analysis of Group pre-tax IFRS operating profit by driver (includes life, asset management and corporate expenses)

IFRS Operating profit
	2008		2007
	£m		£m
Investment spread	731		788
Asset management fees	747		698
Net expense margin	(365)		(426)
DAC amortisation (Jackson only)	(450)		(286)
Net Insurance margin	369		322
With-profits business	425		420
Other	204		(21)
Corporate expenses	(314)		(294)
Total	1,347		1,201

An analysis of Group pre-tax IFRS operating profit has also been provided and is based on the long-term insurance operations table above with the following additions:

(i) The results of Group asset management operations have been included within asset management fees.

(ii) UK GI commission of £44 million (2007: £4 million) has been included within the other income line.

(iii) Corporate expenses consist of other operating income and expenditure, UK restructuring costs and development costs.

Breakdown of Invested Assets for the Group in £bn

	Total	PAR	Policy	Shareholders
	Group	Funds	Holders
Debt securities	95.2	43.0	6.3	45.9
Equity	62.1	31.8	29.2	1.1
Property Investments	12	9.9	0.7	1.4
Commercial mortgage loans (i)	5.5	0.2	0	5.3
Other Loans	5	2	0.1	2.9
Deposits	7.3	4.8	0.9	1.6
Other Investments	6.3	3.8	0.2	2.3
Total	193.4	95.5	37.4	60.5

Note 

(i) Total commercial mortgage loans includes US portfolio of £4.5bn

Shareholder Exposure to Banking sector

Of the £45.9bn total shareholder debt securities, approximately £6bn is exposed to the banking sector. Exposure to Tier 1 hybrid debt amounts to £824 million (UK £366m, US£200m and Other £258m). Of the UK £366m key Tier 1 exposures to UK Banks are Barclays £64m, HSBC £50m, Lloyds Group £91m, RBS £5m and Other £156m.

US Commercial Mortgage Loan portfolio - £4.5bn

Breakdown by Property Type -

	%
Industrial	29.5
Multi-Family	21.2
Office	20.6
Retail	17
Hotels	9.9
Other	1.8
	100

Note:

The US commercial mortgage loan portfolio consists of collateralised commercial mortgage loans, the average loan size is £7.5m. The original portfolio is underwritten with an estimated average loan to value of 73%, being the current estimate, which provides significant cushion to withstand substantial declines in value.

Corporate Debt Portfolio

The Corporate Debt Portfolio of £16.5 billion is composed of 7% AAA and AA, 34% A, BBB 51% and BB and below 8%. 

 

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