Prudential plc - HY15 Results - EEV

RNS Number : 6430V
Prudential PLC
11 August 2015
 



European Embedded Value (EEV) basis results

 

Post-tax operating profit based on longer-term investment returns

 

Results analysis by business area

 

 

 

 

2015 £m


2014 £m

 

 

 

Half year


Half year

Full year

 

 

Note



note (iii)

note (iii)

Asia operations

 

 

 

 

 

New business

3

664


494

1,162

Business in force

4

410


339

739

Long-term business

 

1,074


833

1,901

Eastspring Investments

 

50


36

78

Development expenses

 

(2)


(1)

(1)

Total

 

1,122


868

1,978

US operations

 

 

 

 

 

New business

3

371


376

694

Business in force

4

441


401

834

Long-term business

 

812


777

1,528

Broker-dealer and asset management

 

8


(5)

6

Total

 

820


772

1,534

UK operations*

 

 

 

 

 

New business

3

155


139

259

Business in force

4

256


241

476

Long-term business

 

411


380

735

General insurance commission

 

14


9

19

Total UK insurance operations

 

425


389

754

M&G

 

203


182

353

Prudential Capital

 

6


18

33

Total

 

634


589

1,140

Other income and expenditurenote (i)

 

(275)


(280)

(531)

Solvency II and restructuring costsnote (ii)

 

(23)


(14)

(36)

Results of the sold PruHealth and PruProtect businesses

 


8

11

Operating profit based on longer-term investment returns

 

2,278


1,943

4,096

Analysed as profits (losses) from:

 

 

 

 

 

New business*

3

1,190


1,009

2,115

Business in force*

4

1,107


981

2,049

Long-term business*

 

2,297


1,990

4,164

Asset management

 

267


231

470

Other results

 

(286)


(278)

(538)

Total

 

2,278


1,943

4,096

*       In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14).

 

Notes

(i)     EEV basis other income and expenditure represents the post-tax IFRS basis result less the unwind of expected margins on the internal management of the assets of the covered business (as explained in note 12(a)(vii)) and an adjustment for the shareholders' share of the pension costs attributable to the with-profits business.

(ii)    Solvency II and restructuring costs comprise the net of tax charge recognised on an IFRS basis and the additional amount recognised on the EEV basis for the shareholders' share incurred by the PAC with-profits fund.

(iii)   The comparative results have been prepared using previously reported average exchange rates for the period.

 

Basic earnings per share (in pence)






2015 £m


2014 £m


Half year


Half year  

Full year

Based on post-tax operating profit including longer-term investment returns

89.3p


76.3p

160.7p

Based on post-tax profit

82.9p


75.9p

170.4p

Average number of shares (millions)

2,552


2,547

2,549

 

Post-tax summarised consolidated income statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 £m


2014 £m



Note

Half year


Half year

Full year

Asia operations

 

1,122


868

1,978

US operations

 

820


772

1,534

UK operations*

 

634


589

1,140

Other income and expenditure

 

(275)


(280)

(531)

Solvency II and restructuring costs

 

(23)


(14)

(36)

Results of the sold PruHealth and PruProtect businesses

 


8

11

Operating profit based on longer-term investment returns

 

2,278


1,943

4,096

Short-term fluctuations in investment returns

5

(367)


432

763

Effect of changes in economic assumptions

6

80


(368)

(369)

Mark to market value movements on core borrowings

 

124


(66)

(187)

Gain on sale of PruHealth and PruProtect

14


44

Costs of domestication of Hong Kong branch

 


(7)

(4)

Total non-operating (loss) profit

 

(163)


(9)

247

Profit for the period attributable to equity holders of the Company

 

2,115


1,934

4,343

*       The presentation of the operating results for UK operations for half year and full year 2014 has been adjusted to show the results of the sold PruHealth and PruProtect businesses separately (see note 14).

 

Movement in shareholders' equity





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 £m


2014 £m

 

 

 

 

Note

Half year


Half year

Full year

Profit for the period attributable to equity shareholders


2,115


1,934

4,343

Items taken directly to equity:





 

 

Exchange movements on foreign operations and net investment hedges


(554)


(377)

737

 

Dividends


(659)


(610)

(895)

 

New share capital subscribed


2


8

13

 

Shareholders' share of actuarial and other gains and losses on defined benefit

    pension schemes


(20)


10

(11)

 

Reserve movements in respect of share-based payments


66


52

106

 

Treasury shares movements


(29)


(40)

(54)

 

Mark to market value movements on Jackson assets backing surplus and

    required capital


(8)


71

77

Net increase in shareholders' equity

9

913


1,048

4,316

Shareholders' equity at beginning of period:





 

 

As previously reported

9

29,161


24,856

24,856

 

Effect of the domestication of Hong Kong branch on 1 January 2014*


-


(11)

(11)

 

 

 

 

 

29,161


24,845

24,845

Shareholders' equity at end of period

9

30,074


25,893

29,161

*               On 1 January 2014, the Hong Kong branch of PAC was transferred to separate subsidiaries established in Hong Kong. The overall EEV basis effect of £(11) million represents the cost of holding higher required capital levels in the stand-alone Hong Kong shareholder-backed long-term insurance business.

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 Jun 2015 £m


30 Jun 2014 £m


31 Dec 2014 £m

Comprising: 

 

Long-term

business operations

Asset

manage-ment

and other operations  

Total      


Long-term

business

operations

Asset

manage-

ment

and other operations  

Total     


Long-term

business

operations

Asset

manage-

ment

and other operations  

Total     


 

note 9











Asia operations

 

12,838

284

13,122


10,997

253

11,250


12,545

274

12,819

US operations

 

8,457

165

8,622


7,155

141

7,296


8,379

157

8,536

UK insurance operations

 

8,708

33

8,741


7,654

9

7,663


8,433

19

8,452

M&G and Prudential Capital

 

-

1,723

1,723


-

1,659

1,659


-

1,646

1,646

Other operations

 

-

(2,134)

(2,134)


-

(1,975)

(1,975)


-

(2,292)

(2,292)

Shareholders' equity at end of period

 

30,003

71

30,074


25,806

87

25,893


29,357

(196)

29,161

Representing:

 

 

 

 

 








Net assets excluding acquired goodwill

 

 

 

 

 

 

 

 

 

 

 

 

 

and holding company net borrowings

 

29,772

1,635

31,407


25,578

1,553

27,131


29,124

1,542

30,666

Acquired goodwill

 

231

1,230

1,461


228

1,230

1,458


233

1,230

1,463

Holding company net borrowings

 

 

 

 

 

 

 

 

 

 

 

 

 

at market value note 7  

 

-

(2,794)

(2,794)


-

(2,696)

(2,696)



(2,968)

(2,968)


 

30,003

71

30,074


25,806

87

25,893


29,357

(196)

29,161

 

 



 

 

 

 

 

Summary statement of financial position





 

 

 

 

 

 

 

 

 

 

 

 

2015 £m


2014 £m

 

 

 

Note

30 Jun


30 Jun

31 Dec

Total assets less liabilities, before deduction for insurance funds

 

331,233


300,630

326,633

Less insurance funds:*

 

 

 

 

 

 

Policyholder liabilities (net of reinsurers' share) and unallocated

 

 

 

 

 

 

 

surplus of with-profits funds

 

(319,129)


(290,005)

(314,822)

 

Less shareholders' accrued interest in the long-term business

9

17,970


15,268

17,350

 

 

 

 

(301,159)


(274,737)

(297,472)

 Total net assets

 9

30,074


25,893

29,161

 

Share capital

 

 

128


 

128

 

128

Share premium

 

1,910


1,903

1,908

IFRS basis shareholders' reserves

 

10,066


8,594

9,775

Total IFRS basis shareholders' equity

 9

12,104


10,625

11,811

Additional EEV basis retained profit

 9

17,970


15,268

17,350

Total EEV basis shareholders' equity (excluding non-controlling interests)

 9

30,074


25,893

29,161

*       Including liabilities in respect of insurance products classified as investment contracts under IFRS 4.

 

 

Net asset value per share















30 Jun 2015


30 Jun 2014

31 Dec 2014

Based on EEV basis shareholders' equity of £30,074 million






(half year 2014: £25,893 million, full year 2014: £29,161 million) (in pence)

1,170p


1,009p

1,136p

Number of issued shares at period end (millions)

2,571


2,566

2,568








Annualised return on embedded value*

16%


16%

16%

*       Annualised return on embedded value is based on EEV post-tax operating profit, as a percentage of opening EEV basis shareholders' equity. Half year profits are annualised by multiplying by two.

Notes on the EEV basis results

 

1Basis of preparation

 

The EEV basis results have been prepared in accordance with the EEV Principles issued by the European Insurance CFO Forum in May 2004. Where appropriate, the EEV basis results include the effects of adoption of International Financial Reporting Standards (IFRS).

 

The directors are responsible for the preparation of the supplementary information in accordance with the EEV Principles. The EEV basis results of half year 2015 and half year 2014 are unaudited. Except for the change in presentation of the operating results for UK operations to show separately the contribution from the sold PruHealth and PruProtect businesses and the presentation of Prudential Capital as a separate segment, the full year 2014 results have been derived from the EEV basis results supplement to the Company's statutory accounts for 2014. The supplement included an unqualified audit report from the auditors.

 

A detailed description of the EEV methodology and accounting presentation is provided in note 12.


 

2 Results analysis by business area

 

The 2014 comparative results are shown below on both actual exchange rates (AER) and constant exchange rates (CER) bases. The half year 2014 CER comparative results are translated at half year 2015 average exchange rates.

 

Annual premium and contribution equivalents (APE) note15












Half year 2015 £m


Half year 2014 £m


% change


Note



AER

CER


AER

CER

Asia operations


1,366


996

1,042


37%

31%

US operations


857


871

954


(2)%

(10)%

UK operations*


510


419

419


22%

22%

Total*

3  

2,733


2,286

2,415


20%

13%

*        In order to show the UK long-term business on a comparable basis, the half year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14).

 

Post-tax operating profit




















Half year 2015 £m


Half year 2014 £m


% change


Note



AER

CER


AER

CER

Asia operations









New business

3  

664


494

512


34%

30%

Business in force

4  

410


339

351


21%

17%

Long-term business


1,074


833

863


29%

24%

Eastspring investments


50


36

37


39%

35%

Development costs


(2)


(1)

(1)


(100)%

(100)%

Total


1,122


868

899


29%

25%

US operations









New business

3  

371


376

412


(1)%

(10)%

Business in force

4  

441


401

439


10%

0%

Long-term business


812


777

851


5%

(5)%

Broker-dealer and asset management


8


(5)

(5)


260%

260%

Total


820


772

846


6%

(3)%

UK operations*









New business

3  

155


139

139


12%

12%

Business in force

4  

256


241

241


6%

6%

Long-term business


411


380

380


8%

8%

General insurance commission


14


9

9


56%

56%

Total UK insurance operations


425


389

389


9%

9%

M&G


203


182

182


12%

12%

Prudential Capital


6


18

18


(67)%

(67)%

Total


634


589

589


8%

8%

Other income and expenditure


(275)


(280)

(280)


2%

2%

Solvency II and restructuring costs


(23)


(14)

(14)


(64)%

(64)%

Results of the sold PruHealth and

    PruProtect businesses


-


8

8


(100)%

(100)%

Operating profit based on

    longer-term investment returns


2,278


1,943

2,048


17%

11%

Analysed as profits (losses) from:









New business*

3  

 1,190


1,009

1,063


18%

12%

Business in force*

4  

 1,107


 981

 1,031


13%

7%

Total long-term business*


2,297


1,990

2,094


15%

10%

Asset management


267


231

232


16%

15%

Other results


(286)


(278)

(278)


(3)%

(3)%

Operating profit based on

    longer-term investment returns


2,278


 1,943

 2,048


17%

11%

*       In order to show the UK long-term business on a comparable basis, the half year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14).

 

 

Post-tax profit




















Half year 2015 £m


Half year 2014 £m


% change


Note



AER

CER


AER

CER

Operating profit based on

    longer-term investment returns


2,278


1,943

2,048


17%

11%

Short-term fluctuations in investment

    returns

 5  

(367)


432

461


(185)%

(180)%

Effect of changes in economic

    assumptions

 6  

80


(368)

(393)


122%

120%

Other non-operating profit


124


(73)

(74)


270%

268%

Total non-operating profit


(163)


(9)

(6)


(1711)%

(2617)%

Profit for the period attributable to

    shareholders


2,115


1,934

2,042


9%

4%

 

Basic earnings per share (in pence)



















Half year 2015 £m


Half year 2014 £m


% change




AER


CER


AER

CER

Based on post-tax operating profit

    including longer-term investment returns

89.3

p

76.3

p

80.4

p

17%

11%

Based on post-tax profit

82.9

p

75.9

p

80.2

p

9%

3%


 

3 Analysis of new business contribution

 

(i)    Group Summary

 



 

 

 

 

 

 

 



 

 

Half year 2015





 

Annual premium and contribution equivalents (APE)

Present

value of new business premiums (PVNBP)

New business contribution


New business margin



 

 

APE

PVNBP



 

£m

£m

£m


%

%



 

note 15

note 15

note




Asia operations(note ii)

 

 1,366

 7,340

 664


 49

 9.0

US operations

 

 857

 8,574

 371


 43

 4.3

UK insurance operations

 

 510

 4,524

 155


 30

 3.4

Total

 

 2,733

 20,438

 1,190


 44

 5.8



 

 

 

 

 

 

 

 

 

 

Half year 2014



 

Annual premium and contribution equivalents (APE)

Present

value of new business premiums (PVNBP)

New business contribution


New business margin*



 

 

APE

PVNBP



 

£m

£m

£m


%

%



 

note 15

note 15

note




Asia operations(note ii)

 

 996

 5,378

 494


 50

 9.2

US operations

 

 871

 8,703

 376


 43

 4.3

UK insurance operations*

 

 419

 3,644

 139


 33

 3.8

Total

 

 2,286

 17,725

 1,009


 44

 5.7



 

 

 

 

 

 

 

 

 

 

Full year 2014



 

Annual premium and contribution equivalents (APE)

Present

value of new business premiums (PVNBP)

New business contribution


New business margin*



 

 

APE

PVNBP



 

£m

£m

£m


%

%



 

note 15

note 15





Asia operations(note ii)

 

 2,237

 12,331

 1,162


 52

 9.4

US operations

 

 1,556

 15,555

 694


 45

 4.5

UK insurance operations*

 

 834

 7,305

 259


 31

 3.5

Total

 

 4,627

 35,191

 2,115


 46

 6.0

*       In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14).

 

Note

The increase in new business contribution of £181 million from £1,009 million for half year 2014 to £1,190 million for half year 2015 comprises an increase on a CER basis of £127 million and an increase of £54 million for foreign exchange effects. The increase of £127 million on the CER basis comprises a contribution of £145 million for higher sales volumes and the impact of pricing, product and other actions, offset by an adverse £(18) million effect of lower long-term interest rates (generated by the active basis of setting economic assumptions) (analysed as Asia  £(7) million, US £(7) million and UK £(4) million).



 

(ii)   Asia operations - new business contribution by territory

 


2015 £m


2014 £m


2014 £m

  

Half year


AER

Half year

CER

Half year


AER

Full year

China

20


13

14


27

Hong Kong

322


152

167


405

India

9


5

5


12

Indonesia

127


136

135


296

Korea

4


8

8


11

Taiwan

13


13

14


29

Other

169


167

169


382

Total Asia operations

664


494

512


1,162


 

4 Operating profit from business in force

 

(i)   Group Summary


 

 

 

 


Half year 2015 £m


 

Asia

operations

 

US

operations

UK

insurance

operations

 

 

Total


note (ii)

note (iii)

note (iv)

note

Unwind of discount and other expected returns

411

236

245

892

Effect of changes in operating assumptions

1

1

Experience variances and other items

(2)

205

11

214

Total

410

441

256

1,107


 

 

 

 

 

Half year 2014 £m

 

 

Asia

operations

 

US

operations

UK

insurance

operations*

 

 

Total 

 

note (ii)

note (iii)

note (iv)

note

Unwind of discount and other expected returns

328

192

229

749

Effect of changes in operating assumptions

9

-

-

9

Experience variances and other items

2

209

12

223

Total

339

401

241

981

 

 

 

 

 

 

Full year 2014 £m

 

 

Asia

operations

 

US

operations

UK

insurance

operations*

 

 

Total

 

note (ii)

note (iii)

note (iv)


Unwind of discount and other expected returns

648

382

410

1,440

Effect of changes in operating assumptions

52

86

-

138

Experience variances and other items

39

366

66

471

Total

739

834

476

2,049

*       In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14).

 

Note

The movement in operating profit from business in force of £126 million from £981 million for half year 2014 to £1,107 million for half year 2015 comprises:




 

 

 

 

Half year 2015 £m


Increase in unwind of discount and other expected returns:

 

 

 

Effect of growth in opening value

147



Effect of changes in interest rates

(31)



Foreign exchange effects

27




143


Period-on-period change in effects of operating assumptions, experience variances and other items

(17)


Net increase in operating profit from business in force

126


 

(ii)  Asia operations

 



 

2015 £m


2014 £m



 

Half year


Half year

Full year

Unwind of discount and other expected returnsnote (a)

 

411


328

648

Effect of changes in operating assumptions:

 

 

 




Mortality and morbiditynote (b)

 

-


1

27


Persistency and withdrawalsnote (c)

 

4


-

(17)


Expense

 

(4)


1

(5)


Othernote (d)

 

1


7

47



 

1


9

52

Experience variances and other items:

 

 

 




Mortality and morbiditynote (e) 

 

30


18

23


Persistency and withdrawalsnote (f) 

 

(31)


(3)

44


Expensenote (g) 

 

(12)


(19)

(27)


Other

 

11


6

(1)



 

(2)


2

39

Total Asia operations

 

410


339

739

 

Notes

(a)   The increase in unwind of discount and other expected returns of £83 million from £328 million for half year 2014 to £411 million for half year 2015 comprises an £86 million effect for the increase in the opening in-force value, a £9 million increase for foreign exchange effects, partially offset by a £(12) million effect of lower interest rates.

(b)   The full year 2014 credit of £27 million for mortality and morbidity assumption changes reflected a number of offsetting items, including the effect of reduced projected mortality rates for Hong Kong.

(c)   The full year 2014 charge of £(17) million for persistency assumptions mainly reflected increased partial withdrawal assumptions on unit-linked business in Korea.                                                                                                                                           

(d)   The full year 2014 credit of £47 million for other assumption changes reflected a number of offsetting items, including the effects of modelling improvements and those arising from asset allocation changes in Hong Kong.

(e)   The positive mortality and morbidity experience variance in half year 2015 of £30 million (half year 2014: £18 million; full year 2014: £23 million) mainly reflects better than expected experience in Indonesia and Hong Kong. The experience variance in full year 2014 was partially offset by higher claims in Malaysia on medical reimbursement products.

(f)    Persistency and withdrawals experience will fluctuate between periods depending on underlying market performance and other demographic trends. As in previous years, in half year 2015 the persistency variance comprised positive and negative contributions from our various operations, with positive persistency experience on health and protection products which was more than offset by negative experience on unit-linked products.  The positive £44 million in full year 2014 principally reflected favourable experience across all product groups in Hong Kong.

(g)   The expense experience variance at half year 2015 is negative £(12) million (half year 2014: £(19) million; full year 2014: £(27) million).  The variance arises in operations which are currently sub-scale (China, Malaysia Takaful and Taiwan) and from short-term overruns in India.

 

(iii)  US operations

 



 

2015 £m


2014 £m



 

Half year


Half year

Full year

Unwind of discount and other expected returnsnote (a)

 

236


192

382

Effect of changes in operating assumptions:

 

 

 

 

 

 

Persistencynote (b)

 


55


Othernote (c)

 


31



 


86

Experience variances and other items:

 

 

 

 

 

 

Spread experience variancenote (d)

 

70


108

192


Amortisation of interest-related realised gains and lossesnote (e)

 

39


28

56


Othernote (f)

 

96


73

118



 

205


209

366

Total US operations

 

441


401

834

 

Notes                                                                                                                                               

(a)   The increase in unwind of discount and other expected returns of £44 million from £192 million for half year 2014 to £236 million for half year 2015 comprises a £32 million effect for the underlying growth in the in-force book, an £18 million foreign currency translation effect, partially offset by a £(6) million impact of the 20 basis points reduction in US 10-year Treasury rates.

(b)   For full year 2014 the credit of £55 million for persistency assumption changes principally related to revised assumptions for variable annuity business.

(c)   The full year 2014 credit of £31 million for the effect of other assumption changes reflected a number of offsetting items including the capitalised effect of changes in projected policyholder variable annuity fees of £46 million which vary depending on the size and mix of variable annuity funds.

(d)   The spread assumption for Jackson is determined on a longer-term basis, net of provision for defaults (see note 13(ii)). The spread experience variance in half year 2015 is £70 million (half year 2014: £108 million; full year 2014: £192 million), principally reflecting the positive effect of transactions undertaken to more closely match the overall asset and liability duration, and is lower than prior period, driven by the lower interest rate environment.

(e)   The amortisation of interest-related gains and losses reflects the fact that when bonds that are neither impaired nor deteriorating are sold and reinvested there will be a consequent change in the investment yield. The realised gain or loss is amortised into the result over the period when the bonds would have otherwise matured to better reflect the long-term returns included in operating profits.

(f)    Other experience variances of £96 million in half year 2015 (half year 2014: £73 million; full year 2014: £118 million) are principally driven by the effect of continued improvements in persistency experience of £68 million (half year 2014: £39 million; full year 2014: £59 million), mainly for variable annuity business and other favourable experience variances.

 

(iv)          UK insurance operations

 




 

2015 £m


2014 £m




 

Half year


Half year *

Full year *

Unwind of discount and other expected returnsnote (a)

 

245


229

410

Other itemsnote (b)

 

11


12

66

Total UK insurance operations

 

256


241

476

*       In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14).

 

Notes

(a)   The increase in unwind of discount and other expected returns of £16 million from half year 2014 of £229 million to £245 million at half year 2015 comprises an effect of £29 million reflecting the underlying growth in the in-force book, partially offset by a £(13) million negative effect of the 70 basis points reduction in gilt yields.

(b)  Other items of £11 million for half year 2015 (half year 2014: £12 million; full year 2014: £66 million) includes a charge of £(46) million in half year 2015 arising from a longevity reinsurance transaction, offset by the positive effects of rebalancing the investment portfolio backing annuity business (see note 12(b)(ii)), and other items.

 

5 Short-term fluctuations in investment returns

 

Short-term fluctuations in investment returns included in profit for the period arise as follows:

 

(i)   Group Summary


 

 

 

 

 

 

 

2015 £m


2014 £m


 

Half year


Half year

Full year

Asianote (ii)

 

(79)


245

439

USnote (iii)

 

(271)


95

(166)

UKnote (iv)

 

(32)


112

583

Other operationsnote (v)

 

15


(20)

(93)

Total

 

(367)


432

763

 

(ii)   Asia operations

The short-term fluctuations in investment returns for Asia operations comprise amounts in respect of:

 


2015 £m


2014 £m


Half year


Half year

Full year

Hong Kong

(24)


121

178

Indonesia

(27)


21

35

Singapore

(46)


46

92

Taiwan

(5)


21

23

Other

23


36

111

Total Asia operations

(79)


245

439

 

These fluctuations mainly arise from increases in half year 2015 and decreases in 2014 in long-term interest rates as they affect the value of bonds in the portfolios backing liabilities and related capital. The £23 million credit for other operations in half year 2015 principally arises in China for unrealised gains on equities due to strong market performance in the first half of the year. The £111 million credit in full year 2014 for other operations principally arose in Thailand of £49 million from unrealised gains on bonds.

 

(iii)  US operations

The short-term fluctuations in investment returns for US operations comprise:

 



2015 £m


2014 £m



Half year


Half year

Full year

Investment return related experience on fixed income securities note (a)

(25)


(2)

31

Investment return related impact due to changed expectation of profits on in-force

   variable annuity business in future periods based on current period

   separate account return, net of related hedging activity and other itemsnote (b)

 

 

(246)


 

 

97

 

 

(197)

Total US operations

(271)


95

(166)

 

Notes

(a) The (charge) credit relating to fixed income securities comprises the following elements:

- the excess of actual realised gains and losses over the amortisation of interest-related realised gains and losses recorded in the profit and loss

   account;

    - favourable credit experience (versus the longer-term assumption); and

    - the impact of changes in the asset portfolio.

(b) This item reflects the net impact of:

- changes in projected future fees and future benefit costs arising from the effect of market fluctuations on the growth in separate account asset values in the current reporting period; 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 insurance operations

The short-term fluctuations in investment returns for UK insurance operations comprise:

 


2015 £m


2014 £m


Half year


Half year

Full year

Shareholder-backed annuitynote (a)

(90)


35

310

With-profits, unit-linked and othernote (b)

58


77

273


(32)


112

583

 

Notes

(a)   Short-term fluctuations in investment returns for shareholder-backed annuity business comprise:

- (losses) gains on surplus assets compared to the expected long-term rate of return reflecting (increases) reductions in corporate bond and gilt yields;

- the difference between actual and expected default experience; and

- the effect of mismatching for assets and liabilities of different durations and other short-term fluctuations in investment returns.

(b)   The £58 million fluctuation in half year 2015 for with-profits, unit-linked and other business includes an overall 3 per cent pre-tax return on the with-profits fund (including unallocated surplus), which was marginally higher than the assumed return (half year 2014: total return of 4 per cent compared to assumed rate of 3 per cent), and a beneficial impact of an increase in future unit-linked fee income arising from market movements. For full year 2014 the total return on the with-profits fund was 9.5 per cent compared to an assumed rate of 5 per cent, together with the effect of a partial hedge of future shareholder transfers expected to emerge from the UK's with-profits sub-fund entered into to mitigate the effect of declines in the UK equity market.

 

(v) Other operations

Short-term fluctuations in investment returns of other operations were £15 million (half year 2014: £(20) million; full year 2014: £(93) million) include unrealised value movements on investments and foreign exchange items.


 

6 Effect of changes in economic assumptions

 

The effects of changes in economic assumptions for in-force business included in profit for the period arise as follows:

 

(i)   Group Summary

 

 

 

 

 

 

 

 

 

 

2015 £m


2014 £m


Half year


Half year

Full year

Asia operationsnote (ii)

14


(145)

(269)

US operationsnote (iii)

36


(158)

(77)

UK insurance operationsnote (iv)

30


(65)

(23)

Total

80


(368)

(369)

 

(ii)  Asia operations

 

 

 

 

The effect of changes in economic assumptions for Asia operations comprises:

 

 

 

 

 

 

 

 

 

 

2015 £m


2014 £m


Half year


Half year

Full year

Hong Kong

103


(73)

(121)

Malaysia

(19)


(31)

11

Indonesia

(36)


12

25

Singapore

(24)


(11)

(42)

Taiwan

2


(29)

(21)

Other

(12)


(13)

(121)

Total Asia operationsnote

14


(145)

(269)

 

Note

The overall positive effect of £14 million in half year 2015 reflects an increase in fund earned rates for participating business in Hong Kong, partially offset by the negative impact of valuing future health and protection profits at higher discount rates in Indonesia, Malaysia and Singapore, both driven by the increase in long-term interest rates. For full year 2014, other operations include a negative effect on non-participating business in Korea of £(38) million and Thailand of £(34) million for a reduction in fund earned rates.

 

(iii) US operations

The effect of changes in economic assumptions for US operations comprises:

 



2015 £m


2014 £m



Half year


Half year

Full year

Variable annuity business

81


(229)

(228)

Fixed annuity and other general account business

(45)


71

151

Totalnote

36


(158)

(77)

 

Note

These effects principally reflect the movement in 10-year Treasury rates in the reporting period, as shown in note 13(ii).  For variable annuity business the net credit (charge) principally reflects the consequent increase (decrease) in the assumed future rate of return on the underlying separate account assets, resulting in higher (lower) projected fee income and a decrease (increase) in projected benefit costs. There is also a partial offset arising from the (increase) decrease in the risk discount rate. For fixed annuity and other general account business the impact reflects the effect on the present value of future projected spread income of applying a (higher) lower discount rate on the opening value of the in-force book.

 

(iv)  UK insurance operations

The effect of changes in economic assumptions for UK insurance operations comprises the following:

 



2015 £m


2014 £m



Half year


Half year

Full year

Effect of changes in expected long-term rates of return, risk discount rates and other changes:

 

 

 

 

 

Shareholder-backed annuity businessnote (a)

(113)


73

352


With-profits and other businessnote (b)

143


(138)

(375)

Total

30


(65)

(23)

 

Notes

(a)   For shareholder-backed annuity business the overall negative (2014: positive) effect reflects the effect on the present value of projected spread income arising from the increase (2014: reduction) in the risk discount rates as shown in note 13 (iii).

(b)   For with-profits and other business the total credit in half year 2015 of £143 million (half year 2014: £(138) million; full year 2014: £(375) million) includes the net effect of the increase (2014: reduction) in fund earned rates and risk discount rates (as shown in note 13(iii)), arising from the 30 basis points increase in the 15-year government bond rate (half year 2014: 30 basis points decrease; full year 2014: 130 basis points decrease) as well as from changes in the composition of the asset portfolio which took place in the second half of 2014.

 

7 Net core structural borrowings of shareholder-financed operations

 


 


2015 £m



2014 £m


 


30 Jun



30 Jun


31 Dec


 

IFRS

basis

Mark to

market

value

adjustment

EEV

basis at

market

value


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* cash and short-term

         investments

 

(2,094)

-

(2,094)


(1,902)

-

(1,902)


(1,480)

-

(1,480)

Core structural borrowings - central funds

 

4,446

442

4,888


4,146

452

4,598


3,869

579

4,448

Holding company net borrowings

 

2,352

442

2,794


2,244

452

2,696


2,389

579

2,968

Core structural borrowings - Prudential

         Capital

 

275

-

275


275

-

275


275

-

275

Core structural borrowings - Jackson

 

159

51

210


146

41

187


160

42

202

Net core structural borrowings of         shareholder- financed operations

 

2,786

493

3,279


2,665

493

3,158


2,824

621

3,445

*       Including central finance subsidiaries.

 

In June 2015, the Company issued core structural borrowings of £600 million 5.00 per cent Tier 2 subordinated notes due 2055. The proceeds, net of discount adjustment and costs, were £590 million.

 

8 Analysis of movement in free surplus

 

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.

 

(i)   Underlying free surplus generated

The half year 2014 comparative results are shown below on both actual exchange rates (AER) and constant exchange rates (CER) bases. The half year 2014 CER comparative results are translated at half year 2015 average exchange rates.


 

 

 

 

 

 

 

 

Half year 2015 £m


Half year 2014 £m


% change


 

 

AER

CER


AER

CER

Asia operations

 

 

 

 

 

 

 

Underlying free surplus generated from in-force

    life business

519


433

447


20%

16%

Investment in new businessnotes (ii)(a), (ii)(g)

(213)


(167)

(176)


(28)%

(21)%

Long-term business

306


266

271


15%

13%

Eastspring Investmentsnote (ii)(b)

50


36

37


39%

35%

Total

356


302

308


18%

16%

US operations

 

 

 

 

 

 

 

Underlying free surplus generated from in-force

    life business

 700


 634

 694


10%

1%

Investment in new businessnote (ii)(a)

(164)


(173)

(189)


5%

13%

Long-term business

536


461

505


16%

6%

Broker-dealer and asset managementnote (ii)(b)

8


(5)

(5)


260%

260%

Total

544


456

500


19%

9%

UK insurance operations*

 

 

 

 

 

 

 

Underlying free surplus generated from in-force

    life business

352


289

289


22%

22%

Investment in new businessnote (ii)(a)

(57)


(36)

(36)


(58)%

(58)%

Long-term business

295


253

253


17%

17%

General insurance commissionnote (ii)(b)

14


9

9


56%

56%

Total

309


262

262


18%

18%

M&Gnote (ii)(b)

203


182

182


12%

12%

Prudential Capital note (ii)(b)

6


18

18


(67)%

(67)%

Results of the sold PruHealth and PruProtect

    businesses


(1)

(1)


100%

100%

Underlying free surplus generated

1,418


1,219

1,269


16%

12%


 

 

 

 

 

 

 

Representing:

 

 

 

 

 

 

 

Long-term business*:

 

 

 

 

 

 

 

Expected in-force cashflows (including expected

    return on net assets)

1,418


1,169

1,226


21%

16%

Effects of changes in operating assumptions,

    operating experience variances and other

    operating items

153


187

204


(18)%

(25)%

Underlying free surplus generated from

    in-force life business

1,571


1,356

1,430


16%

10%

Investment in new businessnotes (ii)(a), (ii)(g)

(434)


(376)

(401)


(15)%

(8)%

Total long-term business*

1,137


980

1,029


16%

10%

Asset management and general insurance

    commission note (ii)(b)

281


240

241


17%

17%

Results of the sold PruHealth and PruProtect

    businesses


(1)

(1)


100%

100%

Underlying free surplus generated

1,418


1,219

1,269


16%

12%

*       In order to show the UK long-term business on a comparable basis, the half year 2014 comparative results exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14).

 

 


(ii) Movement in free surplus

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Half year 2015 £m


Half year 2014 £m

Long-term business and asset management operations

 Long-term business

Asset management and UK general insurance commission

Free surplus of long-term business, asset management and UK general insurance commission


Free surplus of

 long-term business, asset management and UK general insurance commission


note 10

note (b)




Underlying movement*:

 

 

 

 

 

 

Investment in new businessnotes (a), (g)

(434)

-

(434)


(376)


Business in force:

 

 

 

 

 

 

 

Expected in-force cash flows (including expected return

   on net assets)

1,418

281

1,699


1,409



Effects of changes in operating assumptions, operating

   experience variances and other operating items

153

-

153


187


Results of the sold PruHealth and PruProtect businesses

-

-

-


(1)





1,137

281

1,418


1,219

Disposal of Japan Life businessnote (h)

23

-

23


-

Other non-operating itemsnote (c)

(141)

(4)

(145)


(22)





1,019

277

1,296


1,197

Net cash flows to parent companynote (d)

(910)

(158)

(1,068)


(974)

Exchange movements, timing differences and other itemsnote (e)

27

(10)

17


(5)

Net movement in free surplus

136

109

245


218

Balance at 1 January:

 

 

 

 

 

    As previously reported

4,193

866

5,059


4,003

    Effect of domestication of Hong Kong branch on 1 January 2014note (i)

 

-

 

-

 

-


 

(35)

Balance at 30 Junenote (g)

4,329

975

5,304


4,186

Representing:

 

 

 

 

 

 

Asia operations

1,382

223

1,605


1,387


US operations

1,333

149

1,482


1,163


UK operations

1,614

603

2,217


1,636





4,329

975

5,304


4,186

Balance at beginning of period

 

 

 

 

 

 

Asia operations

1,347

213

1,560


1,379


US operations

1,416

141

1,557


1,074


UK operations

1,430

512

1,942


1,550





4,193

866

5,059


4,003

*       In order to show the UK long-term business on a comparable basis, the half year 2014 comparative underlying movement in free surplus excludes the contribution from  the sold PruHealth and PruProtect businesses (see note 14).

 

Notes

(a)   Free surplus invested in new business represents amounts set aside for required capital and acquisition costs.

(b)   For the purposes of this analysis, free surplus for asset management operations and the UK general insurance commission is taken to be IFRS basis post-tax earnings and shareholders' equity.

(c)   Non-operating items are principally short-term fluctuations in investment returns and the effect of changes in economic assumptions for long-term business operations.

(d)   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.

(e)   Exchange movements, timing differences and other items represent:

 


Half year 2015 £m



Long-term

business

Asset management and UK

general insurance commission

Total


Exchange movementsnote 10

(64)

(7)

(71)


Mark to market value movements on Jackson assets backing

      surplus and required capitalnote 9

(8)

(8)


Shareholders' share of actuarial and other gains and losses on

      defined benefit pension schemes

1

(8)

(7)


Othernote (f)

98

5

103



27

(10)

17

(f)    Other primarily reflects the effect of timing differences arising on statutory transfers, intra-group loans and contingent loan repayments as shown in note 10(i), and other non-cash items.

(g)   Investment in new business includes the annual amortisation charge of amounts incurred to secure exclusive distribution rights through our bancassurance partners at a rate that reflects the pattern in which the future economic benefits are expected to be consumed by reference to new business levels. Included within the overall free surplus balance of our Asia life entities is £284 million representing unamortised amounts incurred to secure exclusive distribution rights through bancassurance partners. These amounts exclude £870 million of Asia distribution rights intangibles that are financed by loan arrangements from central companies, the costs of which are allocated to the Asia life segment as the amortisation cost is incurred.

(h)   The credit of £23 million in free surplus in half year 2015 reflects the release of required capital and transfer of value of in-force business on the completion of the sale of the Japan Life business (see note 14).

(i)     On 1 January 2014, the Hong Kong branch of PAC was transferred to separate subsidiaries established in Hong Kong. The half year 2014 EEV basis results included opening adjustments arising from the transfer of capital that was previously held within the UK business in respect of the Hong Kong branch operations and additional capital requirements arising from the newly established subsidiaries with an overall effect of £(35) million.

 

9 Reconciliation of movement in shareholders' equity

 




Half year 2015 £m




Long-term business operations

 

 

 

Other operations

 

 

 

Group

Total




Asia operations

US

operations

UK

insurance operations

Total

long-term business

operations




 

 

 

 

 

 

note (i)




note (i)


Operating profit (based on longer-term

   investment returns)

 

 

 

 

 

 

Long-term business:

 

 

 

 

 

 

 

New businessnote 3

664

371

155

1,190

-

1,190


Business in forcenote 4

410

441

256

1,107

-

1,107




1,074

812

411

2,297

-

2,297

Asset management

-

-

-

-

267

267

Other results

(2)

-

(13)

(15)

(271)

(286)

Operating profit based on longer-term

   investment returns

1,072

812

398

2,282

(4)

2,278

Total non-operating (loss) profit

(65)

(245)

(2)

(312)

149

(163)

Profit for the period

1,007

567

396

1,970

145

2,115

Other items taken directly to equity

 

 

 

 

 

 

Exchange movements on foreign operations

   and net investment hedges

(467)

(77)

-

(544)

(10)

(554)

Intra-group dividends (including statutory transfers)note (ii)

(245)

(400)

(107)

(752)

752

-

Investment in operationsnote (iii)

4

-

-

4

(4)

-

External dividends

-

-

-

-

(659)

(659)

Other movements note (iv)

(4)

(4)

(14)

(22)

41

19

Mark to market value movements on Jackson

   assets backing surplus and required capital

-

(8)

-

(8)

-

(8)

Net increase in shareholders' equity

295

78

275

648

265

913

Shareholders' equity at beginning of period

12,312

8,379

8,433

29,124

37

29,161

Shareholders' equity at end of periodnote (i)

12,607

8,457

8,708

29,772

302

30,074

Representing:

 

 

 

 

 

 

Statutory IFRS basis shareholders' equity:

 

 

 

 

 

 

Net assets

3,389

4,004

3,939

11,332

(689)

10,643

Goodwill

-

-

-

-

1,461

1,461

Total IFRS basis shareholders' equity

3,389

4,004

3,939

11,332

772

12,104

Additional retained profit (loss) on an EEV basisnote (v)

9,218

4,453

4,769

18,440

(470)

17,970

EEV basis shareholders' equity

12,607

8,457

8,708

29,772

302

30,074




 

 

 

 

 

 

Balance at 31 December 2014

 

 

 

 

 

 

Statutory IFRS basis shareholders' equity:

 

 

 

 

 

 

Net assets

3,315

4,067

3,785

11,167

(819)

10,348

Goodwill

-

-

-

-

1,463

1,463

Total IFRS basis shareholders' equity

3,315

4,067

3,785

11,167

644

11,811

Additional retained profit (loss) on an EEV basisnote (v)

8,997

4,312

4,648

17,957

(607)

17,350

EEV basis shareholders' equity

12,312

8,379

8,433

29,124

37

29,161

 

Notes

(i)     For the purposes of the table above, goodwill of £231 million (half year 2014: £228 million; full year 2014: £233 million) related to Asia long-term operations is included in Other operations.

(ii)    Intra-group dividends (including statutory transfers) represent dividends that have been declared in the period and amounts accrued in respect of statutory transfers. The amounts included in note 8 for these items are as per the holding company cash flow at transaction rates. The difference primarily relates to timing differences arising on statutory transfers, intra-group loans, and other non-cash items.

(iii)   Investment in operations reflects increases in share capital.

(iv)   Other movements includes a charge of £(20) million (half year 2014: credit of £10 million; full year 2014: charge of £(11) million) for the shareholders' share of actuarial and other gains and losses on the defined benefit schemes.

(v)   The additional retained loss on an EEV basis for Other operations primarily represents the mark to market value adjustment for holding company net borrowings of a charge of £(442) million (half year 2014: £(452) million; full year 2014: £(579) million), as shown in note 7.

 

10 Reconciliation of movement in net worth and value of in-force for long-term business



 

 

 

 

 

 

 

 

 

Half year 2015 £m



 

 

 

 

 

 

Total



 

 

 

 

Value of


long-term



Free

Required

Total net


in-force


business



surplus

capital

 worth


business


operations



note  8




note (iii)



Group

 

 

 

 

 

 

 

Shareholders' equity at beginning of period

4,193

4,556

8,749


20,375


29,124

New business contributionnote (ii)

(434)

265

(169)


1,359


1,190

Existing business - transfer to net worth

1,366

(183)

1,183


(1,183)


Expected return on existing businessnote 4

52

68

120


772


892

Changes in operating assumptions and experience variances note 4

168

12

180


35


215

Development expenses, solvency II and restructuring costs

(15)

(15)



(15)

Post-tax operating profit based on longer-term investment returns

1,137

162

1,299


983


2,282

Disposal of Japan Life business note 14 

23

(48)

(25)


25


Other non-operating items

(141)

(170)

(311)


(1)


(312)

Profit from long-term business

1,019

(56)

963


1,007


1,970

Exchange movements on foreign operations and net investment hedges

(64)

(60)

(124)


(420)


(544)

Intra-group dividends (including statutory transfers) and investment in

       operationsnote (i)

(789)

(789)


41


(748)

Other movements

(30)

(30)



(30)

Shareholders' equity at end of period

4,329

4,440

8,769


21,003


29,772



 

 

 

 

 

 

 

Representing:

 

 

 

 

 

 

 

Asia operations

 

 

 

 

 

 

 

Shareholders' equity at beginning of period

1,347

1,327

2,674


9,638


12,312

New business contributionnote (ii)

(213)

71

(142)


806


664

Existing business - transfer to net worth

515

(36)

479


(479)


Expected return on existing businessnote 4

16

24

40


371


411

Changes in operating assumptions and experience variancesnote 4

(10)

(12)

(22)


21


(1)

Development expenses

(2)

(2)



(2)

Post-tax operating profit based on longer-term investment returns

306

47

353


719


1,072

Disposal of Japan Life business note 14

23

(48)

(25)


25


Other non-operating items

4

(43)

(39)


(26)


(65)

Profit from long-term business

333

(44)

289


718


1,007

Exchange movements on foreign operations and net investment hedges

(53)

(46)

(99)


(368)


(467)

Intra-group dividends and investment in operations

(241)

(241)



(241)

Other movements

(4)

(4)



(4)

Shareholders' equity at end of period

1,382

1,237

2,619


9,988


12,607

US operations

 

 

 

 

 

 

 

 

Shareholders' equity at beginning of period

1,416

1,710

3,126


5,253


8,379

 

New business contributionnote (ii)

(164)

138

(26)


397


371

 

Existing business - transfer to net worth

556

(102)

454


(454)


 

Expected return on existing businessnote 4

21

25

46


190


236

 

Changes in operating assumptions and experience variancesnote 4

123

10

133


72


205

 

Post-tax operating profit based on longer-term investment returns

536

71

607


205


812

 

Other non-operating items

(196)

(82)

(278)


33


(245)

 

Profit from long-term business

340

(11)

329


238


567

 

Exchange movements on foreign operations and net investment hedges

(11)

(14)

(25)


(52)


(77)

 

Intra-group dividends

(400)

(400)



(400)

 

Other movements

(12)

(12)



(12)

 

Shareholders' equity at end of period

1,333

1,685

3,018


5,439


8,457

 

UK insurance operations

 

 

 

 

 

 

 

 

Shareholders' equity at beginning of period

1,430

1,519

2,949


5,484


8,433

 

New business contributionnote (ii)

(57)

56

(1)


156


155

 

Existing business - transfer to net worth

295

(45)

250


(250)


 

Expected return on existing businessnote 4

15

19

34


211


245

 

Changes in operating assumptions and experience variancesnote 4

55

14

69


(58)


11

 

Solvency II and restructuring costs

(13)

(13)



(13)

 

Post-tax operating profit based on longer-term investment returns

295

44

339


59


398

 

Other non-operating items

51

(45)

6


(8)


(2)

 

Profit from long-term business

346

(1)

345


51


396

 

Intra-group dividends (including statutory transfers)note (i)

(148)

(148)


41


(107)

 

Other movements

(14)

(14)



(14)

 

Shareholders' equity at end of period

1,614

1,518

3,132


5,576


8,708

 


 

Notes

(i)     For UK insurance operations, the amounts shown for intra-group dividends (including statutory transfers) in free surplus of £(148) million and in the value of in-force of £41 million include the impact of intragroup contingent loan repayments during the period. Contingent loan funding represents amounts whose repayment to the lender is contingent upon future surpluses emerging from certain contracts specified under the arrangement. If insufficient surplus emerges on those contracts, there is no recourse to other assets of the Group and the liability is not payable to the degree of shortfall.

(ii)    New business contribution per £1 million of free surplus invested:

 



Half year 2015 £m




Asia

operations

US

operations

UK

insurance

operations

Total long-term

business

operations


New business contributionnote 3

664

371

155

1,190


Free surplus invested in new business

(213)

(164)

(57)

(434)


New business contribution per £1 million of free surplus invested

3.1

2.3

2.7

2.7




 

 

 

 

 

 

 

Half year 2014 £m




Asia

operations

US

operations

UK

insurance

operations*

Total long-term

business

operations


New business contributionnote 3

494

376

139

1,009


Free surplus invested in new business

(167)

(173)

(36)

(376)


New business contribution per £1 million of free surplus invested

3.0

2.2

3.9

2.7




 

 

 

 

 

 

 

Full year 2014 £m




Asia

operations

US

operations

UK

insurance

operations*

Total long-term

business

operations


New business contributionnote 3

1,162

694

259

2,115


Free surplus invested in new business

(346)

(187)

(65)

(598)


New business contribution per £1 million of free surplus invested

3.4

3.7

4.0

3.5

*    In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparatives exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14).

 

(iii)   The value of in-force business comprises the value of future margins from current in-force business less the cost of holding required capital as shown below:

 



30 Jun 2015 £m




Asia

operations

US

operations

UK

insurance

operations

Total

long-term

business

operations


Value of in-force business before deduction of cost   

 

 

 

 

 

 

of capital and time value of guarantees

10,496

6,110

5,853

22,459


Cost of capital

(413)

(218)

(277)

(908)


Cost of time value of guarantees

(95)

(453)

(548)


Net value of in-force business

9,988

5,439

5,576

21,003




 

 

 

 

 

 

 

30 Jun 2014 £m




Asia

operations

US

operations

UK

insurance

operations

Total

long-term

business

operations


Value of in-force business before deduction of cost

 

 

 

 

 

 

of capital and time value of guarantees

8,936

4,960

5,413

19,309


Cost of capital

(404)

(197)

(254)

(855)


Cost of time value of guarantees

(56)

(273)

(329)


Net value of in-force business

8,476

4,490

5,159

18,125




 

 

 

 

 

 

 

31 Dec 2014 £m




Asia

operations

US

operations

UK

insurance

operations

Total

long-term

business

operations


Value of in-force business before deduction of cost

 

 

 

 

 

 

of capital and time value of guarantees

10,168

5,914

5,756

21,838


Cost of capital

(417)

(199)

(272)

(888)


Cost of time value of guarantees

(113)

(462)

(575)


Net value of in-force business

9,638

5,253

5,484

20,375

 

11 Sensitivity of results to alternative assumptions

 

(a)   Sensitivity analysis - economic assumptions

 

The tables below show the sensitivity of the embedded value as at 30 June 2015 (31 December 2014) and the post-tax new business contribution after the effect of required capital for half year 2015 and full year 2014 to:

 

-    1 per cent increase in the discount rates;

-    1 per cent increase and decrease in interest rates, including all consequential changes (assumed investment returns for all asset classes, market values of fixed interest assets, risk discount rates);

-    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 (by contrast to EEV basis required capital), (for embedded value only);

-    5 basis point increase in UK long-term expected defaults; and

-    10 basis point increase in the liquidity premium for UK annuities.

 

In each sensitivity calculation, all other assumptions remain unchanged except where they are directly affected by the revised economic conditions.

 

New business contribution












Half year 2015 £m


Full year 2014 £m



Asia operations

US operations

UK insurance operations

Total

long-term

business

operations


Asia operations

US operations

UK insurance operations*

Total

long-term

business

operations

Post-tax new business contributionnote 3

664

371

155

1,190


1,162

694

259

2,115

Discount rates - 1% increase

(110)

(17)

(22)

(149)


(176)

(27)

(38)

(241)

Interest rates - 1% increase

16

25

(8)

33


13

61

(15)

59

Interest rates - 1% decrease

(33)

(49)

11

(71)


(52)

(101)

19

(134)

Equity/property yields - 1% rise

32

39

6

77


46

73

12

131

Long-term expected defaults - 5 bps increase

(6)

(6)


(10)

(10)

Liquidity premium - 10 bps increase

11

11


20

20

*       In order to show the UK long-term business on a comparable basis, the full year 2014 comparatives exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14).

 

Embedded value of long-term business operations










30 Jun 2015 £m


31 Dec 2014 £m



Asia

operations

US

operations

UK

insurance

operations

Total

long-term

business

operations


Asia

operations

US

operations

UK

insurance

operations

 Total

long-term

business

operations

Shareholders' equitynote 9

12,607

8,457

8,708

29,772


12,312

8,379

8,433

29,124

Discount rates - 1% increase

 (1,301)

 (273)

 (610)

 (2,184)


 (1,214)

 (268)

 (602)

 (2,084)

Interest rates - 1% increase

 (447)

 (218)

 (390)

 (1,055)


 (462)

 (232)

 (362)

 (1,056)

Interest rates - 1% decrease

165

50

470

685


211

16

452

679

Equity/property yields - 1% rise

465

369

273

1,107


435

365

282

1,082

Equity/property market values - 10% fall

 (257)

 (90)

 (415)

 (762)


 (221)

 (129)

 (380)

 (730)

Statutory minimum capital

124

149

4

277


129

139

4

272

Long-term expected defaults - 5 bps increase

 (141)

 (141)


 (139)

 (139)

Liquidity premium - 10 bps increase

283

283


278

278

 

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 assumption 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. These are for 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 Jackson, the fair value movements on assets backing surplus and required capital which are taken directly to shareholders' equity would also be affected by changes in interest rates.

 

(b)   Effect of change in future UK corporation tax rate announced in July 2015

 

The Finance Bill 2015, which was announced on 8 July 2015, includes reductions in the UK corporate tax rate from 20 per cent to 19 per cent effective 1 April 2017 and from 19 per cent to 18 per cent effective 1 April 2020. The impact of this change has not been factored in the EEV results or shareholders' equity at 30 June 2015. Had the half year 2015 EEV results been prepared on the basis of these new tax rates, the net of tax value of in-force business of UK insurance operations at 30 June 2015 would have been higher by around £55 million.

 

12 Methodology and accounting presentation

 

(a)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 12(b)(iii)) 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 12(b)(i)).

 

(i)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 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 other operations. Under the EEV Principles, the results for covered business incorporate the projected margins of attaching internal asset management, as described in note 12(a)(vii).

 

The definition of long-term business operations is consistent with previous practice and 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 (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.

-    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.

 

(ii) 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 13). 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 assumptions as at the end of the period.

 

For UK immediate annuity business and single premium Universal Life products in Asia, primarily in Singapore, the new business contribution is determined by applying economic assumptions reflecting point-of-sale market conditions. This is consistent with how the business is priced as crediting rates are linked to yields on specific assets and the yield is locked-in when the assets are purchased at the point-of-sale of the policy. For other business within the Group, end-of-period economic assumptions are used.

 

New business profitability is a key metric for the Group's management of the development of the business. In addition, post-tax new 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 new business amounts and one-tenth of single new business amounts. PVNBP is calculated as equalling single premiums plus the present value of expected premiums of new regular premium business, allowing for lapses and 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 period (to the extent that changes in capital values do not directly match changes in liabilities) are included directly in the profit for the period 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 the IFRS basis.

 

However, in determining the movements on the additional shareholders' interest, the basis for calculating the Jackson EEV result 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 (depreciation) appreciation on these securities are accounted for in equity rather than in the income statement, as shown in the movement in shareholders' equity.

 

(iii) Cost of capital

A charge is deducted from the embedded value for the cost of capital supporting the Group's long-term business. This capital is referred to as required capital. 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 investment earnings (post-tax) 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 release over time and no further adjustment is necessary in respect of required capital.

 

(iv) Financial options and guarantees

 

Nature of financial options and guarantees in Prudential's long-term business

Asia operations

Subject to local market circumstances and regulatory requirements, the guarantee features described below in respect of UK business broadly apply to similar types of participating contracts 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 operations (Jackson)

The principal financial options and guarantees in Jackson are associated with the fixed annuity 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 all periods throughout these results, depending on the particular product, jurisdiction where issued, and date of issue. For all periods shown, 86 per cent of the account values on fixed annuities are for policies with guarantees of 3 per cent or less. The average guarantee rate is 2.7 per cent (half year 2014: 2.8 per cent; full year 2014: 2.7 per cent).

 

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 VA contracts where it contractually guarantees to the contract holder 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 at specified dates during the accumulation period (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 policyholder's value in the event of poor equity market performance. Jackson hedges the GMDB and GMWB guarantees through the use of equity options and futures contracts, and fully reinsures the GMIB guarantees.

 

Jackson also issues fixed index annuities 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 insurance operations

For covered business the only significant financial options and guarantees in the UK insurance operations 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. Unlike annual bonuses, final bonuses are guaranteed only until the next bonus declaration. The with-profits fund also held a provision on the Pillar I Peak 2 basis of £50 million at 30 June 2015 (30 June 2014: £36 million; 31 December 2014: £50 million) to honour guarantees on a small number of guaranteed annuity option products.

 

The Group's main exposure to guaranteed annuity options in the UK is through the non-covered business of SAIF. A provision on the Pillar I Peak 2 basis of £471 million was held in SAIF at 30 June 2015 (30 June 2014: £421 million; 31 December 2014: £549 million) to honour the guarantees. As described in note 12(a)(i), 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.

 

Time value

The value of financial options and guarantees comprises two parts. One is given by a deterministic valuation on best estimate assumptions (the intrinsic value). The other 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 13(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 PAC 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.

 

(v) Level of required capital

In adopting the EEV Principles, Prudential has based required capital on its internal targets subject to it being at least the local statutory minimum requirements. For with-profits business written in a segregated life fund, as is the case in Asia and the UK, the capital available in the fund is sufficient to meet the required capital requirements. For shareholder-backed business the following capital requirements apply:

-    Asia operations: the level of required capital has been set to an amount at least equal to the higher of local statutory requirements and the internal target;

-    US operations: the level of required capital has been set at 250 per cent of the risk-based capital required by the National Association of Insurance Commissioners (NAIC) at the Company Action Level (CAL); and

-    UK insurance operations: the capital requirements are set to an amount at least equal to the higher of Pillar I and Pillar II requirements for shareholder-backed business of UK insurance operations as a whole.

 

(vi) With-profits business and the treatment of the estate

The proportion of surplus allocated to shareholders from the PAC 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.

 

(vii) Internal asset management

The new business and in-force 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 period 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 period. 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 covered business assets.

 

(viii) 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. 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. Prudential has selected a granular approach to better reflect differences in market risk inherent in each product group. The risk discount rate so derived does not reflect an overall Group market beta but instead reflects the expected volatility associated with the cash flows for each product category in the embedded value model.

 

Since financial options and guarantees are explicitly valued under the EEV methodology, 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 all of 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 operations

For Asia operations, the allowance for credit risk incorporated in the projected rates of return and the market risk allowance are 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 operations (Jackson)

For Jackson business, the allowance for long-term defaults is reflected in the risk margin reserve (RMR) charge which 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 as shown in note 13(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 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, and converted 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 return rates 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 operations

(1) Shareholder-backed annuity business

For Prudential's UK 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 long duration liabilities, the future cash flows are discounted using the swap yield curve plus an allowance for liquidity premium based on Prudential's assessment of the expected return on the assets backing the annuity liabilities after allowing for:

-    expected long-term defaults derived as a percentage of historical default experience based on Moody's data for the period 1970 to 2009 and the definition of the credit rating assigned to each asset held is the second highest credit rating published by Moody's, Standard & Poor's and Fitch;

-    a credit risk premium, which is derived as the excess over the expected long-term defaults, of the 95th percentile of historical cumulative defaults based on Moody's data for the period 1970 to 2009, and subject to a minimum margin over expected long-term defaults of 50 per cent;

-    an allowance for a 1-notch downgrade of the asset portfolio subject to credit risk; and

-    an allowance for short-term downgrades and defaults.

 

For the purposes of presentation in the EEV results, the results on this basis are reconfigured. Under this approach the projected earned rate of return on the debt securities held is determined after allowing for expected long-term defaults and, where necessary, an additional allowance for an element of short-term downgrades and defaults to bring the allowance in the earned rate up to best estimate levels. The allowances for credit risk premium, 1-notch downgrade and the remaining element of short-term downgrade and default allowances are incorporated into the risk margin included in the discount rate, shown in note 13(iii).

 

(2) With-profits fund non-profit annuity business

For UK non-profit annuity business including that attributable to the PAC 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 to the with-profits fund, which are in turn discounted at the risk discount rate applicable to all of the projected cash flows of the fund.

 

(3) With-profits fund holdings of debt securities

The UK 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 gilts, 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. Finance theory cannot be used to determine the appropriate component of beta for non-diversifiable non-market risks since there is no observable risk premium associated with it that is akin to the equity risk premium. Recognising this, a pragmatic approach has been applied.

 

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 US business and UK business other than shareholder-backed annuity, no additional allowance is necessary. For UK shareholder-backed annuity business a further allowance of 50 basis points is used to reflect the longevity risk which is of particular relevance. For the Group's Asia operations in China, India, Indonesia, the Philippines, Taiwan, Thailand and Vietnam, additional allowances are applied for emerging market risk ranging from 100 to 250 basis points.

 

(ix) Foreign currency translation

Foreign currency profits and losses have been translated at average exchange rates for the period. Foreign currency assets and liabilities have been translated at period end rates of exchange. The principal exchange rates are shown in note A1 of the IFRS statements.

 

(x) Taxation

In determining the post-tax profit for the period 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. The sensitivity of the embedded value as at 30 June 2015 to the effect of the future reductions in the UK corporate tax rate announced in July 2015 is shown in note 11(b).

 

(xi) Inter-company arrangements

The EEV results for covered business incorporate annuities established in the PAC non-profit sub-fund from vesting pension polices 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 PRIL. In addition, the free surplus and value of in-force business are calculated after taking account of the impact of contingent loan arrangements between Group companies (movements in the contingent loan liability are reflected via the projected cash flows in the value of in-force and the related funding is reflected in free surplus).

 

(b) Accounting presentation

 

(i) Analysis of post-tax profit

To the extent applicable, the presentation of the EEV post-tax profit for the period is consistent in 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 12(b)(ii) below) and incorporate the following:

-    new business contribution, as defined in note 12(a)(ii);

-    unwind of discount on the value of in-force business and other expected returns, as described in note 12(b)(iii) below;

-    the impact of routine changes of estimates relating to non-economic assumptions, as described in note 12(b)(iv) below; and

-    non-economic experience variances, as described in note 12(b)(v) below.

 

In order to show the UK long-term business result on a comparable basis, the presentation of half year and full year 2014 results has been adjusted to show the results of the sold PruHealth and PruProtect businesses separately.

 

Non-operating results comprise the recurrent items of:

-    short-term fluctuations in investment returns;

-    the mark to market value movements on core borrowings; and

-    the effect of changes in economic assumptions.

 

In addition, non-operating profit includes:

-    the effect on free surplus generated of the disposal of the Japan Life business in 2015;

-    the gain on sale of the PruHealth and PruProtect businesses in 2014; and

-    the costs associated with the domestication of the Hong Kong branch which became effective on 1 January 2014.

 

Total profit attributable to shareholders and basic earnings per share include these items, together with actual investment returns. The Company believes that operating profit, as adjusted for these items, better reflects underlying performance.

 

(ii) 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 PAC with-profits fund of UK operations, 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 12(b)(iii) below.

 

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 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 equity risk premium. For US variable annuity separate account business, operating profit includes the unwind of discount on the opening value of in-force 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 the 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 result for the period.

 

(iii) Unwind of discount and other expected returns

The unwind of discount and other expected returns is determined by reference to:

-    the value of in-force business at the beginning of the period (adjusted for the effect of current period 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 the with-profits business of UK insurance operations is determined by reference to the opening value of in-force, as adjusted for the effects 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 30 June 2015 the shareholders' interest in the smoothed surplus assets used for this purpose only, were £104 million (30 June 2014: £123 million; 31 December 2014: £194 million) lower than the surplus assets carried in the statement of financial position.

 

(iv) Effect of changes in operating assumptions

Operating profit includes the effect of changes to operating assumptions on the value of in-force at the end of the period. For presentational purposes, the effect of change is delineated to show the effect on the opening value of in-force with the experience variance being determined by reference to the end-of-period assumptions.

 

(v) Operating experience variances

Operating profits include the effect of experience variances on non-economic assumptions, which are calculated with reference to the embedded value assumptions at the end of the reporting period, such as persistency, mortality and morbidity, expenses and other factors.

 

(vi) Effect of changes in economic assumptions

Movements in the value of in-force business at the beginning of the period 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.

 

13 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 period end rates of return on government bonds. 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 as that calculated under the IFRS basis. Since the embedded value basis reflects discounted future cash flows, under this methodology the profit emergence is advanced, thus more closely aligning the timing of the recognition of profits with the efforts and risks of current management actions, particularly with regard to business sold during the period.

 

(i) Asia operationsnotes (b), (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk discount rate %


New business


In force


2015


2014


2015


2014


30 Jun


30 Jun

31 Dec


30 Jun


30 Jun

31 Dec

China

10.2


10.6

10.2


10.2


10.6

10.2

Hong Kongnotes (b), (c)

3.9


4.3

3.7


3.9


4.2

3.7

India

13.0


13.9

13.0


13.0


13.9

13.0

Indonesia

12.5


12.2

12.0


12.5


12.2

12.0

Korea

6.4


6.8

6.7


5.8


7.1

6.5

Malaysianote (c)

6.5


6.6

6.6


6.6


6.6

6.6

Philippines

11.2


10.8

10.8


11.2


10.8

10.8

Singaporenote (c)

4.5


4.3

4.3


5.3


5.0

5.0

Taiwan

4.2


4.0

4.2


4.2


4.0

4.1

Thailand

9.7


10.6

9.5


9.7


10.6

9.5

Vietnam

13.6


15.4

14.0


13.6


15.4

14.0

Total weighted risk discount ratenote (a)

6.5


7.4

6.9


6.6


7.0

6.6


 

 

 

 

 

 

 

 

 

 

10-year government bond yield %


Expected long-term Inflation %


2015


2014


2015


2014


30 Jun


30 Jun

31 Dec


30 Jun


30 Jun

31 Dec

China

3.7


4.1

3.7


2.5


2.5

2.5

Hong Kongnotes (b), (c)

2.4


2.6

2.2


2.3


2.3

2.3

India

8.0


8.9

8.0


4.0


4.0

4.0

Indonesia

8.5


8.4

7.9


5.0


5.0

5.0

Korea

2.5


3.2

2.6


3.0


3.0

3.0

Malaysianote (c)

4.0


4.1

4.1


2.5


2.5

2.5

Philippines

4.5


4.1

4.0


4.0


4.0

4.0

Singaporenote (c)

2.7


2.3

2.3


2.0


2.0

2.0

Taiwan

1.5


1.6

1.6


1.0


1.0

1.0

Thailand

3.0


3.8

2.7


3.0


3.0

3.0

Vietnam

6.8


8.7

7.2


5.5


5.5

5.5

 

Notes

(a)   The weighted risk discount rates for Asia operations shown above have been determined by weighting each country's risk discount rates by reference to the post-tax EEV basis new business result and the closing value of in-force business. The changes in the risk discount rates for individual Asia territories reflect the movements in government bond yields, together with the effects of movements in the allowance for market risk and changes in product mix.

(b)   For Hong Kong the assumptions shown are for US dollar denominated business. For other territories, the assumptions are for local currency denominated business.

(c)   Equity risk premiums in Asia range from 3.5 per cent to 8.7 per cent for all periods throughout the results. The mean equity return assumptions for the most significant equity holdings of the Asia operations were:



2015 %


2014 %



30 Jun


30 Jun

31 Dec


Hong Kong

6.4


6.6

6.2


Malaysia

10.0


10.1

10.1


Singapore

8.7


8.4

8.3


 

(ii)  US operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


2015 %


2014 %






30 Jun


30 Jun

31 Dec

Assumed new business spread margins:*

 

 

 

 

 

 

Fixed Annuity business:**

 

 

 

 

 

 

 

January to June issues 


1.25


1.5

1.5



July to December issues


n/a


n/a

1.5


Fixed Index Annuity business:

 

 

 

 

 

 

 

January to June issues 


1.5


2.0

2.0



July to December issues


n/a


n/a

2.0


Institutional business


0.7


0.7

0.7

Allowance for long-term defaults included in projected spreadnote 12 (a)(viii)


0.24


0.26

0.25

Risk discount rate:

 

 

 

 

 

 

Variable annuity:

 

 

 

 

 

 

 

Risk discount rate


7.0


7.1

6.9



Additional allowance for credit risk included in risk discount ratenote 12 (a)(viii)


0.2


0.2

0.2


Non-variable annuity:

 

 

 

 

 

 

 

Risk discount rate


4.1


4.3

3.9



Additional allowance for credit risk included in risk discount ratenote 12 (a)(viii)


1.0


1.0

1.0


Weighted average total:

 

 

 

 

 

 

 

New business


6.9


6.9

6.7



In force


6.4


6.4

6.2

US 10-year treasury bond rate at end of period


2.4


2.6

2.2

Pre-tax expected long-term nominal rate of return for US equities


6.4


6.6

6.2

Expected long-term rate of inflation


2.9


2.6

2.8

Equity risk premium


4.0


4.0

4.0

S&P equity return volatility note 13(v)


18.0


19.0

18.0

*       including the proportion of variable annuity business invested in the general account  and fixed index annuity business, 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 insurance operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 %


2014 %




30 Jun


30 Jun

31 Dec

Shareholder-backed annuity business:

 

 

 

 

Risk discount rate:note

 

 

 

 

 

New business

6.4


6.9

6.5


In force

7.1


7.8

6.9

Pre-tax expected long-term nominal rate of return for shareholder-backed annuity business:note

 

 

 

 

 

New business

3.4


4.5

4.1


In force

3.7


4.1

3.2

Other business:

 

 

 

 

Risk discount rate: *

 

 

 

 

 

New business

5.9


6.1

5.5


In force

6.1


6.5

5.9

Pre-tax expected long-term nominal rates of investment return:

 

 




UK equities

6.5


7.2

6.2


Overseas equities

6.4 to 8.9


6.6 to 9.1

6.2 to 9.0


Property

5.3


5.9

4.9


15-year gilt rate

2.5


3.2

2.2


Corporate bonds

4.1


4.8

3.8

Expected long-term rate of inflation

3.3


3.3

 3.0

Equity risk premium

4.0


4.0

4.0

*       The half year and full year 2014 risk discount rates exclude the sold PruHealth and PruProtect businesses.

 

Note

For shareholder-backed annuity business, the movements in the pre-tax long-term nominal rates of return and risk discount rates for new and in-force businesses reflect the effect of changes in asset yields. The movements in risk discount rates also reflect changes in the margin for credit risk premium, as explained in note 12(a)(viii).

 

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 12(a)(iv).

 

(iv) Asia operations

-    The stochastic cost of guarantees is primarily of significance for the Hong Kong, Korea, 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 UK insurance operations below.

-    The volatility of equity returns ranges from 18 per cent to 35 per cent, and the volatility of government bond yields ranges from 0.9 per cent to 2.3 per cent for all periods throughout these results.

 

(v)   US operations (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.

-    The volatility of equity returns ranges from 18 per cent to 27 per cent (half year 2014: 19 per cent to 32 per cent; full year 2014: 18 per cent to 27 per cent) and the standard deviation of interest rates ranges from 2.2 per cent to 2.5 per cent for all periods throughout these results.

 

(vi)  UK insurance operations

-    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 bond return plus a mean-reverting spread.

-    Property returns are also modelled on a risk-free bond return plus a risk premium with a stochastic process reflecting total property returns.

-    The standard deviation of equities and property ranges from 15 per cent to 20 per cent for all periods throughout these results.

 

Operating assumptions

 

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.

 

Expense assumptions

Expense levels, including those of service companies that support the Group's long-term business operations, are based on internal expense analysis investigations and are appropriately allocated to acquisition of new business and renewal of in-force business. Exceptional expenses are identified and reported separately. For mature business, it is Prudential's policy not to take credit for future cost reduction programmes until the savings have been delivered. For businesses which are currently sub-scale (China, Malaysia Takaful and Taiwan), and India (where the business model is being adapted as the industry continues to adjust to regulatory changes), expense overruns are reported where these are expected to be short-lived.

 

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 PAC with-profits funds, together with Solvency II implementation and restructuring costs, which are charged to the EEV basis results as incurred; 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.

 

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 12(a)(x).

 

The local standard corporate tax rates applicable for the most significant operations for all periods shown, are as follows:

 

Standard corporate tax rates


%

Asia operations:



Hong Kong

 

16.5 per cent on 5 per cent of premium income

Indonesia


25.0

Malaysia


2014 and 2015: 25.0; From 2016: 24.0

Singapore


17.0

US operations


35.0

UK operations*


20.0

*       The sensitivity of the embedded value as at 30 June 2015 to the effect of the future reductions in the UK corporate tax rate announced in July 2015 is shown in note 11(b).

 

14 Disposal of Japan Life and PruHealth and PruProtect businesses

 

2015 Sale of Japan Life business

On 5 February 2015, the Group completed the sale of its closed book life insurance business in Japan, PCA Life Insurance Company Limited to SBI Holdings Inc, following regulatory approvals, resulting in a release of free surplus of £23 million in half year 2015.

 

2014 Sale of PruHealth and PruProtect businesses

The Prudential Assurance Company Limited completed the sale of its 25 per cent equity stake in the PruHealth and PruProtect businesses to Discovery Group Europe Limited on 14 November 2014, which gave rise to a gain on disposal of £44 million for full year 2014.

 

The contribution to the various EEV key performance measures of these businesses at half year and full year 2014 are provided in section C of the additional unaudited information.

 

15 Total insurance and investment products new businessnote (i)

 

 

Single


Regular


Annual premium and contribution equivalents (APE)

 

 Present value of new business premiums (PVNBP)

 

 

 

 

 

 

 

 

 

 

 

note 12(a)(ii)

 

note 12(a)(ii)

 

2015 £m


2014 £m


2015 £m


2014 £m


2015 £m


2014 £m

 

2015 £m


2014 £m

 

Half year


Half year

Full year


Half year


Half year

Full year


Half year


Half year

Full year

 

Half year


Half year

Full year

Group insurance   

     operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia

 1,241


 955

 2,272


 1,242


 900

 2,010


 1,366


 996

 2,237

 

 7,340


 5,378

 12,331

US

 8,574


 8,703

 15,555


 -  


 -  

 -  


 857


 871

 1,556

 

 8,574


 8,703

 15,555

UKnote (viii)

 4,191


 3,329

 6,681


 91


 86

 166


 510


 419

 834

 

 4,524


 3,644

 7,305

Group totalnote (viii)

 14,006


 12,987

 24,508


 1,333


 986

 2,176


 2,733


 2,286

 4,627

 

 20,438


 17,725

 35,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia insurance operations

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

  

Cambodia

 -  


 -  

 -  


 3


 1

 3


 3


 1

 3

 

 17


 4

 16

Hong Kong

 242


 175

 419


 495


 240

 603


 519


 258

 645

 

 3,015


 1,530

 3,861

Indonesia

 147


 101

 280


 168


 174

 357


 183


 184

 385

 

 762


 748

 1,619

Malaysia

 53


 42

 117


 100


 87

 189


 105


 91

 201

 

 630


 583

 1,284

Philippines

 79


 53

 121


 21


 17

 39


 29


 22

 51

 

 146


 106

 248

Singapore

 276


 264

 677


 125


 146

 289


 153


 172

 357

 

 1,097


 1,217

 2,683

Thailand

 34


 50

 92


 45


 37

 74


 48


 42

 83

 

 207


 196

 392

Vietnam

 3


 1

 4


 34


 23

 61


 34


 23

 61

 

 140


 91

 247

SE Asia operations

     including Hong Kong

 834


 686

 1,710


 991


 725

 1,615


 1,074


 793

 1,786

 

 6,014


 4,475

 10,350

Chinanote (ii)

 259


 117

 239


 63


 45

 81


 89


 57

 105

 

 487


 280

 550

Korea

 102


 97

 212


 64


 38

 92


 74


 48

 113

 

 398


 260

 609

Taiwan

 27


 45

 83


 58


 49

 116


 61


 54

 124

 

 209


 214

 462

Indianote (iii)

 19


 10

 28


 66


 43

 106


 68


 44

 109

 

 232


 149

 360

Total Asia insurance

      operations

 1,241


 955

 2,272


 1,242


 900

 2,010


 1,366


 996

 2,237

 

 7,340


 5,378

 12,331

US insurance operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable annuities

 6,065


 6,136

 10,899


 -  


 -  

 -  


 606


 614

 1,090

 

 6,065


 6,136

 10,899

Elite Access (variable   annuity)

 1,656


 1,493

 3,108


 -  


 -  

 -  


 166


 149

 311

 

 1,656


 1,493

 3,108

Fixed annuities

 233


 265

 527


 -  


 -  

 -  


 23


 27

 53

 

 233


 265

 527

Fixed index annuities

 210


 182

 370


 -  


 -  

 -  


 21


 18

 37

 

 210


 182

 370

Wholesale

 410


 627

 651


 -  


 -  

 -  


 41


 63

 65

 

 410


 627

 651

Total US insurance

      operations

 8,574


 8,703

 15,555


 -  


 -  

 -  


 857


 871

 1,556

 

 8,574


 8,703

 15,555

UK and Europe

      insurance

      operationsnotes *, (iv), (viii)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual Annuities

 279


 634

 1,065


 -  


 -  

 -  


 28


 63

 106

 

 279


 633

 1,065

Bonds

 1,558


 1,298

 2,934


 -  


 -  

 -  


 156


 130

 294

 

 1,559


 1,299

 2,937

Corporate Pensions

 51


 58

 92


 71


 73

 138


 76


 79

 147

 

 300


 314

 592

Individual Pensions

 480


 173

 508


 14


 10

 22


 62


 27

 72

 

 536


 218

 595

Income Drawdown

 386


 118

 352


 -  


 -  

 -  


 39


 12

 35

 

 386


 118

 352

Other Products

 268


 12

 20


 6


 3

 6


 32


 4

 9

 

 295


 26

 54

Total Retailnote (iv)

 3,022


 2,293

 4,971


 91


 86

 166


 393


 315

 663

 

 3,355


 2,608

 5,595

Wholesale

 1,169


 1,036

 1,710


 -  


 -  

 -  


 117


 104

 171

 

 1,169


 1,036

 1,710

Total UK and Europe

     insurance

     operationsnote (viii)

 4,191


 3,329

 6,681


 91


 86

 166


 510


 419

 834

 

 4,524


 3,644

 7,305

Group totalnote (viii)

 14,006


 12,987

 24,508


 1,333


 986

 2,176


 2,733


 2,286

 4,627

 

 20,438


 17,725

 35,191

*       In order to show the UK long-term business on a comparable basis, the half year and full year 2014 comparatives exclude the contribution from the sold PruHealth and PruProtect businesses (see note 14).



 

Investment products - funds under management notes (v), (vi), (vii)

 

 

 

 

 

 

 

 

 

Half year 2015 £m

 

 

 

 

 

 

1 Jan 2015

 

 

Market

gross

inflows

 

 

 

 

Redemptions

Market exchange translation and other movements

 

 

 

 

30 Jun 2015

Eastspring Investments

25,333

11,653

(7,092)

194

30,088

M&G

137,047

20,425

(22,800)

(1,272)

133,400

Group total

162,380

32,078

(29,892)

(1,078)

163,488

 

 

 

 

 

 

 

 

 

Half year 2014 £m

 

 

 

 

 

1 Jan 2014

 

Market

gross

inflows

 

 

 

Redemptions

Market exchange translation and other

movements

 

 

 

30 Jun 2014

Eastspring Investments

17,927

6,869

(4,386)

668

21,078

M&G

125,989

19,322

(15,111)

2,571

132,771

Group total

143,916

26,191

(19,497)

3,239

153,849

 

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.

        The format of the tables shown above 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 PRA regulations.

        The details shown above 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 insurance operations and Guaranteed Investment Contracts and similar funding agreements written in US operations.

(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.

(iv)   With effect from 1 January 2015, APE and new business data for the UK and Europe Insurance Operations are presented using revised product groupings.  This aims to reflect the evolving revenue streams and present greater detail for certain elements previously included within 'Other'.

(v)    Investment products referred to in the tables for fund under management above are unit trust, 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, although similar IFRS recognition and measurement principles apply to the acquisition costs and fees attaching to this type of business.

(vi)   Investment flows for the half year exclude Eastspring Money Market Funds gross inflows of £45,072 million (half year 2014: £32,065 million) and net inflows of £609 million (half year 2014: net outflows of £52 million).

(vii) New business and market gross inflows and redemptions have been translated at an average exchange rate for the period applicable.  Funds under management at points in time are translated at the exchange rate applicable to those dates.

(viii) The 2014 UK and Europe insurance operations comparatives have been adjusted to exclude PruHealth and PruProtect APE sales of £14 million at half year 2014 (£23 million at full year 2014) and new business profit of £6 million at half year 2014 (£11 million at full year 2014), following the disposal of our 25 per cent interest in the businesses in November 2014.

 

Additional Unaudited 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, i.e. falling within one of the classes of insurance specified in part II of Schedule 1 to the Regulated Activities Order under PRA 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 Insurance Operations, and Guaranteed Investment Contracts and similar funding agreements written in US Operations.

 

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. New business premiums reflect those premiums attaching to covered business, including premiums for contracts designed as investment products for IFRS reporting.

 

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 2015 Interim Report.

 

In determining the EEV basis value of new business written in the period 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.

 

Notes to Schedules A(i) to A(ix)

 

(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.

 


 Local currency: £


Half year 2015*

Half year 2014*

Half year 2015 vs half year 2014  appreciation (depreciation) of local currency against GBP*


 Hong Kong

 

 Average Rate

 11.81

 12.95

10%


 Closing Rate

 12.19

 13.25

9%


 Indonesia

 

 Average Rate

 19,760.02

 19,573.46

 (1)%


 Closing Rate

 20,968.02

 20,270.27

 (3)%


 Malaysia

 

 Average Rate

 5.55

 5.45

 (2)%


 Closing Rate

 5.93

 5.49

 (7)%


 Singapore

 

 Average Rate

 2.06

 2.10

2%


 Closing Rate

 2.12

 2.13

1%


 India

 

 Average Rate

 95.76

 101.45

6%


 Closing Rate

 100.15

 102.84

3%


 Vietnam

 

 Average Rate

 32,832.81

 35,266.15

7%


 Closing Rate

 34,345.42

 36,471.11

6%


 Thailand

 

 Average Rate

 50.21

 54.34

8%


 Closing Rate

 53.12

 55.49

4%


 US

 

 Average Rate

 1.52

 1.67

10%


 Closing Rate

 1.57

 1.71

9%


 







Local currency: £


Half year 2015*

Full year 2014

Half year 2015 vs full year 2014 appreciation (depreciation) of local currency against GBP


Hong Kong

Average Rate

 11.81

 12.78

8%


Closing Rate

 12.19

 12.09

(1)%


Indonesia

Average Rate

 19,760.02

 19,538.56

(1)%


Closing Rate

 20,968.02

 19,311.31

(8)%


Malaysia

Average Rate

 5.55

 5.39

(3)%


Closing Rate

 5.93

 5.45

(8)%


Singapore

Average Rate

 2.06

 2.09

1%


Closing Rate

 2.12

 2.07

(2)%


India

Average Rate

 95.76

 100.53

5%


Closing Rate

 100.15

 98.42

(2)%


Vietnam

Average Rate

 32,832.81

 34,924.62

6%


Closing Rate

 34,345.42

 33,348.46

(3)%


Thailand

Average Rate

 50.21

 53.51

7%


Closing Rate

 53.12

 51.30

(3)%


US

Average Rate

 1.52

 1.65

9%


Closing Rate

 1.57

 1.56

(1)%

*Average rate is for the 6 month period to 30 June.

 

(1a)  Insurance new business for overseas operations are converted using the year-to-date average exchange rate applicable at the time (AER). The sterling results for individual quarters represent the difference between the year-to-date reported sterling results at successive quarters and will include foreign exchange movements from earlier periods.

(1b)  Insurance new business for overseas operations for 2014 has been calculated using constant exchange rates (CER).

(1c)  Constant exchange rates have been used to calculate insurance new business for overseas operations for all periods in 2014 and 2015.

(2)    Annual Equivalents, calculated as regular new business contributions plus 10 per cent of single new business contributions, are subject to roundings. Present value of new business premiums (PVNBPs) are calculated as equalling single premiums plus the present value of expected premiums of new regular premium business. In determining the present value, allowance is made for lapses and 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. Other movements reflect the net flows arising from the cash component of a tactical asset allocation fund managed by PPM South Africa.

(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 rate.

(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 period exclude year-to-date Eastspring Money Market Funds (MMF) gross inflows of £45,072 million (half year 2014: £32,065 million) and net inflows of £609 million (half year 2014 net outflows: £52 million).

(9)    Excludes Curian Variable Series Trust funds (internal funds under management).

(10)  Total M&G and Eastspring excluding MMF. Funds under management for MMF amounted to £5,428 million at 30 June 2015 (30 June 2014: £4,300 million; 31 December 2014: £4,801 million).

(11)  With effect from 1 January 2015, APE and new business data for the UK and Europe Insurance Operations are presented using revised product groupings. This aims to reflect the evolving revenue streams and present greater detail for certain elements previously included within "Other". 

(12)  The 2014 UK and Europe insurance operations comparatives have been adjusted to exclude PruHealth and PruProtect APE sales of £14 million at half year 2014 (£23 million at full year 2014) and new business profit of £6 million at half year 2014 (£11 million at full year 2014), following the disposal of our 25 per cent interest in the businesses in November 2014.


 

Schedule A(i) - New Business Insurance Operations (Actual Exchange Rates)

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single


Regular


Annual Equivalents(2)

 

PVNBP(2)

 

 

2015

2014



2015

2014



2015

2014


 

2015

2014


 

 

YTD

YTD

+/- (%)


YTD

YTD

+/- (%)


YTD

YTD

+/- (%)

 

YTD

YTD

+/- (%)

 

 

£m

£m



£m

£m



£m

£m


 

£m

£m


Group Insurance Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia (1a)

 

 1,241

 955

30%


 1,242

 900

38%


 1,366

 996

37%

 

 7,340

 5,378

36%

US(1a)

 

 8,574

 8,703

(1)%


 -  

 -  

N/A


 857

 871

(2)%

 

 8,574

 8,703

(1)%

UK(12)

 

 4,191

 3,329

26%


 91

 86

6%


 510

 419

22%

 

 4,524

 3,644

24%

Group Total '(12)

 

 14,006

 12,987

8%


 1,333

 986

35%


 2,733

 2,286

20%

 

 20,438

 17,725

15%

 

 

 

  










 

 

 

 

Asia Insurance Operations(1a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambodia

 

 -  

 -  

N/A


 3

 1

200%


 3

 1

200%

 

 17

 4

325%

Hong Kong

 

 242

175

38%


 495

240

106%


 519

 258

101%

 

 3,015

 1,530

97%

Indonesia

 

 147

 101

46%


 168

 174

(3)%


 183

 184

(1)%

 

 762

 748

2%

Malaysia

 

 53

 42

26%


 100

 87

15%


 105

 91

15%

 

 630

 583

8%

Philippines

 

 79

 53

49%


 21

 17

24%


 29

 22

32%

 

 146

 106

38%

Singapore

 

 276

 264

5%


 125

 146

(14)%


 153

 172

(11)%

 

 1,097

 1,217

(10)%

Thailand

 

 34

 50

(32)%


 45

 37

22%


 48

 42

14%

 

 207

 196

6%

Vietnam

 

 3

 1

200%


 34

 23

48%


 34

 23

48%

 

 140

 91

54%

SE Asia Operations

 

 834

 686

22%


 991

 725

37%


 1,074

 793

35%

 

 6,014

 4,475

34%

 inc. Hong Kong

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

China(6)

 

 259

 117

121%


 63

 45

40%


 89

 57

56%

 

 487

 280

74%

Korea

 

 102

 97

5%


 64

 38

68%


 74

 48

54%

 

 398

 260

53%

Taiwan

 

 27

 45

(40)%


 58

 49

18%


 61

 54

13%

 

 209

 214

(2)%

India(4)

 

 19

 10

90%


 66

 43

53%


 68

 44

55%

 

 232

 149

56%

Total Asia Insurance Operations

 

 1,241

 955

30%


 1,242

 900

38%


 1,366

 996

37%

 

 7,340

 5,378

36%

 

 

 

  










 

 

 

 

US Insurance Operations(1a)

 

 

  










 

 

 

 

Variable Annuities

 

 6,065

 6,136

(1)%


 -  

 -  

N/A


 606

 614

(1)%

 

 6,065

 6,136

(1)%

Elite Access (Variable Annuity)

 

 1,656

 1,493

11%


 -  

 -  

N/A


 166

 149

11%

 

 1,656

 1,493

11%

Fixed Annuities

 

 233

 265

(12)%


 -  

 -  

N/A


 23

 27

(15)%

 

 233

 265

(12)%

Fixed Index Annuities

 

 210

 182

15%


 -  

 -  

N/A


 21

 18

17%

 

 210

 182

15%

Wholesale

 

 410

 627

(35)%


 -  

 -  

N/A


 41

 63

(35)%

 

 410

 627

(35)%

Total US Insurance Operations

 

 8,574

 8,703

(1)%


 -  

 -  

N/A


 857

 871

(2)%

 

 8,574

 8,703

(1)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK & Europe Insurance Operations(11), (12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual Annuities

 

 279

 634

(56)%


 -  

 -  

N/A


 28

 63

(56)%

 

 279

 633

(56)%

Bonds

 

 1,558

 1,298

20%


 -  

 -  

N/A


 156

 130

20%

 

 1,559

 1,299

20%

Corporate Pensions

 

 51

 58

(12)%


 71

 73

(3%)


 76

 79

(4)%

 

 300

 314

(4)%

Individual Pensions

 

 480

 173

177%


 14

 10

40%


 62

 27

130%

 

 536

 218

146%

Income Drawdown

 

 386

 118

227%


 -  

 -  

N/A


 39

 12

225%

 

 386

 118

227%

Other Products

 

 268

 12

2,133%


 6

 3

100%


 32

 4

700%

 

 295

 26

1,035%

Total Retail

 

 3,022

 2,293

32%


 91

 86

6%


 393

 315

25%

 

 3,355

 2,608

29%

Wholesale

 

 1,169

 1,036

13%


 -  

 -  

N/A


 117

 104

13%

 

 1,169

 1,036

13%

Total UK & Europe Insurance Operations

 

 4,191

 3,329

26%


 91

 86

6%


 510

 419

22%

 

 4,524

 3,644

24%

Group Total (12)

 

 14,006

 12,987

8%


 1,333

 986

35%


 2,733

 2,286

20%

 

 20,438

 17,725

15%


 

Schedule A(ii) - New Business Insurance Operations (Constant Exchange Rates)

 

Note:    In schedule A(ii) constant exchange rates have been used to calculate insurance new business for overseas operations for 2014.

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single


Regular


Annual Equivalents(2)

 

PVNBP(2)

 

2015

2014



2015

2014



2015

2014


 

2015

2014


 

YTD

YTD

+/- (%)


YTD

YTD

+/- (%)


YTD

YTD

+/- (%)

 

YTD

YTD

+/- (%)

 

£m

£m



£m

£m



£m

£m


 

£m

£m


Group Insurance Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia (1a) (1b)

 1,241

 1,005

23%


 1,242

 941

32%


 1,366

 1,042

31%

 

 7,340

 5,627

30%

US(1a) (1b)

 8,574

 9,535

(10)%


 -  

 -  

N/A


 857

 954

(10)%

 

 8,574

 9,535

(10)%

UK(12)

 4,191

 3,329

26%


 91

 86

6%


 510

 419

22%

 

 4,524

 3,644

24%

Group Total (12)

 14,006

 13,869

1%


 1,333

 1,027

30%


 2,733

 2,415

13%

 

 20,438

 18,806

9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia Insurance

Operations(1a) (1b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambodia

 -  

 -  

N/A


 3

 1

200%


 3

 1

200%

 

 17

 5

240%

Hong Kong

 242

 191

27%


 495

 263

88%


 519

 282

84%

 

 3,015

 1,676

80%

Indonesia

 147

 100

47%


 168

 173

(3)%


 183

 183

0%

 

 762

 741

3%

Malaysia

 53

 42

26%


 100

 85

18%


 105

 89

18%

 

 630

 573

10%

Philippines

 79

 58

36%


 21

 18

17%


 29

 24

21%

 

 146

 116

26%

Singapore

 276

 271

2%


 125

 149

(16)%


 153

 176

(13)%

 

 1,097

 1,245

(12)%

Thailand

 34

 55

(38)%


 45

 40

13%


 48

 46

4%

 

 207

 212

(2)%

Vietnam

 3

 1

200%


 34

 25

36%


 34

 25

36%

 

 140

 98

43%

SE Asia Operations

 834

 718

16%


 991

 754

31%


 1,074

 826

30%

 

 6,014

 4,666

29%

inc. Hong Kong

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

China(6)

 259

 127

104%


 63

 49

29%


 89

 62

44%

 

 487

 304

60%

Korea

 102

 101

1%


 64

 40

60%


 74

 50

48%

 

 398

 272

46%

Taiwan

 27

 48

(44)%


 58

 52

12%


 61

 57

7%

 

 209

 227

(8)%

India(4)

 19

 11

73%


 66

 46

43%


 68

 47

45%

 

 232

 158

47%

Total Asia Insurance Operations

 1,241

 1,005

23%


 1,242

 941

32%


 1,366

 1,042

31%

 

 7,340

 5,627

30%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Insurance

Operations(1a) (1b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable Annuities

 6,065

 6,723

(10)%


 -  

 -  

N/A


 606

 672

(10)%

 

 6,065

 6,723

(10)%

Elite Access (Variable Annuity)

 1,656

 1,636

1%


 -  

 -  

N/A


 166

 164

1%

 

 1,656

 1,636

1%

Fixed Annuities

 233

 290

(20)%


 -  

 -  

N/A


 23

 29

(21)%

 

 233

 290

(20)%

Fixed Index Annuities

 210

 199

6%


 -  

 -  

N/A


 21

 20

5%

 

 210

 199

6%

Wholesale

 410

 687

(40)%


 -  

 -  

N/A


 41

 69

(41)%

 

 410

 687

(40)%

Total US Insurance Operations

 8,574

 9,535

(10)%


 -  

 -  

N/A


 857

 954

(10)%

 

 8,574

 9,535

(10)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK & Europe Insurance Operations(11), (12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual Annuities

 279

 634

(56)%


 -  

 -  

N/A


 28

 63

(56)%

 

 279

 633

(56)%

Bonds

 1,558

 1,298

20%


 -  

 -  

N/A


 156

 130

20%

 

 1,559

 1,299

20%

Corporate Pensions

 51

 58

(12)%


 71

 73

(3)%


 76

 79

(4)%

 

 300

 314

(4)%

Individual Pensions

 480

 173

177%


 14

 10

40%


 62

 27

130%

 

 536

 218

146%

Income Drawdown

 386

 118

227%


 -  

 -  

N/A


 39

 12

225%

 

 386

 118

227%

Other Products

 268

 12

2,133%


 6

 3

100%


 32

 4

700%

 

 295

 26

1,035%

Total Retail

 3,022

 2,293

32%


 91

 86

6%


 393

 315

25%

 

 3,355

 2,608

29%

Wholesale

 1,169

 1,036

13%


 -  

 -  

N/A


 117

 104

13%

 

 1,169

 1,036

13%

Total UK & Europe Insurance Operations

 4,191

 3,329

26%


 91

 86

6%


 510

 419

22%

 

 4,524

 3,644

24%

Group Total (12)

 14,006

 13,869

1%


 1,333

 1,027

30%


 2,733

 2,415

13%

 

 20,438

 18,806

9%


 

Schedule A(iii) - Total Insurance New Business APE - By Quarter (Actual Exchange Rates)

 


2014


2015



Q1

Q2

Q3

Q4


Q1

Q2



£m

£m

£m

£m

£m

£m

Group Insurance Operations

 

 

 

 

 

 

 

 

Asia (1a)

 507

 489

 548

 693


 681

685


US(1a)

 432

 439

 364

 321


 400

457


UK (12)

 230

 189

 209

 206

 169

341

Group Total '(12)

 1,169

 1,117

 1,121

 1,220

 1,250

1,483


 

 

 

 

 

 

 

 

Asia Insurance Operations(1a)

 

 

 

 

 

 

 

 

Cambodia

 -  

 1

 1

 1


 2

1


Hong Kong

 128

 130

 166

 221


 246

273


Indonesia

 86

 98

 80

 121


 93

90


Malaysia

 43

 48

 48

 62


 54

51


Philippines

 11

 11

 13

 16


 14

15


Singapore

 87

 85

 86

 99


 72

81


Thailand

 25

 17

 18

 23


 28

20


Vietnam

 11

 12

 16

 22

 13

21

SE Asia Operations inc. Hong Kong

 391

 402

 428

 565


 522

552


China(6)

 38

 19

 23

 25


 56

33


Korea

 26

 22

 32

 33


 31

43


Taiwan

 24

 30

 34

 36


 28

33


India(4)

 28

 16

 31

 34

 44

24

Total Asia Insurance Operations

 507

 489

 548

 693

 681

685


 

 

 

 

 

 

 

 

US Insurance Operations(1a)

 

 

 

 

 

 

 

 

Variable Annuities

 317

 297

 260

 216


 272

334


Elite Access (Variable Annuity)

 69

 80

 80

 82


 74

92


Fixed Annuities

 12

 15

 14

 12


 11

12


Fixed Index Annuities

 8

 10

 10

 9


 10

11


Wholesale

 26

 37

 -  

 2

 33

8

Total US Insurance Operations

 432

 439

 364

 321

 400

457


 

 

 

 

 

 

 

 

UK & Europe Insurance Operations(11), (12)

 

 

 

 

 

 

 

 

Individual Annuities

 36

 27

 23

 20


 14

14


Bonds

 63

 67

 77

 87


 76

80


Corporate Pensions

 40

 39

 38

 30


 33

43


Individual Pensions

 12

 15

 21

 24


 27

35


Income Drawdown

 5

 7

 11

 12


 14

25


Other Products

 1

 3

 2

 3

 5

27

Total Retail

 157

 158

 172

 176


 169

224


Wholesale

 73

 31

 37

 30

 -  

117

Total UK & Europe Insurance Operations

 230

 189

 209

 206

 169

341

Group Total'(12)

 1,169

 1,117

 1,121

 1,220

 1,250

1,483


 

Schedule A(iv) - Total Insurance New Business APE - By Quarter (2014 at Constant Exchange Rates)

 

Note:   In schedule A(iv) constant exchange rates have been used to calculate insurance new business for overseas operations for all periods in 2014. Discrete quarters in 2015 are presented on actual exchange rates.

 


2014


2015



Q1

Q2

Q3

Q4


Q1

Q2



£m

£m

£m

£m

£m

£m

Group Insurance Operations

 

 

 

 

 

 

 

 

Asia(1b)

 530

 512

 573

 706


 681

685


US(1b)

 470

 484

 399

 329


 400

457


UK (12)

 230

 189

 209

 206

 169

341

Group Total'(12)

 1,230

 1,185

 1,181

 1,241

 1,250

1,483


 

 

 

 

 

 

 

 

Asia Insurance Operations(1b)

 

 

 

 

 

 

 

 

Cambodia

 -  

 1

 1

 1


 2

1


Hong Kong

 140

 142

 183

 233


 246

273


Indonesia

 85

 98

 78

 119


 93

90


Malaysia

 42

 47

 46

 60


 54

51


Philippines

 12

 12

 14

 17


 14

15


Singapore

 89

 87

 88

 98


 72

81


Thailand

 27

 19

 18

 24


 28

20


Vietnam

 11

 14

 17

 23

 13

21

SE Asia Operations inc. Hong Kong

 406

 420

 445

 575


 522

552


China(6)

 41

 21

 25

 26


 56

33


Korea

 28

 22

 34

 33


 31

43


Taiwan

 26

 31

 36

 37


 28

33


India(4)

 29

 18

 33

 35

 44

24

Total Asia Insurance Operations

 530

 512

 573

 706

 681

685


 

 

 

 

 

 

 

 

US Insurance Operations(1b)

 

 

 

 

 

 

 

 

Variable Annuities

 344

 328

 286

 221


 272

334


Elite Access (Variable Annuity)

 75

 89

 87

 85


 74

92


Fixed Annuities

 14

 15

 15

 13


 11

12


Fixed Index Annuities

 9

 11

 11

 9


 10

11


Wholesale

 28

 41

 -  

 1

 33

8

Total US Insurance Operations

 470

 484

 399

 329

 400

457


 

 

 

 

 

 

 

 

UK & Europe Insurance Operations(11), (12)

 

 

 

 

 

 

 

 

Individual Annuities

 36

 27

 23

 20


 14

14


Bonds

 63

 67

 77

 87


 76

80


Corporate Pensions

 40

 39

 38

 30


 33

43


Individual Pensions

 12

 15

 21

 24


 27

35


Income Drawdown

 5

 7

 11

 12


 14

25


Other Products

 1

 3

 2

 3

 5

27

Total Retail

 157

 158

 172

 176


 169

224


Wholesale

 73

 31

 37

 30

 -  

117

Total UK & Europe Insurance Operations

230

189

209

206


169

341

Group Total'(12)

1,230

1,185

1,181

1,241

1,250

1,483


 

Schedule A(v) - Total Insurance New Business APE - By Quarter (2015 and 2014 at Constant Exchange Rates)

 

Note:   In schedule A(v) constant exchange rates have been used to calculate insurance new business for overseas operations for all periods in 2014 and 2015 i.e the average exchange rate for the period ended 30 June 2015 is applied to each discrete quarter for 2014 and 2015.

 


2014


2015



Q1

Q2

Q3

Q4


Q1

Q2



£m

£m

£m

£m

£m

£m

Group Insurance Operations

 

 

 

 

 

 

 

 

Asia(1c)

 530

 512

 573

 706


 675

691


US(1c)

 470

 484

 399

 329


 397

460


UK (12)

 230

 189

 209

 206

 169

341

Group Total'(12)

 1,230

 1,185

 1,181

 1,241

 1,241

1,492


 

 

 

 

 

 

 

 

Asia Insurance Operations(1c)

 

 

 

 

 

 

 

 

Cambodia

 -  

 1

 1

 1


 2

1


Hong Kong

 140

 142

 183

 233


 245

274


Indonesia

 85

 98

 78

 119


 91

92


Malaysia

 42

 47

 46

 60


 53

52


Philippines

 12

 12

 14

 17


 13

16


Singapore

 89

 87

 88

 98


 72

81


Thailand

 27

 19

 18

 24


 28

20


Vietnam

 11

 14

 17

 23

 13

21

SE Asia Operations inc. Hong Kong

 406

 420

 445

 575


 517

557


China(6)

 41

 21

 25

 26


 56

33


Korea

 28

 22

 34

 33


 31

43


Taiwan

 26

 31

 36

 37


 28

33


India(4)

 29

 18

 33

 35

 43

25

Total Asia Insurance Operations

 530

 512

 573

 706

 675

691


 

 

 

 

 

 

 

 

US Insurance Operations(1c)

 

 

 

 

 

 

 

 

Variable Annuities

 344

 328

 286

 221


 270

336


Elite Access (Variable Annuity)

 75

 89

 87

 85


 74

92


Fixed Annuities

 14

 15

 15

 13


 11

12


Fixed Index Annuities

 9

 11

 11

 9


 9

12


Wholesale

 28

 41

 -  

 1

 33

8

Total US Insurance Operations

 470

 484

 399

 329

 397

460


 

 

 

 

 

 

 

 

UK & Europe Insurance Operations(11), (12)

 

 

 

 

 

 

 

 

Individual Annuities

 36

 27

 23

 20


 14

14


Bonds

 63

 67

 77

 87


 76

80


Corporate Pensions

 40

 39

 38

 30


 33

43


Individual Pensions

 12

 15

 21

 24


 27

35


Income Drawdown

 5

 7

 11

 12


 14

25


Other Products

 1

 3

 2

 3

 5

27

Total Retail

157

158

172

176


 169

224


Wholesale

 73

 31

 37

 30

 -  

117


Total UK & Europe Insurance Operations

230

189

209

206

169

341

Group Total'(12)

1,230

1,185

1,181

1,241

1,241

1,492


 

Schedule A(vi) - Investment Operations - By Quarter (Actual Exchange Rates)

 


 

2014


2015



 

Q1

Q2

Q3

Q4 


Q1

Q2



 

£m

£m

£m

£m 


£m

£m


Group Investment Operations

 

 

 

 

 

 

 

 

 

Opening FUM

 

143,916

147,914

153,849

157,533


162,380

169,345


Net Flows:(8)

 

2,571

4,123

2,893

2,930


2,990

(804)


 - Gross Inflows

 

12,146

14,045

12,847

13,670


17,512

14,566


 - Redemptions

 

(9,575)

(9,922)

(9,954)

(10,740)


(14,522)

(15,370)


Other Movements

 

1,427

1,812

791

1,917


3,975

(5,053)


Total Group Investment Operations(10)

 

147,914

153,849

157,533

162,380


169,345

163,488



 

 

 

 

 

 

 

 

 

M&G

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

Opening FUM

 

67,202

68,981

71,941

73,012


74,289

75,673


Net Flows:

 

1,291

2,493

1,531

1,371


558

(3,976)


 - Gross Inflows

 

7,305

7,468

6,801

7,414


8,592

5,672


 - Redemptions

 

(6,014)

(4,975)

(5,270)

(6,043)


(8,034)

(9,648)


Other Movements

 

488

467

(460)

(94)


826

(2,539)


Closing FUM

 

68,981

71,941

73,012

74,289


75,673

69,158



 

 

 

 

 

 

 

 

 

Comprising amounts for:

 

 

 

 

 

 

 

 

 

   UK

 

42,199

42,392

41,756

40,705


41,143

38,701


   Europe (excluding UK)

 

25,244

27,927

29,622

31,815


32,675

28,726


   South Africa

 

1,538

1,622

1,634

1,769


1,855

1,731



 

68,981

71,941

73,012

74,289


75,673

69,158



 

 

 

 

 

 

 

 

 

Institutional(3)

 

 

 

 

 

 

 

 

 

Opening FUM

 

58,787

59,736

60,830

61,572


62,758

63,838


Net Flows:

 

152

275

138

(164)


122

921


 - Gross Inflows

 

1,655

2,894

2,295

2,185


3,712

2,449


 - Redemptions

 

(1,503)

(2,619)

(2,157)

(2,349)


(3,590)

(1,528)


Other Movements

 

797

819

604

1,350


958

(517)


Closing FUM

 

59,736

60,830

61,572

62,758


63,838

64,242



 

 

 

 

 

 

 

 

 

Total M&G Investment Operations

 

128,717

132,771

134,584

137,047


139,511

133,400



 

 

 

 

 

 

 

 

 

PPM South Africa FUM included in Total M&G

 

4,720

4,815

4,905

5,203


5,456

5,108



 

 

 

 

 

 

 

 

 

Eastspring - excluding MMF(8)

 

 

 

 

 

 

 

 

 

Equity/Bond/Other(7)

 

 

 

 

 

 

 

 

 

Opening FUM

 

16,109

16,753

18,259

19,893


21,893

25,687


Net Flows:

 

540

1,063

1,127

1,640


2,133

2,102


 - Gross Inflows

 

2,546

3,285

3,583

3,760


5,007

6,082


 - Redemptions

 

(2,006)

(2,222)

(2,456)

(2,120)


(2,874)

(3,980)


Other Movements

 

104

443

507

360


1,661

(1,772)


Closing FUM(5)

 

16,753

18,259

19,893

21,893


25,687

26,017



 

 

 

 

 

 

 

 

 

Third Party Institutional Mandates

 

 

 

 

 

 

 

 

 

Opening FUM

 

1,818

2,444

2,819

3,056


3,440

4,147


Net Flows:

 

588

292

97

83


177

149


 - Gross Inflows

 

640

398

168

311


201

363


 - Redemptions

 

(52)

(106)

(71)

(228)


(24)

(214)


Other Movements

 

38

83

140

301


530

(225)


Closing FUM(5)

 

2,444

2,819

3,056

3,440


4,147

4,071



 

 

 

 

 

 

 

 

 

Total Eastspring Investment Operations

 

19,197

21,078

22,949

25,333


29,834

30,088



 

 

 

 

 

 

 

 

 

US

 

 

 

 

 

 

 

 

 

Curian - FUM(5) (9)

 

6,781

6,948

7,421

7,933


8,557

8,078



 

Schedule A(vii) - Total Insurance New Business Profit (Actual Exchange Rates)

 


2014


2015



Q1

Q2

Q3

Q4


Q1

Q2 



YTD

YTD

YTD

YTD


YTD

YTD 



£m

£m

£m

£m


£m

£m 



 

 

 

 

 

 

 

 

New Business Profit(1a)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

243

494

775

1,162


309

664


Total US Insurance Operations

195

376

530

694


153

371


Total UK & Europe Insurance Operations(12)

88

139

200

259


34

155


Group Total (12)

526

1,009

1,505

2,115


496

1,190



 

 

 

 

 

 

 

 

Annual Equivalent(1a) (2)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

507

996

1,544

2,237


681

1,366


Total US Insurance Operations

432

871

1,235

1,556


400

857


Total UK & Europe Insurance Operations(12)

230

419

628

834


169

510


Group Total(12)

1,169

2,286

3,407

4,627


1,250

2,733



 

 

 

 

 

 

 

 

New Business Margin (NBP as % of APE)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

48%

50%

50%

52%


45%

49%


Total US Insurance Operations

45%

43%

43%

45%


38%

43%


Total UK & Europe Insurance Operations

38%

33%

32%

31%


20%

30%


Group Total

45%

44%

44%

46%


40%

44%



 

 

 

 

 

 

 

 

PVNBP(1a) (2)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

2,690

5,378

8,408

12,331


3,643

7,340


Total US Insurance Operations

4,323

8,703

12,352

15,555


3,998

8,574


Total UK & Europe Insurance Operations(12)

2,024

3,644

5,459

7,305


1,450

4,524


Group Total(12)

9,037

17,725

26,219

35,191


9,091

20,438



 

 

 

 

 

 

 

 

New Business Margin (NBP as % of PVNBP)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

9.0%

9.2%

9.2%

9.4%


8.5%

9.0%


Total US Insurance Operations

4.5%

4.3%

4.3%

4.5%


3.8%

4.3%


Total UK & Europe Insurance Operations

4.3%

3.8%

3.7%

3.5%


2.3%

3.4%


Group Total

5.8%

5.7%

5.7%

6.0%


5.5%

5.8%



 

Schedule A(viii) - Total Insurance New Business Profit (2014 at Constant Exchange Rates)

 

Note:   In schedule A(viii) constant exchange rates have been used to calculate insurance new business for overseas operations for all periods in 2014. The year-to-date amounts for 2015 are presented on actual exchange rates.

 


2014


2015



Q1

Q2

Q3

Q4


Q1

Q2 



YTD

YTD

YTD

YTD


YTD

YTD 



£m

£m

£m

£m


£m

£m 



 

 

 

 

 

 

 

 

New Business Profit(1b)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

 251

 512

 805

 1,197


309

664


Total US Insurance Operations

 212

 412

 581

 750


153

371


Total UK & Europe Insurance Operations(12)

 88

 139

 200

 259


34

155


Group Total(12)

551

1,063

1,586

2,206


496

1,190



 

 

 

 

 

 

 

 

Annual Equivalent(1b) (2)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

530

1,042

1,615

2,321


681

1,366


Total US Insurance Operations

470

954

1,353

1,682


400

857


Total UK & Europe Insurance Operations(12)

230

419

628

834


169

510


Group Total(12)

1,230

2,415

3,596

4,837


1,250

2,733



 

 

 

 

 

 

 

 

New Business Margin (NBP as % of APE)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

47%

49%

50%

52%


45%

49%


Total US Insurance Operations

45%

43%

43%

45%


38%

43%


Total UK & Europe Insurance Operations

38%

33%

32%

31%


20%

30%


Group Total

45%

44%

44%

46%


40%

44%



 

 

 

 

 

 

 

 

PVNBP(1b) (2)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

2,813

5,627

8,791

12,795


3,643

7,340


Total US Insurance Operations

4,697

9,535

13,536

16,822


3,998

8,574


Total UK & Europe Insurance Operations(12)

2,024

3,644

5,459

7,305


1,450

4,524


Group Total(12)

9,534

18,806

27,786

36,922


9,091

20,438



 

 

 

 

 

 

 

 

New Business Margin (NBP as % of PVNBP)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

8.9%

9.1%

9.2%

9.4%


8.5%

9.0%


Total US Insurance Operations

4.5%

4.3%

4.3%

4.5%


3.8%

4.3%


Total UK & Europe Insurance Operations

4.3%

3.8%

3.7%

3.5%


2.3%

3.4%


Group Total

5.8%

5.7%

5.7%

6.0%


5.5%

5.8%



 

Schedule A(ix) - Total Insurance New Business Profit (2015 and 2014 at Constant Exchange Rates)

 

Note: In schedule A(ix) constant exchange rates have been used to calculate insurance new business for overseas operations for all periods in 2014 and 2015, i.e the average exchange rates for the period ended 30 June 2015 are applied to each period for 2014 and 2015.

 


2014


2015



Q1

Q2

Q3

Q4


Q1

Q2 



YTD

YTD

YTD

YTD


YTD

YTD 



£m

£m

£m

£m


£m

£m 


Post-tax analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Business Profit(1c)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

 251

 512

 805

 1,197


 306

 664


Total US Insurance Operations

 212

 412

 581

 750


 152

 371


Total UK & Europe Insurance Operations(12)

 88

 139

 200

 259


 34

 155


Group Total(12)

551

1,063

1,586

2,206


492

1,190



 

 

 

 

 

 

 

 

Annual Equivalent(1c) (2)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

530

1,042

1,615

2,321


675

1,366


Total US Insurance Operations

470

954

1,353

1,682


397

857


Total UK & Europe Insurance Operations(12)

230

419

628

834


169

510


Group Total(12)

1,230

2,415

3,596

4,837


1,241

2,733



 

 

 

 

 

 

 

 

New Business Margin (NBP as % of APE)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

47%

49%

50%

52%


45%

49%


Total US Insurance Operations

45%

43%

43%

45%


38%

43%


Total UK & Europe Insurance Operations(12)

38%

33%

32%

31%


20%

30%


Group Total(12)

45%

44%

44%

46%


40%

44%



 

 

 

 

 

 

 

 

PVNBP(1c) (2)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

2,813

5,627

8,791

12,795


3,615

7,340


Total US Insurance Operations

4,697

9,535

13,536

16,822


3,973

8,574


Total UK & Europe Insurance Operations(12)

2,024

3,644

5,459

7,305


1,450

4,524


Group Total(12)

9,534

18,806

27,786

36,922


9,038

20,438



 

 

 

 

 

 

 

 

New Business Margin (NBP as % of PVNBP)

 

 

 

 

 

 

 

 

Total Asia Insurance Operations

8.9%

9.1%

9.2%

9.4%


8.5%

9.0%


Total US Insurance Operations

4.5%

4.3%

4.3%

4.5%


3.8%

4.3%


Total UK & Europe Insurance Operations(12)

4.3%

3.8%

3.7%

3.5%


2.3%

3.4%


Group Total(12)

5.8%

5.7%

5.7%

6.0%


5.4%

5.8%


 

B Foreign currency source of key metrics

 

The tables below show the Group's key free surplus, IFRS and EEV metrics analysis by contribution by currency group:

 

Free surplus and IFRS half year 2015 results

 

 

Underlying free surplus generated

Pre-tax operating

profit

Shareholders'

funds

 

%

%

%

 

note (2)

notes (2),(3),(4)

notes (2),(3),(4)

US$ linked(1)

14

16

14

Other Asia currencies

11

18

18

Total Asia

25

34

32

UK sterling(3),(4)

37

21

45

US$ (4)

38

45

23

Total

100

100

100

 

 

 


 

 

 

EEV half year 2015 results

 

 

 

 

 

 Post-tax new

business profits

Post-tax

operating profit

Shareholders'

funds

 

 

%

%

%

 

 

 

notes (2),(3),(4)

notes (2),(3),(4)

US$ linked(1)

 40

 34

 30

Other Asia currencies

 16

 15

 14

Total Asia

 56

 49

 44

UK sterling(3),(4)

13

15

34

US$(4)

31

36

22

Total

100

100

100

 

Notes

(1)   US$ linked - comprising 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.

(2)   Includes long-term, asset management business and other businesses.

(3)   For operating profit and shareholders' funds UK sterling includes amounts in respect of central operations as well as UK insurance operations and M&G.

(4)   For shareholders' funds, the US$ grouping includes US$ denominated core structural borrowings. Sterling operating profits include all interest payable as sterling denominated, reflecting interest rate currency swaps in place.

 

C 2014 results of the sold PruHealth and PruProtect businesses

 

The tables below show the 2014 results of the sold PruHealth and PruProtect businesses which are excluded from the operating results for UK operations.

 

IFRS 2014 results

 

 

 

2014 £m


Half year

Full year

Pre-tax operating profit

8

23


 

 

EEV 2014 results

 

 

 

2014 £m


Half year

Full year

Post-tax operating profit

 

 

New business contribution

6

11

In-force profit

2

-

Total operating profit

8

11

Free Surplus 2014 results

 

 

Investment in new business

(6)

(8)

Expected in-force cash flows

5

8

Underlying Free Surplus generated

(1)

 

APE, new business contribution and PVNBP

 

 

 

 

2014 £m


APE

New business

contribution

PVNBP

Full year 2014

23

11

166

Q3 2014

20

9

139

Half year 2014

14

6

97

Q1 2014

7

3

48

 


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