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Prudential PLC (PRU)

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Friday 10 August, 2012

Prudential PLC

Prudential plc - Half Year 2012 - IFRS

RNS Number : 7329J
Prudential PLC
10 August 2012
 



STATUTORY BASIS RESULTS

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS RESULTS

CONDENSED CONSOLIDATED INCOME STATEMENT

 


   

Half year

Half year*

Full year*


   

2012

£m 

2011 

£m 

2011 

£m 

Earned premiums, net of reinsurance  

14,111 

12,930 

25,277 

Investment return note I

8,762 

7,750 

9,360 

Other income  

1,008 

923 

1,869 

Total revenue, net of reinsurance   

23,881 

21,603 

36,506 

Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance  note J

(19,850)

(17,590)

(29,289)

Acquisition costs and other expenditure note H

(2,592)

(2,665)

(5,120)

Finance costs: interest on core structural borrowings of shareholder-financed operations  

(140)

(140)

(286)

Total charges, net of reinsurance   

(22,582)

(20,395)

(34,695)

Profit before tax (being tax attributable to shareholders' and policyholders' returns)**

1,299 

1,208 

1,811 

(Less) add tax (charge) credit attributable to policyholders' returns  

(40)

(94)

17 

Profit before tax attributable to shareholders note C

1,259 

1,114 

1,828 

Total tax charge attributable to policyholders and shareholders note K

(347)

(377)

(392)

Adjustment to remove tax charge (credit) attributable to policyholders returns  

40 

94 

(17)

Tax charge attributable to shareholders' returns note K

(307)

(283)

(409)

Profit for the period  

952 

831 

1,419 

Attributable to:  


  

  


Equity holders of the Company  

952 

829 

1,415 


Non-controlling interests  

Profit for the period  

952 

831 

1,419 


   


 

 

Earnings per share (in pence)  


  

  

Based on profit attributable to the equity holders of the Company: note L


  

  


Basic  

37.5p

32.7p 

55.8p 


Diluted  

37.5p

32.6p 

55.7p 

*    The Group has adopted altered US GAAP requirements for deferred acquisition costs as an improvement to its accounting policy under IFRS 4 for those operations of the Group which measure insurance assets and liabilities substantially by reference to US GAAP principles. Accordingly, the 2011 comparative results and related notes have been adjusted from those previously published for the retrospective application of the improvement as if the new accounting policy had always applied, as described in note B.

**  This measure is the formal profit before tax measure under IFRS but it is not the result attributable to shareholders.

      This is principally because taxes borne by UK with-profits and unit-linked policies through adjustments to benefits are paid on the policyholders' behalf by the Company. These amounts are required to be included in the tax charge of the Company under IAS 12. Consequently, the profit before all taxes measure (which is determined after deducting the cost of policyholder benefits and movements in the liability for unallocated surplus of the PAC with-profits fund after adjusting for taxes borne by policyholders) is not representative of pre-tax profits attributable to shareholders.

 

Dividends per share (in pence)


   

Half year

Half year

Full year


   

2012 

2011 

2011 

   


  

  

Dividends relating to reporting period: note M


  

  


Interim dividend (2012 and 2011)  

8.40p

7.95p

7.95p


Final dividend (2011)  

17.24p

Total  

8.40p

7.95p

25.19p

Dividends declared and paid in reporting period: note M


  

  


Current year interim dividend  

7.95p


Final dividend for prior year  

17.24p

17.24p

17.24p

Total  

17.24p

17.24p

25.19p

 

STATUTORY BASIS RESULTS

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS RESULTS

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 


  

Half year 

Half year*

Full year*


  

2012 

£m 

2011 

£m 

2011 

£m 


  


 

  

Profit for the period

952 

831 

1,419 


  


 

  

Other comprehensive income:


 

  

Exchange movements on foreign operations and net investment hedges:


 

  


Exchange movements arising during the period

(53)

(57)

(37)


Related tax

(1)

(5)

(68)


  

(54)

(62)

(105)


  


 

  

Unrealised valuation movements on securities of US insurance operations classified as available-for-sale:  


 

  


Unrealised holding gains arising during the period

470 

287 

912 


Add back net losses/deduct net (gains) included in the income statement on disposal and impairment

12 

(50)

(101)

Totalnote U

482 

237 

811 

Related change in amortisation of deferred income and acquisition costs note Q

(181)

(71)

(275)

Related tax

(105)

(57)

(187)


  

196 

109 

349 


  


 

  

Other comprehensive income for the period, net of related tax

142 

47 

244 


  


 

  

Total comprehensive income for the period

1,094 

878 

1,663 


  


 

 

Attributable to:


 

  


Equity holders of the Company

1,094 

876 

1,659 


Non-controlling interests

Total comprehensive income for the period

1,094 

878 

1,663 

*    The Group has adopted altered US GAAP requirements for deferred acquisition costs as an improvement to its accounting policy under IFRS 4 for those operations of the Group which measure insurance assets and liabilities substantially by reference to US GAAP principles. Accordingly, the 2011 comparative results and related notes have been adjusted from those previously published for the retrospective application of the improvement as if the new accounting policy had always applied, as described in note B.

 

STATUTORY BASIS RESULTS

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS RESULTS

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 


  

Period ended 30 June 2012


  

Share 
capital 

Share 
premium 

Retained 
earnings 

Translation
 reserve 

Available 

-for-sale 
securities 
reserve 

Shareholders'

equity 

Non-controlling
 interests 

Total 

 equity 


  

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

Reserves








 

Total comprehensive income for the period

952 

(54)

196 

1,094 

1,094 

Dividends

(440)

(440)

(440)

Reserve movements in respect of share-based payments  

52 

52 

52 

Change in non-controlling interests arising principally from purchase and sale of property partnerships of PAC with-profits fund and other consolidated investment funds

(9)

(9)


  








 

Share capital and share premium








 

New share capital subscribed

14 

14 

14 


  








 

Treasury shares








 

Movement in own shares in respect of share-based payment plans

Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS

Net increase (decrease) in equity

14 

572 

(54)

196 

728 

(9)

719 

At beginning of period:








 


As previously reported

127 

1,873 

5,839 

354 

924 

9,117 

43 

9,160 


Effect of change in accounting policy for deferred acquisition costsnote B

(595)

(72)

114 

(553)

(553)


After effect of change

127 

1,873 

5,244 

282 

1,038 

8,564 

43 

8,607 

At end of period

127 

1,887 

5,816 

228 

1,234 

9,292 

34 

9,326 


  








 

 

STATUTORY BASIS RESULTS

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS RESULTS

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 


  

Period ended 30 June 2011*


  

Share 
capital 

Share 
premium 

Retained 
earnings 

Translation
 reserve 

Available 

-for-sale 
securities 
 reserve 

Shareholders'

equity 

Non-controlling 
 interests 

Total 

 equity 

  

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

Reserves








 

Total comprehensive income for the period

829 

(62)

109 

876 

878 

Dividends

(439)

(439)

(439)

Reserve movements in respect of share-based payments  

25 

25 

25 

  








 

Share capital and share premium








 

New share capital subscribed

15 

15 

15 

  








 

Treasury shares








 

Movement in own shares in respect of share-based payment plans

(10)

(10)

(10)

Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS


Net increase (decrease) in equity

15 

407 

(62)

109 

469 

471 

At beginning of period:








 


As previously reported

127 

1,856 

4,982 

454 

612 

8,031 

44 

8,075 


Effect of change in accounting policy for deferred acquisition costsnote B

(520)

(67)

77 

(510)

(510)


After effect of change

127 

1,856 

4,462 

387 

689 

7,521 

44 

7,565 

At end of period

127 

1,871 

4,869 

325 

798 

7,990 

46 

8,036 

*    The Group has adopted altered US GAAP requirements for deferred acquisition costs as an improvement to its accounting policy under IFRS 4 for those operations of the Group which measure insurance assets and liabilities substantially by reference to US GAAP principles. Accordingly, the 2011 comparative results and related notes have been adjusted from those previously published for the retrospective application of the improvement as if the new accounting policy had always applied, as described in note B.

 

STATUTORY BASIS RESULTS

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS RESULTS

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 


  

Year ended 31 December 2011*


  

Share 
capital 

Share 
premium 

Retained 
earnings 

Translation reserve 

Available 

-for-sale 
securities 
reserve 

Shareholders'

equity 

Non-controlling 
interests 

Total 

 equity 


  

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

Reserves








 

Total comprehensive income for the year

1,415 

(105)

349 

1,659 

1,663 

Dividends

(642)

(642)

(642)

Reserve movements in respect of share-based payments  

44 

44 

44 

Change in non-controlling interests arising principally from purchase and sale of property partnerships of the PAC with-profits fund and other consolidated investment funds

(5)

(5)

  








 

Share capital and share premium








 

New share capital subscribed

17 

17 

17 


  








 

Treasury shares








 

Movement in own shares in respect of share-based payment plans

(30)

(30)

(30)

Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS

(5)

(5)

(5)

Net increase (decrease) in equity

17 

782 

(105)

349 

1,043 

(1)

1,042 

At beginning of year:








 


As previously reported

127 

1,856 

4,982 

454 

612 

8,031 

44 

8,075 


Effect of change in accounting policy for deferred acquisition costsnote B

(520)

(67)

77 

(510)

(510)


After effect of change

127 

1,856 

4,462 

387 

689 

7,521 

44 

7,565 

At end of year

127 

1,873 

5,244 

282 

1,038 

8,564 

43 

8,607 

*    The Group has adopted altered US GAAP requirements for deferred acquisition costs as an improvement to its accounting policy under IFRS 4 for those operations of the Group which measure insurance assets and liabilities substantially by reference to US GAAP principles. Accordingly, the 2011 comparative results and related notes have been adjusted from those previously published for the retrospective application of the improvement as if the new accounting policy had always applied, as described in note B.

 

STATUTORY BASIS RESULTS

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS RESULTS

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 




  

30 Jun

30 Jun*

31 Dec*




  

2012

 £m

2011

 £m

2011

 £m

Assets


 

  




  


 

  

Intangible assets attributable to shareholders:


 

  


Goodwillnote P

1,467 

1,469 

1,465 


Deferred acquisition costs and other intangible assetsnote Q

4,333 

4,060 

4,234 


Total

5,800 

5,529 

5,699 

  


 

  

Intangible assets attributable to with-profits funds:


 

  


In respect of acquired subsidiaries for venture fund and other investment purposes  

178 

169 

178 


Deferred acquisition costs and other intangible assets

84 

93 

89 


Total

262 

262 

267 

Total  

6,062 

5,791 

5,966 

  


 

  

Other non-investment and non-cash assets:


 

  


Property, plant and equipment

798 

705 

748 


Reinsurers' share of insurance contract liabilities

1,703 

1,334 

1,647 


Deferred tax assets note K

2,179 

2,120 

2,276 


Current tax recoverable

308 

384 

546 


Accrued investment income

2,713 

2,460 

2,710 


Other debtors

1,827 

1,638 

987 


Total  

9,528 

8,641 

8,914 

  


 

  

Investments of long-term business and other operations:


 

  


Investment properties

10,822 

10,965 

10,757 


Investments accounted for using the equity method

112 

71 

70 


Financial investments**:


 

  



Loans note S

9,981 

9,017 

9,714 



Equity securities and portfolio holdings in unit trusts

90,542 

91,037 

87,349 



Debt securities note T

128,269 

117,213 

124,498 



Other investments

8,143 

6,121 

7,509 



Deposits  

12,429 

10,858 

10,708 

Total  

260,298 

245,282 

250,605 




  


 

  

Properties held for sale

394 

Cash and cash equivalents

6,737 

8,589 

7,257 

Total assets note N

282,625 

268,697 

272,745 

*    The Group has adopted altered US GAAP requirements for deferred acquisition costs as an improvement to its accounting policy under IFRS 4 for those operations of the Group which measure insurance assets and liabilities substantially by reference to US GAAP principles. Accordingly, the 2011 comparative results and related notes have been adjusted from those previously published for the retrospective application of the improvement as if the new accounting policy had always applied, as described in note B.

**  Included within financial investments are £5,273 million, £8,744 million and £7,843 million of lent securities as at 30 June 2012, 30 June 2011 and 31 December 2011, respectively.

 

 

STATUTORY BASIS RESULTS

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS RESULTS

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 


  

30 Jun 

30 Jun*

31 Dec*


  

2012 

£m 

2011 

£m 

2011 

£m 

Equity and liabilities


 

  


  


 

  

Equity


 

  

Shareholders' equity   

9,292 

7,990 

8,564 

Non-controlling interests

34 

46 

43 

Total equity

9,326 

8,036 

8,607 


  


 

  

Liabilities


 

  

Policyholder liabilities and unallocated surplus of with-profits funds:


 

  


Contract liabilities (including amounts in respect of contracts classified as investment contracts under IFRS 4)note Y

236,419 

221,432 

227,075 


Unallocated surplus of with-profits fundsnote Y

9,802 

10,872 

9,215 


Total  

246,221 

232,304 

236,290 


  


 

  

Core structural borrowings of shareholder-financed operations:  


 

  


Subordinated debt

2,638 

3,044 

2,652 


Other

958 

954 

959 


Total note V

3,596 

3,998 

3,611 


  


 

  

Other borrowings:


 

 


Operational borrowings attributable to shareholder-financed operations note W

2,804 

2,912 

3,340 


Borrowings attributable to with-profits operations note W

955 

1,440 

972 


  


 

 

Other non-insurance liabilities:


 

 


Obligations under funding, securities lending and sale and repurchase agreements

2,563 

4,537 

3,114 


Net asset value attributable to unit holders of consolidated unit trusts and similar funds

3,778 

3,203 

3,840 


Deferred tax liabilities note K

3,913 

3,936 

3,929 


Current tax liabilities

627 

876 

930 


Accruals and deferred income

641 

585 

736 


Other creditors

2,989 

2,599 

2,544 


Provisions  

411 

587 

529 


Derivative liabilities

3,452 

2,385 

3,054 


Other liabilities

1,349 

1,299 

1,249 


Total

19,723 

20,007 

19,925 

Total liabilities

273,299 

260,661 

264,138 

Total equity and liabilities note N

282,625 

268,697 

272,745 

*    The Group has adopted altered US GAAP requirements for deferred acquisition costs as an improvement to its accounting policy under IFRS 4 for those operations of the Group which measure insurance assets and liabilities substantially by reference to US GAAP principles. Accordingly, the 2011 comparative results and related notes have been adjusted from those previously published for the retrospective application of the improvement as if the new accounting policy had always applied, as described in note B.

 

STATUTORY BASIS RESULTS

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS RESULTS

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 



   

Half year 

Half year*

Full year*



   

2012 

 £m 

2011 

£m 

2011 

£m 

Cash flows from operating activities   


 

  

Profit before tax (being tax attributable to shareholders' and policyholders' returns)note (i)

1,299 

1,208 

1,811 

Non-cash movements in operating assets and liabilities reflected in profit before tax note (ii)

(939)

875 

162 

Other items note (iii)

(172)

122 

(235)

Net cash flows from operating activities  

188 

2,205 

1,738 

Cash flows from investing activities  


 

  

Net cash flows from purchases and disposals of property, plant and equipment  

(108)

(42)

(114)

Acquisition of subsidiaries, net of cash balance note (iv)

(41)

(53)

Change to Group's holdings, net of cash balance note (iv)

23 

Net cash flows from investing activities  

(85)

(83)

(167)

Cash flows from financing activities  


 

  

Structural borrowings of the Group:  


 

  


Shareholder-financed operations notes (v) and V:


 

  



Issue of subordinated debt, net of costs  

340 

340 



Redemption of subordinated debt  

(333)



Interest paid   

(139)

(137)

(286)


With-profits operations  notes (vi) and W:


 

  



Interest paid  

(4)

(4)

(9)

Equity capital:  


 

  


Issues of ordinary share capital  

14 

15 

17 


Dividends paid   

(440)

(439)

(642)

Net cash flows from financing activities  

(569)

(225)

(913)

Net (decrease) increase in cash and cash equivalents  

(466)

1,897 

658 

Cash and cash equivalents at beginning of period  

7,257 

6,631 

6,631 

Effect of exchange rate changes on cash and cash equivalents  

(54)

61 

(32)

Cash and cash equivalents at end of period  

6,737 

8,589 

7,257 

* The Group has adopted altered US GAAP requirements for deferred acquisition costs as an improvement to its accounting policy under IFRS 4 for those operations of the Group which measure insurance assets and liabilities substantially by reference to US GAAP principles. Accordingly, the 2011 comparative results and related notes have been adjusted from those previously published for the retrospective application of the improvement as if the new accounting policy had always applied, as described in note B.

 

Notes

(i)      This measure is the formal profit before tax measure under IFRS but it is not the result attributable to shareholders.

(ii)     The adjusting items to profit before tax included within non-cash movements in operating assets and liabilities reflected in profit before tax are as follows:

 



Half year 

Half year 

Full year 



2012 

£m 

2011 

£m 

2011 

£m 


Other non-investment and non-cash assets

(1,261)

(869)

(999)


Investments

(9,341)

(6,984)

(8,854)


Policyholder liabilities (including unallocated surplus)

10,782 

8,530 

10,874 


Other liabilities (including operational borrowings)

(1,119)

198 

(859)


Non-cash movements in operating assets and liabilities reflected in profit before tax

(939)

875 

162 

 

(iii)    The adjusting items to profit before tax included within other items are adjustments in respect of non-cash items, together with operational interest receipts and payments, dividend receipts and tax paid.

(iv)    There were no acquisitions for half year 2012. The acquisition of subsidiaries in half year and full year 2011 related to the outflows from the PAC with-profits fund's purchases of venture investments. The change to Group's holding for half year 2012 relates to the dilution of the Group's holding in PPM South Africa during the period from 75 per cent to 47 per cent. As a result of the dilution, PPM South Africa was deconsolidated as a subsidiary and treated as an associate. See note G for additional details.

(v)     Structural borrowings of shareholder-financed operations comprise core debt of the parent company, PruCap bank loan and Jackson surplus notes. Core debt excludes borrowings to support short-term fixed income securities programmes, non-recourse borrowings of investment subsidiaries of shareholder-financed operations and other borrowings of shareholder-financed operations. Cash flows in respect of these borrowings are included within cash flows from operating activities.

(vi)    Structural borrowings of with-profits operations relate solely to the £100 million 8.5 per cent undated subordinated guaranteed bonds which contribute to the solvency base of the Scottish Amicable Insurance Fund (SAIF), a ring-fenced sub-fund of the PAC with-profits fund. Cash flows in respect of other borrowings of with-profits funds, which principally relate to consolidated investment funds, are included within cash flows from operating activities.

 

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS RESULTS

 

NOTES ON THE IFRS BASIS RESULTS

 

A    Basis of preparation and audit status

 

These condensed consolidated interim financial statements for the six months ended 30 June 2012 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). The Group's policy for preparing this interim financial information is to use the accounting policies adopted by the Group in its last consolidated financial statements, as updated by any changes in accounting policies it intends to make in its next consolidated financial statements as a result of new or amended IFRSs that are applicable or available for early adoption for the next annual financial statements and other policy improvements. EU-endorsed IFRSs may differ from IFRSs issued by the IASB if, at any point in time, new or amended IFRSs have not been endorsed by the EU. At 30 June 2012, there were no unendorsed standards effective for the period ended 30 June 2012 affecting the condensed consolidated financial statements of the Group, and there were no differences between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to the Group.

 

The IFRS basis results for the 2012 and 2011 half years are unaudited. Except for the effect of the adoption of altered US GAAP reporting requirements for Group IFRS reporting as explained in note B, the 2011 full year IFRS basis results have been derived from the 2011 statutory accounts. The auditors have reported on the 2011 statutory accounts which have been delivered to the Registrar of Companies. The auditors' report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

The accounting policies applied by the Group in determining the IFRS basis results in this report are the same as those previously applied in the Group's consolidated financial statements for the year ended 31 December 2011, except for the adoption of altered US GAAP reporting requirements for Group IFRS report as described below.

 

B    Adoption of altered US GAAP reporting requirements for Group IFRS reporting in 2012

 

Background

In October 2010, the Emerging Issues Trust Force of the US Financial Accounting Standards Board issued update No 2010-26 on 'Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts' (the 'Update'). The Update was issued to address perceived diversity by companies preparing financial statements in accordance with US GAAP as regards the types of acquisition costs being deferred. Under US GAAP, costs that can be deferred and amortised are those that 'vary with and are primarily related to the acquisition of insurance contracts'. The Update requires insurers to capitalise only those incremental costs directly relating to acquiring a contract for financial statements for reporting periods beginning after 15 December 2011. All other indirect acquisition expenses are required to be charged to the income statements as incurred expenses. Accordingly, the main impact of the Update is to disallow insurers from deferring costs that are not directly related to successful sales.

 

The Group's IFRS accounting policies include that under IFRS 4, 'Insurance Contracts', insurance assets and liabilities other than those for UK regulated with-profits funds, are measured using the GAAP basis applied prior to IFRS adoption in 2005. On this basis insurance assets and liabilities are measured under the UK Modified Statutory Basis (MSB) which was codified by the Statement of Recommended Practice (SORP) on accounting for insurance business issued by the Association of British Insurers (ABI) in 2003. The MSB requires the deferral of acquisition costs and, in the first instance, the use of a gross premium valuation basis of liability measurement unless a net premium valuation basis is required by the regulator. However, the SORP also permits the use of local GAAP subject to the requirement for adjustments to be made to ensure sufficient consistency of measurement under the UK GAAP framework under which the SORP was developed.

 

In applying this overarching basis, the Group has chosen to apply US GAAP for measuring the insurance assets and liabilities of Jackson. In addition, for the Group's operations in India, Japan, Taiwan and Vietnam, where the local GAAP basis would not be appropriate as the start point for deriving MSB insurance asset and liabilities, the measurement has been determined substantially by reference to US GAAP requirements. 

 

For half year 2012, the Group has the option to either continue with its current basis of measurement or improve its accounting policy under IFRS4 to acknowledge the issuance of the Update. Prudential has chosen to improve its accounting policy in 2012 to apply the US GAAP update, on a retrospective basis, to the results of Jackson and the four Asia operations.

 

The half year and full 2011 comparatives in these condensed consolidated interim financial statements have been adjusted accordingly for the retrospective application of this Update.

 

Effect of change in accounting policy

(a)  The effect of the change in accounting policy for deferred acquisition costs (DAC) on the income statement, earnings per share, comprehensive income, changes in equity and statement of financial position is shown in the tables below.

 

Condensed Consolidated Income Statement

 

 

Half year 2012


Half year 2011


Full year 2011

 

Under 

 previous 

 basis 

Effect of 

change 

Under 

 new 

 policy 


As 

 reported 

 under 

 previous 

 basis 

Effect of 

change 

Under 

 new 

 policy 


As 

 reported 

 under 

 previous 

 basis 

Effect of 

change 

Under 

 new 

 policy 

 

£m 

£m 

£m 


£m 

£m 

£m 


£m 

£m 

£m 

 












Total revenue, net of reinsurance

23,881 

23,881 


21,603 

21,603 


36,506 

36,506 

Acquisition costs and other expenditure

(2,520)

(72)

(2,592)


(2,615)

(50)

(2,665)


(5,005)

(115)

(5,120)

Total other charges, net of reinsurance

(19,990)

(19,990)


(17,730)

(17,730)


(29,575)

(29,575)

Profit before tax (being tax attributable to shareholders' and policyholders' returns)

1,371 

(72)

1,299 


1,258 

(50)

1,208 


1,926 

(115)

1,811 

(Less) Add tax (charge) credit attributable to policyholders' returns

(40)

(40)


(94)

(94)


17 

17 

Profit before tax attributable to shareholders

1,331 

(72)

1,259 


1,164 

(50)

1,114 


1,943 

(115)

1,828 

Total tax charge attributable to policyholders and shareholders

(371)

24 

(347)


(395)

18 

(377)


(432)

40 

(392)

Adjustment to remove tax charge (credit) attributable to policyholders' returns

40 

40 


94 

94 


(17)

(17)

Tax charge attributable to shareholders' returns

(331)

24 

(307)


(301)

18 

(283)


(449)

40 

(409)

Profit for the period

1,000 

(48)

952 


863 

(32)

831 


1,494 

(75)

1,419 

  












Profit for the period attributable to equity holders of the Company

1,000 

(48)

952 


861 

(32)

829 


1,490 

(75)

1,415 

 












Earnings per share (in pence)












Based on profit attributable to the equity holders of the Company:












Basic

39.4p

(1.9)p

37.5p


34.0p

(1.3)p

32.7p


58.8p

(3.0)p

55.8p

Diluted

39.4p

(1.9)p

37.5p


33.9p

(1.3)p

32.6p


58.7p

(3.0)p

55.7p

 

Condensed Consolidated Statement of Comprehensive Income and Statement of Changes in Equity

 



Half year 2012


Half year 2011


Full year 2011



Under 

 previous 

 basis 

Effect of 

change 

Under 

 new 

 policy 


As 

 reported 

 under 

 previous 

 basis 

Effect of 

change 

Under 

 new 

 policy 


As 

 reported 

 under 

 previous 

 basis 

Effect of 

change

Under 

 new 

 policy 



£m 

£m 

£m 


£m 

£m 

£m 


£m 

£m 

£m 













Profit for the period

1,000 

(48)

952 


863  

(32) 

831  


1,494  

(75) 

1,419 

Exchange movements on foreign operations and net investment hedges, net of related tax

(56)

(54)


(75) 

13  

(62)  


(100)  

(5) 

(105)

Unrealised valuation movements on securities of US insurance operations classified as available-for-sale

482 

482 


237  

-  

237  


811  

811 

Related change in amortisation of deferred income and acquisition costs

(211)

30 

(181)


(97) 

26  

(71)  


(331)  

56  

(275)

Related tax

(94)

(11)

(105)


(49) 

(8) 

(57)  


(168)  

(19) 

(187)


Total 

177 

19 

196 


91  

18  

109  


312  

37  

349 

Total comprehensive income for the period

1,121 

(27)

1,094 


879  

(1) 

878  


1,706  

(43) 

1,663 













Total comprehensive income for the period attributable to equity holders of the Company

1,121 

(27)

1,094 


877  

(1) 

876  


1,702  

(43) 

1,659 














Net increase in shareholders' equity

755 

(27)

728 


470  

(1) 

469  


1,086  

(43) 

1,043 

At beginning of period

9,117 

(553)

8,564 


8,031  

(510) 

7,521  


8,031  

(510) 

7,521 

At end of period

9,872 

(580)

9,292 


8,501  

(511) 

7,990  


9,117   

(553) 

8,564 

 

Condensed Consolidated Statement of Financial Position

 



30 Jun 2012


30 Jun 2011


31 Dec 2011



Under 

previous  

 basis 

Effect 

 of 

change 

Under  

new 

 policy 


As reported 

 under previous 

 basis 

Effect 

 of 

change 

Under 

 new 

 policy 


As 

 reported 

 under previous 

 basis 

Effect 

 of 

change 

Under 

 new 

 policy 



£m 

£m 

£m 


£m 

£m 

£m 


£m 

£m 

£m 

Assets












Intangible assets attributable to shareholders:

Deferred acquisition costs and other intangible assets

5,207 

(874)

4,333 


4,829 

(769)

4,060 


5,069 

(835)

4,234 

Total other assets

278,292 

278,292 


264,637 

264,637 


268,511 

268,511 

Total assets

283,499 

(874)

282,625 


269,466 

(769)

268,697 


273,580 

(835)

272,745 













Liabilities












Deferred tax liabilities

4,207 

(294)

3,913 


4,194 

(258)

3,936 


4,211 

(282)

3,929 

Total other liabilities

269,386 

269,386 


256,725 

256,725 


260,209 

260,209 

Total liabilities

273,593 

(294)

273,299 


260,919 

(258)

260,661 


264,420 

(282)

264,138 














Equity












Shareholders' equity

9,872 

(580)

9,292 


8,501 

(511)

7,990 


9,117 

(553)

8,564 

Non-controlling interests

34 

34 


46 

46 


43 

43 

Total equity

9,906 

(580)

9,326 


8,547 

(511)

8,036 


9,160 

(553)

8,607 

 

(b)   The effect of the change in accounting policy for deferred acquisition costs on the Group's supplementary analysis of profit is shown in the table below.

 

Segment disclosure - income statement

 


  

Half year 2012


Half year 2011


Full year 2011


  

Under 

 previous 

 basis 

Effect of 

change 

Under 

 new 

 policy 


As reported under previous basis

Effect of 

change 

Under 

 new 

 policy 


As reported under previous basis

Effect of 

change 

Under 

 new 

 policy 


  

£m 

£m 

£m 


£m 

£m 

£m 


£m 

£m 

£m 

Operating profit based on longer-term investment returns













Asia insurance operationsnote (i)

411 

(5)

406 


324 

(2)

322 


704 

704 


US insurance operationsnote (ii)

491 

(49)

442 


368 

(28)

340 


694 

(43)

651 


Other operations

314 

314 


366 

366 


672 

672 

Total  

1,216 

(54)

1,162 


1,058 

(30)

1,028 


2,070 

(43)

2,027 

Short-term fluctuations in investment returns on shareholder-backed business

(14)

(18)

(32)


113 

(20)

93 


(148)

(72)

(220)

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

87 

87 


(7)

(7)


21 

21 

Gain on dilution of Group holdings

42 

42 



Profit before tax attributable to shareholders

1,331 

(72)

1,259 


1,164 

(50)

1,114 


1,943 

(115)

1,828 

Basic EPS based on operating profit based on longer-term investment returns after tax and non-controlling interests

36.0p

(1.5)p

34.5p


32.2p

(0.8)p

31.4p


63.9p

(1.1)p

62.8p

Basic EPS based on total profit after tax and non-controlling interests

39.4p

(1.9)p

37.5p


34.0p

(1.3)p

32.7p


58.8p

(3.0)p

55.8p


  












 

Notes on the effect of the change in the accounting policy on operating profit based on longer-term investment returns

 

(i)    Asia insurance operations

 



Half Year 2012


Half Year 2011


Full Year 2011



Effect of 

change 


Effect of 

change 


Effect of 

change 



£m


£m


£m

New Business







Acquisition costs on new contracts not able to be deferred

(5)


(10)


(16)

Business in force at beginning of period







Reduction in amortisation on reduced DAC balance



16 

Total

(5)


(2)









 

(ii)   US insurance operations

 



Half Year 2012


Half Year 2011


Full Year 2011



Effect of 

change 


Effect of 

change 


Effect of 

change 



£m


£m


£m

New Business







Acquisition costs on new contracts not able to be deferred

(82)


(80)


(156)

Business in force at beginning of period







Reduction in amortisation on reduced DAC balance

33 


52 


113 


Total

(49)


(28)


(43)

 

C    Segment disclosure - income statement

 


  

Half year

2012

Half year

2011*

Full year

2011*


  

 £m

£m

 £m

Asia operations  


 

 

Insurance operations note E(i)

409 

324 

709 

Development expenses

(3)

(2)

(5)

Total Asia insurance operations after development expenses

406 

322 

704 

Eastspring Investments

34 

43 

80 

Total Asia operations

440 

365 

784 


  


 

 

US operations


 

 

Jackson (US insurance operations) E(ii)

442 

340 

651 

Broker-dealer and asset management  

17 

17 

24 

Total US operations

459 

357 

675 


  


 

 

UK operations


 

 

UK insurance operations:


 

 


Long-term business note E(iii)

336 

332 

683 


General insurance commission note (i)

17 

21 

40 

Total UK insurance operations

353 

353 

723 

M&G

199 

199 

357 

Total UK operations

552 

552 

1,080 

Total segment profit

1,451 

1,274 

2,539 


  


 

 

Other income and expenditure  


 

 

Investment return and other income

22 

Interest payable on core structural borrowings  

(140)

(140)

(286)

Corporate expenditurenote H

(120)

(118)

(219)

Total  

(255)

(253)

(483)

RPI to CPI inflation measure change on defined benefit pension schemesnote (ii)

42 

42 

Solvency II implementation costs

(27)

(27)

(55)

Restructuring costs note (iii)

(7)

(8)

(16)

Operating profit based on longer-term investment returns  

1,162 

1,028 

2,027 

Short-term fluctuations in investment returns on shareholder-backed business note F

(32)

93 

(220)

Shareholders' share of actuarial and other gains and losses on defined benefit pension schemes note (iv)

87 

(7)

21 

Gain on dilution of Group holdingsnote G

42 

Profit before tax attributable to shareholders  

1,259 

1,114 

1,828 


  


 

 


  

Half year

2012

Half year

2011*

Full year

2011*

Basic EPS based on operating profit based on longer-term investment returns after tax and non-controlling interestsnote L

34.5p

31.4p

62.8p

Basic EPS based on total profit after tax and non-controlling interestsnote L

37.5p

32.7p

55.8p

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the improvement in accounting policy described in note B.

 

Notes

(i)      UK operations transferred its general insurance business to Churchill Insurance in 2002. General insurance commission represents the net commission receivable net of expenses for Prudential-branded general insurance products as part of this arrangement.

(ii)     During the first half of 2011 the Group altered its inflation measure basis for future statutory increases to pension payments for certain tranches of its UK defined benefit pension schemes. This reflected the UK Government's decision to replace the basis of indexation from Retail Price Index (RPI) with Consumer Price Index (CPI). This resulted in a credit to the operating profit before tax in half year and full year 2011 of £42 million.

(iii)    Restructuring costs are incurred in the UK and represent one-off expenses incurred in securing expense savings. 

(iv)    For the 2011 comparatives, the shareholders' share of actuarial and other gains and losses on defined benefit pension schemes comprises the aggregate effect of actual less expected returns on scheme assets, experience gains and losses, the effect of changes in assumptions and altered provisions for deficit funding, where relevant. For half year 2012, these items also apply. However, the shareholders' share of actuarial and other gains and losses on defined benefit pension schemes also includes £51 million for the effect of partial recognition of surplus of the main Prudential Staff Pension Scheme (PSPS). This credit arises from altered funding arrangement following the 5 April 2011 triennial valuation. Additional details are provided in Note X.

 

Determining operating segments and performance measure of operating segments

 

The Group's operating segments determined in accordance with IFRS 8, 'Operating Segments', are as follows:

Insurance operations

-    Asia

-    US (Jackson)

-    UK

 

Asset management operations 

-    M&G (including Prudential Capital)

-    Eastspring Investments

-    US broker-dealer and asset management (including Curian)

 

The Group's operating segments are also its reportable segments with the exception of Prudential Capital which has been incorporated into the M&G operating segment for the purposes of segment reporting.

 

The performance measure of operating segments utilised by the Company is IFRS operating profit attributable to shareholders based on longer-term investment returns. This measure excludes the recurrent items of short-term fluctuations in investment returns and the shareholders' share of actuarial and other gains and losses on defined benefit pension schemes. In addition for half year 2012, this measure excluded a gain arising upon the dilution of the Group's holding in PPM South Africa. Operating earnings per share is calculated on operating profit based on longer-term investment returns, after tax and non-controlling interests.

 

Segment results that are reported to the Group Executive Committee include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items are mainly in relation to the Group Head Office and the Asia Regional Head Office.

 

Except in the case of the assets backing the UK annuity business, unit-linked and US variable annuity separate account liabilities, operating profit based on longer-term investment returns for shareholder-financed business is determined on the basis of expected longer-term investment returns. In the case of assets backing the UK annuity business, unit-linked and US variable annuity separate account liabilities, the basis of determining operating profit based on longer-term investment returns is as follows:

 

•        Assets backing UK annuity business liabilities. For UK annuity business, policyholder liabilities are determined by reference to current interest rates. The value movements of the assets covering liabilities are closely correlated with the related change in liabilities. Accordingly, asset value movements are recorded within the 'operating results based on longer-term investment returns'. Policyholder liabilities include a margin for credit risk. Variations between actual and best estimate expected impairments are recorded as a component of short-term fluctuations in investment returns.

 

•        Assets backing unit-linked and US variable annuity business separate account liabilities. For such business, the policyholder unit liabilities are directly reflective of the asset value movements. Accordingly, the operating results based on longer-term investment returns reflect the current period value movements in unit liabilities and the backing assets.

 

In the case of other shareholder-financed business, the measurement of operating profit based on longer-term investment returns reflects the particular features of long-term insurance business where assets and liabilities are held for the long-term and for which the accounting basis for insurance liabilities under current IFRS is not generally conducive to demonstrating trends in underlying performance of life businesses exclusive of the effects of short-term fluctuations in market conditions. In determining the profit on this basis, the following key elements are applied to the results of the Group's shareholder-financed operations.

 

(a)    Debt and equity-type securities

Longer-term investment returns for both debt and equity-type securities comprise longer-term actual income receivable for the period (interest/dividend income) and longer-term capital returns.

 

In principle, for debt securities, the longer-term capital returns comprise two elements. The first element is a risk margin reserve (RMR) based charge for the expected level of defaults for the period, which is determined by reference to the credit quality of the portfolio. The difference between impairment losses in the reporting period and the RMR charge to the operating result is reflected in short-term fluctuations in investment returns. The second element is for the amortisation of interest-related realised gains and losses to operating results based on longer-term investment returns to the date when sold bonds would have otherwise matured.

 

The shareholder-backed operation for which the distinction between impairment losses and interest-related realised gains and losses is in practice relevant to a significant extent is Jackson. Jackson has used the ratings by Nationally Recognised Statistical Ratings Organisations (NRSRO) or ratings resulting from the regulatory ratings detail issued by the National Association of Insurance Commissioners (NAIC) developed by external third parties such as PIMCO or Black Rock Solutions to determine the average annual RMR. Further details of the RMR charge, as well as the amortisation of interest-related realised gains and losses, for Jackson are shown in note F(iii).

 

For debt securities backing non-linked shareholder-financed business of the UK insurance operations (other than the annuity business) and of the Asia insurance operations, the realised gains and losses are principally interest related. Accordingly, all realised gains and losses to date for these operations are being amortised over the period to the date those securities would otherwise have matured, with no explicit RMR charge.

 

At 30 June 2012 the level of unamortised interest-related realised gains and losses related to previously sold bonds for the Group was a net gain of £443 million (30 June 2011: £390 million; 31 December 2011: £462 million).

 

For equity-type securities, the longer-term rates of return are estimates of the long-term trend investment return for income and capital having regard to past performance, current trends and future expectations. Equity-type securities held for shareholder-financed operations other than the UK annuity business, unit-linked and US variable annuity are of significance for the US and Asia insurance operations. Different rates apply to different categories of equity-type securities.

 

As at 30 June 2012, the equity-type securities for US insurance non-separate account operations amounted to £1,017 million (30 June 2011: £862 million; 31 December 2011: £902 million). For these operations, the longer term rates of return for income and capital applied in half year 2012 are as follows:

 



Half year

2012

Half year

2011

Full year

2011

Equity-type securities such as common and preferred stock and portfolio holdings in mutual funds

5.6% to 6.2%

7.1% to 7.5%

5.9% to 7.5%

Other equity-type securities such as investments in limited partnerships and private equity funds

7.6% to 8.2%

9.1% to 9.5%

7.9% to 9.5%





 

For Asia insurance operations, investments in equity securities held for non-linked shareholder-financed operations amounted to £741 million as at 30 June 2012 (30 June 2011: £449 million; 31 December 2011: £590 million). Of this balance, £106 million (30 June 2011: £122 million; 31 December 2011: £88 million) related to the Group's 7.74 per cent (30 June 2011: 8.66 per cent; 31 December 2011: 7.37 per cent) stake in China Life Insurance Company of Taiwan. This £106 million (30 June 2011: £122 million; 31 December 2011: £88 million) investment is in the nature of a trade investment for which the determination of longer-term investment returns is on the basis as described in note (e) below. For the investments representing the other equity securities which had year end balances of £635 million (30 June 2011: £327 million; 31 December 2011: £502 million), the rates of return applied in half year 2012 and 2011 ranged from 1.0 per cent to 13.8 per cent with the rates applied varying by territory.

 

The longer-term rates of return discussed above for equity-type securities are determined after consideration by the Group's in-house economists of long-term expected real government bond returns, equity risk premium and long-term inflation. These rates are broadly stable from period to period but may be different between countries, reflecting, for example, differing expectations of inflation in each territory. The assumptions are for returns expected to apply in equilibrium conditions. The assumed rates of return do not reflect any cyclical variability in economic performance and are not set by reference to prevailing asset valuations.

 

(b)    US variable and fixed index annuity business

 

The following value movements for Jackson's variable and fixed index annuity business are excluded from operating profit based on longer-term investment returns:

 

•  Fair value movements for equity-based derivatives;

•  Fair value movements for embedded derivatives for Guaranteed Minimum Withdrawal Benefit (GMWB) 'not for life' and fixed index annuity business, and Guaranteed Minimum Income Benefit (GMIB) reinsurance (see note);

•  Movements in accounts carrying value of Guaranteed Minimum Death Benefit (GMDB) and GMWB 'for life' liabilities, for which, under the 'grandfathered' US GAAP applied under IFRS for Jackson's insurance assets and liabilities, the measurement basis gives rise to a muted impact of current period market movements;

•  Fee assessments and claim payments, in respect of guarantee liabilities; and

•  Related changes to amortisation of deferred acquisition costs for each of the above items.

 

Note:      US operations - Embedded derivatives for variable annuity guarantee features

The GMIB liability, which is fully reinsured, subject to a deductible and annual claim limits, is accounted for in accordance with FASB ASC Subtopic 944-80 Financial Services - Insurance - Separate Accounts (formerly SOP 03-1) under IFRS using 'grandfathered' US GAAP. As the corresponding reinsurance asset is net settled, it is considered to be a derivative under IAS 39, 'Financial Instruments: Recognition and Measurement', and the asset is therefore recognised at fair value. As the GMIB benefit is economically reinsured the mark to market element of the reinsurance asset is included as a component of short-term fluctuations in investment returns.

 

(c)    Other derivative value movements

Generally, derivative value movements are excluded from operating results based on longer-term investment returns (unless those derivative value movements broadly offset changes in the accounting value of other assets and liabilities included in operating profit). The principal example of non-equity based derivatives (for example interest rate swaps and swaptions) whose value movements are excluded from operating profit arises in Jackson. Non-equity based derivatives are primarily held by Jackson as part of a broadly-based hedging programme for features of Jackson's bond portfolio (for which value movements are booked in the statement of comprehensive income rather than the income statement), product liabilities (for which US GAAP accounting as 'grandfathered' under IFRS 4 does not fully reflect the economic features being hedged), and the interest rate exposure attaching to equity-based embedded derivatives.

 

(d)    Other liabilities to policyholders and embedded derivatives for product guarantees

Under IFRS, the degree to which the carrying values of liabilities to policyholders are sensitive to current market conditions varies between territories depending upon the nature of the 'grandfathered' measurement basis. In general, in those instances where the liabilities are particularly sensitive to routine changes in market conditions, the accounting basis is such that the impact of market movements on the assets and liabilities is broadly equivalent in the income statement, and operating profit based on longer-term investments returns is not distorted. In these circumstances, there is no need for the movement in the liability to be bifurcated between the elements that relate to longer-term market conditions and short-term effects.

 

However, some types of business movements in liabilities do require bifurcation to ensure that at the net level (i.e. after allocated investment return and change for policyholder benefits) the operating result reflects longer-term market returns.

 

Examples where such bifurcation is necessary are:

 

(i)      Asia

·     Vietnam participating business

For the participating business in Vietnam the liabilities include policyholders' interest in investment appreciation and other surplus.  Bonuses paid in a reporting period and accrued policyholders' interest in investment appreciation and other surpluses primarily reflect the level of realised investment gains above contract specific hurdle levels. For this business, operating profit based on longer-term investment returns includes the aggregate of longer-term returns on the relevant investments, a credit or charge equal to movements on the liability for the policyholders' interest in realised investment gains (net of any recovery of prior deficits on the participating pool), less amortisation over five years of current and prior movements on such credits or charges.

 

The overall purpose of these adjustments is to ensure that investment returns included in operating results equal longer-term returns but that in any one reporting period movements on liabilities to policyholders caused by investment returns are substantially matched in the presentation of the supplementary analysis of profit before tax attributable to policyholders.

 

·     Non-participating business

Bifurcation for the effect of determining the movement in the carrying value of liabilities to be included in operating results based on longer-term investment returns, and the residual element for the effect of using year end rates is included in short-term fluctuations and in the income statement.

 

·     Guaranteed Minimum Death Benefit (GMDB) product features

For unhedged GMDB liabilities accounted for under IFRS using 'grandfathered' US GAAP, such as in the Japanese business, the change in carrying value is determined under FASB ASC subtopic 944-80, Financial Services - Insurance - Separate Accounts (formerly SOP 03-1), which partially reflects changes in market conditions. Under the company's segmental basis of reporting the operating profit reflects the change in liability based on longer-term market conditions with the difference between the charge to the operating result and the movement reflected in the total result included in short-term fluctuations in investment returns.

 

(ii)     UK shareholder-backed annuity business

The operating result based on longer-term investment returns reflects the impact of value movements on policyholder liabilities for annuity business in PRIL and the PAC non-profit sub-fund after adjustments to allocate the following elements of the movement to the category of 'short-term fluctuations in investment returns' in the Group's supplementary analysis of profit:

(i)   The impact on credit risk provisioning of actual upgrades and downgrades during the period; and

(ii)  Credit experience compared to assumptions.

 

Credit experience reflects the impact of defaults and other similar experience, such as asset exchanges arising from debt restructuring by issuers that include effectively an element of permanent impairment of the security held. Negative experience compared to assumptions is included within short-term fluctuations in investment returns without further adjustment. This is to be contrasted with positive experience where surpluses are retained in short-term allowances for credit risk for IFRS reporting purposes.

 

The effects of other changes to credit risk provisioning are included in the operating result, as is the net effect of changes to the valuation rate of interest due to portfolio rebalancing to align more closely with management benchmark.

 

(e)    Fund management and other non-insurance businesses

For these businesses, the particular features applicable for life assurance noted above do not apply. For these businesses it is inappropriate to include returns in the operating result on the basis described above.  Instead, it is appropriate to generally include realised gains and losses (including impairments) in the operating result with unrealised gains and losses being included in short-term fluctuations. For this purpose impairments are calculated as the credit loss determined by comparing the projected cash flows discounted at the original effective interest rate to the carrying value. In some instances it may also be appropriate to amortise realised gains and losses on derivatives and other financial instruments to operating results over a time period that reflects the underlying economic substance of the arrangements.

 

Additional segmental analysis of revenue

The additional segmental analyses of revenue from external customers excluding investment return and net of outward reinsurance premiums are as follows:

 


Half year 2012


Asia 

US 

UK 

Intra-group 

Total 


£m 

£m 

£m 

£m 

£m 

Revenue from external customers:






Insurance operations

3,871 

7,063 

3,374 

14,308 

Asset management

136 

357 

462 

(154)

801 

Unallocated corporate

10 

10 

Intra-group revenue eliminated on consolidation

(42)

(36)

(76)

154 

Total revenue from external customers

3,965 

7,384 

3,770 

15,119 

 


Half year 2011


Asia 

US 

UK 

Intra-group 

Total 


£m 

£m 

£m 

£m 

£m 

Revenue from external customers:






Insurance operations

3,568 

6,664 

2,872 

(10)

13,094 

Asset management

129 

332 

448 

(152)

757 

Unallocated corporate

Intra-group revenue eliminated on consolidation

(41)

(35)

(86)

162 

Total revenue from external customers

3,656 

6,961 

3,236 

13,853 

 


Full year 2011


Asia 

US 

UK 

Intra-group 

Total 


£m 

£m 

£m 

£m 

£m 

Revenue from external customers:






Insurance operations

7,307 

12,516 

5,740 

25,563 

Asset management

290 

653 

923 

(323)

1,543 

Unallocated corporate

40 

40 

Intra-group revenue eliminated on consolidation

(93)

(68)

(162)

323 

Total revenue from external customers

7,504 

13,101 

6,541 

27,146 

 

Revenue from external customers is made up of the following:

 


Half year 

Half year 

Half year 


2012

£m 

2011 

 £m 

2011 

 £m 

Earned premiums, net of reinsurance

14,111 

12,930 

25,277 

Fee income from investment contract business and asset management (presented as 'Other income')

1,008 

923 

1,869 

Total revenue from external customers

15,119 

13,853 

27,146 

 

In their capacity as fund managers to fellow Prudential Group subsidiaries, M&G, Eastspring Investments and the US asset management businesses generate fees for investment management and related services. These services are charged at appropriate arm's length prices, typically priced as a percentage of funds under management. Intra-group fees included within asset management revenue were earned by the following asset management segment:

 



Half year

2012

£m

Half year

2011

£m

Full year

2011

£m






Intra-group revenue generated by:





M&G

76 

76 

162 


Asia

42 

41 

93 


US broker-dealer and asset management (including Curian)

36 

35 

68 

Total intra-group fees included within asset management segment

154 

152 

323 

 

At half year 2011 a further £10 million of intra-group revenue was recorded between UK insurance operations.

 

Revenue from external customers of Asia, US and UK insurance operations shown above are net of outwards reinsurance premiums of £85 million, £38 million, and £67 million respectively (half year 2011: £79 million, £37 million and £62 million respectively; full year 2011: £226 million, £72 million and £131 million respectively).

 

D    Profit before tax - Asset management operations

 

The profit included in the income statement in respect of asset management operations is as follows:


   

M&G

US

Eastspring

Investments

note (iv) 

Half year

2012

Half year

2011

Full year

2011


   

£m 

£m 

£m 

£m 

£m 

£m 

Revenue (excluding revenue of consolidated investment funds and NPH broker-dealer fees)  

607 

142 

138 

887 

802 

1,583 

Revenue of consolidated investment fundsnote (i)

(24)

(24)

18 

NPH broker-dealer feesnote (i)

 215 

 215 

207 

405 

Gross revenue *

583 

357 

138 

1,078 

1,027 

1,997 

Charges (excluding charges of consolidated investment funds and NPH broker-dealer fees)  

(298)

(125)

(104)

(527)

(534)

(1,147)

Charges of consolidated investment fundsnote (i)

24 

24 

(18)

(9)

NPH broker-dealer feesnote (i)

(215)

(215)

(207)

(405)

Gross charges  

(274)

(340)

(104)

(718)

(759)

(1,561)

Profit before tax  

309 

17 

34 

360 

268 

436 

Comprising:  



 




Operating profit based on longer-term investment returnsnote (ii)

199 

17 

34 

250 

259 

461 

Short-term fluctuations in investment returns note (iii)

41 

41 

13 

(29)

Shareholder's share of actuarial gains and losses on defined benefit pension schemes  

27 

27 

(4)

Gain on dilution of Group holdingsnote G

42 

42 



Profit before tax  

309 

17 

34 

360 

268 

436 

* For half year 2012 gross revenue includes the Group's share of results from the associate PPM South Africa. In prior years, PPM South Africa was treated as a subsidiary and accounted for accordingly.

 

Notes

(i)      Under IFRS, disclosure details of segment revenue are required. The segment revenue of the Group's asset management operations are required to include two items that are for amounts which, reflecting their commercial nature, are also wholly reflected as charges within the income statement. After allowing for these charges, there is no effect on profit from these two items which are:

(a)  Investment funds managed on behalf of third parties and are consolidated under IFRS in recognition of the control arrangements for the funds. The gains and losses of these funds are non-recourse to M&G and the Group; and

(b)  NPH broker-dealer fees which represent commissions received, which are then paid on to the writing brokers on sales of investment products.

 

The presentation in the table above shows the amounts attributable to these two items so that the underlying revenue and charges can be seen.

 

(ii)     M&G operating profit based on longer-term investment returns:

 







Half year 

Half year 

 **

Full year 

 **







2012

£m 

2011 

£m 

 

2011 

£m 

 


Asset management fee income




351 

329  

 

662  

 


Other income




1  

 

4  

 


Staff costs




(120)

(125) 

 

(270) 

 


Other costs




(66)

(58) 

 

(134) 

 


Underlying profit before performance-related fees




168 

147  

 

262  

 


Share of associate results




13  

 

26  

 


Performance-related fees




12  

 

13  

 


Operating profit from asset management operations




175 

172  

 

301  

 


Operating profit from Prudential Capital




24 

27  

 

56 

 


Total M&G operating profit based on longer-term investment returns




199 

199  

 

357  

 

**   Following the divestment in the first half of 2012 of M&G's holding in PPM South Africa from 75 per cent to 47 per cent and its treatment from 2012 as an associate, M&G's operating income and expense no longer include any element from PPM South Africa, with the share of associate's results being presented in a separate line. The table above reflects the retrospective application of this basis of presentation for half year 2011 and full year 2011 results. Total profit remains the same.

 

The difference between the fees and other income shown above in respect of asset management operations, and the revenue figure for M&G shown (excluding consolidated investment funds) in the main table primarily relates to total revenue of Prudential Capital (including short-term fluctuations) of £99 million (half year 2011: £71 million; full year 2011: £96 million) and commissions which have been netted off in arriving at the fee income of £351 million (half year 2011: £329 million; full year 2011: £662 million) in the table above. The difference in the presentation of commission is aligned with how management reviews the business.

(iii)   Short-term fluctuations in investment returns for M&G are primarily in respect of unrealised value movements on Prudential Capital's bond portfolio.

(iv)    Included within Eastspring Investments revenue and charges are £41 million of commissions (half year 2011: £30 million; full year 2011: £44 million).

 

E     Key assumptions, estimates and bases used to measure insurance assets and liabilities

 

i         Asia insurance operations

In half year 2012, IFRS operating profit based on longer-term investment returns for Asia insurance operations included a net £17 million credit arising from a small number of items that are not anticipated to reoccur in future periods (half year 2011: £25 million; full year 2011: £38 million).

 

ii       US insurance operations

Amortisation of deferred acquisition costs

Under the Group's basis of applying IFRS 4, the insurance assets and liabilities of Jackson's traditional life business are accounted for under US GAAP. In line with industry practice, Jackson applies the mean reversion technique method for amortisation of deferred acquisition costs which dampens the effects of short-term market movements on expected gross profits against which deferred acquisition costs are amortised. To the extent that the mean reversion methodology does not fully dampen the effects of market returns there is a charge or credit for accelerated or decelerated amortisation. For half year 2012, reflecting the positive market returns in the period, there was a credit for decelerated amortisation of £25 million (half year 2011: charge for accelerated amortisation £66 million; full year 2011: charge for accelerated amortisation of £190 million, as explained in note Q).

 

iii     UK insurance operations

Annuity business: allowance for credit risk

For IFRS reporting, the results for UK shareholder-backed annuity business are particularly sensitive to the allowances made for credit risk. The allowance is reflected in the deduction from the valuation rate of interest for discounting projected future annuity payments to policyholders that would have otherwise applied. Since mid-2007 there has been a significant increase in the actual and perceived credit risk associated with corporate bonds as reflected in the significant widening that has occurred in corporate bond spreads. Although bond spreads over swap rates have narrowed from their peak in March 2009, they are still high compared with the levels seen in the years immediately preceding the start of the dislocated markets in 2007. The allowance that should therefore be made for credit risk remains a particular area of judgement.

 

The additional yield received on corporate bonds relative to swaps can be broken into the following constituent parts:

(a)  the expected level of future defaults;

(b) the credit risk premium that is required to compensate for the potential volatility in default levels;

(c)  the liquidity premium that is required to compensate for the lower liquidity of corporate bonds relative to swaps; and

(d) the mark to market risk premium that is required to compensate for the potential volatility in corporate bond spreads (and hence market values) at the time of sale.

The sum of (c) and (d) is often referred to as 'liquidity premium'.

 

The allowance for credit risk comprises (i) an amount for long-term best estimate defaults and (ii) additional provisions for credit risk premium, downgrade resilience, and short-term defaults.

 

The weighted components of the bond spread over swap rates for shareholder-backed fixed and linked annuity business for PRIL at 30 June 2012, 30 June 2011 and 31 December 2011, based on the asset mix at the relevant balance sheet date are shown below.

 

30 June 2012

Pillar 1 

 regulatory 
basis 

 (bps)

Adjustment 

from 
regulatory to 
IFRS basis 

 (bps)

IFRS 

 (bps)

Bond spread over swap rates note (i)

191 

191 

Credit risk allowance





Long-term expected defaults note (ii)

16 

16 


Additional provisionsnote (iii)

50 

(23)

27 

Total credit risk allowance

66 

(23)

43 

Liquidity premium

125 

23 

148 

 

30 June 2011

Pillar 1 

 regulatory 
 basis 

 (bps)

Adjustment 

from 
regulatory to
  IFRS basis 

 (bps)

IFRS 

 (bps)

Bond spread over swap rates note (i)

151 

151 

Credit risk allowance





Long-term expected defaults note (ii)

16 

16 


Additional provisionsnote (iii)

51 

(25)

26 

Total credit risk allowance

67 

(25)

42 

Liquidity premium

84 

25 

109 

 

31 December 2011

Pillar 1 

 regulatory 

 basis 

(bps)

Adjustment

 from

 regulatory to 

 IFRS basis 

 (bps)

IFRS 

 (bps)

Bond spread over swap rates note (i)

201 

201 

Credit risk allowance





Long-term expected defaults note (ii)

15 

15 


Additional provisions note (iii)

51 

(24)

27 

Total credit risk allowance

66 

(24)

42 

Liquidity premium

135 

24 

159 

 

Notes

(i)      Bond spread over swap rates reflect market observed data.

(ii)     Long-term expected defaults are derived by applying Moody's data from 1970 to 2009 and the definition of the credit rating used is the second highest credit rating published by Moody's, Standard and Poor's and Fitch. 

(iii)    Additional provisions comprise credit risk premium, which is derived from Moody's data from 1970 to 2009, an allowance for a 1 notch downgrade of the portfolio subject to credit risk, and an additional allowance for short-term defaults.

 

The prudent Pillar 1 regulatory basis reflects the overriding objective of ensuring sufficient provisions and capital to ensure payments to policyholders can be made. The approach for IFRS aims to establish liabilities that are closer to 'best estimate'.

 

Movement in the credit risk allowance for PRIL in the six months ended 30 June 2012

 

The movement in the first half of 2012 of the average basis points allowance for PRIL on IFRS basis is as follows:

 





Pillar 1

 Regulatory

 basis

IFRS


(bps)

Total 

(bps)

Total 




Total allowance for credit risk at 31 December 2011

66 

42 

Credit rating changes

Asset trading

Asset mix (effect of market value movements)

New business and other

(2)

Total allowance for credit risk at 30 June 2012

66 

43 

 

For half year 2011 and other prior periods, favourable credit experience was retained in short-term allowances for credit risk on both the Pillar 1 and IFRS bases. From full year 2011 onwards the methodology applied is to continue to retain such surplus experience in the IFRS credit provisions but not for Pillar 1.

 

Overall the movement has led to the credit allowance for Pillar 1 purposes to be 35 per cent (30 June 2011: 45 per cent; 31 December 2011: 33 per cent) of the bond spread over swap rates. For IFRS purposes it represents 22 per cent (30 June 2011: 28 per cent; 31 December 2011: 20 per cent) of the bond spread over swap rates.

 

The reserves for credit risk allowance at 30 June 2012 for the UK shareholder annuity fund were as follows:

 


Pillar 1

 Regulatory

 basis

IFRS


Total

£bn

Total

£bn




PRIL

1.9 

1.2 

PAC non-profit sub-fund

0.2 

0.1 

Total - 30 June 2012

2.1 

1.3 

 

Total - 31 December 2011

2.0 

1.3 

Total - 30 June 2011

1.8 

1.1 




 

F     Short-term fluctuations in investment returns on shareholder-backed business

 


  

Half year

Half year*

Full year*


  

2012

 £m

2011

 £m

2011

 £m

Insurance operations:


 

 


Asia note (ii)

42 

14 

(92)


US note (iii)

(125)

(167)


UK notes (iv)

44 

159 

Other operations:


 

 


Economic hedge value movementnote (v)

(15)


Othernote (vi)

61 

28 

(120)

Totalnote (i)

(32)

93 

(220)

 

Notes

(i)      General overview of defaults

The Group did not experience any defaults on its shareholder-backed debt securities portfolio in half year 2012 and 2011.

(ii)     Asia insurance operations

The fluctuations for Asia insurance operations of positive £42 million in half year 2012 (half year 2011: £14 million; full year 2011: negative £(92) million) include a £13 million unrealised gain (half year 2011: £26 million; full year 2011: unrealised loss £(14) million) on the Group's 7.74 per cent stake (30 June 2011: 8.66 per cent; 31 December 2011: 7.37 per cent) in China Life Insurance Company of Taiwan.

(iii)    US insurance operations

         The short-term fluctuations in investment returns for US insurance operations comprise the following items:

 


  

Half year

Half year*

Full year*


  

2012

 £m

2011

 £m

2011

 £m

Short-term fluctuations relating to debt securities:


 

  

Charges in the period


 

  


Defaults


Losses on sales of impaired and deteriorating bonds  

(16)

(2)

(32)


Bond write downs  

(25)

(14)

(62)


Recoveries/reversals

42 


Total charges in the periodnote (a)

(33)

(13)

(52)

Less: Risk margin charge included in operating profit based on longer-term investment returnsnote (b)

38 

35 

70 


  

22 

18 

Interest related realised gains (losses):


 

 


Arising in the period

29 

92 

158 


Less: Amortisation of gains and losses arising in current and prior years to operating profit based on longer-term investment returns

(44)

(43)

(84)


  

(15)

49 

74 

Related change to amortisation of deferred acquisition costs

(9)

(3)

Total short-term fluctuations related to debt securities

(8)

62 

89 

Derivatives (other than equity related): market value movement (net of related change to amortisation of deferred acquisition costs) note (c)

179 

29 

554 

Net equity hedge results (net of related change to amortisation of deferred acquisition costs) note (d)

(320)

(107)

(788)

Equity type investments: actual less longer-term return (net of related change to amortisation of deferred acquisition costs) note C

22 

28 

Other items (net of related change to amortisation of deferred acquisition costs)

(5)

(22)

Total

(125)

(167)

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the improvement in accounting policy described in note B.

 

The short-term fluctuations shown in the table above are stated net of the related change to amortisation of deferred acquisition costs of £80 million (half year 2011: £68 million; full year 2011: £287 million). See note Q.

 

Notes

(a)     The charges on the debt securities of Jackson comprise the following:

 



Defaults 

Bond 

 write 

 downs 

Losses on sale 

 of impaired 

 and deteriorating 

 bonds 

Recoveries/

 reversals 

Total 

Half year 

2012 

Total 

Half year 

2011 

Total 

Full year 

2011 



£m 

£m  

£m 

£m 

£m 

£m 

£m 

Residential mortgage-backed securities:









Prime (including agency)

-

(1)

(1)

(10)

(25)


Alt-A

-

-

(2)

(1)

(1)


Sub-prime

-

(3)

-

-

(3)

-

Total residential mortgage-backed securities

-

(4)

(3)

(1)

(11)

(26)

Corporate debt securities

-

-

(13)

(12)

(2)

(14)

Other

-

(21)

-

(20)

-

(12)

Total

-

(25)

(16)

(33)

(13)

(52)

 

(b)     The risk margin reserve (RMR) charge for longer-term credit-related losses included in operating profit based on longer-term investment returns for half year 2012 is based on an average annual RMR of 27 basis points (half year 2011: 25 basis points; full year 2011: 25 basis points) on average book values of US$ 44.2 billion (half year 2011: US$ 44.5 billion; full year 2011: US$ 44.4 billion) as shown below:

 





 





 







Half year 2012


Half year 2011


Full year 2011

Moody's rating category

 (or equivalent under

 NAIC ratings of MBS)

Average

 book

 value

US$m

RMR 

US$m 

Annual expected

 loss £m*


Average

 book

 value

US$m

RMR 

US$m 

Annual expected

 loss £m*


Average

 book

 value

US$m

RMR 

US$m 

Annual expected

 loss £m





 





 






A3 or higher

21,149 

0.11 

(23)

(15)


21,283 

0.08 

(16) 

(10) 


21,255 

0.08 

(17) 

(11) 

Baa1, 2 or 3

20,655 

0.26 

(54)

(34)


20,729 

0.27 

(55) 

(34) 


20,688 

0.26 

(54) 

(34) 

Ba1, 2 or 3

1,616 

1.11 

(18)

(11)


1,826 

1.02 

(19) 

(12) 


1,788 

1.04 

(19) 

(11) 

B1, 2 or 3

560 

2.97 

(17)

(11)


425 

3.01 

(13) 

(8) 


474 

3.01 

(14) 

(9) 

Below B3

174 

3.77 

(6)

(4)


221 

3.87 

(9) 

(6) 


211 

3.88 

(8) 

(5) 

Total

44,154 

0.27 

(118)

(75)


44,484 

0.25 

(112) 

(70)


44,416 

0.25 

(112) 

(70) 





 





  






Related change to amortisation of deferred acquisition costs (see below)

18 

11 




22 

14 




22 

14 

Risk margin reserve charge to operating profit for longer-term credit related losses

100 

(64)




(90)

(56) 




(90) 

(56) 

* Annual expected loss. Charge for the half year 2012: £(38) million (half year 2011: £(35) million).

 

Consistent with the basis of measurement of insurance assets and liabilities for Jackson's IFRS results, the charges and credits to operating profits based on longer-term investment returns are partially offset by related changes to amortisation of deferred acquisition costs.

 

 (c)    The gain of £179 million (half year 2011: gain of £29 million;full year 2011: gain of £554 million) is principally for the value movement of non-equity freestanding derivatives held to manage interest rate exposures, and for the GMIB reinsurance asset that is considered to be a derivative under IAS 39. 

        

         Under IAS 39, unless hedge accounting is applied value movements on derivatives are recognised in the income statement. For the derivatives programme attaching to the general account business, the Group has continued its approach of not seeking to apply hedge accounting under IAS 39. This decision reflects the inherent constraints of IAS 39 for hedge accounting investments and life assurance assets and liabilities under 'grandfathered' US GAAP under IFRS 4.

 

(d)     The amount of £(320) million (half year 2011: £(107) million; full year 2011: £(788) million) relates to the net equity hedge accounting effect of the equity-based derivatives and associated guarantee liabilities of Jackson's variable and fixed index annuity business. The details of the value movements excluded from operating profit based on longer-term investment returns are as described in note C. The principal movements are for (i) value for free standing and GMWB 'not for life' embedded derivatives, (ii) accounting values for GMDB and GMWB 'for life' guarantees (iii) fee assessments and claim payments in respect of guarantee liabilities and (iv) related changes to DAC amortisation. In half year 2012, the charge of £(320) million principally reflects fair value movements on free standing futures contracts and short-dated options. The movements included within the net equity hedge result included the effect of lower interest rates for which the movement was particularly significant in 2011. The value movements on derivatives held to manage this and any other interest rate exposure are included in the £179 million (half year 2011: £29 million; full year 2011: £554 million) described above in note (c).

 

In addition to the items discussed above, for US insurance operations, included within the statement of comprehensive income is an increase in net unrealised gains on debt securities classified as available-for-sale of £482 million (half year 2011: £237 million; full year 2011: £811 million). Temporary market value movements do not reflect defaults or impairments. Additional details on the movement in the value of the Jackson portfolio are included in note U.

 

(iv)    UK insurance operations

The short-term fluctuations gain for UK insurance operations of £5 million (half year 2011: £44 million;full year 2011: £159 million) reflects net investment gains arising in the period on fixed income assets backing the capital of the annuity business.

(v)     Economic hedge value movement

         This item represents the value movement in the half year 2012 on short-dated hedge contracts to provide downside protection against severe UK equity market falls.

(vi)    Other

         Short-term fluctuations of other operations, in addition to the previously discussed economic hedge value movement, were positive
£61 million (half year 2011: positive £28 million; full year 2011: negative £(120) million) representing unrealised value movements on investments, including centrally held swaps to manage foreign exchange and certain macro-economic exposures of the Group.

 

G    Changes to Group's holdings

 

PPM South Africa

 

On 22 February 2012, M&G completed transactions to (i) exchange bonus share rights for equity holdings with the employees of PPM South Africa and (ii) the sale of a 10 per cent holding in the majority of the business to Thesele Group, a minority shareholder, for cash. Following these transactions M&G's majority holding in the business reduced from 75 per cent to 47 per cent. Under IFRS requirements, the divestment is accounted for as the disposal of the 75 per cent holding and an acquisition of a 47 per cent holding at fair value resulting in a reclassification of PPM South Africa from a subsidiary to an associate. As a consequence of the IFRS application, the transactions give rise to a gain on dilution of £42 million. This amount is accounted for in the Group's half year 2012 supplementary analysis of profit as a gain on dilution of holdings which is excluded from the Group's IFRS operating profit based on longer-term investment returns.  The cash outflow arising from this change to the Group's holdings, as shown in the condensed consolidated statement of cash flows, was £23 million, representing cash and cash equivalents no longer consolidated net of the cash proceeds received.

 

H    Acquisition costs and other expenditure

 


Half year

Half year*

Full year*


2012 

 £m 

2011 

 £m 

2011 

 £m 

Acquisition costs incurred

1,192 

1,106 

2,264 

Acquisition costs deferred less amortisation of acquisition costs

(327)

(218)

(520)

Administration costs and other expenditure

1,746 

1,764 

3,524 

Movements in amounts attributable to external unit holders

(19)

13 

(148)

Total acquisition costs and other expenditure

2,592 

2,665 

5,120 

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the improvement in accounting policy described in note B.

 

The acquisition costs as shown on the table above relate to policy acquisition costs. Acquisition costs from business combinations are included within other expenditure.

 

Included within total acquisition costs and other expenditure is depreciation of £44 million (half year 2011; £45 million; full year 2011: £95 million).

 

The total amounts for acquisition costs and other expenditure shown above includes Corporate Expenditure shown in note C (Segment disclosure - income statement). The charge for Corporate Expenditure comprises:

 



Half year 

2012 

Half year 

2011 

Full year 

 2011 



£m 

£m 

£m 

Group head office

86 

88 

168 

Asia regional office





Gross costs

45 

48 

86 


Recharges to Asia operations

(11)

(18)

(35)



34 

30 

51 

Total

120 

118 

219 

 

I      Allocation of investment return between policyholders and shareholders

 

Investment return is attributable to policyholders and shareholders. A key feature of the accounting policies under IFRS is that the investment return included in the income statement relates to all investment assets of the Group, irrespective of whether the return is attributable to shareholders, to policyholders or to the unallocated surplus of with-profits funds, the latter two of which have no net impact on shareholders' profit. The table below provides a breakdown of the investment return for each regional operation attributable to each type of business.

 




Half Year

2012

Half Year

2011

Full year

2011




£m 

£m 

£m 

Asia operations





Policyholders' returns






Assets backing unit-linked liabilities

296 

208 

(812)



With-profits business

423 

404 

756 




719 

612 

(56)

Shareholders' returns

333 

178 

341 

Total

1,052 

790 

285 







US operations





Policyholders ' returns






Assets held to back (separate account) unit-linked liabilities

2,095 

1,530 

(869)


Shareholders' returns






Realised gains and losses (including impairment losses on available-for-sale bonds)

(331)

81 

(238)



Value movements on derivative hedging programme for general account business

252 

93 

841 



Interest/dividend income and value movements on other financial instruments for which fair value movements are booked in the income statement

638 

570 

1,714 




559 

744 

2,317 

Total

2,654 

2,274 

1,448 







UK operations





Policyholders' returns






Scottish Amicable Insurance Fund (SAIF)

289 

303 

321 



Assets held to back unit-linked liabilities

534 

657 

208 



With-profits fund (excluding SAIF)

3,000 

2,808 

4,094 




3,823 

3,768 

4,623 


Shareholders' returns






Prudential Retirement Income Limited (PRIL)

772 

555 

2,153 



Other business

461 

342 

956 




1,233 

897 

3,109 

Total

5,056 

4,665 

7,732 







Unallocated corporate






Shareholders' returns

21 

(105)

Group Total






Policyholders' returns

6,637 

5,910 

3,698 



Shareholders' returns

2,125 

1,840 

5,662 

Total

8,762 

7,750 

9,360 

 

The returns as shown in the table above are delineated between those returns allocated to policyholders and those allocated to shareholders. In making this distinction, returns allocated to policyholders are those from investments in which shareholders have no direct economic interest, namely:

•     Unit-linked business in the UK, Asia and SAIF in the UK, for which the investment return is wholly attributable to policyholders;

•     Separate account business of US operations, the investment return of which is also wholly attributable to policyholders; and

•     With-profits business (excluding SAIF) in the UK and Asia (in which the shareholders' economic interest, and the basis of recognising IFRS basis profits, is restricted to a share of the actuarially determined surplus for distribution (in the UK 10 per cent)). Except for this surplus the investment return of the with-profit funds is attributable to policyholders (through the asset-share liabilities) or the unallocated surplus, which is accounted for as a liability under IFRS 4.

 

The investment return related to the types of business above does not impact shareholders' profits directly. However there is an indirect impact, for example, investment-related fees or the effect of investment return on the shareholders' share of the cost of bonuses of with-profits funds.

 

Investment returns for unit-linked and similar products have reciprocal impact on benefits and claims, with a decrease in market returns on the attached pool of assets affecting policyholder benefits on these products. Similarly for with-profits funds there is a close correlation between increases or decreases in investment returns and the level of combined charge for policyholder benefits and movement on unallocated surplus that arises from such returns.

 

Shareholders' returns

 

For shareholder-backed non-participating business of the UK (comprising PRIL and other non-linked non-participating business) and of the Asia operations, the investment return is not directly attributable to policyholders and therefore does impact shareholders' profit directly. However, it should be noted that for UK shareholder-backed annuity business, principally PRIL, where the durations of asset and liability cash flows are closely matched, the discount rate applied to measure liabilities to policyholders (under 'grandfathered' UK GAAP and under IFRS 4) reflects movements in asset yields (after allowances for the future defaults) of the backing portfolios. Therefore, the net impact on the shareholders' profits of the investment return of the assets backing liabilities of the UK shareholder-backed annuity business is after taking into account the consequential effect on the movement in policyholder liabilities.

 

Changes in shareholders' investment returns for US operations reflect primarily movements in the investment income, movements in the value of the derivative instruments held to manage the general account assets and liability portfolio, and realised gains and losses. However, separately, reflecting Jackson's types of business, an allocation is made to policyholders through the application of crediting rates.

 

The majority of the investments held to back the US general account business are debt securities for which the available-for-sale designation is applied for IFRS basis reporting. Under this designation the return included in the income statement reflects the aggregate of investment income and realised gains and losses (including impairment losses). However, movements in unrealised appreciation or depreciation are recognised in other comprehensive income. The return on these assets is attributable to shareholders.

 

J     Benefits and claims and movements in unallocated surplus of with-profits funds, net of reinsurance

 

Benefits and claims represent payments, including final bonuses, to policyholders in respect of maturities, surrenders and deaths plus the change in technical provisions (which primarily represents the movement in amounts owed to policyholders). Benefits and claims are amounts attributable to policyholders. The movement in unallocated surplus of with-profits funds represents the transfer to (from) the unallocated surplus each year through a (charge) credit to the income statement of the annual excess (shortfall) of income over expenditure of the with-profits funds, after declaration and attribution of the cost of bonuses to policyholders and shareholders.

Benefits and claims and movements in unallocated surplus of with-profits funds net of reinsurance can be further analysed as follows:

 

  

 Half year 2012

  

Asia

US

UK

Total

  

£m

£m

£m

£m

Claims incurred

(1,587)

(2,499)

(5,057)

(9,143)

Increase in policyholder liabilities

(2,109)

(6,410)

(1,600)

(10,119)

Movement in unallocated surplus of with-profits funds(note)

137 

(725)

(588)

  

(3,559)

(8,909)

(7,382)

(19,850)

 

  

 Half year 2011

  

Asia

US

UK

Total

  

£m

£m

£m

£m

Claims incurred

(1,460)

(2,647)

(4,838)

(8,945)

Increase in policyholder liabilities

(1,827)

(5,465)

(713)

(8,005)

Movement in unallocated surplus of with-profits funds(note)

52 

-

(692)

(640)

  

(3,235)

(8,112)

(6,243)

(17,590)

 

  

 Full year 2011

  

Asia

US

UK

Total

  

£m

£m

£m

£m

Claims incurred

(2,955)

(4,678)

(10,103)

(17,736)

Increase in policyholder liabilities

(2,950)

(7,973)

(1,655)

(12,578)

Movement in unallocated surplus of with-profits funds(note)

540 

485 

1,025 

  

(5,365)

(12,651)

(11,273)

(29,289)

 

Note

The unallocated surplus of with-profits funds represents the excess of assets of with-profits funds over policyholder and other liabilities of the funds. The surplus is therefore sensitive to the measurement basis of the assets and liabilities. The movements on unallocated surplus of with-profits funds also reflect the impact of market fluctuations of investment values backing the surplus. The Asia movement principally arises in the Hong Kong branch operation.

 

K    Tax

 

i        Tax charge

 

The total tax charge comprises:

 


Half year 2012


Half year 

2011 *


Full year 

2011*


Current

 tax

Deferred

 tax

Total 


Total  


Total  

Tax charge

£m 

£m 

£m 


£m 


£m 

UK tax

(98)

14 

(84)


(85)


(20)

Overseas tax

(294)

31 

(263)


(292)


(372)

Total tax charge

(392)

45 

(347)


(377)


(392)

 

The current tax charge of £392 million includes £8 million for 2012 (half year 2011: charge of £8 million; full year 2011: charge of £16 million) in respect of the tax charge for Hong Kong. The Hong Kong current tax charge is calculated as 16.5 per cent for all periods on either (i) 5 per cent of the net insurance premium or (ii) the estimated assessable profits, depending on the nature of the business written.

 

The total tax charge comprises tax attributable to policyholders and unallocated surplus of with-profits funds, unit-linked policies and shareholders as shown below:

 


Half year 2012


Half year 

2011 *


Full year 

2011*


Current

 tax

Deferred

 tax

Total


Total  


Total  

Tax charge

£m 

£m 

£m 


£m 


£m 

Tax (charge) credit to policyholders' returns

(137)

97 

(40)


(94)


17 

Tax charge attributable to shareholders' returns

(255)

(52)

(307)


(283)


(409)

Total tax charge

(392)

45 

(347)


(377)


(392)

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the improvement in accounting policy described in note B.

 

The principal reason for the reduction in the tax charge attributable to policyholders' returns compared to the six month period ended June 2011 is due to a reduction in the value of unrealised gains on investments which results in a decrease in the policyholders' deferred tax charge. An explanation of the tax charge attributable to shareholders is shown in note (iii) below.

 

ii       Deferred tax

 

The statement of financial position contains the following deferred tax assets and liabilities:

 


30 June 2012

30 June 2011*

31 December 2011*


Deferred tax 

 assets 

Deferred tax 

 liabilities 

Deferred tax 

assets 

Deferred tax 

liabilities 

Deferred tax 

assets 

Deferred tax 

liabilities 


£m 

£m 

£m 

£m 

£m 

£m 

Unrealised gains and losses on investments

206 

(1,629)

319 

(1,654)

297 

(1,566)

Balances relating to investment and insurance contracts

22 

(969)

17 

(745)

13 

(667)

Short-term timing differences

1,820 

(1,307)

1,374 

(1,524)

1,513 

(1,687)

Capital allowances

12 

(8)

18 

(13)

15 

(9)

Unused tax losses

119 

392 

438 

Total

2,179 

(3,913)

2,120 

(3,936)

2,276 

(3,929)

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the improvement in accounting policy described in note B.

 

Deferred tax assets are recognised to the extent that they are regarded as recoverable, that is to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted.

 

The taxation regimes applicable across the Group often apply separate rules to trading and capital profits and losses. The distinction between temporary differences that arise from items of either a trading or capital nature may affect the recognition of deferred tax assets. Accordingly, for the 2012 half year results and financial position at 30 June 2012, the possible tax benefit of approximately £156 million (30 June 2011: £106 million; 31 December 2011: £158 million), which may arise from capital losses valued at approximately £0.7 billion (30 June 2011: £0.5 billion; 31 December 2011: £0.7 billion), is sufficiently uncertain that it has not been recognised. In addition, a potential deferred tax asset of £122 million (30 June 2011: £ 241 million; 31 December 2011: £147 million), which may arise from tax losses and other potential temporary differences totalling £0.5 billion (30 June 2011: £1.0 billion; 31 December 2011: £0.6 billion) is sufficiently uncertain that it has not been recognised. Of these, losses of £116 million will expire within the next 10 years. The remaining losses have no expiry date.

 

Under IAS 12, 'Income Taxes', deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the liability settled, based on the tax rates (and laws) that have been enacted or are substantively enacted at the end of the reporting periods.

 

As part of Finance Act 2011, the UK government enacted a corporation tax rate change to 25 per cent with effect from 1 April 2012. However in March 2012, the UK government announced a revised tax rate change to 24 per cent which was effective from 1 April 2012 after being substantively enacted on 26 March 2012 by a resolution under the Provisional Collection of Taxes Act 1968. Additionally, the reduction in the UK corporation tax rate to 23 per cent from 1 April 2013 was substantively enacted on 3 July 2012 in the 2012 Finance Bill, however this has no effect on half year 2012 financial results.

 

The subsequent proposed phased rate changes to 22 per cent are expected to have the effect of reducing the UK with-profits and shareholder-backed business elements of the net deferred tax balances at 30 June 2012 by £55 million.

 

The UK Government has announced that there will be substantial changes to the rules relating to the taxation of life insurance companies, which will be effective 1 January 2013. The effects of these changes are not reflected in the financial statements for the period ended 30 June 2012 as the 2012 Finance Act had not been enacted at the balance sheet date. Based on the Finance (No.4) Bill, the new regime is not expected to have a material impact on the Group's net assets.

 

iii     Reconciliation of tax charge on profit attributable to shareholders for continuing operations

 



  

Asia 

insurance 

 operations 

US 

 insurance 
operations 

UK 

 insurance 

operations 

Other 

operations 

Total 

Half year 2012

£m (except for tax rates)

Profit before tax attributable to shareholders:







Operating profit based on longer-term investment returns note (iii)

406 

442 

353 

(39)

1,162 


Short-term fluctuations in investment returns  

42 

(125)

46 

(32)


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

78 

87 


Gain on dilution of Group holdings

42 

42 


Total

448 

317 

367 

127 

1,259 

Expected tax rate:note (i)







Operating profit based on longer-term investment returns note (iii)

24%

35%

24.5%

24.5%

28%


Short-term fluctuations in investment returns  

24%

35%

24.5%

24.5%

69%


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

24.5%

24.5%

24.5%


Gain on dilution of Group holdings

24.5%

24.5%

Expected tax (charge) credit based on expected tax rates:







Operating profit based on longer-term investment returns note (iii)

(97)

(155)

(86)

10 

(328)


Short-term fluctuations in investment returns  

(10)

44 

(1)

(11)

22 


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

(2)

(19)

(21)


Gain on dilution of Group holdings

(10)

(10)

Total

(107)

(111)

(89)

(30)

(337)

Variance from expected tax charge: note (ii)







Operating profit based on longer-term investment returns note (iii)

19 

40 

12 

(28)

43 


Short-term fluctuations in investment returns  

(13)

(6)

(4)

(23)


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


Gain on dilution of Group holdings

10 

10 

Total

40 

(22)

30 

Actual tax (charge) credit:







Operating profit based on longer-term investment returnsnote (iii)

(78)

(115)

(74)

(18)

(285)


Short-term fluctuations in investment returns

(23)

44 

(7)

(15)

(1)


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

(2)

(19)

(21)


Gain on dilution of Group holdings


Total  

(101)

(71)

(83)

(52)

(307)

Actual tax rate:  







Operating profit based on longer-term investment returns

19%

26%

21%

(46)%

25%


Total profit

23%

22%

23%

41%

24%

 



   

Asia 

insurance 

 operations 

US 

 insurance 
operations 

UK 

 insurance 

operations 

Other 

operations 

Total 

Half year 2011*

£m (except for tax rates)

Profit before tax attributable to shareholders:  







Operating profit based on longer-term investment returns  note (iii)

322 

340 

353 

13 

1,028 


Short-term fluctuations in investment returns   

14 

44 

28 

93 


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

(2)

(5)

(7)


Total  

336 

347 

395 

36 

1,114 

Expected tax rate: note (i)







Operating profit based on longer-term investment returns  note (iii)

24%

35%

26.5%

26.5%

29%


Short-term fluctuations in investment returns   

22%

35%

26.5%

26.5%

26%


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

26.5%

26.5%

26.5%

Expected tax (charge) credit based on expected tax rates:  







Operating profit based on longer-term investment returns  note (iii)

(77)

(119)

(94)

(3)

(293)


Short-term fluctuations in investment returns   

(3)

(2)

(12)

(7)

(24)


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

Total  

(80)

(121)

(105)

(9)

(315)

Variance from expected tax charge:  note (ii)







Operating profit based on longer-term investment returns  note (iii)

39 

19 

64 


Short-term fluctuations in investment returns   

(33)

(32)

Total  

19 

32 

Actual tax (charge) credit:  







Operating profit based on longer-term investment returns note (iii)

(38)

(100)

(89)

(2)

(229)


Short-term fluctuations in investment returns  

(36)

(2)

(11)

(7)

(56)


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


Total   

(74)

(102)

(99)

(8)

(283)

Actual tax rate:   







Operating profit based on longer-term investment returns  

12%

29%

25%

15%

22%


Total profit  

22%

29%

25%

22%

25%

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the improvement in accounting policy described in note B.

 



   

Asia 
insurance 
operations 

US  
insurance 
operations 

UK
 insurance 
operations 

Other 
operations 

Total 

Full year 2011*

£m (except for tax rates)

Profit (loss) before tax attributable to shareholders:  







Operating profit based on longer-term investment returns  note (iii)

704 

651 

723 

(51)

2,027 


Short-term fluctuations in investment returns   

(92)

(167)

159 

(120)

(220)


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

18 

21 


Total  

612 

484 

900 

(168)

1,828 

Expected tax rate: note (i)







Operating profit based on longer-term investment returns  note (iii)

24%

35%

27%

27%

29%


Short-term fluctuations in investment returns   

20%

35%

27%

27%

30%


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

0%

0%

27%

27%

26.5%

Expected tax (charge) credit based on expected tax rates:  







Operating profit based on longer-term investment returns  note (iii)

(169)

(228)

(195)

14 

(578)


Short-term fluctuations in investment returns   

18 

58 

(43)

32 

65 


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

(5)

(1)

(6)

Total  

(151)

(170)

(243)

45 

(519)

Variance from expected tax charge:  note (ii)







Operating profit based on longer-term investment returns  note (iii)

47 

43 

50 

145 


Short-term fluctuations in investment returns   

(20)

(24)

(36)


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

Total  

27 

43 

14 

26 

110 

Actual tax (charge) credit:  







Operating profit based on longer-term investment returns note (iii)

(122)

(185)

(190)

64 

(433)


Short-term fluctuations in investment returns  

(2)

58 

(35)

29 


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

(4)

(1)

(5)


Total   

(124)

(127)

(229)

71 

(409)

Actual tax rate:   







Operating profit based on longer-term investment returns  

17%

28%

26%

125%

21%


Total profit  

20%

26%

25%

42%

22%

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the improvement in accounting policy described in note B.

Notes

(i)      Expected tax rates for profit (loss) attributable to shareholders:

•     The expected tax rates shown in the table above reflect the corporation tax rates generally applied to taxable profits of the relevant country jurisdictions.

•     For Asia operations the expected tax rates reflect the corporation tax rates weighted by reference to the source of profits of operations contributing to the aggregate business result.

•     The expected tax rate for Other operations reflects the mix of business between UK and overseas operations, which are taxed at a variety of rates.

(ii)     For 2012 and 2011, the principal variances arise from a number of factors, including:

(a)  Asia long-term operations

For half year 2012 and 2011, profits in certain countries which are not taxable, along with utilising brought forward tax losses on which no deferred tax assets were previously recognised, partly offset by the inability to fully recognise deferred tax assets on losses being carried forward.

(b)  Jackson

For half year 2012 and 2011, the benefit of a deduction from taxable income of a proportion of dividends received attributable to the variable annuity business.

(c)  UK insurance operations

For half year 2012 and 2011, the effect of the reduction in the UK corporation tax rate on deferred tax liabilities and the different tax bases of UK life business. Additionally, for 2011 this is partially offset by routine revisions to prior period tax returns.

(d)  Other operations

For half year 2012 and 2011 the effect of the reduction in UK corporation tax rate on deferred tax assets and revisions to prior period tax returns. For full year 2011 the settlement of outstanding issues with HMRC at an amount below that previously provided, partly offset by prior year adjustments arising from the revisions of prior period tax returns.

 

(iii)    Operating profit based on longer-term investment returns is net of attributable restructuring costs and development expenses. Related tax charges are determined on the basis of current taxation legislation.

 

L     Supplementary analysis of earnings per share

 



Half year 2012



Before

 tax

 note C

Tax 

          note K 

Non- 

 controlling   interests  

Net of tax 

and non- controlling 

interests 

Basic

 earnings 

 per share 

Diluted 

 earnings 

 per share 



£m 

£m 

£m 

£m 

Pence 

Pence 

Based on operating profit based on longer-term investment returns

1,162 

(285)

877 

34.5 p

34.5 p

Short-term fluctuations in investment returns on shareholder-backed business

(32)

(1)

(33)

(1.3)p

(1.3)p

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

87 

(21)

66 

2.6 p

2.6 p

Gain on dilution of Group holdings

42 

42 

1.7 P

1.7 P

Based on profit  for the period

1,259 

(307)

952 

37.5 p

37.5 p

 



Half year 2011*



Before

 tax

 note C

Tax 

          note K

Non- 

 controlling
interests 

Net of tax 

and non- controlling 

interests 

Basic

 earnings 

 per share 

Diluted 

 earnings 

 per share 



£m 

£m 

£m 

£m 

Pence 

Pence 

Based on operating profit based on longer-term investment returns

1,028 

(229)

(2)

797 

31.4 p

31.3 p

Short-term fluctuations in investment returns on shareholder-backed business

93 

(56)

37 

1.5 p

1.5 p

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

(7)

(5)

(0.2)p

(0.2)p

Based on profit  for the period

1,114 

(283)

(2)

829 

32.7 p

32.6 p

 



Full year 2011*



Before

 tax

 note C 

Tax 

        note K

Non- controlling interests

Net of tax

and non- controlling interests 

Basic

  earnings 

 per share  

Diluted 

 earnings 

 per share    



£m 

£m 

£m 

£m 

Pence 

Pence   

Based on operating profit based on longer-term investment return

2,027 

(433)

(4)

1,590 

62.8 p

62.7 p

Short-term fluctuations in investment returns on shareholder-backed business

(220)

29 

(191)

(7.6)p

(7.6)p

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

21 

(5)

16 

0.6 p

0.6 p

Based on profit  for the year

1,828 

(409)

(4)

1,415 

55.8 p

55.7 p

* The 2011 comparative results have been adjusted from those previously published for the retrospective application of the improvement in accounting policy described in note B.

 

Earnings per share are calculated based on earnings attributable to ordinary shareholders, after related tax and non-controlling interests.

The weighted average number of shares for calculating earnings per share:



Half year

2012

Half year

2011

Full year

2011



(in millions)

(in millions)

(in millions)

Weighted average number of shares for calculation of:





Basic earnings per share

2,536 

2,533 

2,533 


Diluted earnings per share

2,539 

2,539 

2,538 

 

M   Dividends

 

Dividends per share (in pence)

Half year

2012

Half year

2011

Full year

2011

Dividends relating to reporting period:

 

 

 


Interim dividend (2012 and 2011)

8.40p 

7.95 p 

7.95 p 


Final dividend (2011)

17.24 p 

Total

8.40p 

7.95 p 

25.19 p 

Dividends declared and paid in reporting period:

 

 

 


Current year interim dividend

7.95 p 


 Final dividend for prior year

17.24 p 

17.24 p 

17.24 p 

Total

17.24 p 

17.24 p 

25.19 p 

 

Interim dividends are recorded in the period in which they are paid. Final dividends are recorded in the period in which they are approved by shareholders. The final dividend for the year ended 31 December 2011 of 17.24 pence per ordinary share was paid to eligible shareholders on 24 May 2012.

The 2012 interim dividend of 8.40 pence per ordinary share will be paid on 27 September 2012 in sterling to shareholders on the principal register and the Irish branch register at 6.00 pm BST on Friday, 24 August 2012 (the 'Record Date'), and in Hong Kong dollars to shareholders on the Hong Kong branch register at 4.30 pm Hong Kong time on the Record Date (HK Shareholders). Holders of US American Depositary Receipts (US Shareholders) will be paid their dividends in US dollars on or about 5 October 2012. The interim dividend will be paid on or about 4 October 2012 in Singapore dollars to shareholders with shares standing to the credit of their securities accounts with The Central Depository (Pte) Limited (CDP) at 5.00 pm Singapore time on the Record Date (SG Shareholders). The dividend payable to the HK Shareholders will be translated using the exchange rate quoted by the WM Company at the close of business on 9 August 2012. The exchange rate at which the dividend payable to the SG Shareholders will be translated into SG$ will be determined by CDP. The dividend will distribute an estimated £215 million of shareholders' equity.

Shareholders on the principal register and Irish branch register will be able to participate in a Dividend Reinvestment Plan (DRIP).

 

N    Statement of financial position - analysis of Group position by segment and business type

 

i        Group statement of financial position analysis

To explain more comprehensively the assets, liabilities and capital of the Group's businesses, it is appropriate to provide analyses of the Group's statement of financial position by operating segment and type of business.

 



  

Insurance operations

Total 

 insurance 

 operations 

Asset 

 management 

 operations 

Unallocated 

to a segment (central
  operations) 

Intra-group 
eliminations 

30 Jun

2012 

Group 

Total 

30 Jun* 

2011 

Group 

Total 

31 Dec* 

2011

Group

Total



  

UK 

US 

Asia 

By operating segment

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m

£m 

Assets









  

  

Intangible assets attributable to shareholders:









  

  


Goodwill note P

237 

237 

1,230 

1,467 

1,469 

1,465 


Deferred acquisition costs and other intangible assets note Q

109 

3,203 

987 

4,299 

15 

19 

4,333 

4,060 

4,234 


Total

109 

3,203 

1,224 

4,536 

1,245 

19 

5,800 

5,529 

5,699 

Intangible assets  attributable to with-profits funds:









  

  


In respect of acquired subsidiaries for venture fund and other investment purposes

178 

178 

178 

169 

178 


Deferred acquisition costs and other intangible assets

78 

84 

84 

93 

89 


Total

184 

78 

262 

262 

262 

267 

Total

293 

3,203 

1,302 

4,798 

1,245 

19 

6,062 

5,791 

5,966 

Deferred tax assets note K

243 

1,633 

95 

1,971 

110 

98 

2,179 

2,120 

2,276 

Other non-investment and non-cash assets note (i)

5,437 

1,536 

1,053 

8,026 

1,104 

4,079 

(5,860)

7,349 

6,521 

6,638 

Investment of long-term business and other operations:









  

  


Investment properties

10,786 

25 

11 

10,822 

10,822 

10,965 

10,757 


Investments accounted for using the equity method

70 

70 

42 

112 

71 

70 


Financial investments:









  

  



Loans note S

3,435 

4,168 

1,171 

8,774 

1,207 

9,981 

9,017 

9,714 



Equity securities and portfolio holdings in unit trusts

34,036 

43,874 

12,553 

90,463 

79 

90,542 

91,037 

87,349 



Debt securities note T

79,900 

27,061 

19,433 

126,394 

1,875 

128,269 

117,213 

124,498 



Other investments

4,683 

2,634 

703 

8,020 

72 

51 

8,143 

6,121 

7,509 



Deposits

11,105 

228 

1,041 

12,374 

55 

12,429 

10,858 

10,708 

Total investments

144,015 

77,990 

34,912 

256,917 

3,330 

51 

260,298 

245,282 

250,605 

Properties held for sale  

394 

Cash and cash equivalents  

2,554 

293 

1,927 

4,774 

1,580 

383 

6,737 

8,589 

7,257 

Total assets

152,542 

84,655 

39,289 

276,486 

7,369 

4,630 

(5,860)

282,625 

268,697 

272,745 

 


  

Insurance operations

Total 

insurance 

operations 

 Asset
 management

 operations 

Unallocated

to a segment 

(central

 operations)

Intra 

-group 

 eliminations 

30 Jun 

2012 

Group 

Total 

30 Jun* 

 2011 

Group 

Total 


31 Dec*

2011 

Group 

Total 



  

UK  

US 

Asia 

By operating segment 

£m  

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

  

£m 

  

Equity and liabilities










  


  

Equity










  


  

Shareholders' equity  

2,722 

3,919 

2,403 

9,044 

1,888 

(1,640)

9,292 

7,990 

  

8,564 

  

Non-controlling interests

29 

34 

34 

46 

  

43 

  

Total equity

2,751 

3,919 

2,408 

9,078 

1,888 

(1,640)

9,326 

8,036 

  

8,607 

  

Liabilities










  


  

Policyholder liabilities and unallocated surplus of with-profits funds:










  


  


Contract liabilities (including amounts in respect of contracts classified as investment contracts under

 IFRS 4)note Y

128,387 

75,264 

32,768 

236,419 

236,419 

221,432 

  

227,075 

  


Unallocated surplus of with-profits funds note Y

9,750 

52 

9,802 

9,802 

10,872 

  

9,215 

  

Total policyholder liabilities and  unallocated surplus of with-profits funds

138,137 

75,264