Prudential - HY22 Results - Additional Financials

RNS Number : 4774V
Prudential PLC
10 August 2022
 

I  Additional financial information

 

I(i)  Group capital position

 

Prudential applies the Insurance (Group Capital) Rules set out in the Group-wide Supervision (GWS) Framework issued by the Hong Kong Insurance Authority (IA) to determine group regulatory capital requirements (both minimum and prescribed levels). For regulated insurance entities, the capital resources and required capital included in the GWS capital measure for Hong Kong IA Group regulatory purposes are based on the local solvency regime applicable in each jurisdiction. The Group holds material participating business in Hong Kong, Singapore and Malaysia. Alongside the regulatory GWS capital basis, a shareholder GWS capital basis is also presented which excludes the contribution to the Group GWS eligible group capital resources, the Group Minimum Capital Requirements (GMCR) and the Group Prescribed Capital Requirements (GPCR) from these participating funds.

 

Regulatory updates

 

The GWS group capital adequacy requirements require that total eligible group capital resources are not less than the GPCR and that GWS Tier 1 group capital resources are not less than the GMCR. Following the trend to move to risk based regimes (discussed further below), from this reporting period onwards, the headline Group solvency position will be presented by comparing the total eligible group capital resources to the GPCR, rather than to the GMCR, which is more comparable to other global risk based measures. The Hong Kong IA is currently consulting on whether such disclosures should become a requirement for all groups under its supervision. The GPCR also remains the basis of our EEV capital requirements. In addition, the Tier 1 capital resources relative to the GMCR will also be disclosed.

 

The recent trend to more risk-based capital regimes being adopted in many of the Group's markets is continuing and this impacts on the Group's GWS capital measure, which is underpinned by the local regulatory regimes of the Group's subsidiaries, joint ventures and associates. C-ROSS Phase II became effective in the Chinese Mainland in the first quarter of 2022, and in April 2022 Prudential Hong Kong Limited received approval from the Hong Kong IA to early-adopt the new risk-based capital regime effective from 1 January 2022 .

 

The impact of these changes on the GWS capital position, estimated as at 31 December 2021 and after allowing for the impact of the $1.7 billion debt redemption in January 2022, are shown below:

 

31 December 2021

Shareholder basis

Total regulatory basis


GMCR basis

GPCR basis

GMCR basis

GPCR basis

$ billion

As

disclosed

Impact of

HK RBC &

C-ROSS II

Post

regulatory

updates

Post

regulatory

updates

As

disclosed

Impact of

HK RBC & C-ROSS II

Post

regulatory

updates

Post

regulatory

updates

Capital resources

15.2

+10.3

25.5

25.5

42.7

(0.7)

42.0

42.0


 

 

 

 

 

 

 


Required capital

3.7

+1.0

4.7

8.0

10.7

+0.4

11.1

20.6

GWS capital surplus

11.5

+9.3

20.8

17.5

32.0

(1.1)

30.9

21.4

GWS coverage ratio

408%

+137%

545%

320%

398%

-20%

378%

204%

 

The Hong Kong RBC framework requires liabilities to be valued on a best estimate basis and capital requirements to be risk based, resulting in the release of prudent regulatory margins previously included in liabilities and an increase in required capital. In addition the shareholder position also recognises the value of future shareholder transfers from participating business on an economic basis within the capital resources along with an associated required capital. In total this results in a material increase in the GWS shareholder capital resources and required capital as presented above. 

 

At a GWS total regulatory level, after including the contribution from participating business, the introduction of the Hong Kong RBC framework results in a fall in capital resources.  The impact on the shareholder position as noted above is more than offset by the Hong Kong RBC framework requirement to reflect future discretionary policyholder bonuses within the participating business liabilities which were previously treated as capital.

 

In addition to the regulatory changes discussed above the Hong Kong IA issued guidance in the first half of 2022 on the classification of GWS Tier 1 group capital and the GMCR that should be assessed against this Tier 1 group capital, in particular to ensure that participating business capital resources that are not classified as Tier 1 group capital by the application of local rules, do not attract a corresponding GMCR. Applying this guidance at 31 December 2021 would reduce the total regulatory GMCR presented above of $11.1 billion by $(4.6) billion to $6.5 billion with no impact on the GPCR.

 

Estimated GWS capital position note (1)

 

As at 30 June 2022, the estimated shareholder GWS capital surplus over the GPCR is $16.2 billion (31 December 2021: $17.5 billion), representing a coverage ratio of 317 per cent (31 December 2021: 320 per cent) and the total GWS capital surplus over the GPCR is $19.1 billion (31 December 2021: $21.4 billion), representing a coverage ratio of 205 per cent (31 December 2021: 204 per cent). The Group Tier 1 capital resources are $18.4 billion with headroom over the GMCR of $12.8 billion (31 December $14.9 billion), representing a coverage ratio of 325 per cent (31 December 2021: 328 per cent).

 

For comparison to previous periods, as at 30 June 2022, the estimated shareholder GWS capital surplus over the GMCR was $19.4 billion representing a coverage ratio of 548 per cent (31 December 2021: $20.8 billion representing a coverage ratio of 545 per cent). 

 

 

30 Jun 2022

 

31 Dec 2021

 

Shareholder

Add

Policyholder

note (3)

Total


Shareholder

Add

Policyholder

note (3)

Total

Group capital resources ($bn)

23.7

13.6

37.3


25.5

16.5

42.0

of which: Tier 1 capital resources ($bn)note (2)

16.3

2.1

18.4


17.9

3.5

21.4

 

 

 

 

 




Group Minimum Capital Requirement ($bn)

4.3

1.3

5.6

 

4.7

1.8

6.5

Group Prescribed Capital Requirement ($bn)

7.5

10.7

18.2

 

8.0

12.6

20.6

 

 

 

 

 




GWS capital surplus over GPCR ($bn)

16.2

2.9

19.1

 

17.5

3.9

21.4

GWS coverage ratio over GPCR (%)

317%

 

205%

 

320%


204%

 

 

 

 

 




GWS Tier 1 surplus over GMCR ($bn)

 

 

12.8




14.9

 

Notes

(1)  All 31 December 2021 GWS capital results reflect the impact of the regulatory updates discussed in the section above and are after allowing for the impact of the $1.7 billion debt redemption in January 2022.

(2)  The classification of tiering of capital under the GWS framework reflects the different local regulatory regimes along with guidance issued by the Hong Kong IA. At 30 June 2022, total Tier 1 capital resources of $18.4 billion comprises: $23.7 billion of total shareholder capital resources; less $4.0 billion of Prudential plc issued sub-ordinated and senior Tier 2 debt capital; less $3.4 billion of local regulatory tiering classifications in Singapore and China which are classified as GWS Tier 2 capital resources; plus $2.1 billion of Tier 1 capital resources in policyholder funds.

(3)  This allows for any associated diversification impacts between the shareholder and policyholder positions reflected in the total company results where relevant.

 

GWS sensitivity analysis

 

The estimated sensitivity of the GWS capital position to changes in market conditions, using the new GPCR basis as at 30 June 2022 is shown below, for both the shareholder and total capital position.

 



30 June 2022


 

Shareholder

 

Total

Impact of market sensitivities

Surplus ($bn)

Coverage ratio

 

Surplus ($bn)

Coverage ratio

Base position

16.2

317%

 

19.1

205%

Impact of:

 

 

 

 

 

 

  10% increase in equity markets

0.3

(5)%

 

0.9

(3)%

 

  20% fall in equity markets

(1.7)

(10)%


(3.0)

(6)%


  50 basis points reduction in interest rates

0.4

3%


(0.2)

(4)%


  100 basis points increase in interest rates

(1.3)

(26)%


(0.6)

(4)%


  100 basis points increase in credit spreads

(0.7)

(10)%


(1.3)

(7)%

 

The sensitivity results above reflect the impact on the Group's long-term business operations at 30 June 2022. The Group's retained economic interest in Jackson, which contributed $0.2 billion to the GWS capital surplus at 30 June 2022 being 60 per cent of its market value at that date, and is assumed to be unchanged under stress. The sensitivity results assume instantaneous market movements and reflect all consequential impacts as at the valuation date . These results also allow for limited management actions such as changes to future policyholder bonuses and rebalancing investment portfolios where relevant . If such economic conditions persisted, the financial impacts may differ to the instantaneous impacts shown above. In this case management could also take additional actions to help mitigate the impact of these stresses. These actions include, but are not limited to, market risk hedging, further rebalancing of investment portfolios, increased use of reinsurance, repricing of in-force benefits, changes to new business pricing and the mix of new business being sold.

 

GWS Risk Appetite and capital management

 

The Group's capital management framework focuses on achieving sustainable, profitable growth and retaining a resilient balance sheet.

 

The Group monitors regulatory capital, economic capital and rating agency capital metrics and manages the business within its risk appetite by remaining within its economic and regulatory capital limits. In respect of regulatory capital limits, a capital buffer above the GPCR is held to ensure the Group can withstand volatility in markets and operational experience, with capital resources remaining sufficient to cover the GPCR even after significant stresses. The calibration of the capital buffer reflects the Group's risk profile and the external economic environment, and is set and reviewed regularly by the Board.

 

Typically, this requires a Group shareholder coverage ratio of above 150 per cent of the shareholder GPCR to be maintained and de-risking management actions will be taken as necessary to maintain this buffer.

 

No maximum limit on the GWS coverage ratio has been set. While the GWS shareholder capital position is a key metric for assessing regulatory solvency, and for risk management, there are some elements of the shareholder GWS capital surplus which will only become available as cash flow for distribution over time. The Group's Free Surplus metric is a better measure of the shareholder capital available for distribution, and is used as the primary metric for assessing the Group's sources and uses of capital in the Group's capital management framework, and underpinning the Group's dividend policy. At 30 June 2022 the Group's Free Surplus stock (excluding distribution rights and other intangibles) was $8.6 billion, compared to the GWS shareholder surplus of $16.2 billion and a reconciliation is shown below. A projection of expected Free Surplus capital generation for the next 40 years is shown in Section I(vi) of the Group's 2021 annual report, for in-force business and separately for one years' new business.

 

The uses of capital, for both organic and inorganic opportunities, are assessed by reference to expected shareholder returns and payback periods, relative to risk-adjusted hurdle rates which are set centrally.

 

Reflecting the Group's capital allocation priorities, a portion of the free surplus generated in each period will be retained for reinvestment in the business, and dividends will be determined primarily based on the Group's operating free surplus generation after allowing for the capital strain of writing new business and recurring central costs (on a right-sized basis). To the extent that free surplus arises which is not required to support organic and inorganic growth opportunities, consideration will be given to returning capital to shareholders.

 

Separate from the capital management framework applied for shareholder-owned capital, the capital held in ring-fenced with-profits funds supports policyholder investment freedom, which increases expected returns for our with-profits funds' customers. GWS policyholder capital surplus is not available for distribution out of the ring-fenced funds other than as a defined proportion distributable to shareholders when policyholder bonuses are declared. Policyholder fund capital surplus is deployed over time to increase investment risk in the with-profits funds in order to target higher customer returns, or distributed as higher customer bonuses, in line with the specific with-profits bonus policies which apply to each ring-fenced fund. The result of applying these policies is that the aggregate policyholder fund GPCR coverage ratio is typically lower than the GPCR shareholder coverage ratio.

 

The Total GWS coverage ratio, which is an aggregate of the policyholder and shareholder capital positions, is therefore usually lower than the shareholder coverage ratio, but also less sensitive in stress scenarios, as is shown in the GWS sensitivity analysis section above as at 30 June 2022. The Total GWS coverage ratio is the Group's regulatory solvency metric to which Group supervision applies, and this total regulatory solvency ratio is managed to ensure it remains above the GPCR by applying separate shareholder and policyholder risk appetite limits, as described above.

 

Analysis of movement in total regulatory GWS capital surplus (over GPCR)

 

A summary of the movement in the restated 31 December 2021 regulatory GWS capital surplus (over GPCR) of $21.4 billion to $ 19.1 billion at 30 June 2022 is set out in the table below.

 

 

 

H1 2022

($bn)

Total GWS surplus at beginning of period (over GPCR) (Post regulatory updates)

21.4



 

Shareholder free surplus generation

 


In force operating capital generation

1.1


Investment in new business

(0.3)

Total operating free surplus generation

0.8

 


 


External dividends

(0.3)


Non-operating movements (including market movements)

(1.3)


Other capital movements

(0.5)

Movement in free surplus (see EEV accounts for further detail)

(1.3)





Other movements in GWS shareholder surplus (not included in free surplus)

0.0


Movement in GWS policyholder surplus

(1.0)



 

Net movement in GWS capital surplus (over GPCR)

(2.3)




Total GWS surplus at end of period (over GPCR)

19.1

 

The movement in free surplus of $(1.3) billion is discussed in the EEV accounts. Other GWS movements which are not reflected in EEV Free Surplus relate to a $(0.2) billion movement in the items in the Reconciliation of free surplus to GWS capital surplus presented below, offset by a $0.2 billion benefit from the exclusion of the movement in distribution rights and other intangibles from the GWS surplus.

Reconciliation of Free Surplus to total regulatory GWS capital surplus (over GPCR)

 

 

30 June 2022 $bn

 

Capital resources

Required capital

Surplus

Free surplus

14.2

5.6

8.6

Restrictions applied in free surplus for China C-ROSSnote (a)

2.1

1.4

0.7

Restrictions applied in free surplus for Hong Kong RBCnote (b)

5.3

0.4

4.9

Restrictions applied in free surplus for Singapore RBCnote (c)

2.0

0.1

1.9

Othernote (d)

0.1

0.0

0.1

Add GWS policyholder surplus contribution

13.6

10.7

2.9

Total regulatory GWS capital surplus (over GPCR)

37.3

18.2

19.1

As per the "Free surplus excluding distribution rights and other intangibles" shown in the statement of Movement in Group free surplus of the Group's EEV basis results.

 

Notes

(a)  Free surplus applies the embedded value reporting approach issued by the China Association of Actuaries (CAA) and includes a requirement to establish a deferred profit liability within EEV net worth which leads to a reduction in EEV free surplus as compared to the C-ROSS surplus reported for local regulatory purposes. Further differences relate to the treatment of China subordinated debt which is excluded from EEV free surplus and which contributes to C-ROSS surplus for local regulatory reporting.

(b)  EEV free surplus for Hong Kong under the Hong Kong RBC regime excludes regulatory surplus that is not considered distributable immediately.  This includes Hong Kong RBC technical provisions that are lower than policyholder asset shares or cash surrender floors as well as the value of future shareholder transfers from participating business (net of associated required capital) which are included in the shareholder GWS capital position.

(c)  EEV free surplus for Singapore is based on the Tier 1 requirements under the RBC2 framework, which excludes certain negative reserves permitted to be recognised in the full RBC 2 regulatory position used when calculating the GWS capital surplus (over GPCR) .

(d)  Other primarily relates to asset valuation differences in particular where EEV Principles require surplus assets to be included at fair value whereas within the GWS capital surplus (over GPCR), some local regulatory regimes value certain assets at cost. This item also includes the difference in the valuation of the Group's retained interest in Jackson which is valued at the listed market value under EEV free surplus as compared to being valued at 60 per cent of the listed market value under GWS capital.

 

Reconciliation of Group IFRS shareholders' equity to Group total GWS capital resources

 

 

30 Jun 2022

$bn

Group IFRS shareholders' equity

16.1

Remove DAC, goodwill and intangibles recognised on the IFRS statement of financial position

(7.4)

Add debt treated as capital under GWSnote (a)

4.0

Asset valuation differencesnote (b)

(0.8)

Liability valuation (including insurance contracts) differencesnote (c)

10.8

Differences in associated net deferred tax liabilitiesnote (d)

1.1

Othernote (e)

(0.1)

Contribution from Policyholder business

13.6

Group total GWS capital resources

37.3

 

Notes

(a)  As per the GWS Framework, debt in issuance at the date of designation that satisfy the criteria for transitional arrangements and qualifying debt issued since the date of designation are included as Group capital resources but are treated as liabilities under IFRS.

(b)  Asset valuation differences reflect differences in the basis of valuing assets between IFRS and local statutory valuation rules, including deductions for inadmissible assets. Differences include for some markets where government and corporate bonds are valued at book value under local regulations but are valued at market value under IFRS. This also includes the difference in the valuation of the Group's retained interest in Jackson which is valued at the listed market value (equal to its fair value) under IFRS as compared to being valued at 60 per cent of the listed market value for GWS capital .

(c)  Liability valuation differences reflect differences in the basis of valuing liabilities between IFRS and local statutory valuation rules. Material differences include in Hong Kong and Singapore where the local capital resources under the local risk-based capital solvency bases permits the recognition of certain negative reserves in the local statutory position that are not fully recognised under IFRS. This also includes the present value of future shareholder transfers from Hong Kong participating business which is included as an asset within the GWS capital resources.

(d)  Differences in associated net deferred tax liabilities mainly results from the tax impact of changes in the valuation of assets and liabilities

(e)  Other differences include the removal of DAC and intangibles of the Group's joint ventures and associates and in China a difference from the inclusion of subordinated debt as local capital resources on a C-ROSS II basis as compared to being held as a liability under IFRS.

 

Basis of preparation for the Group GWS capital position

 

Prudential applies the Insurance (Group Capital) Rules set out in the GWS Framework to determine group regulatory capital requirements (both minimum and prescribed levels). The summation of local statutory capital requirements across the Group is used to determine group regulatory capital requirements, with no allowance for diversification between business operations. The GWS eligible group capital resources is determined by the summation of capital resources across local solvency regimes for regulated entities and IFRS shareholders' equity (with adjustments described below) for non-regulated entities.

 

In determining the GWS eligible group capital resources and required capital the following principles have been applied:

 

-  For regulated insurance entities, capital resources and required capital are based on the local solvency regime applicable in each jurisdiction, with minimum required capital set at the solo legal entity statutory minimum capital requirements and prescribed capital requirement set at the level at which the local regulator of a given entity can impose penalties, sanctions or intervention measures;

-  For asset management operations and other regulated entities, the capital position is derived based on the sectoral basis applicable in each jurisdiction, with minimum required capital based on the solo legal entity statutory minimum capital requirement;

-  For non-regulated entities, the capital resources are based on IFRS shareholder equity after deducting intangible assets. No required capital is held in respect of unregulated entities;

-  For entities where the Group's shareholding is less than 100 per cent, the contribution of the entity to the GWS eligible group capital resources and required capital represents the Group's share of these amounts and excludes any amounts attributable to non-controlling interests. This does not apply to investment holdings which are not part of the Group;

-  Following the demerger of Jackson from Prudential plc, the Group retains a 14.3 per cent non-controlling interest in Jackson at 30 June 2022. As agreed with the Hong Kong IA this retained interest is included within the GWS eligible group capital resources valued at 60 per cent of the listed market value and contributes $0.2 billion to the GWS capital surplus (over GPCR) at 30 June 2022;

-  Investments in subsidiaries, joint ventures and associates (including, if any, loans that are recognised as capital on the receiving entity's balance sheet) are eliminated from the relevant holding company to prevent the double counting of capital resources;

-  Under the GWS Framework, debt instruments in issuance at the date of designation that satisfy the criteria for transitional arrangements and qualifying debt issued since the date of designation are included as Group capital resources. At 30 June 2022 all subordinated and senior debt (with the exception of the amount issued in the first half of 2022) are included as Group capital resources. The eligible amount permitted to be included as Group capital resources for transitional debt is based on the net proceeds amount translated using 31 December 2020 exchange rates for debt not denominated in US dollars; and

-  The total company GWS capital basis is the capital measure for Hong Kong IA Group regulatory purposes. In addition Prudential also presents a shareholder GWS capital basis which excludes the contribution to the Group GWS eligible group capital resources, the GMCR and GPCR from participating business in Hong Kong, Singapore and Malaysia.

 

I(ii)  Analysis of adjusted operating profit by driver

 

This schedule classifies the Group's adjusted operating profit into the underlying drivers using the following categories:

 

-  Spread income represents the difference between net investment income and amounts credited to certain policyholder accounts. It excludes the operating investment return on shareholder net assets, which has been separately disclosed as expected return on shareholder assets.

-  Fee income represents profit driven by net investment performance, being fees that vary with the size of the underlying policyholder funds, net of investment management expenses.

-  With-profits represents the pre-tax shareholders' transfer from the with-profits business for the period .

-  Insurance margin primarily represents profit derived from the insurance risks of mortality and morbidity.

-  Margin on revenues primarily represents amounts deducted from premiums to cover acquisition costs and administration expenses (see below).

-  Acquisition costs and administration expenses represent expenses incurred in the period attributable to shareholders. These exclude items such as restructuring and IFRS 17 implementation costs, which are not included in the segment profit, as well as items that are more appropriately included in other categories (eg investment expenses are netted against investment income as part of spread income or fee income as appropriate).

-  DAC adjustments comprise DAC amortisation for the period , excluding amounts related to short-term fluctuations in investment returns, net of costs deferred in respect of new business written in the period.

 

The following analysis expresses certain of the Group's sources of adjusted operating profit as a margin of policyholder liabilities or other relevant drivers. The 2021 comparative information has been presented at both AER and CER to eliminate the impact of exchange translation.

 



Half year 2022


Half year 2021 AER

 

Half year 2021 CER



 

Average

 

 

 

Average

 

 

 

Average

 



Profit

liability

Margin

 

Profit

liability

Margin

 

Profit

liability

Margin



$m

$m

bps

 

$m

$m

bps 

 

$m

$m

bps



note (a)

note (b)



note (a)

note (b)



note (a)

note (b)

Spread income

156

42,759

73


153

45,993

67


150

45,111

67

Fee income

172

33,540

103


169

32,888

103


164

32,096

102

With-profits

75

81,516

18


62

82,082

15


61

80,885

15

Insurance margin

1,683

 

 


1,467




1,434



Margin on revenues

1,542

 

 


1,432




1,396



Expenses:

 

 

 










Acquisition costsnote (c)

(1,129)

2,213

(51)%


(990)

2,083

(48)%


(968)

2,036

(48)%


Administration expenses

(899)

76,641

(235)


(804)

79,163

(203)


(780)

77,472

(201)


DAC adjustments

223

 

 


238




233



Expected return on shareholder assets

107

 

 


101




99





1,930

 

 


1,828




1,789



Share of related tax charges from joint ventures and associatesnote (d)

(32)

 

 


(21)




(21)



Long-term business

1,898

 

 


1,807




1,768



Eastspring

131

 

 


162




155



Adjusted operating profit

2,029

 

 


1,969




1,923



 

Notes

(a)  The calculation of average liabilities is generally derived from opening and closing balances, with average liabilities used to derive the margin for fee income calculated using quarter-end balances to provide a more meaningful analysis. Other than the average liabilities used to calculate the administration expense margin, the average liabilities in the analysis above exclude the liabilities for the Africa operations.

(b)  Margin represents the operating return earned in the period as a proportion of the relevant class of policyholder liabilities excluding unallocated surplus. Half year profits are annualised by multiplying by two.

(c)  The ratio of acquisition costs is calculated as a percentage of APE sales in the period, including with-profits sales. Acquisition costs include only those relating to shareholder-backed business. The ratio of shareholder acquisition costs to shareholder APE sales (excluding with-profits) in half year 2022 is 61 per cent (half year 2021: 60 per cent on both AER and CER basis).

(d)  Under IFRS, the Group's share of results from its investments in joint ventures and associates accounted for using the equity method is included as a single line in the Group's profit before tax on a net of related tax basis. In the table above, the results of the joint ventures and associates are analysed by adjusted operating profit drivers and on a pre-tax basis, with related tax charges shown separately in order for the contribution from the joint ventures and associates to be included in the profit driver and margin analysis on a consistent basis with the rest of the business operations.

 

I(iii)  Analysis of adjusted operating profit by business unit

 

The table below presents the half year 2021 results on both AER and CER bases to eliminate the impact of exchange translation.

 

 

 

 2022 $m

 

 2021 $m

 

2022 vs 2021 %

 

 2021 $m



 

Half year

 

Half year

AER

Half year

CER

 

Half year

AER

Half year

CER

 

Full year

AER

CPL

149

 

139

139


7%

7%


343

Hong Kong

501

 

460

457


9%

10%


975

Indonesia

196

 

225

222


(13)%

(12)%


446

Malaysia

190

 

184

175


3%

9%


350

Singapore

340

 

320

312


6%

9%


663

Growth markets and other

 

 









Philippines

59

 

58

54


2%

9%


110


Taiwan

45

 

47

46


(4)%

(2)%


94


Thailand

103

 

91

83


13%

24%


236


Vietnam

155

 

147

147


5%

5%


317


Other*

192

 

157

154


22%

25%


219


Share of related tax charges from joint ventures and associate

(32)

 

(21)

(21)


52%

52%


(44)

Long-term business

1,898

 

1,807

1,768

 

5%

7%


3,709

Eastspring

131

 

162

155

 

(19)%

(15)%


314

Adjusted operating profit

2,029

 

1,969

1,923

 

3%

6%


4,023

* Includes other growth markets and a number of small items that are not expected to reoccur.

 

(a)  Eastspring adjusted operating profit

 


2022 $m

 

2021 AER $m


Half year

 

Half year

Full year

Operating income before performance-related feesnote (1)

332


374

747

Performance-related fees

4


6

15

Operating income (net of commission)note (2)

336


380

762

Operating expensenote (2)

(184)


(196)

(403)

Group's share of tax on joint ventures' operating profit

(21)


(22)

(45)

Adjusted operating profit

131


162

314


 




Average funds managed by Eastspring Investments

$241.8bn


$247.6bn

$251.7bn

Margin based on operating incomenote (3)

28bps


30bps

30bps

Cost/income rationote II(v)

55%







 

Notes

(1)  Operating income before performance-related fees for Eastspring can be further analysed as follows:

 


 

Retail

Margin

Institutional*

Margin

Total

Margin


 

$m

bps 

$m

bps 

$m

bps 


Half year 2022

196

52

136

16

332

28


Half year 2021

225

56

149

18

374

30


Full year 2021

449

56

298

17

747

30

*   Institutional includes internal funds.

 

(2)  Operating income and expense include the Group's share of contribution from joint ventures. In the condensed consolidated income statement of the Group IFRS financial results, the net income after tax of the joint ventures and associates is shown as a single line item.

(3)  Margin represents operating income before performance-related fees as a proportion of the related funds under management (FUM). Half year figures have been annualised by multiplying by two. Monthly closing internal and external funds managed by Eastspring have been used to derive the average. Any funds held by the Group's insurance operations that are managed by third parties outside the Prudential Group are excluded from these amounts.

 

(b)  Eastspring total funds under management

Eastspring manages funds from external parties and also funds for the Group's insurance operations. The table below analyses the total funds managed by Eastspring.

 



2022 $bn

 

2021 AER $bn



30 Jun

 

30 Jun

31 Dec

External funds under management, excluding funds managed on behalf of M&G plcnote (1)

 

 




Retail

58.4

 

67.9

68.5


Institutional

11.0

 

14.9

13.2


Money market funds (MMF)

12.1

 

13.3

12.3



81.5

 

96.1

94.0

Funds managed on behalf of M&G plcnote (2)

9.3

 

16.1

11.5



 

 



External funds under management

90.8

 

112.2

105.5

Internal funds under management

131.5

 

141.8

153.0

Total funds under managementnote (3)

222.3

 

254.0

258.5

 

Notes

(1)  Movements in external funds under management, excluding those managed on behalf of M&G plc, are analysed below:

 




2022 $m

 

2021 AER $m




Half year

 

Half year

Full year


At beginning of period

93,956

 

93,863

93,863


Market gross inflows

43,462

 

49,736

98,963


Redemptions

(44,898)

 

(50,605)

(99,862)


Market and other movements

(11,034)

 

3,102

992


At end of period*

81,486

 

96,096

93,956

* The analysis of movements above includes $12,090 million relating to Asia Money Market Funds at 30 June 2022 ( 30 June 2021: $13,292 million; 31 December 2021: $12,248 million). Investment flows for half year 2022 include Eastspring Money Market Funds gross inflows of $31,851 million (half year 2021: $30,980 million ; full year 2021: $61,949 million) and net inflows of $350 million (half year 2021: net outflows of $ (360) million; full year 2021: net outflows of $(1,512) million).

 

(2)  Movements in funds managed on behalf of M&G plc are analysed below:

 



2022 $m

 

2021 AER $m



Half year

 

Half year

Full year


At beginning of period

11,529

 

15,737

15,737


Net flows

(688)

 

5

(4,040)


Market and other movements

(1,522)

 

356

(168)


At end of period

9,319

 

16,098

11,529

 

(3)  Total funds under management are analysed by asset class below:

 



2022



2021 AER

 



30 Jun

 

30 Jun

 

31 Dec



$bn

% of total

 

$bn

% of total

 

$bn

% of total


Equity

96.6

43%


109.7

43%


107.1

41%


Fixed income

108.2

49%


125.8

50%


133.6

52%


Alternatives

2.5

1%


2.7

1%


2.7

1%


Money Market Funds

15.0

7%


15.8

6%


15.1

6%


Total funds under management

222.3

100%


254.0

100%


258.5

100%

 

I(iv)  Group funds under management

 

For Prudential's asset management businesses, funds managed on behalf of third parties are not recorded on the balance sheet. They are, however, a driver of profitability. Prudential therefore analyses the movement in the funds under management each period, focusing on those which are external to the Group and those primarily held by the Group's continuing insurance businesses. The table below analyses the funds of the Group held in the balance sheet and the external funds that are managed by Prudential's asset management businesses.

 



2022 $bn

 

2021 $bn

Continuing operations:

30 Jun

 

30 Jun

31 Dec

Internal funds

168.8

 

181.9

193.9

Eastspring external funds, including M&G plc (as analysed in note I(iii) above)

90.8

 

112.2

105.5

Total Group funds under managementnote

259.6

 

294.1

299.4

 

Note

Total Group funds under management comprise:

 



2022 $bn

 

2021 $bn



30 Jun

 

30 Jun

31 Dec

Total investments and cash and cash equivalents held on the balance sheet

152.4

 

167.9

177.9

External funds of Eastspring, including M&G plc

90.8

 

112.2

105.5

Internally managed funds held in joint ventures and associates, excluding assets attributable to external unit holders of the consolidated collective investment schemes and other adjustments

16.4

 

14.0

16.0

Total Group funds under management

259.6

 

294.1

299.4

 

I(v)  Holding company cash flow

 

The holding company cash flow describes the movement in the cash and short-term investments of the centrally managed group holding companies and differs from the IFRS cash flow statement, which includes all cash flows in the period including those relating to both policyholder and shareholder funds. The holding company cash flow is therefore a more meaningful indication of the Group's central liquidity.

 



2022 $m

 

2021 $m



Half year

 

Half year

Full year

Net cash remitted by business unitsnote (a)

1,009


1,035

1,451

Net interest paid

(117)

 

(163)

(314)

Corporate expenditurenote (b)

(124)

 

(216)

(322)

Centrally funded recurring bancassurance fees

(220)

 

(176)

(176)

Total central outflows

(461)

 

(555)

(812)

Holding company cash flow before dividends and other movements

548

 

480

639

Dividends paid

(320)

 

(283)

(421)

Operating holding company cash flow after dividends but before other movements

228


197

218

Other movements

 

 




Issuance and redemption of debt

(1,729)

 

-

(255)


Hong Kong public offer and international placing

-

 

-

2,374


Other corporate activitiesnote (c)

159


(256)

(199)


US demerger costs

-

 

(28)

(30)

Total other movements

(1,570)


(284)

1,890

Net movement in holding company cash flow

(1,342)


(87)

2,108

Cash and short-term investments at beginning of periodnote (d)

3,572


1,463

1,463

Foreign exchange movements

(87)


17

1

Cash and short-term investments at end of period note (d)

2,143


1,393

3,572

 

Notes

(a)  Net cash remitted by business units comprise dividends and other transfers, net of capital injections, that are reflective of earnings and capital generation.

(b)  Including IFRS 17 implementation and restructuring costs paid in the period.

(c)  Other cash flow movements included net receipts from other corporate activities of $159 million (2021: $(256) million net payments) comprising proceeds of $171 million received from the sales of shares in Jackson Financial Inc. together with dividends from Jackson Financial Inc., partially offset by cash provided for investment by the businesses mainly in digital infrastructure.

(d)  Proceeds from the Group's commercial paper programme are not included in the holding company cash and short-term investments balance.

 

I(vi)  New business schedules

 

The format of the schedules is consistent with the distinction between insurance and investment products as applied for previous reporting periods. Insurance products refer to those classified as contracts of long-term insurance business for local regulatory reporting purposes.

 

The details shown for insurance products include contributions from contracts that are classified under IFRS 4, 'Insurance Contracts', as not containing significant insurance risk. These products are described as investment contracts or other financial instruments under IFRS 4, primarily certain unit-linked and similar contracts written in insurance operations.

 

New business premiums reflect those premiums attaching to covered business, including premiums from contracts designed as investment contracts under IFRS reporting. Regular premium products are shown on an annualised basis.

 

Investment products referred to in the tables for funds under management are unit trusts, mutual funds and similar types of retail fund management arrangements. These are unrelated to insurance products that are classified as investment contracts under IFRS 4, as described in the preceding paragraph, although similar IFRS recognition and measurement principles apply to the acquisition costs and fees attaching to this type of business.

 

Annual premium equivalent (APE) and new business profit (NBP) are determined using the EEV methodology set out in note 7 of our EEV financial results supplement. In determining the EEV basis value of new business written in the period when policies incept, premiums are included at projected cash flows on the same basis of distinguishing regular and single premium business as set out for local statutory basis reporting. APE sales are subject to rounding.

 

Schedule A Insurance new business (AER and CER)

 

AER

Single premiums

Regular premiums

APE

PVNBP

 

 

2022 Half year

2021 Half year

+/(-)

2022 Half year

2021 Half year

+/(-)

2022 Half year

2021 Half year

+/(-)

2022 Half year

2021 Half year

+/(-)

Continuing operations:

$m

$m

%

$m

$m

%

$m

$m

%

$m

$m

%

CPL (Prudential's 50% share)

858

787

9%

421

369

14%

507

448

13%

2,119

2,038

4%

Hong Kong

656

132

397%

162

240

(33)%

227

253

(10)%

1,774

1,991

(11)%

Indonesia

120

122

(2)%

98

105

(7)%

110

117

(6)%

442

485

(9)%

Malaysia

45

37

22%

168

207

(19)%

172

211

(18)%

845

992

(15)%

Singapore

1,715

1,155

48%

219

264

(17)%

390

379

3%

3,184

2,940

8%

Growth markets:

 



 



 



 




Africa

4

7

(43)%

75

65

15%

76

66

15%

151

144

5%


Cambodia

-

-

-

7

7

-

7

7

-

30

30

-


India (Prudential's 22% share)

135

143

(6)%

106

98

8%

120

112

7%

609

579

5%


Laos

-

-

-

-

-

-

-

-

-

-

1

(100)%


Myanmar

-

-

-

1

1

-

1

1

-

4

1

300%


Philippines

36

40

(10)%

84

86

(2)%

87

90

(3)%

297

340

(13)%


Taiwan

86

78

10%

271

178

52%

281

187

50%

994

662

50%


Thailand

72

75

(4)%

92

92

-

99

99

-

394

406

(3)%


Vietnam

66

20

230%

130

111

17%

136

113

20%

885

771

15%

Total insurance operations

3,793

2,596

46%

1,834

1,823

1%

2,213

2,083

6%

11,728

11,380

3%

 

CER

Single premiums

Regular premiums

APE

PVNBP

 

 

2022 Half year

2021 Half year

+/(-)

2022 Half year

2021 Half year

+/(-)

2022 Half year

2021 Half year

+/(-)

2022 Half year

2021 Half year

+/(-)

Continuing operations:

$m

$m

%

$m

$m

%

$m

$m

%

$m

$m

%

CPL (Prudential's 50% share)

858

785

9%

421

368

14%

507

447

13%

2,119

2,034

4%

Hong Kong

656

130

405%

162

238

(32)%

227

251

(10)%

1,774

1,975

(10)%

Indonesia

120

120

-

98

104

(6)%

110

116

(5)%

442

479

(8)%

Malaysia

45

36

25%

168

199

(16)%

172

202

(15)%

845

952

(11)%

Singapore

1,715

1,128

52%

219

257

(15)%

390

370

5%

3,184

2,869

11%

Growth markets:

 



 



 



 




Africa

4

7

(43)%

75

64

17%

76

65

17%

151

144

5%


Cambodia

-

-

-

7

7

-

7

7

-

30

30

-


India (Prudential's 22% share)

135

139

(3)%

106

94

13%

120

108

11%

609

557

9%


Laos

-

-

-

-

-

-

-

-

-

-

1

(100)%


Myanmar

-

-

-

1

1

-

1

1

-

4

1

300%


Philippines

36

37

(3)%

84

80

5%

87

83

5%

297

315

(6)%


Taiwan

86

76

13%

271

173

57%

281

181

55%

994

645

54%


Thailand

72

68

6%

92

84

10%

99

91

9%

394

371

6%


Vietnam

66

20

230%

130

112

16%

136

114

19%

885

774

14%

Total insurance operations

3,793

2,546

49%

1,834

1,781

3%

2,213

2,036

9%

11,728

11,147

5%

 

Schedule B Insurance new business APE and PVNBP (AER and CER)

 

2021 $m AER

2021 $m CER

2022 $m AER

H1

H2

H1

H2

H1

448

328

447

325

507

253

297

251

295

227

117

135

116

134

110

211

250

202

245

172

379

364

370

362

390





 

66

68

65

66

76

7

7

7

7

7

112

116

108

113

120

-

1

-

-

-

1

-

1

-

1

90

87

83

84

87

187

210

181

204

281

99

119

91

116

99

113

129

114

128

136

2,083

2,111

2,036

2,079

2,213

 

PVNBP

2021 $m AER

2021 $m CER

2022 $m AER

Continuing operations:

H1

H2

H1

H2

H1

CPL (Prudential's 50% share)

2,038

1,723

2,034

1,708

2,119

Hong Kong

1,991

2,856

1,975

2,840

1,774

Indonesia

485

582

479

577

442

Malaysia

992

1,145

952

1,121

845

Singapore

2,940

3,274

2,869

3,248

3,184

Growth markets:





 


Africa

144

144

144

134

151


Cambodia

30

29

30

29

30


India (Prudential's 22% share)

579

593

557

580

609


Laos

1

1

1

1

-


Myanmar

1

2

1

2

4


Philippines

340

315

315

304

297


Taiwan

662

755

645

732

994


Thailand

406

476

371

467

394


Vietnam

771

878

774

875

885

Total insurance operations

11,380

12,773

11,147

12,618

11,728

 

Note

Comparative results for the first half (H1) and second half (H2) of 2021 are presented on both actual exchange rates (AER) and constant exchange rates (CER). The H2 amounts are presented on year-to-date average exchange rates (including the effect of retranslating H1 results for movements in average exchange rates between H1 and the year-to-date).

 

Schedule C Insurance new business profit and margin ( AER and CER)

 

 

2021 AER

2021 CER

2022 AER

Continuing operations:

HY

FY

HY

FY

HY

New business profit ($m)

 


 

 

 

CPL (Prudential's 50% share)

228

352

227

350

217

Hong Kong

306

736

304

731

211

Indonesia

57

125

56

124

52

Malaysia

113

232

109

226

70

Singapore

215

523

210

515

244

Growth markets and other

257

558

249

543

304

Total insurance business

1,176

2,526

1,155

2,489

1,098







New business margin (NBP as a % of APE)






CPL

51%

45%

51%

45%

43%

Hong Kong

121%

134%

121%

134%

93%

Indonesia

49%

50%

48%

50%

47%

Malaysia

54%

50%

54%

51%

41%

Singapore

57%

70%

57%

70%

63%

Growth markets and other

38%

40%

38%

40%

38%

Total insurance business

56%

60%

57%

60%

50%

 






New business margin (NBP as a % of PVNBP)






CPL

11%

9%

11%

9%

10%

Hong Kong

15%

15%

15%

15%

12%

Indonesia

12%

12%

12%

12%

12%

Malaysia

11%

11%

11%

11%

8%

Singapore

7%

8%

7%

8%

8%

Growth markets and other

9%

9%

9%

9%

9%

Total insurance business

10%

10%

10%

10%

9%

 

Schedule D Investment flows and FUM (AER)

 

 

 

2021 $m

 

 

2022 $m

 

Eastspring:

 

H1

H2

 

 

H1

 

Third-party retail:note




 


 


Opening FUM


66,838

67,903

 


68,516


Net flows:



 

 


 


- Gross Inflows


17,491

17,065

 


11,050


- Redemptions


(18,281)

(15,148)

 


(12,808)




(790)

1,917

 


(1,758)


Other movements


1,855

(1,304)

 


(8,351)


Closing FUM

 

67,903

68,516

 

 

58,407

 

 

 

 

 

 

 

 

 

Third-party institutional:



 

 


 


Opening FUM


13,827

14,901

 


13,192


Net flows:



 

 


 


- Gross Inflows


1,264

1,194

 


561


- Redemptions


(983)

(1,989)

 


(589)




281

(795)

 


(28)


Other movements


793

(914)

 


(2,176)


Closing FUM

 

14,901

13,192

 

 

10,988

 




 

 


 


Total third-party closing FUM (excluding MMF and funds held on behalf of M&G plc)

 

82,804

81,708

 

 

69,395

 

 

Note

Mandatory Provident Fund (MPF) product flows in Hong Kong are included at Prudential's 36 per cent interest in the Hong Kong MPF business.

 

II  Calculation of alternative performance measures

 

Prudential uses alternative performance measures (APMs) to provide more relevant explanations of the Group's financial position and performance. This section sets out explanations for each APM and reconciliations to relevant IFRS balances.

 

II(i)  Reconciliation of adjusted operating profit to profit before tax

 

Adjusted operating profit presents the operating performance of the business. This measurement basis adjusts for the following items within total IFRS profit before tax:

 

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

-  Amortisation of acquisition accounting adjustments arising on the purchase of business; and

-  Gain or loss on corporate transactions .

 

More details on how adjusted operating profit is determined are included in note B1.2 of the Group IFRS financial results. A full reconciliation to profit after tax is given in note B1.1 of the Group IFRS financial results.

 

II(ii)  Calculation of IFRS gearing ratio

 

IFRS gearing ratio is calculated as net core structural borrowings of shareholder-financed businesses divided by closing IFRS shareholders' equity plus net core structural borrowings, all in respect of continuing operations.

 


2022 $m

 

2021 $m

Continuing operations:

30 Jun

 

30 Jun

31 Dec

Core structural borrowings of shareholder-financed businesses

4,266

 

6,404

6,127

Less holding company cash and short-term investments

(2,143)

 

(1,393)

(3,572)

Net core structural borrowings of shareholder-financed businesses

2,123

 

5,011

2,555

Closing shareholders' equity

16,109

 

13,046

17,088

Closing shareholders' equity plus net core structural borrowings

18,232

 

18,057

19,643

IFRS gearing ratio

12%

 

28%

13%

 

II(iii) Return on IFRS shareholders' equity

 

This measure is calculated as adjusted operating profit, after tax and non-controlling interests, divided by average shareholders' equity.

 

Detailed reconciliation of adjusted operating profit to IFRS profit before tax for the Group is shown in note B1.1 to the Group IFRS financial results. Half year profits are annualised by multiplying by two.

 


2022 $m

 

2021 $m

Continuing operations:

Half year

 

Half year

Full year

Adjusted operating profit

1,661


1,571

3,233

Tax on adjusted operating profit

(314)

 

(222)

(548)

Adjusted operating profit attributable to non-controlling interests

(4)

 

(7)

(17)

Adjusted operating profit, net of tax and non-controlling interests

1,343

 

1,342

2,668


 

 



Shareholders' equity at beginning of period

17,088

 

12,367

12,367

Shareholders' equity at end of period

16,109

 

13,046

17,088

Average shareholders' equity

16,599

 

12,707

14,728

Operating return on average shareholders' equity (%)

16%

 

21%

18%

 

II (iv) Calculation of IFRS shareholders' equity per share

 

IFRS shareholders' equity per share is calculated as closing IFRS shareholders' equity divided by the number of issued shares at the end of the periods.

 


2022

 

2021


30 Jun

 

30 Jun

31 Dec

Number of issued shares at the end of the period

2,749

 

2,616

2,746


 

 



Closing IFRS shareholders' equity for continuing operations ($ million)

16,109

 

13,046

17,088

Shareholders' equity per share (cents) for continuing operations

586¢

 

499¢

622¢

Closing IFRS shareholders' equity for discontinuing operations ($ million)

-

 

2,667

-

Shareholders' equity per share (cents) for discontinued US operations

-

 

102¢

-

Group Shareholders' equity per share (cents)

586¢

 

601¢

622¢

 

II(v)  Calculation of Eastspring cost/income ratio

 

The cost/income ratio is calculated as operating expenses, adjusted for commissions and share of contribution from joint ventures and associates, divided by operating income, adjusted for commission, share of contribution from joint ventures and associates and performance-related fees.

 


 2022 $m

 

2021 $m


Half year

 

Half year

Full year

IFRS revenue

271

 

350

665

Share of revenue from joint ventures and associates

149

 

147

314

Commissions

(84)

 

(117)

(217)

Performance-related fees

(4)

 

(6)

(15)

Operating income before performance-related fees note

332


374

747

 

 

 



IFRS charges

205

 

262

498

Share of expenses from joint ventures and associates

63

 

51

122

Commissions

(84)

 

(117)

(217)

Operating expense

184

 

196

403

Cost/income ratio (operating expense/operating income before performance-related fees)

55%

 

52%

54%

 

Note

IFRS revenue and charges for Eastspring are included within the IFRS Income statement in 'other income' and 'acquisition costs and other expenditure' respectively. Operating income and expense include the Group's share of contribution from joint ventures and associates. In the condensed consolidated income statement of the Group IFRS financial results, the net income after tax from the joint ventures and associates is shown as a single line item.

 

II(vi)  Reconciliation of gross premiums earned to renewal insurance premiums

 


2022 $m

 

2021 $m

Continuing operations:

Half year

 

 

Half year

AER

Half year

CER

Full year

AER

IFRS gross premiums earned

12,241


11,521

11,287

24,217

Less: General insurance premium

(60)


(62)

(61)

(124)

Less: IFRS gross earned premium from new regular and single premium business

(3,990)


(2,764)

(2,698)

(6,500)

Add: Renewal premiums from joint ventures and associatesnote

1,097


1,150

1,130

2,295

Renewal insurance premiums

9,288


9,845

9,658

19,888

 

 





Annual premium equivalent (APE)

2,213


2,083

2,036

4,194

Life weighted premium income

11,501


11,928

11,694

24,082

 

Note

For the purpose of the definition of renewal premiums from joint ventures and associates in the table above, premiums for the deposit component of insurance contracts from CPL are excluded.

 

II(vii)  Reconciliation of gross premiums earned to APE new business sales

 

The Group reports APE new business sales as a measure of the new policies sold in the period . APE is calculated as the aggregate of regular premiums and one-tenth of single premiums on new business written during the period for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4. The use of the one-tenth of single premiums is to normalise policy premiums into the equivalent of regular annual payments. This measure is commonly used in the insurance industry to allow comparisons of the amount of new business written in a period by life insurance companies, particularly when the sales contain both single premium and regular premium business. This differs from the IFRS measure of gross premiums earned as shown below:

 


2022 $m

 

2021 $m

Continuing operations:

Half year

 

Half year

Full year

Gross premiums earned

12,241


11,521

24,217

Less: premiums from in-force renewal businessnote (a)

(8,191)


(8,695)

(17,593)

Less: 90% of single premiums on new business sold in the periodnote (b)

(2,510)


(1,490)

(3,602)

Add: APE sales from joint ventures and associates on equity accounting methodnote (c)

662


607

1,104

Other adjustmentsnote (d)

11


140

68

Annual premium equivalent (APE)

2,213


2,083

4,194

 

Notes

(a)  Gross premiums earned include premiums from existing in-force business as well as new business given the Group's focus on recurring premium business.

(b)  APE new business sales only include one - tenth of single premiums, recorded on policies sold in the period . Gross premiums earned include 100 per cent of such premiums.

(c)  For the purpose of reporting APE new business sales, the Group's share of amounts sold by the Group's insurance joint ventures and associates are included. Under IFRS, joint ventures and associates are equity accounted and so no amounts are included within gross premiums earned.

(d)  APE new business sales are annualised while gross premiums earned are recorded only when revenues are due. Other adjustments also reflect the inclusion of policies written in the period which are classified as investment contracts without discretionary participation features under IFRS 4, which are recorded as deposits and therefore not in gross premiums earned, and the exclusion of general insurance earned on an IFRS basis.

 

II(viii)  Gross premiums earned including joint ventures and associates

 


2022 $m

 

2021 $m

Continuing operations:

Half year

 

Half year

Full year

IFRS gross premiums earned

12,241


11,521

24,217

Gross premiums earned from joint ventures and associates

2,368


2,066

4,579

Total Group

14,609


13,587

28,796

 

Note

Calculated in accordance with the Group's IFRS accounting policies, which includes the full premium for insurance contracts classified under IFRS 4.

 

II(ix)  Reconciliation between IFRS and EEV shareholders' equity

 

The table below shows the reconciliation of EEV shareholders' equity and IFRS shareholders' equity at the end of the period:

 

 

2022 $m

 

2021 $m

Continuing operations:

30 Jun

 

30 Jun

31 Dec

IFRS shareholders' equity

16,109

 

13,046

17,088

Less: DAC assigned zero value for EEV purposes

(2,884)


(2,505)

(2,815)

Add: Value of in-force business of long-term businessnote (a)

27,381


34,903

35,456

Othernote (b)

1,694


(2,282)

(2,374)

EEV shareholders' equity

42,300

 

43,162

47,355

 

Notes

(a)  EEV shareholders' equity comprises the present value of the shareholders' interest in the value of in-force business, total net worth of long-term business operations and IFRS shareholders' equity of asset management and other operations. The value of in-force business reflects the present value of expected future shareholder cash flows from long-term in-force business which are not captured as shareholders' interest on an IFRS basis. Total net worth represents the regulatory basis net assets for EEV reporting purposes, with adjustments as appropriate.

(b)  Other adjustments represent asset and liability valuation differences between IFRS and the local regulatory reporting basis used to value total net worth for long-term insurance operations. These also include the mark-to-market value movements of the Group's core structural borrowings which are fair valued under EEV but are held at amortised cost under IFRS. One of the most significant valuation differences relate to changes in the valuation of insurance liabilities.

 

II(x)   Calculation of return on embedded value

 

Operating return on embedded value is calculated as the EEV operating profit for the period as a percentage of average EEV basis shareholders' equity for continuing operations. Half year profits are annualised by multiplying by two.

 


2022* $m

 

2021 $m

 

Half year

 

Half year

Full year

EEV operating profit for the period

1,806

 

1,749

3,543

Operating profit attributable to non-controlling interests

(10)

 

(14)

(28)

EEV operating profit, net of non-controlling interests

1,796

 

1,735

3,515


 

 



Shareholders' equity at beginning of period

47,584

 

41,926

41,926

Shareholders' equity at end of period

42,300

 

43,162

47,355

Average shareholders' equity

44,942

 

42,544

44,641

Operating return on average shareholders' equity (%)

8%

 

8%

8%

* Opening shareholders' equity at the beginning of half year 2022 has been adjusted for the early adoption of the Hong Kong Risk-based Capital (HK RBC) regime. Further details can be found in the Basis of Preparation in the EEV basis results.

 

New business profit over embedded value is calculated as the EEV new business profit for the period as a percentage of average EEV basis shareholders' equity for continuing long-term business operations, excluding goodwill attributable to equity holders.

 


2022


2021


Half year


Half year

Full year

New business profit ($ million)*

1,098


1,176

2,526

Average EEV basis shareholders' equity for continuing long-term business operations, excluding goodwill attributable to equity holders ($ million)

41,920


43,272

43,754

New business profit on embedded value (%)

5%

 

5%

6%

*  New business profit is attributed to the shareholders of the Group before deducting the amount attributable to non-controlling interests.

 

Average embedded value has been based on opening and closing EEV basis shareholders' equity for continuing long-term business operations, excluding goodwill attributable to equity holders, as follows:

 


2022* $m

 

2021 $m


Half year

 

Half year

Full year

Shareholders' equity at beginning of period

44,875

 

42,861

42,861

Shareholders' equity at end of period

38,965

 

43,682

44,646

Average shareholders' equity

41,920

 

43,272

43,754

* Opening shareholders' equity at the beginning of half year 2022 has been adjusted for the early adoption of the HK RBC regime. Further details can be found in the Basis of Preparation in the EEV basis results.

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