Prudential plc - HY20 Results - EEV

RNS Number : 7136V
Prudential PLC
11 August 2020
 

European Embedded Value (EEV) Basis Results

 

SUMMARISED CONSOLIDATED INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

Half year 2020 $m

 

2019 $m

 

 

 

 

 

 

Half year*

Full year

 

Note

Asia

US

Group total

 

Group total

Group total

Continuing operations:

 

 

 

 

 

 

 

New business

3

912

248

1,160

 

2,125

4,405

Business in force

4

998

440

1,438

 

1,652

3,240

Long-term business

 

1,910

688

2,598

 

3,777

7,645

Asset management

 

126

8

134

 

131

275

Operating profit from long-term and asset management businesses

 

2,036

696

2,732

 

3,908

7,920

Other income and expenditurenote (i)

 

 

 

(415)

 

(467)

(923)

Restructuring and IFRS 17 implementation costs

 

 

 

(102)

 

(26)

(92)

Operating profit for the period

 

 

 

2,215

 

3,415

6,905

Short-term fluctuations in investment returns

5

 

 

415

 

2,884

3,254

Effect of changes in economic assumptions

6

 

 

(7,026)

 

(1,774)

(1,868)

Impact of NAIC reform, hedge modelling and other related changes in the USnote (ii)

 

 

 

-

 

-

(3,457)

Mark-to-market value movements on core structural borrowings

7

 

 

17

 

(636)

(466)

Loss attaching to corporate transactions

8

 

 

(423)

 

(31)

(207)

Non-operating (loss) profit

 

 

 

(7,017)

 

443

(2,744)

(Loss) profit for the period from continuing operations

 

 

 

(4,802)

 

3,858

4,161

Profit (loss) for the period from discontinued operations

 

 

 

-

 

1,657

(4,797)

(Loss) profit for the period

 

 

 

(4,802)

 

5,515

(636)

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Equity holders of the Company:

 

 

 

 

 

 

 

  From continuing operations

 

 

 

(4,824)

 

3,852

4,152

  From discontinued operations

 

 

 

-

 

1,657

(4,797)

Non-controlling interests from continuing operations

 

 

 

22

 

6

9

 

 

 

 

(4,802)

 

5,515

(636)

 

 

 

 

 

 

 

 

EEV basis basic earnings per share

 

 

 

 

 

 

 

 

 

 

 

2020

 

2019

 

 

 

 

Half year

 

Half year

Full year

Based on operating profit from continuing operations, after non-controlling interests (in cents)

 

 

 

84.5¢

 

132.0¢

266.6¢

Based on (loss) profit for the period attributable to equity holders of the Company (in cents)

 

 

 

 

 

 

 

From continuing operations

 

 

 

(185.8)¢

 

149.1¢

160.5¢

From discontinued operations

 

 

 

-

 

64.2¢

(185.4)¢

 

 

 

 

(185.8)¢

 

213.3¢

(24.9)¢

 

 

 

 

 

 

 

 

Weighted average number of shares in the period (millions)

 

 

 

2,596

 

2,583

2,587

* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.

 

Notes

(i)  EEV basis other income and expenditure represents the post-tax IFRS basis results for other operations (including interest costs on core structural borrowings, corporate expenditure for head office functions in London and Hong Kong, the Group's treasury function and Africa operations) less the unwind of expected margins on the internal management of the assets of the covered business (as explained in note 12(i)(g)).

(ii)  The $(3,457) million impact of NAIC reform, hedge modelling and other related changes in the US in full year 2019 related to the implementation of the National Association of Insurance Commissioners' (NAIC) changes to the US statutory reserve and capital framework for variable annuities, early-adopted by Jackson at 31 December 2019. As part of the implementation of these changes, enhancements were made to the model used to allow for hedging within US statutory reporting, which were subsequently utilised within EEV to update the allowance for the long-term cost of hedging under EEV economic assumptions, alongside a number of other changes following the NAIC reform with the objective of bringing the EEV free surplus more in line with the US statutory basis of reporting. No subsequent changes were made to the approach to the long-term cost of hedging allowance for EEV reporting in half year 2020.

 

MOVEMENT IN EEV BASIS SHAREHOLDERS' EQUITY

 

 

Half year 2020 $m

 

2019 $m

 

Asia

US

Other

Group total

 

Half year*

Group total

Full year

Group total

Continuing operations:

 

 

 

 

 

 

 

Operating profit from long-term and asset management businesses

2,036

696

-

2,732

 

3,908

7,920

Other income and expenditure

-

-

(415)

(415)

 

(467)

(923)

Restructuring and IFRS 17 implementation costs

(29)

(9)

(64)

(102)

 

(26)

(92)

Operating profit (loss) for the period

2,007

687

(479)

2,215

 

3,415

6,905

Non-operating (loss) profit

(3,161)

(3,927)

71

(7,017)

 

443

(2,744)

(Loss) profit for the period from continuing operations

(1,154)

(3,240)

(408)

(4,802)

 

3,858

4,161

(Loss) profit for the period from discontinued operations note (iv)

 

 

 

 

 

1,657

(4,797)

(Loss) profit for the period

(1,154)

(3,240)

(408)

(4,802)

 

5,515

(636)

Non-controlling interests

(22)

-

-

(22)

 

(6)

(9)

Foreign exchange movements on operations

(540)

-

27

(513)

 

154

666

Intra-group dividends and investment in
operationsnote (i)

(356)

-

356

-

 

-

-

External dividends

-

-

(674)

(674)

 

(1,108)

(1,634)

Mark-to-market value movements on Jackson assets backing surplus and required capital

-

317

-

317

 

177

206

Other movementsnote (ii)

89

124

(288)

(75)

 

(151)

95

Demerger dividend in specie of M&G plcnote (iv)

-

-

-

-

 

-

(7,379)

Net (decrease) increase in shareholders' equity

(1,983)

(2,799)

(987)

(5,769)

 

4,581

(8,691)

Shareholders' equity at beginning of period

39,235

16,342

(866)

54,711

 

63,402

63,402

Shareholders' equity at end of period

37,252

13,543

(1,853)

48,942

 

67,983

54,711

 

 

 

 

 

 

 

 

Representing:

 

 

 

 

 

 

 

Long-term business

35,940

13,531

-

49,471

 

68,927

54,179

Asset management and other

538

12

(1,879)

(1,329)

 

(3,061)

(290)

Goodwill attributable to shareholders

774

-

26

800

 

2,117

822

Shareholders' equity at end of period

37,252

13,543

(1,853)

48,942

 

67,983

54,711

Shareholders' equity per share at end of periodnote (iii)

1,428¢

519¢

(71)¢

1,876¢

 

2,615¢

2,103¢

 

 

 

 

 

 

 

 

Long-term business

37,843

16,336

-

54,179

 

64,174

64,174

Asset management and other

596

6

(892)

(290)

 

(2,874)

(2,874)

Goodwill attributable to shareholders

796

-

26

822

 

2,102

2,102

Shareholders' equity at beginning of period

39,235

16,342

(866)

54,711

 

63,402

63,402

Shareholders' equity per share at beginning of periodnote (iii)

1,508¢

628¢

(33)¢

2,103¢

 

2,445¢

2,445¢

* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.

 

Notes

(i)  Intra-group dividends represent dividends that have been declared in the period. Investment in operations reflects movements in share capital. The amounts included for these items in the analysis of movement in free surplus (note 10) for Asia are as per the holding company cash flow at transaction rates. The difference primarily relates to intra-group loans, foreign exchange and other non-cash items.

(ii)  Other movements include reserve movements in respect of share capital subscribed, share-based payments, treasury shares and intra-group transfers between operations that have no overall effect on the Group's shareholders' equity.

(iii)  Based on the number of issued shares at 30 June 2020 of 2,609 million shares (30 June 2019: 2,600 million shares; 31 December 2019: 2,601 million shares).

(iv)  Discontinued operations for half year and full year 2019 related to the UK and Europe operations (M&G plc) that were demerged from the Group in October 2019. The demerger dividend in specie of M&G plc was recorded at the fair value of M&G plc at the date of the demerger on 18 October 2019. The difference between the fair value and its carrying value, together with profit earned up to the date of the demerger were recorded as loss for the period from the discontinued UK and Europe operations in full year 2019.

 

SUMMARY STATEMENT OF EEV BASIS FINANCIAL POSITION

 

 

 

 

2020 $m

 

2019 $m

 

 

 

30 Jun

 

30 Jun*

31 Dec

Assets less liabilities before deduction of insurance funds

 

371,825

 

599,294

396,241

Less insurance fundsnote

 

 

 

 

 

 

Policyholder liabilities (net of reinsurers' share) and unallocated surplus of with-profits funds

 

(352,518)

 

(574,228)

(376,572)

 

Shareholders' accrued interest in the long-term business

 

29,832

 

42,946

35,234

 

 

 

(322,686)

 

(531,282)

(341,338)

Less non-controlling interests

 

(197)

 

(29)

(192)

Total net assets attributable to equity holders of the Company

 

48,942

 

67,983

54,711

 

 

 

 

 

 

 

Share capital

 

172

 

165

172

Share premium

 

2,635

 

2,512

2,625

IFRS basis shareholders' reserves

 

16,303

 

22,360

16,680

IFRS basis shareholders' equity

 

19,110

 

25,037

19,477

Shareholders' accrued interest in the long-term business

 

29,832

 

42,946

35,234

EEV basis shareholders' equity

 

48,942

 

67,983

54,711

 

 

 

 

 

 

 

Representing:

 

 

 

 

 

Continuing operations

 

48,942

 

50,472

54,711

Discontinued UK and Europe operations

 

-

 

17,511

-

 

 

 

48,942

 

67,983

54,711

* The half year 2019 comparative results have been re-presented from those previously published to reflect the change in the Group's presentation currency from pounds sterling to US dollars at 31 December 2019.

Note

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

 

NOTES ON THE EEV BASIS RESULTS

 

1  Basis of preparation

 

The EEV basis results have been prepared in accordance with the EEV Principles issued by the European Insurance CFO Forum in 2016. The EEV Principles provide consistent definitions, a framework for setting actuarial assumptions and an approach to the underlying methodology and disclosures. Where appropriate, the EEV basis results include the effects of adoption of EU-endorsed IFRS. The Directors are responsible for the preparation of the supplementary information in accordance with the EEV Principles.

 

Overview

Results prepared under the EEV Principles represent the present value of the shareholders' interest in the post-tax future profits (on a local statutory basis) expected to arise from the current book of long-term business, after sufficient allowance has been made for the aggregate risks in that business. The shareholders' interest in the Group's long-term business comprises:

 

-  The present value of expected future shareholder cash flows from the in-force covered business (value of in-force business), less explicit allowance for the cost of locked-in required capital and the time value of financial options and guarantees across a range of economic scenarios;

-  Locked-in required capital, based on the applicable local statutory regulations, including any amounts considered to be required above the local statutory minimum requirements to satisfy regulatory constraints (the application of this principle to each business unit is set out below); and

-  The shareholders' total net worth in excess of required capital (free surplus). Free surplus is defined in note 10.

 

Required capital

For shareholder-backed business, the following capital requirements apply for long-term business:

 

-  Asia: the level of required capital has been set to an amount at least equal to local statutory notification requirements. For Singapore life operations, from 31 March 2020 the level of net worth and required capital is based on the Tier 1 Capital position under the new risk-based capital framework (RBC2), which removes certain negative reserves permitted to be recognised in the full RBC2 regulatory position applicable to the Group's Local Capital Summation Method (LCSM), in order to better reflect free surplus and its generation. For China JV life operations, the level of required capital follows the approach for embedded value reporting issued by the China Association of Actuaries (CAA) reflecting the China Risk Oriented Solvency System (C-ROSS) regime; and

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

 

Key assumptions

The value of in-force business is determined by projecting post-tax future profits (on a local statutory basis) by product, using best estimate assumptions for operating factors   such as persistency, mortality, morbidity and expenses. Explicit allowances are made for the cost of holding required capital under the applicable local statutory regimes and the time value of financial options and guarantees (TVOG). The TVOG is determined by weighting the probability of outcomes across a large number of different economic scenarios, and is less applicable to health and protection business that generally contains more limited financial options or guarantees.

 

As well as best estimate assumptions for operating factors, the projected cash flows assume a level of future investment return and are discounted using a risk discount rate. Both the risk discount rate and investment return are updated at each valuation date to reflect current market risk-free rates, with the effect that changes in the risk-free rates impact all projected future cash flows. During the first half of 2020, this has had an overall negative effect on new business and in-force profitability. Different products will be sensitive to different assumptions, for example, spread-based products or products with guarantees are likely to benefit from higher assumed investment returns.

 

Risk discount rates are set equal to the risk-free rate at the valuation date plus a product-specific allowance for market and non-market risks, excluding risks explicitly captured elsewhere such as via the TVOG. Products such as participating and unit-linked business will typically have a higher allowance for market risk as compared to health and protection products due to a higher proportion of equity-type assets within the investment portfolio. Other product design and business features also affect the risks attached to the emergence of shareholder cash flows, for example the construct of with-profits funds in some business units can reduce the sensitivity of both policyholder and shareholder cash flows for participating products. Risk discount rates in any one business unit will reflect a blend of the risks attaching to the products written in that business.

 

The value of future new business is excluded from the embedded value. For the purposes of preparing EEV basis results, insurance JVs and associates are included at the Group's proportionate share of the embedded value. Non-insurance subsidiaries, JVs and associates are included at the Group's proportionate share of IFRS net assets, which may differ from a fair value approach.

 

A description of the EEV methodology and accounting presentation is provided in note 12, including an explanation of the delineation of profit between operating and non-operating items. Further details of best estimate assumptions are provided in note 13 .

 

Results analysis by business area

 

The half year 2019 comparative results are shown below on both actual exchange rates (AER) and constant exchange rates (CER) bases. The half year 2019 CER comparative results are translated at half year 2020 average exchange rates for US dollars following the change in the Group's presentation currency.

 

Annual premium equivalents and new business profit from continuing operations note 14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual exchange rate

 

Constant exchange rate

 

Half year 2020 $m

 

Half year 2019 $m

Change %

 

Half year 2019 $m

Change %

 

Annual

premium

equivalent

New

business

profit

 

Annual

premium

equivalent

New

business

profit

Annual

premium

equivalent

New

business

profit

 

Annual

premium

equivalent

New

business

profit

Annual

premium

equivalent

New

business

profit

Asia

1,665

912

 

2,560

1,675

(35)%

(46)%

 

2,540

1,673

(34)%

(45)%

US

979

248

 

1,075

450

(9)%

(45)%

 

1,075

450

(9)%

(45)%

Group total

2,644

1,160

 

3,635

2,125

(27)%

(45)%

 

3,615

2,123

(27)%

(45)%

 

Profit for the period

 

 

 

 

 

 

 

 

 

 

 

Actual exchange rate

 

Constant exchange rate

 

Half year 2020 $m

 

Half year 2019 $m

Change %

 

Half year 2019 $m

Change %

Continuing operations:

 

 

 

 

 

 

 

Asia

 

 

 

 

 

 

 

Long-term business

1,910

 

2,751

(31)%

 

2,738

(30)%

Asset management

126

 

117

8%

 

115

10%

Total

2,036

 

2,868

(29)%

 

2,853

(29)%

US

 

 

 

 

 

 

 

Long-term business (Jackson)

688

 

1,026

(33)%

 

1,026

(33)%

Asset management

8

 

14

(43)%

 

14

(43)%

Total

696

 

1,040

(33)%

 

1,040

(33)%

Operating profit from long-term and asset management businesses

2,732

 

3,908

(30)%

 

3,893

(30)%

Other income and expenditure

(415)

 

(467)

11%

 

(458)

9%

Restructuring and IFRS 17 implementation costs

(102)

 

(26)

(292)%

 

(25)

(308)%

Operating profit for the period

2,215

 

3,415

(35)%

 

3,410

(35)%

Short-term fluctuations in investment returns

415

 

2,884

 

 

2,894

 

Effect of changes in economic assumptions

(7,026)

 

(1,774)

 

 

(1,782)

 

Mark-to-market value movements on core structural borrowings

17

 

(636)

 

 

(619)

 

Loss attaching to corporate transactions

(423)

 

(31)

 

 

(30)

 

Total non-operating (loss) profit from continuing operations

(7,017)

 

443

 

 

463

 

(Loss) profit for the period from continuing operations

(4,802)

 

3,858

(224)%

 

3,873

(224)%

Profit for the period from discontinued operations

-

 

1,657

n/a

 

1,613

n/a

(Loss) profit for the period

(4,802)

 

5,515

(187)%

 

5,486

(188)%

 

 

 

 

 

 

 

 

EEV basis basic earnings per share

 

 

 

 

 

Actual exchange rate

 

Constant exchange rate

 

 

Half year 2020

 

Half year 2019

Change %

 

Half year 2019

Change %

Based on operating profit from continuing operations after non-controlling interests (in cents)

84.5¢

 

132.0¢

(36)%

 

132.0¢

(36)%

Based on (loss) profit for the period attributable to equity holders of the Company (in cents):

 

 

 

 

 

 

 

 

From continuing operations

(185.8)¢

 

149.1¢

(225)%

 

149.9¢

(224)%

 

From discontinued operations

-

 

64.2¢

n/a

 

62.4¢

n/a

 

 

(185.8)¢

 

213.3¢

(187)%

 

212.3¢

(188)%

 

3  Analysis of new business profit

 

 

 

 

 

 

 

 

Half year 2020

 

Annual premium

Present value

 of new business

New business

 

New business margin

 

equivalents (APE)

 premiums (PVNBP)

profit

 

APE

PVNBP

 

$m

$m

$m

 

%

%

 

note 14

note 14

note (i)

 

 

 

Asianote (ii)

 1,665

 9,173

 912

 

55%

9.9%

US

 979

 9,789

 248

 

25%

2.5%

Group total

 2,644

 18,962

 1,160

 

44%

6.1%

 

 

 

 

 

 

 

 

Half year 2019

 

Annual premium

Present value

 of new business

New business

 

New business margin

 

equivalents (APE)

 premiums (PVNBP)

profit

 

APE

PVNBP

 

$m

$m

$m

 

%

%

 

note 14

note 14

note (i)

 

 

 

Asianote (ii)

 2,560

 14,218

 1,675

 

65%

11.8%

US

 1,075

 10,752

 450

 

42%

4.2%

Group total

 3,635

 24,970

 2,125

 

58%

8.5%

 

 

 

 

 

 

 

 

Full year 2019

 

Annual premium

Present value

 of new business

New business

 

New business margin

 

equivalents (APE)

 premiums (PVNBP)

profit

 

APE

PVNBP

 

$m

$m

$m

 

%

%

 

note 14

note 14

 

 

 

 

Asianote (ii)

 5,161

 29,244

 3,522

 

68%

12.0%

US

 2,223

 22,231

 883

 

40%

4.0%

Group total

 7,384

 51,475

 4,405

 

60%

8.6%

 

Notes

(i)  The movement in new business profit from $2,125 million for half year 2019 to $1,160 million for half year 2020 is analysed as follows:

 

 

 

 

 

 

 

Asia $m

US $m

Group total $m

 

Half year 2019 new business profit

1,675

450

2,125

 

Foreign exchange movement

(2)

-

(2)

 

Effect of changes in interest rates and other economic assumptions

(78)

(119)

(197)

 

Impact of US EEV hedge modelling enhancements in full year 2019

-

(47)

(47)

 

Sales volume, business and product mix and other items

(683)

(36)

(719)

 

Half year 2020 new business profit

912

248

1,160

 

(ii)  Asia new business profit is analysed as follows:

 

 

 

 

 

 

 

 

 

 

2020 $m

 

2019 $m

 

  

Half year

 

AER

Half year

CER

Half year

 

AER

Full year

 

China JV

127

 

126

122

 

262

 

Hong Kong

353

 

1,070

1,081

 

2,042

 

Indonesia

68

 

85

82

 

227

 

Taiwan

35

 

28

30

 

75

 

Other

329

 

366

358

 

916

 

Total Asia insurance

912

 

1,675

1,673

 

3,522

 

4   Operating profit from long-term business in force

 

 

Half year 2020 $m

 

Half year 2019 $m

 

Full year 2019 $m

 

Asia

US

Group

 total

 

Asia

US

Group

 total

 

Asia

US

Group

 total

Unwind of discount and other expected returnsnote (i)

753

299

1,052

 

805

459

1,264

 

1,542

728

2,270

Effect of changes in operating assumptionsnote (ii)

118

-

118

 

169

-

169

 

539

1

540

Experience variances and other itemsnote (iii)

127

141

268

 

102

117

219

 

285

145

430

Total operating profit from long-term business in force

998

440

1,438

 

1,076

576

1,652

 

2,366

874

3,240

 

Notes

(i)  The movement in unwind of discount and other expected returns from $1,264 million for half year 2019 to $1,052 million for half year 2020 is analysed as follows:

 

 

 

 

Asia $m

US $m

Group total $m

 

Half year 2019 unwind of discount and other expected returns

805

459

1,264

 

Foreign exchange movement

(11)

-

(11)

 

Effect of changes in interest rates and other economic assumptions

(165)

(76)

(241)

 

Impact of US EEV hedge modelling enhancements in full year 2019

-

(86)

(86)

 

Growth in opening value of in-force business and other items

124

2

126

 

Half year 2020 unwind of discount and other expected returns

753

299

1,052

 

(ii)  The half year 2020 effect of changes in operating assumptions of $118 million in Asia principally reflects the beneficial effect on the effective tax rate for Indonesia from changes to local tax legislation in the first half of 2020.

(iii)  In Asia, the half year 2020 effect of experience variances and other items of $127 million is driven overall by positive mortality and morbidity experience in a number of local business units, together with overall positive persistency experience.

 

In the US, the effect of experience variances and other items   is analysed as shown below. Other items for half year 2020 mainly includes the effect of positive persistency experience.

 

 

 

 

2020 $m

 

2019 $m

 

 

 

Half year

 

Half year

Full year

 

Spread experience variance

(12)

 

16

38

 

Amortisation of interest-related realised gains and losses

53

 

47

102

 

Other items

100

 

54

5

 

Total US experience variances and other items

141

 

117

145

Short-term fluctuations in investment returns

 

 

 

2020 $m

 

2019 $m

 

 

Half year

 

Half year

Full year

Asia

 

 

 

 

 

Hong Kong

966

 

1,161

1,526

 

Indonesia

(157)

 

6

(14)

 

Malaysia

(30)

 

10

(20)

 

Singapore

(18)

 

198

338

 

Taiwan

72

 

120

147

 

Thailand

(75)

 

117

319

 

Other

7

 

44

155

Total Asianote (i)

765

 

1,656

2,451

US

 

 

 

 

 

Investment return related experience on fixed income securitiesnote (ii)

(123)

 

(21)

(243)

 

Investment return related impact due to changed expectation of profits on in-force variable annuity business in future periods based on current period separate account return, net of related hedging activity and other itemsnote (iii)

(257)

 

1,275

1,119

Total US

(380)

 

1,254

876

Other operations

30

 

(26)

(73)

Group total

415

 

2,884

3,254

 

Notes

(i)  In half year 2020, the credit of $765 million includes higher than expected bond returns following generally lower interest rates across the region, partially offset by lower than expected equity returns.

(ii)  The net result relating to fixed income securities reflects a number of offsetting items as follows:

The impact on portfolio yields of changes in the asset portfolio in the period;

Credit experience versus the longer-term assumption (which was positive for all periods); and

The difference between actual realised gains and losses and the amortisation of interest-related realised gains and losses that is recorded within operating profit.

(iii)  This item reflects the net impact of:

Changes in projected future fees and future benefit costs arising from the difference between the actual return on separate account asset values in the period of negative 3.5 per cent and that assumed (geometric) of positive 1.7 per cent (half year 2019: actual growth of 15.2 per cent compared to assumed growth of 2.3 per cent; full year 2019: actual growth of 24.1 per cent compared to assumed growth of 4.8 per cent); and

Related hedging activity arising from realised and unrealised gains and losses on equity and interest rate derivatives compared to the expected long-term allowance for hedging costs recorded in operating profit, and other items.

 

6  Effect of changes in economic assumptions

 

 

 

2020 $m

 

2019 $m

 

 

Half year

 

Half year

Full year

Asia

 

 

 

 

 

Hong Kong

(3,470)

 

(618)

(853)

 

Indonesia

(42)

 

43

141

 

Malaysia

10

 

44

127

 

Singapore

(179)

 

(131)

18

 

Taiwan

(172)

 

(85)

(142)

 

Thailand

(2)

 

(80)

(220)

 

Other

(71)

 

106

262

Total Asianote (i)

(3,926)

 

(721)

(667)

US

 

 

 

 

 

Variable annuity businessnote (ii)

(3,491)

 

(1,461)

(1,556)

 

General account businessnote (iii)

391

 

408

355

Total US

(3,100)

 

(1,053)

(1,201)

Group total

(7,026)

 

(1,774)

(1,868)

 

Notes

(i)  In half year 2020, the negative effect of $(3,926) million primarily arises from movements in long-term interest rates, resulting in lower assumed fund earned rates in Hong Kong, Singapore and Taiwan that impact all projected future cash flows, partially offset by lower risk discount rates. This impact includes a benefit of $170 million from a change to the calculation of the valuation interest rate used to value long term insurance liabilities in Hong Kong, as discussed in note I(i) of the additional financial information.

(ii)  In half year 2020, the charge of $(3,491) million mainly reflects the effect of a decrease in the assumed separate account return following the 120 basis points decrease in the US 10-year treasury yield over the period, resulting in lower projected fee income and an increase in projected benefit costs for variable annuity business, partially offset by lower risk discount rates.

(iii)  For general account business, the credit of $391 million mainly reflects the increase in the present value of future projected spread income from the combined effect of the decrease in interest rates and increase in credit spreads in the period, partially offset by the effect of an increase in the a dditional credit risk allowance as described in note 12(i)(h).

 

7  Net core structural borrowings of shareholder-financed businesses

 

 

 

2020 $m

 

2019 $m

 

 

 

30 Jun

 

 

30 Jun

 

31 Dec

 

 

IFRS

basis

Mark-to

-market

value

adjustment

EEV

basis at

market

value

 

IFRS

basis

Mark-to

-market

value

adjustment

EEV

basis at

market

value

 

IFRS

basis

Mark-to

-market

value

adjustment

EEV

basis at

 market

value

Holding company cash and short-term investmentsnote (i)

(1,907)

-

(1,907)

 

(3,010)

-

(3,010)

 

(2,207)

-

(2,207)

Central borrowings:

 

 

 

 

 

 

 

 

 

 

 

Subordinated and other debt not substituted to M&G plc in 2019:

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated debt

4,271

196

4,467

 

4,279

207

4,486

 

4,304

327

4,631

 

Senior debtnote (ii)

1,628

283

1,911

 

660

226

886

 

690

221

911

 

Bank loan

350

-

350

 

350

-

350

 

350

-

350

 

6,249

479

6,728

 

5,289

433

5,722

 

5,344

548

5,892

Subordinated debt substituted to M&G plc in 2019note (ii)

-

-

-

 

3,931

266

4,197

 

-

-

-

Total central borrowings

6,249

479

6,728

 

9,220

699

9,919

 

5,344

548

5,892

Total net central funds

4,342

479

4,821

 

6,210

699

6,909

 

3,137

548

3,685

Jackson Surplus Notes

250

109

359

 

250

79

329

 

250

85

335

Net core structural borrowings of shareholder-financed businesses note (iii)

4,592

588

5,180

 

6,460

778

7,238

 

3,387

633

4,020

 

Notes

(i)  Holding company includes central finance subsidiaries.

(ii)  In April 2020, the Company issued $1,000 million 3.125 per cent senior debt maturing on 14 April 2030.

(iii)  The movement in the value of core structural borrowings includes foreign exchange effects for pounds sterling denominated debts, which are included in 'Exchange movements on foreign operations'. The movement in the mark-to-market value adjustment can be analysed as follows:

 

 

 

2020 $m

 

2019 $m

 

 

Half year

 

Half year

Full year

 

Mark-to-market value adjustment at beginning of period

633

 

233

233

 

Mark-to-market value adjustment on subordinated debt substituted to M&G plc at fair value in October 2019 at beginning of period

-

 

-

(82)

 

Change in fair value of debt under IFRS as a result of consent process in preparation for the demerger

-

 

(219)

-

 

(Credit) charge in the period included in the income statement*

(17)

 

766

466

 

Effect of foreign exchange movements

(28)

 

(2)

16

 

Mark-to-market value adjustment at end of period

588

 

778

633

* The total income statement charge of $766 million in half year 2019 related to $636 million from continuing operations and $130 million from discontinued operations.

 

8  Loss attaching to corporate transactions

 

 

2020 $m

 

2019 $m

 

Half year

 

Half year

Full year

Loss on reinsurance of Jackson's in-force fixed and fixed indexed annuity portfolionote (i)

(423)

 

-

-

Gain on disposalsnote (ii)

-

 

181

178

Other transactionsnote (iii)

-

 

(212)

(385)

Total

(423)

 

(31)

(207)

 

 

 

 

 

Notes

(i)  In June 2020, the Group announced the reinsurance of substantially all of Jackson's in-force portfolio of fixed and fixed indexed annuity business to Athene Life Re Ltd. Further details are included in note D1 of the IFRS basis results. The effect on the EEV position largely reflects the loss of future profits recorded in the value of in-force business as a result of the reinsurance and the loss of unrealised gains on assets passed to Athene, partly offset by the reinsurance commission received after deducting tax.

(ii)  In 2019, the gain on disposals principally related to profits arising from a 4 per cent reduction in the Group's stake in its associate in India, ICICI Prudential Life Insurance Company, and the disposal of Prudential Vietnam Finance Company Limited, a wholly-owned subsidiary that provides consumer finance.

(iii)  In 2019, other transactions primarily reflected costs related to the demerger of the Group's UK and Europe operations (M&G plc).

 

9  Analysis of movement in total net worth and value of in-force for long-term business

 

 

 

Half year 2020 $m

 

 

Free

surplus

Required

capital

Total

net worth

Value of

in-force business

Total

embedded

value

Group note (i)

 

 

 

 

 

Shareholders' equity at beginning of period

5,395

6,891

12,286

41,893

54,179

New business contributionnote 3

(517)

369

(148)

1,308

1,160

Existing business - transfer to net worth

1,665

(459)

1,206

(1,206)

-

Expected return on existing businessnote 4

70

103

173

879

1,052

Changes in operating assumptions and experience variancesnote 4

130

121

251

135

386

Restructuring and IFRS 17 implementation costs

(17)

-

(17)

-

(17)

Operating profit

1,331

134

1,465

1,116

2,581

Non-operating (loss) profit

186

1,586

1,772

(8,860)

(7,088)

(Loss) profit for the period

1,517

1,720

3,237

(7,744)

(4,507)

Foreign exchange movements

(72)

(55)

(127)

(378)

(505)

Intra-group dividends and investment in operations

(235)

-

(235)

-

(235)

Other movements

539

-

539

-

539

Shareholders' equity at end of period note (ii)

7,144

8,556

15,700

33,771

49,471

 

 

 

 

 

 

 

Asia

 

 

 

 

 

Shareholders' equity at beginning of period

3,624

3,182

6,806

31,037

37,843

New business contributionnote 3

(298)

104

(194)

1,106

912

Existing business - transfer to net worth

1,009

(205)

804

(804)

-

Expected return on existing businessnote 4

52

35

87

666

753

Changes in operating assumptions and experience variancesnote 4

99

101

200

45

245

Restructuring and IFRS 17 implementation costs

(10)

-

(10)

-

(10)

Operating profit

852

35

887

1,013

1,900

Non-operating (loss) profit

(508)

83

(425)

(2,736)

(3,161)

(Loss) profit for the period

344

118

462

(1,723)

(1,261)

Foreign exchange movements

(72)

(55)

(127)

(378)

(505)

Intra-group dividends and investment in operations

(235)

-

(235)

-

(235)

Other movements

98

-

98

-

98

Shareholders' equity at end of period

3,759

3,245

7,004

28,936

35,940

 

 

 

 

 

 

US

 

 

 

 

 

Shareholders' equity at beginning of period

1,771

3,709

5,480

10,856

16,336

New business contributionnote 3

(219)

265

46

202

248

Existing business - transfer to net worth

656

(254)

402

(402)

-

Expected return on existing businessnote 4

18

68

86

213

299

Changes in operating assumptions and experience variancesnote 4

31

20

51

90

141

Restructuring and IFRS 17 implementation costs

(7)

-

(7)

-

(7)

Operating profit

479

99

578

103

681

Loss (gain) on reinsurance of in-force fixed and fixed indexed annuity portfolionote 8

851

(627)

224

(647)

(423)

Other non-operating (loss) profit

(157)

2,130

1,973

(5,477)

(3,504)

(Loss) profit for the period

1,173

1,602

2,775

(6,021)

(3,246)

Intra-group dividends and investment in operations

-

-

-

-

-

Other movements

441

-

441

-

441

Shareholders' equity at end of period

3,385

5,311

8,696

4,835

13,531

 

Notes

(i)  Long-term business only.

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

 

 

30 Jun 2020 $m

31 Dec 2019 $m

 

 

Asia

US

Group

total note (i)

 

Asia

US

Group

total note (i)

Value of in-force business before deduction of cost of

  capital and time value of options and guarantees

30,383

6,674

37,057

 

32,396

11,417

43,813

Cost of capital

(998)

(481)

(1,479)

 

(866)

(370)

(1,236)

Time value of options and guaranteesnote (iii)

(449)

(1,358)

(1,807)

 

(493)

(191)

(684)

Net value of in-force business

28,936

4,835

33,771

 

31,037

10,856

41,893

Total net worth

7,004

8,696

15,700

 

6,806

5,480

12,286

Total embedded value

35,940

13,531

49,471

 

37,843

16,336

54,179

 

(iii)  The time value of options and guarantees (TVOG) arises from the variability of economic outcomes in the future and is, where appropriate, calculated as the difference between an average outcome across a range of economic scenarios, calibrated around a central scenario, and the outcome from one central economic scenario, as described in note 12(i)(d). The TVOG and the outcome from the central economic scenario are linked; as the central economic scenario is updated for market conditions and the outcome reflects more or less of the guaranteed benefit payouts and associated product charges, there will be consequential changes to the TVOG.

 

10  Analysis of movement in free surplus

 

For EEV covered business, free surplus is the excess of the regulatory basis net assets for EEV reporting purposes (total net worth) over the capital required to support the covered business. Where appropriate, adjustments are made to total net worth so that backing assets are included at fair value, rather than at cost, to comply with the EEV Principles. In the Group's Asia and US operations, assets deemed to be inadmissible on a local regulatory basis are included in net worth where considered recognisable on an EEV basis, with the exception of deferred tax assets in the US that are inadmissible under the local regulatory basis, which have been included in the value of in-force business (VIF) within the Group's EEV results. Free surplus for asset management and other operations (including assets and liabilities of the Group's central operations, the Group's treasury function and Africa operations) is taken to be IFRS basis post-tax earnings and shareholders' equity, net of goodwill attributable to shareholders, with subordinated debt recorded as free surplus to the extent that it is classified as available capital under the Group's capital regime. A reconciliation of EEV free surplus to the Group's LCSM surplus over Group minimum capital requirements is set out in note I(i) of the additional financial information.

 

 

 

Half year 2020 $m

 

Asia

US

Total

insurance

and asset

management

Other

 

Group

total

 

 

note (a)

note (b)

 

 

 

 

Operating free surplus generated before impact of US EEV hedge modelling enhancements and restructuring and IFRS 17 implementation costsnote (d)

988

1,029

2,017

(415)

 

1,602

Impact of US EEV hedge modelling enhancements in full year 2019note (d)

-

(535)

(535)

-

 

(535)

Operating free surplus generated before restructuring and IFRS 17 implementation costs

988

494

1,482

(415)

 

1,067

Restructuring and IFRS 17 implementation costs

(29)

(9)

(38)

(64)

 

(102)

Operating free surplus generated

959

485

1,444

(479)

 

965

Gain on reinsurance of Jackson's in-force fixed and fixed indexed annuity portfolionote 8(i)

-

851

851

-

 

851

Other non-operating lossnote (e)

(508)

(157)

(665)

(47)

 

(712)

Free surplus generated

451

1,179

1,630

(526)

 

1,104

Net cash flows paid to parent companynote (f)

(400)

-

(400)

400

 

-

External dividends

-

-

-

(674)

 

(674)

Foreign exchange movements on foreign operations, timing differences and other itemsnote (g)

26

441

467

(351)

 

116

Net movement in free surplus

77

1,620

1,697

(1,151)

 

546

Balance at beginning of period

4,220

1,777

5,997

3,739

 

9,736

Balance at end of period note (h)

4,297

3,397

7,694

2,588

 

10,282

Representing:

 

 

 

 

 

 

Free surplus excluding distribution rights and other intangibles

3,426

3,377

6,803

(424)

 

6,379

Distribution rights and other intangibles

871

20

891

3,012

 

3,903

 

4,297

3,397

7,694

2,588

 

10,282

 

 

 

Half year 2019 $m

 

 

 

 

Continuing operations

 

Discontinued UK and Europe operations

 

Group

total

 

Asia

US

Total insurance

and asset

management

Other

 

 

 

 

 

 

note (a)

note (b)

 

 

 

 

 

 

Operating free surplus generated before restructuring and IFRS 17 implementation costsnote (d)

886

1,075

1,961

(467)

 

-

 

1,494

Restructuring and IFRS 17 implementation costs

(17)

(1)

(18)

(8)

 

-

 

(26)

Operating free surplus generated

869

1,074

1,943

(475)

 

-

 

1,468

Non-operating profit (loss) from continuing operationsnote (e)

872

(525)

347

(239)

 

-

 

108

Free surplus generated from discontinued operations

-

-

-

-

 

1,260

 

1,260

Free surplus generated in the period

1,741

549

2,290

(714)

 

1,260

 

2,836

Net cash flows to parent companynote (f)

(578)

(525)

(1,103)

1,562

 

(459)

 

-

External dividends

-

-

-

(1,108)

 

-

 

(1,108)

Foreign exchange movements, timing differences and other itemsnote (g)

(45)

163

118

377

 

(972)

 

(477)

Net movement in free surplus

1,118

187

1,305

117

 

(171)

 

1,251

Balance at beginning of period

2,591

2,760

5,351

3,831

 

5,977

 

15,159

Balance at end of period note (h)

3,709

2,947

6,656

3,948

 

5,806

 

16,410

Representing:

 

 

 

 

 

 

 

 

Free surplus excluding distribution rights and

  other intangibles

3,151

2,921

6,072

1,710

 

5,781

 

13,563

Distribution rights and other intangibles

558

26

584

2,238

 

25

 

2,847

 

 

3,709

2,947

6,656

3,948

 

5,806

 

16,410

 

 

 

Full year 2019 $m

 

 

Continuing operations

 

Discontinued

UK and Europe

operations

 

Group

total

 

Asia

US

Total insurance

and asset

management

Other

 

 

 

 

 

 

note (a)

note (b)

 

 

 

 

 

 

Operating free surplus generated before impact of US EEV hedge modelling enhancements and restructuring costsnote (d)

1,772

2,028

3,800

(923)

 

-

 

2,877

Impact of US EEV hedge modelling enhancements

-

(903)

(903)

-

 

-

 

(903)

Operating free surplus generated before restructuring and IFRS 17 implementation costs

1,772

1,125

2,897

(923)

 

-

 

1,974

Restructuring and IFRS 17 implementation costs

(31)

(5)

(36)

(56)

 

-

 

(92)

Operating free surplus generated

1,741

1,120

2,861

(979)

 

-

 

1,882

Non-operating (loss) profit from continuing operationsnote (e)

1,195

(1,763)

(568)

(448)

 

-

 

(1,016)

Free surplus generated from discontinued operations

-

-

-

-

 

2,512

 

2,512

Free surplus generated

2,936

(643)

2,293

(1,427)

 

2,512

 

3,378

Net cash flows paid to parent companynote (f)

(950)

(525)

(1,475)

2,159

 

(684)

 

-

Demerger dividend in specie of M&G plc

-

-

-

-

 

(7,379)

 

(7,379)

External dividends

-

-

-

(1,634)

 

-

 

(1,634)

Foreign exchange movements on foreign operations, timing differences and other itemsnote (g)

(357)

185

(172)

810

 

(426)

 

212

Net movement in free surplus

1,629

(983)

646

(92)

 

(5,977)

 

(5,423)

Balance at beginning of year

2,591

2,760

5,351

3,831

 

5,977

 

15,159

Balance at end of year note (h)

4,220

1,777

5,997

3,739

 

-

 

9,736

Representing:

 

 

 

 

 

 

 

 

Free surplus excluding distribution rights and

  other intangibles

3,624

1,753

5,377

1,227

 

-

 

6,604

Distribution rights and other intangibles

596

24

620

2,512

 

-

 

3,132

 

4,220

1,777

5,997

3,739

 

-

 

9,736

 

Notes

(a)  Operating free surplus generated by Asia insurance and asset management operations before restructuring and IFRS 17 implementation costs can be analysed as follows:

 

 

 

 

Half year 2020 $m

 

Half year 2019 $m

 

% change

 

 

 

 

AER

CER

 

AER

CER

 

Operating free surplus generated from

  in-force life business

1,160

 

1,092

1,075

 

6%

8%

 

Investment in new businessnote (c)

(298)

 

(323)

(319)

 

8%

7%

 

Long-term business

862

 

769

756

 

12%

14%

 

Asset management

126

 

117

115

 

8%

10%

 

Total Asia

988

 

886

871

 

12%

13%

 

(b)  Operating free surplus generated by US insurance and asset management operations before restructuring and IFRS 17 implementation costs can be analysed as follows:

 

 

 

 

Half year 2020 $m

 

Half year 2019 $m

 

% change

 

Operating free surplus generated from in-force life business before EEV

  hedge modelling enhancementsnote (d)

1,240

 

1,405

 

(12)%

 

Impact of EEV hedge modelling enhancements in full year 2019note (d)

(535)

 

-

 

n/a

 

Operating free surplus generated from

  in-force life business

705

 

1,405

 

(50)%

 

Investment in new businessnote (c)

(219)

 

(344)

 

36%

 

Long-term business

486

 

1,061

 

(54)%

 

Asset management

8

 

14

 

(43)%

 

Total US

494

 

1,075

 

(54)%

 

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

(d)  US in-force free surplus generation before EEV hedge modelling enhancements in 2019 included a $355 million benefit from the release of incremental reserves in the first half of 2019 following the integration of the John Hancock business. The EEV hedge modelling enhancements in full year 2019 reduced the value of in-force business at 31 December 2019, and the subsequent unwind of those cash flows over half year 2020 reduces the expected transfer to net worth and hence operating free surplus generation by $(535) million.

(e)  Other non-operating items include short-term fluctuations in investment returns, the effect of changes in economic assumptions for long-term business and the effect of other corporate transactions. For half year 2020 these amounts include the benefit of a change to the valuation interest rate used to value long term insurance liabilities in Hong Kong, as discussed in note I(i) of the additional financial information. In addition, for full year 2019 these amounts included the impact of the NAIC reform, hedge modelling and other related changes in the US.

(f)  Net cash flows to parent company for Asia operations reflect the flows as included in the holding company cash flow.

(g)  Foreign exchange movements, timing differences and other items represent:

 

 

 

 

Half year 2020 $m

 

 

Asia

US

Total insurance

and asset

management

Other

Group

total

 

Foreign exchange movements

(107)

-

(107)

(19)

(126)

 

Mark-to-market value movements on Jackson

  assets backing surplus and required capital

-

317

317

-

317

 

Other items (including intra-group loans and other

  intra-group transfers between operations and

  other non-cash items)

133

124

257

(332)

(75)

 

 

 

26

441

467

(351)

116

 

 

 

 

Half year 2019 $m

 

 

 

Continuing operations

Discontinued UK and Europe operations

Group

total

 

 

Asia

US

Total insurance

and asset

management

Other

 

 

 

Foreign exchange movements

44

-

44

(26)

(7)

11

 

Mark-to-market value movements on Jackson

  assets backing surplus and required capital

-

177

177

-

-

177

 

Other items (including intra-group loans and other

  intra-group transfers between operations and

  other non-cash items)

(89)

(14)

(103)

403

(965)

(665)

 

 

 

(45)

163

118

377

(972)

(477)

 

 

 

 

 

 

 

 

 

 

 

 

Full year 2019 $m

 

 

 

Continuing operations

Discontinued UK and Europe operations

Group

total

 

 

Asia

US

Total insurance

and asset

management

Other

 

 

 

Foreign exchange movements

99

-

99

91

77

267

 

Mark-to-market value movements on Jackson

  assets backing surplus and required capital

-

206

206

-

-

206

 

Other items (including intra-group loans and other

  intra-group transfers between operations and

  other non-cash items)*

(456)

(21)

(477)

719

(503)

(261)

 

 

 

(357)

185

(172)

810

(426)

212

 *  The Group total for other items in full year 2019 included the effect of the redemption of $0.5 billion of subordinated debt.

 

(h)  Free surplus from continuing operations can be analysed as:

 

 

 

 

30 Jun 2020 $m

 

 

Asia

US

Total insurance

and asset

management

Other

Group total

 

Long-term business

3,759

3,385

7,144

-

7,144

 

Asset management and other

538

12

550

2,588

3,138

 

Total

4,297

3,397

7,694

2,588

10,282

 

 

 

 

 

 

 

 

 

 

 

30 Jun 2019 $m

 

 

Asia

US

Total insurance

and asset

management

Other

Group total

 

Long-term business

3,315

2,883

6,198

-

6,198

 

Asset management and other

394

64

458

3,948

4,406

 

Total

3,709

2,947

6,656

3,948

10,604

 

 

 

 

 

 

 

 

 

 

 

31 Dec 2019 $m

 

 

Asia

US

Total insurance

and asset

management

Other

Group total

 

Long-term business

3,624

1,771

5,395

-

5,395

 

Asset management and other

596

6

602

3,739

4,341

 

Total

4,220

1,777

5,997

3,739

9,736

 

11  Sensitivity of results to alternative economic assumptions

 

The tables below show the sensitivity of the embedded value as at 30 June 2020 and 31 December 2019 and the new business profit for half year 2020 and full year 2019 to:

 

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

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

-  1 per cent rise in equity and property yields;

-  20 per cent fall (10 per cent fall for 2019) in the market value of equity and property assets (embedded value only);

-  1 per cent increase in the risk discount rates. The main driver for changes in the risk discount rates from period to period is changes in the risk-free rates, the impact of which is generally expected to be offset by a corresponding change in assumed investment returns. Both of these effects are factored into the interest rate sensitivities described above; and

-  The Group minimum capital requirements under the LCSM in contrast to EEV basis required capital (embedded value only).

 

The sensitivities shown below are for the impact of instantaneous (and permanent) changes on the embedded value of long-term business operations and include the combined effect on the value of in-force business and net assets (including derivatives) held at the valuation dates indicated. The sensitivities reflect the consequential impacts from market movements at the valuation date. In particular, where relevant the 30 June 2020 sensitivities reflect potential tax benefits that would arise under the relief provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the US for 2020. The results only allow for limited management actions such as changes to future policyholder bonuses where applicable. If such economic conditions persisted, the financial impacts may differ to the instantaneous impacts shown below. In this case management could also take additional actions to help mitigate the impact of these stresses. No change in the assets held at the valuation date is assumed when calculating sensitivities.

 

If the changes in assumptions shown in the sensitivities were to occur, the effects shown below would be recorded within two components of the profit analysis for the following period, namely the effect of changes in economic assumptions and short-term fluctuations in investment returns. In addition, for changes in interest rates, the effect shown below for the US (Jackson) would also be recorded within mark-to-market value movements on Jackson assets backing surplus and required capital, which are taken directly to shareholders' equity. In addition to the sensitivity effects shown below, the other components of the profit for the following period would be calculated by reference to the altered assumptions, for example new business profit and unwind of discount and other expected returns, together with the effect of other changes such as altered corporate bond spreads.

 

New business profit from long-term business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Half year 2020 $m

 

Full year 2019 $m

 

Asia

US

Group

total

 

Asia

US

Group

total

New business profit note 3

912

248

1,160

 

3,522

883

4,405

Interest rates and consequential effects - 1% increase

64

143

207

 

(46)

207

161

Interest rates and consequential effects - 0.5% decrease

(68)

(85)

(153)

 

(121)

(123)

(244)

Equity/property yields - 1% rise

62

34

96

 

210

70

280

Risk discount rates - 1% increase

(176)

(3)

(179)

 

(715)

(22)

(737)

 

Embedded value of long-term business

 

 

 

 

 

 

 

 

 

 

 

 

 

30 Jun 2020 $m

 

31 Dec 2019 $m

 

Asia

US

Group

total

 

Asia

US

Group

total

Shareholders' equity note 9

35,940

13,531

49,471

 

37,843

16,336

54,179

Interest rates and consequential effects - 1% increase

 (510)

1,362

852

 

 (1,408)

798

 (610)

Interest rates and consequential effects - 0.5% decrease

 (730)

92

 (638)

 

 (28)

 (686)

 (714)

Equity/property yields - 1% rise

1,413

542

1,955

 

1,758

556

2,314

Equity/property market values - 10% fall

n/a

n/a

n/a

 

 (810)

 (1,205)

 (2,015)

Equity/property market values - 20% fall

 (1,577)

 (764)

 (2,341)

 

n/a

n/a

n/a

Risk discount rates - 1% increase

 (4,621)

 (417)

 (5,038)

 

 (5,263)

 (509)

 (5,772)

Group minimum capital requirements

246

287

533

 

175

221

396

 

Overall, the directional movements in the sensitivities from 31 December 2019 to 30 June 2020 reflect the generally lower government bond yields and lower equity markets at 30 June 2020, and, in the case of the US, the actual hedging portfolio in place at both valuation dates, which varies from period to period due to the nature of Jackson's dynamic hedging programme.

 

Asia insurance operations

Interest rate sensitivities for the Asia long-term business embedded value have been impacted by the generally lower risk-free rates at 30 June 2020 as compared to 31 December 2019, and have become more sensitive to changes in assumed investment returns. For a 1 per cent increase in interest rates the effect of increasing the risk discount rates exceeds the benefit of higher assumed investment returns, but to a lesser extent than at 31 December 2019. For a 0.5 per cent decrease in interest rates the negative impact of lower assumed investment returns outweighs the benefit of lower risk discount rates to a great extent than at 31 December 2019.

 

US insurance operations

The interest rate and equity/property market values sensitivity movements provided in the table above are at a point in time and reflect the hedging programme in place on the valuation date, while the actual impact on financial results would vary contingent upon a number of factors.

 

The sensitivity of the US long-term business embedded value to interest rates is driven by the change in assumed investment returns, and the consequential impact on projected future fee income and benefit costs, offset by the impact of market value movements on derivatives and other assets. At the lower interest rates at 30 June 2020, the positive impact from higher assumed investment returns from a 1 per cent increase in risk-free rates is higher than at 31 December 2019. For a 0.5 per cent decrease in interest rates the increase in expected benefit costs has been more than offset by the hedging protection held to manage such a risk.

 

The equity/property market values sensitivity is driven by a negative effect from lower future fee income and increased projected benefit costs on variable annuity business, partially offset by market value movements on equity derivatives held at the valuation date. Following the substantial fall in interest rates over the first half of 2020, the larger impact from lower future fee income and increased projected benefit costs is more than offset by the additional equity protection in place at 30 June 2020.

 

12   Methodology and accounting presentation

 

(i)   Methodology

 

(a)  Covered business

The EEV basis results for the Group are prepared for 'covered business' as defined by the EEV Principles. Covered business represents the Group's long-term insurance business (including the Group's investments in joint venture and associate insurance operations), for which the value of new and in-force contracts is attributable to shareholders.

 

The EEV basis results for the Group's covered business are then combined with the post-tax IFRS basis results of the Group's asset management and other operations (including interest costs on core structural borrowings, corporate expenditure for head office functions in London and Hong Kong, the Group's treasury function and Africa operations) . Under the EEV Principles, the results for covered business incorporate the projected margins of attaching internal asset management, as described in note (g) below.

 

The definition of long-term insurance business comprises those contracts falling under the definition for regulatory purposes together with, for US operations, contracts that are in substance the same as guaranteed investment contracts (GICs) but do not fall under the technical definition.

 

(b)  Valuation of in-force and new business

The EEV basis results are prepared incorporating best estimate assumptions about all relevant factors including levels of future investment returns, persistency, mortality, morbidity and expenses, as described in note 13(iii)(a). These assumptions are used to project future cash flows. The present value of the projected future cash flows is then calculated using a discount rate, as shown in note 13(i), which reflects both the time value of money and all other non-diversifiable risks associated with the cash flows that are not otherwise allowed for.

 

The total profit that emerges over the lifetime of an individual contract as calculated under the EEV basis is the same as that calculated under the IFRS basis. Since the EEV basis reflects discounted future cash flows, under the EEV methodology the profit emergence is advanced, thus more closely aligning the timing of the recognition of profit with the efforts and risks of current management actions, particularly with regard to business sold during the period.

 

New business

In determining the EEV basis value of new business, premiums are included in projected cash flows on the same basis of distinguishing regular and single premium business as set out in the Group's new business sales reporting.

 

New business premiums reflect those premiums attaching to the covered business, including premiums for contracts classified as investment contracts under IFRS. New business premiums for regular premium products are shown on an annualised basis.

 

New business profit represents profit determined by applying operating and economic assumptions as at the end of the period. New business profitability is a key metric for the Group's management of the development of the business. In addition, new business margins are shown by reference to annual premium equivalents (APE) and the present value of new business premiums (PVNBP). These margins are calculated as the percentage of the value of new business profit to APE and PVNBP. APE is calculated as the aggregate of regular premiums on new business written in the period and one-tenth of single premiums. PVNBP is calculated as the aggregate of single premiums and the present value of expected future premiums from regular premium new business, allowing for lapses and the other assumptions made in determining the EEV new business profit.

 

Valuation movements on investments

With the exception of debt securities held by Jackson, investment gains and losses during the period (to the extent that changes in capital values do not directly match changes in liabilities) are included directly in the profit for the period and shareholders' equity as they arise.

 

The results for the covered business conceptually reflect the aggregate of the post-tax IFRS basis results and the movements in the additional shareholders' interest recognised on an EEV basis. Therefore, the start point for the calculation of the EEV basis results for Jackson, as for other businesses, reflects the market value movements recognised on an IFRS basis.

 

In determining the movements in the additional shareholders' interest, for Jackson's debt securities backing liabilities, the aggregate EEV basis results reflect the fact that the value of in-force business incorporates the discounted value of expected future spread earnings. This value is generally not affected by short-term market movements in debt securities that, broadly speaking, are held for the longer term. Consequently, within EEV total net worth, Jackson's debt securities backing liabilities are held on a statutory basis (largely at book value), while those backing surplus and required capital are accounted for at fair value. Consistent with the treatment applied under IFRS, for Jackson's debt securities classified as available-for-sale, movements in unrealised appreciation and depreciation on these securities are accounted for directly in equity rather than in the income statement, as shown in 'Mark-to-market value movements on Jackson assets backing surplus and required capital' in the statement of movement in shareholders' equity.

 

(c)  Cost of capital

A charge is deducted from the embedded value for the cost of locked-in required capital supporting the Group's long-term business. The cost is the difference between the nominal value of the capital held and the discounted value of the projected releases of this capital, allowing for post-tax investment earnings on the capital.

 

The EEV results are affected by the movement in this cost from period to period, which comprises a charge against new business profit and generally a release in respect of the reduction in capital requirements for business in force as this runs off.

 

Where required capital is held within a with-profits long-term fund, the value placed on surplus assets within the fund is already adjusted to reflect its expected release over time and so no further adjustment to the shareholder position is necessary.

 

(d)  Financial options and guarantees

 

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

 

Asia

Participating products in Asia, principally written in Hong Kong, Singapore and Malaysia, have both guaranteed and non-guaranteed elements. These products provide returns to policyholders through bonuses that are smoothed. There are two types of bonuses: regular and final. Regular bonuses are declared once a year and, once credited, are guaranteed in accordance with the terms of the particular products. Final bonuses are guaranteed only until the next bonus declaration.

 

There are also various non-participating long-term products with guarantees. The principal guarantees are those for whole-of-life contracts with floor levels of policyholder benefits that typically accrue at rates set at inception and do not vary subsequently with market conditions.

 

US (Jackson)

Jackson issues variable annuity contracts for which it contractually guarantees to the contract holder, subject to specific conditions, either: a) a return of no less than total deposits made to the contract, adjusted for any partial withdrawals; b) total deposits made to the contract, adjusted for any partial withdrawals plus a minimum return; or c) the highest contract value on a specified anniversary date, adjusted for any withdrawals following the specified contract anniversary. These guarantees include benefits that are payable upon depletion of funds (Guaranteed Minimum Withdrawal Benefits (GMWB)) or as death benefits (Guaranteed Minimum Death Benefits (GMDB) ). These guarantees generally protect the policyholder's contract value in the event of poor equity market performance. Jackson hedges the GMWB and GMDB guarantees through the use of equity options and futures contracts, with an expected long-term future hedging cost allowed for within the EEV value of in-force business to reflect the equity options and futures expected to be held based on the Group's current dynamic hedging programme and consideration of past practice . This allowance was re-estimated in 2019 following the NAIC reform for variable annuity business. Jackson also historically issued a small amount of income benefits (Guaranteed Minimum Income Benefits (GMIB)), which are now materially fully reinsured.

 

In June 2020 the Group announced the reinsurance of substantially all of Jackson's in-force portfolio of fixed and fixed indexed annuity business to Athene Life Re Ltd. These contracts included some financial options and guarantees (as described in the Group's 2019 Annual Report), and, as at 30 June 2020, are materially fully reinsured.

 

Time value

The value of financial options and guarantees comprises the intrinsic value (arising from a deterministic valuation on best estimate assumptions) and the time value (arising from the variability of economic outcomes in the future).

 

Where appropriate, a full stochastic valuation has been undertaken to determine the time value of financial options and guarantees. The economic assumptions used for the stochastic calculations are consistent with those used for the deterministic calculations. Assumptions specific to the stochastic calculations reflect local market conditions and are based on a combination of actual market data, historic market data and an assessment of long-term economic conditions. Common principles have been adopted across the Group for the stochastic asset models, such as separate modelling of individual asset classes with an allowance for correlations between various asset classes. Details of the key characteristics of each model are given in note 13 (ii).

 

In deriving the time value of financial options and guarantees, management actions in response to emerging investment and fund solvency conditions have been modelled. Management actions encompass, but are not confined to, investment allocation decisions, levels of regular and final bonuses and credited rates. Bonus rates are projected from current levels and varied in accordance with assumed management actions applying in the emerging investment and fund solvency conditions. In all instances, the modelled actions are in accordance with approved local practice and therefore reflect the options available to management.

 

The time value of financial options and guarantees reflects how the market value of the assets (including derivatives) held to manage the liability portfolios are expected to vary across the range of economic scenarios considered. In some economic scenarios the derivative portfolio may project gains in excess of the cost of the underlying guarantees on an EEV basis.

 

If the calculation of the time value of options and guarantees results in a positive outcome for a particular product then the figure is capped at zero, reflecting the strong interaction between the outcome of the central economic scenario and the time value of financial options and guarantees in these circumstances, and the reported value of in-force business before deduction of cost of capital and time value of options and guarantees will reflect the outcome from the full stochastic valuation.

 

(e)  Level of required capital

In adopting the EEV Principles, Prudential has based required capital on the applicable local statutory regulations, including any amounts considered to be required above the local statutory minimum requirements to satisfy regulatory constraints.

 

For shareholder-backed businesses, the following capital requirements for long-term business apply:

 

-  Asia: the level of required capital has been set to an amount at least equal to local statutory notification requirements. For Singapore life operations, from 31 March 2020 the level of net worth and required capital is based on the Tier 1 Capital position under the new risk-based capital framework (RBC2), which removes certain negative reserves permitted to be recognised in the full RBC2 regulatory position applicable to the Group's LCSM position, in order to better reflect free surplus and its generation. For China JV life operations, the level of required capital follows the approach for embedded value reporting issued by the China Association of Actuaries (CAA) reflecting the C-ROSS regime; and

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

 

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

For the Group's relevant Asia operations, the proportion of surplus allocated to shareholders from the with-profits funds has been based on the applicable profit distribution between shareholders and policyholders. The EEV methodology includes the value attributed to the shareholders' interest in the residual estate of the in-force with-profits business. In any scenarios where the total assets of the life fund are insufficient to meet policyholder claims in full, the excess cost is fully attributed to shareholders. As required, adjustments are also made to reflect any capital requirements for with-profits business in Asia in excess of the available capital of the with-profits funds.

 

(g)  Internal asset management

The in-force and new business results from long-term business include the projected future profit or loss from asset management and service companies that support the Group's covered insurance businesses. The results of the Group's asset management operations include the current period profit from the management of both internal and external funds. EEV basis shareholders' other income and expenditure is adjusted to deduct the unwind of the expected margins on the internal management of the assets of the life funds for the period as included in 'Other' operations . The deduction is on a basis consistent with that used for projecting the results for covered insurance business. Accordingly, Group operating profit includes the variance between the actual and expected profit margin in respect of the management of the assets for the covered business.

 

(h)  Allowance for risk and risk discount rates

 

Overview

Under the EEV Principles, discount rates used to determine the present value of expected future cash flows are set by reference to risk-free rates plus a risk margin.

 

The risk-free rates are largely based on local government bond yields at the valuation date and are generally assumed to remain constant throughout the projection.

 

The risk margin reflects any non-diversifiable risk associated with the emergence of distributable earnings that is not allowed for elsewhere in the valuation. In order to better reflect differences in relative market risk volatility inherent in each product group, Prudential sets the risk discount rates to reflect the expected volatility associated with the expected future cash flows for each product group in the embedded value model, rather than at a Group level.

 

Since financial options and guarantees are explicitly valued under the EEV methodology, risk discount rates exclude the effect of these product features.

 

The risk margin represents the aggregate of the allowance for market risk, additional allowance for credit risk where appropriate, and allowance for non-diversifiable non-market risk. No allowance is required for non-market risks where these are assumed to be fully diversifiable.

 

Market risk allowance

The allowance for market risk represents the beta multiplied by an equity risk premium.

 

The beta of a portfolio or product measures its relative market risk. The risk discount rates reflect the market risk inherent in each product group and hence the volatility of product-specific cash flows. These are determined by considering how the profit from each product is affected by changes in expected returns on various asset classes. By converting this into a relative rate of return, it is possible to derive a product-specific beta.

 

Product level betas reflect the product mix at the valuation date to produce appropriate betas and risk discount rates for each major product group.

 

Additional credit risk allowance

The Group's methodology allows for credit risk. The total allowance for credit risk covers expected long-term defaults, a credit risk premium (to reflect the volatility in downgrade and default levels) and short-term downgrades and defaults.

 

These allowances are initially reflected in determining best estimate returns and through the market risk allowance described above. However, for those businesses largely backed by holdings of debt securities, the allowances in the projected returns and market risk allowances may not be sufficient and an additional allowance may be appropriate.

 

The practical application of the allowance for credit risk varies depending on the type of business as described below:

 

Asia

For Asia, the allowance for credit risk incorporated in the projected rates of return and the market risk allowance is considered to be sufficient. Accordingly, no additional allowance for credit risk is required.

 

The projected rates of return for holdings of corporate bonds comprise the risk-free rate plus an assessment of the long-term spread over the risk-free rate.

 

US (Jackson)

For Jackson, the allowance for long-term defaults of 0.19 per cent at 30 June 2020 (30 June 2019: 0.17 per cent, 31 December 2019: 0.17 per cent) is reflected in the risk margin reserve charge that is deducted in determining the projected spread margin between the earned rate on the investments and the policyholder crediting rate.

 

The risk discount rate incorporates an additional allowance for the credit risk premium and short-term downgrades and defaults, as shown in note 13 (i)(b). In determining this allowance, a number of factors have been considered, in particular including:

 

-   How much of the credit spread on debt securities represents an increased short-term credit risk not reflected in the risk margin reserve long-term default assumptions and how much is liquidity premium (which is the premium required by investors to compensate for the risk of longer-term investments that cannot be easily converted into cash at the fair market value). In assessing this effect, consideration has been given to a number of approaches to estimate the liquidity premium by considering recent statistical data; and

Policyholder benefits for certain lines of business are not fixed. It is possible, in adverse economic scenarios, to pass on a component of credit losses to policyholders (subject to guarantee features), through lower investment returns credited to policyholders. Consequently, it is only necessary to allow for the balance of the credit risk in the risk discount rate.

 

The level of the additional allowance is assessed at each reporting period to take account of prevailing credit conditions and as the business in force alters over time. In the first half of 2020 the additional allowance for non-variable annuity business was increased by 50 basis points, primarily to reflect additional short-term credit risk arising from the Covid-19 crisis. The additional allowance for variable annuity business has been set at one-fifth of the additional allowance for non-variable annuity business to reflect the long-term proportion of variable annuity business invested in general account debt securities.

 

Allowance for non-diversifiable non-market risks

The majority of non-market and non-credit risks are considered to be diversifiable. An allowance for non-diversifiable non-market risks is estimated as set out below.

 

A base level allowance of 50 basis points is applied to cover the non-diversifiable non-market risks associated with the Group's covered business. For the Group's businesses in less mature markets (such as the Philippines and Thailand), additional allowances are applied for emerging market risk ranging from 100 to 250 basis points. The level and application of these allowances are reviewed and updated based on an assessment of the Group's exposure and experience in the markets. For the Group's business in more mature markets, no additional allowance is necessary.

 

(i)  Foreign currency translation

Foreign currency profits and losses have been translated at average exchange rates for the period . Foreign currency transactions are translated at the spot rate prevailing at the date of the transactions. This includes external dividends paid to shareholders in 2019. All subsequent dividends are declared in US dollars and no foreign currency translation is required. Foreign currency assets and liabilities have been translated at closing exchange rates. The principal exchange rates are shown in note A1 of the Group IFRS financial statements.

 

(j)  Taxation

In determining the post-tax profit for the period for covered business, the overall tax rate includes the impact of tax effects determined on a local regulatory basis. Tax payments and receipts included in the projected future cash flows to determine the value of in-force business are calculated using tax rates that have been announced and substantively enacted by the end of the reporting period.

 

(ii)  Accounting presentation

 

(a) Analysis of post-tax profit

To the extent applicable, the presentation of the EEV basis profit or loss for the period is consistent with the classification between operating and non-operating results that the Group applies for the analysis of IFRS basis results. Operating results are determined as described in note (b) below and incorporate the following:

 

New business profit, as defined in note (i)(b) above;

Unwind of discount on the value of in-force business and other expected returns, as described in note (c) below;

The impact of routine changes of estimates relating to operating assumptions, as described in note (d) below; and

Operating experience variances, as described in note (e) below.

 

In addition, operating results include the effect of changes in tax legislation, unless these changes are one-off and structural in nature, such as a small impact from the corporate tax changes in the US as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in half year 2020, or primarily affect the level of projected investment returns, in which case they are reflected as a non-operating result.

 

Non-operating results comprise:

 

Short-term fluctuations in investment returns;

Mark-to-market value movements on core structural borrowings;

Effect of changes in economic assumptions;

Impact of NAIC reform, hedge modelling and other related changes in the US in full year 2019; and

The impact of corporate transactions undertaken in the period, such as the effect of Jackson's reinsurance arrangement with Athene Life Re Ltd in half year 2020, disposals undertaken and costs   related to the demerger of M&G plc from Prudential plc in 2019.

 

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

 

(b) Investment returns included in operating profit

For the investment element of the assets covering the total net worth of long-term insurance business, investment returns are recognised in operating results at the expected long-term rates of return. These expected returns are calculated by reference to the asset mix of the portfolio.

 

For the purpose of determining the long-term returns for debt securities of Jackson for general account business, a risk margin reserve charge is included, which reflects the expected long-term rate of default based on the credit quality of the portfolio. For Jackson, interest-related realised gains and losses are amortised to the operating results over the maturity period of the sold bonds; for equity-related investments, a long-term rate of return is assumed (as disclosed in note 13(i)(b)), which reflects the aggregation of risk-free rates and the equity risk premium at the end of the reporting period. For variable annuity separate account business, operating profit includes the unwind of discount on the opening value of in-force business adjusted to reflect projected rates of return at the end of the reporting period, with the excess or deficit of the actual return recognised within non-operating results, together with related hedging activity variances.

 

(c)   Unwind of discount and other expected returns

The Group's methodology in determining the unwind of discount and other expected returns is by reference to the value of in-force business at the beginning of the period (adjusted for the effect of changes in economic and operating assumptions in the current period) and required capital and surplus assets.

 

(d)   Effect of changes in operating assumptions

Operating profit includes the effect of changes to operating assumptions on the value of in-force business at the end of the reporting period . For presentational purposes the effect of changes is delineated to show the effect on the opening value of in-force business as operating assumption changes, with the experience variances subsequently being determined by reference to the assumptions at the end of the reporting period, as discussed below.

 

(e)   Operating experience variances

Operating profit includes the effect of experience variances on operating assumptions, such as persistency, mortality, morbidity, expenses and other factors, which are calculated with reference to the assumptions at the end of the reporting period.

 

(f)  Effect of changes in economic assumptions

Movements in the value of in-force business at the beginning of the year caused by changes in economic assumptions, net of the related changes in the time value of financial options and guarantees, are recorded in non-operating results.

 

13  Assumptions

 

(i)  Principal economic assumptions

The EEV basis results for the Group's covered business have been determined using economic assumptions where both the long-term expected rates of return on investments and risk discount rates are set by reference to risk-free rates of return at the end of the reporting period. The risk-free rates of return are largely based on local government bond yields, which are generally assumed to remain constant throughout the projection, and are shown below for each of the Group's insurance operations. Expected returns on equity and property asset classes and corporate bonds are derived by adding a risk premium to the risk-free rate based on the Group's long-term view. Both the risk discount rate and expected rates of return are updated at each valuation date to reflect current market risk-free rates, with the effect that changes in the risk-free rates impact all projected future cash flows.

 

As described in note 12(i)(h), risk discount rates are set equal to the risk-free rate at the valuation date plus allowances for market risk, additional credit risk and non-diversifiable non-market risks appropriate to the features and risks of the underlying products and markets. Risks that are explicitly allowed for elsewhere in the EEV basis, such as via the cost of capital and the time value of the cost of options and guarantees, are not included in the risk discount rates.

Given the linkage to current risk-free rates, which are at historically low levels, risk discount rates at 30 June 2020 are generally lower than has historically been the case. Under our EEV methodology there is a corresponding reduction in assumed future investment returns, which will also be lower than historical norms, countering the impact of the lower risk discount rates.

 

(a)  Asia notes (2)(3)

 

 

Risk discount rate %

 

New business

 

In-force business

 

2020

 

2019

 

2020

 

2019

 

30 Jun

 

30 Jun

31 Dec

 

30 Jun

 

30 Jun

31 Dec

China JV

7.9

 

8.0

8.2

 

7.9

 

8.0

8.2

Hong Kongnotes (2)(4)

1.8

 

3.8

3.7

 

2.7

 

3.8

3.7

Indonesia

10.6

 

11.8

10.8

 

10.6

 

11.8

10.8

Malaysianote (4)

5.5

 

6.2

5.8

 

5.6

 

6.2

5.9

Philippines

10.7

 

12.5

12.3

 

10.7

 

12.5

12.3

Singaporenote (4)

2.5

 

3.5

3.3

 

3.0

 

4.3

3.9

Taiwan

2.8

 

4.3

3.4

 

2.4

 

4.2

3.0

Thailand

9.1

 

9.6

9.2

 

9.1

 

9.6

9.2

Vietnam

4.7

 

9.1

5.3

 

5.0

 

9.0

5.5

Total weighted averagenote (1)

4.4

 

5.0

4.9

 

4.1

 

5.2

4.9

 

 

 

 

 

 

 

 

 

 

 

10-year government bond yield %

 

Expected long-term inflation %

 

2020

 

2019

 

2020

 

2019

 

30 Jun

 

30 Jun

31 Dec

 

30 Jun

 

30 Jun

31 Dec

China JV

2.9

 

3.3

3.2

 

3.0

 

3.0

3.0

Hong Kongnotes (2)(4)

0.7

 

2.0

1.9

 

2.5

 

2.5

2.5

Indonesia

7.8

 

7.5

7.2

 

4.5

 

4.5

4.5

Malaysianote (4)

3.0

 

3.7

3.3

 

2.5

 

2.5

2.5

Philippines

2.9

 

5.0

4.6

 

4.0

 

4.0

4.0

Singaporenote (4)

1.0

 

2.0

1.7

 

2.0

 

2.0

2.0

Taiwan

0.5

 

0.7

0.7

 

1.5

 

1.5

1.5

Thailand

1.4

 

2.1

1.5

 

3.0

 

3.0

3.0

Vietnam

3.0

 

4.7

3.4

 

5.5

 

5.5

5.5

 

Notes

(1)  Total weighted average risk discount rates for Asia shown above have been determined by weighting each business's risk discount rates by reference to the EEV basis new business profit and the net closing value of in-force business. The changes in the risk discount rates for individual Asia businesses reflect the movements in the local government bond yields, changes in the allowance for risk and changes in product mix.

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

(3)  Equity risk premiums (geometric) in Asia range from 2.9 per cent to 4.8 per cent (30 June 2019: 2.6 per cent to 4.5 per cent; 31 December 2019: 2.9 per cent to 4.8 per cent).

(4)  The geometric equity return assumptions for the most significant equity holdings of the Asia businesses are:

 

 

 

2020 %

 

2019 %

 

 

30 Jun

 

30 Jun

31 Dec

 

Hong Kong (US dollar denominated business)

3.6

 

4.6

4.8

 

Malaysia

7.0

 

7.4

7.3

 

Singapore

5.0

 

5.8

5.7

 

(b)  US

 

 

 

 

2020 %

 

2019 %

 

 

 

30 Jun

 

30 Jun

31 Dec

Risk discount rate:

 

 

 

 

 

Variable annuity:

 

 

 

 

 

 

Risk discount rate

5.3

 

6.4

6.5

 

 

Additional allowance for credit risk included in risk discount ratenote 12(i)(h)

0.3

 

0.2

0.2

 

Non-variable annuity:

 

 

 

 

 

 

Risk discount rate

2.9

 

3.7

3.7

 

 

Additional allowance for credit risk included in risk discount ratenote 12(i)(h)

1.5

 

1.0

1.0

 

Total weighted average:

 

 

 

 

 

 

New business

4.8

 

6.1

6.1

 

 

In-force business

4.9

 

6.1

6.2

Allowance for long-term defaults included in projected spreadnote 12(i)(h)

0.19

 

0.17

0.17

US 10-year treasury bond yield

0.7

 

2.0

1.9

Equity risk premium (geometric)

2.9

 

2.6

2.9

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

3.6

 

4.6

4.8

Expected long-term rate of inflation

2.7

 

2.8

2.9

S&P 500 equity return volatilitynote (ii)(b)

17.5

 

17.5

17.5

 

Note

Assumed new business spread margins are as follows:

 

 

2020 %

 

2019 %

 

Jan to Jun issues

 

Jan to Jun issues

Jul to Dec issues

Fixed annuity business*

0.85

 

1.50

0.85

Fixed indexed annuity business

0.50

 

0.50

0.50

Institutional business

1.00

 

0.50

0.50

* Including the proportion of variable annuity business invested in the general account. The assumed spread margin grades up linearly by 25 basis points to a long-term assumption over five years.

  The assumed spread margin grades up linearly by 25 basis points over five years, increasing by a further 125 basis points to a long-term assumption at the end of the index option period (2019 issues: grades up linearly by 100 basis points over five years, increasing by a further 50 basis points to a long-term assumption at the end of the index option period).

 

(ii)  Stochastic assumptions

Details are given below of the key characteristics of the models used to determine the time value of financial options and guarantees as referred to in note 12(i)(d).

 

(a)  Asia

-  The stochastic cost of guarantees is primarily of significance for the Hong Kong, Malaysia, Singapore, Taiwan and Vietnam businesses;

-  The principal asset classes are government bonds, corporate bonds and equity;

-  Interest rates are projected using a stochastic interest rate model calibrated to the current market yields;

-  Equity returns are assumed to follow a log-normal distribution;

-  The corporate bond return is calculated based on a risk-free return plus a mean-reverting spread;

-  The volatility of equity returns ranges from 18 per cent to 35 per cent for all periods; and

-  The volatility of government bond yields ranges from 1.1 per cent to 2.0 per cent for all periods.

 

(b)  US (Jackson)

-  Interest rates and equity returns are projected using a log-normal generator reflecting historical market data;

-  Corporate bond returns are based on treasury yields plus a spread that reflects current market conditions;

-  The volatility of equity returns ranges from 17 per cent to 26 per cent for all periods; and

-  The standard deviation of interest rates ranges from 2.7 per cent to 2.9 per cent (30 June 2019: 3.3 per cent to 3.5 per cent; 31 December   2019: from 3.1 per cent to 3.3 per cent).

 

(iii)  Operating assumptions

Best estimate assumptions are used for projecting future cash flows, where best estimate is defined as the mean of the distribution of future possible outcomes. The assumptions are reviewed actively and changes are made when evidence exists that material changes in future experience are reasonably certain.

 

Assumptions required in the calculation of the time value of financial options and guarantees, for example relating to volatilities and correlations, or dynamic algorithms linking liabilities to assets, have been set equal to the best estimates and, wherever material and practical, reflect any dynamic relationships between the assumptions and the stochastic variables.

 

Demographic assumptions

Persistency, mortality and morbidity assumptions are based on an analysis of recent experience, and reflect expected future experience. Where relevant, when calculating the time value of financial options and guarantees, policyholder withdrawal rates vary in line with the emerging investment conditions according to management's expectations. When projecting future cash flows for medical reimbursement business that is repriced annually, explicit allowance is made for expected future premium inflation and separately for future medical claims inflation.

 

Expense assumptions

Expense levels, including those of the service companies that support the Group's long-term business, are based on internal expense analysis and are appropriately allocated to acquisition of new business and renewal of in-force business. For mature business, it is Prudential's policy not to take credit for future cost reduction programmes until the actions to achieve the savings have been delivered. An allowance is made for short-term required expenses that are not representative of the longer-term expense loadings of the relevant businesses. At 30 June 2020 the allowance held for these costs across the Group was $222 million, arising in Asia. Expense overruns are reported where these are expected to be short-lived, including businesses that are growing rapidly or are sub-scale.

 

For Asia, expenses comprise costs borne directly and costs recharged from the Group head office function in Hong Kong that are attributable to the covered business. The assumed future expenses for these businesses also include projections of these future recharges. Development expenses are allocated to Asia covered business and are charged as incurred.

 

Corporate expenditure, which is included in other income and expenditure, comprises expenditure of the Group head office function in Hong Kong that is not allocated to the covered business or asset management, primarily for corporate related activities that are charged as incurred, and expenditure of the Group head office function in London, together with restructuring and IFRS 17 implementation costs incurred across the Group.

 

Tax rates

The assumed long-term effective tax rates for operations reflect the expected incidence of taxable profit and loss in the projected future cash flows as explained in note 12 (i)(j). Except for a reduction in the Indonesia corporate tax rate from 25 per cent to 22 per cent for 2020 and 2021, with a further reduction to 20 per cent from 2022, there has been no material change in the effective tax rates applied for projecting future cash flows.

 

14   Insurance new business note (a)

 

 

 

Single premiums

 

Regular premiums

 

Annual premium equivalents (APE)

 

 Present value of new business premiums (PVNBP)

 

 

2020 $m

 

2019 $m

 

2020 $m

 

2019 $m

 

2020 $m

 

2019 $m

 

2020 $m

 

2019 $m

 

 

Half

year

 

Half

year

Full

year

 

Half

year

 

Half

year

Full

year

 

Half

year

 

Half

year

Full

year

 

Half

year

 

Half

year

Full

year

Asia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambodia

-

 

-

-

 

4

 

14

24

 

4

 

15

24

 

20

 

66

111

China JVnote (b)

592

 

468

710

 

260

 

303

518

 

319

 

350

590

 

1,479

 

1,534

2,586

Hong Kong

78

 

213

387

 

380

 

1,052

1,977

 

388

 

1,075

2,016

 

2,671

 

6,701

12,815

Indianote (c)

102

 

78

155

 

73

 

129

245

 

83

 

137

260

 

298

 

618

1,179

Indonesia

112

 

121

292

 

112

 

144

361

 

123

 

156

390

 

494

 

666

1,668

Malaysia

45

 

90

209

 

118

 

149

333

 

123

 

158

355

 

688

 

881

2,090

Philippines

15

 

14

51

 

54

 

70

153

 

56

 

71

158

 

205

 

239

561

Singapore

420

 

500

1,217

 

187

 

249

539

 

229

 

299

660

 

1,695

 

2,100

4,711

Taiwan

112

 

253

544

 

144

 

125

278

 

155

 

149

332

 

623

 

625

1,418

Thailand

65

 

95

192

 

84

 

53

140

 

90

 

62

159

 

389

 

318

763

Vietnam

9

 

13

22

 

94

 

87

215

 

95

 

88

217

 

611

 

470

1,342

Total Asia

1,550

 

1,845

3,779

 

1,510

 

2,375

4,783

 

1,665

 

2,560

5,161

 

9,173

 

14,218

29,244

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable annuities

6,417

 

6,283

12,692

 

-

 

-

-

 

643

 

628

1,270

 

6,417

 

6,283

12,692

Elite Access

  (variable annuities)

882

 

961

2,002

 

-

 

-

-

 

88

 

96

200

 

882

 

961

2,002

Fixed annuities

314

 

229

1,194

 

-

 

-

-

 

31

 

23

119

 

314

 

229

1,194

Fixed indexed annuities

892

 

1,201

3,821

 

-

 

-

-

 

89

 

120

382

 

892

 

1,201

3,821

Institutional

1,284

 

2,078

2,522

 

-

 

-

-

 

128

 

208

252

 

1,284

 

2,078

2,522

Total US

9,789

 

10,752

22,231

 

-

 

-

-

 

979

 

1,075

2,223

 

9,789

 

10,752

22,231

Group total note (d)

11,339

 

12,597

26,010

 

1,510

 

2,375

4,783

 

2,644

 

3,635

7,384

 

18,962

 

24,970

51,475

 

Notes

(a)  The tables shown above are provided as an indicative volume measure of transactions undertaken in the reporting period that have the potential to generate profit for shareholders. The amounts shown are not, and not intended to be, reflective of premium income recorded in the Group IFRS income statement.  

(b)  New business in China JV is included at Prudential's 50 per cent interest in the joint venture.

(c)  New business in India is included at Prudential's 22 per cent interest in the associate.

(d)  In half year 2020, the Africa business sold new business APE of $54 million (half year 2019: $38 million on an actual exchange rate basis, $34 million on a constant exchange rate basis; full year 2019: $82 million on an actual exchange rate basis, $75 million on a constant exchange rate basis). Given the relative immaturity of the Africa business, it is incorporated into the Group's EEV basis results on an IFRS basis and is excluded from new business sales and profit metrics.

 

15  Post balance sheet event

 

Completion of the equity investment by Athene into US business

On 17 July 2020, the Group completed the equity investment by Athene into the US business, which was announced in June 2020. Under the transaction, Athene Life Re Ltd invested $500 million in Prudential's US business in return for an 11.1 per cent economic interest, for which the voting interest is 9.9 per cent. If the transaction had completed at 30 June 2020, the effect on EEV shareholders' equity would have been a reduction of around $1.1 billion. There would have been no impact on profit for the period. Further details are included in note D1 of the IFRS basis results.

 

Additional EEV financial information*

 

A  New business schedules

 

Basis of preparation

 

The format of the schedules is consistent with the distinction between insurance and investment products as applied for previous reporting periods. With the exception of some US institutional business, products categorised as 'insurance' refer to those classified as contracts of long-term insurance business for local regulatory reporting purposes.

 

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

 

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

 

Post-tax new business profit has been determined using the European Embedded Value (EEV) methodology set out in our EEV basis results supplement.

 

In determining the EEV basis value of new business written in the period when policies incept, premiums are included in projected cash flows on the same basis of distinguishing annual and single premium business as set out for local statutory basis reporting.

 

Annual premium equivalent (APE) sales are subject to rounding.

 

*   The additional financial information is not covered by the KPMG LLP independent review opinion .

 

(1)  Prudential plc reports its results using both actual exchange rates (AER) and constant exchange rates (CER) to eliminate

 

 

 

Average rate

 

Closing rate

 

$ : local currency

Half year 2020

Half year 2019

% appreciation

(depreciation) of USD

against local currency

 

30 Jun

2020

30 Jun

2019

% appreciation

(depreciation) of USD

against local currency

 

China

7.03

6.78

4%

 

7.07

6.87

3%

 

Hong Kong

7.76

7.84

(1)%

 

7.75

7.81

(1)%

 

Indonesia

14,574.24

14,192.79

3%

 

14,285.00

14,127.50

1%

 

Malaysia

4.25

4.12

3%

 

4.29

4.13

4%

 

Singapore

1.40

1.36

3%

 

1.4

1.35

4%

 

Thailand

31.62

31.61

0%

 

30.87

30.69

1%

 

UK

0.79

0.77

3%

 

0.81

0.79

2%

 

Vietnam

23,303.21

23,253.04

0%

 

23,206.00

23,305.00

0%

 

 

 

Average rate

 

Closing rate

 

$ : local currency

Half year 2020

Full year 2019

% appreciation (depreciation) of USD against local currency

 

30 Jun

2020

31 Dec

2019

% appreciation (depreciation) of USD against local currency

 

China

7.03

6.91

2%

 

7.07

6.97

1%

 

Hong Kong

7.76

7.84

(1)%

 

7.75

7.79

(1)%

 

Indonesia

14,574.24

14,140.84

3%

 

14,285.00

13,882.50

3%

 

Malaysia

4.25

4.14

3%

 

4.29

4.09

5%

 

Singapore

1.40

1.36

3%

 

1.4

1.34

4%

 

Thailand

31.62

31.05

2%

 

30.87

29.75

4%

 

UK

0.79

0.78

1%

 

0.81

0.75

7%

 

Vietnam

23,303.21

23,227.64

0%

 

23,206.00

23,172.50

0%

 

(2)  Annual premium equivalents (APE) are calculated as the aggregate of regular premiums on business written in the period and one-tenth of single premiums. Present value of new business premiums (PVNBP) are calculated as the aggregate of single premiums and the present value of expected future premiums from regular premium new business, allowing for lapses and the other assumptions applied in determining the EEV new business profit.

(3)  New business in China JV is included at Prudential's 50 per cent interest in the joint venture.

(4)  New business in India is included at Prudential's 22 per cent interest in the associate.

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

(6)  Investment flows for the period exclude Eastspring Money Market Funds (MMF) gross inflow of $48,234 million (half year 2019: gross inflow of $133,709 million; full year 2019: gross inflow of $236,603 million) and net inflow of $29 million (half year 2019: net outflow of $(1,264) million; full year 2019: net outflow of $(1,856) million). The flows exclude any amounts managed by M&G plc, which was demerged from the Group in October 2019.

(7)  Balance sheet figures have been calculated at the closing exchange rates.

 

Schedule A(i) Insurance operations (actual and constant exchange rates)

 

AER

 

Single premiums

Regular premiums

APEnote (2)

PVNBPnote (2)

 

 

2020

Half

year

2019

Half

year

+/(-)

2020

Half

year

2019

Half

year

+/(-)

2020

Half

year

2019

Half

year

+/(-)

2020

Half

year

2019

Half

year

+/(-)

 

 

$m

$m

%

$m

$m

%

$m

$m

%

$m

$m

%

Asia

 

 

 

 

 

 

 

 

 

 

 

 

Cambodia

-

-

-

4

14

(71)%

4

15

(73)%

20

66

(70)%

China JVnote (3)

592

468

26%

260

303

(14)%

319

350

(9)%

1,479

1,534

(4)%

Hong Kong

78

213

(63)%

380

1,052

(64)%

388

1,075

(64)%

2,671

6,701

(60)%

Indianote (4)

102

78

31%

73

129

(43)%

83

137

(39)%

298

618

(52)%

Indonesia

112

121

(7)%

112

144

(22)%

123

156

(21)%

494

666

(26)%

Malaysia

45

90

(50)%

118

149

(21)%

123

158

(22)%

688

881

(22)%

Philippines

15

14

7%

54

70

(23)%

56

71

(21)%

205

239

(14)%

Singapore

420

500

(16)%

187

249

(25)%

229

299

(23)%

1,695

2,100

(19)%

Taiwan

112

253

(56)%

144

125

15%

155

149

4%

623

625

(0)%

Thailand

65

95

(32)%

84

53

58%

90

62

45%

389

318

22%

Vietnam

9

13

(31)%

94

87

8%

95

88

8%

611

470

30%

Total Asia

1,550

1,845

(16)%

1,510

2,375

(36)%

1,665

2,560

(35)%

9,173

14,218

(35)%

US

 

 

 

 

 

 

 

 

 

 

 

 

Variable annuities

6,417

6,283

2%

-

-

-

643

628

2%

6,417

6,283

2%

Elite Access (variable

annuity)

882

961

(8)%

-

-

-

88

96

(8)%

882

961

(8)%

Fixed annuities

314

229

37%

-

-

-

31

23

35%

314

229

37%

Fixed indexed annuities

892

1,201

(26)%

-

-

-

89

120

(26)%

892

1,201

(26)%

Wholesale

1,284

2,078

(38)%

-

-

-

128

208

(38)%

1,284

2,078

(38)%

Total US

9,789

10,752

(9)%

-

-

-

979

1,075

(9)%

9,789

10,752

(9)%

Group total

11,339

12,597

(10)%

1,510

2,375

(36)%

2,644

3,635

(27)%

18,962

24,970

(24)%

* In half year 2020, the Africa business operations sold APE new business of $54 million (half year 2019: $38 million on an actual exchange rate basis). Given the relative immaturity of the Africa business, it is incorporated into the Group's EEV basis results on an IFRS basis and is excluded from new business sales and profit metrics.

 

CER

 

Single premiums

Regular premiums

APEnote (2)

PVNBPnote (2)

 

 

2020

Half

year

2019

Half

year

+/(-)

2020

Half

year

2019

Half

year

+/(-)

2020

Half

year

2019

Half

year

+/(-)

2020

Half

year

2019

Half

year

+/(-)

 

 

$m

$m

%

$m

$m

%

$m

$m

%

$m

$m

%

Asia

 

 

 

 

 

 

 

 

 

 

 

 

Cambodia

-

-

-

4

14

(71)%

4

14

(71)%

20

66

(70)%

China JVnote (3)

592

449

32%

260

292

(11)%

319

337

(5)%

1,479

1,479

-

Hong Kong

78

215

(64)%

380

1,063

(64)%

388

1,086

(64)%

2,671

6,771

(61)%

Indianote (4)

102

74

38%

73

123

(41)%

83

130

(36)%

298

584

(49)%

Indonesia

112

119

(6)%

112

140

(20)%

123

152

(19)%

494

648

(24)%

Malaysia

45

88

(49)%

118

145

(19)%

123

153

(20)%

688

854

(19)%

Philippines

15

15

-

54

71

(24)%

56

73

(23)%

205

246

(17)%

Singapore

420

485

(13)%

187

241

(22)%

229

290

(21)%

1,695

2,041

(17)%

Taiwan

112

262

(57)%

144

129

12%

155

155

-

623

645

(3)%

Thailand

65

96

(32)%

84

53

58%

90

62

45%

389

318

22%

Vietnam

9

12

(25)%

94

87

8%

95

88

8%

611

469

30%

Total Asia

1,550

1,815

(15)%

1,510

2,358

(36)%

1,665

2,540

(34)%

9,173

14,121

(35)%

US

 

 

 

 

 

 

 

 

 

 

 

 

Variable annuities

6,417

6,283

2%

-

-

-

643

628

2%

6,417

6,283

2%

Elite Access (variable

annuity)

882

961

(8)%

-

-

-

88

96

(8)%

882

961

(8)%

Fixed annuities

314

229

37%

-

-

-

31

23

35%

314

229

37%

Fixed indexed annuities

892

1,201

(26)%

-

-

-

89

120

(26)%

892

1,201

(26)%

Wholesale

1,284

2,078

(38)%

-

-

-

128

208

(38)%

1,284

2,078

(38)%

Total US

9,789

10,752

(9)%

-

-

-

979

1,075

(9)%

9,789

10,752

(9)%

Group total

11,339

12,567

(10)%

1,510

2,358

(36)%

2,644

3,615

(27)%

18,962

24,873

(24)%

* In half year 2020, the Africa business operations sold APE new business of $54 million (half year 2019: $34 million on a constant exchange rate basis). Given the relative immaturity of the Africa business, it is incorporated into the Group's EEV basis results on an IFRS basis and is excluded from new business sales and profit metrics.

 

Schedule A(ii) Insurance new business APE (actual and constant exchange rates)

 

 

 

2019 $m

2020 $m

 

 

AER

CER

AER

 

 

H1

H2

H1

H2

H1

Asia

 

 

 

 

 

Cambodia

15

9

14

10

4

China JVnote (3)

350

240

337

242

319

Hong Kong

1,075

941

1,086

950

388

Indianote (4)

137

123

130

117

83

Indonesia

156

234

152

226

123

Malaysia

158

197

153

192

123

Philippines

71

87

73

89

56

Singapore

299

361

290

355

229

Taiwan

149

183

155

187

155

Thailand

62

97

62

94

90

Vietnam

88

129

88

128

95

Total Asia

2,560

2,601

2,540

2,590

1,665

US

 

 

 

 

 

Variable annuities

628

642

628

642

643

Elite Access (variable

annuity)

96

104

96

104

88

Fixed annuities

23

96

23

96

31

Fixed indexed annuities

120

262

120

262

89

Wholesale

208

44

208

44

128

Total US

1,075

1,148

1,075

1,148

979

Group total

3,635

3,749

3,615

3,738

2,644

 

Note

Comparative results for the first half (H1) and second half (H2) of 2019 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 A(iii) Insurance new business profit (actual and constant exchange rates)

 

 

2019

2020

 

AER

CER

AER

 

HY

FY

HY

FY

HY

New business profit ($m)

 

 

 

 

 

Asia

1,675

3,522

1,673

3,515

912

US

450

883

450

883

248

Group total

2,125

4,405

2,123

4,398

1,160

 

 

 

 

 

 

APE ($m) note (2)

 

 

 

 

 

Asia

2,560

5,161

2,540

5,130

1,665

US

1,075

2,223

1,075

2,223

979

Group total

3,635

7,384

3,615

7,353

2,644

 

 

 

 

 

 

New business margin (NBP as a % of APE)

 

 

 

 

 

Asia

65%

68%

66%

69%

55%

US

42%

40%

42%

40%

25%

Group total

58%

60%

59%

60%

44%

 

 

 

 

 

 

PVNBP ($m) note (2)

 

 

 

 

 

Asia

14,218

29,244

14,121

29,081

9,173

US

10,752

22,231

10,752

22,231

9,789

Group total

24,970

51,475

24,873

51,312

18,962

 

 

 

 

 

 

New business margin (NBP as a % of PVNBP)

 

 

 

 

 

Asia

11.8%

12.0%

11.8%

12.1%

9.9%

US

4.2%

4.0%

4.2%

4.0%

2.5%

Group total

8.5%

8.6%

8.5%

8.6%

6.1%

 

Schedule A(iv) Investment operations (actual exchange rates)

 

 

 

2019 $m

 

 

2020 $m

 

Eastspring investment operations (excluding those managed on behalf of M&G plc):

 

H1

H2

 

 

H1

 

Third-party retail: note (5)

 

 

 

 

 

 

 

Opening FUM

 

55,198

62,441

 

 

73,644

 

Net Flows:note (6)

 

2,682

3,313

 

 

(8,026)

 

- Gross Inflows

 

19,628

23,005

 

 

19,983

 

- Redemptions

 

(16,946)

(19,692)

 

 

(28,009)

 

Other Movements*

 

4,561

7,890

 

 

(6,272)

 

Closing FUMnote (7)

 

62,441

73,644

 

 

59,346

 

 

 

 

 

 

 

 

 

Third-party institutional:

 

 

 

 

 

 

 

Opening FUM

 

7,788

9,431

 

 

11,024

 

Net Flows:

 

1,274

1,071

 

 

(336)

 

- Gross Inflows

 

1,661

1,802

 

 

1,621

 

- Redemptions

 

(387)

(731)

 

 

(1,957)

 

Other Movements

 

369

522

 

 

(731)

 

Closing FUMnote (7)

 

9,431

11,024

 

 

9,957

 

 

 

 

 

 

 

 

 

Total third-party (excluding MMF)

 

71,872

84,668

 

 

69,303

 

* Other movements in H2 2019 included an inflow of $7.0 billion funds under management (excluding MMF) from the acquisition of Thanachart Fund Management Co., Ltd. ('TFUND') in Thailand.

 

Calculation of return on embedded value

 

Operating return on embedded value is calculated as the annualised post-tax EEV operating profit for the period as a percentage of average EEV basis shareholders' equity.

 

 

Half year 2020*

 

Asia

US

 

Other

Group

EEV basis operating profit for the period from continuing operations, net of tax ($ million)

2,036

696

 

(517)

2,215

Average EEV basis shareholders' equity ($ million)

38,244

14,943

 

(1,360)

51,827

Operating return on average shareholders' equity (%)

11%

9%

 

n/a

9%

* Half year profits are annualised by multiplying by two.

 

 

Half year 2019*

Full year 2019

 

Asia

US

Asia

US

EEV basis operating profit for the period from continuing operations, net of tax ($ million)

2,868

1,040

6,138

1,782

Average EEV basis shareholders' equity ($ million)

33,758

19,141

35,622

17,526

Operating return on average shareholders' equity (%)

17%

11%

17%

10%

* Half year profits are annualised by multiplying by two.

Given the significant changes in Group shareholders' equity as a result of the demerger of the UK and Europe operations in October 2019, the 2019 comparatives excluded the presentation of a Group return on shareholders' funds. Additionally, the half year and full year 2019 comparatives for Asia and US operations have been re-presented from those previously published to reflect the use of average rather than opening or closing shareholders' equity to be on a comparable basis with the half year 2020 calculation.

 

New business profit over embedded value is calculated as the annualised post-tax EEV new business profit for the period as a percentage of average EEV basis shareholders' equity.

 

 

Half year 2020*

 

Half year 2019*

 

Full year 2019

 

Asia

US

 

Asia

US

 

Asia

US

New business profit ($ million)

912

248

 

1,675

450

 

3,522

883

Average EEV basis shareholders' equity ($ million)

38,244

14,943

 

33,758

19,141

 

35,622

17,526

New business profit over embedded value (%)

5%

3%

 

10%

5%

 

10%

5%

* Half year new business profits are annualised by multiplying by two.

  The half year and full year 2019 comparatives for Asia and US operations have been re-presented from those previously published to reflect the use of average rather than opening or closing shareholders' equity to be on a comparable basis with the half year 2020 calculation.

 

 

Average EEV basis shareholders' equity has been based on opening and closing balances as follows:

 

 

Half year 2020 $m

 

Half year 2019 $m

 

Full year 2019 $m

 

Asia

US

Other

Group

 

Asia

US

 

Asia

US

Balance at beginning of period

39,235

16,342

(866)

54,711

 

32,008

18,709

 

32,008

18,709

Balance at end of period

37,252

13,543

(1,853)

48,942

 

35,507

19,573

 

39,235

16,342

Average EEV basis shareholders' equity

38,244

14,943

(1,360)

51,827

 

33,758

19,141

 

35,622

17,526

 

Calculation of EEV shareholders' funds per share

 

EEV shareholders' funds per share is calculated as closing EEV shareholders' equity divided by the number of issued shares at 30 June 2020 of 2,609 million (30 June 2019: 2,600 million; 31 December 2019: 2,601 million). EEV shareholders' funds per share excluding goodwill attributable to shareholders is calculated in the same manner, except goodwill attributable to shareholders is deducted from closing EEV shareholders' equity.

 

 

30 Jun 2020

 

Asia

US

Other

Group

total

Closing EEV shareholders' equity ($ million)

37,252

13,543

(1,853)

48,942

Less: Goodwill attributable to shareholders ($ million)

(774)

-

(26)

(800)

Closing EEV shareholders' equity excluding goodwill attributable to shareholders ($ million)

36,478

13,543

(1,879)

48,142

Shareholders' funds per share (in cents)

1,428¢

519¢

(71)¢

1,876¢

Shareholders' funds per share excluding goodwill attributable to shareholders (in cents)

1,398¢

519¢

(72)¢

1,845¢

 

 

 

 

 

 

30 Jun 2019

 

Asia

US

Other

Group

total

Closing EEV shareholders' equity ($ million)

35,507

19,573

(4,608)

50,472

Less: Goodwill attributable to shareholders ($ million)

(649)

-

-

(649)

Closing EEV shareholders' equity excluding goodwill attributable to shareholders ($ million)

34,858

19,573

(4,608)

49,823

Shareholders' funds per share (in cents)

1,366¢

753¢

(177)¢

1,941¢

Shareholders' funds per share excluding goodwill attributable to shareholders (in cents)

1,341¢

753¢

(177)¢

1,916¢

 

 

 

 

 

 

31 Dec 2019

 

Asia

US

Other

Group

total

Closing EEV shareholders' equity ($ million)

39,235

16,342

(866)

54,711

Less: Goodwill attributable to shareholders ($ million)

(796)

-

(26)

(822)

Closing EEV shareholders' equity excluding goodwill attributable to shareholders ($ million)

38,439

16,342

(892)

53,889

Shareholders' funds per share (in cents)

1,508¢

628¢

(33)¢

2,103¢

Shareholders' funds per share excluding goodwill attributable to shareholders (in cents)

1,478¢

628¢

(34)¢

2,072¢

 


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