Prudential plc - HY21 Results - IFRS

RNS Number : 2267I
Prudential PLC
11 August 2021
 

IFRS disclosure and additional financial information

Prudential plc Half Year 2021 results

International Financial Reporting Standards (IFRS) basis results

 

CONDENSED CONSOLIDATED INCOME STATEMENT

 

 

 

 

 

2021 $m

 

2020 $m

 

 

 

Note

Half year

 

Half year

Full year

Continuing operations:

 

 

 

 

 

Gross premiums earned

 

11,521

 

10,950

23,495

Outward reinsurance premiums

 

(898)

 

46

(1,625)

Earned premiums, net of reinsurance

B1.4

10,623

 

10,996

21,870

Investment return

 

738

 

4,202

13,762

Other income

 

331

 

305

615

Total revenue, net of reinsurance

B1.4

11,692

 

15,503

36,247

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

 

(7,748)

 

(11,728)

(28,588)

Acquisition costs and other expenditure

B2

(2,402)

 

(2,823)

(4,651)

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

 

(164)

 

(153)

(316)

Loss attaching to corporate transactions

D1.1

(56)

 

-

(30)

Total charges, net of reinsurance

 

(10,370)

 

(14,704)

(33,585)

Share of profit from joint ventures and associates, net of related tax

 

179

 

133

517

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

 

1,501

 

932

3,179

Remove tax charge attributable to policyholders' returns

 

(238)

 

(66)

(271)

Profit before tax attributable to shareholders' returns

B1.1

1,263

 

866

2,908

Total tax charge attributable to shareholders' and policyholders' returns

B3.1

(431)

 

(310)

(711)

Remove tax charge attributable to policyholders' returns

 

238

 

66

271

Tax charge attributable to shareholders' returns

B3.1

(193)

 

(244)

(440)

Profit from continuing operations

B1.5

1,070

 

622

2,468

Loss from discontinued US operations note (ii)

D1.2

(5,707)

 

(88)

(283)

(Loss) profit for the period

 

(4,637)

 

534

2,185

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

Equity holders of the Company:

 

 

 

 

 

 

From continuing operations

 

1,063

 

600

2,458

 

From discontinued US operations

 

(5,073)

 

(88)

(340)

 

 

 

 

(4,010)

 

512

2,118

Non-controlling interests:

 

 

 

 

 

 

From continuing operations

 

7

 

22

10

 

From discontinued US operations

 

(634)

 

-

57

 

 

 

 

(627)

 

22

67

(Loss) profit for the period

 

(4,637)

 

534

2,185

 

Earnings per share (in cents)

 

2021

 

2020

 

 

 

Note

Half year

 

Half year

Full year

Based on profit attributable to equity holders of the Company:

B4

 

 

 

 

 

Basic

 

 

 

 

 

 

 

Based on profit from continuing operations

 

40.9¢

 

23.1¢

94.6¢

 

 

Based on loss from discontinued US operationsnote (ii)

 

(195.1)¢

 

(3.4)¢

(13.0)¢

 

Total

 

(154.2)¢

 

19.7¢

81.6¢

 

Diluted

 

 

 

 

 

 

 

Based on profit from continuing operations

 

40.9¢

 

23.1¢

94.6¢

 

 

Based on loss from discontinued US operationsnote (ii)

 

(195.1)¢

 

(3.4)¢

(13.0)¢

 

Total

 

(154.2)¢

 

19.7¢

81.6¢

 

 

 

 

 

 

 

 

 

Dividends per share (in cents)

 

2021

 

2020

 

 

Note

Half year

 

Half year

Full year

Dividends relating to reporting period:

B5

 

 

 

 

 

First interim ordinary dividend

 

5.37¢

 

5.37¢

5.37¢

 

Second interim ordinary dividend

 

-

 

-

10.73¢

Total

 

5.37¢

 

5.37¢

16.10¢

Dividends paid in reporting period:

B5

 

 

 

 

 

Current year first interim dividend

 

-

 

-

5.37¢

 

Second interim ordinary dividend for prior year

 

10.73¢

 

25.97¢

25.97¢

Total

 

10.73¢

 

25.97¢

31.34¢

 

Notes

(i)  This measure is the formal profit before tax measure under IFRS. It is not the result attributable to shareholders principally because total corporate tax of the Group includes those on the income of consolidated with-profits and unit-linked funds that, through adjustments to benefits, are borne by policyholders. These amounts are required to be included in the tax charge of the Company under IAS 12. Consequently, the IFRS profit before tax measure is not representative of pre-tax profit attributable to shareholders as it is determined after deducting the cost of policyholder benefits and movements in the liability for unallocated surplus of with-profits funds after adjusting for tax borne by policyholders.

(ii)  Loss from discontinued US operations represents the aggregate of the post-tax results during the period and the remeasurement adjustment to the carrying value of the business to reflect its classification as held for distribution in half year 2021. The 2020 comparative results have been re-presented from those previously published accordingly (as described in note A1).

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

2021 $m

 

2020* $m

 

 

 

Note

Half year

 

Half year

Full year

Continuing operations:

 

 

 

 

 

Profit for the period

 

1,070

 

622

2,468

Other comprehensive income (loss)

 

 

 

 

 

Exchange movements arising during the period

 

(163)

 

(201)

233

Total items that may be reclassified subsequently to profit or loss

 

(163)

 

(201)

233

Total comprehensive income from continuing operations

 

907

 

421

2,701

Discontinued US operations:*

 

 

 

 

 

Loss for the period

 

(5,707)

 

(88)

(283)

Valuation movements on available-for-sale debt securities, net of related change in amortisation of deferred acquisition costs and related tax

 

(867)

 

(22)

292

Total comprehensive (loss) income for the period from discontinued US operations

D1.2

(6,574)

 

(110)

9

Total comprehensive (loss) income for the period

 

(5,667)

 

311

2,710

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

Equity holders of the Company:

 

 

 

 

 

 

From continuing operations

 

905

 

400

2,697

 

From discontinued US operations

 

(5,844)

 

(110)

(40)

 

 

 

 

(4,939)

 

290

2,657

Non-controlling interests:

 

 

 

 

 

 

From continuing operations

 

2

 

21

4

 

From discontinued US operations

 

(730)

 

-

49

 

 

 

 

(728)

 

21

53

Total comprehensive (loss) income for the period

 

(5,667)

 

311

2,710

* The 2020 comparative results have been re-presented from those previously published to reflect the Group's US operations as discontinued operations in half year 2021 (as described in note A1).

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

 

 

 Period ended 30 Jun 2021 $m

 

Note

Share

 capital

Share

premium

Retained

  earnings

Translation

reserve

Available

-for-sale

 securities

reserves

Shareholders'

equity 

 

Non-

controlling

interests

 

Total

 equity

Reserves

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

1,063

-

-

1,063

 

7

 

1,070

Other comprehensive loss

 

-

-

-

(158)

-

(158)

 

(5)

 

(163)

Total comprehensive income (loss) from continuing operations

 

-

-

1,063

(158)

-

905

 

2

 

907

Total comprehensive loss from discontinued US operations

D1.2

-

-

(5,073)

-

(771)

(5,844)

 

(730)

 

(6,574)

Total comprehensive loss for the period

 

-

-

(4,010)

(158)

(771)

(4,939)

 

(728)

 

(5,667)

Dividends

B5

-

-

(283)

-

-

(283)

 

(3)

 

(286)

Reserve movements in respect of share-based payments

 

-

-

77

-

-

77

 

-

 

77

Effect of transactions relating to non-controlling interests

 

-

-

(10)

-

-

(10)

 

-

 

(10)

Share capital and share premium

 

 

 

 

 

 

 

 

 

 

 

New share capital subscribed

C8

-

8

-

-

-

8

 

-

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares

 

 

 

 

 

 

 

 

 

 

 

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

 

-

-

(18)

-

-

(18)

 

-

 

(18)

Net increase (decrease) in equity

 

-

8

(4,244)

(158)

(771)

(5,165)

 

(731)

 

(5,896)

Balance at beginning of period

 

173

2,637

14,424

1,132

2,512

20,878

 

1,241

 

22,119

Balance at end of period

 

173

2,645

10,180

974

1,741

15,713

 

510

 

16,223

 

 

 

 

 Period ended 30 Jun 2020* $m

 

Note

Share

 capital

Share

premium

Retained

  earnings

Translation

reserve

Available

-for-sale

 securities

reserves

Shareholders'

equity 

 

Non-

controlling

interests

 

Total

 equity

Reserves

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

600

-

-

600

 

22

 

622

Other comprehensive loss

 

-

-

-

(200)

-

(200)

 

(1)

 

(201)

Total comprehensive income (loss) from continuing operations

 

-

-

600

(200)

-

400

 

21

 

421

Total comprehensive loss from discontinued US operations

D1.2

-

-

(88)

-

(22)

(110)

 

-

 

(110)

Total comprehensive income (loss) for the period

 

-

-

512

(200)

(22)

290

 

21

 

311

Dividends

B5

-

-

(674)

-

-

(674)

 

(16)

 

(690)

Reserve movements in respect of share-based payments

 

-

-

29

-

-

29

 

-

 

29

Effect of transactions relating to non-controlling interests

 

-

-

32

-

-

32

 

-

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

Share capital and share premium

 

 

 

 

 

 

 

 

 

 

 

New share capital subscribed

C8

-

10

-

-

-

10

 

-

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares

 

 

 

 

 

 

 

 

 

 

 

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

 

-

-

(54)

-

-

(54)

 

-

 

(54)

Net increase (decrease) in equity

 

-

10

(155)

(200)

(22)

(367)

 

5

 

(362)

Balance at beginning of period

 

172

2,625

13,575

893

2,212

19,477

 

192

 

19,669

Balance at end of period

 

172

2,635

13,420

693

2,190

19,110

 

197

 

19,307

* The half year 2020 comparative results have been re-presented from those previously published to reflect the Group's US operations as discontinued operations in half year 2021 (as described in note A1).

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

 

 

 

 

 

 Year ended 31 Dec 2020* $m

 

Note

Share

 capital

Share

premium

Retained

  earnings

Translation

reserve

Available

-for-sale

 securities

reserves

Shareholders'

equity

Non-

 controlling

  interests

Total

 equity

Reserves

 

 

 

 

 

 

 

 

 

Profit for the year

 

-

-

2,458

-

-

2,458

10

2,468

Other comprehensive income (loss)

 

-

-

-

239

-

239

(6)

233

Total comprehensive income from continuing operations

 

-

-

2,458

239

-

2,697

4

2,701

Total comprehensive income (loss) from discontinued US operations

D1.2

-

-

(340)

-

300

(40)

49

9

Total comprehensive income for the year

 

-

-

2,118

239

300

2,657

53

2,710

Dividends

B5

-

-

(814)

-

-

(814)

(18)

(832)

Reserve movements in respect of share-based payments

 

-

-

89

-

-

89

-

89

Effect of transactions relating to non-controlling interests

 

-

-

(484)

-

-

(484)

1,014

530

Share capital and share premium

 

 

 

 

 

 

 

 

 

New share capital subscribed

C8

1

12

-

-

-

13

-

13

Treasury shares

 

 

 

 

 

 

 

 

 

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

 

-

-

(60)

-

-

(60)

-

(60)

Net increase in equity

 

1

12

849

239

300

1,401

1,049

2,450

Balance at beginning of year

 

172

2,625

13,575

893

2,212

19,477

192

19,669

Balance at end of year

 

173

2,637

14,424

1,132

2,512

20,878

1,241

22,119

* The full year 2020 comparative results have been re-presented from those previously published to reflect the Group's US operations as discontinued operations in half year 2021 (as described in note A1).

The $1,014 million effect of transactions relating to non-controlling interests recognised in full year 2020 related to the equity investment by Athene Life Re Ltd. into the US business in July 2020.

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

 

 

 

2021 $m

 

2020 $m

 

 

 

Note

30 Jun

 

30 Jun

31 Dec

Assets

 

 

 

 

 

Goodwill

C4.1

926

 

942

961

Deferred acquisition costs and other intangible assets

C4.2

6,525

 

18,604

20,345

Property, plant and equipment

 

525

 

964

893

Reinsurers' share of insurance contract liabilities

 

9,891

 

44,918

46,595

Deferred tax assets

C7

298

 

4,259

4,858

Current tax recoverable

 

23

 

387

444

Accrued investment income

 

1,092

 

1,517

1,427

Other debtors

 

2,238

 

3,211

3,171

Investment properties

 

39

 

23

23

Investments in joint ventures and associates accounted for using the equity method

 

2,056

 

1,507

1,962

Loans

 

2,440

 

14,910

14,588

Equity securities and holdings in collective investment schemesnote (i)

 

60,466

 

234,698

278,635

Debt securitiesnote (i)

 

92,728

 

121,462

125,829

Derivative assets

 

485

 

2,459

2,599

Other investmentsnote (i)

 

-

 

1,569

1,867

Deposits

 

3,344

 

3,351

3,882

Assets held for distributionnote (ii)

D1.2

335,750

 

-

-

Cash and cash equivalents

 

6,295

 

8,384

8,018

Total assets

C1

525,121

 

463,165

516,097

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Shareholders' equity

 

15,713

 

19,110

20,878

Non-controlling interests

 

510

 

197

1,241

Total equity

C1

16,223

 

19,307

22,119

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

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

C3.1

144,809

 

391,924

441,246

Unallocated surplus of with-profits funds

C3.1

6,273

 

5,512

5,217

Core structural borrowings of shareholder-financed businesses

C5.1

6,404

 

6,499

6,633

Operational borrowings

C5.2

895

 

2,245

2,444

Obligations under funding, securities lending and sale and repurchase agreements

 

396

 

9,085

9,768

Net asset value attributable to unit holders of consolidated investment funds

 

5,770

 

5,967

5,975

Deferred tax liabilities

C7

2,735

 

5,278

6,075

Current tax liabilities

 

200

 

428

280

Accruals, deferred income and other liabilities

 

8,017

 

16,208

15,508

Provisions

 

227

 

245

350

Derivative liabilities

 

412

 

467

482

Liabilities held for distributionnote (ii)

D1.2

332,760

 

-

-

Total liabilities

C1

508,898

 

443,858

493,978

Total equity and liabilities

C1

525,121

 

463,165

516,097

 

Notes

(i)  Included within equity securities and holdings in collective investment schemes, debt securities and other investments as at 30 June 2021 are $1,006 million of lent securities and assets subject to repurchase agreements (30 June 2020: $229 million; 31 December 2020: $895 million from continuing operations). Included within discontinued operations is $2,281 million (30 June 2020: $36 million; 31 December 2020: $1,112 million).

(ii)  Assets and liabilities held for distribution at 30 June 2021 related to the Group's US operations which were classified as discontinued operations in half year 2021, as discussed in note A1. A line-by-line analysis of assets and liabilities for the discontinued US operations is included in note D1.2. The 2020 comparative results for the assets and liabilities at 30 June 2020 and 31 December 2020 are as published and not re-presented on a basis consistent with 30 June 2021 (as described in note A1).

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

 

 

2021 $m

 

2020 $m

 

 

 

Note

Half year

 

Half year

Full year

Continuing operations:

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

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

 

1,501

 

932

3,179

Adjustments to profit before tax for non-cash movements in operating assets and liabilities:

 

 

 

 

 

 

Investments

 

(5,651)

 

(6,404)

(20,978)

 

Other non-investment and non-cash assets

 

2,693

 

(4,999)

(7,185)

 

Policyholder liabilities (including unallocated surplus of with-profits funds)

 

2,424

 

12,082

27,117

 

Other liabilities (including operational borrowings)

 

105

 

382

155

Other itemsnote (i)

 

156

 

(376)

485

Net cash flows from operating activities

 

1,228

 

1,617

2,773

Cash flows from investing activities

 

 

 

 

 

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

 

(19)

 

(42)

(51)

Net cash flows from other investing activitiesnote (ii)

 

(773)

 

(733)

(1,142)

Net cash flows from investing activities

 

(792)

 

(775)

(1,193)

Cash flows from financing activities

 

 

 

 

 

Structural borrowings of shareholder-financed operations:note (iii)

C5.1

 

 

 

 

 

Issuance of debt, net of costs

 

-

 

983

983

 

Interest paid

 

(163)

 

(147)

(294)

Payment of principal portion of lease liabilities

 

(54)

 

(53)

(128)

Equity capital:

 

 

 

 

 

 

Issues of ordinary share capital

 

8

 

10

13

External dividends:

 

 

 

 

 

 

Dividends paid to the Company's shareholders

B5

(283)

 

(674)

(814)

 

Dividends paid to non-controlling interests

 

(3)

 

(16)

(18)

Net cash flows from financing activities

 

(495)

 

103

(258)

Net increase (decrease) in cash and cash equivalents from continuing operations

 

(59)

 

945

1,322

Discontinued US operations: note (iv)

 

 

 

 

 

Net cash flows from operating activities

 

(442)

 

549

(807)

Net cash flows from investing activities

 

-

 

(1)

(2)

Net cash flows from financing activitiesnote (v)

 

(18)

 

(15)

470

Net increase (decrease) in cash and cash equivalents from discontinued US operations

 

(460)

 

533

(339)

Cash and cash equivalents at beginning of period

 

8,018

 

6,965

6,965

Effect of exchange rate changes on cash and cash equivalents

 

(43)

 

(59)

70

Cash and cash equivalents at end of period

 

7,456

 

8,384

8,018

Comprising:

 

 

 

 

 

 

Cash and cash equivalents from continuing operations

 

6,295

 

5,891

6,397

 

Cash and cash equivalents from discontinued US operations

D1.2

1,161

 

2,493

1,621

 

Notes

(i)  The adjusting items to profit before tax included within other items are adjustments in respect of non-cash items together with operational interest receipts and payments, dividend receipts and tax paid. Included in net cash flows from operating activities are dividends from joint ventures and associates of $114 million (half year 2020: $79 million; full year 2020: $118 million).

(ii)  Net cash flows from other investing activities include amounts paid for distribution rights and cash flows arising from the acquisitions and disposals of businesses.  

(iii)  Structural borrowings of shareholder-financed businesses exclude borrowings to support short-term fixed income securities programmes, non-recourse borrowings of investment subsidiaries of shareholder-financed businesses and other borrowings of shareholder-financed businesses. Cash flows in respect of these borrowings are included within cash flows from operating activities. The changes in the carrying value of the structural borrowings of shareholder-financed businesses for the Group are analysed below:

 

 

 

Balance at

Cash movements $m

 

Non-cash movements $m

Balance at

 

 

beginning

of period

$m

Issuance of debt

 

Foreign exchange

movement

Reclassification of

US operations as

held for distribution

Other

 movements

 end of

period

$m

 

30 Jun 2021

6,633

-

 

14

(250)

7

6,404

 

30 Jun 2020

5,594

983

 

(85)

-

7

6,499

 

31 Dec 2020

5,594

983

 

42

-

14

6,633

 

(iv)  Net cash flows from discontinued operations represents the movement in cash and cash equivalents from the discontinued US operations which were classified as held for distribution in half year 2021. The statement of cash flows is presented excluding intragroup cash flows between the continuing and discontinued US operations. The 2020 comparative results have been re-presented from those previously published accordingly (as described in note A1).

(v)  No dividends were paid to non-controlling interest of the discontinued US operations during the periods shown above.

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

A  Basis of preparation

A1  Basis of preparation and exchange rates

 

These condensed consolidated interim financial statements for the six months ended 30 June 2021 have been prepared in accordance with both IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and IAS 34 as adopted for use in the UK. The Group's policy for preparing this interim financial information is to use the accounting policies adopted by the Group in its last consolidated financial statements, as updated by any changes in accounting policies it intends to make in its next consolidated financial statements as a result of new or amended IFRS and other policy improvements. At 30 June 2021, there were no unadopted standards effective for the period ended 30 June 2021 which impact the condensed consolidated financial statements of the Group, and there were no differences between IFRS adopted for use in the UK and IFRS issued by the IASB in terms of their application to the Group .

 

The accounting policies applied by the Group in determining the IFRS basis results in this report are the same as those previously applied in the Group's consolidated financial statements for the year ended 31 December 2020, as disclosed in the 2020 statutory accounts, aside from those discussed in note A2 below.

 

In 2021, the Group changed its operating segments for financial reporting under IFRS 8, 'Operating Segments' as discussed further in note B1.3 and has reclassified Jackson as held for distribution and discontinued operations as discussed further below.

 

The IFRS basis results for half year 2021 and half year 2020 are unaudited. The 2020 full year IFRS basis results have been derived from the 2020 statutory accounts. The auditors have reported on the 2020 statutory accounts which have been delivered to the Registrar of Companies. The auditors' report was: (i) unqualified; (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

Going concern basis of accounting

The Directors have made an assessment of going concern covering a period of at least 12 months from the date that these financial statements are approved. In making this assessment, the Directors have considered both the Group's current performance, solvency and liquidity and the Group's business plan taking into account the Group's principal risks and the mitigations available to it which are described in the Group Chief Risk and Compliance Officer's report. The proposed demerger of Jackson from the Group is expected to occur within the period covered by the assessment. The Directors have therefore considered the ability of the Group to continue as a going concern in its current form (ie the Group including Jackson) as well as the more likely scenario that the demerger proceeds (ie the Group excluding Jackson).

 

The assessment also includes consideration of the results of key market risk stress and scenario testing over the assessment period covering the potential impact of up or down equity market and interest rate movements, corporate credit spread widening, and an elevated level of credit losses. The current situation on Covid-19 is not expected to impact the ability of the Group to continue as a going concern.

 

Based on the above, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue their operations for a period of at least 12 months from the date that these financial statements are approved. No material uncertainties that may cast significant doubt on the ability of the Group to continue as a going concern have been identified. The Directors therefore consider it appropriate to continue to adopt the going concern basis of accounting in preparing these interim financial statements for the period ended 30 June 2021.

 

Discontinued operations

On 28 January 2021, the Board announced that it had decided to pursue the separation of its US operations (Jackson) from the Group through a demerger, whereby shares in Jackson would be distributed to Prudential shareholders, subject to regulatory and shareholder approvals. In accordance with IFRS 5, 'Non-Current Assets Held for Sale and Discontinued Operations', the Group's US operations have been classified as held for distribution and discontinued operations in these condensed consolidated financial statements.

 

In order to present the results of the continuing operations on a comparable basis, and consistent with IFRS 5 requirements, loss after tax attributable to the discontinued US operations in half year 2021 has been shown in a single line in the income statement with 2020 comparatives being restated accordingly, with further analysis provided in note D1.2. Notes B1 to B4 have also been prepared on this basis.

 

IFRS 5 does not permit the comparative 30 June 2020 and 31 December 2020 statements of financial position to be re-presented, as the US operations were not classified as discontinued at these dates. In the related balance sheet notes, prior period balances have been presented to show the amounts from discontinued US operations separately from continuing operations in order to present the results of the continuing operations on a comparable basis. Additionally, in the analysis of movements in Group's assets and liabilities between the beginning and end of the periods, the balances of the discontinued US operations are removed from the opening balances to show the underlying movements from continuing operations.

 

Exchange rates

The exchange rates applied for balances and transactions in currencies other than the presentation currency of the Group, US dollars (USD) were:

 

USD : local currency

Closing rate at period end

 

Average rate for the period to date

 

30 Jun 2021

30 Jun 2020

31 Dec 2020

 

Half year 2021

Half year 2020

Full year 2020

Chinese yuan (CNY)

6.46

7.07

6.54

 

6.47

7.03

6.90

Hong Kong dollar (HKD)

7.77

7.75

7.75

 

7.76

7.76

7.76

Indian rupee (INR)

74.33

75.50

73.07

 

73.33

74.16

74.12

Indonesian rupiah (IDR)

14,500.00

14,285.00

14,050.00

 

14,273.32

14,574.24

14,541.70

Malaysian ringgit (MYR)

4.15

4.29

4.02

 

4.10

4.25

4.20

Singapore dollar (SGD)

1.34

1.40

1.32

 

1.33

1.40

1.38

Taiwan dollar (TWD)

27.86

29.50

28.10

 

28.02

30.00

29.44

Thai baht (THB)

32.06

30.87

30.02

 

30.83

31.62

31.29

UK pound sterling (GBP)

0.72

0.81

0.73

 

0.72

0.79

0.78

Vietnamese dong (VND)

23,016.00

23,206.00

23,082.50

 

23,044.83

23,303.21

23,235.84

 

Certain notes to the financial statements present half year 2020 comparative information at constant exchange rates (CER), in addition to the reporting at actual exchange rates (AER) used throughout the condensed consolidated financial statements. AER are actual historical exchange rates for the specific accounting period, being the average rates over the period for the income statement and the closing rates at the balance sheet date for the statement of financial position. CER results are calculated by translating prior period results using the current period foreign exchange rate, ie current period average rates for the income statement and current period closing rates for the statement of financial position.

 

A2  New accounting pronouncements in 2021

 

The IASB has issued the following new accounting pronouncements to be effective from 1 January 2021:

 

-  Amendments to IFRS 7, IFRS 9, IAS 39, IFRS 4 and IFRS 16 'Interest Rate Benchmark Reform - phase 2' issued in August 2020;

-  Amendments to IFRS 16, 'Covid-19 Related Rent Concession beyond 30 June 2021' issue in March 2021; and

-  Amendments to IFRS 4, 'Extension of temporary IFRS 9 exemption until 1 January 2023'.

 

The adoption of these pronouncements have had no significant impact on the Group financial statements.

 

B  EARNINGS PERFORMANCE

 

B1  Analysis of performance by segment

 

B1.1  Segment results

 

 

 

 

 

2021 $m

 

2020 $m

 

2021 vs 2020 %

 

2020 $m

 

 

 

Note

Half year

 

AER

Half year

CER

Half year

 

AER

Half year

CER

Half year

 

AER

Full year

 

 

 

 

 

 

note (i)

note (i)

 

note (i)

note (i)

 

note (i)

Continuing operations:

 

 

 

 

 

 

 

 

 

 

China JV

 

139

 

101

109

 

38%

28%

 

251

Hong Kong

 

460

 

412

412

 

12%

12%

 

891

Indonesia

 

225

 

249

255

 

(10)%

(12)%

 

519

Malaysia

 

184

 

158

164

 

16%

12%

 

309

Singapore

 

320

 

262

276

 

22%

16%

 

574

Growth markets and othernote (ii)

 

479

 

404

418

 

19%

15%

 

835

Eastspring

 

162

 

143

147

 

13%

10%

 

283

Total segment profit

 

1,969

 

1,729

1,781

 

14%

11%

 

3,662

Other income and expenditure:

 

 

 

 

 

 

 

 

 

 

 

Investment return and other income

 

-

 

8

8

 

n/a

n/a

 

(15)

 

Interest payable on core structural borrowings

 

(164)

 

(153)

(153)

 

(7)%

(7)%

 

(316)

 

Corporate expenditurenote (iii)

 

(157)

 

(201)

(212)

 

22%

26%

 

(412)

Total other income and expenditure

 

(321)

 

(346)

(357)

 

7%

10%

 

(743)

Restructuring and IFRS 17 implementation costsnote (iv)

 

(77)

 

(97)

(99)

 

21%

22%

 

(162)

Adjusted operating profit

B1.3

1,571

 

1,286

1,325

 

22%

19%

 

2,757

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

B1.2

(212)

 

(418)

(421)

 

49%

50%

 

(579)

Amortisation of acquisition accounting adjustments

 

(2)

 

(2)

(2)

 

0%

0%

 

(5)

(Loss) gain attaching to corporate transactions

D1.1

(94)

 

-

-

 

n/a

n/a

 

735

Profit before tax attributable to shareholders

 

1,263

 

866

902

 

46%

40%

 

2,908

Tax charge attributable to shareholders' returns

B3

(193)

 

(244)

(249)

 

21%

22%

 

(440)

Profit from continuing operations

 

1,070

 

622

653

 

72%

64%

 

2,468

Loss from discontinued US operations

D1.2

(5,707)

 

(88)

(88)

 

n/a

n/a

 

(283)

(Loss) profit for the period

 

(4,637)

 

534

565

 

n/a

n/a

 

2,185

Attributable to:

 

 

 

 

 

 

 

 

 

 

Equity holders of the Company:

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

 

1,063

 

600

631

 

77%

68%

 

2,458

 

From discontinued US operations

 

(5,073)

 

(88)

(88)

 

n/a

n/a

 

(340)

 

 

 

 

(4,010)

 

512

543

 

n/a

n/a

 

2,118

Non-controlling interests:

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

 

7

 

22

22

 

(68)%

(68)%

 

10

 

From discontinued US operations

 

(634)

 

-

-

 

n/a

n/a

 

57

 

 

 

 

(627)

 

22

22

 

n/a

n/a

 

67

(Loss) profit for the period

 

(4,637)

 

534

565

 

n/a

n/a

 

2,185

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share (in cents)

 

2021

 

2020

 

2021 vs 2020 %

 

2020

 

 

 

Note

AER

Half year

 

AER

Half year

CER

Half year

 

AER

Half year

CER

Half year

 

AER

Full year

 

 

 

B4

note (i)

 

note (i)

note (i)

 

note (i)

note (i)

 

note (i)

Based on adjusted operating profit, net of tax and non-controlling interest, from continuing operations

 

51.6¢

 

38.1¢

39.4¢

 

35%

31%

 

86.6¢

Based on profit from continuing operations, net of non-controlling interest

 

40.9¢

 

23.1¢

24.3¢

 

77%

68%

 

94.6¢

Based on loss from discontinued US operations, net of non-controlling interest

 

(195.1)¢

 

(3.4)¢

(3.4)¢

 

n/a

n/a

 

(13.0)¢

 

Notes

(i)   Segment results are attributed to the shareholders of the Group before deducting the amount attributable to the non-controlling interests. This presentation is applied consistently throughout the document. For definitions of AER and CER refer to note A1.

(ii)  For growth markets and other, a djusted operating profit includes other items of $167 million (half year 2020: $104 million; full year 2020: $119 million) which primarily comprises of taxes for life joint ventures and associates and other non-recurring items.

(iii)  Corporate expenditure as shown above is for head office functions in London and Hong Kong.

(iv)  Restructuring and IFRS 17 implementation costs include those incurred in insurance and asset management operations of $(33) million (half year 2020: $(33) million; full year 2020: $(97) million).

 

B1.2  Short-term fluctuations in investment returns on shareholder-backed business

 

 

 

2021 $m

 

2020 $m

 

 

Half year

 

Half year

Full year

Total segment (insurance and asset management operations)

(208)

 

(448)

(607)

Unallocated to a segment (central operations)

(4)

 

30

28

Total short-term fluctuations in investment returns from continuing operations

(212)

 

(418)

(579)

 

In general, the short-term fluctuations reflect the value movements on shareholders' assets and policyholder liabilities (net of reinsurance) arising from market movements in the period. In half year 2021, rising interest rates across most operations led to unrealised bond losses which more than offset the impact of higher discount rates on policyholder liabilities under the local reserving basis applied and equity gains on shareholder-backed business in the period. This has led to the overall negative short-term investment fluctuations for total insurance and asset management operations.

 

B1.3  Determining operating segments and performance measure of operating segments

Operating segments

The Group's operating segments for financial reporting purposes are defined and presented in accordance with IFRS 8 'Operating Segments' on the basis of the management reporting structure and its financial management information.

 

Under the Group's management and reporting structure, its chief operating decision maker is the Group Executive Committee (GEC), chaired by the Group Chief Executive. In the management structure, responsibility is delegated to the Chief Executive, Prudential Corporation Asia, for the day-to-day management of the insurance and asset management operations (within the framework set out in the Group Governance Manual). This in turn is delegated to the Chief Executives of Hong Kong, Indonesia, Malaysia, Singapore, Growth markets (comprising Africa and the remaining Asia subsidiary operations) and Eastspring, the Group's Asia asset manager. The China JV is managed jointly with CITIC, a Chinese state-owned conglomerate.

 

In the first quarter of 2021, the Group reviewed its operating segments for financial reporting under IFRS 8 following changes to the business and financial management information provided to the GEC. As a result, performance measures for insurance operations are analysed by geographical areas for the larger business units of the China JV, Hong Kong, Indonesia, Malaysia and Singapore, with Eastspring, the asset management business, also analysed separately. All other Asia and Africa insurance operations are included in the 'Growth markets and other' segment alongside other amounts that are not included in the segment profit of an individual business unit, including tax on life joint ventures and associates and other items that are not representative of the underlying segment trading for the period. The 2020 comparatives have been re-presented to show the new segments for comparison. Previously the Group's segments were Asia and the US. The US operations have been classified as discontinued following its classification as held for distribution in half year 2021 (see note D1.2). In light of the proposed demerger, the segment analysis for the discontinued US operations is provided in note D1.2, separate from those for the continuing operations.

 

Operations which do not form part of any business unit are reported as 'Unallocated to a segment' and comprise head office functions in London and Hong Kong.

 

Performance measure  

The performance measure of operating segments utilised by the Group is IFRS operating profit based on longer-term investment returns ('adjusted operating profit') , as described below. This measurement basis distinguishes adjusted operating profit from other constituents of total profit or loss for the period as follows:

 

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

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

-  Gain or loss on corporate transactions, as discussed in note D1.1.

 

The determination of adjusted operating profit for investment and liability movements is as described in note B1.3 of the Group's consolidated financial statements for the year ended 31 December 2020.  

 

For Group debt securities at 30 June 2021 held by the continuing insurance operations, the level of unamortised interest-related realised gains and losses related to previously sold bonds was a net gain of $414 million (30 June 2020: net gain of $355 million; 31 December 2020: net gain of $525 million from continuing operations).

 

For equity-type securities, the longer-term rates of return are estimates of the long-term trend investment returns for income and capital having regard to past performance, current trends and future expectations. Different rates apply to different categories of equity-type securities.

 

For insurance operations, investments in equity securities held for non-linked shareholder-backed business amounted to $5,447 million as at 30 June 2021 ( 30 June 2020: $5,721 million; 31 December 2020: $4,963 million from continuing operations ). The longer-term rates of return applied in half year 2021 ranged from 5.5 per cent to 16.9 per cent (half year 2020: 4.6 per cent to 17.6 per cent; full year 2020: 5.1 per cent to 16.9 per cent from continuing operations ) with the rates applied varying by business unit.

 

B1.4  Additional segmental analysis of revenue from continuing operations

 

 

Half year 2021 $m

 

Insurance operationsnote (i)

 

 

 

 

 

 

Hong

Kong

Indonesia

Malaysia

Singapore

Growth

markets

and

other

Eastspring

Inter

-segment

 elimi-

nation

Total

segment

Un-

allocated

 to a

segment

Total

continuing

operations

Gross premiums earned

4,776

871

929

2,934

2,011

-

-

11,521

-

11,521

Outward reinsurance premiums

(767)

(28)

(22)

(55)

(26)

-

-

(898)

-

(898)

Earned premiums, net of reinsurance

4,009

843

907

2,879

1,985

-

-

10,623

-

10,623

Other incomenote (ii)

24

5

1

10

57

234

-

331

-

331

Total external revenue

4,033

848

908

2,889

2,042

234

-

10,954

-

10,954

Intra-group revenue

-

-

-

-

-

106

(106)

-

-

-

Interest income

528

46

117

462

303

1

-

1,457

-

1,457

Other investment return

(1,230)

(102)

(179)

1,003

(220)

9

-

(719)

-

(719)

Total revenue, net of reinsurance

3,331

792

846

4,354

2,125

350

(106)

11,692

-

11,692

 

 

 

 

 

 

 

 

 

 

 

 

Half year 2020 $m

 

Insurance operationsnote (i)

 

 

 

 

 

 

Hong

Kong

Indonesia

Malaysia

Singapore

Growth

markets

and

other

Eastspring

Inter

-segment

 elimi-

nation

Total

segment

Un-

allocated

 to a

segment

Total

continuing

operations

Gross premiums earned

5,450

863

839

2,105

1,693

-

-

10,950

-

10,950

Outward reinsurance premiumsnote (iii)

(385)

(35)

(12)

501

(23)

-

-

46

-

46

Earned premiums, net of reinsurance

5,065

828

827

2,606

1,670

-

-

10,996

-

10,996

Other incomenote (ii)

26

7

3

15

36

200

-

287

18

305

Total external revenue

5,091

835

830

2,621

1,706

200

-

11,283

18

11,301

Intra-group revenue

-

-

-

-

-

81

(81)

-

-

-

Interest income

250

55

108

198

278

3

-

892

13

905

Other investment return

4,457

(727)

(81)

(273)

(145)

5

-

3,236

61

3,297

Total revenue, net of reinsurance

9,798

163

857

2,546

1,839

289

(81)

15,411

92

15,503

 

 

Full year 2020 $m

 

Insurance operationsnote (i)

 

 

 

 

 

 

Hong

Kong

Indonesia

Malaysia

Singapore

Growth

markets

and

other

Eastspring

Inter

-segment

 elimi-

nation

Total

segment

Un-

allocated

 to a

segment

Total

continuing

operations

Gross premiums earned

11,091

1,738

1,783

5,035

3,848

-

-

23,495

-

23,495

Outward reinsurance premiumsnote (iii)

(1,918)

(62)

(27)

432

(50)

-

-

(1,625)

-

(1,625)

Earned premiums, net of reinsurance

9,173

1,676

1,756

5,467

3,798

-

-

21,870

-

21,870

Other incomenote (ii)

59

8

-

38

91

417

-

613

2

615

Total external revenue

9,232

1,684

1,756

5,505

3,889

417

-

22,483

2

22,485

Intra-group revenue

-

-

-

-

1

164

(165)

-

-

-

Interest income

646

104

210

447

570

5

-

1,982

15

1,997

Other investment return

8,139

(115)

468

2,409

830

26

-

11,757

8

11,765

Total revenue, net of reinsurance

18,017

1,673

2,434

8,361

5,290

612

(165)

36,222

25

36,247

 

Notes

(i)  The China JV segment is a joint venture accounted for using the equity method under IFRS, with the Group's share of its results net of related tax presented in a single line within the Group's profit before tax on a net of related tax basis, and therefore not shown in the analysis of revenue line items above.   Revenue from external customers of the China JV in half year 2021 is $1,307 million (half year 2020: $980 million; full year 2020: $1,866 million).

(ii)  Other income comprises income from external customers and consists primarily of revenue from the Group's asset management business of $234 million (half year 2020: $200 million; full year 2020: $417 million from continuing operations). The remaining other income consists primarily of policy fee revenue from external customers.

(iii)  The 2020 outward reinsurance premiums of Singapore included a credit of $542 million for the recapture of previously reinsured business following a change in regulatory requirements.

 

B1.5  Additional segmental analysis of profit after tax from continuing operations

 

 

2021 $m

 

2020 $m

 

Half year

 

Half year

Full year

China JV

148

 

57

394

Hong Kong

441

 

108

994

Indonesia

179

 

184

409

Malaysia

135

 

135

256

Singapore

141

 

246

521

Growth markets and other

330

 

192

548

Eastspring

147

 

126

253

Total segment

1,521

 

1,048

3,375

Unallocated to a segment (central operations)*

(451)

 

(426)

(907)

Group total profit after tax from continuing operations

1,070

 

622

2,468

* Comprising costs attributable to the head office functions in London and Hong Kong including interest costs on core structural borrowings and restructuring and IFRS 17 implementation costs.

 

B2  Acquisition costs and other expenditure from continuing operations

 

 

2021 $m

 

2020 $m

 

Half year

 

Half year

Full year

Acquisition costs incurred for insurance policies

(1,026)

 

(950)

(2,080)

Acquisition costs deferred

373

 

261

617

Amortisation of acquisition costs

(186)

 

(157)

(308)

Administration costs and other expenditure (net of other reinsurance commission)note

(1,542)

 

(1,528)

(2,433)

Movements in amounts attributable to external unit holders

of consolidated investment funds

(21)

 

(449)

(447)

Total acquisition costs and other expenditure from continuing operations

(2,402)

 

(2,823)

(4,651)

 

Note

Included in total administration costs and other expenditure is depreciation of property, plant and equipment of $(85) million (half year 2020: $(92) million; full year 2020: $(186) million from continuing operations), of which $(62) million (half year 2020: $(66) million; full year 2020: $(134) million from continuing operations) relates to the right-of-use assets recognised under IFRS 16 and interest on the IFRS 16 lease liabilities of $6 million (half year 2020: $8 million; full year 2020: $16 million from continuing operations ). The full year 2020 amount also included a credit of $770 million for the commission arising from the reinsurance transaction entered into by the Hong Kong business during the year as discussed in note D1.1.

 

B3  Tax charge from continuing operations

 

B3.1  Total tax charge by nature

The total tax charge from continuing operations in the income statement is as follows:

 

 

 

2021 $m

 

2020 $m

Tax charge

Half year

Total

 

Half year

Total

Full year

Total

Attributable to shareholders:

 

 

 

 

 

Hong Kong

(16)

 

(16)

(15)

 

Indonesia

(45)

 

(61)

(125)

 

Malaysia*

(28)

 

(37)

(58)

 

Singapore

(23)

 

(47)

(87)

 

Growth markets* and other

(73)

 

(53)

(125)

 

Eastspring*

(15)

 

(17)

(30)

Total segment

(200)

 

(231)

(440)

 

Unallocated to a segment (central operations)

7

 

(13)

-

Tax charge attributable to shareholders

(193)

 

(244)

(440)

Attributable to policyholders:

 

 

 

 

 

Hong Kong

(40)

 

(30)

(60)

 

Indonesia

(2)

 

-

(3)

 

Malaysia*

(2)

 

9

(34)

 

Singapore

(194)

 

(42)

(170)

 

Growth markets* and other

-

 

(3)

(4)

Tax charge attributable to policyholders

(238)

 

(66)

(271)

Total tax charge from continuing operations

(431)

 

(310)

(711)

 

 

 

 

 

 

Analysed by:

 

 

 

 

Current tax

(189)

 

(190)

(383)

Deferred tax

(242)

 

(120)

(328)

Total tax charge from continuing operations

(431)

 

(310)

(711)

* Profit before tax includes Prudential's share of profit after tax from the joint ventures and associates that are equity-accounted for. Therefore, the actual tax charge in the income statement does not include tax arising from the results of joint ventures and associates including the China JV.

 

The reconciliation of the expected to actual tax charge attributable to shareholders is provided in B3.2 below. The tax charge attributable to policyholders of $(238) million (half year 2020: $(66) million; full year 2020: $(271) million) above is equal to the profit before tax attributable to policyholders. This is the result of accounting for policyholder income after the deduction of expenses and movement on unallocated surpluses on an after-tax basis.

 

B3.2  Reconciliation of shareholder effective tax rate

In the reconciliation below, the expected tax rate reflects the corporation tax rates that are expected to apply to the taxable profit or loss of the continuing operations. It reflects the corporation tax rates of each jurisdiction weighted by reference to the amount of profit or loss contributing to the aggregate result from continuing operations.

 

 

 

 

2021

 

 

2020

 

 

 

 

Half year

 

Half year

 

Full year

 

 

 

Tax

attributable to

 shareholders

Percentage

 impact

on ETR

 

Tax

attributable to

 shareholders

Percentage

impact

on ETR

 

Tax

attributable to

 shareholders

Percentage

impact

on ETR

 

 

 

$m

%

 

$m

%

 

$m

%

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit

1,571

 

 

1,286

 

 

2,757

 

Non-operating (loss) profit*

(308)

 

 

(420)

 

 

151

 

Profit before tax

1,263

 

 

866

 

 

2,908

 

 

Tax charge at the expected rate

(259)

21%

 

(182)

21%

 

(602)

21%

 

Effects of recurring tax reconciliation items:

 

 

 

 

 

 

 

 

 

 

Income not taxable or taxable at concessionary ratesnote (i)

33

(3)%

 

31

(4)%

 

102

(4)%

 

 

Deductions not allowable for tax purposes

(34)

3%

 

(15)

2%

 

(32)

1%

 

 

Items related to taxation of life insurance businessesnote (ii)

71

(6)%

 

(7)

1%

 

152

(5)%

 

 

Deferred tax adjustments

(4)

0%

 

(3)

0%

 

(26)

1%

 

 

Unrecognised tax lossesnote (iii)

(66)

5%

 

(72)

8%

 

(146)

5%

 

 

Effect of results of joint ventures and associatesnote (iv)

37

(3)%

 

37

(4)%

 

129

(4)%

 

 

Irrecoverable withholding taxesnote (v)

(35)

3%

 

(26)

3%

 

(35)

1%

 

 

Other

2

0%

 

3

0%

 

17

(1)%

 

 

Total (charge) credit

4

(1)%

 

(52)

6%

 

161

(6)%

 

Effects of non-recurring tax reconciliation items:

 

 

 

 

 

 

 

 

 

 

Adjustments to tax charge in relation to prior years

6

0%

 

(21)

2%

 

(25)

1%

 

 

Movements in provisions for open tax mattersnote (vi)

59

(5)%

 

12

(1)%

 

33

(1)%

 

 

Impact of changes in local statutory tax rates

8

(1)%

 

(1)

0%

 

(1)

0%

 

 

Adjustments in relation to business disposals and corporate transactions

(11)

1%

 

-

-

 

(6)

0%

 

 

Total (charge) credit

62

(5)%

 

(10)

1%

 

1

0%

Total actual tax charge

(193)

15%

 

(244)

28%

 

(440)

15%

Analysed into:

 

 

 

 

 

 

 

 

 

Tax on adjusted operating profit

(222)

 

 

(274)

 

 

(497)

 

 

Tax on non-operating loss

29

 

 

30

 

 

57

 

Actual tax rate on:

 

 

 

 

 

 

 

 

 

Adjusted operating profit:

 

 

 

 

 

 

 

 

 

 

Including non-recurring tax reconciling itemsnote (vii)

14%

 

 

21%

 

 

18%

 

 

 

Excluding non-recurring tax reconciling items

19%

 

 

21%

 

 

18%

 

 

Total profitnote (vii)

15%

 

 

28%

 

 

15%

 

* 'Non-operating profit (loss)' is used to refer to items excluded from adjusted operating profit and includes short term investment fluctuations in investment returns on shareholder-backed business, corporate transactions and amortisation of acquisition accounting adjustments.

 

Notes

(i)  The $33 million (half year 2020: $31 million; full year 2020: $102 million) primarily relates to non-taxable investment income in Singapore and Malaysia.

(ii)  The $71 million (full year 2020: $152 million) primarily relates to Hong Kong where the taxable profit is computed as 5 per cent of net insurance premiums. The $(7) million adverse reconciling item at half year 2020 reflected non-tax deductible investment related marked-to-market losses.

(iii)  The $66 million (half year 2020: $(72) million; full year 2020: $(146) million) adverse reconciling item in unrecognised tax losses reflects losses arising where it is unlikely that relief for the losses will be available in future periods.

(iv)  Profit before tax includes Prudential's share of profit after tax from the joint ventures and associates. Therefore, the actual tax charge does not include tax arising from profit or loss of joint ventures and associates and is reflected as a reconciling item.

(v)  The Group incurs withholding tax on remittances received from certain jurisdictions and on certain investment income. Where these withholding taxes cannot be offset against corporate income tax or otherwise recovered, they represent a cost to the Group. Irrecoverable withholding tax on remittances is included in Other operations and is not allocated to any segment. Irrecoverable withholding tax on investment income is included in the relevant segment where the investment income is reflected.

(vi)  The statement of financial position contains the following provisions in relation to open tax matters.

 

 

 

 

 

Half year 2021 $m

 

At beginning of period

113

 

 

Reclassification of US operations as held for distribution

(3)

 

 

Movements in the current period included in tax charge attributable to shareholders

(59)

 

 

Provisions utilised in the period

(4)

 

 

Other movements*

(14)

 

At end of period

33

* Other movements include interest arising on open tax matters and amounts included in the Group's share of profits from joint ventures and associates, net of related tax.

(vii) The   actual tax rate of the relevant business operations are shown below:

 

 

 

 

Half year 2021 %

 

 

 

Hong

Kong

Indonesia

Malaysia

Singapore

Growth

markets

and other

Eastspring

Other

operations

Total

attributable to

shareholders

 

Tax rate on adjusted operating profit

4%

20%

18%

16%

14%

9%

2%

14%

 

Tax rate on profit before tax

4%

20%

17%

14%

18%

9%

2%

15%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Half year 2020 %

 

 

 

Hong

Kong

Indonesia

Malaysia

Singapore

Growth

markets

and other

Eastspring

Other

operations

Total

attributable to

shareholders

 

Tax rate on adjusted operating profit

3%

25%

20%

16%

24%

12%

(3)%

21%

 

Tax rate on profit before tax

13%

25%

22%

16%

22%

12%

(3)%

28%

 

 

 

 

Full year 2020 %

 

 

 

Hong

Kong

Indonesia

Malaysia

Singapore

Growth

markets

and other

Eastspring

Other

operations

Total

attributable to

shareholders

 

Tax rate on adjusted operating profit

3%

24%

18%

14%

22%

11%

0%

18%

 

Tax rate on profit before tax

1%

23%

18%

14%

19%

11%

0%

15%

 

Profit before tax includes Prudential's share of profit after tax from the joint ventures and associates. Therefore, the actual tax charge does not include tax arising from profit or loss of the Group's joint ventures and associates.

 

B4  Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Half year 2021

 

 

 

Before

 tax

Tax 

Non-controlling interests

Net of tax

and non-

controlling interests

Basic

earnings

 per share

Diluted

 earnings

 per share

 

 

 

$m

$m

$m

$m

cents

cents

Based on adjusted operating profit

 

1,571

(222)

(7)

1,342

51.6¢

51.6¢

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

 

(212)

26

-

(186)

(7.2)¢

(7.2)¢

Amortisation of acquisition accounting adjustments

 

(2)

-

-

(2)

(0.1)¢

(0.1)¢

Loss attaching to corporate transactions

 

(94)

3

-

(91)

(3.4)¢

(3.4)¢

Based on profit from continuing operations

 

1,263

(193)

(7)

1,063

40.9¢

40.9¢

Based on loss from discontinued US operations

 

(5,337)

(370)

634

(5,073)

(195.1)¢

(195.1)¢

Based on loss for the period

 

(4,074)

(563)

627

(4,010)

(154.2)¢

(154.2)¢

 

 

 

 

 

 

 

 

 

 

 

 

Half year 2020

 

 

 

Before

 tax

Tax 

Non-controlling interests

Net of tax

and non-

controlling interests

Basic

earnings

 per share

Diluted

 earnings

 per share

 

 

 

$m

$m

$m

$m

cents

cents

Based on adjusted operating profit

 

1,286

(274)

(22)

990

38.1¢

38.1¢

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

 

(418)

30

-

(388)

(14.9)¢

(14.9)¢

Amortisation of acquisition accounting adjustments

 

(2)

-

-

(2)

(0.1)¢

(0.1)¢

Based on profit from continuing operations

 

866

(244)

(22)

600

23.1¢

23.1¢

Based on loss from discontinued US operations

 

(203)

115

-

(88)

(3.4)¢

(3.4)¢

Based on profit for the period

 

663

(129)

(22)

512

19.7¢

19.7¢

                               

 

 

 

 

Full year 2020

 

 

 

Before

 tax

Tax 

Non-controlling interests

Net of tax

and non-

controlling interests

Basic

earnings

 per share 

Diluted

 earnings

 per share

 

 

 

$m 

$m 

$m 

$m 

cents

cents

Based on adjusted operating profit

 

2,757

(497)

(10)

2,250

86.6¢

86.6¢

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

 

(579)

49

-

(530)

(20.4)¢

(20.4)¢

Amortisation of acquisition accounting adjustments

 

(5)

-

-

(5)

(0.2)¢

(0.2)¢

Gain attaching to corporate transactions

 

735

8

-

743

28.6¢

28.6¢

Based on profit from continuing operations

 

2,908

(440)

(10)

2,458

94.6¢

94.6¢

Based on loss from discontinued US operations

 

(760)

477

(57)

(340)

(13.0)¢

(13.0)¢

Based on profit for the year

 

2,148

37

(67)

2,118

81.6¢

81.6¢

 

Basic earnings per share are calculated based on earnings attributable to ordinary shareholders, after related tax and non-controlling interests, divided by the weighted average number of ordinary shares outstanding during the year, excluding those held in employee share trusts, which are treated as cancelled. For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group's only class of potentially dilutive ordinary shares are those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year. No adjustment is made if the impact is anti-dilutive overall.

 

The weighted average number of shares for calculating basic and diluted earnings per share, which excludes those held in   employee share trusts, is set out as below:

 

 

 

Number of shares (in millions)

 

 

2021

 

2020

 

Half year

 

Half year

Full year

Weighted average number of shares for calculation of basic earnings per share

2,601

 

2,596

2,597

Shares under option at end of period

2

 

2

2

Shares that would have been issued at fair value on assumed option price at end of period

(2)

 

(2)

(2)

Weighted average number of shares for calculation of diluted earnings per share

2,601

 

2,596

2,597

 

B5  Dividends

 

 

 

 

 

 

 

 

 

 

 

 

Half year 2021

 

Half year 2020

 

Full year 2020

 

Cents per share

$m

 

Cents per share

$m

 

Cents per share

$m

Dividends relating to reporting period:

 

 

 

 

 

 

 

 

 

First interim ordinary dividend

5.37¢

140

 

5.37¢

140

 

5.37¢

140

 

Second interim ordinary dividend

-

-

 

-

-

 

10.73¢

280

Total

5.37¢

140

 

5.37¢

140

 

16.10¢

420

Dividends paid in reporting period:

 

 

 

 

 

 

 

 

 

Current year first interim ordinary dividend

-

-

 

-

-

 

5.37¢

140

 

Second interim ordinary dividend for prior year

10.73¢

283

 

25.97¢

674

 

25.97¢

674

Total

10.73¢

283

 

25.97¢

674

 

31.34¢

814

 

First and second interim dividends are recorded in the period in which they are paid.

 

Dividend per share

On 28 September 2021, Prudential will pay a first interim ordinary dividend of 5.37 cents per ordinary share for the year ending 31 December 2021. The dividend will be paid to shareholders included on the UK register at 6.00pm BST and to shareholders on the HK register at 4.30pm Hong Kong time on 20 August 2021 (Record Date) and also to the Holders of US American Depositary Receipts as at 20 August 2021. The dividend will be paid on or about 5 October 2021 to shareholders with shares standing to the credit of their securities accounts with The Central Depository (Pte) Limited (CDP) at 5.00pm Singapore time on the Record Date. Shareholders holding shares on the UK or Hong Kong share registers will continue to receive their dividend payments in either GBP or HKD respectively, unless they elect otherwise. Shareholders holding shares on the UK or Hong Kong registers may elect to receive dividend payments in USD. Elections must be made through the relevant UK or Hong Kong share registrar on or before 6 September (UK) and 13 September 2021 (HK) respectively. The corresponding amount per share in GBP and HKD is expected to be announced on or about 20 September 2021. The USD to GBP and HKD conversion rates will be determined by the actual rates achieved by Prudential buying those currencies prior to the subsequent announcement. Holders of American Depositary Receipts (ADRs) will continue to receive their dividend payments in USD. Shareholders holding an interest in Prudential shares through The Central Depository (Pte) Limited (CDP) in Singapore will continue to receive their dividend payments in SGD at an exchange rate determined by CDP.

 

Shareholders on the UK register are eligible to participate in a Dividend Reinvestment Plan.

 

C  FINANCIAL POSITION

 

C1  Group assets and liabilities by business type

The analysis below is structured to show the investments and other assets and liabilities of the Group by reference to the differing degrees of policyholder and shareholder economic interest of the different types of business.

 

Debt securities are analysed below according to the issuing government for sovereign debt and to credit ratings for the rest of the securities.

 

The Group uses the middle of the Standard & Poor's, Moody's and Fitch ratings, where available. Where ratings are not available from these rating agencies, local external rating agencies' ratings and lastly internal ratings have been used. Securities with none of the ratings listed above are classified as unrated and included under the 'below BBB- and unrated' category. The total securities (excluding sovereign debt) that were unrated at 30 June 2021 were $986 million (30 June 2020: $788 million; 31 December 2020: $780 million from continuing operations). Additionally, government debt is shown separately from the rating breakdowns in order to provide a more focused view of the credit portfolio.

 

In the table below, AAA is the highest possible rating. Investment grade financial assets are classified within the range of AAA to BBB- ratings. Financial assets which fall outside this range are classified as below BBB-.

 

 

 

 

30 Jun 2021 $m

 

 

 

Asia and Africa

US

(discont'd)

Unallocated

to a

segment

Elimina-

tion of

intra-group

debtors

and

creditors

Group

total

 

 

 

Insurance

 

 

 

 

 

 

With

-profits

Unit-linked

Other

Eastspring

Elimina-

tions

Total

 

 

 

note (i)

note (i)

note (i)

 

 

 

note (vi)

 

 

 

Debt securities note (v), note C1.1

 

 

 

 

 

 

 

 

 

 

Sovereign debt

 

 

 

 

 

 

 

 

 

 

 

Indonesia

362

589

568

1

-

1,520

-

-

-

1,520

 

Singapore

3,673

587

939

78

-

5,277

-

-

-

5,277

 

Thailand

-

-

1,847

16

-

1,863

-

-

-

1,863

 

United Kingdom

-

7

-

-

-

7

-

-

-

7

 

United States

26,233

45

2,917

-

-

29,195

-

-

-

29,195

 

Vietnam

-

17

2,799

-

-

2,816

-

-

-

2,816

 

Other (predominantly Asia)

1,951

692

3,790

18

-

6,451

-

-

-

6,451

Subtotal

32,219

1,937

12,860

113

-

47,129

 

-

-

47,129

Other government bonds

 

 

 

 

 

 

 

 

 

 

 

AAA

1,630

83

276

-

-

1,989

-

-

-

1,989

 

AA+ to AA-

79

4

12

-

-

95

-

-

-

95

 

A+ to A-

641

115

298

-

-

1,054

-

-

-

1,054

 

BBB+ to BBB-

83

26

110

-

-

219

-

-

-

219

 

Below BBB- and unrated

85

13

369

-

-

467

-

-

-

467

Subtotal

2,518

241

1,065

-

-

3,824

 

-

-

3,824

Corporate bonds

 

 

 

 

 

 

 

 

 

 

 

AAA

935

227

449

-

-

1,611

-

-

-

1,611

 

AA+ to AA-

1,950

393

1,777

-

-

4,120

-

-

-

4,120

 

A+ to A-

7,909

645

4,976

-

-

13,530

-

-

-

13,530

 

BBB+ to BBB-

9,324

1,281

4,938

-

-

15,543

-

-

-

15,543

 

Below BBB- and unrated

3,938

1,050

1,775

1

-

6,764

-

-

-

6,764

Subtotal

24,056

3,596

13,915

1

-

41,568

 

-

-

41,568

Asset-backed securities

 

 

 

 

 

 

 

 

 

 

 

AAA

64

6

63

-

-

133

-

-

-

133

 

AA+ to AA-

1

1

-

-

-

2

-

-

-

2

 

A+ to A-

19

-

17

-

-

36

-

-

-

36

 

BBB+ to BBB-

16

-

10

-

-

26

-

-

-

26

 

Below BBB- and unrated

6

2

2

-

-

10

-

-

-

10

Subtotal

106

9

92

-

-

207

-

-

-

207

Total debt securities

58,899

5,783

27,932

114

-

92,728

-

-

-

92,728

Loans

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans

-

-

154

-

-

154

-

-

-

154

 

Policy loans

1,302

-

353

-

-

1,655

-

-

-

1,655

 

Other loans

618

-

13

-

-

631

-

-

-

631

Total loans

1,920

-

520

-

-

2,440

-

-

-

2,440

Equity securities and holdings in collective investment schemes

 

 

 

 

 

 

 

 

 

 

 

Direct equities

10,506

13,007

2,541

85

-

26,139

-

-

-

26,139

 

Collective investment schemes

23,936

7,476

2,907

6

-

34,325

-

2

-

34,327

Total equity securities and holdings in collective investment schemes

34,442

20,483

5,448

91

-

60,464

-

2

-

60,466

Other financial investments note (ii)

1,140

195

2,373

93

-

3,801

-

28

-

3,829

Total financial investments

96,401

26,461

36,273

298

-

159,433

-

30

-

159,463

Investment properties

-

-

39

-

-

39

-

-

-

39

Investments in joint ventures and associates accounted for using the equity method

-

-

1,771

285

-

2,056

-

-

-

2,056

Cash and cash equivalents

945

1,000

1,406

177

-

3,528

-

2,767

-

6,295

Reinsurers' share of insurance contract liabilities

221

-

9,670

-

-

9,891

-

-

-

9,891

Other assetsnote (iii)

1,663

284

8,643

795

(67)

11,318

-

3,598

(3,289)

11,627

Assets held for distributionnote D1.2

-

-

-

-

-

-

335,760

-

(10)

335,750

Total assets

99,230

27,745

57,802

1,555

(67)

186,265

335,760

6,395

(3,299)

525,121

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

-

-

13,287

1,079

-

14,366

2,667

(1,320)

-

15,713

Non-controlling interests

-

-

40

137

-

177

333

-

-

510

Total equity

-

-

13,327

1,216

-

14,543

3,000

(1,320)

-

16,223

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract liabilities and unallocated surplus of with-profits funds

89,243

25,615

36,224

-

-

151,082

-

-

-

151,082

Core structural borrowings

-

-

-

-

-

-

-

6,404

-

6,404

Operational borrowings

156

-

107

21

-

284

-

611

-

895

Other liabilitiesnote (iv)

9,831

2,130

8,144

318

(67)

20,356

-

700

(3,299)

17,757

Liabilities held for distributionnote D1.2

-

-

-

-

-

-

332,760

-

-

332,760

Total liabilities

99,230

27,745

44,475

339

(67)

171,722

332,760

7,715

(3,299)

508,898

Total equity and liabilities

99,230

27,745

57,802

1,555

(67)

186,265

335,760

6,395

(3,299)

525,121

 

 

 

 

 

30 Jun 2020 $m

 

 

 

Asia and Africa

US

(discont'd)

Unallocated

to a

segment

Elimina-

tion of

intra-group

debtors

and

creditors

Group

total

 

 

 

Insurance

 

 

 

 

 

 

With

-profits

Unit-linked

Other

Eastspring

Elimina-

tions

Total

 

 

 

note (i)

note (i)

note (i)

 

 

 

 

 

 

 

Debt securities note (v), note C1.1

 

 

 

 

 

 

 

 

 

 

Sovereign debt

 

 

 

 

 

 

 

 

 

 

 

Indonesia

381

580

455

-

-

1,416

-

-

-

1,416

 

Singapore

2,788

525

904

88

-

4,305

-

-

-

4,305

 

Thailand

-

-

1,567

16

-

1,583

-

-

-

1,583

 

United Kingdom

-

7

-

-

-

7

-

154

-

161

 

United States

24,656

23

2,356

-

-

27,035

5,371

-

-

32,406

 

Vietnam

-

14

2,789

-

-

2,803

-

-

-

2,803

 

Other (predominantly Asia)

1,816

687

3,356

13

-

5,872

19

-

-

5,891

Subtotal

29,641

1,836

11,427

117

-

43,021

5,390

154

-

48,565

Other government bonds

 

 

 

 

 

 

 

 

 

 

 

AAA

1,464

103

479

-

-

2,046

447

-

-

2,493

 

AA+ to AA-

353

34

101

-

-

488

519

-

-

1,007

 

A+ to A-

524

113

226

-

-

863

191

-

-

1,054

 

BBB+ to BBB-

466

88

248

8

-

810

2

-

-

812

 

Below BBB- and unrated

104

17

332

-

-

453

-

-

-

453

Subtotal

2,911

355

1,386

8

-

4,660

1,159

-

-

5,819

Corporate bonds

 

 

 

 

 

 

 

 

 

 

 

AAA

1,122

270

504

-

-

1,896

265

-

-

2,161

 

AA+ to AA-

1,575

273

1,712

2

-

3,562

973

-

-

4,535

 

A+ to A-

6,670

808

4,723

-

-

12,201

11,792

-

-

23,993

 

BBB+ to BBB-

7,806

1,043

3,389

-

-

12,238

14,036

-

-

26,274

 

Below BBB- and unrated

2,835

655

952

3

-

4,445

2,046

-

-

6,491

Subtotal

20,008

3,049

11,280

5

-

34,342

29,112

-

-

63,454

Asset-backed securities

 

 

 

 

 

 

 

 

 

 

 

AAA

108

16

23

-

-

147

2,227

-

-

2,374

 

AA+ to AA-

36

6

8

-

-

50

184

-

-

234

 

A+ to A-

17

-

25

-

-

42

575

-

-

617

 

BBB+ to BBB-

15

-

10

-

-

25

193

-

-

218

 

Below BBB- and unrated

6

-

-

-

-

6

175

-

-

181

Subtotal

182

22

66

-

-

270

3,354

-

-

3,624

Total debt securities

52,742

5,262

24,159

130

-

82,293

39,015

154

-

121,462

Loans

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans

-

-

158

-

-

158

8,119

-

-

8,277

 

Policy loans

1,189

-

332

-

-

1,521

4,705

-

-

6,226

 

Other loans

389

-

18

-

-

407

-

-

-

407

Total loans

1,578

-

508

-

-

2,086

12,824

-

-

14,910

Equity securities and holdings in collective investment schemes

 

 

 

 

 

 

 

 

 

 

 

Direct equities

14,493

10,345

1,541

56

-

26,435

263

-

-

26,698

 

Collective investment schemes

13,455

6,097

4,180

10

-

23,742

36

2

-

23,780

 

US separate account assets

-

-

-

-

-

-

184,220

-

-

184,220

Total equity securities and holdings in collective investment schemes

27,948

16,442

5,721

66

-

50,177

184,519

2

-

234,698

Other financial investments note (ii)

991

572

1,856

97

-

3,516

3,827

36

-

7,379

Total financial investments

83,259

22,276

32,244

293

-

138,072

240,185

192

-

378,449

Investment properties

-

-

16

-

-

16

7

-

-

23

Investments in joint ventures and associates accounted for using the equity method

-

-

1,268

239

-

1,507

-

-

-

1,507

Cash and cash equivalents

913

599

1,277

132

-

2,921

2,493

2,970

-

8,384

Reinsurers' share of insurance contract liabilities

211

-

8,714

-

-

8,925

35,993

-

-

44,918

Other assetsnote (iii)

1,954

482

8,219

799

(33)

11,421

17,942

3,660

(3,139)

29,884

Total assets 

86,337

23,357

51,738

1,463

(33)

162,862

296,620

6,822

(3,139)

463,165

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

-

-

10,619

994

-

11,613

8,955

(1,458)

-

19,110

Non-controlling interests

-

-

38

159

-

197

-

-

-

197

Total equity

-

-

10,657

1,153

-

11,810

8,955

(1,458)

-

19,307

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract liabilities and unallocated surplus of with-profits funds

76,647

21,376

33,758

-

-

131,781

265,655

-

-

397,436

Core structural borrowings

-

-

-

-

-

-

250

6,249

-

6,499

Operational borrowings

243

15

118

25

-

401

1,212

632

-

2,245

Other liabilitiesnote (iv)

9,447

1,966

7,205

285

(33)

18,870

20,548

1,399

(3,139)

37,678

Total liabilities

86,337

23,357

41,081

310

(33)

151,052

287,665

8,280

(3,139)

443,858

Total equity and liabilities

86,337

23,357

51,738

1,463

(33)

162,862

296,620

6,822

(3,139)

463,165

                                         

 

 

 

 

31 Dec 2020 $m

 

 

 

Asia and Africa

US

(discont'd)

Unallocated

to a

segment

Elimina-

tion of

intra-

group

debtors

and

creditors

Group

total

 

 

 

Insurance

 

 

 

 

With

-profits

Unit-linked

Other

Eastspring

Elimina-

tions

Total

 

 

 

note (i)

note (i)

note (i)

 

 

 

note (vi)

 

 

 

Debt securities note (v), note C1.1

 

 

 

 

 

 

 

 

 

 

Sovereign debt

 

 

 

 

 

 

 

 

 

 

 

Indonesia

385

658

564

12

-

1,619

-

-

-

1,619

 

Singapore

3,939

551

979

117

-

5,586

-

-

-

5,586

 

Thailand

-

-

1,999

11

-

2,010

-

-

-

2,010

 

United Kingdom

-

7

-

-

-

7

-

-

-

7

 

United States

24,396

21

2,551

-

-

26,968

5,126

-

-

32,094

 

Vietnam

-

11

2,881

-

-

2,892

-

-

-

2,892

 

Other (predominantly Asia)

1,322

700

3,681

19

-

5,722

30

-

-

5,752

Subtotal

30,042

1,948

12,655

159

-

44,804

5,156

-

-

49,960

Other government bonds

 

 

 

 

 

 

 

 

 

 

 

AAA

1,420

96

405

-

-

1,921

377

-

-

2,298

 

AA+ to AA-

129

2

28

-

-

159

522

-

-

681

 

A+ to A-

811

131

339

-

-

1,281

188

-

-

1,469

 

BBB+ to BBB-

452

16

196

-

-

664

3

-

-

667

 

Below BBB- and unrated

631

9

451

-

-

1,091

-

-

-

1,091

Subtotal

3,443

254

1,419

-

-

5,116

1,090

-

-

6,206

Corporate bonds

 

 

 

 

 

 

 

 

 

 

 

AAA

1,228

221

540

-

-

1,989

265

-

-

2,254

 

AA+ to AA-

1,943

476

1,871

-

-

4,290

869

-

-

5,159

 

A+ to A-

7,289

695

5,194

1

-

13,179

10,759

-

-

23,938

 

BBB+ to BBB-

9,005

1,299

4,785

-

-

15,089

12,686

-

-

27,775

 

Below BBB- and unrated

2,814

849

1,483

2

-

5,148

1,975

-

-

7,123

Subtotal

22,279

3,540

13,873

3

-

39,695

26,554

-

-

66,249

Asset-backed securities

 

 

 

 

 

 

 

 

 

 

 

AAA

74

9

24

-

-

107

2,110

-

-

2,217

 

AA+ to AA-

2

1

-

-

-

3

171

-

-

174

 

A+ to A-

15

-

16

-

-

31

741

-

-

772

 

BBB+ to BBB-

12

-

9

-

-

21

163

-

-

184

 

Below BBB- and unrated

9

2

8

-

-

19

48

-

-

67

Subtotal

112

12

57

-

-

181

3,233

-

-

3,414

Total debt securities

55,876

5,754

28,004

162

-

89,796

36,033

-

-

125,829

Loans

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans

-

-

158

-

-

158

7,833

-

-

7,991

 

Policy loans

1,231

-

351

-

-

1,582

4,507

-

-

6,089

 

Other loans

492

-

16

-

-

508

-

-

-

508

Total loans

1,723

-

525

-

-

2,248

12,340

-

-

14,588

Equity securities and holdings in collective investment schemes

 

 

 

 

 

 

 

 

 

 

 

Direct equities

15,668

13,064

3,325

71

-

32,128

253

-

-

32,381

 

Collective investment schemes

18,125

7,392

1,638

10

-

27,165

25

2

-

27,192

 

US separate account assets

-

-

-

-

-

-

219,062

-

-

219,062

Total equity securities and holdings in collective investment schemes

33,793

20,456

4,963

81

-

59,293

219,340

2

-

278,635

Other financial investments note (ii)

1,566

405

2,173

97

-

4,241

4,094

13

-

8,348

Total financial investments

92,958

26,615

35,665

340

-

155,578

271,807

15

-

427,400

Investment properties

-

-

16

-

-

16

7

-

-

23

Investments in joint ventures and associates accounted for using the equity method

-

-

1,689

273

-

1,962

-

-

-

1,962

Cash and cash equivalents

1,049

587

1,354

156

-

3,146

1,621

3,251

-

8,018

Reinsurers' share of insurance contract liabilities

257

-

11,106

-

-

11,363

35,232

-

-

46,595

Other assetsnote (iii)

1,538

252

9,418

839

(62)

11,985

19,813

3,624

(3,323)

32,099

Total assets 

95,802

27,454

59,248

1,608

(62)

184,050

328,480

6,890

(3,323)

516,097

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

-

-

12,861

1,102

-

13,963

8,511

(1,596)

-

20,878

Non-controlling interests

-

-

34

144

-

178

1,063

-

-

1,241

Total equity

-

-

12,895

1,246

-

14,141

9,574

(1,596)

-

22,119

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract liabilities and unallocated surplus of with-profits funds

86,410

25,433

38,107

-

-

149,950

296,513

-

-

446,463

Core structural borrowings

-

-

-

-

-

-

250

6,383

-

6,633

Operational borrowings

194

-

105

23

-

322

1,498

624

-

2,444

Other liabilitiesnote (iv)

9,198

2,021

8,141

339

(62)

19,637

20,645

1,479

(3,323)

38,438

Total liabilities

95,802

27,454

46,353

362

(62)

169,909

318,906

8,486

(3,323)

493,978

Total equity and liabilities

95,802

27,454

59,248

1,608

(62)

184,050

328,480

6,890

(3,323)

516,097

 

Notes

(i)  'With-profits' comprises the with-profits assets and liabilities of the Hong Kong, Malaysia and Singapore operations. 'Other business' includes assets and liabilities of other participating business and other non-linked shareholder-backed business. 'Unit-linked' comprises the assets and liabilities held in the unit-linked funds. 

(ii)  Other financial investments comprise derivative assets, other investments and deposits.

(iii)  Of total 'Other assets' at 30 June 2021, there are:

- Property, plant and equipment (PPE) of $525 million (30 June 2020: $640 million; 31 December 2020: $584 million from continuing operations). During half year 2021, the Group made additions of $24 million of PPE (half year 2020: $48 million; full year 2020: $76 million from continuing operations), of which $5 million relates to right-of-use assets (half year 2020: $6 million; full year 2020: $19 million from continuing operations).

- Premiums receivable of $758 million (30 June 2020: $778 million; 31 December 2020: $1,677 million from continuing operations), of which $715 million (30 June 2020: $734 million; 31 December 2020: $1,640 million from continuing operations) are due within one year.

(iv)  Within 'Other liabilities' at 30 June 2021 is accruals, deferred income and other liabilities of $8,017 million (30 June 2020: $8,459 million; 31 December 2020: $8,445 million from continuing operations), of which $7,133 million (30 June 2020: $7,870 million; 31 December 2020: $6,747 million from continuing operations) are due within one year.

(v)  The credit ratings, information or data contained in this report which are attributed and specifically provided by Standard & Poor's, Moody's and Fitch Solutions and their respective affiliates and suppliers ('Content Providers') is referred to here as the 'Content'. Reproduction of any Content in any form is prohibited except with the prior written permission of the relevant party. The Content Providers do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. The Content Providers expressly disclaim liability for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell or hold any such investment or security, nor does it address the suitability of an investment or security and should not be relied on as investment advice.

(vi)  Assets and liabilities held for distribution at 30 June 2021 related to the Group's US operations which were classified as discontinued operations in half year 2021, as discussed in note A1. The condensed consolidated statement of financial position at 30 June 2021 has been presented after the elimination of all intragroup balances between the continuing and discontinued operations.

 

C1.1 Additional analysis of debt securities

This note provides additional analysis of the Group's debt securities. W ith the exception of certain debt securities, largely in Jackson, classified as 'available-for-sale' under IAS 39, the Group's debt securities are carried at fair value through profit or loss.

 

(i)  Holdings by consolidated investment funds of the Group

Of the Group's debt securities, the following amounts were held by the consolidated investment funds from continuing operations.

 

 

2021 $m

 

2020 $m

 

30 Jun

 

30 Jun

31 Dec

Debt securities held by consolidated investment funds from continuing operations

14,791

 

17,219

15,928

 

(ii)  Group bank debt exposure

The Group exposures held by the shareholder-backed business within continuing operations in bank debt securities are analysed below. The table excludes assets held to cover linked liabilities and those of the consolidated investment funds.

 

 

 

 

 

 

 

 

 

 

 

 

2021 $m

 

2020 $m

 

Senior debt

 

Subordinated debt

 

30 Jun

 

30 Jun

31 Dec

 

Total

 

Tier 1

Tier 2

Total

 

Group

total

 

Group total

Group total

Shareholder-backed business

 

 

 

 

 

 

 

 

 

 

Asia

890

 

180

86

266

 

1,156

 

1,414

1,307

Eurozone

89

 

-

41

41

 

130

 

82

78

United Kingdom

147

 

3

67

70

 

217

 

168

199

United States

1,000

 

3

41

44

 

1,044

 

621

939

Other

101

 

1

58

59

 

160

 

188

159

Continuing operations

2,227

 

187

293

480

 

2,707

 

2,473

2,682

 

C2  Fair value measurement

 

C2.1  Determination of fair value

The fair values of the financial instruments for which fair valuation is required under IFRS are determined by the use of current market bid prices for exchange-quoted investments, or by using quotations from independent third parties, such as brokers and pricing services or by using appropriate valuation techniques.

 

The estimated fair value of derivative financial instruments reflects the estimated amount the Group would receive or pay in an arm's-length transaction. This amount is determined using quoted prices if exchange listed, quotations from independent third parties or valued internally using standard market practices.

 

Other than the loans which have been designated at fair value through profit or loss, the carrying value of loans and receivables is presented net of provisions for impairment. The fair value of loans is estimated from discounted cash flows expected to be received. The discount rate used is updated for the market rate of interest where applicable.

 

The fair value of the subordinated and senior debt issued by the parent company is determined using quoted prices from independent third parties.

 

The fair value of financial liabilities (other than subordinated debt, senior debt and derivative financial instruments) is determined using discounted cash flows of the amounts expected to be paid.

 

Valuation approach for level 2 fair valued assets and liabilities

A significant proportion of the Group's level 2 assets are corporate bonds, structured securities and other non-national government debt securities. These assets, in line with market practice, are generally valued using a designated independent pricing service or quote from third-party brokers. These valuations are subject to a number of monitoring controls, such as comparison to multiple pricing sources where available, monthly price variances, stale price reviews and variance analysis on prices achieved on subsequent trades. For further detail on the valuation approach for level 2 fair valued assets and liabilities, refer to note C2.1 of the Group IFRS financial statements for the year ended 31 December 2020.

 

Valuation approach for level 3 fair valued assets and liabilities

Investments valued using valuation techniques include financial investments which by their nature do not have an externally quoted price based on regular trades, and financial investments for which markets are no longer active as a result of market conditions, eg market illiquidity. The valuation techniques used include comparison to recent arm's-length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option-adjusted spread models and, if applicable, enterprise valuation.

 

The Group's valuation policies, procedures and analyses for instruments categorised as level 3 are overseen by Business Unit committees as part of the Group's wider financial reporting governance processes. The procedures undertaken include approval of valuation methodologies, verification processes, and resolution of significant or complex valuation issues. In undertaking these activities, the Group makes use of the extensive expertise of its asset management functions. In addition, the Group has minimum standards for independent price verification to ensure valuation accuracy is regularly independently verified. Adherence to this policy is monitored across the business units.

 

C2.2  Fair value measurement hierarchy of Group assets and liabilities

(i)  Assets and liabilities carried at fair value on the statement of financial position

The table below shows the assets and liabilities carried at fair value analysed by level of the IFRS 13 'Fair Value Measurement' defined fair value hierarchy. This hierarchy is based on the inputs to the fair value measurement and reflects the lowest level input that is significant to that measurement.

 

Continuing operations

All assets and liabilities held at fair value are classified as fair value through profit or loss (30 June 2020: $154 million; 31 December 2020: nil of debt securities classified as available-for-sale). All assets and liabilities held at fair value are measured on a recurring basis. As of 30 June 2021, the Group did not have any financial instruments that are measured at fair value on a non-recurring basis.

 

Discontinued US operations

At 30 June 2021, the fair value of the investment in Jackson (the Group's US operations) of $3,000 million (before non-controlling interests) is classified as level 2 within the fair value hierarchy as the primary inputs for determining the value are quoted prices for similar listed entities with similar product offerings operating in the US market. This re-measurement of fair value is on a non-recurring basis and is required as a result of Jackson's classification as held for distribution. Further details, including the additional fair value hierarchy of the underlying financial assets and liabilities of Jackson at 30 June 2021, are provided in note D1.2.

 

Financial instruments at fair value

 

 

 

30 Jun 2021 $m

 

Level 1

Level 2

Level 3

 

 

Quoted prices

(unadjusted)

 in active markets

Valuation

based on

significant

observable

market inputs

Valuation

based on

significant

unobservable

market inputs

Total

Continuing operations

 

note (a)

note (b)

 

Loans

-

560

5

565

Equity securities and holdings in collective investment schemes

52,299

7,695

472

60,466

Debt securities

75,221

17,475

32

92,728

Other investments (including derivative assets)

391

94

-

485

Derivative liabilities

(192)

(220)

-

(412)

Total financial investments, net of derivative liabilities

127,719

25,604

509

153,832

Investment contract liabilities without discretionary participation features

-

(825)

-

(825)

Net asset value attributable to unit holders of consolidated investment funds

(5,770)

-

-

(5,770)

Total financial instruments at fair value

121,949

24,779

509

147,237

Percentage of total (%)

83%

17%

0%

100%

 

 

 

 

 

 

Analysed by business type:

 

 

 

 

Financial investments, net of derivative liabilities at fair value, from continuing operations:

 

 

 

 

 

With-profits

80,526

12,874

415

93,815

 

Unit-linked

25,279

985

-

26,264

 

Non-linked shareholder-backed business

21,914

11,745

94

33,753

Total financial investments net of derivative liabilities, at fair value

127,719

25,604

509

153,832

Percentage of total continuing operations (%)

83%

17%

0%

100%

 

 

 

 

 

 

Total financial investments, net of derivative liabilities at fair value

127,719

25,604

509

153,832

Other financial liabilities at fair value

(5,770)

(825)

-

(6,595)

Group total financial instruments at fair value from continuing operations

121,949

24,779

509

147,237

 

 

 

30 Jun 2020 $m

 

Level 1

Level 2

Level 3

 

 

Quoted prices

(unadjusted)

 in active markets

Valuation

based on

significant

observable

market inputs

Valuation

based on

significant

unobservable

market inputs

Total

 

 

 

note (a)

note (b)

 

Loans

-

-

3,606

3,606

Equity securities and holdings in collective investment schemes

230,670

3,554

474

234,698

Debt securities

64,300

57,091

71

121,462

Other investments (including derivative assets)

109

2,350

1,569

4,028

Derivative liabilities

(65)

(402)

-

(467)

Total financial investments, net of derivative liabilities

295,014

62,593

5,720

363,327

Investment contract liabilities without discretionary participation features

-

(936)

-

(936)

Net asset value attributable to unit holders of consolidated investment funds

(5,521)

(8)

(438)

(5,967)

Other financial liabilities held at fair value

-

-

(3,743)

(3,743)

Total financial instruments at fair value

289,493

61,649

1,539

352,681

Percentage of total (%)

82%

18%

0%

100%

 

 

 

 

 

 

Analysed by business type:

 

 

 

 

Financial investments, net of derivative liabilities at fair value, from continuing operations:

 

 

 

 

 

With-profits

67,290

12,963

314

80,567

 

Unit-linked

20,503

1,208

-

21,711

 

Non-linked shareholder-backed business

17,453

12,624

61

30,138

Total financial investments, net of derivative liabilities at fair value

105,246

26,795

375

132,416

Other financial liabilities at fair value

(5,521)

(944)

-

(6,465)

Total financial instruments, net of derivative liabilities, at fair value from continuing operations

99,725

25,851

375

125,951

Percentage of total continuing operations (%)

79%

21%

0%

100%

 

 

 

 

 

 

Total financial instruments, net of derivative liabilities, at fair value from discontinued US operationsnote (c)

189,768

35,798

1,164

226,730

Group total financial instruments at fair value

289,493

61,649

1,539

352,681

 

 

 

31 Dec 2020 $m

 

Level 1

Level 2

Level 3

 

 

Quoted prices

(unadjusted)

 in active markets

Valuation

based on

significant

observable

market inputs

Valuation

based on

significant

unobservable

market inputs

Total

 

 

 

note (a)

note (b)

 

Loans

-

416

3,461

3,877

Equity securities and holdings in collective investment schemes

272,863

5,224

548

278,635

Debt securities

75,998

49,769

62

125,829

Other investments (including derivative assets)

123

2,477

1,866

4,466

Derivative liabilities

(298)

(184)

-

(482)

Total financial investments, net of derivative liabilities

348,686

57,702

5,937

412,325

Investment contract liabilities without discretionary participation features

-

(792)

-

(792)

Net asset value attributable to unit holders of consolidated investment funds

(5,464)

(17)

(494)

(5,975)

Other financial liabilities held at fair value

-

-

(3,589)

(3,589)

Total financial instruments at fair value

343,222

56,893

1,854

401,969

Percentage of total (%)

86%

14%

0%

100%

 

 

 

 

 

 

Analysed by business type:

 

 

 

 

Financial investments, net of derivative liabilities at fair value, from continuing operations:

 

 

 

 

 

With-profits

78,203

11,481

395

90,079

 

Unit-linked

25,144

1,075

-

26,219

 

Non-linked shareholder-backed business

20,999

12,068

89

33,156

Total financial investments, net of derivative liabilities at fair value

124,346

24,624

484

149,454

Other financial liabilities at fair value

(5,464)

(809)

-

(6,273)

Total financial instruments, net of derivative liabilities, at fair value from continuing operations

118,882

23,815

484

143,181

Percentage of total continuing operations (%)

83%

17%

0%

100%

 

 

 

 

 

 

Total financial instruments, net of derivative liabilities, at fair value from discontinued US operationsnote (c)

224,340

33,078

1,370

258,788

Group total financial instruments at fair value

343,222

56,893

1,854

401,969

 

Notes

(a)  Of the total level 2 debt securities of $17,475 million at 30 June 2021, (30 June 2020: $23,496 million; 31 December 2020: $18,868 million from continuing operations), $163 million (30 June 2020: $130 million; 31 December 2020: $140 million from continuing operations) are valued internally. The majority of such securities are valued using matrix pricing, which is based on assessing the credit quality of the underlying borrower to derive a suitable discount rate relative to government securities of a comparable duration. Under matrix pricing, the debt securities are priced taking the credit spreads on comparable quoted public debt securities and applying these to the equivalent debt instruments factoring in a specified liquidity premium. The majority of the parameters used in this valuation technique are readily observable in the market and, therefore, are not subject to interpretation.

(b)  At 30 June 2021, the Group held $509 million (30 June 2020: $375 million; 31 December 2020: $484 million from continuing operations) of net financial instruments at fair value within level 3. This represents less than 0.5 per cent for all periods from continuing operations of the total fair valued financial assets net of financial liabilities. Of this amount, equity securities of $4 million ( 30 June 2020: $1 million; 31 December 2020: $2 million from continuing operations) are internally valued, representing less than 0.1 per cent for all periods of the total fair valued financial assets net of financial liabilities. Internal valuations are inherently more subjective than external valuations.

 

Level 3 financial assets net of financial liabilities comprise the following:

 

-  Equity securities and holdings in collective investment schemes of $472 million (30 June 2020: $356 million; 31 December 2020: $445 million from continuing operations) consisting primarily of property and infrastructure funds held by the participating funds, which are externally valued using the net asset value of the invested entities; and

-  Other sundry individual financial instruments of a net asset of $37 million (30 June 2020: net asset of $19 million; 31 December 2020: net asset of $39 million from continuing operations).

 

Of the net asset of $509 million at 30 June 2021 (30 June 2020: $375 million; 31 December 2020: $484 million from continuing operations) referred to above:

 

-  A net asset of $415 million (30 June 2020: $314 million; 31 December 2020: $395 million from continuing operations) is held by the Group's participating funds and therefore shareholders' profit and equity are not impacted by movements in the valuation of these financial instruments; and

-  A net asset of $94 million (30 June 2020: $61 million; 31 December 2020: $89 million from continuing operations) is held to support non-linked shareholder-backed business, Of this, $90 million is externally valued and are therefore inherently less subjective than internal valuations. If the value of all these level 3 financial instruments decreased by 10 per cent, the change in valuation would be $(9) million (30 June 2020: $(6) million; 31 December 2020: $(9) million from continuing operations), which would reduce shareholders' equity by this amount before tax. All of this amount would pass through the income statement substantially as part of short-term fluctuations in investment returns outside of adjusted operating profit.

(c)  The analysis of fair value hierarchy of the discontinued US operations' underlying financial assets and liabilities at 30 June 2021 is included in note D1.2.

 

(ii)  Transfers into and transfers out of levels

The Group's policy is to recognise transfers into and transfers out of levels as of the end of each half year reporting period except for material transfers which are recognised as of the date of the event or change in circumstances that caused the transfer. Transfers are deemed to have occurred when there is a material change in the observed valuation inputs or a change in the level of trading activities of the securities.

 

During half year 2021, the transfers between levels within the continuing operations' portfolios, were primarily transfers from level 1 to level 2 of $1,953 million and transfers from level 2 to level 1 of $1,975 million. These transfers relate to equity securities and debt securities arose to reflect the change in the observed valuation inputs and, in certain cases, the change in the level of trading activities of the securities. There were no transfers into level 3 in the period (30 June 2020: $14 million; 31 December 2020: $32 million from continuing operations).

 

(iii)  Fair value measurements for level 3 fair valued assets and liabilities

Reconciliation of movements in level 3 assets and liabilities measured at fair value

The following table reconciles the value of level 3 fair valued assets and liabilities at the beginning of the period to that presented at the end of the period.

 

Total investment return recorded in the income statement represents interest and dividend income, realised gains and losses, unrealised gains and losses on the assets classified at fair value through profit and loss and foreign exchange movements on an individual entity's overseas investments.

 

Total gains and losses recorded in other comprehensive income includes unrealised gains and losses on debt securities held as available-for-sale principally within Jackson and foreign exchange movements arising from the retranslation of the Group's overseas subsidiaries and branches.

 

 

 

Half year 2021 $m

 

 

Continuing operations

 

 

Reconciliation of movements in level 3 assets and liabilities measured at fair value

Loans

Equity

securities

and

holdings in

collective

investment

schemes

Debt

securities

Net asset

value

attributable

to unit

holders of

consolidated

investment funds

US (discont'd)

Group

total

Balance at beginning of period

6

445

33

-

1,370

1,854

Total gains (losses) in income statementnote

(1)

21

-

-

199

219

Total gains (losses) recorded in other comprehensive income

-

(5)

(1)

-

-

(6)

Purchases and other additions

-

11

-

-

125

136

Sales

-

-

-

-

(302)

(302)

Issues

-

-

-

-

(175)

(175)

Settlements

-

-

-

-

140

140

Transfers out of level 3

-

-

-

-

(20)

(20)

Balance at end of period

5

472

32

-

1,337

1,846

 

 

 

Half year 2020 $m

 

 

Continuing operations

 

 

Reconciliation of movements in level 3 assets and liabilities measured at fair value

Loans

Equity

securities

and

holdings in

collective

investment

schemes

Debt

securities

Net asset

value

attributable

to unit

holders of

consolidated

investment funds

US (discont'd)

Group total

Balance at beginning of period

-

264

6

(2)

1,140

1,408

Total gains (losses) in income statementnote

-

(10)

(1)

2

(48)

(57)

Total gains (losses) recorded in other comprehensive income

-

(4)

-

-

-

(4)

Purchases and other additions

-

175

-

-

94

269

Sales

-

(69)

-

-

(68)

(137)

Issues

-

-

-

-

(1)

(1)

Settlements

-

-

-

-

8

8

Transfers into level 3

-

-

14

-

39

53

Balance at end of period

-

356

19

-

1,164

1,539

 

 

 

Full year 2020 $m

 

 

Continuing operations

 

 

Reconciliation of movements in level 3 assets and liabilities measured at fair value

Loans

Equity

securities

and

holdings in

collective

investment

schemes

Debt

securities

Net asset

value

attributable

to unit

holders of

consolidated

investment funds

US (discont'd)

Group total

Balance at beginning of year

-

264

6

(2)

1,140

1,408

Total gains (losses) in income statementnote

-

49

(5)

2

(72)

(26)

Total gains (losses) recorded in other comprehensive income

-

9

-

-

(2)

7

Purchases and other additions

-

255

-

-

363

618

Sales

-

(132)

-

-

(123)

(255)

Issues

6

-

-

-

(204)

(198)

Settlements

-

-

-

-

247

247

Transfers into level 3

-

-

32

-

21

53

Balance at end of year

6

445

33

-

1,370

1,854

 

Note

Of the total net gains from continuing operations in the income statement of $20 million at half year 2021 (half year 2020: loss of $(9) million; full year 2020: $46 million from continuing operations), $20 million (half year 2020: loss of $(38) million; full year 2020: $12 million from continuing operations) relates to net unrealised gains and losses of financial instruments still held at the end of the period, which can be analysed as follows:

 

 

 

2021 $m

 

2020 $m

 

 

Half year

 

Half year

Full year

 

Loan

(1)

 

-

-

 

Equity securities and holdings in collective investment schemes

21

 

(38)

11

 

Debt securities

-

 

-

1

 

Total continuing operations

20

 

(38)

12

 

Of the total net gains from the discontinued US operations in the income statement of $199 million at half year 2021 (half year 2020: loss of $(48) million; full year 2020: loss of $(72) million from discontinued operations), $223 million (half year 2020: loss of $(65) million; full year 2020: loss of $(58) million from discontinued operations) relates to net unrealised gains and losses of financial instruments still held at the end of the period.

 

(iv)  Assets and liabilities at amortised cost and their fair value

The table below shows the financial assets and liabilities carried at amortised cost on the statement of financial position and their fair value. Cash deposits, accrued income, other debtors, accruals, deferred income and other liabilities are excluded from the analysis below. These are carried at amortised cost, which approximates fair value.   The carrying value of investment contracts with discretionary participation features is on an IFRS 4 basis, which is also excluded from the analysis below, as it is impractical to determine the fair value of these contracts due to the lack of a reliable basis to measure participation features.

 

 

2021 $m

 

 

2020 $m

 

 

30 Jun

 

30 Jun

 

31 Dec

 

Carrying

 value

Fair

value

 

Carrying

 value

Fair

value

 

Carrying

 value

Fair

value

Assets

 

 

 

 

 

 

 

 

Loans

1,875

2,245

 

2,086

1,947

 

1,826

2,026

Liabilities

 

 

 

 

 

 

 

 

Core structural borrowings of shareholder-financed businesses

(6,404)

(7,029)

 

(6,249)

(6,728)

 

(6,383)

(7,178)

Operational borrowings (excluding lease liabilities)

(500)

(500)

 

(549)

(549)

 

(501)

(501)

Obligations under funding, securities lending and sale and repurchase agreements

(396)

(396)

 

-

-

 

(271)

(231)

Total continuing operations

(5,425)

(5,680)

 

(4,712)

(5,330)

 

(5,329)

(5,884)

Discontinued US operations

 

 

 

(5,001)

(5,260)

 

(5,497)

(5,516)

Group total

 

 

 

(9,713)

(10,590)

 

(10,826)

(11,400)

 

C3  Policyholder liabilities and unallocated surplus

 

C3.1   Movement in policyholder liabilities and unallocated surplus of with-profits funds from continuing operations

The items below represent the amount attributable to changes in policyholder liabilities and unallocated surplus of with-profits funds as a result of each of the components listed for the continuing operations of the Group. The policyholder liabilities shown include investment contracts without discretionary participation features (as defined in IFRS 4) and their full movement in the period.   The items are shown gross of external reinsurance.  

 

 

 

Half year 2021 $m

 

 

With-

Shareholder-backed business

Total

 

 

profits

business

Unit-linked

 liabilities

Other

business

continuing

operations

At 1 January 2021

86,410

32,506

165,555

Comprising:

 

 

 

 

 

- Policyholder liabilities on the balance sheet

81,193

25,433

144,733

 

- Unallocated surplus of with-profits funds on the balance sheet

5,217

-

-

5,217

 

- Group's share of policyholder liabilities relating to joint ventures and associates note (a)

-

7,073

8,532

15,605

Premiums:note (b)

 

 

 

 

New business

900

1,237

942

3,079

 

In-force

3,617

1,211

2,469

7,297

 

 

4,517

2,448

10,376

Surrendersnotes (b)(c)

(393)

(1,724)

(410)

(2,527)

Maturities/deaths/other claim events

(852)

(101)

(505)

(1,458)

Net flows

3,272

623

6,391

Shareholders' transfers post tax

(62)

-

-

(62)

Investment-related items and other movementsnote (d)

201

997

(2,994)

(1,796)

Foreign exchange translation differencesnote (e)

(578)

(532)

(230)

(1,340)

At 30 June 2021

89,243

33,594

45,911

168,748

Comprising:

 

 

 

 

 

 - Policyholder liabilities on the balance sheet

82,970

25,615

144,809

 

- Unallocated surplus of with-profits funds on the balance sheet

6,273

-

-

6,273

 

- Group's share of policyholder liabilities relating to joint ventures and associates note (a)

-

7,979

9,687

17,666

 

 

 

 

 

 

 

Half year 2020 $m

 

 

With-

Shareholder-backed business

Total

 

 

profits  business

Unit-linked

 liabilities

Other

business

continuing

operations

 

 

 

 

note (g)

 

At 1 January 2020

70,308

28,850

132,756

Comprising:

 

 

 

 

 

- Policyholder liabilities on the balance sheet

65,558

23,571

116,129

 

- Unallocated surplus of with-profits funds on the balance sheet

4,750

-

-

4,750

 

- Group's share of policyholder liabilities relating to joint ventures and associates note (a)

-

5,279

6,598

11,877

Premiums:note (b) 

 

 

 

 

New business

375

909

1,009

2,293

 

In-force

4,216

1,148

2,089

7,453

 

 

4,591

2,057

9,746

Surrendersnotes (b)(c)

(381)

(1,209)

(493)

(2,083)

Maturities/deaths/other claim events

(676)

(87)

(390)

(1,153)

Net flows

3,534

761

6,510

Shareholders' transfers post-tax

(54)

-

-

(54)

Investment-related items and other movementsnotes (d)(g)

3,387

(2,243)

5,419

6,563

Foreign exchange translation differencesnote (e)

(528)

(794)

(264)

(1,586)

At 30 June 2020

76,647

26,574

40,968

144,189

Comprising:

 

 

 

 

 

- Policyholder liabilities on the balance sheet

71,135

21,376

126,269

 

- Unallocated surplus of with-profits funds on the balance sheet

5,512

-

-

5,512

 

- Group's share of policyholder liabilities relating to joint ventures and associates note (a)

-

5,198

7,210

12,408

 

 

 

 

 

Average policyholder liability balancesnote (f)

 

 

 

 

 

Half year 2021

82,082

33,050

46,275

161,407

 

Half year 2020

68,347

27,712

37,283

133,342

 

Notes

(a)  The Group's investments in joint ventures and associates are accounted for on an equity method and the Group's share of the policyholder liabilities as shown above relate to the life business of the China JV, India and the Takaful business in Malaysia.

(b)  The analysis includes the impact of premiums, claims and investment movements on policyholders' liabilities. The impact does not represent premiums, claims and investment movements as reported in the income statement. For example, premiums shown above exclude any deductions for fees/charges; claims (surrenders, maturities, deaths and other claim events) shown above represent the policyholder liabilities provision released rather than the claims amount paid to the policyholder. The analysis also includes net flows of the Group's insurance joint ventures and associate.

(c)   The rate of surrenders for shareholder-backed business (expressed as a percentage of opening policyholder liabilities) was 2.7 per cent in the first half of 2021 (half year 2020: 2.7 per cent).

(d)  Investment-related items and other movements in the first half of 2021 primarily represents the effects of higher interest rates on the discount rates applied in the measurement of the policyholder liabilities, partially offset by higher level of investment returns from equities mainly within with-profits and unit-linked funds.

(e)  Movements in the period have been translated at the average exchange rates for the period ended 30 June 2021 and 2020. The closing balance has been translated at the closing spot rates as at 30 June 2021 and 2020. Differences upon retranslation are included in foreign exchange translation differences.

(f)  Average policyholder liabilities have been based on opening and closing balances, adjusted for any acquisitions, disposals and other corporate transactions arising in the year, and exclude unallocated surplus of with-profits funds.

(g)  The total movement on Africa policyholder liabilities, apart from foreign exchange movements, has been included within Investment-related items and other movements. This balance also includes the benefit of any acquisitions in the period.

 

C3.2  Movement in gross and reinsurers' share of policyholder liabilities

Analysis of the movement in the period of the Group's gross contract liabilities, reinsurer's share of insurance contract liabilities and unallocated surplus of with-profits funds (excluding those held by joint ventures and associates) is provided below:

 

 

Contract

liabilities

Reinsurers' share

of insurance

contract liabilities

Unallocated

surplus of

with-profits funds

 

$m

$m

$m

At 1 January 2021

441,246

(46,595)

5,217

Reclassification of US operations as held for distribution

(296,513)

35,232

-

Income and expense included in the income statementnotes (a)(c)

1,354

1,450

1,070

Other movementsnote (b)

25

-

-

Foreign exchange translation differences

(1,303)

22

(14)

At 30 June 2021

144,809

(9,891)

6,273

 

 

 

 

At 1 January 2020

385,678

(13,856)

4,750

Income and expense included in the income statementnote (a)

 

 

 

  From continuing operations

11,251

(3,466)

742

  From discontinued US operations

(3,696)

(27,600)

-

 

7,555

(31,066)

742

Other movementsnote (b)

 

 

 

  From continuing operations

88

-

-

  From discontinued US operations

(198)

-

-

 

(110)

-

-

Foreign exchange translation differences

(1,199)

4

20

At 30 June 2020

391,924

(44,918)

5,512

 

Notes

(a)  The total charge for benefit and claims in half year 2021 shown in the income statement comprises the amounts shown as 'income and expense included in the income statement' in the table above together with claims paid of $4,143 million in the period (half year 2020: $3,418 million from continuing operations ) and claim amounts attributable to reinsurers of $(269) million (half year 2020: $(217) million from continuing operations ).

(b)  Other movements include premiums received and claims paid on investment contracts without discretionary participating features, which are taken directly to the statement of financial position in accordance with IAS 39.

(c)  The movement in the gross contract liabilities during half year 2021 included the impact of a change to allow for illiquidity premium in the calculation of the valuation interest rate (VIR) used to value long-term insurance liabilities in Thailand. The VIR, after allowing for the illiquidity premium, is more reflective of the product characteristics and the effect of the change was such that the accounting mismatch between the valuation of the assets and insurance liabilities is reduced. The change reduced policyholder liabilities of the Thailand's shareholder-backed business at 30 June 2021 by circa $220 million. The resulting benefit in the income statement was included within short-term fluctuations in investment returns in the Group's supplementary analysis of profit.

(d)  The segmental analysis of the total charge for benefit and claims and movement in unallocated surplus, net of reinsurance in the income statement is shown below:

 

 

 

Half year 2021 $m

 

 

Hong

Kong

Indonesia

Malaysia

Singapore

Growth

markets

and other

Total segment*

 

Claims incurred, net of reinsurance

(818)

(602)

(482)

(1,346)

(755)

(4,003)

 

(Increase) decrease in policyholder liabilities, net of reinsurance

(369)

266

(68)

(2,197)

(307)

(2,675)

 

Movement in unallocated surplus of with-profits funds

(1,121)

-

51

-

-

(1,070)

 

Benefits and claims and movement in unallocated surplus,

net of reinsurance

(2,308)

(336)

(499)

(3,543)

(1,062)

(7,748)

 

 

 

 

 

 

 

 

 

 

Half year 2020 $m

 

 

Hong

Kong

Indonesia

Malaysia

Singapore

Growth

markets

and other

Total segment*

 

Claims incurred, net of reinsurance

(775)

(460)

(376)

(1,046)

(632)

(3,289)

 

(Increase) decrease in policyholder liabilities, net of reinsurance

(7,510)

758

(39)

(473)

(433)

(7,697)

 

Movement in unallocated surplus of with-profits funds

(624)

-

(118)

-

-

(742)

 

Benefits and claims and movement in unallocated surplus,

net of reinsurance

(8,909)

298

(533)

(1,519)

(1,065)

(11,728)

* The China JV segment is a joint venture accounted for using the equity method under IFRS, with the Group's share of its results net of related tax presented in a single line within the Group's profit before tax, and therefore not shown in the analysis of benefit and claims items above.

 

C4  Intangible assets

 

C4.1  Goodwill

Goodwill shown on the consolidated statement of financial position at 30 June 2021 represents amounts allocated to businesses in Asia and Africa in respect of both acquired asset management and life businesses. There has been no impairment as at 30 June 2021.

 

 

2021 $m

 

2020 $m

 

30 Jun

 

30 Jun

31 Dec

Carrying value at beginning of period

961

 

969

969

Exchange differences

(35)

 

(27)

(8)

Carrying value at end of period

926

 

942

961

 

C4.2  Deferred acquisition costs and other intangible assets

 

 

 

2021 $m

 

2020 $m

 

 

30 Jun

 

30 Jun

31 Dec

Deferred acquisition costs and other intangible assets attributable to shareholdersnote C4.3

6,451

 

18,538

20,275

Other intangible assets, including computer software, attributable to with-profits funds

74

 

66

70

Total of deferred acquisition costs and other intangible assets

6,525

 

18,604

20,345

Analysed as:

 

 

 

 

Deferred acquisition costs and other intangible assets from continuing operations

 

 

 

 

 

 Attributable to shareholder-backed businessnote

6,451

 

5,990

6,394

 

Attributable to with-profits business

74

 

66

70

Deferred acquisition costs and other intangible assets from discontinued US operations

-

 

12,548

13,881

Total of Deferred acquisition costs and other intangible assets

6,525

 

18,604

20,345

 

Note

The deferred acquisition costs (DAC) and other intangible assets attributable to shareholders from continuing operations comprise: 

 

 

2021 $m

 

2020 $m

 

30 Jun

 

30 Jun

31 Dec

DAC related to insurance contracts as classified under IFRS 4

2,468

 

2,039

2,319

DAC related to investment management contracts, including life assurance contracts classified as financial instruments and investment management contracts under IFRS 4

37

 

34

34

DAC related to insurance and investment contracts

2,505

 

2,073

2,353

Distribution rights

3,765

 

3,747

3,851

Present value of acquired in-force policies for insurance contracts as classified under

IFRS 4 (PVIF)

31

 

34

34

Other intangibles

150

 

136

156

Present value of acquired in-force (PVIF) and other intangibles attributable to shareholders

3,946

 

3,917

4,041

Total of DAC and other intangible assets

6,451

 

5,990

6,394

 

C4.3  Movement in DAC and other intangible assets attributable to shareholders

 

 

 

 

2021 $m

 

2020 $m

 

 

 

DAC

Other

Half year

 

Half year

 

Full year

 

 

 

 

  intangibles

Total

 

Total 

 

Total 

 

 

 

 

note

 

 

 

 

 

Balance at beginning of period:

16,216

4,059

20,275

 

17,409

 

17,409

Reclassification of US operations as held for distribution

(13,863)

(18)

(13,881)

 

-

 

-

Additions

374

101

475

 

1,518

 

2,471

Amortisation to the income statement:

 

 

 

 

 

 

 

 

From continuing operations

(186)

(145)

(331)

 

(262)

 

(518)

 

From discontinued US operations in the 2020 comparatives

-

-

-

 

(321)

 

374

 

 

 

(186)

(145)

(331)

 

(583)

 

(144)

 

Amortisation of DAC related to the discontinued US operations recognised within other comprehensive income in the 2020 comparatives

-

-

-

 

248

 

494

Disposals and transfers

-

(3)

(3)

 

(13)

 

(12)

Exchange differences and other movements

(36)

(48)

(84)

 

(41)

 

57

Balance at end of period

2,505

3,946

6,451

 

18,538

 

20,275

 

Note

Other intangibles comprise distribution rights, present value of acquired in-force (PVIF) and other intangibles such as software rights. Distribution rights relate to amounts that have been paid or have become unconditionally due for payment as a result of past events in respect of bancassurance partnership arrangements. These agreements allow for bank distribution of Prudential's insurance products for a fixed period of time. Software rights include additions of $11 million, amortisation of $(11) million, foreign exchange of $(3) million and closing balance at 30 June 2021 of $81 million (30 June 2020: $62 million; 31 December 2020: $84 million from continuing operations).

 

C5  Borrowings

 

C5.1  Core structural borrowings of shareholder-financed businesses

 

 

 

 

2021 $m

 

2020 $m

 

 

 

30 Jun

 

30 Jun

31 Dec

Continuing operations:

 

 

 

 

 

Subordinated debt:

 

 

 

 

 

 

US$250m 6.75% Notesnote (i)

250

 

250

250

 

 

US$300m 6.5% Notesnote (i)

300

 

300

300

 

 

US$700m 5.25% Notes

700

 

700

700

 

 

US$1,000m 5.25% Notes

1,000

 

997

999

 

 

US$725m 4.375% Notes

725

 

723

723

 

 

US$750m 4.875% Notes

747

 

746

746

 

 

€20m Medium Term Notes 2023

24

 

22

24

 

 

£435m 6.125% Notes 2031

596

 

533

590

 

Senior debt:note (ii)

 

 

 

 

 

 

£300m 6.875% Notes 2023

411

 

366

406

 

 

£250m 5.875% Notes 2029

317

 

280

312

 

 

$1,000m 3.125% Notes 2030

984

 

982

983

 

Bank loans:

 

 

 

 

 

 

$350m Loan 2024

350

 

350

350

Total continuing operations

6,404

 

6,249

6,383

Discontinued US operations: Jackson US$250m 8.15% Surplus Notes 2027note (iii)

 

 

250

250

Total core structural borrowings of shareholder-financed businesses

 

 

6,499

6,633

 

Notes

(i)  These borrowings can be converted, in whole or in part, at the Company's option and subject to certain conditions, on any interest payment date, into one or more series of Prudential preference shares.

(ii)  The senior debt ranks above subordinated debt in the event of liquidation.

(iii)  Jackson's borrowings are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of Jackson.

 

C5.2  Operational borrowings

 

 

 

 

 

 

 

 

 

2021 $m 

 

2020 $m 

 

 

30 Jun

 

30 Jun

31 Dec

Shareholder-financed business

 

 

 

 

Borrowings in respect of short-term fixed income securities programmes (commercial paper)

500

 

506

501

Lease liabilities under IFRS 16

239

 

260

251

Other borrowings

-

 

24

-

Operational borrowings from continuing operations

739

 

790

752

Discontinued US operations:

 

 

 

 

Non-recourse borrowings of consolidated investment funds

 

 

1,081

994

Lease liabilities under IFRS 16

 

 

58

51

Senior debt issued through the Federal Home Loan Bank of Indianapolis (FHLB)

 

 

73

453

Operational borrowings from discontinued US operations

 

 

1,212

1,498

Group total operational borrowings attributable to shareholder-financed businesses

 

 

2,002

2,250

 

 

 

 

 

 

With profits business

 

 

 

 

Lease liabilities under IFRS 16

156

 

224

194

Other borrowings

-

 

19

-

Total continuing and Group total operational borrowings attributable to with-profits businesses

156

 

243

194

Group total operational borrowings

895

 

2,245

2,444

 

C6  Sensitivity analysis to key market risks

 

The Group's risk framework and the management of risks, including those attached to the Group's financial statements, including financial assets, financial liabilities and insurance liabilities, have been included in the Group Chief Risk and Compliance Officer's report on the risks facing our business and how these are managed.  The following sections set out the sensitivity of the Group's profit or loss and shareholders' equity from the continuing operations to instantaneous changes in interest rates and equity levels, which are then assumed to remain unchanged for the long term. Further information of the Group's sensitivity to key risks was set out in the Group's financial statements for the year ended 31 December 2020.

 

C6.1  Continuing insurance operations

The table below shows the sensitivity of shareholders' equity as at 30 June 2021, 30 June 2020 and 31 December 2020 for continuing insurance operations to the following market risks:

 

-  1 per cent increase and 0.5 per cent decrease in interest rates (based on local government bond yields at the valuation date) in isolation and subject to a floor of zero; and

-  Instantaneous 10 per cent rise and 20 per cent fall in the market value of equity and property assets. The equity risk sensitivity analysis assumes that all equity indices fall by the same percentage.

 

The sensitivities below only allow for limited management actions such as changes to policyholder bonuses, where applicable. If the economic conditions set out in the sensitivities persisted, the financial impacts may differ to the instantaneous impacts shown below. Given the continuous risk management processes in place, management could take additional actions to help mitigate the impact of these stresses, including (but not limited to) rebalancing investment portfolios, increased use of reinsurance, repricing of in-force benefits, changes to new business pricing and the mix of new business being sold. The sensitivities reflect all consequential impacts from market movements at the valuation date. Where liabilities are directly valued using short-term historic average rates, the average interest rates in the sensitivities are adjusted accordingly and reflected in the impact on these liabilities. These sensitivities do not include movements in credit risk, such as movements in credit spreads, and hence the valuation of debt securities and policyholder liabilities. A one-letter credit downgrade in isolation (ie ignoring any consequential change in valuation) would not have a material impact on IFRS profit or shareholders' equity.

 

 

 

 

 

 

 

Net effect on shareholders' equity from continuing insurance operations

2021 $m

 

2020 $m

 

 

30 Jun

 

30 Jun

31 Dec

Shareholders' equity from continuing insurance operations

13,287

 

10,619

12,861

 

Sensitivity to key market risks*:

 

 

 

 

 

Interest rates and consequential effects - 1% increase

(533)

 

64

(318)

 

Interest rates and consequential effects - 0.5% decrease

(381)

 

(1,203)

(1,274)

 

Equity/property market values - 10% rise

387

 

302

410

 

Equity/property market values - 20% fall

(803)

 

(559)

(848)

* The effect from the changes in interest rates or equity and property prices above, if they arose, would impact profit after tax for the continuing insurance operations and would mostly be recorded within short-term fluctuations in investment returns. The impact on profit after tax would be the same as the net effect on shareholders' equity. In the context of the Group, the results of the Africa insurance operations are not materially impacted by interest rate or equity rate changes.

 

The degree of sensitivity of the results of the non-linked shareholder-backed business of the continuing insurance operations to movements in interest rates depends upon the degree to which the liabilities under the 'grandfathered' IFRS 4 measurement basis reflects market interest rates from period to period. This varies by business unit.

 

For example:

 

-  Certain businesses apply US GAAP, for which the results can be more sensitive as the effect of interest rate movements on the backing investments may not be offset by liability movements;

-  The level of options and guarantees in the products written in a particular business unit will affect the degree of sensitivity to interest rate movements; and

-  The degree of sensitivity of the results is dependent on the interest rate level at that point of time.

 

The sensitivity of the insurance operations presented as a whole at a given point in time will also be affected by a change in the relative size of the individual businesses.

 

For many operations the sensitivities are dominated by the impact of interest rate movements on the value of government and corporate bond investments, which are expected to decrease in value as interest rates increase to a greater extent than the offsetting decrease in liabilities. This arises because the discount rate in some operations does not fluctuate in line with interest rate movements. At higher levels of interest rates, the liabilities become less sensitive to interest rate movements and the effects on assets becomes more dominant, as is observed at 30 June 2021 with interest rates being higher than at 31 December 2020.

 

The 'decrease of 0.5%' sensitivities reflects that some business units' liabilities become more sensitive at a further decrease in interest rates and the increases in liabilities as rates decrease begin to exceed asset gains. The liability movements also reflect the prudent nature of some of the regulatory regimes which leads to duration of liabilities that are longer than would be expected on a more economic basis and hence results in a mismatch with the assets that are managed on a more realistic basis. Following increases in interest rates over the first half of 2021,   under a 0.5% decrease of interest rate scenario the increases in liabilities still exceed the asset gains, however at the higher interest rates at 30 June 2021 the impacts are smaller than at the very low rates observed during 2020. As noted above, the results only allow for limited management actions, and if such economic conditions persisted management could take additional actions to help mitigate the impact of these stresses, including (but not limited to) rebalancing investment portfolios, increased use of reinsurance, changes to new business pricing and the mix of new business being sold.

 

Generally, changes in equity and property investment values are not directly offset by movements in non-linked policyholder liabilities. Movements in equities backing with-profits and unit-linked business have been excluded as they are generally matched by an equal movement in insurance liabilities (including unallocated surplus of with-profits funds). The impact on changes to future profitability as a result of changes to the asset values within unit-linked or with-profits funds have not been included in the sensitivity above. The estimated sensitivities shown above include equity and property investments held by the Group's joint venture and associate businesses.

 

C6.   2 Eastspring and central operations

The profit for the period of asset management operations is sensitive to the level of assets under management, as this significantly affects the value of management fees earned by the business in the current and future periods.

 

The Group's asset management and central operations do not hold significant financial investments. At 30 June 2021, the financial investments of the central operations are principally short-term treasury bills and money market funds held by the Group's treasury function for liquidity purposes and so there is limited sensitivity to interest rate movements.

 

C7  Deferred tax assets and liabilities

 

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

 

 

Half year 2021 $m

 

Balance

at 1 Jan

Remove

discontinued

US operations

Movement in

income

statement

Other

movements

including

foreign

exchange

movements

Balance

at 30 Jun

Deferred tax assets

 

 

 

 

 

Unrealised losses or gains on investments

-

-

1

-

1

Balances relating to investment and insurance contracts

87

-

(1)

(37)

49

Short-term temporary differences

4,662

(4,513)

5

(3)

151

Unused tax losses

109

(29)

16

1

97

Total

4,858

(4,542)

21

(39)

298

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

 

Unrealised losses or gains on investments

(1,063)

691

73

2

(297)

Balances relating to investment and insurance contracts

(1,765)

-

(322)

71

(2,016)

Short-term temporary differences

(3,247)

2,832

(14)

7

(422)

Total

(6,075)

3,523

(263)

80

(2,735)

 

 

 

 

 

 

 

Half year 2020 $m

 

Balance

at 1 Jan

Movement in

income

statement

Movement

through

other

comprehensive

income

Other

movements

including

foreign

exchange

movements

Balance

at 30 Jun

Deferred tax assets

 

 

 

 

 

Unrealised losses or gains on investments

 - 

 - 

-

1

1

Balances relating to investment and insurance contracts

32

8

-

(1)

39

Short-term temporary differences

133

27

-

(5)

155

Unused tax losses

106

(47)

-

1

60

Total continuing operations

271

(12)

-

(4)

255

Discontinued US operations

3,804

194

-

6

4,004

Group total

4,075

182

-

2

4,259

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

 

Unrealised losses or gains on investments

(289)

19

-

5

(265)

Balances relating to investment and insurance contracts

(1,507)

(110)

-

68

(1,549)

Short-term temporary differences

(350)

(17)

-

6

(361)

Total continuing operations

(2,146)

(108)

-

79

(2,175)

Discontinued US operations

(3,091)

(11)

7

(8)

(3,103)

Group total

(5,237)

(119)

7

71

(5,278)

 

C8  Share capital, share premium and own shares

 

 

30 Jun 2021

 

30 Jun 2020

 

31 Dec 2020

Issued shares of 5p each

Number of

ordinary

shares

Share

capital

Share

premium

 

Number of

ordinary

shares

Share

capital

Share

premium

 

Number of

ordinary

shares

Share

capital

Share

premium

fully paid:

 

$m

$m

 

 

$m

$m

 

 

$m

$m

Balance at beginning of period

2,609,489,702

173

2,637

 

2,601,159,949

172

2,625

 

2,601,159,949

172

2,625

Shares issued under share-based schemes

6,121,839

-

8

 

7,700,498

-

10

 

8,329,753

1

12

Balance at end of period

2,615,611,541

173

2,645

 

2,608,860,447

172

2,635

 

2,609,489,702

173

2,637

 

Options outstanding under save as you earn schemes to subscribe for shares at each period end shown below are as follows:

 

 

Number of shares

 

Share price range

 

Exercisable

 

to subscribe for

 

from

to

 

by year

30 Jun 2021

1,774,131

 

964p

1,455p

 

2026

30 Jun 2020

2,197,782

 

1,104p

1,455p

 

2025

31 Dec 2020

2,320,320

 

964p

1,455p

 

2026

 

Transactions by Prudential plc and its subsidiaries in Prudential plc shares

The Group buys and sells Prudential plc shares ('own shares') in relation to its employee share schemes. The cost of own shares of $261 million at 30 June 2021 (30 June 2020: $237 million; 31 December 2020: $243 million) is deducted from retained earnings. The Company has established trusts to facilitate the delivery of shares under employee incentive plans. At 30 June 2021, 11.4 million (30 June 2020: 11.5 million; 31 December 2020: 11.2 million) Prudential plc shares with a market value of $217 million (30 June 2020: $173 million; 31 December 2020: $205 million) were held in such trusts, all of which are for employee incentive plans. The maximum number of shares held during the period was 15.1 million which was in March 2021.

 

Within the trusts, shares are notionally allocated by business unit reflecting the employees to which the awards were made.

 

The Company purchased the following number of shares in respect of employee incentive plans:

 

 

Number of shares

purchased

(in millions)

Cost*

$m

Half year 2021

2.8

60.1

Half year 2020

5.8

75.2

Full year 2020

6.3

83.0

* The cost in USD shown has been calculated from the share prices in pounds sterling using the monthly average exchange rate for the month in which those shares were purchased.

 

All share transactions were made on an exchange other than the Stock Exchange of Hong Kong.

 

Other than set out above, the Group did not purchase, sell or redeem any Prudential plc listed securities during half year 2021 or 2020.

 

D  OTHER INFORMATION

 

D1  C orporate transactions

 

D1.1  (Loss) gain attaching to corporate transactions

 

 

2021 $m

 

2020 $m

 

Half year

 

Half year

Full year

Loss attaching to corporate transactions as shown separately on the condensed consolidated income statementnote (i)

(56)

 

-

(30)

(Loss) gain arising on reinsurance transaction undertaken by the Hong Kong businessnote (ii)

(38)

 

-

765

Total (loss) gain attaching to corporate transactions from continuing operationsnote B1.1

(94)

 

-

735

 

Notes

(i)  The loss attaching to corporate transactions includes $(28) million incurred by Prudential plc during the period (full year 2020: $(20) million) of costs associated with the separation of Jackson. Additionally, the half year 2021 amount includes $(28) million of payment for the termination of loss of office made to the former chief executive of Jackson as discussed further in note D4.

(ii)  The benefit in full year 2020 arose from a co-reinsurance quota share transaction undertaken by the Hong Kong business in December 2020 as part of the Group's on-going asset/liability management. Surpluses (or losses) arising from the business being reinsured are shared with the reinsurer in accordance with the terms of the treaty. During half year 2021, the treaty resulted in $(38) million being due to the reinsurer for surpluses arising on the policies being reinsured with the amounts recognised within 'Outward reinsurance premiums', 'Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance' and 'Acquisition costs and other expenditure' in the condensed consolidated income statement. This treaty helps mitigate the effect of   the accounting mismatch under the existing regulatory framework in Hong Kong and is part of our management of the transition to the new RBC regime.

 

D1.2  Discontinued US operations held for distribution

In January 2021, the Board of Prudential plc announced that it had decided to pursue the separation of its US operations (Jackson) from the Group through a demerger, whereby shares in Jackson would be distributed to Prudential shareholders. In May 2021, the Group announced that it expected to complete the demerger in the second half of 2021, subject to regulatory and shareholder approvals. In accordance with IFRS 5, 'Non-current assets held for sale and discontinued operations', the US operations have therefore been classified as both held for distribution and discontinued operations within these condensed consolidated financial statements.

 

At the point of demerger, Prudential plc is planning to retain a 19.9 per cent non-controlling voting interest (19.7 per cent economic interest) in Jackson, which will be reported within the consolidated financial position as a financial investment at fair value in other operations. Subject to market conditions, the Group intends to monetise a portion of this investment to support investment in Asia within 12 months of the planned demerger, such that the Group will own less than 10 per cent at the end of such period.

 

In light of the foreseeable realisation of the investment, a loss on remeasurement to fair value has been recognised of $(7,507) million in half year 2021, reducing the carrying value of Jackson to its fair value. $(6,674) million of this remeasurement relates to the Group's 88.9 per cent economic interest in Jackson, with the remaining $(833) million attributable to non-controlling interests. The fair value has been determined with reference to a valuation range determined by considering publicly available information on listed equities of similar profile to Jackson in the US market, which is set by considering the ratio of quoted market capitalisation to net asset value in published financial statements, excluding accumulated unrealised investment gains recognised in other comprehensive income, together with valuations implied by dividend and stock repurchase yields, and applying these ratios to Jackson's net assets and expected dividends and stock repurchases.

 

As Jackson is an unlisted entity, the fair value of the Group's interest is inherently uncertain. On completion of the proposed demerger Jackson will become a separately listed entity and its market value will become directly observable, which may differ from the current estimate. To reflect this uncertainty, the estimate of the fair value of Jackson includes a discount to the valuation ratios of similar peer entities, representing our best estimate within the valuation range placing the valuation in the middle of the valuation range. If a valuation at the bottom of the estimated range were selected, the loss on remeasurement to fair value at 30 June 2021 would increase by $(500) million, with $(445) million attributable to the Group's economic interest in Jackson.

 

On completion of the proposed demerger the Group's pre-demerger interest in Jackson will be remeasured to its observable fair value at that date, with any remeasurement gain or loss recognised in the results of discontinued operations. At the same time, the fair value of the interest in Jackson distributed to the Group's shareholders will be recognised directly as a reduction in Group equity. The planned 19.9 per cent retained interest (19.7 per cent economic interest) of Jackson to be held post demerger will be held at fair value within the IFRS balance sheet going forward.

 

The results for the discontinued US operations presented in the condensed consolidated financial statements are analysed below.

 

(i)  Income statement

 

 

2021 $m

 

2020 $m

 

Half year

 

Half year

Full year

Gross premiums earned

9,969

 

8,892

19,026

Outward reinsurance premiumsnote (a)

(187)

 

(30,195)

(30,584)

Earned premiums, net of reinsurance

9,782

 

(21,303)

(11,558)

Investment return and other income

25,597

 

(247)

31,321

Total revenue, net of reinsurancenote (b)

35,379

 

(21,550)

19,763

Benefits and claims, net of reinsurance

(32,025)

 

21,583

(19,617)

Acquisition costs and other expenditure

(1,133)

 

(236)

(888)

Loss attaching to corporate transactionsnote (c)

(51)

 

-

(18)

Total charge, net of reinsurance

(33,209)

 

21,347

(20,523)

Profit (loss) before tax

2,170

 

(203)

(760)

Tax (charge) credit

(370)

 

115

477

Profit (loss) after tax

1,800

 

(88)

(283)

Re-measurement to fair value

(7,507)

 

-

-

Loss for the period

(5,707)

 

(88)

(283)

Attributable to:

 

 

 

 

Equity holders of the Company

(5,073)

 

(88)

(340)

Non-controlling interests from continuing operations

(634)

 

-

57

Loss for the period

(5,707)

 

(88)

(283)

 

Notes

(a)  In 2020, outward reinsurance premiums included $(30.2) billion paid during the period in respect of the reinsurance of substantially all of Jackson's in-force fixed and fixed indexed annuity liabilities to Athene Life Re Ltd.

(b)  Included within total revenue is intragroup revenue received by the US operations from the continuing operations of $19 million (half year 2020: $17 million; full year 2020: $37 million).

(c)  Loss attaching to corporate transactions comprises the costs incurred by Jackson during half year 2021 and the second half of 2020 in relation to the demerger.

 

(ii)  Total comprehensive income

 

 

 

2021 $m

 

2020 $m

 

 

Half year

 

Half year

Full year

Loss for the period

(5,707)

 

(88)

(283)

Other comprehensive (loss) income

 

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

 

 

Valuation movements on available-for-sale debt securities in the period

(1,232)

 

2,540

2,717

Valuation movements on available-for-sale debt securities recycled to profit or loss

25

 

(2,817)

(2,817)

 

 

(1,207)

 

(277)

(100)

Related change in amortisation of DAC

99

 

248

494

Related tax

241

 

7

(102)

Total items that may be reclassified subsequently to profit or loss

(867)

 

(22)

292

Total comprehensive (loss) income for the period

(6,574)

 

(110)

9

Attributable to:

 

 

 

 

Equity holders of the Company

(5,844)

 

(110)

(40)

Non-controlling interests from continuing operations

(730)

 

-

49

Total comprehensive (loss) income for the period

(6,574)

 

(110)

9

 

(iii)  Balance sheet

 

 

 2021 $m

 

2020 $m

 

30 Jun

 

30 Jun

31 Dec

Assets

 

 

 

 

Deferred acquisition costs and other intangible assets

13,836

 

12,549

13,881

Reinsurers' share of insurance contract liabilities

34,263

 

35,993

35,232

Separate account assetsnotes (a)(b)

239,806

 

184,220

219,062

Other financial investmentsnotes (b)(c)

48,929

 

55,972

52,745

Other assetsnote (d)

4,975

 

5,393

5,939

Cash and cash equivalents

1,161

 

2,493

1,621

Adjustment for remeasurement of the carrying value of the business to fair valuenote (d)

(7,210)

 

-

-

Total assets held for distribution

335,760

 

296,620

328,480

Equity

 

 

 

 

Shareholders' equity

2,667

 

8,955

8,511

Non-controlling interests

333

 

-

1,063

Total Equity

3,000

 

8,955

9,574

Liabilities

 

 

 

 

Policyholder liabilitiesnote (a)

311,947

 

265,655

296,513

Other liabilitiesnotes (b)(d)

20,761

 

21,962

22,350

Derivative liabilitiesnote (b)

52

 

48

43

Total liabilities

332,760

 

287,665

318,906

Total equity and liabilities

335,760

 

296,620

328,480

 

Notes

(a)  The separate account assets comprise investments in mutual funds attaching to the variable annuity business that are held in the separate account. The related liabilities are reported in policyholder liabilities at an amount equal to the separate account assets.

(b)  The table below shows the analysis of the underlying financial assets and liabilities carried at fair value as at 30 June 2021, analysed by level of the IFRS 13, 'Fair Value Measurement' defined fair value hierarchy. Analysis of fair value hierarchy for comparative periods is provided in note C2.2(i).

 

 

 

 

30 Jun 2021 $m

 

 

Level 1

Level 2

Level 3*

 

 

 

Quoted prices

(unadjusted)

 in active markets

Valuation

based on

significant

observable

market inputs

Valuation

based on

significant

unobservable

market inputs

Total

 

Loans

-

-

3,538

3,538

 

Equity securities and holdings in collective investment schemes

239,814

58

103

239,975

 

Debt securities

4,468

28,529

31

33,028

 

Other investments (including derivative assets)

-

1,466

1,968

3,434

 

Derivative liabilities

-

(52)

-

(52)

 

Total financial investments, net of derivative liabilities

244,282

30,001

5,640

279,923

 

Net asset value attributable to unit holders of consolidated investment funds

-

-

(599)

(599)

 

Other financial liabilities held at fair value

-

-

(3,704)

(3,704)

 

Discontinued US operations' total financial instruments at fair value

244,282

30,001

1,337

275,620

* The reconciliation of the movements in the level 3 assets and liabilities measured at fair value of the discontinued US operations is provided in note C2.2(iii).

 

(c)  Excluding cash deposits, accrued income, other debtors, accruals, deferred income and other liabilities where carrying value approximates fair value, the IFRS value of the financial assets and liabilities carried at amortised cost of the discontinued US operations was a net liability of $(4,057) million at 30 June 2021. This compares to a corresponding fair value of $(4,061) million.

(d)  Represents the residual adjustment required to remeasure the disposal group at fair value, after the impairment has been allocated to individual classes of asset that are within the scope of the measurement requirements of IFRS 5 to the maximum extent possible. Of the total impairment recognised of $7,507 million; $297 million has been allocated to property, plant and equipment (presented within other assets above).

 

D2  Contingencies and related obligations

 

The Group is involved in various litigation and regulatory proceedings. These may from time to time include class actions involving Jackson. While the outcome of such litigation and regulatory issues cannot be predicted with certainty, the Group believes that their ultimate outcome will not have a material adverse effect on the Group's financial condition, results of operations or cash flows.

 

There have been no material changes to the Group's contingencies and related obligations in the six months ended 30 June 2021.

 

D3  Post balance sheet events

 

First interim ordinary dividend

The 2021 first interim ordinary dividend approved by the Board of Directors after 30 June 2021 is as described in note B5.

 

D4  Related party transactions

 

Save for the following, the nature of the related party transactions of the Group has not changed from those described in note D4 to the Group's consolidated financial statements for the year ended 31 December 2020.

 

On 5 April 2021, pursuant to a separation agreement, Jackson National Life agreed to pay circa $23.5 million to Michael Falcon, the former chief executive officer of Jackson, as a series of cash lump sum payments for termination of loss of office, and agreed that Mr. Falcon will retain 98,311 Prudential ADRs that had been previously deferred under the Deferred Annual Incentive Plan. Prudential has agreed to reimburse Jackson National Life for such payments. On completion of the demerger, the Prudential ADRs will be translated into Jackson Shares with an equivalent value. They will be released on the original timeline, ie in 2022 and 2023, and will remain subject to the original malus and clawback provisions. Other than these transactions, there were no transactions with related parties during the six months ended 30 June 2021 which have had a material effect on the results or financial position of the Group.

 

Statement of Directors' responsibilities

 

The Directors (who are listed below) are responsible for preparing the Half Year Financial Report in accordance with applicable law and regulations.

 

Accordingly, the Directors confirm that to the best of their knowledge:

 

-  the condensed consolidated financial statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted for use in the UK;

 

-  the Half Year Financial Report includes a fair review of information required by:

 

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the six months ended 30 June 2021, and their impact on the condensed consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place during the six months ended 30 June 2021 and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the Group's consolidated financial statements for the year ended 31 December 2020 that could do so.

 

 

 

Prudential plc Board of Directors:

 

Chair

Shriti Vadera

 

Executive Directors

Michael Wells

Mark FitzPatrick CA

James Turner FCA FCSI FRM

 

Independent Non-executive Directors

The Hon. Philip Remnant CBE FCA

Jeremy Anderson CBE

Chua Sock Koong

David Law ACA

Ming Lu

Anthony Nightingale CMG SBS JP

Alice Schroeder

Thomas Watjen

Fields Wicker-Miurin OBE

Jeanette Wong

Amy Yip

 

10 August 2021

Independent Review Report to Prudential plc 

 

Conclusion

We have been engaged by the Company to review the condensed set of financial statements in the Half Year Financial Report for the six months ended 30 June 2021 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes.

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half Year Financial Report for the six months ended 30 June 2021 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA').

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the Half Year Financial Report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 

 

Directors' responsibilities

The Half Year Financial Report, including the IFRS condensed set of financial statements therein, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Year Financial Report in accordance with the DTR of the UK FCA.

 

The latest annual financial statements of the Group were prepared in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the next annual financial statements will be prepared in accordance with UK-adopted international accounting standards. The Directors are responsible for preparing the condensed set of financial statements included in the Half Year Financial Report in accordance with IAS 34 as adopted for use in the UK.

 

Our responsibility 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half Year Financial Report based on our review.

 

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review of the condensed set of financial statements has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

 

 

Philip Smart

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London

E14 5GL

10 August 2021

 

I  Additional financial information

 

I(i)  Group capital position

 

Overview

Prudential applies the Insurance (Group Capital) Rules set out in the Group-wide Supervision (GWS) Framework issued by the Hong Kong Insurance Authority (IA) to determine group regulatory capital requirements (both minimum and prescribed levels). The GWS Framework became effective for Prudential upon designation by the Hong Kong IA on 14   May 2021 and replaced the local capital summation method (LCSM) which was used for determination of the 31 December 2020 Group capital position as agreed with the Hong Kong IA .

 

The GWS methodology is largely consistent with that previously applied under LCSM with the exception of the treatment of debt instruments which are subject to transitional arrangements under the GWS Framework. Under the GWS Framework, all debt instruments (senior and subordinated) issued by Prudential plc at the date of designation meet the transitional conditions set by the Hong Kong IA and are included as eligible group capital resources. Under the LCSM, only specific bonds (being those subordinated debt instruments issued by Prudential plc at the date of demerger of M&G plc) were included as eligible group capital resources.

 

Had Prudential been subject to the GWS Framework at 31 December 2020, the Group shareholder GWS capital surplus over the Group Minimum Capital Requirement (GMCR) would have been $12.6 billion equivalent to a coverage ratio of 361 per cent, compared to a surplus of $11.0 billion and coverage ratio of 328 per cent as reported under the LCSM. On a Group shareholder excluding Jackson basis the GWS capital surplus (over GMCR) would have been $9.4 billion equivalent to a coverage ratio of 370 per cent, compared to a surplus of $7.8 billion and coverage ratio of 323 per cent as reported under the LCSM. Further detail on the GWS Framework's Insurance (Group Capital) Rules are included in the basis of preparation section below.

 

Applying this GWS basis, the Prudential Group total regulatory GWS capital coverage ratio of total capital resources over the regulatory GMCR at 30 June 2021 was 351 per cent ( 31 December 2020: 343 per cent) , before allowing for the payment of the 2021 first interim ordinary dividend. The Group holds material participating business in Hong Kong, Singapore and Malaysia. If the capital resources and minimum capital requirement attributed to this policyholder business are excluded, then the Prudential Group shareholder GWS capital coverage ratio of capital resources over the GMCR at 30 June 2021 was 380 per cent (31 December 2020: 361 per cent) , before allowing for the payment of the 2021 first interim ordinary dividend.

 

The Prudential Group excluding Jackson total regulatory GWS capital surplus of capital resources over the regulatory GMCR at 30 June 2021 was $26.6 billion, before allowing for the payment of the 2021 first interim ordinary dividend, equating to a coverage ratio of 349 per cent. Excluding the capital resources and minimum capital requirement of participating business in Hong Kong, Singapore and Malaysia, the Prudential Group shareholder excluding Jackson GWS capital surplus of capital resources over the GMCR at 30 June 2021 was $10.1 billion, before allowing for the payment of the 2021 first interim ordinary dividend, equating to a coverage ratio of 383 per cent.   The GWS group capital adequacy requirements have been met since the GWS Framework became effective for Prudential upon designation .

 

Estimated Group excluding Jackson GWS capital position based on Group Minimum Capital Requirement (GMCR)note (1,2)

 

 

30 Jun 2021

 

31 Dec 2020

Amounts attributable to Prudential plc

Total

Less

policyholder

Shareholder

 

Total

Less

policyholder

Shareholder

Capital resources ($bn)

37.2

(23.6)

13.6

 

34.9

(22.1)

12.8

Group Minimum Capital Requirement ($bn)

10.6

(7.1)

3.5

 

10.1

(6.7)

3.4

GWS capital surplus (over GMCR) ($bn)

26.6

(16.5)

10.1

 

24.8

(15.4)

9.4

GWS coverage ratio (over GMCR) (%)

349%

 

383%

 

344%

 

370%

 

Further detail on the Group shareholder excluding Jackson GWS capital position is presented below at 30 June 2021 and 31 December 2020 for comparison:

 

 

 

 

 

Shareholder

30 Jun 2021 ($bn)

Total Asia

and Africa

Less policyholder

 

Asia and Africa

Unallocated

to a segment

Group

Capital resources

35.7

(23.6)

 

12.1

1.5

13.6

Group Minimum Capital Requirement

10.6

(7.1)

 

3.5

-

3.5

GWS capital surplus (over GMCR)

25.1

(16.5)

 

8.6

1.5

10.1

 

 

 

 

 

 

 

 

 

 

 

Shareholder

31 Dec 2020 ($bn)

Total Asia

and Africa

Less policyholder

 

Asia and Africa

Unallocated

to a segment

Group

Capital resources

33.7

(22.1)

 

11.6

1.2

12.8

Group Minimum Capital Requirement

10.1

(6.7)

 

3.4

-

3.4

GWS capital surplus (over GMCR)

23.6

(15.4)

 

8.2

1.2

9.4

 

Notes

(1)  The Group total regulatory results presented in the tables above reflect the Insurance (Group Capital) Rules as set out in the GWS Framework. In particular, the 31 December 2020 capital results have been restated from those previously disclosed on a LCSM basis to reflect the treatment of grandfathered debt instruments under the GWS Framework, this increased eligible group capital resources by $1.6 billion compared to the LCSM basis.

(2)  The Group excluding Jackson GWS capital positions are presented before including the value of the proposed retained 19.7 per cent non-controlling economic interest in US operations. This retained interest is expected to be included in the Group capital resources valued at 60 per cent of the market value.

 

Sensitivity analysis

The estimated sensitivity of the Group shareholder excluding Jackson GWS capital position (based on GMCR) to changes in market conditions at 30 June 2021 is shown below.

 

 

 

30 Jun 2021

Impact of market sensitivities

Surplus

($bn)

Ratio

 (%)

Base position

10.1

383%

Impact of:

 

 

 

10% increase in equity markets

0.3

6%

 

20% fall in equity markets

(0.6)

(6)%

 

40% fall in equity markets

(1.0)

(4)%

 

50 basis points reduction in interest rates

(0.3)

(20)%

 

100 basis points increase in interest rates

(0.5)

(2)%

 

100 basis points increase in credit spreads

(0.3)

(1)%

 

The sensitivity results above assume instantaneous market movements and reflect all consequential impacts as at the valuation date . The sensitivity results also allow for limited management actions such as changes to future policyholder bonuses and rebalancing investment portfolios where relevant . If such economic conditions persisted, the financial impacts may differ to the instantaneous impacts shown above. In this case management could also take additional actions to help mitigate the impact of these stresses. These actions include, but are not limited to, market risk hedging, further rebalancing of investment portfolios, increased use of reinsurance, repricing of in-force benefits, changes to new business pricing and the mix of new business being sold.

 

Analysis of movement in Group shareholder excluding Jackson capital surplus

A summary of the estimated movement in the Group shareholder excluding Jackson capital surplus (based on GMCR) from $7.8 billion at 31 December 2020 on a LCSM basis to $ 10.1 billion at 30 June 2021 on a GWS basis is set out in the table below.

 

 

 

2021 $bn

 

 

Half year

Balance at beginning of period on a LCSM basis

7.8

Treatment of grandfathered debt instruments under the GWS Framework

1.6

Restated balance at beginning of period on a GWS basis

9.4

Operating:

 

 

Operating capital generation from the in-force business

0.8

 

Investment in new business

(0.1)

Operating capital generation

0.7

Non-operating and other capital movements:

 

 

Non-operating experience (including market movements)

0.1

 

Corporate activities

0.2

Non-operating results

0.3

External dividends

(0.3)

Net movement in shareholder capital surplus

2.3

Balance at end of period

10.1

 

The estimated movement in the Group shareholder excluding Jackson capital surplus over 2021 is driven by:

 

Operating capital generation of $0.7 billion: generated by the expected return on in-force business partially offset by the strain on new business written during the period;  

Non-operating experience of $0.1 billion : this includes the beneficial impact on GWS capital surplus from higher equity markets and increasing interest rates, partially offset by a negative impact from foreign currency translation over the period;

-  Corporate activities of $0.2 billion : this is the effect on GWS capital surplus of corporate transactions in the period, which in 2021 comprised of the issuance of subordinated debt in China in June 2021, partially offset by the extension of the strategic bancassurance partnership with MSB in Vietnam; and 

Net dividend impact of $(0.3) billion: this is the payment of external dividends during half year 2021.

 

Reconciliation of Group shareholder excluding Jackson GWS capital surplus to EEV free surplus (excluding intangibles)

 

 

30 Jun 2021 $bn

 

Asia and Africa

Unallocated to a segment

Group total

Estimated Group shareholder excluding Jackson GWS capital surplus (over GMCR)

8.6

1.5

10.1

Increase required capital for EEV free surplusnote (a)

(0.7)

-

(0.7)

Adjust surplus assets to market valuenote (b)

0.4

-

0.4

Add back inadmissible assetsnote (c)

0.2

-

0.2

Deductions applied to EEV free surplusnote (d)

(3.3)

-

(3.3)

Other

-

0.2

0.2

Add investment in Jackson held at fair value for EEV

-

2.7

2.7

EEV free surplus excluding intangibles*

5.2

4.4

9.6

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

 

Notes

(a)  Required capital under EEV is set at least equal to local statutory notification requirements and so can differ from the minimum capital requirement.

(b)  The EEV Principles require surplus assets to be included at fair value. Within the Group GWS capital surplus, some local regulatory regimes value certain assets at cost.

(c)  Group GWS capital surplus restricts the valuation of certain sundry non-intangible assets. In most cases these assets are considered fully recognisable in free surplus.

(d)  Deductions applied to EEV free surplus primarily include: the impact of reporting EEV free surplus for Singapore based on the Tier 1 requirements under the RBC2 framework, which removes certain negative reserves permitted to be recognised in the full RBC 2 regulatory position used for Group GWS capital surplus, and applying the embedded value reporting approach issued by the China Association of Actuaries (CAA) within EEV free surplus as compared to the C-ROSS surplus reported for local regulatory purposes (predominantly arising from the requirement under the CAA embedded value methodology to establish a deferred profit liability within EEV net worth).

 

Reconciliation of Group IFRS shareholders' equity to Group shareholder excluding Jackson GWS capital resources position

 

 

30 Jun 2021

$bn

Group IFRS shareholders' equity

15.7

Less investment in Jackson held at fair value for IFRS

(2.7)

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

(7.2)

Add grandfathered debt treated as capital instruments at the net proceeds valuenote (a)

6.0

Valuation differencesnote (b)

2.0

Othernote (c)

(0.2)

Estimated Group shareholder excluding Jackson GWS capital resources

13.6

 

Notes

(a)  As per the GWS Framework, subordinated and senior debt in issuance at the date of designation that satisfy the criteria for transitional arrangements are included as Group capital resources based on their net proceeds value but are treated as liabilities under IFRS.

(b)  Valuation differences reflect differences in the basis of valuing assets and liabilities between IFRS and local statutory valuation rules, including deductions for inadmissible assets. Material differences include in Singapore where the local capital resources under RBC2 permits the recognition of certain negative reserves in the local statutory position that are not recognised under IFRS.

(c)  Other differences include the consequential impact on non-controlling interests arising from the other reconciling items and in China a difference from the inclusion of subordinated debt as local capital resources on a C-ROSS basis as compared to being held as a liability under IFRS.

 

Basis of preparation for the Group GWS capital position (prior to the demerger of Jackson)

 

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

 

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

 

For regulated insurance entities, capital resources and required capital are based on the local solvency regime applicable in each jurisdiction, with minimum required capital set at the solo legal entity statutory minimum capital requirements;

For the US insurance entities included in the Group GWS capital position , capital resources and required capital are based on the local US RBC framework set by the NAIC and not on a fair value basis as has been included in the IFRS and EEV results , the minimum required capital is set at 100 per cent of the CAL RBC and results reflect Prudential's 88.9 per cent economic interest in Jackson Financial Inc. ;

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

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

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

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

Under the GWS Framework, all debt instruments (senior and subordinated) issued by Prudential plc at the date of designation meet the transitional conditions set by the Hong Kong IA and are included as GWS eligible group capital resources. The eligible amount permitted to be included as Group capital resources is based on the net proceeds amount translated using 31 December 2020 exchange rates for debt not denominated in US dollars.

 

I(ii)  Analysis of adjusted operating profit by driver

 

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

 

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

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

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

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

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

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

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

 

The following analysis expresses certain of the Group's sources of adjusted operating profit from continuing operations as a margin of policyholder liabilities or other relevant drivers.   The half year 2020 comparative information has been presented at both AER and CER to eliminate the impact of exchange translation.

 

 

 

Half year 2021

 

Half year 2020 AER

 

Half year 2020 CER

 

 

 

Average 

 

 

Average

 

 

 

Average

 

 

 

Profit

liability

Margin

 

Profit

liability

Margin

 

Profit

liability

Margin

 

 

$m

$m

bps

 

$m

$m

bps 

 

$m

$m

bps

 

 

note (a)

note (b)

 

 

note (a)

note (b)

 

 

note (a)

note (b)

Spread income

153

45,993

67

 

146

37,082

79

 

152

37,845

80

Fee income

169

32,888

103

135

26,516

102

 

140

27,319

102

With-profits

62

82,082

15

58

68,347

17

 

59

68,970

17

Insurance margin

1,467

 

 

1,287

 

 

 

1,326

 

 

Margin on revenues*

1,432

 

 

1,378

 

 

 

1,419

 

 

Expenses:* note (c)

 

 

 

 

 

 

 

 

 

 

 

Acquisition costsnote (d)

(990)

2,083

(48)%

(875)

1,719

(51)%

 

(904)

1,780

(51)%

 

Administration expenses

(804)

79,163

(203)

(737)

63,799

(231)

 

(758)

65,368

(232)

 

DAC adjustments

238

 

 

117

 

 

 

123

 

 

Expected return on shareholder assets*

101

 

 

95

 

 

 

97

 

 

 

 

1,828

 

 

1,604

 

 

 

1,654

 

 

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

(21)

 

 

(18)

 

 

 

(20)

 

 

Long-term business

1,807

 

 

1,586

 

 

 

1,634

 

 

Eastspring

162

 

 

143

 

 

 

147

 

 

Adjusted operating profit

1,969

 

 

1,729

 

 

 

1,781

 

 

* Including amounts related to Africa operations.

 

Notes

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

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

(c)  The acquisition costs, administration expenses and DAC adjustments presented in this table include the amounts in respect of joint ventures and associates, whose results are presented as a single line in the Group's consolidated income statement under the equity-method accounting.

(d)  The ratio of acquisition costs is calculated as a percentage of APE sales in the period, including with-profits sales. Acquisition costs include only those relating to shareholder-backed business. The ratio of shareholder acquisition cost to shareholder-related APE sales in half year 2021 (excluding with-profits) is 60 per cent (half year 2020: 67 per cent).

(e)  Under IFRS, the Group's share of results from its investments in joint ventures and associates accounted for using the equity method is included in the Group's profit before tax on a net of related tax basis. These tax charges are shown separately in the analysis of adjusted operating profit drivers in order for the contribution from the joint ventures and associates to be included in the margin analysis on a consistent basis with the rest of the business operations.

 

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

 

(a)  Analysis of adjusted operating profit by business unit

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

 

 

 

 2021 $m

 

 2020 $m

 

2021 vs 2020 %

 

 2020 $m

 

 

 

Half year

 

Half year

AER

Half year

CER

 

Half year

AER

Half year

CER

 

Full year

AER

China JV

139

 

101

109

 

38%

28%

 

251

Hong Kong

460

 

412

412

 

12%

12%

 

891

Indonesia

225

 

249

255

 

(10)%

(12)%

 

519

Malaysia

184

 

158

164

 

16%

12%

 

309

Singapore

320

 

262

276

 

22%

16%

 

574

Growth markets and other

 

 

 

 

 

 

 

 

 

 

Philippines

58

 

40

42

 

45%

38%

 

95

 

Taiwan

47

 

37

39

 

27%

21%

 

85

 

Thailand

91

 

75

77

 

21%

18%

 

210

 

Vietnam

147

 

125

127

 

18%

16%

 

270

 

Other*

157

 

145

153

 

8%

3%

 

221

 

Share of related tax charges from joint ventures and associate

(21)

 

(18)

(20)

 

17%

5%

 

(46)

Long-term business

1,807

 

1,586

1,634

 

14%

11%

 

3,379

Eastspring

162

 

143

147

 

13%

10%

 

283

Adjusted operating profit

1,969

 

1,729

1,781

 

14%

11%

 

3,662

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

 

(b)  Eastspring adjusted operating profit

 

 

2021 $m

 

2020 $m

 

Half year

 

Half year

Full year

Operating income before performance-related feesnote (1)

374

 

313

646

Performance-related fees

6

 

2

7

Operating income (net of commission)note (2)

380

 

315

653

Operating expensenote (2)

(196)

 

(157)

(336)

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

(22)

 

(15)

(34)

Adjusted operating profit

162

 

143

283

Average funds managed by Eastspring Investments

$247.6bn

 

$224.1bn

$227.1bn

Margin based on operating incomenote (3)

30bps

 

28bps

28bps

Cost/income rationote II(v)

52%

 

50%

52%

 

 

 

 

 

 

Notes

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

 

 

 

Retail

Margin

Institutional*

Margin

Total

Margin

 

 

$m

bps 

$m

bps 

$m

bps 

 

Half year 2021

225

56

149

18

374

30

 

Half year 2020

188

50

125

17

313

28

 

Full year 2020

390

52

256

17

646

28

*   Institutional includes internal funds.

 

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

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

 

(c)  Eastspring total funds under management

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

 

 

 

2021 $bn

 

2020 $bn

 

 

30 Jun

 

30 Jun

31 Dec

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

 

 

 

 

 

Retail

67.9

 

59.4

66.9

 

Institutional

14.9

 

10.0

13.8

 

Money market funds (MMF)

13.3

 

13.0

13.2

 

 

96.1

 

82.4

93.9

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

16.1

 

15.7

15.7

 

 

 

 

 

 

External funds under management

112.2

 

98.1

109.6

Internal funds under management

141.8

 

121.6

138.2

Total funds under managementnote (3)

254.0

 

219.7

247.8

 

Notes

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

 

 

 

 

2021 $m

 

2020 $m

 

 

 

30 Jun

 

30 Jun

31 Dec

 

At beginning of period

93,863

 

98,005

98,005

 

Market gross inflows

49,736

 

69,839

116,743

 

Redemptions

(50,605)

 

(78,172)

(126,668)

 

Market and other movements

3,102

 

(7,348)

5,783

 

At end of period*

96,096

 

82,324

93,863

* The analysis of movements above includes $13,292 million relating to Money Market Funds at 30 June 2021 (30 June 2020: $13,021 million; 31 December 2020: $13,198 million).   Investment flows for half year 2021 include Money Market Funds gross inflows of $30,980 million (half year 2020: gross inflows of $48,234 million; full year 2020: $76,317 million) and net outflows of $360 million (half year 2020: net inflows of $29 million; full year 2020: net inflows of $48 million).

 

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

 

 

 

2021 $m

 

At beginning of period

15,737

 

Net flows

5

 

Market and other movements

356

 

At end of period

16,098

 

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

 

 

 

2021

 

 

2020

 

 

30 Jun

 

30 Jun

 

31 Dec

 

 

$bn

% of total

 

$bn

% of total

 

$bn

% of total

 

Equity

109.7

43%

 

86.3

39%

 

103.9

42%

 

Fixed income

125.8

50%

 

115.7

53%

 

125.7

51%

 

Alternatives

2.7

1%

 

2.9

1%

 

2.7

1%

 

Money Market Funds

15.8

6%

 

14.8

7%

 

15.5

6%

 

Total funds under management

254.0

100%

 

219.7

100%

 

247.8

100%

 

I(iv)  Group funds under management

 

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

 

 

 

2021 $bn

 

2020 $bn

 

 

30 Jun

 

30 Jun

31 Dec

Continuing operations:

 

 

 

 

 

Internal funds

181.9

 

153.1

175.0

 

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

112.2

 

98.1

109.6

Total Group funds under managementnote

294.1

 

251.2

284.6

 

Note

Total Group funds under management from continuing operations comprise:

 

 

 

2021 $bn

 

2020 $bn

 

 

30 Jun

 

30 Jun

31 Dec

Total investments and cash and cash equivalents held by the continuing operations on the balance sheet

167.9

 

145.7

164.0

External funds of Eastspring, including M&G plc

112.2

 

98.1

109.6

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

14.0

 

7.4

11.0

Total Group funds under management

294.1

 

251.2

284.6

 

I(v)  Holding company cash flow

 

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

 

 

 

2021 $m

 

2020 $m

 

 

Half year

 

Half year

Full year

Net cash remitted by continuing operations:note (a)

 

 

 

 

 

Insurance and asset management business

1,035

 

446

877

 

Other operations

-

 

32

55

Net cash remitted by business units

1,035

 

478

932

Net interest paid

(163)

 

(147)

(294)

Tax received

-

 

94

94

Corporate activitiesnote (b)

(216)

 

(194)

(432)

Centrally funded recurring bancassurance feesnote (c)

(176)

 

(176)

(220)

Total central outflows

(555)

 

(423)

(852)

Holding company cash flow before dividends and other movements

480

 

55

80

Dividends paid

(283)

 

(674)

(814)

Operating holding company cash flow after dividends but before other movements

197

 

(619)

(734)

Other movements

 

 

 

 

 

Issuance and redemption of debt for continuing operations

-

 

983

983

 

Other corporate activities relating to continuing operationsnote (c)

(256)

 

(558)

(954)

 

UK and Europe demerger costs

-

 

(17)

(17)

 

US demerger costs

(28)

 

-

(20)

Total other movements

(284)

 

408

(8)

Total holding company cash flow

(87)

 

(211)

(742)

Cash and short-term investments at beginning of period

1,463

 

2,207

2,207

Foreign exchange movements

17

 

(89)

(2)

Cash and short-term investments at end of period

1,393

 

1,907

1,463

 

Notes

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

(b)  Including IFRS 17 implementation and restructuring costs paid in the period.   In 2021, the Group changed its basis of presenting business unit remittances to reflect net cash remittances before costs attributable to the head office functions based in Hong Kong, and to present all head office costs together within 'corporate activities'. Accordingly, the half year and full year 2020 amounts have been re-presented from those previously published to reflect the change.

(c)  Other corporate activities relating to continuing operations primarily reflect non-recurring payments for bancassurance arrangements including those with UOB, TMB and MSB banks. Central payments for existing bancassurance distribution agreements are within the central outflows section of the holding company cash flow, reflecting the recurring nature of these amounts.

 

II  Calculation of alternative performance measures

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

 

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

 

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

 

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

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

-  Gain or loss on corporate transactions, as discussed in note D1.1 to the IFRS basis results .

 

More details on how adjusted operating profit is determined are included in note B1.3 of the Group IFRS basis results. A full reconciliation to profit after tax is given in note B1.1.

 

II(ii)  Calculation of IFRS gearing ratio

 

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

 

 

2021 $m

 

2020 $m

Continuing operations:

30 Jun

 

30 Jun

31 Dec

Core structural borrowings of shareholder-financed businesses

6,404

 

6,249

6,383

Less holding company cash and short-term investments

(1,393)

 

(1,907)

(1,463)

Net core structural borrowings of shareholder-financed businesses

5,011

 

4,342

4,920

Closing shareholders' equity

13,046

 

10,155

12,367

Closing shareholders' equity plus net core structural borrowings

18,057

 

14,497

17,287

IFRS gearing ratio

28%

 

30%

28%

 

II(iii) Return on IFRS shareholders' equity

 

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

 

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

 

 

2021 $m

 

2020 $m

 

Half year

 

Half year

Full year

Adjusted operating profit

1,571

 

1,286

2,757

Tax on adjusted operating profit

(222)

 

(274)

(497)

Adjusted operating profit attributable to non-controlling interests

(7)

 

(22)

(10)

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

1,342

 

990

2,250

 

 

 

 

 

Shareholders' equity at beginning of period

12,367

 

10,548

10,548

Shareholders' equity at end of period

13,046

 

10,155

12,367

Average shareholders' equity

12,707

 

10,352

11,458

Operating return on average shareholders' equity (%)

21%

 

19%

20%

 

The average shareholders' equity for the total continuing operations does not reflect the fact that post demerger of the US business, the Group will continue to hold 19.7 per cent economic interest in Jackson which will be valued at fair value. This will increase shareholders' equity and hence reduce the total continuing operations return on equity.

 

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

 

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

 

 

2021

 

2020

 

30 Jun

 

30 Jun

31 Dec

Number of issued shares at the end of the period

2,616

 

2,609

2,609

 

 

 

 

 

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

13,046

 

10,155

12,367

Shareholders' equity per share (cents) for continuing operations

499¢

 

389¢

474¢

 

 

 

 

 

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

2,667

 

8,955

8,511

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

102¢

 

343¢

326¢

Group Shareholders' equity per share (cents)

601¢

 

732¢

800¢

 

The closing shareholders' equity for continuing operations does not reflect the fact that post demerger of the US business, the Group will continue to hold 19.7 per cent economic interest in Jackson which will be valued at fair value. This will increase shareholders' equity per share for the continuing operations post the demerger of the US business.

 

II(v)  Calculation of Eastspring cost/income ratio

 

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

 

 

 2021 $m

 

2020 $m

 

Half year

 

Half year

Full year

IFRS revenue

350

 

289

612

Share of revenue from joint ventures and associates

147

 

111

235

Commissions

(117)

 

(85)

(194)

Performance-related fees

(6)

 

(2)

(7)

Operating income before performance-related fees note

374

 

313

646

 

 

 

 

 

IFRS charges

262

 

197

446

Share of expenses from joint ventures and associates

51

 

45

84

Commissions

(117)

 

(85)

(194)

Operating expense

196

 

157

336

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

52%

 

50%

52%

 

Note

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

 

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

 

 

2021 $m

 

2020 $m

 

Half year

 

AER

Half year

CER

Half year

AER

Full year

IFRS gross premiums earned

11,521

 

10,950

11,169

23,495

Less: General insurance premium

(62)

 

(66)

(66)

(130)

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

(2,764)

 

(2,079)

(2,148)

(5,112)

Add: Renewal premiums from joint ventures and associates*

1,150

 

932

984

1,957

Renewal insurance premiums

9,845

 

9,737

9,939

20,210

 

 

 

 

 

 

Annual premium equivalent (APE)

2,083

 

1,719

1,780

3,808

Life weighted premium income

11,928

 

11,456

11,719

24,018

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

 

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

 

 

2021 $m

 

2020 $m

 

Half year

 

Half year

Full year

IFRS gross premiums earned

11,521

 

10,950

23,495

Gross premiums earned from joint ventures and associates

2,066

 

1,628

3,233

Total Group (continuing operations)

13,587

 

12,578

26,728

 

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

 

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

 

 

2021 $m

 

2020 $m

 

Half year

 

Half year

Full year

Gross premiums earned

11,521

 

10,950

23,495

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

(8,695)

 

(8,805)

(18,253)

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

(1,490)

 

(770)

(2,147)

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

607

 

422

820

Other adjustmentsnote (d)

140

 

(78)

(107)

Annual premium equivalent (APE)

2,083

 

1,719

3,808

 

Notes

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

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

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

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

 

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

 

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

 

 

2021 $m

 

2020 $m

Continuing operations:

30 Jun

 

30 Jun

31 Dec

IFRS shareholders' equity

13,046

 

10,155

12,367

Less: DAC assigned zero value for EEV purposes

(2,505)

 

(2,073)

(2,353)

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

34,903

 

28,936

34,068

Othernote (b)

(2,282)

 

(1,619)

(2,156)

EEV shareholders' equity

43,162

 

35,399

41,926

 

Notes

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

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

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