Prudential plc – HY24 Results – Business Review | Company Announcement

Risk description		Risk management
Insurance risks
Insurance risks make up a significant proportion of Prudential's overall risk exposure. The profitability of the Group's businesses depends on a mix of factors including levels of, and trends in, mortality (policyholders dying), morbidity (policyholders becoming ill or suffering an accident) and policyholder behaviour (variability in how customers interact with their policies, including utilisation of withdrawals, take-up of options and guarantees and persistency, ie lapsing/surrendering of policies), and increases in the costs of claims over time (claim inflation). The risks associated with adverse experience relative to assumptions associated with product performance and customer behaviour are detailed in section 3.7 of the Risk factors. The Group has appetite for retaining insurance risks in the areas where it believes it has expertise and operational controls to manage the risk and where it judges it to be more value-creating to do so than to transfer the risk, but only to the extent that these risks remain part of a balanced portfolio of sources of income for shareholders and are compatible with a robust solvency position. Inflationary and other economic pressures have also impacted morbidity experience in several markets. Elevated interest rates may lead customers to lapse in preference for alternate saving options that offer higher levels of guarantees. A high-inflation environment, and the broader economic effects of recessionary concerns, may also increase lapses, surrenders and fraud, as well as heighten premium affordability challenges. The principal drivers of the Group's insurance risk vary across its business units. In Hong Kong, Singapore, Indonesia and Malaysia, a significant volume of health and protection business is written, and the most significant insurance risks are medical claims inflation risk, morbidity risk and persistency risk.		Insurance risks are managed and mitigated using the following, among other methods: - The Group's Insurance Risk Policy; - The Group's Product and Underwriting Risk Policy, which sets out the required standards for effective product and underwriting risk management and approvals for new, or changes to existing, products (including the role of the Group), and the processes to enable the measurement of underwriting risk. The policy also describes how the Group's Customer Conduct Risk Policy is met in relation to new product approvals and current and legacy products; - The Group's Financial Crime Policy (see the 'Financial crime risk' section above); - Using persistency, morbidity and longevity assumptions that reflect recent experience and expectation of future trends, and the use of industry data and expert judgement where appropriate; - Using reinsurance to mitigate mortality and morbidity risks; - Ensuring appropriate medical underwriting when policies are issued and appropriate claims management practices when claims are received in order to mitigate morbidity risk; - Maintaining the quality of sales processes and training, and using initiatives to increase customer retention in order to mitigate persistency risk; - The use of mystery shopping to identify opportunities for improvement in sales processes and training; and - Using product repricing and other claims management initiatives in order to mitigate morbidity and medical claims inflation risk.
Medical claims inflation risk A key assumption in these markets is the rate of medical claims inflation, which is often in excess of general price inflation. The cost of medical treatment could increase more than expected, resulting in higher than anticipated medical claims cost passed on to Prudential.		This risk is best managed by retaining the right to reprice products and appropriate overall claims limits within policies, either per type of medical treatment or in total across a policy, annually and/or over the policy lifetime. Medical reimbursement downgrade experience (where the policyholder reduces the level of the coverage/protection in order to reduce premium payments) following any repricing is also monitored by the Group's businesses.
Morbidity risk Morbidity risk is the risk of deviations in the future frequency and magnitude of non-fatal accident and sickness claims relative to initial assumptions that are adverse to shareholder value. It can be influenced by a range of factors including: inflationary, economic and other pressures on the cost of medical treatment; medical advances which can reduce the incidence and improve recovery rates of serious health conditions but can also increase diagnosis rates and/or increase treatment costs of certain conditions; government and regulatory policies; opportunistic activities (including fraud); and natural events (including pandemics). Morbidity risk can also result from: product design features that incentivise adverse policyholder behaviour; inappropriate or insufficiently informed initial assumptions; claims volatility due to random fluctuation or a large-scale systemic event; insufficient recognition of an individual's medical, financial and/or and other relevant circumstances during the policy application assessment process; and/or ineffective claims assessments leading to payment of claims that are inconsistent with the insurance product's contract and/or best practice.		Morbidity risk is managed through prudent product design, underwriting and claims management, and for certain products, the right to reprice where appropriate. Prudential's morbidity assumptions reflect its recent experience and expectation of future trends for each relevant line of business.

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	Half year		Change on
Summary performance financials (before non-controlling interests)	2024 $m	2023 $m	AER basis	CER basis
New business profit	1,468	1,489	(1)%	1%
Operating free surplus generated	983	1,024	(4)%	(2)%
Operating free surplus generated from in-force insurance and asset management business	1,351	1,438	(6)%	(4)%
Adjusted operating profit	1,544	1,462	6%	9%
IFRS profit (loss) after tax	182	947	(81)%	(80)%

	30 Jun 2024		31 Dec 2023
Balance sheet financials (after non-controlling interests)	Total	Per share	Total	Per share
EEV shareholders' equity	$43.3bn	1,575¢	$45.3bn	1,643¢
IFRS shareholders' equity	$16.2bn	588¢	$17.8bn	647¢
Adjusted IFRS shareholders' equity	$34.7bn	1,262¢	$37.3bn	1,356¢

Media		Investors/analysts
Simon Kutner	+44 (0)7581 023260	Patrick Bowes	+852 2918 5468
Sonia Tsang	+852 5580 7525	William Elderkin	+44 (0)20 3977 9215
		Darwin Lam	+852 2918 6348

	At 31 December 2023
	Risk Discount Rate %	Long-term 10-year Govt. bonds %	Risk premium %	Equity Risk premium %
CPL	9.4	3.4	6.0	4.0
Hong Kong (USD)*	7.7	3.2	4.5	3.5
Indonesia	12.6	6.3	6.3	4.3
Malaysia	7.9	3.9	4.0	3.5
Philippines	12.1	5.8	6.3	4.3
Singapore	6.7	2.7	4.0	3.5
Taiwan (USD)*	6.7	3.2	3.5	3.5
Thailand	8.9	4.6	4.3	4.3
Vietnam	11.1	5.8	5.3	4.3
Prudential Weighted Average**	8.2	3.8	4.4	3.7

	Actual exchange rate			Constant exchange rate		Actual exchange rate
	Half year			Half year		Full year
	2024 $m	2023 $m	Change %	2023 $m	Change %	2023 $m
CPL	197	164	20	157	25	368
Hong Kong	504	554	(9)	555	(9)	1,013
Indonesia	132	109	21	103	28	221
Malaysia	152	165	(8)	155	(2)	305
Singapore	343	270	27	268	28	584
Growth markets and other	362	374	(3)	355	2	746
Insurance business	1,690	1,636	3	1,593	6	3,237
Asset management	155	146	6	143	8	280
Total segment profit	1,845	1,782	4	1,736	6	3,517
Other income and expenditure:
Investment return and other items	1	(28)	104	(28)	104	(21)
Interest payable on core structural borrowings	(85)	(85)	-	(85)	-	(172)
Corporate expenditure	(119)	(115)	(3)	(115)	(3)	(230)
Other income and expenditure	(203)	(228)	11	(228)	11	(423)
Restructuring and IFRS 17 implementation costs	(98)	(92)	(7)	(91)	(8)	(201)
Adjusted operating profit	1,544	1,462	6	1,417	9	2,893
Non-operating items:
Short-term fluctuations in investment returns	(1,081)	(287)	n/a	(272)	n/a	(774)
(Loss) gain attaching to corporate transactions	(69)	-	n/a	-	n/a	(22)
Profit before tax attributable to shareholders	394	1,175	(66)	1,145	(66)	2,097
Tax charge attributable to shareholders' returns	(212)	(228)	7	(221)	4	(385)
Profit for the period	182	947	(81)	924	(80)	1,712

	Actual exchange rate					Constant exchange rate		Actual exchange rate
	Half year					Half year		Full year
	2024			2023	Change %	2023	Change %	2023
	Before adjustment to non-controlling interest	Adjustment to non-controlling interest²	Total
Based on adjusted operating profit, net of tax and non-controlling interest	46.1¢	(2.3)¢	43.8¢	45.2¢	(3)	44.1¢	(1)	89.0¢
Based on profit for the period, net of non-controlling interest	7.3¢	(2.9)¢	4.4¢	34.5¢	(87)	33.9¢	(87)	62.1¢

Prudential plc – HY24 Results – Business Review

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	Actual exchange rate
EEV shareholders' equity	30 Jun 2024 $m	31 Dec 2023 $m
Represented by:
CPL	3,090	3,038
Hong Kong	17,037	17,702
Indonesia	1,408	1,509
Malaysia	3,725	3,709
Singapore	8,087	7,896
Growth markets and other	7,811	7,734
Non-controlling interests' share of embedded value	(1,777)	(60)
Embedded value from insurance business excluding goodwill	39,381	41,528
Asset management and other excluding goodwill	3,191	2,955
Goodwill attributable to equity holders	714	767
Group EEV shareholders' equity	43,286	45,250
EEV shareholders' equity per share	1,575¢	1,643¢

	Actual exchange rate						Constant exchange rate
	Half year 2024 $m		Half year 2023 $m		Change %		Half year 2023 $m		Change %
	APE sales	New business profit	APE sales	New business profit	APE sales	New business profit	APE sales	New business profit	APE sales	New business profit (including economics)	New business profit (excluding economics)
CPL	324	115	394	171	(18)	(33)	379	164	(15)	(30)	(2)
Hong Kong	955	651	1,027	670	(7)	(3)	1,029	672	(7)	(3)	9
Indonesia	107	47	150	61	(29)	(23)	142	58	(25)	(19)	(18)
Malaysia	191	69	185	73	3	(5)	174	69	10	-	-
Singapore	450	226	386	198	17	14	383	197	17	15	12
Growth markets and other	1,084	360	885	316	22	14	833	297	30	21	17
Total	3,111	1,468	3,027	1,489	3	(1)	2,940	1,457	6	1	8
Total new business margin		47%		49%				50%

	Gross premiums earned*			New business profit
	Half year		Full year	Half year		Full year
	2024 $m	2023 $m	2023 $m	2024 $m	2023 $m	2023 $m
Total Greater China^†	6,909	6,478	12,859	926	922	1,870
Total Group^†	13,613	13,051	26,221	1,468	1,489	3,125

Percentage of total	51%	50%	49%	63%	62%	60%

	30 Jun 2024			31 Dec 2023
	Shareholder	Policyholder*	Total†	Shareholder	Policyholder*	Total†
Group capital resources ($bn)	23.5	15.4	38.9	24.3	14.3	38.6
of which: Tier 1 capital resources ($bn)	16.4	1.0	17.4	17.1	1.2	18.3

Group Minimum Capital Requirement ($bn)	4.8	1.1	5.9	4.8	1.1	5.9
Group Prescribed Capital Requirement ($bn)	8.3	11.9	20.2	8.2	11.4	19.6

GWS capital surplus over GPCR ($bn)	15.2	3.5	18.7	16.1	2.9	19.0
GWS coverage ratio over GPCR (%)	282%		192%	295%		197%

GWS Tier 1 surplus over GMCR ($bn)			11.5			12.4
GWS Tier 1 coverage ratio over GMCR (%)			297%			313%

	30 Jun 2024 $m			30 Jun 2023 $m			31 Dec 2023
	IFRS basis	Mark-to-market value	EEV basis	IFRS basis	Mark-to-market value	EEV basis	IFRS basis	Mark-to-market value	EEV basis
Borrowings of shareholder-financed businesses	3,930	(282)	3,648	3,949	(389)	3,560	3,933	(274)	3,659
Less: holding company cash and short-term investments	(3,971)	-	(3,971)	(3,314)	-	(3,314)	(3,516)	-	(3,516)
Net core structural borrowings of shareholder-financed businesses	(41)	(282)	(323)	635	(389)	246	417	(274)	143
Moody's total leverage (revised basis)⁷	14%			14%			14%

Risk description		Risk management
Risks to the Group's financial position (including those from external macroeconomic and geopolitical environment)
The global economic and geopolitical environment may impact the Group directly by affecting trends in financial markets and asset values, as well as driving short-term volatility. Risks in this category include the market risks to our investments and the credit quality of our investment portfolio, as well as liquidity risk.
Global economic and geopolitical conditions
Prudential operates in a macroeconomic and global financial market environment that continues to present significant uncertainties and potential challenges. For example, some central banks may need to maintain tight monetary policies to rein in inflation, which could exert downward pressures on growth, while some others may start to loosen monetary policies as inflation eases gradually. In the major emerging markets, inflation has generally been less severe and monetary policies have been less restrictive. However, this environment of relatively high global interest rates presents recession risk and is putting pressure on banks' balance sheets and margins. This could result in a pullback in both credit supply and credit demand and lead to a sharper tightening in global credit conditions. The weak growth in the Chinese Mainland and concerns around its property sector continue to place downward pressure on China interest rates, which could also weigh on the broader Asian region and the global economy's vitality going forward. A number of issuers within the Chinese Mainland property sector and the US commercial real estate sector experienced a reduction in financial strength and flexibility of corporate entities, although the overall impact to the Group's invested credit portfolio was immaterial due to our diversified investment strategy. The serviceability of sovereign debt also posed some concerns in certain economies (particularly the high indebtedness across countries in Africa, such as the sovereign debt restructuring in Ghana). Continuing weak economic growth in the Chinese Mainland and concerns over slowing growth momentum in the US economy are likely to increase equity market volatility or lead to stock price corrections if recession risk materialises. Conflicts, including Russia-Ukraine and Israel-Gaza, and geopolitical tensions, particularly resulting from US-China relations, continued to contribute to market uncertainty and impact on global and regional economic growth in 2024. Conflicts and escalating tensions may lead to further realignment and fragmentation within and between blocs, and contribute to global polarisation risks. Geopolitical events are also impacting on domestic political environments, with heightened uncertainty during 2024 due to elections across many geographies. Macroeconomic and geopolitical developments are considered material to the Group and can potentially increase operational and business disruption (including sanctions) and regulatory and financial market risks, and have the potential to directly impact Prudential's sales and distribution networks, as well as its reputation. The potential impacts to the Group are included in sections 1.1 and 1.2 of the Risk factors.

Risk description		Risk management
Market risks to our investments
The value of Prudential's direct investments is impacted by fluctuations in equity prices, interest rates, credit spreads, foreign exchange rates and property prices. There is also potentially indirect impact through the value of the net equity of its joint ventures and associates. The Group's direct exposure to inflation remains modest. Exposure mainly arises through an increase in medical claims obligations, driven by rising medical prices as well as potential impact on customers from an affordability perspective. Medical inflation risk as well as challenges for insurers linked to affordability and existing challenges in persistency are detailed in the Insurance risks section below.		The Group has appetite for market risk where it arises from profit-generating insurance activities to the extent that the risk remains part of a balanced portfolio of sources of income for shareholders and is compatible with a robust solvency position. The Group's market risks are managed and mitigated by the following: - The Group Market Risk Policy; - The Group Capital and Asset Liability Management (ALM) Committee and Group ALM Policy; - Changes in asset allocation, bonus revisions, repricing and the use of reinsurance where appropriate; - The Group Investment Committee and Group Investment Policy; - The Group Chief Investment Office, which is responsible for the formulation and execution of the company's investment strategies; - Hedging using derivatives, including currency forwards and swaps, bond forwards/futures, interest rate futures and swaps, and equity futures; - The monitoring and oversight of market risks through the regular reporting of management information; - Regular deep dive assessments; and - The Group Crisis Management Procedure (GCMP), which defines specific governance to be invoked in the event of a crisis such as a significant market, liquidity or credit-related event, cyber incident or staff safety issue. This includes, where necessary, the convening of the Executive Crisis Group and the Group Crisis Management Team to oversee, coordinate and, where appropriate, direct management of the event.
Interest rate risk, including ALM Interest rate risk is driven by the impact of the valuation of Prudential's assets (particularly government and corporate bonds) and liabilities, which are dependent on market interest rates. High interest rates, driven by sustained inflationary pressures, may impact the valuation of fixed income investments and reduce fee income. The Group's risk exposure to rising interest rates also arises from the potential impact to the present value of future fees for unit-linked businesses, such as in Indonesia and Malaysia, as well as the impact to the present value of the future profits for accident and health products, such as in Hong Kong. Exposure to higher interest rates also arises from the potential impact to the value of fixed income assets in the shareholder funds. The Group's risk exposure to lower/decreased interest rates arises from the guarantees of some non-unit-linked products with a savings component, including the Hong Kong, Singapore and CPL's participating and non-participating businesses. This exposure results from the potential for an asset and liability mismatch, where long-dated liabilities and guarantees are backed by short-dated assets.		The Group Capital and ALM Committee is a management committee supporting the identification, assessment and management of key financial risks to the achievement of the Group's business objectives. The Group Capital and ALM Committee also oversees ALM, solvency and liquidity risks of the local businesses as well as the declaration and management of non-guaranteed benefits for participating and universal life lines of business. Local business units are responsible for the management of their own asset and liability positions, with appropriate governance in place. The objective of the local business unit ALM process is to meet policyholder liabilities with the returns generated from the investment assets held, while maintaining the financial strength of capital and solvency positions. The ALM strategy adopted by the local business units considers the liability profile and related assumptions of in-force business and new products to appropriately manage investment risk within ALM risk appetite, under different scenarios in accordance with policyholders' reasonable expectations, and economic and local regulatory requirements. Factors such as the availability of matching assets, diversification, currency and duration are considered as appropriate. The assumptions and methodology used in the measurement of assets and liabilities for ALM purposes conform with local solvency regulations. Assessments are carried out on an economic basis which is consistent with the Group's internal economic capital methodology. The Group's appetite for interest rate risk requires that assets and liabilities should be tightly matched for exposures where assets or derivatives exist that can cover these exposures. Interest rate risk is accepted where this cannot be hedged, provided that this arises from profitable products and to the extent that such interest rate risk exposure remains part of a balanced exposure to risks and is compatible with a robust solvency position. When asset and liability duration mismatch is not eliminated, it is monitored and managed through local risk and asset liability management committees and Group risk limits consistent with the Group's appetite for interest rate risk.

Risk description		Risk management
Market risks to our investments continued
Equity and property investment risk The shareholder exposure to equity price movements arises from various sources, including from unit-linked products where fee income is linked to the market value of funds under management. Exposure also arises from participating businesses through potential fluctuations in the value of future shareholders' profits and where bonuses declared are based broadly on historical and current rates of return from the businesses' investment portfolios, which include equities. The material exposures to equity risk in the Group's businesses include CPL's exposure to equity risk through investments in equity assets for most of its products, including participating and non-participating savings products and protection and unit-linked products. The Hong Kong business and, to a lesser extent, the Singapore business contribute to the Group's equity risk exposure due to the equity assets backing participating products. The Indonesia and Malaysia businesses are exposed to equity risk through their unit-linked products and, in the case of Malaysia, exposure also arises from participating and unit-linked business.		The Group has limited acceptance for exposures to equity risk from non-participating products if it is not rewarded for taking the equity risk. The Group accepts equity exposure that arises from future fees (including shareholder transfers from the participating businesses) but limits its exposure to policyholder guarantees by hedging against equity movements and guarantees where it is considered economically optimal to do so. Where equity risk is accepted, it is explicitly defined by the strategic asset allocation, as well as monitored and managed through local risk and ALM committees. Overall exposure to equity risk from the participating businesses is also managed through Group risk limits consistent with the Group's appetite for equity risk.
Foreign exchange risk The geographical diversity of Prudential's businesses means that it is exposed to the risk of foreign exchange rate fluctuations. Some entities within the Group write policies, invest in assets or enter into other transactions in local currencies or currencies not linked to the Group's reporting/functional currency, the US dollar. Although this limits the effect of exchange rate movements on local operating results, it can lead to fluctuations in the Group's US-dollar-reported financial statements. This risk is further detailed in section 1.6 of the Risk factors.		The Group accepts the currency risk that emerges from profits retained locally to support the growth of the Group's business and the translation risks from capital being held in the local currency of the business to meet local regulatory and market requirements. However, in cases where a surplus arising in an overseas operation supports Group capital or shareholders' interest (ie remittances), this exposure is hedged if it is economically optimal to do so. The Group does not accept significant shareholder exposures to foreign exchange risks in currencies outside the local territory. Foreign exchange risk is managed by the Group Capital and ALM Committee through the implementation of asset allocation on funds which captures the exposure to non-locally-denominated assets.
Liquidity risk
Prudential's liquidity risk arises from the need to have sufficient liquid assets to meet policyholder and third-party payments as they fall due, considered under both business-as-usual and stressed conditions. It includes the risk arising from funds composed of illiquid assets and results from a mismatch between the liquidity profile of assets and liabilities. Liquidity risk may impact market conditions and valuation of assets in a more uncertain way than other risks like interest rate or credit risk. It may arise, for example, where external capital is unavailable at sustainable cost, where derivatives transactions require a sudden significant need of liquid assets or cash to post as collateral to meet derivatives margin requirements, or where redemption requests are made against funds managed for external clients (both retail and institutional). Liquidity risk is considered material at the level of the Group.		The Group has no appetite for any business to have insufficient resources to cover its outgoing cash flows, or for the Group as a whole to not meet cash flow requirements from its debt obligations under any plausible scenario. The Group has significant internal sources of liquidity sufficient to meet its expected cash requirements for at least 12 months from the date the financial statements are approved, without having to resort to external sources of funding. The Group has a total of $1.6 billion of undrawn committed facilities that can be made use of, expiring in 2029. Access to further liquidity is available through the debt capital markets and the Group's extensive commercial paper programme. Prudential has maintained a consistent presence as an issuer in the market for the past decade. A number of risk management tools are used to manage and mitigate liquidity risk, including the following: - The Group's Liquidity Risk Policy; - Regular assessment and reporting by the Group and business units of liquidity coverage ratios, which are calculated under both base case and stressed scenarios; - The Group's Liquidity Risk Management Plan; - The Group's Collateral Management Framework; - The Group's contingency plans and identified sources of liquidity; - The Group's ability to access the money and debt capital markets; and - The Group's access to external committed credit facilities.

Risk description		Risk management
The Group's sustainability-related (including ESG and climate-related) risks
Sustainability-related risks refer to (a) environmental, social or governance issues, trends or events that could have a financial or non-financial impact on the company, and/or (b) the company's sustainability-focused activities, strategy and commitments that could have an external impact on the environment and wider society.
Material and emerging risks associated with key sustainability themes may undermine the long-term success of a business by adversely impacting its financial and operational resilience, reputation and brand, and ability to attract and retain customers, investors, employees and distribution and other business partners, and therefore the results of its operations and delivery of its strategy and long-term financial success. Sustainability-related risks arise from the activities that support implementation of the Group's strategy, which is centred on three key pillars (providing simple and accessible health and financial protection, responsible investment and creating a sustainable business) and increases the expectations of the Group's stakeholders with regard to the Group's potential external environmental and social impact. Potential regulatory compliance and litigation risks exist globally and across Asia, as sustainability-related topics remain high on the agenda of both local regulators and international supervisory bodies, including the International Association of Insurance Supervisors (IAIS) and the Hong Kong Stock Exchange, which published its conclusions on climate disclosure requirements in April 2024. Delivery of the Group's Sustainability Strategy, including the decarbonisation commitments and the development of sustainable and inclusive offerings, heightens the risk of accusations of misleading or unsubstantiated representations to the extent of the environmental or societal impact of the Group's activities and the sustainability features of new products (eg greenwashing), which subsequently increases the risk of potential litigation or reputational damage. Further details of the Group's sustainability-related risks and regulations are included in sections 2.1 and 4.1 of the Risk factors.		As custodians of stakeholder value for the long term, the Group seeks to manage sustainability-related risks and their potential impact on its business and stakeholders through transparent and consistent implementation of its strategy in its markets and across operational, underwriting and investment activities. It is enabled by strong internal governance, sound business practices and a responsible investment approach, with sustainability-related considerations integrated into investment processes and decisions and the performance of fiduciary and stewardship duties, including via voting and active engagement decisions with respect to investee companies, as both an asset owner and an asset manager. Climate risk, the Group's reporting against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), preparation for the transition to the Hong Kong Stock Exchange's climate disclosure requirements, and progress on the Group's external climate-related commitments, remain priorities for the Group for 2024. Further information on the Group's sustainability governance and strategy, as well as the management of material sustainability themes, is included in the Group's 2023 Sustainability Report. The Group participates in networks, industry forums and working groups, such as the Net Zero Asset Owner Alliance (NZAOA), Principles for Responsible Investment (PRI) and CRO Forum, to further develop understanding and support collaborative action in relation to sustainability risks and promoting a just and inclusive transition. The Group also actively engages with, and responds to, discussions, consultations and information-gathering exercises with local regulators, international supervisory bodies and global industry standard setters. The Group Risk Framework continues to be critically evaluated and updated where required to ensure both sustainability-related considerations and risks to the Group, including those arising from stakeholder expectations of the external impact of the Group's activities, are appropriately captured. Risk management and mitigation of sustainability risks are embedded within the Group Risk Framework and risk processes, including: - Consideration within the emerging risk identification and evaluation processes that emerging sustainability themes and the associated risks can potentially quickly change from immaterial to material (dynamic materiality); - The inclusion of 'social and environmental responsibility' as a strategic risk within the risk taxonomy to consider the potential risks arising from the external impact of the Group's activities, recognising that the Group can both be impacted by sustainability issues and have an impact on these in the external world (double materiality); - Workshops and function-wide training on specific risk themes, including sustainability risk principles, greenwashing risk and the risks associated with delivery of the Group's external responsible investment commitments; - Definition of appropriate (and longer) time horizons with respect to climate risk management, and the requirement to consider time horizons where required in risk-based decision-making; - Creating new frameworks, policies, processes and standards as necessary to mitigate amplified risks and meet regulatory requirements; and - Deep dives into emerging and increasingly material sustainability themes, including climate-related risks, and development of Board-level and broader Group-wide training.

Risk description		Risk management
Risks from the nature of our business and our industry
These include the Group's non-financial risks including operations processes, change management, third-party and outsourcing, information security, IT infrastructure and data privacy, customer conduct, legal and regulatory compliance, model, financial crime, and business continuity risks. Insurance risks and business concentration risks are also assumed by the Group in providing its products. Furthermore, there are risks associated with the oversight of the Group's joint ventures and associates stemming from our operation in certain markets.
Non-financial risks
The complexity of Prudential, its activities and the extent of its transformation efforts from time to time creates a challenging operating environment and exposure to a variety of non-financial risks which are considered to be material at a Group level. The Group's non-financial risks, which are not exhaustive and discussed further in section 3 of the Risk factors, are outlined below.		Alongside the Non-Financial Risk Appetite Framework, associated risk policies and standards are in place that individually engage with specific non-financial risks which include subject matter expert-led processes that are designed to identify, assess, manage and control these risks, including: - Reviews of key non-financial risks and challenges within Group and business units' business plans during the annual planning cycle, to support business decisions; - Corporate insurance programmes to limit the financial impact of operational risks; - Oversight of risk management during the transformation life cycle, project prioritisation and the risks, interdependencies and possible conflicts arising from a large portfolio of transformation activities; - Screening and transaction monitoring systems for financial crime and a programme of compliance control monitoring reviews and regular risk assessments; - Internal and external review of cyber security capability and defences; - Regular updating and risk-based testing of crisis management, business continuity and disaster recovery plans; - Established processes to deliver the highest quality of service to fulfil customers' needs and expectations; and - Active engagement in and monitoring of regulatory developments.
Operations processes risk Operations processes risk is the risk of failure to adequately or accurately process different types of operational transactions, including customer servicing and asset and investment management operations. Due to human error, among other reasons, operations and process control incidents do occur from time to time and no system or process can entirely prevent occurrence.		The Group aims to manage the risk effectively by maintaining operational resilience and honouring commitments to customers and stakeholders, whilst avoiding material adverse financial loss or impact on its reputation. Further detail on the risks to the Group arising from system issues or control gaps is included in sections 3.1 and 3.3 in the Risk factors.
Change management risk Change management risk remains a material risk for Prudential, with a number of significant change programmes under way which, if not delivered and executed effectively with adequate and capable resources to defined timelines, scope and cost, may negatively impact its operational capability, control environment, employees, reputation and ability to deliver its strategy and maintain market competitiveness. The current portfolio of transformation and significant change programmes includes: (i) delivering the Group's business strategy together with supporting operating model changes, (ii) the implementation and embedding of large-scale regulatory/industry changes; (iii) the expansion of the Group's digital capabilities and use of technology, platforms and analytics; and (iv) improvement of business efficiencies and operations, including those relating to the Group's central, asset management and investment oversight functions. Further detail on the risks to the Group associated with large-scale transformation and complex strategic initiatives is included in section 3.1 of the Risk factors.		The Group aims to ensure that, for both transformation and strategic initiatives, strong programme governance is in place with embedded risk expertise to achieve ongoing and nimble risk oversight, with regular risk monitoring and reporting to risk committees. The Group's Transformation Risk Framework is in place alongside the Group's existing risk policies and frameworks with the aim to ensure appropriate governance and controls to mitigate these risks. Digital governance forums are also in place to oversee the implementation and risk management of digital platforms and the transformation from various dimensions such as customer-centricity, strategic, financial, operational and risk management. In addition, Prudential is continuously enhancing strategic capabilities through internal talent development and talent acquisition. Developing a workforce that remains engaged through change and provides adequate resources for our people to manage change, connect, grow and succeed is one of the priorities for the company.

	Actual exchange rate
	Half year		Full year
	2024 $m	2023 $m	2023 $m
Net opening balance at 1 Jan	21,012	19,989	19,989
New contracts in the year	1,213	1,196	2,348
Unwind*	818	760	1,563
Balance before variances, effect of foreign exchange and CSM release	23,043	21,945	23,900
Economic and other variances	(913)	289	(619)
CSM balance before release	22,130	22,234	23,281
Release of CSM to income statement	(1,097)	(1,177)	(2,208)
Effect of movements in exchange rates	(493)	(237)	(61)
Net balance at the end of the period	20,540	20,820	21,012

Risk description		Risk management
Non-financial risks continued
Third-party and outsourcing management risk The Group has a number of important third-party relationships, with both market counterparties and outsourcing partners, including distribution, technology and ecosystem providers, in addition to the Group's intra-company arrangements. The Group maintains material strategic partnerships and bancassurance arrangements, which create a reliance on the operational resilience and performance of outsourcing and business partners. This risk is explored in more depth in section 3.3 of the Risk factors.		The Group's outsourcing and third-party relationships require distinct oversight and risk management processes. The Group's requirements for the management of material outsourcing arrangements have been incorporated in its Group Third-Party Supply and Outsourcing Policy, aligned to the requirements of the Hong Kong IA's GWS Framework, and which outlines the governance in place in respect of material outsourcing and third-party arrangements and the Group's monitoring and risk assessment framework. This aims to ensure that appropriate contract performance and risk mitigation measures are in place over these arrangements. In addition, the Group Third-Party Risk Oversight Framework is in place to set out the Group's third-party risk management and oversight standards that guide the Group senior management and RCS function to oversee, challenge and manage the Group's third-party risk profile in a consistent and coherent way.
Information security, IT infrastructure and data privacy risks Risks related to malicious attacks on Prudential systems or third-parties, service disruption, exfiltration of data, loss of data integrity, human negligence, and the impact on the privacy of our customer data remain prevalent, owing to the accessibility of attacking tools available to potential adversaries, and increasing advancement of technology such as Generative AI. Regulatory developments in cyber security and data protection are becoming more stringent worldwide and may increase the complexity and challenges of requirements and obligations for companies. As the Group continues to develop and expand digital services and products, its reliance on third-party service providers and business partners is also increasing. Further detail on the risks to the Group associated with operating in high-risk markets is included in sections 3.4 and 3.5 of the Risk factors.		The Group adheres to data minimisation and 'privacy-by-design' principles, where data is only collected and used for its intended purpose and is not retained longer than necessary. The handling of customers' data is governed by specific policies and frameworks, such as the Group Information Security Policy, the Group Privacy Policy, and the Group Data Policy, to ensure compliance with all applicable laws and regulations, and the ethical use of customer data. These policies and frameworks together with our third-party risk management practices aim to ensure privacy and system availability are maintained for Prudential and its third party service providers. Despite the rise in ransomware activity due to the availability of ransomware exploit toolkits and Ransomware-as-a-Service (RaaS) for threat actors, the Group has a number of defences in place to protect its systems from cyber security attacks. Prudential has adopted a holistic risk management approach which is designed to prevent and disrupt potential attacks against the Group and to manage the recovery process should an attack take place. Other defences include, but are not limited to: (i) distributed denial of services (DDoS) protection for the Group's websites via web application firewall services; (ii) AI-based endpoint security software; (iii) continuous security monitoring; (iv) network-based intrusion detection; and (v) employee training and awareness campaigns to raise understanding of attacks utilising email phishing techniques. Cyber insurance coverage is in place to provide some protection against potential financial losses, and cyber attack simulation exercises have been carried out to enhance preparedness.

Risk description		Risk management
Insurance risks continued
Persistency risk Persistency risk results from adverse changes in policy surrenders, paid-ups and other policy discontinuances. In general, lower persistency experience results in deterioration of profits and shareholder value and can be an indicator of inadequate sales quality controls, and can elevate conduct, reputational and regulatory risks. Persistency risk generally stems from misalignment between customer needs and purchased product as a result of insufficient product collaterals and/or sales process, insufficient post-sale communication and engagement with the customer leading to a deterioration of appreciation of the value of their policy, operational barriers to premium renewal payment, and/or changes in policyholder circumstances resulting from external drivers.		Persistency risk is managed by appropriate controls across the product life cycle. These include: review and revisions to product design and incentive structures where required; ensuring appropriate training and sales processes, including those ensuring active customer engagement and high service quality; appropriate customer disclosures and product collaterals; use of customer retention initiatives; and post-sale management through regular experience monitoring. Strong risk management and mitigation of conduct risk and the identification of common characteristics of business with high lapse rates is also crucial. Where appropriate, allowance is made for the relationship (either assumed or observed historically) between persistency and investment returns. Modelling this dynamic policyholder behaviour is particularly important when assessing the likely take-up rate of options embedded within certain products.
Business concentration risk
Prudential operates in markets in both Asia and Africa via various channels and product mix; although largely diversified at the Group level, several of these markets are exposed to certain levels of concentration risk. From a channel concentration perspective, some of the Group's key markets rely on agency and some markets rely on bancassurance. From a product concentration perspective, some of the Group's markets focus heavily on specific product types, depending on the target customer segments. Geographically, the Greater China (Hong Kong, the Chinese Mainland and Taiwan) region contributes materially to the Group's top and bottom lines. Uncertainties in macroeconomic and geopolitical conditions as well as regulatory changes may elevate business concentration risk, including any potential slowdown in business from Mainland Chinese visitors to Hong Kong and in the Chinese Mainland, and adversely impact the Group's business and financial condition.		To improve business resilience, the Group continues to look for opportunities to enhance business diversification in products and channels as well as across geographical markets, by building multi-market growth engines as part of its strategy.
Risks associated with the oversight of the Group's joint ventures and associates
Prudential operates, and in certain markets is required by local regulation to operate, through joint ventures and other joint ownership or associates. For such operations, the level of control exercisable by the Group depends on the terms of the contractual agreements between participants. Whilst the joint ventures and associates are run as separate entities, the Group's interests are best safeguarded by our ability to effectively oversee and influence these joint ventures and associates in a way that is proportionate to our ownership level and control. Further information on the risks to the Group associated with its joint ventures and other shareholders and third parties are included in section 3.6 of the Risk factors.		The Group exercises primary oversight and control over joint ventures and associates through our nominated directors and other representatives on the Board and Board Committees, whose appointments are subject to regular review. The Group has effective access to management information on these businesses via the Board and Board Committees, the businesses' public disclosures, and established regular touchpoints with key business functions of these organisations (eg audit). Key updates on joint ventures and associates are provided to the Group's governance such as the Risk Committee and the Audit Committee. The Group also regularly reviews its governance frameworks and policies to ensure optimal oversight over joint ventures and associates.