Additional unaudited financial information

I: Selected historical financial information

The following table sets forth Prudential’s selected consolidated financial data for the periods indicated. Certain data is derived from Prudential’s audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU) and European Embedded Value (EEV).

This table is only a summary and should be read in conjunction with Prudential’s consolidated financial statements and the related notes included elsewhere in this document.

Income statement data

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  Year ended 31 December
  2013 £m 2012* £m 2011* £m 2010* £m 2009* £m
  • * The Group has adopted new accounting standards on consolidated financial statements and joint arrangements, and amendments to the employee benefits accounting standard, from 1 January 2013, as described in note A2. Accordingly, the 2009 to 2012 comparative results and related notes have been adjusted retrospectively from those previously published.
IFRS basis results          
Gross premium earned 30,502 29,113 24,837 23,610 19,525
Outward reinsurance premiums (658) (491) (417) (349) (323)
Earned premiums, net of reinsurance 29,844 28,622 24,420 23,261 19,202
Investment return 20,347 23,931 9,361 21,662 26,813
Other income 2,184 1,885 1,711 1,539 1,143
Total revenue, net of reinsurance 52,375 54,438 35,492 46,462 47,158
Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance (43,154) (45,144) (28,706) (39,687) (40,474)
Acquisition costs and other expenditure (6,861) (6,032) (4,717) (4,692) (4,463)
Finance costs: interest on core structural borrowings of shareholder-financed operations (305) (280) (286) (257) (209)
Remeasurement of carrying value of Japan life business classified as held for sale (120)
Loss on sale of Taiwan agency business (559)
Total charges, net of reinsurance (50,440) (51,456) (33,709) (44,636) (45,705)
Share of profits from joint ventures and associates, net of related tax 147 135 76 64 29
Profit before tax (being tax attributable to shareholders’ and policyholders’ returns)note (1) 2,082 3,117 1,859 1,890 1,482
Tax (charge) credit attributable to policyholders’ returns (447) (370) 7 (607) (829)
Profit before tax attributable to shareholders 1,635 2,747 1,866 1,283 653
Tax (charge) credit attributable to shareholders’ returns (289) (584) (415) 43 (15)
Profit from continuing operations after tax 1,346 2,163 1,451 1,326 638
Discontinued operations (net of tax) (14)
Profit for the year 1,346 2,163 1,451 1,326 624
Based on profit for the year attributable to the equity holders of the Company:          
Basic earnings per share (in pence) 52.8p 85.1p 57.1p 52.4p 24.9p
Diluted earnings per share (in pence) 52.7p 85.0p 57.0p 52.3p 24.8p
Dividend per share declared and paid in reporting period (in pence) 30.52p 25.64p 25.19p 20.17p 19.20p

Supplementary IFRS income statement data

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  Year ended 31 December
2013 £m 2012* £m 2011* £m 2010* £m 2009* £m
  • * The Group has adopted new accounting standards on consolidated financial statements and joint arrangements, and amendments to the employee benefits accounting standard, from 1 January 2013, as described in note A2. Accordingly, the 2009 to 2012 comparative results and related notes have been adjusted retrospectively from those previously published.
Operating profit based on longer-term investment returnsnote (2) 2,954 2,520 2,017 1,823 1,444
Short-term fluctuations in investment returns on shareholder-backed business (1,110) 187 (157) (201) (173)
Costs of terminated AIA transaction (377)
Gain on dilution of Group’s holdings 42 30
Amortisation of acquisition accounting adjustments (72) (19)
(Loss) profit attaching to held for sale Japan life business (102) 17 6 8 3
Costs of domestication of Hong Kong branch (35)
Loss on sale and results of Taiwan agency business (621)
Profit from continuing operations before tax attributable to shareholdersnote (2) 1,635 2,747 1,866 1,283 653
Operating earnings per share (reflecting operating profit based on longer-term investment returns after related tax and non-controlling interests and excluding 2010 exceptional tax credit) (in pence) 90.9p 76.9p 62.7p 58.8p 43.3p
Operating earnings per share (reflecting operating profit based on longer-term investment returns after related tax and non-controlling interests and including 2010 exceptional tax credit) (in pence) 90.9p 76.9p 62.7p 65.1p 43.3p

Supplementary EEV income statement data

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  Year ended 31 December
  2013 £m 2012* £m 2011* £m 2010* £m 2009* £m
  • * The Group has adopted new accounting standards on joint arrangements and amendments to employee benefits, from 1 January 2013, as described in note 1. Accordingly, the 2009 to 2012 comparative EEV results have been adjusted retrospectively from those previously published for the application of the IFRS standards and for the effect of the Japan life business sale agreement.
Operating profit based on longer-term investment returnsnote (2) 5,580 4,313 3,981 3,702 3,093
Short-term fluctuations in investment returns on shareholder-backed business (819) 510 (830) (52) 315
Mark to market value movements on core borrowings 152 (380) (14) (164) (795)
Effect of changes in economic assumptions 821 (2) (141) 11 (908)
Costs of terminated AIA transaction (377)
Gain on dilution of Group’s holdings 42 3
Costs of domestication of Hong Kong branch (35)
Gain on acquisition on REALIC 453
(Loss) profit attaching to held for sale Japan life business (35) 21 (19) (10) 27
Profit on sale and results of Taiwan agency business 91
Profit from continuing operations before tax attributable to shareholders 5,664 4,957 2,977 3,113 1,823
Operating earnings per share (reflecting operating profit based on longer-term investment returns after related tax and non-controlling interests and excluding 2010 exceptional tax credit) (in pence) 165.0p 124.9p 116.0p 107.4p 89.1p
Operating earnings per share (reflecting operating profit based on longer-term investment returns after related tax and non-controlling interests and including 2010 exceptional tax credit) (in pence) 165.0p 124.9p 116.0p 113.7p 89.1p

New business data

New business excluding Japannote (3)

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  Year ended 31 December
  2013 £m 2012 £m 2011 £m 2010 £m 2009 £m
Annual premium equivalent (APE) sales:          
Asianote (3) 2,125 1,897 1,660 1,501 1,209
US 1,573 1,462 1,275 1,164 912
UK 725 836 746 820 723
Total APE sales 4,423 4,195 3,681 3,485 2,844
EEV new business profit (NBP) 2,843 2,452 2,151 2,028 1,619
NBP margin (% APE) 64% 58% 58% 58% 57%

Statement of financial position data

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As of and for the year ended 31 December 2013 £m 2012* £m 2011* £m 2010* £m 2009* £m
  • * The Group has adopted new accounting standards on consolidated financial statements and joint arrangements, and amendments to the employee benefits accounting standard, from 1 January 2013, as described in note A2. Accordingly, the 2009 to 2012 comparative results and related notes have been adjusted retrospectively from those previously published.
Total assets 325,932 307,644 270,018 256,330 224,291
Total policyholder liabilities and unallocated surplus of with-profits funds 286,014 268,263 233,538 221,895 194,089
Core structural borrowings of shareholder-financed operations 4,636 3,554 3,611 3,676 3,394
Total liabilities 316,281 297,280 261,411 248,765 218,418
Total equity 9,651 10,364 8,607 7,565 5,873

Other data

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As of and for the year ended 31 December 2013 £bn 2012 £bn 2011 £bn 2010 £bn 2009 £bn

Notes

  1. This measure is the formal profit (loss) before tax measure under IFRS, but is not the result attributable to shareholders.
  2. Operating profits are determined on the basis of including longer-term investment returns. EEV and IFRS operating profits are stated after excluding the effect of short-term fluctuations in investment returns against long-term assumptions, gain on dilution of Group’s holdings, the costs arising from the domestication of the Hong Kong business, (loss) profit attaching to held for sale Japan life insurance business and, in 2010, costs associated with the terminated AIA transaction. Separately, on the IFRS basis, operating profit also excludes amortisation of acquisition accounting adjustments. In addition, for EEV basis results, operating profit excludes the effect of changes in economic assumptions, the market value movement on core borrowings and, in 2012, the gain arising on the acquisition of REALIC.
  3. Asia comparative APE new business sales prior to 2011 exclude the Japanese insurance operations, which ceased writing new business from 15 February 2010.
  4. Funds under management comprise funds of the Group held in the statement of financial position and external funds that are managed by Prudential asset management operations.
  5. The surpluses shown are before allowing for the final dividends for each year, which are paid in the following year. The 2013 surplus is estimated.
Funds under managementnote (4) 443 406 352 340 290
EEV shareholders’ equity, excluding non-controlling interests 24.9 22.4 19.6 18.2 15.3
Insurance Groups Directive capital surplus (as adjusted)note (5) 5.1 5.1 4.0 4.3 3.4

II: IFRS profit and loss information

II(a) Analysis of long-term insurance business pre-tax IFRS operating profit based on longer-term investment returns by driver

This schedule classifies the Group’s pre-tax operating earnings from long-term insurance operations into the underlying drivers of those profits, using the following categories:

  1. Spread income represents the difference between net investment income (or premium income in the case of the UK annuities new business) 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;
  2. Fee income represents profits driven by net investment performance, being asset management fees that vary with the size of the underlying policyholder funds net of investment management expenses;
  3. With-profits business represents the shareholders’ transfer from the with-profits fund in the year;
  4. Insurance margin primarily represents profits derived from the insurance risks of mortality, morbidity and persistency;
  5. Margin on revenues primarily represents amounts deducted from premiums to cover acquisition costs and administration expenses;
  6. Acquisition costs and administration expenses represent expenses incurred in the year attributable to shareholders. It excludes items such as restructuring costs and Solvency II costs which are not included in the segment profit for insurance, as well as items that are more appropriately included in other source of earnings lines (eg investment expenses are netted against investment income as part of spread income or fee income as appropriate); and
  7. DAC adjustments comprises DAC amortisation for the year, excluding amounts related to short-term fluctuations, net of costs deferred in respect of new business.

Analysis of pre-tax IFRS operating profit by source

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  2013 £m
   
Asia  
On prior basis Adjustments
notes (ii), (iii)
Asia US UK Unallocated Total
Spread income 125 (10) 115 730 228 1,073
Fee income 154 154 1,172 65 1,391
With-profits 47 47 251 298
Insurance margin 681 (2) 679 588 89 1,356
Margin on revenues 1,574 (12) 1,562   187 1,749
Expenses:              
Acquisition costs (1,015) (1,015) (914) (110) (2,039)
Administration expenses (647) 13 (634) (670) (124) (1,428)
DAC adjustments 32 3 35 313 (14) 334
Expected return on shareholder assets 58 58 24 134 216
Long-term business operating profit 1,009 (8) 1,001 1,243 706 2,950
Asset management operating profit 82 (8) 74 59 441 574
GI commission 29 29
Other income and expenditurenote (i) (599) (599)
Total operating profit based on longer-term investment returns 1,091 (16) 1,075 1,302 1,176 (599) 2,954
   

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  2012 £m
   
Asia  
As previously reported Adjustments
notes (ii), (iii)
Asia US UK Unallocated Total
Notes
  1. Including restructuring and Solvency II implementation costs.
  2. The analysis excludes the results of the held for sale life insurance business of Japan. The results of Japan life business excluded in 2013 were: profit of £3 million (2012: loss of £2 million).
  3. The Group has adopted new accounting standards on joint arrangements, as described in note A2. The only impact of the resulting change on the analysis above is to deduct the associated tax expense from the joint ventures’ operating profit by treating it as an administration expense. This contributed to an additional expense, as follows:

    • Long-term business – 2013: £5 million (2012: £9 million); and
    • Asset management business – 2013: £8 million (2012: £6 million).

    All other lines continue to include the Group’s share of the relevant part of the joint ventures’ pre-tax operating profit.

Spread income 106 (13) 93 702 266 1,061
Fee income 141 141 875 61 1,077
With-profits 39 39 272 311
Insurance margin 594 (5) 589 399 39 1,027
Margin on revenues 1,453 (14) 1,439 216 1,655
Expenses:              
Acquisition costs (903) (903) (972) (122) (1,997)
Administration expenses (583) 13 (570) (537) (128) (1,235)
DAC adjustments (28) 12 (16) 442 (8) 418
Expected return on shareholder assets 43 43 55 107 205
Gain on China Life (Taiwan) shares 51 51 51
Long-term business operating profit 913 (7) 906 964 703 2,573
Asset management operating profit 75 (6) 69 39 371 479
GI commission 33 33
Other income and expenditurenote (i) (565) (565)
Total operating profit based on longer-term investment returns 988 (13) 975 1,003 1,107 (565) 2,520
 

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  Total
  2013   2012
Long-term business Profit


£m
Average liability notes (iii), (v)
£m
Margin

note (ii)
bps
  Profit


£m
Average liability notes (iii), (iv), (v)
£m
Margin

note (ii)
bps
Notes
  1. The ratio for acquisition costs is calculated as a percentage of APE including with-profits sales. Acquisition costs include only those relating to shareholder-backed business.
  2. Margin represents the operating return earned in the year as a proportion of the relevant class of policyholder liabilities excluding unallocated surplus.
  3. For UK and Asia, opening and closing policyholder liabilities have been used to derive an average balance for the year, as a proxy for average balances throughout the year. The calculation of average liabilities for Jackson is derived from month-end balances throughout the year, as opposed to opening and closing balances only. Average liabilities for spread income are based on the general account liabilities to which spread income attaches. In addition, for REALIC (acquired in 2012), which are included in the average liability to calculate the administration expense margin, the calculation excludes the liabilities reinsured to third parties prior to the acquisition by Jackson. Average liabilities are adjusted for business acquisitions and disposals in the year.
  4. The Group has adopted new accounting standards on joint arrangements, as described in note A2. The only impact of the resulting change on the analysis above is to deduct the associated tax expense from the joint ventures’ operating profit by treating it as an administration expense. The impact of this change is explained in note (iii), to the ‘Analysis of pre-tax IFRS operating profit by source’ table earlier in this section. All other lines continue to include the Group’s share of the relevant part of the joint ventures’ pre-tax operating profit.
  5. The 2013 analysis excludes the results of the held for sale life insurance business of Japan in both the individual profit and average liability amounts shown in the table above. The comparative results have been presented on a consistent basis.
Spread income 1,073 64,312 167   1,061 61,432 173
Fee income 1,391 96,337 144   1,077 78,433 137
With-profits 298 97,393 31   311 95,681 33
Insurance margin 1,356       1,027    
Margin on revenues 1,749       1,655    
Expenses:              
Acquisition costsnote (i) (2,039) 4,423 (46)%   (1,997) 4,195 (48)%
Administration expenses (1,428) 169,158 (84)   (1,235) 142,205 (87)
DAC adjustments 334       418    
Expected return on shareholder assets 216       205    
Gain on China Life (Taiwan) shares       51    
Operating profit 2,950       2,573    

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  Asia
note (iii)
  2013
 
  2012
note (ii)
Long-term business Profit

£m
Average liability
note (iv) £m
Margin

bps
  Profit

£m
Average liability
note (iv) £m
Margin

bps
Notes
  1. The ratio for acquisition costs is calculated as a percentage of APE including with-profits sales. Acquisition costs include only those relating to shareholder-backed business.
  2. The Group has adopted new accounting standards on joint arrangements, as described in note A2. The only impact of the resulting change on the analysis above is to deduct the associated tax expense from the joint ventures’ operating profit by treating it as an administration expense. The impact of this change is explained in note (iii) to the ‘Analysis of pre-tax IFRS operating profit by source’ table earlier in this section. All other lines continue to include the Group’s share of the relevant part of the joint ventures’ pre-tax operating profit.
  3. The analysis excludes the 2012 and 2013 results of the life insurance business of Japan in both the individual profit and the average liability amounts shown in the table above.
  4. Opening and closing policyholder liabilities, adjusted for corporate transactions, have been used to derive an average balance for the year, as a proxy for average balances throughout the year.
Spread income 115 7,446 154   93 5,978 155
Fee income 154 13,714 112   141 12,648 111
With-profits 47 13,263 35   39 12,990 30
Insurance margin 679       589    
Margin on revenues 1,562       1,439    
Expenses:              
Acquisition costsnote (i) (1,015) 2,125 (48)%   (903) 1,897 (48)%
Administration expenses (634) 21,160 (300)   (570) 18,626 (306)
DAC adjustments 35       (16)    
Expected return on shareholder assets 58       43    
Gain on China Life (Taiwan) shares       51    
Operating profit 1,001       906    

Analysis of Asia operating profit drivers

  • Spread income has increased by £22 million from £93 million in 2012 to £115 million in 2013, an increase of 24 per cent, predominantly reflecting the growth of the Asian non-linked policyholder liabilities.
  • Fee income has increased from £141 million in 2012 to £154 million in 2013, broadly in line with the increase in movement in average unit-linked liabilities.
  • Insurance margin has increased by £90 million from £589 million in 2012 to £679 million in 2013, predominantly reflecting the continued growth of the in-force book, which contains a relatively high proportion of risk-based products and management action on claims controls and pricing. Insurance margin includes non-recurring items of £52 million (2012: £48 million), reflecting items that are not expected to reoccur in the future.
  • Margin on revenues has increased by £123 million from £1,439 million in 2012 to £1,562 million in 2013, primarily reflecting the higher premium income recognised in the year.
  • Acquisition costs have increased from £903 million in 2012 to £1,015 million in 2013, in line with the 12 per cent increase in sales, resulting in a stable acquisition cost ratio. The analysis above uses shareholder acquisition costs as a proportion of total APE. If with-profits sales were excluded from the denominator the acquisition cost ratio would become 65 per cent (2012: 63 per cent) reflecting changes to product and country mix.
  • Administration expenses have increased from £570 million in 2012 to £634 million in 2013 as the business continues to expand. The administration expense ratio remains broadly in line with prior periods at 300 basis points (2012: 306 basis points).

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  US
  2013   2012
Long-term business Profit

£m
Average liability
note (ii) £m
Margin

bps
  Profit

£m
Average liability
note (ii) £m
Margin

bps
Notes
  1. The ratio for acquisition costs is calculated as a percentage of APE.
  2. The calculation of average liabilities for Jackson is derived from month-end balances throughout the year, as opposed to opening and closing balances only. Average liabilities for spread income are based on the general account liabilities to which spread income attaches. Average liabilities used to calculate the administrative expense margin exclude the REALIC liabilities reinsured to third parties prior to the acquisition by Jackson.
Spread income 730 29,648 246   702 29,416 239
Fee income 1,172 59,699 196   875 44,046 199
Insurance margin 588       399    
Expenses:              
Acquisition costsnote (i) (914) 1,573 (58)%   (972) 1,462 (66)%
Administration expenses (670) 97,856 (68)   (537) 75,802 (71)
DAC adjustments 313       442    
Expected return on shareholder assets 24       55    
Operating profit 1,243       964    

Analysis of US operating profit drivers

  • Spread income has increased by 4 per cent to £730 million in 2013 from £702 million in 2012. The reported spread margin increased to 246 basis points from 239 basis points in 2012, primarily as a result of lower crediting rates. In addition, spread income benefited from swap transactions previously entered into to more closely match the overall asset and liability duration. Excluding this effect, the spread margin would have been 182 basis points (2012: 186 basis points).
  • Fee income has increased by 34 per cent to £1,172 million in 2013, compared to £875 million in 2012, primarily due to higher average separate account balances due to positive net cash flows from variable annuity business and market appreciation. Fee income margin has remained broadly consistent with the prior year at 196 basis points (2012: 199 basis points), with the decrease primarily attributable to the change in the mix of business.
  • Insurance margin represents operating profits from insurance risks, including variable annuity guarantees and other sundry items. Positive net flows into variable annuity business with life contingent and other guarantee fees, coupled with a benefit in the year from re-pricing actions, have increased the insurance margin from £399 million in 2012 to £588 million in 2013. This includes a benefit due to the inclusion of the full year of operations for REALIC, which contributed £188 million in 2013, compared to £87 million in 2012.
  • Acquisition costs, which are commissions and expenses incurred to acquire new business, including those that are not deferrable, have decreased by £58 million compared to 2012, due largely to the discontinuation of certain policy enhancement options on annuity business. As a percentage of APE, acquisition costs have decreased to 58 per cent for 2013, compared to 66 per cent in 2012. This is due to the discontinuation of contract enhancements mentioned above and the continued increase in producers selecting asset-based commissions which are treated as an administrative expense in this analysis, rather than front end commissions.
  • Administration expenses increased to £670 million during 2013 compared to £537 million in 2012, primarily as a result of higher asset-based commissions paid on the larger 2013 separate account balance. Asset-based commissions are paid upon policy anniversary dates and are treated as an administration expense in this analysis, as opposed to a cost of acquisition and are offset by higher fee income. Excluding the trail commissions previously mentioned, the resulting administration expense ratio would be lower at 44 basis points (2012: 48 basis points), reflecting the benefits of operational leverage.
  • DAC adjustments decreased to £313 million in 2013 compared to £442 million in 2012, due to lower levels of current year acquisition costs being deferred and higher DAC amortisation being incurred following higher gross profits. Certain acquisition costs are not fully deferrable, resulting in new business strain of £198 million for 2013 (2012: £174 million) mainly reflecting the increase in sales in the period.

Analysis of pre-tax operating profit before and after acquisition costs and DAC adjustments

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  2013 £m   2012 £m
  Other operating profits Acquisition costs     Other operating profits Acquisition costs  
Long-term business Incurred Deferred Total   Incurred Deferred Total
Total operating profit before acquisition costs and DAC adjustments 1,844     1,844   1,494     1,494
Less new business strain   (914) 716 (198)     (972) 798 (174)
Other DAC adjustments – amortisation of previously deferred acquisition costs:                  
Normal     (485) (485)       (412) (412)
Decelerated     82 82       56 56
Total 1,844 (914) 313 1,243   1,494 (972) 442 964

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  UK
  2013   2012
Long-term business Profit

£m
Average liability
note (ii) £m
Margin

bps
  Profit

£m
Average liability
note (ii) £m
Margin

bps
Notes
  1. The ratio for acquisition costs is calculated as a percentage of APE including with-profits sales. Acquisition costs include only those relating to shareholder-backed business.
  2. Opening and closing policyholder liabilities have been used to derive an average balance for the year, as a proxy for average balances throughout the year.
Spread income 228 27,218 84   266 26,038 102
Fee income 65 22,924 28   61 21,739 28
With-profits 251 84,130 30   272 82,691 33
Insurance margin 89       39    
Margin on revenues 187       216    
Expenses:              
Acquisition costsnote (i) (110) 725 (15)%   (122) 836 (15)%
Administration expenses (124) 50,142 (25)   (128) 47,777 (27)
DAC adjustments (14)       (8)    
Expected return on shareholders’ assets 134       107    
Operating profit 706       703    

Analysis of UK operating profit drivers

  • Spread income has reduced from £266 million in 2012 to £228 million in 2013, principally due to lower annuity sales in the year.
  • Fee income has increased in line with the increase in unit-linked liabilities.
  • With-profits income has decreased by £21 million from £272 million in 2012 to £251 million in 2013, principally due to a 50 basis point reduction in annual bonus rates. This has contributed to the reduction in the with-profits margin from 33 basis points in 2012 to 30 basis points in 2013.
  • Insurance margin has increased from £39 million in 2012 to £89 million in 2013. This increase arises from our improved profits from our protection business, the non-recurrence of the 2012 effect of strengthening longevity assumptions on our annuity book and £27 million positive impact of undertaking a longevity swap on certain aspects of the UK’s annuity back-book liabilities in the first half of 2013.
  • Margin on revenues represents premium charges for expenses and other sundry net income received by the UK. 2013 income was £187 million, £29 million lower than in 2012, reflecting lower premium volumes in the year.
  • Acquisition costs as a percentage of new business sales are in line with 2012 at 15 per cent. Lower commission payments from the implementation of the recommendations of the Retail Distribution Review have been more than offset by the effect of lower bulk annuity sales in the year, which traditionally are less capital intensive.

    The ratio above expresses the percentage of shareholder acquisition costs as a percentage of total APE sales. It is, therefore, impacted by the level of with-profit sales in the year. Acquisition costs as a percentage of shareholder-backed new business sales were 32 per cent in 2013 (2012: 33 per cent).

  • Administration expenses at £124 million are £4 million lower than for 2012 due to lower project spend in the first half of the year.
  • Expected return on shareholder assets has increased from £107 million in 2012 to £134 million in 2013, principally due to improved investment returns in the year and higher surplus assets.

II(b) Asia operations – analysis of IFRS operating profit by territory

Operating profit based on longer-term investment returns for Asia operations are analysed as follows:

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  2013 £m AER
2012* £m
AER
vs 2012
CER
vs 2012
  • * The 2012 comparative results have been adjusted from those previously published for the retrospective application of the new and amended accounting standards described in note A2.

Notes

  1. Analysis of operating profit between new and in-force business

    The result for insurance operations comprises amounts in respect of new business and business in force as follows:

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      2013 £m 2012* £m

    * The 2012 comparative results have been adjusted from those previously published for the retrospective application of the new and amended accounting standards described in note A2.

    The IFRS new business strain corresponds to approximately 1 per cent of new business APE premiums for 2013 (2012: approximately 2 per cent of new business APE). The improvement is driven by a shift in overall sales mix to lower strain products and countries.

    The strain reflects the aggregate of the pre-tax regulatory basis strain to net worth after IFRS adjustments for deferral of acquisition costs and deferred income where appropriate.

    New business strain (15) (46)
    Business in force 974 860
    Non-recurrent items:note (ii)    
    Other non-recurrent items 44 48
    Gain on sale of stake in China Life (Taiwan) 51
    Total 1,003 913
  2. During 2012, the Group sold its 7.74 per cent stake in China Life (Taiwan) for £97 million crystallising a gain of £51 million.

    Other non-recurrent items of £44 million in 2013 (2012: £48 million) represent a small number of items that are not anticipated to re-occur in subsequent years.

  3. To facilitate comparisons of operating profit based on longer-term investment returns that reflect the Group’s retained operations, the results attributable to the held for sale Japan life business are not included within the long-term business operating profit for Asia. The 2012 comparative results have also been adjusted. The Japan life business contributed a profit of £3 million in 2013 (2012: loss of £(2) million).
Hong Kong 101 88 15% 13%
Indonesia 291 260 12% 23%
Malaysia 137 118 16% 17%
Philippines 18 15 20% 19%
Singapore 219 206 6% 5%
Thailand 53 7 657% 640%
Vietnam 54 25 116% 115%
SE Asia operations inc. Hong Kong 873 719 21% 25%
China 10 16 (38)% (40)%
India 51 50 2% 10%
Korea 17 16 6% 2%
Taiwan 12 18 (33)% (34)%
Other (4) (5) (20)% (20)%
Non-recurrent itemsnote (ii) 44 48 (8)% (10)%
Operating profit before gain on China Life of Taiwan 1,003 862 16% 20%
Gain on sale of stake in China Life of Taiwannote (ii) 51 (100)% (100)%
Total insurance operationsnote (i) 1,003 913 10% 13%
Development expenses (2) (7) (71)% (71)%
Total long-term business operating profitnote (iii) 1,001 906 10% 13%
Eastspring Investments 74 69 7% 9%
Total Asia operations 1,075 975 10% 13%

II(c) Analysis of asset management operating profit based on longer-term investment returns

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  2013 £m
  M&G
note (ii)
Eastspring Investments
note (ii)
PruCap

US

Total

Operating income before performance-related fees 863 215 121 362 1,561
Performance-related fees 25 1 26
Operating income(net of commission)note (i) 888 216 121 362 1,587
Operating expensenote (i) (505) (134) (75) (303) (1,017)
Share of associate’s results 12 12
Group’s share of tax on joint ventures’ operating profit (8) (8)
Operating profit based on longer-term investment returns 395 74 46 59 574
     
Average funds under management £233.8bn £61.9bn      
Margin based on operating income* 37 bps 35 bps      
Cost/income ratio 59% 62%      
   

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  2012 £m
  M&G
note (ii)
Eastspring Investments
note (ii)
PruCap

US

Total

Notes

  1. Operating income and expense includes the Group’s share of contribution from joint ventures (but excludes any contribution from associates). In the income statement, as shown in note B2 of the IFRS financial statements, these amounts are netted and tax deducted and shown as a single amount.
  2. M&G and Eastspring Investments can be further analysed as follows:

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      M&G
      Operating income before performance related fees
      Retail
    £m
    Margin of FUM*
    bps
    Institutional
    £m
    Margin of FUM*
    bps
    Total
    £m
    Margin of FUM*
    bps
    2013 550 89 313 18 863 37
    2012 438 91 296 19 734 36

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      Eastspring Investments
      Operating income before performance related fees
      Retail
    £m
    Margin of FUM*
    bps
    Institutional
    £m
    Margin of FUM*
    bps
    Total
    £m
    Margin of FUM*
    bps
    2013 127 60 88 22 215 35
    2012 118 64 83 24 201 37

    * Margin represents operating income before performance related fees as a proportion of the related funds under management (FUM). Monthly closing internal and external funds managed by the respective entity have been used to derive the average. Any funds held by the Group’s insurance operations which are managed by third parties outside of the Prudential Group are excluded from these amounts.

    Cost/income ratio represents cost as a percentage of operating income before performance related fees.

    Institutional includes internal funds.

  3. The 2012 comparative results have been adjusted retrospectively from those previously published for the application of the new accounting standards described in note A2 following adoption of IFRS 11 for Group’s joint ventures. This amount is excluded from the cost for cost/income ratio purposes.
Operating income before performance-related fees 734 201 120 296 1,351
Performance-related fees 9 2 11
Operating income (net of commission)note (i) 743 203 120 296 1,362
Operating expensenote (i) (436) (128) (69) (257) (890)
Share of associate’s results 13 13
Group’s share of tax on joint ventures’ operating profit (6) (6)
Operating profit based on longer-term investment returns 320 69 51 39 479
     
Average funds under management £205.1bn £55.0bn      
Margin based on operating income* 36 bps 37 bps      
Cost/income ratio 59% 64%      
 

III: Other information

III(a) Holding company cash flow

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  2013 £m 2012 £m
  • * Including central finance subsidiaries.
Net cash remitted by business units:    
UK net remittances to the Group 206 216
UK Life fund paid to the Group    
Shareholder-backed business:    
Other UK paid to the Group 149 101
Group invested in UK (4)
Total shareholder-backed business 149 97
Total UK net remittances to the Group 355 313
US remittances to the Group 294 249
Asia net remittances to the Group    
Asia paid to the Group:    
Long-term business 454 491
Other operations 56 60
  510 551
Group invested in Asia:    
Long-term business (9) (107)
Other operations (including funding of regional head office costs) (101) (103)
  (110) (210)
Total Asia net remittances to the Group 400 341
M&G remittances to the Group 235 206
PruCap remittances to the Group 57 91
Net remittances to the Group from business units 1,341 1,200
Net interest paid (300) (278)
Tax received 202 194
Corporate activities (185) (158)
Solvency II costs (32) (47)
Total central outflows (315) (289)
Operating holding company cash flow before dividend* 1,026 911
Dividend paid (781) (655)
Operating holding company cash flow after dividend* 245 256
Issue of hybrid debt, net of costs 1,124
Acquisition of Thanachart Life (397)
Hedge purchase cost (equity tail risks) (32)
Costs of the domestication of the Hong Kong branch (31)
Other net cash payments (83) (43)
Total holding company cash flow 858 181
Cash and short-term investments at beginning of year 1,380 1,200
Foreign exchange movements (8) (1)
Cash and short-term investments at end of year 2,230 1,380

III(b) Funds under management

a Summarynote (i)

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  2013 £bn 2012* £bn
  • * The 2012 comparative results have been adjusted from those previously published for the retrospective application of the new and amended accounting standards described in note A2.
Notes
  1. Including Group’s share of assets managed by joint ventures.
  2. External funds shown above as at 31 December 2013 of £143.3 billion (2012: £121.4 billion) comprise £148.2 billion (2012: £133.5 billion) of funds managed by M&G and Eastspring Investments as shown in note (c) below, less £4.9 billion (2012: £12.1 billion) that are classified within Prudential Group’s funds. The £148.2 billion (2012: £133.5 billion) investment products comprise £143.9 billion (2012: £129.5 billion) as published in the New Business schedules plus Asia Money Market Funds of £4.3 billion (2012: £4.0 billion).
Business area:    
Asia operations 38.0 38.9
US operations 104.3 91.4
UK operations 157.3 154.0
Prudential Group funds under management 299.6 284.3
External fundsnote (ii) 143.3 121.4
Total funds under management 442.9 405.7

b Prudential Group funds under management – analysis by business area

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  Asia operations US operations UK operations Total
  2013 £bn 2012* £bn 2013 £bn 2012* £bn 2013 £bn 2012* £bn 2013 £bn 2012* £bn
  • * The 2012 comparative results have been adjusted from those previously published for the retrospective application of the new and amended accounting standards described in note A2.
  • As included in the investments section of the consolidated statement of financial position at 31 December 2013, except for £0.3 billion (2012: £0.1 billion) investment properties which are held for sale or occupied by the Group and, accordingly under IFRS, are included in other statement of financial position captions.
Investment properties 0.1 11.7 10.6 11.7 10.7
Equity securities 14.4 12.7 66.0 49.6 39.8 36.3 120.2 98.6
Debt securities 18.6 20.1 30.3 33.0 84.0 85.8 132.9 138.9
Loans and receivables 0.9 1.0 6.4 6.2 5.3 5.5 12.6 12.7
Other investments and deposits 0.9 1.8 1.6 2.5 16.0 15.5 18.5 19.8
Total included in statement of financial position 34.8 35.6 104.3 91.4 156.8 153.7 295.9 280.7
Internally managed funds held in insurance join ventures 3.2 3.3 0.5 0.3 3.7 3.6
Total Prudential Group funds under management 38.0 38.9 104.3 91.4 157.3 154.0 299.6 284.3

c Investment products – external funds under management

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  2013 £m
  1 Jan 2013 Market gross inflows Redemptions Market exchange translation and other movements 31 Dec 2013
Eastspring Investmentsnote 21,634 74,206 (72,111) (1,507) 22,222
M&G 111,868 40,832 (31,342) 4,631 125,989
Group total 133,502 115,038 (103,453) 3,124 148,211

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  2012 £m
  1 Jan 2012 Market gross inflows Redemptions Market exchange translation and other movements 31 Dec 2012
Notes

Including Asia Money Market Funds at 31 December 2013 of £4.3 billion (2012: £4.0 billion).

Eastspring Investmentsnote 19,221 60,498 (59,098) 1,013 21,634
M&G 91,948 36,463 (19,582) 3,039 111,868
Group total 111,169 96,961 (78,680) 4,052 133,502

d M&G and Eastspring Investments – total funds under management

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M&G 2013 £bn 2012 £bn
External funds under management 126.0 111.9
Internal funds under management 118.0 116.4
Total funds under management 244.0 228.3
Eastspring Investments 2013 £bn 2012 £bn
Notes

Including Asia Money Market Funds at 31 December 2013 of £4.3 billion (2012: £4.0 billion).

External funds under managementnote 22.2 21.6
Internal funds under management 37.7 36.5
Total funds under management 59.9 58.1

III(c) Additional information on pre and post-tax EEV basis results

The Group intends to alter its basis of presentation of EEV results for 2014 and subsequent reporting periods to a post-tax basis, in line with the approach adopted by a number of international insurance groups. The following tables provide an analysis of the Group’s profit and loss account and key accompanying notes on a pre-tax and post-tax basis for the most recent reporting periods.

Pre and post-tax operating profit based on longer-term investment returns

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  Pre-tax

  Post-tax
note (i)
  Full year 2013
£m
Full year 2012
£m
Half year 2013
£m
  Full year 2013
£m
Full year 2012
£m
Half year 2013
£m

* The 2012 comparative results have been adjusted retrospectively from those previously published for the adoption of IFRS 11 and for the reclassification of the result attributable to the held for sale Japan life business – see note 18 of the EEV basis results section.

Asia operations              
New businessnotes (ii), (iii) 1,460 1,266 659   1,139 982 502
Business in force*:              
Unwind of discount and other expected returns 846 595 400   668 465 315
Effect of changes in operating assumptions 17 22 (13)   5 13 (6)
Experience variances and other items 64 75 33   80 76 18
  927 692 420   753 554 327
Long-term business 2,387 1,958 1,079   1,892 1,536 829
Eastspring Investments* 74 69 38   64 58 32
Development expenses (2) (7) (2)   (1) (5) (2)
Total* 2,459 2,020 1,115   1,955 1,589 859
US operations              
New businessnote (ii) 1,086 873 479   706 568 311
Business in force:              
Unwind of discount and other expected returns 608 412 287   395 268 187
Effect of changes in operating assumptions 116 35 70   76 23 45
Experience variances and other items 411 290 180   349 238 164
  1,135 737 537   820 529 396
Long-term business 2,221 1,610 1,016   1,526 1,097 707
Broker-deal and asset management 59 39 34   39 18 21
Total 2,280 1,649 1,050   1,565 1,115 728
UK operations              
New businessnote (ii) 297 313 130   237 241 100
Business in force:              
Unwind of discount and other expected returns 547 482 267   437 373 204
Effect of changes in operating assumptions 122 87   98 67
Experience variances and other items 67 (16) 7   60 10
  736 553 274   595 450 204
Long-term business 1,033 866 404   832 691 304
General insurance commission 29 33 15   22 25 11
Total UK insurance operations 1,062 899 419   854 716 315
M&G (including Prudential Capital) 441 371 225   346 285 175
Total 1,503 1,270 644   1,200 1,001 490
Other income and expenditure (619) (554) (304)   (482) (476) (235)
Solvency II and restructuring costs (43) (72) (26)   (34) (55) (21)
Operating profit based on longer-term investment returns 5,580 4,313 2,479   4,204 3,174 1,821
Analysed as profits (losses) from:              
New businessnotes (ii), (iii) 2,843 2,452 1,268   2,082 1,791 913
Business in force* 2,798 1,982 1,231   2,168 1,533 927
Long-term business* 5,641 4,434 2,499   4,250 3,324 1,840
Asset management* 574 479 297   449 361 228
Other results (635) (600) (317)   (495) (511) (247)
Total* 5,580 4,313 2,479   4,204 3,174 1,821

Summary of consolidated income statement

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  Pre-tax

  Post-tax
note (i)
  Full year
2013
£m
Full year
2012
£m
Half year
2013
£m
  Full year 2013
£m
Full year
2012
£m
Half year
2013
£m

* The 2012 comparative results have been adjusted retrospectively from those previously published for the revised IAS 19 and for the reclassification of the result attributable to the held for sale Japan life business – see note 18 of the EEV basis results section.

Notes
  1. The tax rates include the impact of tax effects determined on a local regulatory basis. Tax payments and receipts included in the projected cash flows to determine the value of in-force business are calculated using rates that have been substantively enacted by the end of the reporting period.
  2. New business contribution

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      Pre-tax new business contribution   Post-tax new business contribution
    Asia
    operations
    £m
    US
    operations
    £m
    UK
    insurance
    operations
    £m
    Total
    £m
    Asia
    operations
    £m
    US
    operations
    £m
    UK
    insurance
    operations
    £m
    Total
    £m
    Full year 2013 1,460 1,086 297 2,843   1,139 706 237 2,082
    Q3 2013 990 756 204 1,950   767 492 163 1,422
    Half year 2013 659 479 130 1,268   502 311 100 913
    Q1 2013 308 192 63 563   237 125 48 410
    Full year 2012 1,266 873 313 2,452   982 568 241 1,791
    Q3 2012 828 683 227 1,738   627 444 173 1,244
    Half year 2012 547 442 152 1,141   414 288 116 818
    Q1 2012 260 214 62 536   197 139 47 383
    Full year 2011 1,076 815 260 2,151   811 530 195 1,536
  3. New business contribution by Asia territory

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      Pre-tax   Post-tax
    Full year
    2013
    £m
    Full year
    2012
    £m
    Half year
    2013
    £m
    Full year
    2013
    £m
    Full year
    2012
    £m
    Half year
    2013
    £m
    Asia operations:              
    China 37 26 17   28 20 13
    Hong Kong 354 210 162   283 162 125
    India 18 19 10   15 15 8
    Indonesia 480 476 228   359 365 174
    Korea 33 26 19   25 20 14
    Taiwan 37 48 16   31 40 13
    Other 501 461 207   398 360 155
    Total Asia operations 1,460 1,266 659   1,139 982 502
Operating profit based on longer-term investment returns* 5,580 4,313 2,479   4,204 3,174 1,821
Short-term fluctuations in investment returns:              
Asia operations* (405) 362 (282)   (308) 302 (223)
US operations (422) (254) (404)   (280) (163) (271)
UK insurance operations 35 315 (92)   28 243 (70)
Other operations* (27) 87 (30)   (4) 83 (23)
  (819) 510 (808)   (564) 465 (587)
Effect of changes in economic assumptions:              
Asia operations 283 (135) 333   255 (99) 272
US operations 372 85 62   242 56 40
UK insurance operations 166 48 289   132 37 222
  821 (2) 684   629 (6) 534
Other non-operating profit 82 136 156   89 136 156
Total non-operating profit 84 644 32   154 595 103
Profit attributable to shareholders 5,664 4,957 2,511   4,358 3,769 1,924

III(d) Reconciliation of expected transfer of value of in-force (VIF) and required capital business to free surplus

The tables below show how the VIF generated by the in-force long-term business and the associated required capital is modelled as emerging into free surplus over the next 40 years. Although a small amount (less than 2 per cent) of the Group’s embedded value emerges after this date, analysis of cash flows emerging in the years shown in the tables is considered most meaningful. The modelled cash flows use the same methodology underpinning the Group’s embedded value reporting and so are subject to the same assumptions and sensitivities.

In addition to showing the amounts, both discounted and undiscounted, expected to be generated from all in-force business at 31 December 2013, the tables also present the expected future free surplus to be generated from the investment made in new business during 2013 over the same 40 year period.

Expected transfer of value of in-force (VIF) and required capital business to free surplus

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  2013 £m
  Undiscounted expected generation from all in-force business at 31 December*   Undiscounted expected generation from 2013 long-term new business written*
Expected period of emergence Asia US UK Total   Asia US UK Total

* The analysis excludes amounts incorporated into VIF at 31 December 2013 where there is no definitive timeframe for when the payments will be made or receipts received. In particular, it excludes the value of the shareholders’ interest in the estate. It also excludes any free surplus emerging after 2053. Following its classification as held for sale, the Asia cash flows exclude any cash flows in respect of Japan.

2014 801 902 462 2,165   116 260 24 400
2015 821 817 471 2,109   140 113 21 274
2016 798 760 467 2,025   142 114 21 277
2017 735 709 467 1,911   111 40 19 170
2018 705 700 479 1,884   107 108 21 236
2019 682 666 466 1,814   93 92 20 205
2020 672 670 462 1,804   96 85 20 201
2021 665 623 455 1,743   99 127 20 246
2022 654 540 451 1,645   93 105 20 218
2023 650 469 461 1,580   105 88 21 214
2024 635 386 449 1,470   89 70 19 178
2025 633 313 440 1,386   93 58 18 169
2026 637 265 429 1,331   88 50 18 156
2027 637 228 423 1,288   89 43 18 150
2028 624 206 408 1,238   109 38 18 165
2029 596 174 401 1,171   84 29 18 131
2030 590 162 389 1,141   85 24 18 127
2031 570 146 377 1,093   84 20 18 122
2032 561 158 368 1,087   82 17 18 117
2033 544 85 363 992   90 15 19 124
2034 to 2038 2,586 305 1,400 4,291   399 32 82 513
2039 to 2043 2,334 104 1,152 3,590   357 (13) 96 440
2044 to 2048 2,075 569 2,644   313 54 367
2049 to 2053 1,808 336 2,144   276 37 313
Total free surplus expected to emerge in the next 40 years 22,013 9,388 12,145 43,546   3,340 1,515 658 5,513

The above amounts can be reconciled to the new business amounts as follows:

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  2013 £m
New business Asia US UK Total

* Other items represent the impact of the time value of options and guarantees on new business, foreign exchange effects and other non-modelled items. Foreign exchange effects arise as EEV new business profit amounts are translated at average exchange rates and the expected free surplus generation uses year end closing rates.

Undiscounted expected free surplus generation for years 2014 to 2053 3,340 1,515 658 5,513
Less: discount effect (2,098) (516) (397) (3,011)
Discounted expected free surplus generation for years 2014 to 2053 1,242 999 261 2,502
Discounted expected free surplus generation for years 2053+ 52 2 54
Less: free surplus investment in new business (310) (298) (29) (637)
Other items* 155 5 3 163
Post-tax EEV new business profit 1,139 706 237 2,082
Tax 321 380 60 761
Pre-tax EEV new business profit 1,460 1,086 297 2,843

The undiscounted expected free surplus generation from all in-force business at 31 December 2013 shown below can be reconciled to the amount that was expected to be generated as at 31 December 2012 as follows:

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Group 2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
Other
£m
Total
£m
2012 expected free surplus generation for years 2013 to 2052 1,950 1,816 1,788 1,687 1,671 1,594 24,646 35,152
Less: Amounts expected to be realised in the current year (1,950) (1,950)
Add: expected free surplus to be generated in year 2053* 179 179
Foreign exchange differences (90) (84) (75) (72) (68) (1,204) (1,593)
New business 400 274 277 170 236 4,156 5,513
Acquisition of Thanachart Life 17 13 11 8 5 20 74
Operating movements (45) 1 1 16 26    
Non-operating and other movements 67 117 124 118 91 5,655 6,171
     
2013 expected free surplus generation for years 2014 to 2053 2,165 2,109 2,025 1,911 1,884 33,452 43,546

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Asia 2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
Other
£m
Total
£m
2012 expected free surplus generation for years 2013 to 2052 719 761 724 686 654 628 13,069 17,241
Less: amounts expected to be realised in the current year (719) (719)
Add: expected free surplus to be generated in year 2053* 135 135
Foreign exchange differences (79) (73) (65) (61) (58) (1,132) (1,468)
New business 116 140 142 111 107 2,724 3,340
Acquisition of Thanachart Life 17 13 11 8 5 20 74
Operating movements (21) (5) 3 6    
Non-operating and other movements 7 22 24 20 17 3,337 3,410
     
2013 expected free surplus generation for years 2014 to 2053 801 821 798 735 705 18,153 22,013

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US 2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
Other
£m
Total
£m

* Excluding 2013 new business.

Includes the removal of Japan life business following its reclassification as held for sale.

2012 expected free surplus generation for years 2013 to 2052 785 572 600 557 587 551 3,897 7,549
Less: amounts expected to be realised in the current year (785) (785)
Add: expected free surplus to be generated in year 2053*
Foreign exchange differences (11) (11) (10) (11) (10) (72) (125)
New business 260 113 114 40 108 880 1,515
Operating movements (6) 3 6 18 21    
Non-operating and other movements 87 112 93 75 30 795 1,234
     
2013 expected free surplus generation for years 2014 to 2053 902 817 760 709 700 5,500 9,388

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UK 2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
Other
£m
Total
£m

* Excluding 2013 new business.

The amounts shown above for non-operating and other movements include the effects of a partial hedge of the future shareholder transfers expected to emerge from the UK’s with-profits sub-fund that was transacted in 2013. This hedge reduces the risk arising from equity market declines for the years 2014-2018. However, in rising equity markets as assumed in preparing the EEV results, the hedge reduces the projected free surplus benefit of those higher returns. Consistent with this feature, for 2014 the expected free surplus generation compared to that expected at 31 December 2012 is reduced by £(58) million as a result of this hedge.

2012 expected free surplus generation for years 2013 to 2052 446 483 464 444 430 415 7,680 10,362
Less: amounts expected to be realised in the current year (446) (446)
Add: expected free surplus to be generated in year 2053* 44 44
New business 24 21 21 19 21 552 658
Operating movements (18) 3 (5) (5) (1)    
Non-operating and other movements (27) (17) 7 23 44 1,523 1,527
     
2013 expected free surplus generation for years 2014 to 2053 462 471 467 467 479 9,799 12,145

At 31 December 2013, the total free surplus expected to be generated over the next five years (years 2014 to 2018 inclusive), using the same assumptions and methodology as underpin our embedded value reporting was £10.1 billion, an increase of £1.5 billion from the £8.6 billion expected over the same period at the end of 2012.

This increase primarily reflects the new business written in 2013, which is expected to generate £1,357 million of free surplus over the next five years. Operating, non-operating and other items are expected to increase free surplus generation by £570 million over the next five years, but this has been offset by adverse foreign exchange movements of £389 million.

At 31 December 2013, the total free surplus expected to be generated on an undiscounted basis in the next forty years is £43.5 billion, up from the £35 billion expected at end of 2012, reflecting the effect of new business written and the positive market movements in Asia, following increases in bond yields principally in Hong Kong, Indonesia and Singapore, together with higher projected separate account fees following increase in US equities values. The foreign exchange translation effect arising across US and Asia operations is a reduction of £1.6 billion. The overall growth in the undiscounted value of free surplus, reflects both our ability to write new business on attractive economics and to manage the in-force book for value, as well as the positive gearing of our cash flows to rising long-term yields and equity markets.

Actual underlying free surplus generated in 2013 from life business in force at the end of 2012 was £2.6 billion inclusive of £0.5 billion of changes in operating assumptions and experience variances. This compares with the expected 2013 realisation at the end of 2012 of £2.0 billion. This can be analysed further as follows:

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  Asia
£m
US
£m
UK
£m
Total
£m
Transfer to free surplus in 2013 713 796 508 2,017
Expected return on free assets 74 41 18 133
Changes in operating assumptions and experience variances 32 292 154 478
Underlying free surplus generated from in-force life business in 2013 819 1,129 680 2,628
2013 free surplus expected to be generated at 31 December 2012 719 785 446 1,950

The equivalent discounted amounts of the undiscounted totals shown previously are outlined below:

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  2013 £m
  Discounted expected generation from all in-force business at 31 December   Discounted expected generation from long-term 2013 new business written
Expected period of emergence Asia US UK Total   Asia US UK Total
2014 759 866 431 2,056   110 250 22 382
2015 717 737 410 1,864   119 101 18 238
2016 646 642 381 1,669   111 95 17 223
2017 553 562 354 1,469   80 32 15 127
2018 493 519 339 1,351   71 79 15 165
2019 443 463 308 1,214   57 63 14 134
2020 406 436 285 1,127   54 54 13 121
2021 375 380 261 1,016   52 76 12 140
2022 343 311 242 896   44 58 11 113
2023 316 255 230 801   47 45 11 103
2024 291 197 208 696   37 33 10 80
2025 271 150 190 611   36 25 8 69
2026 254 121 172 547   31 20 8 59
2027 238 99 158 495   30 16 8 54
2028 221 86 142 449   35 13 7 55
2029 199 69 130 398   25 10 6 41
2030 185 63 117 365   24 8 6 38
2031 170 55 105 330   22 6 6 34
2032 157 57 96 310   21 5 5 31
2033 144 27 88 259   22 4 5 31
2034 to 2038 587 98 269 954   85 7 19 111
2039 to 2043 405 41 151 597   59 (1) 15 73
2044 to 2048 281 47 328   41 6 47
2049 to 2053 192 20 212   29 4 33
Total discounted free surplus expected to emerge in the next 40 years 8,646 6,234 5,134 20,014   1,242 999 261 2,502

The above amounts can be reconciled to the Group’s financial statements as follows:

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  Total
£m

* Upon completion of the sale of the Japan life business £25 million of free surplus will be released. See note 4 of the EEV basis results section for further details.

These relate to items where there is no definitive timeframe for when the payments will be made or receipts received and are, consequently, excluded from the amounts incorporated into the tables above showing the expected generation of free surplus from in-force business at 31 December 2013. In particular, it excludes the value of the shareholders’ interest in the estate.

Discounted expected generation from all in-force business for years 2014 to 2053 20,014
Discounted expected generation from all in-force business for years after 2053 393
Discounted expected generation from all in-force business (excluding Japan) at 31 December 2013 20,407
Add: free surplus of life operations held at 31 December 2013 3,220
Less: time value of guarantees (196)
Expected cash flow from the sale of Japan life business* 25
Other non-modelled items 1,157
Total EEV for life operations 24,613

III(e) Foreign currency source of key metrics

The tables below show the Group’s key free surplus, IFRS and EEV, metrics analysis by contribution by currency group:

Free surplus and IFRS full year 2013 results

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  Underlying
free surplus
generated
note 2
%
Pre-tax
operating
profit
notes 2, 3, 4
%
Shareholders’
funds
notes 2, 3, 4
%
US$ linkednote 1 14 19 14
Other Asia currencies 9 17 18
Total Asia 23 36 32
UK sterlingnotes 3, 4 42 20 53
US$note 4 35 44 15
Total 100 100 100

EEV full year 2013 results

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  Pre-tax
New Business
profits
%
Pre-tax
operating
profit
notes 2, 3, 4
%
Shareholders’
funds
notes 2, 3, 4
%
US$ linkednote 1 29 26 28
Other Asia currencies 22 18 15
Total Asia 51 44 43
UK sterlingnotes 3, 4 11 15 37
US$note 4 38 41 20
Total 100 100 100
Notes
  1. US$ linked – comprising the Hong Kong and Vietnam operations where the currencies are pegged to the US dollar and the Malaysia and Singapore operations where the currencies are managed against a basket of currencies including the US dollar.
  2. Includes long-term, asset management business and other businesses.
  3. For operating profit and shareholders’ funds UK sterling includes amounts in respect of central operations as well as UK insurance operations and M&G.
  4. For shareholders’ funds, the US$ grouping includes US$ denominated core structural borrowings. Sterling operating profits include all interest payable as sterling denominated, reflecting interest rate currency swaps in place.

III(f) Economic capital position

Following provisional agreement on the Omnibus II Directive on 13 November 2013, Solvency II is now expected to come into force on 1 January 2016. Therefore, our economic capital results are based on outputs from our Solvency II internal model. Although the Solvency II and Omnibus II Directives, together with draft Level 2 ‘Delegated Acts’ provide a viable framework for the calculation of Solvency II results, there remain material areas of uncertainty and in many areas the methodology and assumptions are subject to review and approval by the Prudential Regulation Authority, the Group’s lead regulator. We do not expect to submit our Solvency II internal model to the Prudential Regulation Authority for approval until 2015 and, therefore, the economic capital results shown below should not be interpreted as outputs from an approved Solvency II internal model.

At 31 December 2013, the Group had an economic capital surplus of £11.3 billion and an economic solvency ratio of 257 per cent (before taking into account the 2013 final dividend). A summary of the capital position is shown in the table below:

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  £bn
31 December 2013 Economic
capital
position
note

Note

Based on the Group’s Solvency II internal model which has not been reviewed or approved by the Prudential Regulation Authority.

Available capital 18.5
Economic Capital Requirement 7.2
Surplus 11.3
Economic solvency ratio 257%

These results are based on outputs from our current Solvency II internal model, assessed against a draft set of rules and with a number of key working assumptions. Further explanation of the underlying methodology and assumptions are set out in the sections below. By disclosing economic capital information at this stage, the directors of Prudential plc are seeking to provide an indication of the potential outcome of Solvency II based on the Group’s current interpretation of the draft rules. An update of the capital position will be reported annually going forwards and will evolve to reflect changes to the Solvency II rules, ongoing refinements to our internal model calibrations, and feedback from the Prudential Regulation Authority on Prudential’s approach to implementing this new capital regime. Against this background of uncertainty, it is possible that the final outcome of Solvency II could result in a fall in the Group solvency ratio, relative to the results shown above.

Methodology

In line with Solvency II, for the Group’s European and Asia life business, and holding companies, the available capital is the value of assets in excess of liabilities. The key components of available capital are the market value of assets, insurance technical provisions (calculated as the sum of best estimate liabilities plus a risk margin) and other liabilities. Subordinated debt forms part of available capital, rather than being treated as a liability, since this debt is subordinated to policyholder claims.

As a general principle, both assets and liabilities are recognised at the value at which they could theoretically be transferred to a third party in an arms length transaction. On the asset side of the balance sheet, assets are mostly held at IFRS fair value. However, adjustments are required to IFRS values to eliminate intangible items such as goodwill and deferred acquisition costs and to take account of economic assets which are excluded from the current IFRS balance sheet such as the present value of future with-profits shareholder transfers.

The best estimate liability is calculated by taking the average of future risk-adjusted best estimate cash flows, taking into account the time value of money and the relative liquidity of those liabilities. The best estimate liability allows for the value of options and guarantees embedded in existing contracts as well as the value of future discretionary benefits payable to policyholders. Realistic management actions and policyholder behaviour are allowed for where relevant. In addition, since capital requirements are only derived to cover risks over a one year horizon, a risk margin is added to the best estimate liability to cover the cost of ceding liabilities to a third party after one year, assuming a 6 per cent per annum cost of capital, in line with Solvency II requirements.

The Economic Capital Requirement measures the potential reduction in the value of available capital over a one year time horizon, in an adverse 1-in-200 probability event, consistently with the Solvency II Directive. This allows for diversification effects between different risk types and between entities. No restrictions on the economic value of overseas surplus have been allowed for in assessing the capital position at Group level.

Prudential’s US insurance entities are included in the economic capital position on a local RBC basis under the assumption of US equivalence and the assumed permitted use of the ’deduction and aggregation’ method. This is in line with our view of the most likely outcome of Solvency II given the agreement reached in the Omnibus II Directive. The contribution of US insurance entities to the Group surplus is that in excess of 250 per cent of the US RBC Company Action Level, which is in line with the level at which we measure both the Group’s IGD surplus and the Group’s reported free surplus amount. In line with the draft Solvency II requirements under the ’deduction and aggregation’ method, no diversification benefit is allowed for between US insurance entities and other parts of the Group.

The contribution of Japan to the Group surplus has been set equal to the ‘held for sale’ accounting value of £48 million, pending completion of the sale. The impact of the domestication of the Hong Kong branch, which became effective on 1 January 2014, is not allowed for in these economic capital results, but is estimated to have a negative impact on the Group solvency ratio of -4 percentage points, mainly due to a loss of diversification in the risk margin following separation of the Hong Kong business into a subsidiary. Consistently with evolving Solvency II requirements, the Group calculation also includes all non-insurance entities, including asset management companies, Prudential Capital and holding companies, as follows:

  • Asset managers are included in line with existing sectoral capital rules, and Prudential Capital is included on a Basel basis, which follows the expected Solvency II treatment;
  • Defined benefit pension schemes are included using international accounting standards and, in addition, a capital requirement is added; and
  • Holding companies are measured on a Solvency II basis, as if they were insurance companies, in line with draft Solvency II rules.

In addition to the assumption of US equivalence, and without applying restrictions to the economic value of overseas surplus, other key elements of Prudential’s methodology relating to areas that are presently unclear in the draft Solvency II rules, and which are likely to evolve as more detailed requirements are clarified, relate to:

  1. The liability discount rate for UK annuities, which is currently set by applying a ‘liquidity premium’ in addition to the risk-free rate. This liquidity premium addition reflects the long-term buy-and-hold nature of the assets backing UK annuity liabilities, which are, therefore, not directly exposed to changes in market credit spreads, but instead to long-term default risk over the term of the assets. This liquidity premium will be replaced with the corresponding Solvency II ‘Matching Adjustment’ when the rules and interpretation relating to this Solvency II calculation are clarified;
  2. The impact of transitional arrangements on technical provisions, for which no allowance has been made in the economic capital position, but which may apply under Solvency II (although the use of this transitional is subject to regulatory approval and the extent to which it is permitted is likely to depend on the final Solvency II capital position); and
  3. The credit risk adjustment to the risk-free rate, which is currently set at 10 basis points, consistent with the specification in Quantitative Impact Study 5, but where discussions are ongoing at a European level as part of the process to agree the more detailed Solvency II rules.

Further, current drafts of the Solvency II rules remain unclear in relation to capital tiering requirements and, therefore, tiering limits are not yet applied. Prudential’s methodology in the areas highlighted above will evolve in the future as the final Solvency II requirements become clearer.

In addition, there are a range of other calibration issues which will remain unclear until Solvency II requirements have been finalised and our Solvency II internal model has been reviewed and approved by the Prudential Regulation Authority. Therefore, the capital position may change as methodology is refined in the lead up to 2016 when Solvency II is expected to formally replace the current IGD regime.

Assumptions

The key assumptions required for the economic capital calibration are:

  1. Assumptions used to derive non-market related best estimate liability cash flows, which are based on EEV best estimate assumptions;
  2. Assumptions used to derive market related best estimate liability cash flows, which are based on market data at the valuation date where this data is reliable and comes from a deep and liquid market, or on appropriate extrapolation methodologies where markets are not sufficiently liquid to be reliable;
  3. Assumptions underlying the calculation of the best estimate liability in respect of dynamic management actions and policyholder behaviour;
  4. Assumptions underlying the risk models used to calculate the 1-in-200 level capital requirements for the Economic Capital Requirement which are set using a combination of historic market, demographic and operating experience data and expert judgement; and
  5. Assumptions on the dependencies between risks, which are calibrated using a combination of historic data and expert judgement.

The risk-free curve at which best estimate liability cash flows are discounted is based on market swap rates (with the exception of Vietnam where no liquid swap market exists and government bond yields are therefore used), with a deduction of 10 basis points to allow for a ‘credit risk adjustment’ to swap rates. In addition, a liquidity premium is added to the liability discount rate for UK annuities, in both the base balance sheet and in the stressed conditions underlying the Economic Capital Requirement. In the absence of a Matching Adjustment calibration, the liquidity premium has been derived by reference to existing Solvency I allowances and a range of other industry benchmarks. The allowances vary by fund reflecting the nature of the respective asset portfolios and the extent of asset-liability cash flow matching, which are also likely to be key inputs into the Solvency II Matching Adjustment calculation. The resulting liquidity premium allowances are summarised in the table below. The final Solvency II discount curve is subject to considerable uncertainties and may vary significantly from these assumptions.

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  31 December 2013
Line of business Base liquidity
premium – bps
(relative to swaps)
£m
Percentage of
total stressed
credit spreads
attributed to
liquidity premium
%
PRIL annuities 61 51%
PAC non-profit sub-fund annuities 55 52%

Aside from UK annuities, no liquidity premium allowance has been assumed for any other lines of business.

Reconciliation of IFRS to economic available capital

The table below shows the reconciliation of Group IFRS shareholders’ equity to available capital.

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  £bn
Reconciliation of IFRS equity to economic available capital Available capital
note
Note

Based on the Group’s Solvency II internal model which has not been reviewed or approved by the Prudential Regulation Authority.

IFRS shareholders' equity at 31 December 2013 9.7
Adjustment to restate US insurance entities onto a US Risk Based Capital basis (0.6)
Remove DAC, goodwill and intangibles (2.7)
Add subordinated debt treated as economic available capital 3.8
Insurance contract valuation differences 5.8
Add value of shareholder transfers 4.1
Increase in value of net deferred tax liabilities (resulting from valuation differences above) (1.3)
Other (0.3)
Available capital at 31 December 2013 18.5

The key differences between the two metrics are:

  • £0.6 billion represents the adjustment required to the Group’s shareholders’ funds in order to convert Jackson’s contribution from an IFRS basis to the local statutory valuation basis which underpins the US Risk Based Capital regime;
  • £2.7 billion due to the removal of DAC and goodwill from the IFRS balance sheet;
  • £3.8 billion due to the addition of subordinated debt which is treated as available capital on an economic basis but as a liability under IFRS;
  • £5.8 billion due to differences in insurance valuation requirements between economic capital and IFRS, with available capital partially capturing the economic value of in-force business which is excluded from IFRS, offset to some extent by the inclusion of a risk margin which is not required under IFRS;
  • £4.1 billion due to the inclusion of the value of future shareholder transfers from with-profits business on the economic balance sheet in the UK and Asia, which is excluded from the determination of the Group’s IFRS shareholders’ funds; and
  • £1.3 billion due to the impact on the valuation of deferred tax assets and liabilities resulting from the other valuation differences noted above.

Analysis of movement in the economic capital position

The table below shows the movement during the financial year in the Group’s economic capital surplus.

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Analysis of movement from 1 January to 31 December 2013 Economic
capital
surplus
£bn
note
Economic
solvency
ratio
%
note
Note

Based on the Group’s Solvency II internal model which has not been reviewed or approved by the Prudential Regulation Authority.

Economic solvency position as at 1 January 2013 8.8 215%
Model changes 0.1 2%
Operating experience 2.1 31%
Non-operating experience 0.9 12%
Other capital movements:    
Acquisitions/disposals (0.5) (8)%
Foreign currency translation movements (0.4) 0%
Subordinated debt issuance 1.1 16%
Dividends (0.8) (11)%
Economic solvency position as at 31 December 2013 11.3 257%

During 2013, the Group’s economic capital surplus increased from £8.8 billion to £11.3 billion. The total movement over the year was equivalent to a 42 percentage point increase in the Group economic solvency ratio, driven by:

  • Model changes: a positive impact to Group surplus arising from a number of modelling enhancements and refinements;
  • Operating experience: generated by in-force business, new business written in 2013, the beneficial impact of management actions taken during 2013 to de-risk the business, and small impacts from non-market assumption changes and non-market experience variances over the year;
  • Non-operating experience: mainly arising from positive market experience during 2013; and
  • Other capital movements: a reduction in surplus from the acquisition of Thanachart Life and the preparation for sale of the Japanese business, the negative impact of exchange rate movements, an increase in surplus from new subordinated debt issuances and a reduction in surplus due to dividend payments in 2013.

Analysis of Group Economic Capital Requirement

The table below shows the split of the £7.2 billion Group Economic Capital Requirement by risk type1 at 31 December 2013. However, there are material areas of uncertainty with regard to methodology and assumptions in the internal model which remain subject to review and approval by the Prudential Regulation Authority. Therefore, the results shown below should not be interpreted as outputs from an approved internal model.

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  % of
undiversified
Economic
Capital
Requirement2
% of
diversified
Economic
Capital
Requirement2
Notes
  1. The Group Economic Capital Requirement by risk type includes capital requirements in respect of Jackson’s risk exposures, based on 250% of the US RBC Company Action Level.
  2. Based on the Group’s Solvency II internal model which has not been reviewed or approved by the Prudential Regulation Authority.
Market: 53% 64%
Equity 15% 24%
Credit 20% 37%
Yields (interest rates) 13% 0%
Other 5% 3%
Insurance: 36% 28%
Mortality/morbidity 8% 4%
Lapse 19% 21%
Longevity 9% 3%
Operational/expense 11% 8%

The Group’s most material risk exposures are to financial markets, in particular to equities and credit spreads, which we hold to generate a higher return on capital over the long term. The Group also has material insurance risk exposures including longevity risk from UK annuities, lapse risk across a wide range of products, and mortality and morbidity risk mainly arising from protection products written in Asia. These risks diversify strongly with market risks, even after allowing for market-related policyholder behaviour, thereby, increasing the return on capital which can be earned from the balanced mix of risks. A brief description of the most material risks is set out below:

  • The Group’s exposure to equities mainly arises from UK shareholder transfers linked to policyholder funds (partially offset by economic equity hedges) and from future fund management charges on unit-linked funds in Asia. The equity exposure arising from Jackson’s variable annuity business is mostly hedge;
  • The Group also has significant exposure to credit risk, mainly from the UK annuity portfolio and from Jackson’s fixed annuity credit portfolio. Credit exposures across the Group are carefully monitored and managed as part of the Group’s risk management framework;
  • The Group is exposed to movements in yields (interest rates), while falling interest rates increase the risks arising from policyholder guarantees in with-profits funds and variable annuities, falling interest rates also increase the value of future insurance profits;
  • The most material insurance risk exposures arise from UK longevity risk, and lapse, mortality and morbidity risk in Asia; and
  • The Group is also exposed to expense and operational risk, which is closely monitored and managed through internal control processes.

Sensitivity testing of Group economic solvency position

Stress testing the economic capital position gives the following results (as at 31 December 2013):

  • An instantaneous 20 per cent fall in equity markets would reduce surplus by £0.3 billion but increase the economic solvency ratio to 260 per cent;
  • An instantaneous 40 per cent fall in equity markets would reduce surplus by £1.0 billion but increase the economic solvency ratio to 258 per cent;
  • A 100 basis points reduction in interest rates (subject to a floor of zero) would reduce surplus by £1.3 billion and reduce the economic solvency ratio to 225 per cent;
  • A 100 basis points increase in interest rates would increase surplus by £0.8 billion and increase the economic solvency ratio to 284 per cent; and
  • A 100 basis points increase in credit spreads2 would reduce surplus by £1.3 billion and reduce the economic solvency ratio to 254 per cent.

These sensitivity results demonstrate the resilience of the economic capital position following large falls in equity markets, sizeable reductions in yields and a severe credit event.

The adverse impact of falling equity markets mainly results from a reduction in the value of with-profits shareholder transfers and future fund management charges in the UK and Asia. Equity hedging reduces the impact of these exposures and a dynamic equity hedging programme is also in place to manage the equity risk arising in Jackson’s variable annuities business.

A fall in yields has a material adverse impact on Group surplus which largely arises from a decrease in the value of future with-profits shareholder transfers and an increase in the size of risk margins. Falling yields also increases the value of the Group’s external debt, reducing the Group surplus. However, these impacts are partially offset by an increase in the value of future insurance profits and changes in the value of hedging assets.

Widening credit spreads adversely impacts on the annuity business in the UK since this is deemed to represent an increase, to some extent, in the expected level of future defaults. Jackson is not exposed to credit spread widening on a US RBC basis, but an increase in defaults in the Jackson credit book would have a negative impact on the Group capital position and is reflected in the credit stress test above.

Note
  1. For the credit spread widening stress 10 times expected defaults are assumed for Jackson since credit spread movements do not directly impact on the US RBC result.

Statement of independent review

The methodology, assumptions and overall result have been subject to examination by KPMG LLP.

III(g) Option schemes

The Group maintains four share option schemes satisfied by the issue of new shares. Executive directors and eligible employees based in the UK may participate in the UK savings-related share option scheme, executives based in Asia and eligible employees can participate in the international savings-related share option scheme. Employees based in Dublin are eligible to participate in the Prudential International Assurance sharesave plan, and Hong Kong based agents can participate in the non-employee savings-related share option scheme. Further details of the schemes and accounting policies are detailed in note B3.2 of the IFRS basis consolidated financial statements.

All options were granted at £nil consideration. No options have been granted to substantial shareholders, suppliers of goods or services (excluding options granted to agents under the non-employee savings-related share option scheme) or in excess of the individual limit for the relevant scheme.

The options schemes will terminate as follows, unless the directors resolve to terminate the plans at an earlier date:

  • UK savings-related share option scheme: 16 May 2023;
  • International savings-related share option scheme: 31 May 2021;
  • Prudential International Assurance sharesave plan: 3 August 2019; and
  • International savings-related share option scheme for non-employees 2012: 17 May 2022.

The weighted average share price of Prudential plc for the year ended 31 December 2013 was £11.14 (2012: £7.69).

Particulars of options granted to directors are included in the Directors’ Remuneration Report.

The closing price of the shares immediately before the date on which the options were granted during the current period was £12.02.

The following analyses show the movement in options for each of the option schemes for the year ended 31 December 2013.

UK savings-related share option scheme

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  Exercise period   Number of options
Date of grant Exercise
price £
Beginning End   Beginning
of period
Granted Exercised Cancelled Forfeited Lapsed End of
period
29 Sep 05 4.07 01 Dec 12 31 May 13   3,780 (1,260) (2,520)
20 Apr 06 5.65 01 Jun 13 30 Nov 13   7,322 (7,322)
28 Sep 06 4.75 01 Dec 13 31 May 14   13,325 (13,177) 148
26 Apr 07 5.72 01 Jun 14 30 Nov 14   503 503
27 Sep 07 5.52 01 Dec 12 31 May 13   5,108 (5,108)
27 Sep 07 5.52 01 Dec 14 31 May 15   1,668 1,668
25 Apr 08 5.51 01 Jun 13 30 Nov 13   26,509 (26,367) (142)
25 Apr 08 5.51 01 Jun 15 30 Nov 15   1,544 1,544
25 Sep 08 4.38 01 Dec 13 31 May 14   43,374 (30,871) (186) 12,317
25 Sep 08 4.38 01 Dec 15 31 May 16   11,205 (278) (54) 10,873
27 Apr 09 2.88 01 Jun 12 30 Nov 12   5,709 (5,709)
27 Apr 09 2.88 01 Jun 14 30 Nov 14   1,719,205 (27,753) (1,085) (26,797) (7,623) 1,655,947
27 Apr 09 2.88 01 Jun 16 30 Nov 16   177,492 (343) (227) (5,686) (111) 171,125
25 Sep 09 4.25 01 Dec 12 31 May 13   40,985 (39,875) (854) (256)
25 Sep 09 4.25 01 Dec 14 31 May 15   86,651 (407) (3,659) (178) 82,407
28 Sep 10 4.61 01 Dec 13 31 May 14   256,720 (190,529) (468) (3,081) (211) 62,431
28 Sep 10 4.61 01 Dec 15 31 May 16   123,861 (470) (669) (467) 122,255
16 Sep 11 4.66 01 Dec 14 31 May 15   458,199 (2,656) (9,306) (9,923) (2,209) 434,105
16 Sep 11 4.66 01 Dec 16 31 May 17   184,570 (1,073) (1,960) (653) (2,195) 178,689
21 Sep 12 6.29 01 Dec 15 31 May 16   986,901 (1,609) (25,004) (13,132) (7,147) 940,009
21 Sep 12 6.29 01 Dec 17 31 May 18   147,509 (2,623) (4,771) 140,115
20 Sep 13 9.01 01 Dec 16 31 May 17   422,798 (3,992) (398) 418,408
20 Sep 13 9.01 01 Dec 18 31 May 19   91,054 91,054
          4,302,140 513,852 (354,807) (48,993) (65,295) (23,299) 4,323,598

The total number of securities available for issue under the scheme is 4,323,598 which represents 0.169 per cent of the issued share capital at 31 December 2013.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £12.28.

The weighted average fair value of options granted under the plan in the period was £9.01.

International savings-related share option scheme

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  Exercise period   Number of options
Date of grant Exercise
price £
Beginning End   Beginning
of period
Granted Exercised Cancelled Forfeited Lapsed End of
period
26 Apr 07 5.72 01 Jun 12 30 Nov 12   14,489 (14,489)
25 Apr 08 5.51 01 Jun 13 30 Nov 13   4,192 (2,739) 1,453
25 Sep 08 4.38 01 Dec 13 31 May 14   6,951 (3,448) 3,503
27 Apr 09 2.88 01 Jun 12 30 Nov 12   63,474 (63,474)
27 Apr 09 2.88 01 Jun 14 30 Nov 14   78,133 (1,372) (1,188) 75,573
25 Sep 09 4.25 01 Dec 12 31 May 13   41,541 (24,469) (1,181) (10,542) 5,349
25 Sep 09 4.25 01 Dec 14 31 May 15   2,682 2,682
28 Sep 10 4.61 01 Dec 13 31 May 14   119,163 (82,381) (7,685) 29,097
28 Sep 10 4.61 01 Dec 15 31 May 16   6,130 6,130
16 Sep 11 4.66 01 Dec 14 31 May 15   352,841 (721) (7,014) (22,994) 322,112
16 Sep 11 4.66 01 Dec 16 31 May 17   25,739 25,739
21 Sep 12 6.29 01 Dec 15 31 May 16   681,368 (138) (5,357) (46,542) 629,331
21 Sep 12 6.29 01 Dec 17 31 May 18   34,701 (8,587) 26,114
20 Sep 13 9.01 01 Dec 16 31 May 17   699,724 (4,910) (3,325) (666) 690,823
20 Sep 13 9.01 01 Dec 18 31 May 19   58,737 (3,328) 55,409
          1,431,404 758,461 (115,268) (21,790) (90,321) (89,171) 1,873,315

The total number of securities available for issue under the scheme is 1,873,315 which represents 0.073 per cent of the issued share capital at 31 December 2013.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £12.15.

The weighted average fair value of options granted under the plan in the period was £9.01.

Prudential International Assurance sharesave plan

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  Exercise period   Number of options
Date of grant Exercise
price £
Beginning End   Beginning
of period
Granted Exercised Cancelled Forfeited Lapsed End of
period
27 Apr 09 2.88 01 Jun 12 30 Nov 12   3,646 (3,646)
27 Apr 09 2.88 01 Jun 14 30 Nov 14   6,567 6,567
25 Sep 09 4.25 01 Dec 12 31 May 13   639 (614) (25)
          10,852 (614) (3,671) 6,567

The total number of securities available for issue under the scheme is 6,567 which represents 0.0003 per cent of the issued share capital at 31 December 2013.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £9.73.

Non-employee savings-related share option scheme

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  Exercise period   Number of options
Date of grant Exercise
price £
Beginning End   Beginning
of period
Granted Exercised Cancelled Forfeited Lapsed End of
period
26 Apr 07 5.72 01 Jun 12 30 Nov 12   12,779 (12,779)
27 Sep 07 5.52 01 Dec 12 31 May 13   2,970 (2,874) (96)
25 Apr 08 5.51 01 Jun 13 30 Nov 13   3,834 (1,837) 1,997
25 Sep 08 4.38 01 Dec 13 31 May 14   13,708 (4,522)   9,186
27 Apr 09 2.88 01 Jun 12 30 Nov 12   27,532 27,532
27 Apr 09 2.88 01 Jun 14 30 Nov 14   686,366 686,366
25 Sep 09 4.25 01 Dec 12 31 May 13   16,676 (16,673) (3)
25 Sep 09 4.25 01 Dec 14 31 May 15   11,717 11,717
28 Sep 10 4.61 01 Dec 13 31 May 14   1,096,742 (744,626) (3,950) (6,363) 341,803
28 Sep 10 4.61 01 Dec 15 31 May 16   368,850   (6,636) 362,214
16 Sep 11 4.66 01 Dec 14 31 May 15   608,943 (3,347) (4,678) 600,918
16 Sep 11 4.66 01 Dec 16 31 May 17   262,682 (4,336) (572) 257,774
21 Sep 12 6.29 01 Dec 15 31 May 16   443,315 (2,003) (3,005) 438,307
21 Sep 12 6.29 01 Dec 17 31 May 18   96,300 (6,011) 90,289
20 Sep 13 9.01 01 Dec 16 31 May 17   784,887 (7,425) 777,462
20 Sep 13 9.01 01 Dec 18 31 May 19   426,605 (1,664) 424,941
          3,652,414 1,211,492 (768,695) (28,909) (22,918) (12,878) 4,030,506

The total number of securities available for issue under the scheme is 4,030,506 which represents 0.157 per cent of the issued share capital at 31 December 2013.

The weighted average closing price of the shares immediately before the dates on which the options were exercised during the current period was £12.92.

The weighted average fair value of options granted under the plan in the period was £9.01.

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