Measuring our performance

To create sustainable economic value for our shareholders we focus on delivering growth and cash while maintaining adequate capital.

Our strategy and operating principles

Balanced metrics and disclosures

Prudential takes a balanced approach to performance management across IFRS, EEV and cash. We aim to demonstrate how we generate profits under different accounting bases, to highlight the returns we generate on capital invested, and to highlight the cash generation of our business.

Profit, cash and capital

What we measure and why Performance1 Commentary

IFRS operating profit2,7

IFRS operating profit is our primary measure of profitability. This measure of profitability provides an underlying operating result based on longer-term investment returns and excludes non-operating items.

2013: £2,954m, a rise of 20% over 5 years

Group IFRS operating profit increased by 17 per cent in 2013 compared to 2012, reflecting strong growth in Asia and the US, which were up 10 per cent and 30 per cent respectively.

EEV operating profit3,7

Embedded value reporting provides investors with a measure of the future profit streams of the Group’s long-term businesses and includes profit from our asset management and other businesses. It is provided as additional information to our IFRS reporting. As with IFRS, EEV operating profit reflects the underlying results based on longer-term investment returns.

2013: £5,580m, a rise of 16% over 5 years

Group EEV operating profit in 2013 increased by 29 per cent compared to 2012, driven by higher new business profits and increased contributions from the in-force business.

EEV new business profit3

EEV new business profit represents a measure of the future profitability of all new business sold in the year. Life insurance products are, by their nature, long term and generate profit over a significant number of years. EEV new business profit reflects the value of future profit streams which are not fully captured in the year of sale under IFRS reporting.

2013: £2,843m, a rise of 15% over 5 years

EEV new business profit increased by 16 per cent in 2013 compared to 2012, reflecting higher sales and improved margins.

Group free surplus generation4,7

Free surplus generation is used to measure the internal cash generation by our business units. For the insurance operations it represents amounts maturing from the in-force business during the period less investment in new business, and excludes other non-operating items. For asset management it equates to post-tax IFRS operating profit for the period.

2013: £2,462m, a rise of 14% over 5 years

Compared to 2012, underlying free surplus has increased 18 per cent in 2013, driven by growth of the in-force portfolio.

Business unit remittances

Remittances measure the cash transferred from the business units to the Group. Cash flows across the Group reflect our aim of achieving a balance between ensuring sufficient net remittances from the businesses to cover the dividend (after corporate costs), and retention of cash for reinvestment in profitable opportunities available to the Group.

2013 £1,341m, a rise of 18% over 5 years

Net business unit remittances increased by 12 per cent in 2013 when compared to 2012, with all business units completing their 2013 cash remittance objective.

IGD capital surplus before final dividend5

Prudential is subject to the capital adequacy requirements of the European Union Insurance Groups Directive (IGD) as implemented by the Prudential Regulation Authority in the UK. The IGD capital surplus represents the aggregated surplus capital (on a Prudential Regulation Authority consistent basis) of the Group’s regulated subsidiaries less the Group’s borrowings6. No diversification benefit is recognised.

2013: £5.1bn

We continue to operate with a strong solvency position, with our estimated IGD capital surplus before final dividend covering the capital requirements 2.8 times.

2017 objectives8

In December 2013, the Group announced new objectives that reflect our determination to drive long-term value creation for our shareholders.

  1. Asia underlying free surplus generation9 of £0.9 billion to £1.1 billion in 2017 (2012: £484 million)
  2. Asia life and asset management pre-tax IFRS operating profit to grow at a compound annual rate of at least 15 per cent over the period 2012 to 2017 (2012: £924 million10)
  3. Cumulative Group underlying free surplus generation of at least £10 billion over the four-year period from 2014 to end-2017

Notes

  1. The comparative results shown above and elsewhere in this document have been prepared using actual exchange rates (AER) basis except where otherwise stated. Comparative results on a constant exchange rate (CER) basis are also shown for the analysis of IFRS and EEV operating profit based on longer-term investment returns in the Chief Financial Officer’s report. CAGR is Compound Annual Growth Rate.
  2. The basis of IFRS operating profit based on longer-term investment returns is discussed in note B1.3 of the IFRS financial statements. The IFRS profit before tax attributable to shareholders has been prepared in accordance with the accounting policies discussed in note A of the IFRS financial statements.
  3. The EEV basis results have been prepared in accordance with the EEV principles discussed in note 1 of EEV basis supplementary information.
  4. Free surplus generation represents ‘underlying free surplus’ based on operating movements, including the general insurance commission earned during the period and excludes market movements, foreign exchange, capital movements, shareholders’ other income and expenditure and centrally arising restructuring and Solvency II implementation costs. In addition, following its reclassification as held for sale during 2013, operating results exclude the result of the Japan life insurance business. Comparatives have been retrospectively adjusted on a comparable basis.
  5. Estimated. As disclosed in full year 2012 results, from March 2013 the basis of calculating Jackson’s contribution to the Group’s IGD surplus was changed. Further detail can be found in the section ‘Capital management – Regulatory Capital (IGD)’ of ‘Group Chief Risk Officer’s report on the risks facing our business and our capital strength’. The prior year comparatives are as previously reported and do not reflect the new basis.
  6. Excludes subordinated debt issues that qualify as capital.
  7. The comparative results have been adjusted from those previously published for the retrospective application of the new and amended accounting standards. In addition, following its reclassification as held for sale during 2013, operating results exclude the result of the Japan life insurance business. Comparatives have been retrospectively adjusted on a comparable basis.
  8. The objectives assume exchange rates at December 2013 and economic assumptions made by Prudential in calculating the EEV basis supplementary information for the half year ended 30 June 2013, and are based on regulatory and solvency regimes applicable across the Group at the time the objectives were set. The objectives assume that the existing EEV, IFRS and Free Surplus methodology at December 2013 will be applicable over the period.
  9. Underlying free surplus generated comprises underlying free surplus generated from long-term business (net of investment in new business) and that generated from asset management operations. The 2012 comparative is based on the retrospective application of new and amended accounting standards and excludes the one-off gain of £51 million from the sale of the Group’s holdings in China Life Insurance Company of Taiwan.
  10. Asia 2012 IFRS operating profit of £924 million is based on the retrospective application of new and amended accounting standards, and excludes the one-off gain of £51 million from the sale of the Group’s holdings in China Life Insurance Company of Taiwan.
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