a5030h
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the
month of March, 2024
PRUDENTIAL PUBLIC LIMITED COMPANY
(Translation
of registrant's name into English)
13/F, One International Finance Centre,
1 Harbour View Street, Central,
Hong Kong, China
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual
reports
under
cover Form 20-F or Form 40-F.
Form
20-F X
Form 40-F
Indicate
by check mark whether the registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
No X
If
"Yes" is marked, indicate below the file number assigned to the
registrant
in
connection with Rule 12g3-2(b): 82-
NEWS RELEASE
20 March 2024
PRUDENTIAL PLC FULL YEAR 2023 RESULTS: CONTINUING STRONG
PERFORMANCE
Prudential plc ("Prudential"; HKEX: 2378; LSE: PRU) today announced
its financial results for the year ended 31 December
2023.
Performance highlights on a constant (and actual) exchange rate
basis
- New
business profit up 45 per cent (43 per cent) to $3,125 million.
Excluding the effect of interest rate and other economic movements,
new business profit up 47 per cent (45 per
cent)
- Operating
free surplus generated from in-force insurance and asset management
business of $2,740 million (2022: $2,725 million ($2,760
million))
- Adjusted
operating profit up 8 per cent (6 per cent) to $2,893
million
- EEV
shareholders' equity is up 7 per cent to $45.3 billion, equivalent
to 1,643 cents per share, on an AER basis.
- GWS
shareholder capital surplus over GPCR of $16.1 billion, equivalent
to a cover ratio of 295 per cent (31 December 2022: 307 per
cent)
- Second
interim dividend of 14.21 cents per share, 20.47 cents per share
for the full year, up 9 per cent
Commenting on the Results, CEO Anil Wadhwani,
said: "These
are a very strong set of results while operating in a challenging
macro environment, with new business profit up 45 per cent driven
by a relentless focus on execution in our markets in Asia and
Africa. It is also an illustration of the strength of both our
agency and bancassurance distribution channels as well as an
affirmation of our leadership position in many key
markets.
"It has been six months since the launch of our new strategy and
it's highly encouraging to see the early progress on our strategic
objectives of improving our customer experience, driving technology
powered distribution and transforming our business model in Health.
We have on-boarded senior leadership talent in Health, Technology
and added to our talent in our key markets as we continue to
strengthen our capabilities in line with our strategic
priorities.
"We delivered an excellent financial and operational performance in
2023 and deployed increased levels of capital in new business,
enhancing core capabilities and expanding distribution. Sales
growth has continued in the first two months of 2024. Given the
relentless execution focus in implementing our strategy, we are
increasingly confident in achieving our 2027 financial and
strategic objectives and in accelerating value creation for our
shareholders."
Summary financials
|
2023 $m
|
2022 $m
|
Change on
AER basis
|
Change on
CER basis
|
New business profit
|
3,125
|
2,184
|
43%
|
45%
|
Operating free surplus generated
|
2,007
|
2,193
|
(8)%
|
(8)%
|
Operating free surplus generated from in-force insurance and asset
management business
|
2,740
|
2,760
|
(1)%
|
1%
|
Adjusted operating profit
|
2,893
|
2,722
|
6%
|
8%
|
IFRS profit (loss) after tax
|
1,712
|
(997)
|
n/a
|
n/a
|
|
|
|
|
|
|
31 Dec 2023
|
31 Dec 2022
|
|
Total
|
Per share
|
Total
|
Per share
|
EEV shareholders' equity
|
$45.3bn
|
1,643¢
|
$42.2bn
|
1,534¢
|
IFRS shareholders' equity
|
$17.8bn
|
647¢
|
$16.7bn
|
608¢
|
Adjusted IFRS shareholders equity
|
$37.3bn
|
1,356¢
|
$35.2bn
|
1,280¢
|
Notes
The summary financials presented above are the key financial
metrics Prudential's management use to assess and manage the
performance and position of the business. In addition to the
metrics prepared in accordance with IFRS standards - IFRS profit
after tax and IFRS shareholders' equity - additional metrics are
prepared on alternative bases. The presentation of these key
metrics is not intended to be considered as a substitute for, or
superior to, financial information prepared and presented in
accordance with IFRS Standards. The definitions of the key metrics
we use to discuss our performance in this press release are set out
in the "Definition of performance metrics" section later in this
document, including, where relevant, references to where these
metrics are reconciled to the most directly comparable IFRS
measure.
Further information on actual and constant exchange rate bases is
set out in note A1 of the IFRS financial statement. All results are
presented in US dollars.
IFRS Comparatives for 2022 have been restated to reflect the
retrospective application of IFRS 17. See note A2.1 to the
financial statements for further information and
reconciliation.
Contact:
Media
|
|
Investors/analysts
|
|
Simon Kutner
|
+44 (0)7581 023260
|
Patrick Bowes
|
+852 2918 5468
|
Sonia Tsang
|
+852 5580 7525
|
William Elderkin
|
+44 (0)20 3977 9215
|
Sophie Sophaon
|
+852 6286 0229
|
Darwin Lam
|
+852 2918 6348
|
We expect to announce our Full Year 2023 Results to the Hong Kong
Stock Exchange and to the UK Financial Media at 12.00pm
HKT - 4.00am UKT - 12.00am ET on Wednesday, 20 March
2024.
The announcement will be released on the London Stock Exchange
at 3.00pm
HKT - 7.00am UKT - 3.00am ET on Wednesday, 20
March.
A pre-recorded presentation for analysts and investors will be
available on-demand from 12.00pm HKT - 4.00am UKT - 12.00am ET on
Wednesday, 20 March 2024 using the following link:
https://www.investis-live.com/prudential/65d35e48da722d0c002fb172/hsrt
. A copy of the script used in the recorded video will also be
available from 12.00pm HKT - 4.00am UKT - 12.00am ET on Wednesday,
20 March 2024 on Prudential plc's website.
A Q&A event for analysts and investors will be held at 4.30pm
HKT - 8.30am UKT - 4.30am ET on Wednesday, 20 March
2024. We
offer the option to join us in person or
virtually.
Registration to join the Q&A event in person, in the Four
Seasons Hong Kong, 8 Finance Street, Central, Hong
Kong
To register to attend the event in person, please respond to this
message.
Registration to view the Q&A event online
To register to watch the event and submit questions online, please
do so via the following link:
https://www.investis-live.com/prudential/65d362b6d0d520120026534a/taer
The webcast will be available to watch afterwards using the same
link.
Dial-in details
A dial-in facility will be available to listen to the event and ask
questions: please allow 15 minutes ahead of the start time to join
the call (lines open half an hour before the call is due to start,
ie from 4.00pm
HKT - 8.00am UKT - 4.00am ET).
Dial-in: +44 (0) 20 3936 2999 (UK and international) / 0800 358
1035 (Freephone UK), Participant access code: 131313.
Once participants have entered this code their name and company
details will be taken.
Playback facility
Please use the following for a playback facility: +44 (0) 20 3936
3001 (UK and international), replay code 703056. This will be
available from approximately 10.00pm HKT - 2.00pm UKT - 10.00am ET
on Wednesday, 20 March until 6.59am HKT on Thursday, 4 April -
11.59pm UKT - 6.59pm ET on Wednesday, 3 April 2024.
Transcript
Following the call a transcript will be published on the results
centre page of the Prudential plc's website on Monday, 25
March.
About Prudential plc
Prudential plc provides life and health insurance and asset
management in 24 markets across Asia and Africa. Prudential's
mission is to be the most trusted partner and protector for this
generation and generations to come, by providing simple and
accessible financial and health solutions. The business has dual
primary listings on the Stock Exchange of Hong Kong (2378) and the
London Stock Exchange (PRU). It also has a secondary listing on the
Singapore Stock Exchange (K6S) and a listing on the New York Stock
Exchange (PUK) in the form of American Depositary Receipts. It is a
constituent of the Hang Seng Composite Index and is also included
for trading in the Shenzhen-Hong Kong Stock Connect programme and
the Shanghai-Hong Kong Stock Connect programme.
Prudential is not affiliated in any manner with Prudential
Financial, Inc. a company whose principal place of business is in
the United States of America, nor with The Prudential Assurance
Company Limited, a subsidiary of M&G plc, a company
incorporated in the United Kingdom.
https://www.prudentialplc.com/.
Strategic and operating review
Well positioned for future opportunities
Prudential has been operating in global life markets for 175 years.
We are a household name1 in
markets that place great value on brand. Today, we deliver our life
insurance solutions to over 18 million customers in large and
fast-growing markets across Asia and Africa. 'Large' because the
combined population of the markets we operate in stands at
approximately four billion2;
'Fast-growing' as it is estimated that our markets will
collectively generate incremental annual gross written premiums of
almost US$1 trillion3 in
2033 compared with 2022.
We hold the top three positions in 10 out of the 14 Asian life
markets4 in
which we have a presence. We are in the top five in six of our
eight African markets4.
Our multi-channel agency and bancassurance distribution platform of
scale has around 68,000 average monthly active agents. We are the
number one independent insurer in Asia
bancassurance5,
and our Asia-based in-house investment arm, Eastspring, has over
US$ 237 billion in assets under management and is ranked in the top
10 in six of its markets6.
In 2023, we grew new business profit by 45 per cent to $3,125
million, in excess of the 37 per cent increase in APE sales. Sales
growth has continued in the first two months of 2024.
In August we set out our renewed purpose and strategy for the next
five years to 2027, together with the key metrics we will use to
measure our success.
Our purpose - For Every Life, For Every Future - defines why we are
in this business and what we seek to achieve as custodians of
stakeholder value for the long term.
Our strategy sets out our priorities and objectives over the next
five years to realise our purpose and how we will create value for
all our stakeholders: our customers, our employees, our
shareholders and our communities.
The components of our strategy are:
- our
multi-market growth engines;
- our
strategic pillars;
- our
group-wide enablers; and
- our
organisational model design.
We believe carrying out the actions to deliver the strategy will
transform the business and enable us to take greater advantage of
the opportunities open to us.
We have commenced executing the steps outlined in our updated
strategy announced in August. This includes changes in the
strategic areas of customer, distribution and health and in our
operational model. We have complimented the existing leadership
teams with key hires. 2024 will be a pivotal year as we deepen our
execution capabilities in the areas most important to
us.
We are seeing early signs of progress across our strategic
pillars;
- in
customer, four business units9 in
2023 are ranked in the top quartile for customer relationship Net
Promoter Score (NPS), compared to three in 2022, out of the ten
business units9 that
have a standardised approach for measuring customer advocacy. Four
further business units9 improved
their rankings by at least a quartile;
- in
agency distribution, we grew average new business profit per active
agent by 59 per cent contributing to a 75 per cent increase in
Agency new business profit;
- in
bancassurance, we continued to expand our bancassurance partner
network and increased the proportion of APE sales from health and
protection business in this channel from 6 per cent in 2022 to over
7 per cent in 2023; and
- in
health, new business profit grew 20 per cent to $330
million.
Further detail on our initial progress on the key strategic pillars
and enablers is set out later in this report.
To demonstrate our commitment to delivering shareholder value
through the new strategy, we introduced two new financial
objectives7:
- to
grow new business profit to 2027 at a rate of 15-20 per cent
compound annual growth from the level achieved in 2022;
and
- for
the same period to deliver double digit compound annual growth in
operating free surplus generated from in-force insurance and asset
management business.
Alongside our early successes in delivering against our strategy we
have seen a strong financial performance in 2023 as discussed
below.
As in previous years, we discuss our performance in this report on
a constant currency basis8,
unless stated otherwise. We discuss our financial position on an
actual exchange rates basis, unless otherwise noted. The
definitions of the key metrics we use to discuss our performance
are set out in the "Definition of performance metrics" section
later in this document.
New business profit
|
Full Year 2022
Actual exchange rate
|
Full Year 2023
|
Objective 20277
Implied amount
|
Amount
|
$2.2 billion
|
$3.1 billion
|
$4.4 - $5.4 billion
|
Our business generated new business profit of $3,125 million for
the year, demonstrating substantial progress towards our 2027
objective.
Operating free surplus generated from in-force insurance and asset
management business
|
Full Year 2022
Actual exchange rate
|
Full Year 2023
|
Objective 20277
Implied amount
|
Amount
|
$2.8 billion
|
$2.7 billion
|
>$4.4 billion
|
The $2,740 million of operating free surplus that we generated from
in-force insurance and asset management business for the year is
broadly flat when compared with the prior year, as we continue to
invest as planned in our strategic pillars and new business over
the next couple of years. The gradual compounding of the new
business contribution and improving operating variances will
support progress towards our 2027 financial objective.
Our performance reflects the breadth and broad based nature of our
markets, with new business profit growing in 17 of our 22 life
markets and an increased market share in seven of our Asian life
markets4.
Our agency channel delivered new business profit of $2,096 million,
an increase of 75 per cent. This reflects both APE sales growth of
67 per cent and favourable business mix effects along with a 37 per
cent increase in new business profit from health and protection
products. Agency sales accounted for 48 per cent of total APE sales
and circa two-thirds of the Group's new business
profits.
Bancassurance new business profit fell 8 per cent to $793 million
in 2023 primarily due to challenging market conditions in the
Chinese Mainland and Vietnam. Excluding these two markets, new
business profit increased by 23 per cent with 11 markets delivering
double-digit growth. APE sales through the bancassurance channel
increased 3 per cent compared with 2022, supported by growth in
Hong Kong and Taiwan, offset by significant reductions in sales
volumes in the Chinese Mainland and Vietnam.
Hong Kong was a significant contributor to growth accounting for 45
per cent of new business profits in the period both its new
business profit and APE sales grew by over three times the prior
year level. This growth was diversified across distribution
channels and products. We see an opportunity for sustained growth
in Hong Kong as the drivers of demand from domestic and Chinese
Mainland visitors remain intact.
Eastspring's funds under management and advice increased by 7 per
cent (on an actual exchange rates basis) to $237.1 billion,
reflecting positive market movements and inflows from external
clients and our life business. These positive movements were offset
by expected outflows of funds managed on behalf of M&G
plc.
During 2023 the Group adopted IFRS 17, a new accounting standard
for insurance that significantly altered the Group's IFRS
reporting. More details on the change and its impact are set out in
the Financial Review. On the IFRS 17 metric, Group adjusted IFRS
operating profit for the year was $2,893 million, 8 per cent higher
than 2022 calculated on a consistent basis and using constant
exchange rates. IFRS profit after tax for 2023 was $1,712 million
(2022: loss after tax of $(1,005) million on a constant exchange
rate basis, loss after tax of $(997) on an actual exchange rate
basis).
The substantial increase in new business reported above led to
materially higher investment in new business of $(733) million
(2022: $(552) million). This resulted in lower group operating free
surplus, despite reduced central costs including interest expense
and restructuring costs. The Group's capital position remains
strong, with an estimated shareholder surplus above the Group's
Prescribed Capital Requirement of $16.1 billion at 31 December 2023
(31 December 2022: $15.6 billion on an actual exchange rate basis)
and a cover ratio of 295 per cent (31 December 2022: 302 per cent
after allowing for the debt redemption in January
2023).
Reflecting the Group's strong capital position and in line with its
policy the Directors have approved a second interim dividend per
share of 14.21 cents per share (2022: 13.04 cent per share), for a
total 2023 divided of 20.47 cents per share (2022: 18.78 cents per
share), an increase of 9 per cent over the prior year.
Focus on our three strategic pillars
1. Enhancing
customer experiences -
we are committed to putting customer advocacy at the heart of our
business and becoming their trusted partner. We have the following
priorities:
- to
support customer acquisition
by personalised targeting -
allowing us to more easily identify engagement
opportunities;
- to
curate comprehensive customer-led differentiated
proposition offerings
with segmentation
by life stages; and
- to
offer seamless end-to-end customer experiences
through simple
tech-enabled journeys combining
technology with human care and understanding.
By focusing on these priorities we believe we will drive new
customer acquisition and existing customer retention.
We have standardised our approach to measuring and analysing
customer advocacy across ten business units9.
Our approach is centred around net promoter scores, which measure
how likely customers are to recommend Prudential. We have seen
initial traction in 2023 with four of our business
units9 in
the top quartile (up from three in 2022). Eight out of ten business
units9 moved
up at least one quartile or remained in 1st quartile in the latest
relationship net promoter scores results. The improvement seen has
been led by leadership initiatives that prioritise the voice of
customers in our business. These include the launch of a monthly
CEO customer experience forum in our markets, together with a
proactive approach to following up with customers who report
unsatisfactory experiences. We empowered employees to listen to the
voices of our customers through the introduction of service
huddles. These meetings bring together employees across a range of
functions to discuss recent customer feedback and collectively
identify solutions for customer pain points. We will continue this
journey in 2024 and beyond with more customer advocacy initiatives
and actions.
To achieve our ambition of having ten business
units9 in
the top quartile relationship NPS in their respective markets by
2027, we will further strengthen our efforts around customer
advocacy. We will do this by investing in common platforms and
frameworks, institutionalising best practices, deploying digital
and data capabilities in customer acquisition, servicing and
engagement. We will deliver these capabilities at pace and scale
across all markets with a unified customer organisation structure,
which will give us a strong foundation to support the achievement
of our ambitions. We plan to drive customer advocacy by; setting
high service standards, continuously listening to customer feedback
and acting on it, re-designing our customer journey and using
robust portfolio management to engage new customers, increase
repeated sales and improve loyalty.
We measure our success using relationship net promoter scores
across the organisation. We aim to be top quartile for ten business
units9 by
2027. For our customer retention rate we have an ambition of
achieving between 90 per cent and 95 per cent by 2027. During 2023
we saw a slight decline in the customer retention rate to 86 per
cent (2022: 89 per cent) which was affected by an industry-wide
fall in consumer sentiment in Vietnam. We see customer base growth
and improving net promoter scores for each transactional touchpoint
as the building blocks of our overall relationship net promoter
score.
2. Technology-powered
distribution - empowering
our agency force with best-in-class technologies and solutions,
deepening our bank partner base through segmented propositions and
creating omnichannel customer journeys will enable us to reach more
customers and strengthen relationships with existing
ones.
Agency
We have around 68,000 average monthly active agents and, over 9,000
who qualify for Million Dollar Round Table (MDRT) status.
Prudential has one of the leading agency forces in
Asia.
We have the ambition to increase agency new business profit by 2.5
to 3 times from the 2022 level by 2027, through significantly
increasing the number of active monthly agents and more than
doubling new business profit per agent over the same
period.
In 2023, the number of average active agents per month increased by
three per cent and average monthly new business profit per active
agent increased by 59 per cent to over $2,800.
We continue to focus on quality recruitment through tailored
and strategic
talent sourcing. Our signature career switcher
programme for existing professionals is active in seven markets and
recruited over 4,500 advisors. On average these advisors were six
times more productive in their first year than other typical agent
recruits. In Hong Kong, we introduced a Top Talent Professional
recruitment programme tapping into over 100 high profile talent
immigrants sponsored by government. In Singapore, we inaugurated
Prudential Financial Advisers to attract professional financial
planners who are committed to offering holistic advice on both
insurance and investment solutions.
We continue to upskill
our agency force by
enhancing the career path and learning journey for our agents. This
equips them with the necessary knowledge, skills and tools to be
a trusted
advisor to
our customers. We integrated our activity and leads management
engine with customer campaigns to scale up and enhance the
productivity of our agents. 115,000 agents used PruForce, our
technology-driven distribution platform, which we believe enhances
agent effectiveness. Over four million leads were generated and
distributed to the agency force using PruLeads, our digital leads
platform in PruForce, across our markets in 2023. Assisted by this
technology, our agents converted 8 per cent of these leads into new
sales to meet customers' needs and financial
goals.
We are upskilling the next generation of highly productive agents
via our on-demand learning
and development platform,
which offers personalised curriculums to assist agents in engaging,
nurturing and converting prospects. Agency leaders are being
trained to become the next generation of professional team-builders
through structured leadership development
programmes.
Bancassurance
Bancassurance provides incremental access to large numbers of
customers in multiple locations using third-party infrastructure.
It is a significant source of new business for the Group. Our 200
bank partners include 10 key strategic partners, including two
joint venture and associate partners.
The penetration rate in our seven strategic bank partners
(excluding our joint venture and associate partners and our partner
in Cambodia and Laos) in the year was 7.8 per cent (2022: circa 7.6
per cent).
We are building on the performance seen in 2023 by delivering
against our strategic priorities.
We are broadening
our customer proposition to
offer attractive health and protection propositions and by
penetrating the high net worth and premium segments. Overall, we
sold around 1 million new policies in 2023, with regular premium
policies contributing to more than 90 per cent of APE sales. APE
sales of health and protection products through bancassurance
partners increased 26 per cent in the year, representing over half
of the policies sold through the channel and over 7 per cent of
total APE sales in 2023 (2022: 6 per cent). We see increasing the
contribution of health and protection products to our bancassurance
channel as a key step in achieving our bancassurance new business
profit growth ambition.
We are developing omni-channel
customer journeys backed by analytics to
engage with our customers. For
example in Thailand, we innovated with a new simple in-branch
digital referral model with a key strategic partner, which enables
us to reach potentially over 7,000 customers and will help them
achieve their medium term saving and protection
goals.
To expand bank penetration further, we will
deploy integrated
data-led marketing to
target customers more effectively. In early 2024 we launched a
structured customer engagement program with UOB, powered by
analytics. The programme supports sales staff in recommending
suitable insurance offerings during their interactions with
customers.
We reward
our bank partners for outcomes that deliver for the customer and
create value.
We have introduced new reward mechanisms with our strategic
partners to deliver win-win solutions for customers, partners and
shareholders.
We also aim to offer our bank partners' staff learning
and development via
integrated modern and digital learning platforms that can provide
modular, on-demand, training.
We continue to expand our bancassurance network. In Thailand, our
new 10-year partnership with CIMB became effective at the end of
2023. In the first two months of partnership, its APE sales had
already accounted for 6 per cent of Thailand bancassurance APE
sales.
In Vietnam, we extended our partnership with VIB until 2036. Our
agreement with VIB incorporates a first-in-market approach to
strengthen the control of business quality, demonstrating our joint
commitment to serve customers better.
Our key strategic partner, UOB, successfully integrated the ex-Citi
franchise across four of our markets, giving us access to an
additional 2.4 million bank customers.
We have established an operating
cadence with
our strategic partners and we will continue to drive aligned
strategic direction and execution through partnership steering
committees both at Group and local levels to ensure we deliver on
all our priorities.
By focusing on these priorities we believe we will meet our
ambition to increase new business profit from bancassurance by 2027
to be 1.5 to 2 times that seen in 2022.
3. Transforming
the health business model -
we believe there are substantial opportunities to further grow our
health business by becoming a trusted partner to our customers and
playing a much-needed coordinating role across their healthcare
journeys. We are focusing on the following
priorities:
- Upgrading
our core health insurance proposition -
we are accelerating development of more advanced, segment-specific
and sustainable products. This includes incorporating risk-based
pricing and value-added services, such as enhancing the in-network
benefits of existing as-charged products to cater to our customers'
evolving healthcare needs. We are also adopting practices that are
utilised elsewhere in the Group to assist with managing customer
affordability and continuity of coverage - for example, in
Indonesia and Malaysia, we are introducing regular repricing of
health products. In addition, we are supporting our agents' efforts
to distribute health products through enhanced recognition, reward
and training initiatives. We are also strengthening our health
branding campaigns to highlight Prudential's aim to become a
trusted partner for its health customers. Operational
excellence is
being further enhanced by straight-through-processing and
AI-enabled digitalisation of underwriting and claims journeys. We
believe increased automation and enhanced analytics will deliver
better customer experience as well as further protect us against
claims fraud and abuse, for example, by implementing AI-driven
detection models.
- Expanding
our role through connecting health-care journeys using an
asset-light approach -
we will implement guided care pathways and case management to help
customers better navigate through their healthcare journey. By
leveraging our streamlined preferred medical provider partners, we
will ensure high-quality and cost-effective care. Examples include
scoring and tiering of network hospitals based on outcome and cost
in Indonesia and Malaysia, regional arrangements for breast cancer
treatment in Thailand by a leading hospital group, and developing
case management and concierge capabilities in Indonesia, Singapore
and Hong Kong.
We have developed an operational plan across our major health
markets of Malaysia, Indonesia, Hong Kong and Singapore with clear
accountabilities, performance metrics, timelines and deliverables.
In early 2024, we appointed Arjan Toor as Health CEO, who will be
based in Singapore and has joined us from Cigna. We are allocating
dedicated resources and will be recruiting further key talent at
both local and Group levels to manage health insurance as a line of
business in order to drive business performance and accelerate
growth. We are exploring health opportunities in
India.
In 2023, our health business across the Group contributed $330
million to new business profit, an increase of 20 per cent. By
focusing on the priorities above we are committed to achieving our
ambitions to deliver a top-quartile health insurance Net Promoter
Score by 2027, growing our customer base and profitability, and
doubling our health new business profit from 2022 to
2027.
Focus on our three strategic enablers
To capture the growth opportunities that we have identified in each
of the strategic pillars above, we have three
enablers:
Enabler#1: Open-architecture technology platform
Our long-term programme is changing our technology
operating model. By
delivering superior
customer and distribution experiences, our
new model will support our three strategic pillars - Customer,
Distribution and Health. Data privacy and customer information
security are critical focus areas for this function and we are
investing substantial amounts in infrastructure, systems and
culture to support this.
In respect of our wholly owned operations technology driven core
competencies that are consistent across these markets will be
housed on an open
architecture platform. Our strategy focuses on i.)
creating new, common capabilities with greater collaboration
between central centres
of excellence and
local market teams; ii.) improving resiliency; iii.) efficiency;
and iv) using AI
and data analytics throughout
our whole organisation.
We intend to move our applications in different markets to a common
platform, to help provide a uniform user experience, improve our
efficiency, increase operational reliability and create new global
capabilities as we switch to modular and standardised applications.
We aim to cut the number of our applications by more than half by
2027. We have begun this journey with the introduction of our
PruServices 2.0 Web in Malaysia in January 2024. PruServices 2.0
Web offers an improved and simplified customer experience with
immediate customer feedback and as we roll it out across our
markets, we will be able to retire 15 customer service
applications. Similarly, PruForce, the technology-driven
distribution platform for our agents, will offer a consistent set
of features for our agents across our markets, enabling us to
retire 26 agency-related applications.
Improving the reliability of our technology infrastructure is key.
We have added a service integration and management layer to oversee
our outsourced technology infrastructure and operations services.
This is to ensure the performance and dependability of our systems.
We also invested in tooling capabilities to improve the efficiency
of infrastructure monitoring, spot high risk or vulnerable areas
that need more support and upgrades, to enhance our overall system
availability. As a result, we lowered the number of monthly
incidents by 60 per cent, and improved recovery times by 40 per
cent in 2023.
We have also finalised our technology organisation operating model,
which brings together our technology talent pool across the
business into a single integrated team. This new operating model
will leverage the experience and skills of our talent pool in
specific markets for the benefit of the whole business. It also
captures efficiencies by removing duplication of functions and
skills. As part of the new operating model, we are also building
teams centred around global technology products for our customer
and agency pillars. We plan to deploy similar teams for other
business areas and group functions by the end of 2024.
In addition, we have developed advanced platforms that store the
key data of our operations in our main markets. This enables us to
deploy advanced analytics and AI for high value purposes. For
example, using GenAI to help our call centre agents shorten
customer enquiry times. In a test run in one market, product
enquiry times were cut from more than four minutes to less than 30
seconds. We are now testing this on real-time customer enquiries as
well as in two other markets. We are also working on utilising
analytics and AI more across our strategic pillars and those group
functions that use the open architecture platform. We continue to
invest in our machine learning operations capabilities to build AI
and machine learning models of scale. Our aim is to embed analytics
and AI within the culture of our organisation. In line with this,
we are looking to design and develop tailored training for all our
employees across all levels, locations and functions, along with
adoption programmes to help our employees make use of analytics and
AI in their daily work life. To facilitate these programmes, we are
setting up an AI lab to foster innovation and creativity
internally, while also attracting external talent and ideas. The
lab will help us try out new capabilities that we can then grow and
use at scale across the organisation. Through these initiatives, we
plan to deliver at least two high-value analytics and AI use cases
per strategic pillar this year for use in our markets.
Innovation in AI is also being undertaken at our Joint Ventures.
For example, by utilising AI technology, CPL has shortened the
underwriting of non-standard cases from three days to one and a
half hours. Meanwhile, the claims payment turnaround has shortened
from 1.29 days in 2022 to 0.45 days in 2023.
Enabler#2: Engaged people and high-performance culture
An engaged workforce is critical to the delivery of our strategy
and we are working with our people to create a culture that is
customer led and performance-driven.
We aim to create an environment that allows our people to thrive,
connect, grow, and succeed. We will focus on the following
priorities to deliver this:
- Promote values-based
leadership and aligned
reward structure to help build a culture
that is customer-led and performance-driven;
- Build strategic
capabilities through targeted talent
acquisition and internal talent development, particularly within
the areas of customer, distribution, health and
technology;
- Develop
a robust
internal talent pipeline through succession
planning, facilitating mobility and
focused development plans, in tandem with efforts to accelerate
development of female leaders; and
- Standardise,
simplify, and digitalise end-to-end people processes to enhance the
employee experience.
By focusing on these priorities, we aim to create a better
workplace experience as we make the required shifts across the
organisation to achieve our strategy.
The PruWay (our values) was co-created with our employees and
launched in September 2023 following the launch of our Strategy and
Purpose. Progress has been made in activating the PruWay and
engaging the organisation on our values and desired behaviours. By
engaging with the Group's senior leaders in a series of workshops
and with the wider workforce through the Group Executive Committee
(GEC), we have started the process of internalising and translating
a set of value statements into day-to-day actions. We call these
PruSteps. The Group's senior leaders will be involved in embedding
the PruWay deeper into the organisation through workshops that will
touch all employees in 2024.
To drive a high-performance culture, a refreshed performance and
pay model will be implemented in 2024. The emphasis will be to
align personal and team goals to our strategy and the PruWay. This
is to ensure we establish an environment where highly engaged
employees consistently demonstrate behaviour and practice our
values. To do this, we will communicate the value proposition on
what a high-performance culture means and build our capability to
uplift the strength of our workforce through meaningful and
effective development conversations.
To build a robust talent pipeline we are in the process of
implementing a consistent succession planning and talent
development process to enhance the robustness and sustainability of
our leadership bench strength.
Through these measures we seek to improve the engagement of all our
employees with an ambition to have top-quartile employee engagement
by 2027.
Enabler#3: Wealth and investments capabilities
Wealth and Investment is a key enabler to help us deliver on our
purpose.
We plan to enhance our wealth and investment capabilities by
leveraging Eastspring and our investment office as well as
providing distribution
support to
our top agents to better serve our wealth
customers.
We are committed to product
innovation to
enable us to offer a wide variety of customised wealth solutions
that meet our customers' needs for wealth appreciation, wealth
protection, wealth succession and retirement, and to provide our
distribution teams with the tools and training they need to serve
our wealth customers better.
The cornerstone of helping customers meet their financial goals is
the delivery of positive investment performance and the creation of
appropriate delivery mechanisms to achieve this. Consideration of
asset allocations, mandates and selection of investment managers
for Prudential insurance policies sits with the life companies,
overseen by the Group Investment Officer. Eastspring's specific
investment skills and track record in certain asset classes along
with its investment wrapper design capabilities are being harnessed
alongside third-party capabilities.
We are formulating a series of wealth management products that can
be used by advisors to create investment outcomes that can adapt
and meet their customer needs overtime. These may include a
combination of passive and active investment strategies. The
packaging of these strategies into discretionary fund management
options provides the client with the potential to invest in a
spectrum of asset management styles over their lifetimes and as
their financial circumstances change.
Eastspring has focused on developing its human resources both in
terms of human capital and internal performance benchmarking. A CIO
has been appointed in February 2024, who will be responsible for
the day to day management of the investment teams. A new head of
distribution was also appointed in February 2024.
Eastspring is supporting the training and development needs of our
Prudential Financial Advisers (PFA) distribution force, a force of
over 500 financial advisors who offer a more holistic suite of
products outside of our core Prudential insurance offerings.
Already, products from seven general insurance and two life firms
are included in the range, broadening the suite of products for
legacy planning for high-net-worth individuals and retirement plans
to meet the needs of a rapidly ageing population. The range is
expected to expand further in 2024 and a thousand additional
advisors are planned to be added to PFA in due course.
We continue to strengthen our wealth team and are enhancing our
go-to-market investment updates for customers and distribution
teams. We see opportunities to better meet our customers needs for
wealth accumulation, wealth protection, wealth succession and
retirement. Through high-performance investment teams we will seek
to drive continual improvement in customer outcomes across the
wealth life-cycle.
Implementing our Organisational Model
Changes to our organisational model are being made to enable us to
deliver consistent performance across the Group and to prioritise
value creation when deploying capital across our
markets.
These changes include the complementing of existing teams and
structures with additional skills and capabilities through the
sourcing of selected new talent, reskilling existing talent and
changing reporting and responsibilities across teams.
We believe our new organisational model, together with our
commitment to invest in building out our capabilities further, will
harness economies of scale and generate value for all our
stakeholders.
By implementing changes to our organisational model and by
combining the technology platform changes we are making, including
the roll-out of best practices across our markets, we are confident
we can deliver a consistently high level of service to our
customers and our partners over the long term.
Outlook
We delivered an excellent financial and operational performance in
2023 and deployed increased levels of capital in new business,
enhancing core capabilities and expanding distribution. Sales
growth has continued in the first two months of 2024. Given the
relentless execution focus in implementing our strategy, we are
increasingly confident in achieving our 2027 financial and
strategic objectives and in accelerating value creation for our
shareholders.
Notes
1.
Source: Kantar survey.
2.
Source: United Nations, Department of Economic and Social Affairs,
Population Division, World Population Prospects 2022.
3.
Source: Swiss Re forecast (July 2023).
4.
As reported at full year 2023 unless otherwise specified. Sources
include formal (eg competitors results release, local regulators
and insurance association) and informal (industry exchange) market
share. Ranking based on new business (APE sales, weighted new
business premium, full year premium or weighted first year premium)
or Gross Written Premium depending on availability of data.
Rankings in the case of Chinese Mainland, Taiwan and Myanmar are
among foreign insurers, and for India is among private companies.
Countries based on nine months ended September 2023: Philippines,
Ghana (Africa) and Kenya (Africa) and full year 2022: Laos, Zambia
(Africa) and Togo (Africa) and full year 2020: Nigeria
(Africa).
5.
Source: Based on FY2022 data from local regulators, industry
associations and Prudential' internal data. Estimates are based on
market intelligence, if data is not publicly
available.
6.
Source: As reported at full year 2023. Sources include local
regulators, asset management association, investment data providers
and research companies (e.g. Morningstar, Lipper). Rankings are
based on total funds under management (including discretionary
funds, where available) of onshore domiciled funds or public mutual
funds of the respective markets.
7.
The objectives assume exchange rates at December 2022 and economic
assumptions made by Prudential in calculating the EEV basis
supplementary information for the year ended 31 December 2022, and
are based on regulatory and solvency regimes applicable across the
Group at the time the objectives were set. The objectives assume
that existing EEV and Free Surplus methodology at December 2022
will be applicable over the period.
8.
See note A1 to the IFRS financial statements for more detail on our
exchange rate presentation.
9.
Business units equate to legal entities.
Financial review
Strong and diversified financial performance
Prudential delivered a strong 2023 financial performance. This
highlights the value of our diversification across geography and by
distribution channel. We introduced two new financial objectives as
an integral part of the Group's strategy update. In 2023 we made
good progress towards our 2027 new business profit objective and
are on track with our related 2027 objective for operating free
surplus generated from in-force insurance and asset management
business. 2023 also saw higher EEV operating profit and
shareholders' equity, as well as higher Group adjusted operating
profit following CSM growth.
2023 saw an improvement in economic performance of the countries in
which we operate. There was still volatility although this reduced
over the course of the year. Government bond yields in many of our
Asian markets reduced while the US 10-year yield closed the year
relatively stable at 3.9 per cent. Equity market performance varied
considerably, with the S&P 500 index increasing by 24 per cent,
the MSCI Asia excluding Japan equity index by 4 per cent, while the
Hang Seng index fell by 14 per cent.
As in previous years, we comment on our performance in local
currency terms (expressed on a constant exchange rate basis) to
show the underlying business trends in periods of currency
movement, unless otherwise noted. We discuss our financial position
on an actual exchange rates basis, unless otherwise noted. The
definitions of the key metrics we use to discuss our performance in
this report are set out in the 'Definition of performance metrics'
section later in this document.
New business profit was up 45 per cent to $3,125 million, led by
Hong Kong, with a double-digit growth in 12 of our 22 markets
following the removal of all pandemic-related restrictions, in
particular the reopening of the border between Hong Kong and the
Chinese Mainland and consequential rebound of APE sales. Further,
we saw a 34 per cent increase in the new business profit for health
and protection products contributing to 40 per cent of our new
business profit, while the new business profit for savings product
grew by 54 per cent. This was underpinned by a 37 per cent growth
in APE sales, which, in absolute terms, exceeded the pre-pandemic
level of 2019. Excluding the effects of interest rates and other
economic changes, given our active EEV reporting basis, new
business profit increased by 47 per cent.
Group EEV operating profit increased by 17 per cent to $4,546
million, largely due to higher new business profits from insurance
business, an increase in the profit from Eastspring, our asset
management business, and a reduction in central costs. The
operating return on embedded value was 10 per cent compared with 9
per cent in 2022. After allowing for the payment of the external
dividend and economic effects, such as changes in interest rates,
and currency movements, the Group's embedded value at 31 December
2023 was $45.3 billion (31 December 2022: $42.2 billion on an
actual exchange rate basis), equivalent to 1,643 cents per share
(31 December 2022: 1,534 cents per share on an actual exchange rate
basis). The operating free surplus generated from in-force
insurance and asset management business during the period was
$2,740 million, broadly flat when compared to prior year.
Investment in new business of $(733) million (2022: $(552) million)
reflected higher APE sales and business mix effects. As a result
total operating free surplus generated from life and asset
management business reduced to $2,007 million (2022: $2,173
million).
The Group implemented IFRS 17, the new accounting standard for
insurance contracts in 2023 with comparatives restated accordingly.
In line with the preliminary guidance provided with the Group's
2022 results (on an actual exchange rates basis), the Group
shareholders' equity at 1 January 2022, the date of transition,
increased by $1.8 billion to $18.9 billion and 2022 full year
adjusted operating profit fell by $653 million to $2,722 million.
The full year 2022 saw a loss after tax of $(997) million on an
IFRS 17 basis. While IFRS 17 is an important accounting change,
resulting in changes to the timing of profit recognition compared
with the previous IFRS 4 approach, it does not change the total
level of profit generated. As a result, it does not change the
underlying economics of our business. Our embedded value framework,
which is linked to the Group's regulatory position and consequently
future capital generation, is in our view more representative of
shareholder value. The Group also implemented IFRS 9 Financial
Instruments from 1 January 2023, with no material impact on the
Group's financial statements. Further details on the transition to
IFRS 17 and IFRS 9 are included in the IFRS financial
results.
Group IFRS adjusted operating profit was $2,893 million, up 8 per
cent in 2023, largely as a result of lower central costs and higher
profits from Eastspring, our asset management business. The Group's
total IFRS profit after tax for the period was $1,712 million, an
improvement on the 2022 loss after tax of $(1,005) million on a
constant exchange rate basis (loss of $(997) million on an actual
exchange rate basis). The swing in result largely reflects changes
in short-term fluctuations in interest rates. There was a modest
decrease in interest rates in 2023 compared with interest rates
increasing significantly in 2022.
Adjusted shareholders' equity increased to $37.3 billion (31
December 2022: $35.2 billion on an actual exchange rate basis),
equivalent to 1,356 cents per share (31 December 2022: 1,280 cents
per share on an actual exchange rate basis), driven by an increase
in IFRS shareholders' equity (up 7 per cent) and an increase in the
Contractual Service Margin (CSM) (up 5 per cent). The CSM benefited
from the contribution from new business and unwind. Using a
longer-term normalised return for Variable Fee Approach (VFA)
business, the unwind and new business contribution would have
exceeded the release in the period by $1.7 billion, equivalent to a
net increase of 9 per cent in the CSM compared with the start of
year position.
Our Group's regulatory capital position, free surplus and central
liquidity positions remain robust. The Group's leverage remains
near the bottom of our target range at 20 per cent, estimated on a
Moody's basis.
The Group capital adequacy requirements are aligned with the
established EEV and free surplus framework by comparing the total
eligible Group capital resources with the Group's Prescribed
Capital Requirement (GPCR). At 31 December 2023, the estimated
shareholder surplus above the GPCR was $16.1 billion (31 December
2022: $15.6 billion on an actual exchange rates basis) and cover
ratio 295 per cent (31 December 2022: 307 per cent before allowing
for the debt redemption in January 2023 and 302 per cent after the
redemption).
Supported by a clear and disciplined capital allocation policy, the
Group is well positioned, with considerable financial flexibility
including leverage capacity, to take advantage of the growth
opportunities ahead. In 2023, we have allocated capital to
investing in higher new business at attractive rates of return, in
developing our customer, distribution, health and technology
capabilities and we intend to deploy $1billion as part of our
updated strategy. In line with our capital allocation priorities
(as set out in the Capital Management section below) excess
capital, if and when it emerges, would be returned to
shareholders.
The Group's dividend policy is unchanged and described later in
this report. Recognising the strong conviction we have in the
Group's strategy, when determining the annual dividend we look
through the investments in new business and investments in
capabilities. The Board has approved a second interim dividend of
14.21cents per share (2022: 13.04 cents per share up 9 per cent).
When this is combined with the first interim dividend the Group's
total 2023 dividend is 20.47 cents per share (2022: 18.78 cents per
share), an increase of 9 per cent. The Board intends to maintain
this approach, and continues to expect the 2024 annual dividend to
grow in the range 7 - 9 per cent.
The Group is carrying out a number of actions to support the
development of liquidity in the trading of its shares on the Hong
Kong Stock Exchange, following its capital raise in 2021. In 2024,
the Group is actively exploring the use of scrip dividends,
including issuance only on the Hong Kong line and the dilutive
effect being neutralised by a share buy back on the London
line.
The Group executed a $41 million share repurchase programme in
January 2024 to neutralise the 2023 Employee and agent share scheme
issuance. It intends to make further repurchases in the future to
offset the expected dilution from the vesting of awards under
employee and agent share schemes.
We believe that the Group's performance during the year positions
us well, as we implement the new strategy, to meet our financial
objectives to grow new business profit and consequently in-force
insurance and asset management operating free surplus generated, as
detailed in the strategic and operating review.
IFRS profit
|
|
|
|
|
|
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023 $m
|
2022 $m
|
Change %
|
|
2022 $m
|
Change %
|
|
|
|
|
|
|
|
CPL
|
368
|
271
|
36
|
|
258
|
43
|
Hong Kong
|
1,013
|
1,162
|
(13)
|
|
1,162
|
(13)
|
Indonesia
|
221
|
205
|
8
|
|
200
|
11
|
Malaysia
|
305
|
340
|
(10)
|
|
329
|
(7)
|
Singapore
|
584
|
570
|
2
|
|
585
|
-
|
Growth markets and other
|
746
|
728
|
2
|
|
715
|
4
|
Insurance business
|
3,237
|
3,276
|
(1)
|
|
3,249
|
-
|
Asset management
|
280
|
260
|
8
|
|
255
|
10
|
Total segment profit
|
3,517
|
3,536
|
(1)
|
|
3,504
|
-
|
Other income and expenditure:
|
|
|
|
|
|
|
Investment return and other items
|
(21)
|
(44)
|
52
|
|
(44)
|
52
|
Interest payable on core structural borrowings
|
(172)
|
(200)
|
14
|
|
(200)
|
14
|
Corporate expenditure
|
(230)
|
(276)
|
17
|
|
(277)
|
17
|
Other income and expenditure
|
(423)
|
(520)
|
19
|
|
(521)
|
19
|
Restructuring and IFRS 17 implementation costs
|
(201)
|
(294)
|
32
|
|
(293)
|
31
|
Adjusted operating profit
|
2,893
|
2,722
|
6
|
|
2,690
|
8
|
Non-operating items:
|
|
|
|
|
|
|
Short-term fluctuations in investment returns
|
(774)
|
(3,420)
|
77
|
|
(3,404)
|
77
|
(Loss) gain attaching to corporate transactions
|
(22)
|
55
|
n/a
|
|
55
|
n/a
|
Profit (loss) before tax attributable to shareholders
|
2,097
|
(643)
|
n/a
|
|
(659)
|
n/a
|
Tax charge attributable to shareholders' returns
|
(385)
|
(354)
|
(9)
|
|
(346)
|
(11)
|
Profit (loss) for the year
|
1,712
|
(997)
|
n/a
|
|
(1,005)
|
n/a
|
IFRS earnings per share
|
|
|
|
|
|
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023 cents
|
2022 cents
|
Change %
|
|
2022 cents
|
Change %
|
Based on adjusted operating profit, net of tax and non-controlling
interest
|
89.0¢
|
79.4¢
|
12
|
|
78.5¢
|
13
|
Based
on profit (loss) for the year, net of non-controlling
interest
|
62.1¢
|
(36.8¢)
|
n/a
|
|
(37.0¢)
|
n/a
|
Adjusted operating profit reflects that the assets and liabilities
of our insurance businesses are held for the longer term and the
Group believes that the trends in underlying performance are better
understood if the effects of short-term fluctuations in market
conditions, such as changes in interest rates or equity markets,
are excluded.
Group IFRS adjusted operating profit was $2,893 million, up by 8
per cent, largely reflecting a 10 per cent increase in profit
generated by Eastspring, our asset management business, and lower
central costs. Adjusted operating profit for insurance business was
at similar levels of 2022, with economic movements in 2022 reducing
the level of longer-term net investment result (which is based on
opening asset values), largely offset by a higher insurance service
result.
Detailed discussion of IFRS financial performance by segment,
including the detailed analysis of asset management business is
presented in the section on 'Performance by market'.
Insurance business analysis of operating profit
drivers
The table below sets out the key drivers of the Group's adjusted
operating profit for the insurance business as described in note
B1.3 of the IFRS financial results.
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023 $m
|
2022 $m
|
Change %
|
|
2022 $m
|
Change %
|
Adjusted release of CSM 1
|
2,205
|
2,265
|
(3)
|
|
2,242
|
(2)
|
Release of risk adjustment
|
218
|
179
|
22
|
|
178
|
22
|
Experience variances
|
(118)
|
(66)
|
(79)
|
|
(62)
|
(90)
|
Other insurance service result
|
(109)
|
(204)
|
47
|
|
(195)
|
44
|
Adjusted insurance service result
|
2,196
|
2,174
|
1
|
|
2,163
|
2
|
Net investment result on longer-term basis
|
1,241
|
1,290
|
(4)
|
|
1,271
|
(2)
|
Other insurance income and expenditure
|
(122)
|
(98)
|
(24)
|
|
(100)
|
(22)
|
Share of related tax charges from joint ventures and
associates
|
(78)
|
(90)
|
13
|
|
(85)
|
8
|
Insurance business
|
3,237
|
3,276
|
(1)
|
|
3,249
|
-
|
The release of CSM is the principal source of our IFRS 17 insurance
business adjusted operating profit. The adjusted CSM
release1 in
FY2023 of $2,205 million (2022: $2,242 million) equates to an
annualised release rate of circa 9.5 per cent, broadly similar to
the release rate seen in 2022 and broadly consistent with the 2023
release expected as at the end of 2022.
The release of the risk adjustment of $218 million (2022: $178
million) represents the expiry of non-market risk in the period. As
expected, this release is a relatively stable proportion of the
opening balance as compared with the corresponding rate in the
prior year.
Experience variances of $(118) million (2022: $(62) million)
comprise largely of claims and expense variances (those impacting
past or current service rather than future service which is
reflected in CSM). A small element of the elevated expenses
reflects the investment in our strategic pillars consistent with
our Strategy.
The other insurance service result of $(109) million (2022: $(195)
million) largely reflects losses on contracts that are described
under IFRS 17 as 'onerous', either at inception or because changes
in the period result in the CSM being exhausted. It does not mean
these contracts are not profitable overall as the CSM does not
allow for real-world returns, which are earned over time. The
losses in 2022 were largely as a result of adverse economic
conditions which have stabilised in 2023.
The net investment result of $1,241 million (2022: $1,271 million)
largely reflects the long-term return on assets backing equity and
capital and long-term spreads on business not accounted for under
the variable fee approach. The long-term rates are applied to the
opening value of assets and so falls in asset values over 2022,
following the adverse market movements in 2022 saw this source of
income reduce in 2023. Growth in the General Measurement Model
asset base from new business in recent periods and renewal premiums
offset some of this reduction.
Other income and expenditure of $(122) million (2022: $(100)
million) mainly relates to expenses that are not directly related
to an insurance contract as defined under IFRS 17.
Movement in Contractual Service Margin
The CSM balance represents a discounted stock of unearned profit
which will be released over time as services are provided. This
balance increases due to additions from profitable new business
contracts sold in the period and the unwind of the in-force book.
It is also updated for any changes in expected future
profitability, where applicable, including the effect of short-term
market fluctuations for business measured using variable fee
approach. The release of the CSM, which is the main driver of
adjusted operating profit, is then calculated after allowing for
these movements.
In a normalised market environment, if the contribution from new
business and the unwind of the CSM balance is greater than the rate
at which services are provided, then the CSM balance will increase.
The new business added to the CSM will therefore be an important
factor in building the CSM and we expect the compounding effect
from the new business added to the CSM over time to support growth
in IFRS 17 adjusted operating profit in the future. The objectives
announced in August for EEV new business profit growth will act to
support such CSM growth. As we grow new business profit, in line
with our recently announced financial objectives, we would expect
this to generate growth of the CSM and hence lead to adjusted
operating profit growth over time.
The table below sets out the movement of CSM over the
period.
Contractual Service Margin Net of reinsurance
|
2023 $m
|
Net Opening Balance at 1 Jan
|
19,989
|
New contracts in the year
|
2,348
|
Unwind*
|
1,563
|
Balance before variances, effect of foreign exchange and CSM
release
|
23,900
|
Economic and other variances
|
(619)
|
CSM balance before release
|
23,281
|
Release of CSM to income statement
|
(2,208)
|
Effect of movements in exchange rates
|
(61)
|
Net balance at the end of the period
|
21,012
|
*The
unwind of CSM presented in this table reflects the accretion of
interest on general measurement model contracts, as presented in
note C3.2 to the IFRS financial results, together with the unwind
of the CSM related to variable fee approach contracts on a
long-term normalised basis. This differs from the presentation in
note C3.2 to the IFRS financial results by reallocating $1,303
million from economic and other variances to unwind.
Profitable new business in 2023 grew the CSM by $2,348 million
which combined with the unwind of the CSM balance shown in the
table above of $1,563 million, increased the CSM by $3,911 million.
This increase exceeded the release of the CSM to the income
statement in the period of $(2,208) million, demonstrating the
strength of our franchise and its ability to deliver future growth
in CSM and ultimately adjusted operating profit.
Other movements in the CSM reflect economic and other variances to
update the CSM for changes in expected future profitability
including the impact of short term market effects of business
accounted for under the variable fee approach. In 2023 'economic
and other variances' includes $117 million for new riders added to
existing base savings contracts. The incremental value from such
sales is not included within the new business contribution to CSM
because our IFRS17 approach considers insurance contracts as a
whole. In contrast, EEV will include this amount as new
business. The remainder of the variance includes the effects of the
operating variances and assumption changes on future profits and
the impact of a reduction in interest rates and changes in equity
indices. Movements in exchange rates had a negative impact of $(61)
million on the closing CSM. Overall the CSM grew by 5 per cent, or
9 per cent excluding the effect of economic and other variances and
exchange rates.
Other income and expenditure
Central costs (before restructuring and IFRS 17 implementation
costs) were 19 per cent lower in 2023 as compared to the prior
year, reflecting the benefit of the targeted reduction of head
office costs and the redemption of a senior debt instrument in
January 2023. Interest payable on core structural borrowings
reduced by $28 million in 2023 compared with the prior year. Total
head office expenditure was $(230) million (2022: ($277) million).
Net investment return and other items improved by $23 million from
increased investment returns on Group Treasury following the
increase in interest rates.
Restructuring costs of $(201) million (2022: $(293) million)
reflect the Group's project to implement and embed IFRS 17, and
one-off costs associated with regulatory and other initiatives in
our business. IFRS 17 costs are expected to decrease but in 2024
will be replaced by investment to enhance Eastspring's operating
model and improve our back office efficiency and scalability. From
the end of 2024, restructuring costs are expected to revert over
time to the lower levels typically incurred
historically.
IFRS basis non-operating items
Non-operating items in the year consist of negative short-term
fluctuations in investment returns of $(774) million (2022:
$(3,404) million) and $(22) million of costs associated with
corporate transactions (2022: gain of $55 million).
These short-term fluctuations principally arise from our business
in the Chinese Mainland reflecting negative equity returns as well
as the impact from lower interest rates on the discount rate for
General Measurement Model (GMM) best estimate insurance
liabilities.
IFRS effective tax rates
In 2023, the effective tax rate on adjusted operating profit was 15
per cent (2022: 20 per cent). The decrease from the 2022 effective
tax rate primarily reflects the recognition of a deferred tax asset
in relation to historical tax losses, due to an increase in
forecast taxable profit in the UK tax group, together with a
reduction from 2022 to 2023 in head office costs for which no tax
credit is recognised.
The effective tax rate on total IFRS profit in 2023 was 18 per cent
(2022: negative 55 per cent), reflecting a reduction in the level
of investment losses on which no tax credit is
recognised.
During 2023, jurisdictions around the world, including some
relevant to Prudential, commenced implementation of the OECD global
minimum tax rules. For those jurisdictions where the rules will
apply to Prudential for the 2024 financial period, management's
assessment is that the new tax rules (which involve comparing a
jurisdiction's effective tax rate to the global minimum effective
tax rate of 15 per cent) are not expected to have a material impact
on the IFRS tax charge for 2024. From 2025 onwards, the new tax
rules are expected to be effective in Hong Kong (where Prudential
plc is now tax resident), at which point the new rules will apply
to the whole Prudential group. Management continues to assess the
likely impact on the 2025 and subsequent financial periods and
guidance on the potential impact will be provided in due
course.
Total tax contributions
The Group continues to make significant tax contributions in the
jurisdictions in which it operates, with $969 million remitted to
tax authorities in 2023, slightly lower than the equivalent amount
of $1,009 million remitted in 2022 (on an actual exchange rate
basis).
Tax strategy
The Group publishes its tax strategy annually which, in addition to
complying with the mandatory UK (Finance Act 2016) requirements,
also includes a number of additional disclosures which provide
insight into the Group's tax contributions. An updated version of
the tax strategy, including 2023 data, will be available on the
Group's website before 31 May 2024.
Shareholders' equity
Group IFRS shareholders' equity
|
|
|
|
2023 $m
|
2022 $m
|
Profit /(loss) for the year
|
1,712
|
(997)
|
Less non-controlling interest
|
11
|
10
|
Profit (loss) after tax for the year attributable to
shareholders
|
1,701
|
(1,007)
|
Exchange movements, net of related tax
|
(124)
|
(603)
|
External dividends
|
(533)
|
(474)
|
Other movements
|
48
|
(121)
|
Net increase/(decrease) in shareholders' equity
|
1,092
|
(2,205)
|
Shareholders' equity at beginning of the year
|
|
-
|
As previously reported
|
16,731
|
17,088
|
Effect of initial application of IFRS 17 & IFRS 9, net of
tax
|
-
|
1,848
|
Shareholders' equity at end of the year
|
17,823
|
16,731
|
Shareholders' value per
share 3
|
647¢
|
608¢
|
|
|
|
Adjusted shareholders
equity 3
|
37,346
|
35,211
|
Group IFRS shareholders' equity increased from $16.7 billion at the
start of 2023 (after allowing for the effects of IFRS 17 and IFRS
9) to $17.8 billion at 31 December 2023. This largely reflects
profit generated during the period, offset by dividend payments of
$(0.5) billion, and exchange movements of $(0.1)
billion.
In 2023, the Group completed the disposal of its remaining interest
in Jackson, the Group's former US business, for cash of $273
million. This gave rise to a gain of $8 million compared to the
carrying value of this interest at 31 December 2022 that is
included in other movements. Following the adoption of IFRS 9, the
income statement is unaffected by this transaction.
The IFRS adjusted shareholders' equity represents the sum of Group
IFRS shareholders' equity and CSM, net of tax. Group's IFRS
adjusted equity increased to $37.3 billion at 31 December 2023 (31
December 2022: $35.2 billion) reflecting increases in IFRS
shareholders' equity and the CSM. A full reconciliation to
shareholders' equity is included in note C3.1 of the IFRS financial
results.
EEV basis results
EEV financial results
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023 $m
|
2022 $m
|
Change %
|
|
2022 $m
|
Change %
|
New business profit
|
3,125
|
2,184
|
43
|
|
2,149
|
45
|
Profit from in-force business
|
1,779
|
2,358
|
(25)
|
|
2,345
|
(24)
|
Operating profit from insurance business
|
4,904
|
4,542
|
8
|
|
4,494
|
9
|
Asset management
|
254
|
234
|
9
|
|
230
|
10
|
Other income and expenditure
|
(612)
|
(824)
|
26
|
|
(823)
|
26
|
Operating profit for the year
|
4,546
|
3,952
|
15
|
|
3,901
|
17
|
Non-operating results
|
(834)
|
(7,523)
|
89
|
|
(7,530)
|
89
|
Profit (loss) for the year
|
3,712
|
(3,571)
|
n/a
|
|
(3,629)
|
n/a
|
External dividends
|
(533)
|
(474)
|
|
|
|
|
Foreign exchange movements
|
(134)
|
(1,195)
|
|
|
|
|
Other movements
|
21
|
(160)
|
|
|
|
|
Net increase (decrease) in EEV shareholders' equity
|
3,066
|
(5,400)
|
|
|
|
|
EEV shareholders' equity at 1 Jan after effect of
HKRBC
|
42,184
|
47,584
|
|
|
|
|
EEV shareholders' equity at end of year
|
45,250
|
42,184
|
|
|
|
|
% New business profit/average EEV shareholders' equity for
insurance business operations*
|
8%
|
5%
|
|
|
|
|
% Operating profit/average EEV shareholders' equity
|
10%
|
9%
|
|
|
|
|
* Excluding goodwill attributable to equity holders
EEV shareholders' equity
|
31 Dec 2023 $m
|
31 Dec 2022 $m
|
Represented by:
|
|
|
CPL
|
3,038
|
3,259
|
Hong
Kong
|
17,702
|
16,576
|
Indonesia
|
1,509
|
1,833
|
Malaysia
|
3,709
|
3,695
|
Singapore
|
7,896
|
6,806
|
Growth
markets and other
|
7,674
|
6,688
|
Embedded value from insurance business excluding
goodwill
|
41,528
|
38,857
|
Asset management and other excluding goodwill
|
2,955
|
2,565
|
Goodwill attributable to equity holders
|
767
|
762
|
Group EEV shareholders' equity
|
45,250
|
42,184
|
EEV shareholders' equity per share
|
1,643¢
|
1,534¢
|
APE new business sales (APE sales) and EEV new business
profit
|
Actual exchange rate
|
Constant exchange rate
|
|
2023 $m
|
2022 $m
|
Change %
|
2022 $m
|
Change %
|
|
APE sales
|
New business profit
|
APE sales
|
New business profit
|
APE sales
|
New business profit
|
APE sales
|
New business profit
|
APE sales
|
New business profit
|
CPL
|
534
|
222
|
884
|
387
|
(40)
|
(43)
|
840
|
368
|
(36)
|
(40)
|
Hong Kong
|
1,966
|
1,411
|
522
|
384
|
277
|
267
|
523
|
384
|
276
|
267
|
Indonesia
|
277
|
142
|
247
|
125
|
12
|
14
|
240
|
122
|
15
|
16
|
Malaysia
|
384
|
167
|
359
|
159
|
7
|
5
|
347
|
154
|
11
|
8
|
Singapore
|
787
|
484
|
770
|
499
|
2
|
(3)
|
791
|
512
|
(1)
|
(5)
|
Growth markets and other
|
1,928
|
699
|
1,611
|
630
|
20
|
11
|
1,546
|
609
|
25
|
15
|
Total
|
5,876
|
3,125
|
4,393
|
2,184
|
34
|
43
|
4,287
|
2,149
|
37
|
45
|
Total new business margin
|
|
53%
|
|
50%
|
|
|
|
50%
|
|
|
Group EEV operating profit increased by 17 per cent to $4,546
million, reflecting a 9 per cent increase in the operating profit
for the insurance business, largely reflecting higher new business
profit, a 10 per cent increase in the operating profit for the
asset management business and an improvement in central costs. The
operating return on average embedded value was 10 per cent (2022: 9
per cent).
The operating profit from the insurance business increased to
$4,904 million, largely reflecting a 45 per cent increase in new
business profit to $3,125 million following growth in APE sales,
partly offset by a (24) per cent fall in profit from in-force
business to $1,779 million. The profit from in-force business is
driven by the expected return and the effects of operating
assumption changes and experience variances. The expected return
was lower at $2,122 million (2022: $2,531 million), reflecting a
lower opening balance to which the expected return is applied, as a
result of economic movements in 2022. Operating assumption changes
and experience variances were negative $(343) million on a net
basis compared with $(186) million in 2022. This reflects
short-term industry-wide increases in lapses in Vietnam, following
negative consumer sentiment in the wider industry, along with
unfavourable morbidity experience on some medical reimbursement
products following the removal of Covid-19 restrictions. We have
also continued to invest in our strategic
capabilities.
The non-operating loss of $(834) million (2022: loss of $(7,530)
million) is largely driven by the combined impact of negative
equity returns in Chinese Mainland and Hong Kong, with interest
rate falls and narrowing credit spreads in many of our markets in
the year. These effects were more muted than in the prior
year.
Overall, EEV shareholders' equity increased to $45.3 billion at 31
December 2023 (31 December 2022: $42.2 billion). Of this, $41.5
billion (31 December 2022: $38.9 billion) relates to the insurance
business operations, excluding goodwill attributable to equity
shareholders. This amount includes our share of our India associate
valued using embedded value principles. The market capitalisation
of this associate at 31 December 2023 was circa $9.3 billion, which
compares with a publicly reported embedded value of circa $4.6
billion at 30 September 2023.
EEV shareholders' equity on a per share basis at 31 December 2023
was 1,643 cents (31 December 2022: 1,534 cents).
Greater China presence
Prudential has a significant footprint in the Greater China region,
with businesses in the Chinese Mainland (through its holding CPL),
Hong Kong (together with its branch in Macau) and
Taiwan.
The table below demonstrates the proportion of the Group's
financial measures that were contributed by the Greater China
region:
|
Gross premiums earned*
|
New business profit
|
|
2023 $m
|
2022 $m
|
2023 $m
|
2022 $m
|
Total Greater China†
|
12,859
|
13,103
|
1,870
|
912
|
Total Group†
|
26,221
|
27,783
|
3,125
|
2,184
|
|
|
|
|
|
Percentage of total
|
49%
|
47%
|
60%
|
42%
|
Comparatives
stated on a AER basis
*
The gross earned premium includes the Group's share of amounts
earned from joint ventures and associates as disclosed in note II
(vi) of the Additional financial information.
†
Total Greater China represents the amount contributed by the
insurance businesses in Hong Kong, Taiwan and the Group's share of
the amounts earned by CPL. The Group total includes the Group's
share of the amounts earned by all insurance business joint
ventures and associates.
Capital management
We aim to invest capital to write new business that generates three
times the amount invested, at internal rates of return above 25 per
cent with less than four-year payback periods. Our ability to
invest at attractive returns will drive our capital allocation
priorities which are as follows:
- We
will continue to target resilient capital buffers such that the
Group shareholder coverage ratio is above 150 per cent of the
shareholder Group Prescribed Capital Requirement to ensure the
Group can withstand volatility in markets and operational
experience;
- Otherwise,
our priority for allocating capital will be re-investing in new
business. Our resilient capital position allows us to prioritise
investment in new business with an aim to write quality new
business while managing the initial capital strain and capturing
the economic value at attractive returns;
- Our
next priority is investing around $1 billion in core capabilities,
primarily in the areas of Customer, Distribution, Health and
Technology;
- Our
dividend policy remains linked to net operating free surplus
generation which is calculated after investment in new business and
capability investment;
- We
will invest in inorganic opportunities where there is good
strategic fit; and
- All
investment decisions will be made against the alternative of
returning surplus capital to shareholders but given the abundance
of organic and inorganic opportunities ahead of us, we are
confident that in the near-term we will be reinvesting capital at
attractive returns.
To generate capital to allocate to these priorities we will also
prioritise managing our in-force embedded value to ensure maximum
conversion into free surplus over time. Based on the economic and
other assumptions and methodology that underpinned our EEV
reporting at the end of 2023, we expect to transfer over $9 billion
by end of 2027 from VIF and required capital to operating free
surplus generated from our in-force insurance business at the end
of 2023. This is before allowing for the incremental effect of new
business and any return on the underlying assets backing that
surplus. We will drive improved emergence of free surplus by
managing claims, expense and persistency in each market. This
additional free surplus will enable our continued investment in
profitable new business at attractive returns, as well as in our
strategic capabilities, and support payments of returns to
shareholders including dividends.
Group free surplus generation
Free surplus is the metric we use to measure the internal cash
generation of our business operations and broadly reflects the
amount of money available to our operational businesses for
investing in new business, strengthening our capacity and
capabilities to grow the business, and potentially paying returns
to the Group. For our insurance businesses it largely represents
the Group's available regulatory capital resources after allowing
for the prescribed required regulatory capital held to support the
policies in issue, with a number of adjustments so that the free
surplus better reflects resources potentially available for
distribution to the Group. For our asset management businesses,
Group holding companies and other non-insurance companies, the
measure is based on IFRS net assets with certain adjustments,
including to exclude accounting goodwill and to align the treatment
of capital with our regulatory basis.
Operating free surplus generation represents amounts emerging from
the in-force business during the year, net of amounts reinvested in
writing new business. For asset management businesses, it equates
to post-tax adjusted operating profit for the year. Further
information is contained in the EEV financial results.
Analysis of movement in Group free surplus
|
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023 $m
|
2022 $m
|
Change %
|
|
2022 $m
|
Change %
|
Expected transfer from in-force business and return on existing
free surplus
|
2,869
|
2,753
|
4
|
|
2,711
|
6
|
Changes in operating assumptions and experience
variances
|
(383)
|
(227)
|
(69)
|
|
(216)
|
(77)
|
Operating free surplus generated from in-force insurance
business
|
2,486
|
2,526
|
(2)
|
|
2,495
|
-
|
Asset management
|
254
|
234
|
9
|
|
230
|
10
|
Operating free surplus generated from in-force insurance and asset
management business
|
2,740
|
2,760
|
(1)
|
|
2,725
|
1
|
Investment in new business
|
(733)
|
(567)
|
(29)
|
|
(552)
|
(33)
|
Operating free surplus generated from insurance and asset
management business
|
2,007
|
2,193
|
(8)
|
|
2,173
|
(8)
|
Central costs and eliminations (net of tax):
|
|
|
|
|
|
|
Net
interest paid on core structural borrowings
|
(172)
|
(200)
|
14
|
|
(200)
|
14
|
Corporate
expenditure
|
(230)
|
(276)
|
17
|
|
(277)
|
17
|
Other
items and eliminations
|
(18)
|
(66)
|
73
|
|
(66)
|
73
|
Restructuring and IFRS 17 implementation costs (net of
tax)
|
(192)
|
(277)
|
31
|
|
(275)
|
30
|
Net Group operating free surplus generated
|
1,395
|
1,374
|
2
|
|
1,355
|
3
|
Non-operating and other movements, including foreign
exchange
|
(206)
|
(2,371)
|
|
|
|
|
External cash dividends
|
(533)
|
(474)
|
|
|
|
|
Increase (decrease) in Group free surplus before net subordinated
debt redemption
|
656
|
(1,471)
|
|
|
|
|
Net subordinated debt redemption
|
(421)
|
(1,699)
|
|
|
|
|
Increase (decrease) in Group free surplus before amounts
attributable to non-controlling interests
|
235
|
(3,170)
|
|
|
|
|
Change in amounts attributable to non-controlling
interests
|
(9)
|
(10)
|
|
|
|
|
Free surplus at beginning of year
|
12,229
|
15,409
|
|
|
|
|
Free surplus at end of year
|
12,455
|
12,229
|
|
|
|
|
Free surplus at end of year excluding distribution rights and other
intangibles
|
8,518
|
8,390
|
|
|
|
|
Operating free surplus generated from in-force insurance and asset
management business was broadly flat at $2,740 million when
compared with the prior year. The cost of investment in new
business increased by 33 per cent to $(733) million largely
reflecting the increase in APE sales of 37 per cent. As a
consequence, the Group generated an operating free surplus from
insurance and asset management operations before restructuring
costs of $2,007 million, down (8) per cent compared to
2022.
After allowing for lower central costs and restructuring and IFRS
17 costs, total Group free surplus generation was up 3 per cent to
$1,395 million.
After allowing for short-term market and currency losses, the
redemption of debt (which is treated as capital for free surplus
purposes), and the external dividend payment, free surplus at 31
December 2023 was $12.5 billion as compared to $12.2 billion at the
start of the year. Excluding distribution rights and other
intangibles, free surplus was $8.5 billion (31 December 2022: $8.4
billion).
Dividend
Reflecting the Group's capital allocation priorities, a portion of
capital generation will be retained for reinvestment in organic
growth opportunities and for investment in capabilities, and
dividends will be determined primarily based on the Group's
operating capital generation after allowing for the capital strain
of writing new business and recurring central costs. Dividends are
expected to grow broadly in line with the growth in the Group's
operating free surplus generation, and will be set taking into
account financial prospects, investment opportunities and market
conditions.
Recognising the strong conviction we have in the Group's new
strategy, the Board indicated alongside the strategy update in
August 2023, that when determining the annual dividend, it intended
to look through the investments in new business and investments in
capabilities, and expected the annual dividend to grow in the range
7 - 9 per cent per annum over 2023 and 2024.
The Board has applied this approach to determining the 2023 second
interim cash dividend, and has approved a 2023 second interim cash
dividend of 14.21 cents per share (2022: 13.04 cents per share).
Combined with the first interim cash dividend of 6.26 cents per
share (2022: 5.74 cents per share), the Group's total 2023 cash
dividend is 20.47 cents per share (2022: 18.78 cents per share), an
increase of 9 per cent.
The Board intends to maintain this approach, and continues to
expect the 2024 annual dividend to grow in the range 7 - 9 per
cent.
Group capital position
The Prudential Group applies the Insurance (Group Capital) Rules
set out in the GWS Framework issued by the Hong Kong Insurance
Authority ('HKIA') to determine Group regulatory capital
requirements (both minimum and prescribed levels). The GWS Group
capital adequacy requirements require that total eligible Group
capital resources are not less than the GPCR and that GWS Tier 1
group capital resources are not less than the GMCR. More
information is set out in note I(i) of the Additional financial
information.
The Group holds material participating business in Hong Kong,
Singapore and Malaysia. Alongside the regulatory GWS capital basis,
a shareholder GWS capital basis is also presented which excludes
the contribution to the Group GWS eligible Group capital resources,
the GMCR and the GPCR from these participating funds.
|
31 Dec 2023
|
31 Dec 2022
|
|
Shareholder
|
Policyholder*
|
Total†
|
Shareholder
|
Policyholder*
|
Total†
|
Group capital resources ($bn)
|
24.3
|
14.3
|
38.6
|
23.2
|
12.6
|
35.8
|
of which: Tier 1 capital resources ($bn)
|
17.1
|
1.2
|
18.3
|
15.9
|
1.5
|
17.4
|
|
|
|
|
|
|
|
Group Minimum Capital Requirement ($bn)
|
4.8
|
1.1
|
5.9
|
4.4
|
0.9
|
5.3
|
Group Prescribed Capital Requirement ($bn)
|
8.2
|
11.4
|
19.6
|
7.6
|
10.1
|
17.7
|
|
|
|
|
|
|
|
GWS capital surplus over GPCR ($bn)
|
16.1
|
2.9
|
19.0
|
15.6
|
2.5
|
18.1
|
GWS coverage ratio over GPCR (%)
|
295%
|
|
197%
|
307%
|
|
202%
|
|
|
|
|
|
|
|
GWS Tier 1 surplus over GMCR ($bn)
|
|
|
12.4
|
|
|
12.1
|
GWS Tier 1 coverage ratio over GMCR (%)
|
|
|
313%
|
|
|
328%
|
*
This allows for any associated diversification impacts between the
shareholder and policyholder positions reflected in total company
results where relevant.
†
The total company GWS coverage ratio over GPCR presented above
represents the eligible group capital resources coverage ratio as
set out in the GWS framework while the total company GWS tier 1
coverage ratio over GMCR represents the tier 1 capital coverage
ratio.
As at 31 December 2023, the estimated shareholder GWS capital
surplus over the GPCR is $16.1 billion (31 December 2022: $15.6
billion), representing a coverage ratio of 295 per cent (31
December 2022: 307 per cent) and the estimated total GWS capital
surplus over the GPCR is $19.0 billion (31 December 2022: $18.1
billion) representing a coverage ratio of 197 per cent (31 December
2022: 202 per cent). During January 2023 the Group redeemed $0.4
billion of senior debt equivalent to a reduction of 5 percentage
points to the shareholders' GWS coverage ratio over GPCR measured
at 31 December 2022 and a 2 percentage points reduction to total
GWS coverage ratio over GPCR measured at the same
date.
Operating capital generation in 2023 was $1.4 billion after
allowing for central costs and the investment in new business. This
was offset by the payment of external dividends of $(0.5)
billion.
The Group's GWS position is resilient to external macroeconomic
movements as demonstrated by the sensitivity disclosure contained
in note I(i) of the Additional financial information, alongside
further information about the GWS measure.
Financing and liquidity
The Group manages its leverage on a Moody's total leverage basis,
which takes into account gross debt, including commercial paper,
and also allows for a proportion of the surplus within the Group's
with-profits funds. The Group's leverage target is to be between 20
and 25 per cent on a Moody's total leverage basis over the medium
term. Moody's have not finalised how they will calculate leverage
under IFRS 17 but are consulting on a proposal to consider up to 50
per cent of any company's CSM as equity. This has yet to be
incorporated into Moody's formal methodology and hence has not been
incorporated into the Group's target above. At 31 December 2023, we
estimate that our Moody's total leverage was 20 per
cent2 (31
December 2022: 21 per cent2,
before allowing for the £300 million senior bonds redeemed in
January 2023). This would reduce to circa 14 per cent (31 December
2022: 15 per cent, before allowing for the £300 million senior
bonds redeemed in January 2023) if a 50 per cent equity credit for
the CSM was provided.
Prudential seeks to maintain its financial strength rating with
applicable credit rating agencies, which derives, in part, from its
high level of financial flexibility to issue debt and equity
instruments, which is intended to be maintained in the
future.
Net core structural borrowings of shareholder-financed
businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 Dec 2023 $m
|
|
31 Dec 2022 $m
|
|
IFRS
basis
|
Mark-to-market value
|
EEV
basis
|
|
IFRS
basis
|
Mark-to-market value
|
EEV
basis
|
Borrowings of shareholder-financed businesses
|
3,933
|
(274)
|
3,659
|
|
4,261
|
(427)
|
3,834
|
Less: holding company cash and short-term investments
|
(3,516)
|
-
|
(3,516)
|
|
(3,057)
|
-
|
(3,057)
|
Net core structural borrowings of shareholder-financed
businesses
|
417
|
(274)
|
143
|
|
1,204
|
(427)
|
777
|
Moody's total leverage
|
20%
|
|
|
|
21%
|
|
|
The total borrowings of the shareholder-financed businesses were
$3.9 billion at 31 December 2023 (31 December 2022: $4.3
billion). The Group had central cash resources of $(3.5) billion at
31 December 2023 (31 December 2022: $(3.1) billion),
resulting in net core structural borrowings of the
shareholder-financed businesses of $0.4 billion at end of 31
December 2023 (31 December 2022: $1.2 billion). We have not
breached any of the requirements of our core structural borrowings
nor modified any of their terms during 2023.
On 20 January 2023 the Group redeemed £300 million ($371
million) senior bonds as they reached their maturity, and on 10
July 2023 the Group redeemed a €20m ($22 million) medium-term
note as it fell due on 10 July 2023. In addition, the Group has a
$750 million perpetual note that reached its first call date in
January 2023 at which time the Group's management elected not to
call it. We retain the right to call this security at par on a
quarterly basis hereafter. The Group's remaining securities have
contractual maturities that fall between 2029 and 2033. Further
analysis of the maturity profile of the borrowings is presented in
note C5.1 to the IFRS financial results.
On 2 March 2023 the Group's parent company, Prudential plc,
transferred all of its borrowings to a wholly-owned indirect
subsidiary, Prudential Funding (Asia) plc. Prudential plc has
provided a guarantee to holders of the debt instruments in the
event of default by Prudential Funding (Asia) plc. Other terms of
the borrowings, and the value recognised by the Group, were
unchanged by this transfer.
In addition to its net core structural borrowings of
shareholder-financed businesses set out above, the Group has
structures in place to enable access to funding via the medium-term
note programme, the US shelf programme (the platform for issuance
of SEC registered bonds in the US market), a commercial paper
programme and committed revolving credit facilities. All of these
are available for general corporate purposes. Proceeds from the
Group's commercial paper programme are not included in the holding
company cash and short-term investment balance.
Prudential plc has maintained a consistent presence as an issuer in
the commercial paper market for the past decade and had $699
million in issue at 31 December 2023 (31 December 2022: $501
million).
As at 31 December 2023, the Group had a total of $2.6 billion of
undrawn committed facilities, expiring in 2026. Apart from small
drawdowns to test the process, these facilities have never been
drawn, and there were no amounts outstanding at 31 December 2023.
The Group has reviewed its requirements for committed facilities
and after the balance sheet date on15 February 2024, the Group
renewed its undrawn committed facilities for a total of $1.6
billion expiring 2029.
Cash remittances
The definition of holding company cash and short-term investments
was updated, with effect from 31 December 2022, following the
combination of the Group's London office and Asia regional office
into a single Group Head Office in 2022. The inclusion of amounts
previously managed on a regional basis increased the holding
company cash and short-term investment by $0.9 billion at 31
December 2022.
Holding company cash flow
|
|
|
|
|
Actual exchange rate
|
|
2023 $m
|
2022 $m
|
Change %
|
Net cash remitted by businesses units
|
1,611
|
1,304
|
24
|
Net interest paid
|
(51)
|
(204)
|
75
|
Corporate expenditure
|
(271)
|
(232)
|
(17)
|
Centrally funded recurring bancassurance fees
|
(182)
|
(220)
|
17
|
Total central outflows
|
(504)
|
(656)
|
23
|
Holding company cash flow before dividends and other
movements
|
1,107
|
648
|
71
|
Dividends paid
|
(533)
|
(474)
|
(12)
|
Operating holding company cash flow after dividends but before
other movements
|
574
|
174
|
230
|
Other movements
|
|
|
|
Issuance and redemption of debt
|
(393)
|
(1,729)
|
77
|
Other corporate activities
|
226
|
248
|
(9)
|
Total other movements
|
(167)
|
(1,481)
|
89
|
Net movement in holding company cash flow
|
407
|
(1,307)
|
n/a
|
Cash and short-term investments at the beginning of the
year
|
3,057
|
3,572
|
|
Foreign exchange and other movements
|
52
|
(113)
|
|
Inclusion of amounts at 31 Dec from additional centrally managed
entities
|
-
|
905
|
|
Cash and short-term investments at the end of the year
|
3,516
|
3,057
|
|
Remittances from our businesses were $1,611 million (2022: $1,304
million).The remittances are net of cash advanced to CPL, our joint
venture business in the Chinese Mainland, of $176 million in
anticipation of a future capital injection, as previously announced
in December 2023. Remittances were used to meet central outflows of
$(504) million (2022: $(656) million) and to pay dividends of
$(533) million (2022: $(474) million).
Central outflows include net interest paid of $(51) million (2022:
$(204) million), which is net of interest and similar income earned
on central cash balances in 2023, largely on balances brought into
the updated definition of holding company cash and short-term
investments at the end of 2022. In addition, lower interest
payments were made on core structural borrowings in 2023 as
compared with the prior year.
Cash outflows for corporate expenditure of $(271) million (2022:
$(232) million) include cash outflows for restructuring
costs.
Other cash flow movements included net receipts from other
corporate activities of $226 million (2022: $248 million)
comprising largely of proceeds received from the sale of our
remaining shares in Jackson Financial Inc. as well as dividend
receipts. In 2023, the Group redeemed senior bonds as they reached
their maturity at a cost of $393 million.
The Group will continue to seek to manage its financial condition
such that it has sufficient resources available to provide a buffer
to support the retained businesses in stress scenarios and to
provide liquidity to service central outflows.
Notes
(1)
Adjusted release of CSM reflects an adjustment to the release of
CSM figure as shown in note C3.2 of the IFRS financial results of
$(3) million (2022: $23 million) for the treatment adopted for
adjusted operating purposes of combining losses on onerous
contracts and gains on profitable contracts that can be shared
across more than one annual cohort. See note B1.3 to the IFRS
financial results for more information.
(2)
Calculated with no adjustment for the value of contractual service
margin in equity and with 50 per cent of the with-profits estate
treated as equity.
(3)
See note II of the Additional unaudited financial information for
definition and reconciliation to IFRS balances.
Segment Discussion
Delivering through our multi-market growth engines
The following commentary provides an overview of each of the
Group's segments, together with a discussion of their 2023
financial performance.
As in previous years, we discuss our performance on a constant
currency basis, unless stated otherwise. The definitions of the key
metrics we use to discuss our performance in this report are set
out in the 'Definition of performance metrics' section later in
this document, including, where relevant, references to where these
metrics are reconciled to the most directly comparable IFRS
measure.
Chinese Mainland - CITIC Prudential Life (CPL)
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023
|
2022
|
Change
|
|
2022
|
Change
|
APE sales ($m)
|
534
|
884
|
(40)%
|
|
840
|
(36)%
|
New business profit ($m)
|
222
|
387
|
(43)%
|
|
368
|
(40)%
|
New business margin (%)
|
42
|
44
|
(2)ppts
|
|
44
|
(2)ppts
|
Adjusted operating profit ($m)
|
368
|
271
|
36%
|
|
258
|
43%
|
IFRS (loss) after tax ($m)
|
(577)
|
(345)
|
(67)%
|
|
(328)
|
(76)%
|
Amounts included in the table above represents the Group's 50 per
cent share.
Prudential's life business in the Chinese Mainland, CPL, is a 50/50
joint venture with CITIC, a leading Chinese state-owned
conglomerate. CPL benefits from the strong brands of both
shareholders with a truly multi-distribution platform offering a
diverse set of products to meet customers' needs.
CPL is an established franchise with an extensive footprint across
23 branches covering 102 cities. CPL is focused on the affluent and
advanced affluent segments of the market where personal income
levels from these segments have more economic resilience and which
are still significantly under penetrated. CPL has a high quality
agency force and an extensive network of 62 bancassurance partners
with access to over 5,600 branches across the Chinese
Mainland.
During December 2023 Prudential announced that it was providing
additional growth capital to CPL of RMB1.25 billion (US$176
million) in cash, with CITIC, its joint venture partner providing
an equal amount. The additional capital supports new business
growth and improves CPL's regulatory capitalisation. The business
will be focused on margin maintenance, strong risk management
through a rebalanced product mix and seeking quality growth in its
agency channel through targeted agent recruitment and improved
productivity and from improved penetration of its customer bases of
its bank partners.
Financial performance
During 2023 CPL pro-actively diversified its products with a pivot
towards whole-life products and higher margin annuity and
longer-premium payment term products. The re-pricing approach was
ratified by the regulator in the second half of 2023 with further
regulatory guidance on expense control for the bancassurance
channel, and was implemented well ahead of the
industry.
Consequently, 2023 saw new business profit in CPL fall by (40) per
cent reflecting both lower volumes and adverse economic impacts.
Bancassurance channel sales declined driven by the regulatory
reform on expense control of the channel mentioned above,
which was partially offset by growth in the agency channel.
Excluding the effects of interest rates and other economic
movements, new business margin grew by six percentage points as a
result of actions to rebalance the product proposition. Including
the effects of economics the new business margin declined by two
percentage points.
CPL has grown long term protection APE sales by 27 per cent with
strong whole life protection propositions and enhanced critical
illness features targeting elderly and infants.
CPL's agency business saw an increase in APE sales and new business
profit reflecting an increase in the productivity of our agents and
a high agent activation rate. We have seen an increase in agent
productivity in the year, both in terms of policies sold per agent
(up 11 per cent) and new business profit per agent (up 26 per
cent). The agents provisionally qualified for the Million Dollar
Round Table (MDRT) in 2023 increased by 19 per cent to more than
1,000 along with an increase in new agents by 6 per
cent.
As previously noted, during 2023 CPL proactively rebalanced its
bancassurance sales mix between whole-life products and higher
margin annuity and longer-premium payment term products. CPL's
bancassurance business was further affected by expense regulatory
reforms during the second half of the year. As a result APE sales
through the bancassurance channel fell materially. We see the
recent regulatory driven transformations as conducive to the
long-term development of the insurance industry particularly on
health and protection and retirement. We believe these
transformations and other actions in 2023, leave CPL well
positioned to grow in the future.
The adjusted operating profit for our business in the Chinese
Mainland, CPL, increased by 43 per cent to $368 million, reflecting
an increased longer-term net investment result given a higher asset
base from increased sales of savings products in recent years and a
reduction in the losses from the contracts classified as onerous
under IFRS 17. The
IFRS loss after tax for the year was $(577) million compared to
$(328) million in the prior year, reflecting lower than expected
equity returns and the net impact of falling interest rates on
insurance assets and liabilities.
Hong Kong
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023
|
2022
|
Change
|
|
2022
|
Change
|
APE sales ($m)
|
1,966
|
522
|
277%
|
|
523
|
276%
|
New business profit ($m)
|
1,411
|
384
|
267%
|
|
384
|
267%
|
New business margin (%)
|
72
|
74
|
(2)ppts
|
|
73
|
(1)ppts
|
Adjusted operating profit ($m)
|
1,013
|
1,162
|
(13)%
|
|
1,162
|
(13)%
|
IFRS profit/ (loss) after tax ($m)
|
976
|
(742)
|
n/a
|
|
(742)
|
n/a
|
In Hong Kong, Prudential is a trusted household brand, with a
premium agency force and is among the top three life
insurers1.
In 2023, we significantly outperformed the market increasing our
market share, resulting in a number one ranking for the offshore
business1.
Our premier agency force and strong partnership with Standard
Chartered Bank position us well to address the unique needs of the
customers across different life stages, including comprehensive
health and protection solutions and long-term savings and
retirement solutions to address the wealth accumulation, retirement
and legacy planning needs. We are well positioned to serve the
needs of Chinese Mainland customers, which include diversification
of currency and asset class, professional financial advice across a
broad product spectrum and access to high-quality medical care
available in Hong Kong. Our surveys of potential Chinese Mainland
customers report consistent demand for long term savings and health
and protection products. With our newly opened Macau branch, we are
present in all 11 cities2 in
the Greater Bay Area, with a population of over 85 million
people3.
Financial performance
New business profit increased by 267 per cent to $1,411 million,
largely reflecting the increase in APE sales.
APE sales for our business in Hong Kong increased by 276 per cent
to $1,966 million in 2023, reflecting the strong demand from both
Domestic customers and Chinese Mainland visitors as borders
reopened in early 2023, with growth across all distribution
channels. The Hong Kong economy continued to recover year-on-year
led by inbound tourism and domestic demand, with over 26 million
people from the Chinese Mainland visiting Hong Kong in 2023.
Visitor numbers in the year were circa 60 per cent of that in 2019,
before the Covid-19 pandemic, while APE sales to Chinese Mainland
visitors in the same period were circa 1.1 times of that in 2019,
but marginally still below the levels of 2018, prior to any
Covid-19 related disruption. In addition, we also saw growth of 36
per cent in our domestic segment supported by new product launches
and customer campaigns.
While savings products contribute the majority of APE sales, due to
large case sizes, on a policy count basis, health and protection
sales represented 58 per cent of new policy issuances, reflecting
the growth in both agency and bancassurance channels.
We increased APE sales in our health business by 22 per cent and
generated a new business profit for health business of $86 million,
covering more than 550,000 customers.
Our agency channel contributed to 70 per cent of APE sales, with
robust growth of 352 per cent supported by domestic and Chinese
Mainland customers. We have reached our recruitment target of
hiring 4,000 agents in 2023, the vast majority of which have
already had regulatory approval. Our active agents increased by 72
per cent with an increase in monthly new business profit per active
agent by 128 per cent, contributing to an increase in agency
channel new business profit of 294 per cent.
Our bancassurance channel also saw significant growth with APE
sales up 52 per cent. The proportion of APE sales comprising health
and protection products increased from 5 per cent in 2022 to 13 per
cent in 2023, which, together with the growth in APE sales,
contributed to an increase in new business profit of 93 per cent.
Of the overall bancassurance APE sales, around 68 per cent were
from 'new to insurance' customers compared to 50 per cent in 2022,
reflecting strong demand for our products. In advance of the
reopening of border with the Chinese Mainland, we reactivated our
broker network which delivered significant increase in APE sales
increasing our market share and ranking in broker
channel.
Overall the new business margin for Hong Kong was broadly stable at
72 per cent (2022: 73 per cent), reflecting a favourable shift in
channel mix to the growing agency business, offset by the impact of
product mix shifts reflecting higher case sizes of relatively lower
margin savings products sold to Chinese Mainland customers.
Economic impacts only marginally decreased the margin.
Normalisation of savings product case sizes, combined with an
increase in the proportion of health and protection sales, led to
favourable product mix shifts and margins increasing in the second
half of the year.
In Hong Kong, adjusted operating profit was $1,013 million, down
(13) per cent mainly due to reduced net investment return
associated with lower opening asset balances following adverse
market movements in 2022 and a lower level of positive claims and
expense variance as a result of our continued investment in our
strategic pillars.
The IFRS profit after tax for our Hong Kong business was $976
million compared to a loss after tax of $(742) million in 2022. The
loss in 2022 largely reflected investment losses given the large
increase in interest rates in that period. This compares to a more
stable interest rate environment in 2023.
Indonesia
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023
|
2022
|
Change
|
|
2022
|
Change
|
APE sales ($m)
|
277
|
247
|
12%
|
|
240
|
15%
|
New business profit ($m)
|
142
|
125
|
14%
|
|
122
|
16%
|
New business margin (%)
|
51
|
51
|
-ppts
|
|
51
|
-ppts
|
Adjusted operating profit ($m)
|
221
|
205
|
8%
|
|
200
|
11%
|
IFRS profit after tax ($m)
|
156
|
108
|
44%
|
|
104
|
50%
|
In Indonesia, we are among the top three life insurers in both the
conventional and Syariah markets1.
We continue to offer innovative products, through a diversified
distribution network. We have a leading premier agency force with a
29 per cent agency market share1,
contributing around 80 per cent of overall APE sales. Through our
dedicated Syariah life insurance entity, we are well positioned to
meet the growing demands for Syariah solutions and support the
growth of the Syariah community and economy.
Financial performance
Overall new business profit grew by 16 per cent to $142 million,
marginally above the growth in APE sales. In the second half of
2023, new business profit grew slower than in the first half but
was still a double-digit percentage increase supported by a
strategic pivot from individual linked products to traditional life
products and a favourable shift in channel mix towards agency
business. We have revamped our unit-linked product propositions
with enhanced benefits in response to new regulations governing the
design, sale and management of unit-linked products (commonly known
as PAYDI in the market). APE sales for our business in Indonesia
grew by 15 per cent to $277 million. Health and protection APE
sales grew by 18 per cent in 2023 assisted by repricing actions and
medical riders upgrades.
Our diversified distribution network comprises our high quality
agency force, a long-standing partnership with Standard Chartered
Bank and UOB, other bank partnerships and direct
marketing.
APE sales for the agency channel increased by 18 per cent. The
growth in agency channel sales was achieved amidst a wider industry
slowdown and we saw monthly new business profit per active agent
increase by 7 per cent. This was supported by our transformation
programme that commenced in 2022, where we accelerated agency
channel growth by revamping our sales management model, upgrading
our training programme and redesigning our compensation scheme to
incentivise quality sales and productivity growth as well as
successful repricing. We have over 1,100 agents provisionally
qualified for the Million Dollar Round Table (MDRT) in 2023, an
increase of over 40 per cent from the prior year.
In the bancassurance channel, our strategic partnerships provide us
an opportunity to provide solutions across a wide spectrum of
customer segments. We saw a marginal increase in APE sales from our
bancassurance channel. We continue to drive high margin health and
protection business, with over 38 per cent of APE sales in the
bancassurance channel from health and protection products. The
integration of Citi Bank with UOB, which commenced in the fourth
quarter of 2023, is now completed and we will be able to offer
comprehensive solutions to the expanded customer base. We see
long-term growth opportunities given our existing partnerships and
potential for new partnerships.
The adjusted operating profit for Indonesia increased by $21
million to $221 million in 2023, following the non-repeat of losses
that arose on a small portfolio of contracts that were classified
as onerous under the IFRS 17 methodology in 2022.
The IFRS profit after tax for our business in Indonesia increased
from $104 million to $156 million, reflecting the benefits
described above along with reduced negative short-term investment
variances in 2023 following the drop in interest rates during the
year compared to higher interest rates in 2022.
Malaysia
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023
|
2022
|
Change
|
|
2022
|
Change
|
APE sales ($m)
|
384
|
359
|
7%
|
|
347
|
11%
|
New business profit ($m)
|
167
|
159
|
5%
|
|
154
|
8%
|
New business margin (%)
|
43
|
44
|
(1)ppts
|
|
44
|
(1)ppts
|
Adjusted operating profit ($m)
|
305
|
340
|
(10)%
|
|
329
|
(7)%
|
IFRS profit after tax ($m)
|
257
|
178
|
44%
|
|
173
|
49%
|
In Malaysia, we are a leading life insurer and the largest Takaful
operator1 with
18 per cent and 22 per cent market share respectively. In the young
segment, we continue to provide comprehensive investment linked
propositions along with various health and protection riders, while
in the case of the family segment, we provide core investment
linked propositions, affordable health solution and savings
solutions.
In Malaysia, our diversified distribution network is complemented
by a premier agency force and our bank partnerships with Standard
Chartered Bank, UOB and Bank Simpanan Nasional.
Our conventional and Takaful business in Malaysia featured among
the top five in Life insurance customer satisfaction survey
conducted by 'Bank Negara Malaysia'.
The metrics in the segment table above reflect the Group's 100 per
cent economic interest in the Malaysian conventional Life business
(Prudential Assurance Malaysia Berhad or PAMB) and the Group's
interest in the Takaful joint venture.
Prudential currently owns 51 per cent of the ordinary shares of the
holding company of PAMB and a 49 per cent share in the Takaful
joint venture.
Market liberalisation measures were introduced by BNM, the
Malaysian insurance regulator, in April 2009, which increased the
limit to 70 per cent on foreign equity ownership for insurance
companies and Takaful operators in Malaysia. A higher foreign
equity limit beyond 70 per cent for insurance companies will be
considered by BNM on a case by case basis, for example for
companies who financially support expansion of providing insurance
coverage to the most vulnerable in Malaysian society through the
National B40 Protection Trust Fund.
We are focused on further strengthening our franchise in Malaysia
through enhancing recruitment and activation of the agency force,
increasing customer penetration and breadth of our bank partners as
well as actively managing our health portfolio and we will deploy
capital as needed to support growth.
Financial performance
New business profit for our businesses in Malaysia grew 8 per cent
to $167 million. This growth reflects an increase in APE sales of
11 per cent to $384 million, primarily driven by growth in the
bancassurance channel, due to marketing campaigns and supported by
the merger of UOB and Citibank that has widened the number of
accessible customers. The growth in APE sales from the
bancassurance channel was offset in part by a marginal decline in
the agency channel.
We recruited more than 6,800 agents in 2023, and more than
550 agents provisionally qualified for Million Dollar Round Table
(MDRT). Following these initiatives, we saw an increase in monthly
new business profit per active agent resulting in an 8 per cent
increase in new business profit, despite a marginal decline in APE
sales. We continue to take actions to improve productivity by
developing programs to support both new and established agents
which have seen productivity increase consistently each quarter
since the start of 2023.
We maintained the market leadership position in the conventional
bancassurance channel, demonstrating the strength of our strategic
bank partnerships. We continue to provide comprehensive
propositions for the diverse needs of customers in each of the high
net worth, affluent and mass market segments and we seek to
increase the penetration into our bank partners' customer base.
Overall we saw a 36 per cent increase in the APE sales through the
bancassurance channel leading to double digit growth in new
business profit.
The adjusted operating profit for our business in Malaysia declined
by (7) per cent to $305 million, primarily driven by a
normalisation of claims experience as the number of medical
reimbursement cases returned to pre-pandemic levels.
The IFRS profit after tax for our business in Malaysia increased
from $173 million to $257 million, primarily reflecting the
positive impacts from the decline in interest rates in Malaysia,
compared to increasing interest rates in 2022.
Singapore
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023
|
2022
|
Change
|
|
2022
|
Change
|
APE sales ($m)
|
787
|
770
|
2%
|
|
791
|
(1)%
|
New business profit ($m)
|
484
|
499
|
(3)%
|
|
512
|
(5)%
|
New business margin (%)
|
61
|
65
|
(4)ppts
|
|
65
|
(4)ppts
|
Adjusted operating profit ($m)
|
584
|
570
|
2%
|
|
585
|
-%
|
IFRS profit/ (loss) after tax ($m)
|
512
|
(7)
|
n/a
|
|
(7)
|
n/a
|
In Singapore, we are one of the market leaders in protection,
savings and investment-linked plans1.
We have been serving the financial needs of Singapore residents for
more than 90 years, delivering a suite of product offerings and
professional advice through our network of agents and financial
advisors and our bank partners. Through our two strategic partners,
UOB and Standard Chartered Bank, we gain access to the retail,
commercial banking, and high net worth customer base of two
established banks in Singapore.
We remain focused on our customers and seek to address their needs
across the life stages. In the affluent segment, we offer
comprehensive health and retirement solutions. We are one of the
key players in the integrated Shield market (private insurance
coverage that integrates with the national MediShield Life scheme),
and continue to explore innovative partnerships with healthcare and
technology providers to enhance our offerings. For the younger
generation, we continually improve our investment-linked
propositions and expand options for ESG - themed investments for
customers. Finally, we serve the small and medium enterprise (SME)
segment for the employee benefit business.
We received external recognition by winning No.1 Insurer The
Straits Times Singapore's Best Customer Service 2023/24
survey.
Financial performance
2023 saw a challenging operating environment for the life insurance
industry in Singapore due to higher interest rates, particularly in
the first part of the year. New business profit declined by (5) per
cent to $484 million, reflecting a smaller proportion of relatively
high margin single premium participating products, alongside lower
APE sales.
In this context, APE sales declined by (1) per cent to $787
million. Regular premium sales have seen steady growth across 2023,
with higher new business volume observed in each quarter compared
with the same period in the prior year, and overall achieving
double-digit growth in the year. However, sales of single premium
participating products through the bancassurance channel were
particularly affected by movements in interest rates in the period,
contrasting with the elevated level of sales in the comparative
period particularly in the first half when interest rates were
favourable. In contrast overall APE sales momentum was positive in
the second half of the year, with APE sales in the third quarter
and fourth quarter increasing on the prior quarter driven by the
expansion in regular premium business.
While individual health and protection business have remained at a
stable level in our product mix, we saw a shift in customer
interest and new business sales towards investment-linked policies.
While new business profit margin for the year declined overall, we
saw sequential improvement across quarters during the year with
growing momentum in sales of higher margin individual protection
and investment-linked business.
Our enterprise benefit business delivered good growth with APE
sales increasing by 9 per cent, covering around 3,000
small-to-medium enterprises and over 200,000 employees. Our Shield
APE grew 9 per cent over last year as we increase the provision of
value-added and wellness related services to
customers.
Overall new business profit from the Agency channel improved by 4
per cent in the year, reflecting positive product mix effects from
a growth in the proportion of sales from Shield and higher margin
individual protection products. APE sales for the agency channel
decreased by (4) per cent in the year. Regular premium APE sales in
our agency channel grew 4 per cent compared with the prior
year.
At the end of 2023 our total financial consultant force, of agents
and financial advisors increased by 3 per cent when compared with
2022. Our number of eligible Agency MDRT members remained stable at
over 1,280 agents in 2023.
We launched Prudential Financial Advisor channel in April 2023,
which is the first financial advisory firm in the Prudential Group.
PFA will offer a wide range of products and services including
general insurance and wealth solutions, in addition to Prudential's
core solutions in whole and term life, health & protection,
savings, retirement and employee benefits. With this, we aim to
cater to the growing and diverse needs of various customer segments
in Singapore, as well as boost financial representative
recruitment.
Reflecting the decline in high margin single premium products,
bancassurance new business profit declined by (24) per cent in the
year. However, bancassurance APE sales increased 2 per cent
compared with the prior year. Pivoting to customer needs in this
environment we have launched regular premium investment linked
products and sales of these products gathered momentum in the
second half of 2023. The level of regular premium business in
bancassurance channel stands at 81 per cent overall in 2023, 41
percentage points higher than 2022.
Our adjusted operating profit for our business in Singapore
remained at similar level at $584 million, with the higher release
of CSM and risk adjustment offset by a lower net investment return,
following the adverse market movements in 2022 lowering the opening
investment balances.
The IFRS profit after tax for our Singapore business was $512
million compared with a loss after tax of $(7) million in 2022.
This largely reflected higher investment losses in 2022 following
the significant increase in interest rates in that
year.
Growth markets and other
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023
|
2022
|
Change
|
|
2022
|
Change
|
APE sales ($m)
|
1,928
|
1,611
|
20%
|
|
1,546
|
25%
|
New business profit ($m)
|
699
|
630
|
11%
|
|
609
|
15%
|
New business margin (%)
|
36
|
39
|
(3)ppts
|
|
39
|
(3)ppts
|
Adjusted operating profit ($m)
|
746
|
728
|
2%
|
|
715
|
4%
|
IFRS profit after tax ($m)
|
775
|
314
|
147%
|
|
304
|
155%
|
Our growth markets and other segment incorporates our life
businesses Thailand, Vietnam, the Philippines, Cambodia, Laos and
Myanmar in the ASEAN region, as well as those in India, Taiwan, and
Africa.
Life new business profits grew by 15 per cent to $699 million, the
second largest segment in the Group, and APE sales grew 25 per cent
to $1,928 million.
There was a small fall in overall new business margin as a result
of country mix following a fall in consumer sentiment and hence
lower sales in Vietnam.
The adjusted operating profit was $746 million, up 4 per cent. This
reflects an increase in the release of CSM and net investment
return aided by recent new business growth. These effects are
partially offset by the elevated expenses supporting the continued
investment in our strategic pillars together with less favourable
claims experience.
The IFRS profit after tax and adjusted operating profit for Growth
market and others also includes the tax charge on the profits for
joint venture life business in Chinese Mainland and Malaysia. The
IFRS profit after tax in the Growth market and other segment
increased from $304 million to $775 million, largely reflecting
significant investment losses in 2022 from higher interest rates in
most of our markets.
A detailed discussion of new business performance by key businesses
in presented below.
Thailand
In Thailand we are focused on our bancassurance channel supported
by alternative distribution methods including digital, agency,
direct marketing and brokerage. New business profit declined by 6
per cent, largely as a result of interest rate changes. APE sales
grew by 4 per cent following a high base in 2022, benefiting from
double-digit growth from our UOB bank partnership and an increase
in the contribution of Group employee benefit (EB)
solutions.
Our distribution partnerships have benefited in the year through
the integration of the Citi and UOB organisations in Thailand. We
also revamped our online application platform ('PRUPlus') to
improve reliability and enhance the seller and customer experience.
At the end of 2023 we invested in a new bancassurance partnership
with CIMB, becoming the exclusive life insurance partner of CIMB
Thai. Prudential Thailand seeks to accelerate its growth plans
building on the fact that it is already the third largest
bancassurance player in the market1.
Vietnam
Prudential is the leading life insurance company in Vietnam, which
has the third-largest population in ASEAN, and operates with a
diversified distribution mix.
New business profit for our business in Vietnam declined
materially, albeit there was an improvement in new business
margins, particularly from the bancassurance business and interest
rate effects. APE sales declined by 33 per cent, against an overall
market decline of 41 per cent, reflecting an industry-wide fall in
consumer sentiment. However, the business's focus on customers and
the strength of its agency force has seen it outperform the market,
increase its market share and retain the number one position in the
market.
We continue to expand our geographical footprint in urban areas
through technology-powered agency and bancassurance channels. Our
diversified distribution includes our established agency force,
which includes more than 1,500 agents provisionally qualified for
Million Dollar Round Table (MDRT), and seven exclusive bank
partnerships.
We extended our exclusive bancassurance partnership with Vietnam
International bank until 2036, developing new industry-leading
quality standards and contributing to the healthy and sustainable
development of bancassurance in Vietnam. We continue to focus on
improving sales quality and strengthening our relationships with
our bank partners to widen our reach to customers through their
combined 800 branches in Vietnam.
The Philippines
We are the market leader in the Philippines with 17 per cent market
share1 by
weighted new business premium, based on the latest available market
data reflecting the core strength of our leading agency force. With
our young and digitally empowered agency force, we have one of the
largest agency forces in the country. Competition for quality
agents is strong and we have taken steps to retain talent. We
continue to offer a wide range of products to meet our customers'
savings and protection needs. New business profit in 2023 delivered
double-digit growth, despite a marginal (2) per cent decline in APE
sales reflecting a favourable impact from product mix and economic
tailwinds. We will continue to strengthen our distribution network
through onboarding and nurturing high-quality agents, equipped by
digital capabilities, as well as continue to enhance customer
experiences through offering comprehensive solutions and seamless
customer experiences.
India
Our associate business in India, ICICI Prudential Life,
successfully accomplished its objective to double its 2019 new
business profit by 2023 through its '4P' strategic framework for
Premium growth, Protection focus, Persistency improvement and
Productivity enhancement.
New business profit was up 2 per cent with the uplift from APE
sales growth being offset by adverse economics and a greater
proportion of savings products being sold in the year.
APE sales for ICICI Prudential Life grew by 10 per cent, with a
well-diversified distribution network enabling the company to reach
a wider cross-section of customers to drive growth. The diverse
distribution network comprises more than 200,000 agents including
the addition of 40,000 new agents in 2023 and 42 bank partnerships
with access to more than 20,000 bank branches.
To enhance distribution capabilities, ICICI Prudential has
introduced 'ICICI Pru Stack' a set of platform capabilities
encompassing digital tools and analytical abilities. This provides
distribution partners with greater information on customers and
their needs, and has enabled simplification of the buying journey,
with approximately 40 per cent of long-term savings policies now
issued on the same day as the purchase process starts.
ICICI Prudential Life, of which we hold 22 per cent, is amongst the
top-four private life insurance companies in India and is listed on
the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE)
in India.
Taiwan
Taiwan is the fifth-largest life insurance market in
Asia4,
with a population of 24 million. Prudential is a leading insurance
company in Taiwan among foreign players with an overall APE market
share of 8 per cent in 2023, 3 percentage points higher than 2022.
It also delivered the highest year-on-year growth rate in the
industry during 2023.
Our business in Taiwan provides solutions for long-term savings and
protection to our target market segments. Families remains a key
customer segment for Prudential Taiwan with 31,000 new customers
acquired from this segment (an increase in the year of 104 per
cent).
In Taiwan we saw 86 per cent APE sales growth in 2023, supported by
a diversified channel mix in bancassurance and brokerage channels,
with strong local bank partners performance as supported by key
products campaign and initiatives. Our newly nurtured bank partners
delivered over double-digit APE sales growth compared to last year,
and contributed to 34 per cent of APE sales in 2023. The sales
performance was attributable to our offering of tailored solutions
to fulfil specific customer needs across saving, protection and
medical needs in different life stages with different currencies.
New business profit rose, driven by this increase in APE sales as
well as favourable product mix changes. The business is focused on
further improving margins.
Africa
Despite macro-economic uncertainties and in particular higher
inflation, APE sales for Africa grew by 26 per cent in 2023, with
double-digit growth in both agency and bancassurance sales. Six out
of the eight markets delivered double-digit growth in the new
business profit in the year. This resulted from an improved channel
and product mix, alongside the growth in APE sales, which led to 33
per cent increase in new business profit.
In Africa, Prudential has an established agency force with over 300
agents who qualified for Million Dollar Round Table membership. In
addition, Prudential Africa has added 13 additional bank partners
in the year, given us access to over 1,700 bank branches in
total.
We will continue to focus our investment and capital on those
markets which are large and in which we see the long-term
attractive returns.
Eastspring
|
Actual exchange rate
|
|
Constant exchange rate
|
|
2023
|
2022
|
Change
|
|
2022
|
Change
|
Total funds under management ($bn)
|
237.1
|
221.4
|
7%
|
|
222.2
|
7%
|
Adjusted operating profit ($m)
|
280
|
260
|
8%
|
|
255
|
10%
|
Fee margin based on operating income (bps)
|
31
|
29
|
2bps
|
|
28
|
3bps
|
Cost/income ratio (%)
|
53
|
55
|
2ppts
|
|
55
|
2ppts
|
IFRS profit after tax ($m)
|
254
|
234
|
9%
|
|
230
|
10%
|
Eastspring is the asset management arm of the Group. Its funds
under management
or advice (referred collectively as funds under management or
FUM) of
$237.1 billion includes $38.5 billion that
represents our
49 per cent share in funds managed by ICICI Prudential Asset
Management Company (IPAMC) in India and $9.7 billion that
represents our 49 per cent share in funds managed by
CITIC-Prudential Fund Management Company Limited (CPFMC) in China.
Eastspring has $141.0 billion of funds under management on behalf
of the Prudential Group.
Investment performance
Eastspring's investment performance saw 44 per cent of FUM
outperforming their benchmarks over the past year (2022: 59 per
cent) and 50 per cent of FUM outperforming their benchmarks over
the past three
years (2022: 39 per cent). Whilst, there was a decline in one-year
outperformance when compared to 2022 mainly driven by
underperformance in three multi-asset portfolios, the
Singapore-based Value Equity teams continued their substantial
outperformance. Both the Growth Equities and Active Quantitative
strategies also posted positive aggregate returns across one and
three years. The Singapore-based Fixed Income team was also able to
turnaround the underperformance experienced in 2022, with 90
per cent of FUM outperforming their benchmarks in 2023. We
continued to upgrade our investment and risk management platform
for multi-asset strategies and investment performance improved in
the fourth quarter of 2023 compared to the prior
quarter.
Eastspring also continued to develop its investment platform and
capabilities through a series of strategic hires, notably in
portfolio risk management and fixed income, and through investment
process enhancements across the various teams. Further work was
progressed in integrating Eastspring's investment performance for
wholly-owned businesses and aligning common investment practices,
including research.
Eastspring continued to be recognised for its achievements, being
named Best Emerging Markets Equity Manager by Citywire Asia Asset
Management Awards for the second consecutive year and Best Value
Investing Manager regionally by Asia Asset Management.
Broadening distribution capabilities
Eastspring's strategy is anchored on understanding its clients and
delivering strong capabilities and products for their bespoke
needs. In 2023, Eastspring continued to extend and deepen its
relationships with third-party clients and Prudential Life
Companies which has generated positive net inflows.
Eastspring continued to build retail partnerships with distributors
and banks. Notably in Japan, the firm expanded its partnerships to
more than 120 retail distributors and converged 22,800 attendees
through 274 workshops and client seminars.
Across the institutional business, the
firm has seen success in its international markets of the Americas,
Europe, Taiwan and Thailand.
Accelerating responsible investing
Eastspring's commitment to responsible investing is embedded across
its business.
Across its markets, Eastspring is focused on driving sustainable
solutions on three fronts. First, Eastspring extended its
engagement programme beyond climate change to include themes of
palm oil, unsustainable timber, and modern slavery. Second, the
firm enhanced its ESG data analytics to support investment
activities via the creation of a proprietary ESG assessment
visualiser and enhanced client reporting tools for climate risk, UN
Sustainable Development Goal alignment and Scope 3 carbon
emissions. Third, the firm published its first Responsible
Investment Report and improved its United Nations Principles for
Responsible Investment (UNPRI) assessment.
Open-architecture technology platform
Eastspring has embarked on a multi-year firm-wide
transformation journey to modernise its business. This
includes upgrading its operating model for robustness and
scalability, as well as enhancing its control
environment.
Through HERA, Eastspring's proprietary cloud-native Data & AI
platform, Eastspring
is making good progress in its ambition to become a data-driven
organisation. Eastspring is already seeing benefits from its early
efforts in the form of an automated Finance 'data-mart' for end to
end reporting, optimising insights across markets, and building
robust data for monitoring and regulatory purposes. The platform
has also powered climate insights for our portfolio and
strengthened real-time risk management through its investment risk
insights.
Joint venture growth initiatives
In India, IPAMC strengthened its distribution capabilities,
servicing a direct client base spread across 300 cities in India.
This resulted a 17 per cent increase in IPAMC's client base to over
9 million; of which around 33 per cent were direct clients. In
addition, IPAMC broadened its product suite into the alternatives
segment focused on private equity and private credit, and raised
$324 million (100 per cent shareholding basis). Reflecting net
inflows coupled with a favourable equity market performance, FUM
for IPAMC grew by 28 per cent (on actual exchange rate
basis).
In China, CPFMC is looking to broaden its product suite with new
fixed income and quantitative products. CPFMC also strengthened its
distribution capabilities with 14 new partnerships, comprising of
10 bank wealth management companies and 4 securities firms. The
depth of our partnership, including the e-commerce platforms has
generated strong net inflows, primarily from money market funds
supporting a 8 per cent increase (on actual exchange rate basis) in
FUM for CPFMC, despite the challenging economic
environment.
Financial performance
|
Actual exchange rate
|
Constant exchange rate
|
|
2023
|
2022
|
Change
|
2022
|
Change
|
|
$m*
|
$m*
|
%
|
$m*
|
%
|
External funds under management ($bn)
|
94.2
|
81.9
|
15
|
81.3
|
16
|
Funds managed on behalf of M&G plc ($bn)
|
1.9
|
9.3
|
(80)
|
9.4
|
(80)
|
External funds under management ($bn)
|
96.1
|
91.2
|
5
|
90.7
|
6
|
|
|
|
|
|
|
Internal funds under management ($bn)
|
110.0
|
104.1
|
6
|
104.9
|
5
|
Internal funds under advice ($bn)
|
31.0
|
26.1
|
19
|
26.6
|
17
|
Total internal funds under management or advice ($bn)
|
141.0
|
130.2
|
8
|
131.5
|
7
|
|
|
|
|
|
|
Total funds under management or advice ($bn)
|
237.1
|
221.4
|
7
|
222.2
|
7
|
|
|
|
|
|
|
Total external net
flows†
|
4,054
|
(1,586)
|
n/a
|
(1,538)
|
n/a
|
|
|
|
|
|
|
Analysis of adjusted operating profit
|
|
|
|
|
|
Retail operating income‡
|
353
|
319
|
11
|
311
|
14
|
Institutional operating income‡
|
347
|
341
|
2
|
342
|
1
|
Operating income before performance-related fees
|
700
|
660
|
6
|
653
|
7
|
Performance-related fees
|
(2)
|
1
|
n/a
|
1
|
n/a
|
Operating income (net of commission)
|
698
|
661
|
6
|
654
|
7
|
Operating expense
|
(372)
|
(360)
|
(3)
|
(359)
|
(4)
|
Group's share of tax on joint ventures' adjusted operating
profit
|
(46)
|
(41)
|
(12)
|
(40)
|
(15)
|
Adjusted operating profit
|
280
|
260
|
8
|
255
|
10
|
Adjusted operating profit after tax
|
254
|
234
|
9
|
230
|
10
|
|
|
|
|
|
|
Average funds managed by Eastspring
|
225.9
|
229.4
|
(2)
|
229.9
|
(2)
|
Fee margin based on operating income
|
31bps
|
29bps
|
2bps
|
28bps
|
3bps
|
Cost/income ratio
|
53%
|
55%
|
2ppts
|
55%
|
2ppts
|
*
Unless otherwise stated.
†
Excluding funds managed on behalf of M&G plc.
‡
During the year Eastspring has reclassified its funds under
management, and associated income, between retail and institutional
categories. Amounts are now classified as retail or institutional
based on whether the owner of the holding is a retail or
institutional investor. Under the previous basis amounts were
classified based on the nature of the investment vehicle in which
the amounts were invested. The revised classification presents the
funds held by each client type on a more consistent basis, which
aligns with typical differences in fee rate basis for each client
type. Prior period figures are restated accordingly.
Eastspring's total funds under management and advice (FUM)
increased by 7 per cent to $237.1 billion (31 December 2022: $221.4
billion on actual exchange rate), reflecting favourable market
movements, and net inflows from third parties (excluding M&G
plc) and the Group's life business. In 2023, there was a shift in
overall asset mix from bonds to equity and multi-assets funds,
while the overall assets remain well diversified across both
clients and asset classes.
Third party net inflows (excluding money market funds and funds
managed on behalf of M&G plc) were $4.1 billion (2022: net
outflows of $(1.5) billion) reflecting inflows into higher margin
retail funds. This was more than offset by net outflows of $(7.6)
billion (2022: $(0.8) billion) from the expected redemption of
funds managed on behalf of M&G plc, with further net outflows
of about $(0.6) billion expected in 2024. In addition, net inflows
from Prudential's life business were $2.3 billion (2022: $8.0
billion).
The average FUM decreased by (2) per cent compared to 7 per cent
increase in closing FUM, largely reflecting the adverse market
movements in 2022. Eastspring's adjusted operating profit increased
by 10 per cent to $280 million, reflecting a circa $20 million net
investment gain, reported within operating income before
performance-related fees (as compared with a net investment loss of
circa $10 million in the prior year) on shareholders'
investments including seed capital. Excluding the gains and losses
on shareholders' investments from both periods, operating profit
was (2) per cent lower, consistent with the decline in average FUM.
There was an improvement in the fee margin and cost/income ratio,
reflecting the higher mix from retail equity funds and the
investment gains as noted above.
Notes
(1)
As reported at full year 2023 unless otherwise specified. Sources
include formal (eg competitors results release, local regulators
and insurance association) and informal (industry exchange) market
share. Ranking based on new business (APE sales, weighted new
business premium, full year premium or weighted first year premium)
or Gross Written Premium depending on availability of data.
Rankings in the case of Chinese Mainland, Taiwan and Myanmar are
among foreign insurers, and for India is among private companies.
Countries based on nine months ended September 2023: Hong Kong,
Philippines, Ghana (Africa) and Kenya (Africa) and full year 2022:
Laos, Zambia (Africa) and Togo (Africa) and full year 2020: Nigeria
(Africa).
(2)
Across Hong Kong, Macau and the Chinese Mainland.
(3)
Source: The Guangdong-Hong Kong-Macao Greater Bay Area Development
Office.
(4)
Source: Swiss Re Institute.
Risk review
Thoughtful risk management through advocating the interests of our
people, customers, regulators and shareholders
1
Introduction
Prudential's Group Risk Framework, risk appetite and robust
governance have enabled the business to manage and control its risk
exposure throughout market volatility and uncertainty in 2023 to
support the Group's strategy of delivering sustainable value for
all our stakeholders. As Prudential focuses on executing its new
strategy across Asia and Africa, the Group-wide Risk, Compliance
and Security (RCS) function has continued to provide risk advice,
recommendations and assurance, as well as engage with Prudential's
Group-wide supervisor, the Hong Kong Insurance Authority (IA), on
critical activities, while overseeing the risks and implications to
the ongoing business with the goal of ensuring that the Group
remains within its approved risk appetite. The Group effectively
leverages its risk management, compliance and security experience
in more mature markets, applying it to its growth markets as
appropriate to their respective risks and the extent of their
challenges under the complex operating environment, and reflective
of opportunities, customer issues and needs, and local customs.
Prudential will continue to take a holistic and coordinated
approach in managing the increasingly dynamic, multifaceted and
often interconnected risks facing its businesses.
Below we explain how we manage risk, including through our risk
governance framework and processes. We then describe the principal
risks the Group faces, including how each principal risk is managed
and mitigated, followed by a detailed description of the specific
risk factors that may affect our business, the Group and our
stakeholders.
2 Risk
governance
a System of governance
Prudential has in place a system of governance that embeds a clear
ownership of risk, together with risk policies and standards to
enable risks to be identified, measured and assessed, managed and
controlled, monitored and reported. The Group Risk Framework, owned
by the Board, details Prudential's risk governance, risk management
processes and risk appetite. The Group's risk governance
arrangements are based on the 'three lines' model. The 'first line'
is responsible for taking and managing risk within the risk
appetite, while the 'second line' provides additional independent
challenge, expertise and oversight to support risk and compliance
management. The role of the 'third line', assumed by the
independent Group-wide Internal Audit function, is to provide
objective assurance on the design, effectiveness and implementation
of the overall system of internal control. The Group-wide RCS
function reviews, assesses, oversees and reports on the Group's
aggregate risk exposure and solvency position from an economic,
regulatory and credit ratings perspective.
In 2023, continuous efforts have been made to ensure the
appropriateness of the level of Group governance that promotes
individual accountability in decision-making and supports the
overall corporate governance framework to provide sound and prudent
management and oversight of the Group's business. The Group also
regularly reviews the Group Risk Framework and supporting policies,
including to ensure sustainability considerations, which form an
integral part of the wider Group governance, are appropriately
reflected in policies and processes and embedded within all
business functions.
b Group Risk Framework
i. Risk governance and culture
Prudential's risk governance comprises the Board organisational
structures, reporting relationships, delegation of authority, roles
and responsibilities, and risk and compliance policies that have
been established to enable business decision-making with respect to
control activities and risk-related matters. The Group Risk
Committee (GRC) leads the risk governance structure, supported by
independent Non-executive Directors on the risk committees of the
Group's major businesses. The GRC approves changes to the Group
Risk Framework and the core risk and compliance policies that
support it, and has direct lines of communication, reporting and
oversight of the risk committees of the Group's major businesses.
The chief risk and compliance officers of the Group's major
businesses and the managing directors of the Group's Strategic
Business Groups are also invited to the Group Executive Risk
Committee, the advisory committee to the Group Chief Risk and
Compliance Officer. The chief risk and compliance officers of the
Group's major businesses also attend GRC meetings on a rotational
basis.
Risk culture is a strategic priority of the Board, which recognises
its importance in the way the Group conducts business. A revised
set of fundamental values was rolled out across the Group in 2023,
referred to as 'The PruWay', that serves as the Group's guiding
principles to ethical and authentic conduct. These values apply
equally to all members of Prudential and its affiliates. The
Responsibility & Sustainability Working Group (RSWG) supports
its responsibilities in relation to implementation of sound culture
considerations in the ways we operate, as well as embedding the
Group's Sustainability Strategy and overseeing progress on
customer, culture, people and community matters. The PruWay defines
how Prudential expects business to be conducted to achieve its
strategic objectives, to build a culture of trust and transparency
that allows our people to thrive, and to deliver sustainable value
for all our stakeholders: customers, employees, shareholders and
the communities in which we operate.
The Group Risk Framework and underlying policies support sound risk
management practices by requiring a focus on customers, longer-term
goals and sustainability, the avoidance of excessive risk taking,
and highlighting acceptable and unacceptable behaviours. This is
supported by: the inclusion of risk and sustainability
considerations in performance management and remuneration for key
executives; the building of appropriate skills and capabilities in
risk management; and ensuring that employees understand and care
about their role in managing risk through open discussions,
collaboration and engagement. The GRC has a key role in providing
advice to the Remuneration Committee on risk management
considerations to be applied in respect of executive
remuneration.
Prudential's Group Code of Conduct and Group Governance Manual,
supported by the Group's risk-related policies, are reviewed
regularly. A revised Group Code of Conduct (the Code) was launched
in November 2023 to further enhance risk culture and awareness
underpinning operational and financial discipline. The Code lays
down the principles and guidelines that outline the ethical
standards and responsibilities of the organisation and our people.
Supporting policies include those related to financial crime,
covering anti-money laundering, sanctions, anti-bribery and
corruption, conduct, conflicts of interest, confidential and
proprietary information and securities dealing. The Group's
Third-Party Supply and Outsourcing Policy requires that human
rights and modern slavery considerations are embedded in material
supplier arrangements. Procedures to allow individuals to speak out
safely and anonymously against unethical behaviours and conduct
violations are also in place.
Further details on the Group's sustainability governance
arrangements and strategic framework are included in the Group's
2023 Sustainability Report.
ii. The risk management cycle
The Group Own Risk and Solvency Assessment (ORSA) is the ongoing
process of identifying, measuring and assessing, managing and
controlling, monitoring and reporting the risks to which the
business is exposed. It includes an assessment of capital adequacy
to ensure that the Group's solvency needs are met at all times, as
well as stress and scenario testing that also includes climate
scenarios.
Risk identification
The Group identifies principal risks in accordance with provision
28 of the UK Corporate Governance Code and the Group-wide
Supervision (GWS) guidelines issued by the HKIA. The Group performs
a robust assessment and analysis of principal and emerging risk
themes through the risk identification process, the Group ORSA
report and the risk assessments undertaken as part of the business
planning review, including how they are managed and mitigated,
which supports decision-making. Top-down and bottom-up processes
are in place to support Group-wide identification of principal
risks. The Group's principal risks, which are reported and managed
by the Group with enhanced focus, are reviewed and updated on a
regular basis.
An emerging risk identification framework also exists to support
the Group's preparations in managing financial and non-financial
risks expected to crystallise beyond the short-term horizon. The
Group's emerging risk identification process recognises the dynamic
materiality of emerging risk themes, whereby the topics and the
associated risks that are important to the Group and its respective
key stakeholders can change over time, often very quickly. This is
often seen for sustainability (including environmental, social and
governance (ESG) and climate-related) risks, which impact the
Group's reputation given evolving stakeholder
expectations.
The risk profile assessment is a key output from the risk
identification and risk measurement processes and is used as a
basis for setting Group-wide limits and assessment of management
actions which could be taken to conserve and aid stakeholder value
creation.
Risk measurement and assessment
All identified risks are assessed based on an appropriate
methodology for that risk. Quantifiable risks which are material
and mitigated by holding capital are modelled in the Group's
internal model, which is used to determine the Group Internal
Economic Capital Assessment (GIECA) with robust processes and
controls on model changes. The GIECA model and results are subject
to independent validation.
Risk management and control
The Group's control procedures and systems focus on aligning the
levels of risk taking with the Group's strategy and can only
provide reasonable, not absolute, assurance against material
misstatement or loss. The Group's risk policies define the Group's
appetite for material risks and set out the risk management and
control requirements to limit exposure. These policies also set out
the processes to enable the measurement and management of these
risks in a consistent and coherent way, including the flows of
management information required. Stress and scenario testing is
also in place to assess the robustness of capital adequacy and
liquidity and the appropriateness of risk limits, as well as to
support recovery planning. This includes reverse stress testing
which requires the Group to ascertain the point of business model
failure and is another tool that helps to identify the key risks
and scenarios that may have a material impact on the Group. The
methods and risk management tools employed to mitigate each of the
Group's principal risks are detailed in section 3
below.
Risk monitoring and reporting
The Group's principal risks are highlighted in the management
information received by the GRC and the Board, which also includes
key exposures against appetite and developments in the Group's
principal and emerging risks.
iii. Risk appetite, limits and triggers
The Group aims to balance the interests of the broad spectrum of
its stakeholders (including customers, investors, employees,
communities and key business partners) and understands that a
well-managed acceptance of risk lies at the heart of its business.
The Group generates stakeholder value by selectively taking
exposure to risks, mitigated to the extent it is cost-effective to
do so, and where these are an outcome of its chosen business
activities and strategy. Those risks for which the Group has no
tolerance are actively avoided. The Group's systems, procedures and
controls are designed to manage risk appropriately, and its
approach to resilience and recovery aims to maintain the Group's
ability and flexibility to respond in times of stress.
Qualitative and quantitative expressions of risk appetite are
defined and operationalised through risk limits, triggers and
indicators. The RCS function reviews the appropriateness of these
measures at least annually. The Board approves changes to the
Group's aggregate risk appetite and the GRC has delegated authority
to approve changes to the system of limits, triggers and
indicators.
Group risk appetite is defined and monitored in aggregate by the
setting of objectives for its capital requirements, liquidity and
non-financial risk exposure, covering risks to stakeholders,
including those from participating and third-party businesses.
Group limits operate within these expressions of risk appetite to
constrain material risks, while triggers and indicators provide
additional defined points for escalation. The GRC, supported by the
RCS function, is responsible for reviewing the risks inherent in
the Group's business plan and for providing the Board with a view
on the risk/reward trade-offs and the resulting impact to the
Group's aggregated position relative to Group risk appetite and
limits, including non-financial risk considerations.
1. Capital
requirements: Limits
on capital requirements aim to ensure that, in both
business-as-usual and stressed conditions, the Group maintains
adequate capital in excess of internal economic capital
requirements and regulatory capital requirements, achieves its
desired target credit rating to meet its business objectives, and
the need for supervisory intervention is avoided. The two measures
in use at the Group level are the GWS and GIECA capital
requirements.
2. Liquidity: The
objective of the Group's liquidity risk appetite is to help ensure
that appropriate cash resources are available to meet financial
obligations as they fall due in both business-as-usual and stressed
scenarios. This is measured using a liquidity coverage ratio which
considers the sources of liquidity against liquidity requirements
under stress scenarios.
3. Non-financial
risks: The
Non-Financial Risk Appetite Framework is in place to identify,
measure and assess, manage and control, monitor and report
effectively on material non-financial risks across the business.
The non-financial risk appetite is framed around the perspectives
of its varied stakeholders, accounts for current and expected
changes in the external environment, and provides limit and trigger
appetite thresholds for non-financial risk categories across the
Group's locations. The Group accepts a degree of non-financial risk
exposure as an outcome of its chosen business activities and
strategy, and aims to manage these risks effectively to maintain
its operational resilience and its commitments to customers and all
stakeholders and avoid material adverse financial loss or impact to
its reputation.
3 The Group's principal risks
The delivery of the Group's strategy in building long-term value
for all our stakeholders inevitably requires the acceptance of
certain risks. The materialisation of any of these risks within the
Group or in its joint ventures, associates or key third-party
partners may have a financial impact and may affect the performance
of products or services or the fulfillment of commitments to
customers and other stakeholders, with an adverse impact on
Prudential's brand and reputation.
This section provides a high-level overview of the principal risks
faced by the Group including the key tools used to manage and
mitigate each risk. A detailed description of these and other risks
is presented under the heading 'Risk factors', below.
The Group's 2023 Sustainability Report includes further detail on
the sustainability (including ESG and climate-related) risks which
contribute to the materiality of the Group's principal risks
detailed below.
Risks to the Group's financial position (including those from the
external macroeconomic
and geopolitical environment)
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The global economic and geopolitical environment may impact the
Group directly by affecting trends in financial markets and asset
values, as well as driving short-term volatility.
Risks in this category include the market risks to our investments
and the credit quality of our investment portfolio, as well as
liquidity risk.
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Global economic and geopolitical conditions
|
Prudential operates in a macroeconomic and global financial market
environment that continues to present significant uncertainties and
potential challenges. For example, while headline inflation has
moved down in 2023, core inflation has remained well above central
bank targets and central banks may need to maintain tight monetary
policies to rein in inflation, which could exert downward pressures
on growth. In the major emerging markets, inflation has generally
been less severe and monetary policies have been less restrictive.
However, this environment of relatively high global interest rates
presents a meaningful recession risk and is putting pressure on
banks' balance sheets and margins. This could result in a pullback
in both credit supply and credit demand and lead to a sharper
tightening in global credit conditions. Challenges in the US and EU
banking sector increased risk in the US commercial real estate
sector. The weak growth and concerns around the Chinese Mainland
property sector not only put a toll on the Chinese Mainland economy
and place downward pressure on China interest rate, but could also
weigh on the broader Asian region and the global economy's vitality
going forward. A number of issuers within the Chinese Mainland
property sector and the US commercial real estate sector
experienced a reduction in financial strength and flexibility of
corporate entities in 2023, although the overall impact to the
Group's invested credit portfolio was immaterial due to our
diversified investment strategy. The serviceability of sovereign
debt also posed some concerns in certain economies (particularly
the high indebtedness across countries in Africa, such as the
sovereign debt restructuring in Ghana).
Geopolitical tensions between Russia and Ukraine, Israel and Gaza,
as well as the Chinese Mainland and countries such as the United
States and India, continued to contribute to the slow and/or
negative global or regional economic growth in 2023. These
conflicts may lead to further realignment among blocs or global
polarisation and decoupling.
Macroeconomic and geopolitical developments are considered material
to the Group and can potentially increase operational and business
disruption (including sanctions) and regulatory and financial
market risks, and have the potential to directly impact
Prudential's sales and distribution networks, as well as its
reputation. The potential impacts to the Group are included in
sections 1.1 and 1.2 of the Risk factors.
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Risk description
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Risk management
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Market risks to our investments
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The value of Prudential's direct investments is impacted by
fluctuations in equity prices, interest rates, credit spreads,
foreign exchange rates and property prices. There is also
potentially indirect impact through the value of the net equity of
its joint ventures and associates. Although inflation remains at
decades-level highs in certain global markets, the Group's direct
exposure to inflation remains modest. Exposure mainly arises
through an increase in medical claims obligations, driven by rising
medical prices as well as potential impact on customers from an
affordability perspective. Medical inflation risk as well as
challenges for insurers linked to affordability and existing
challenges in persistency are detailed in the Insurance risks
section below.
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The Group has appetite for market risk where it arises from
profit-generating insurance activities to the extent that it
remains part of a balanced portfolio of sources of income for
shareholders and is compatible with a robust solvency position. The
Group's market risks are managed and mitigated by the
following:
- The Group Market Risk
Policy;
- The Group Capital and Asset
Liability Management (ALM) Committee and Group ALM
Policy;
- Changes in asset allocation,
bonus revisions, repricing and the use of reinsurance where
appropriate;
- The Group Investment Committee
and Group Investment Policy;
- Hedging using derivatives,
including currency forwards and swaps, bond forwards/futures,
interest rate futures and swaps, and equity
futures;
- The monitoring and oversight of
market risks through the regular reporting of management
information;
- Regular deep dive assessments;
and
- The
Group Critical Incident Procedure (GCIP), which defines specific
governance to be invoked in the event of a critical incident, such
as a significant market, liquidity or credit-related event. This
includes, where necessary, the convening of a Critical Incident
Group (CIG) to oversee, coordinate, and where appropriate, direct
activities during a critical incident.
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Interest rate risk, including asset liability management
(ALM)
Interest rate risk is driven by the impact of the valuation of
Prudential's assets (particularly government and corporate bonds)
and liabilities, which are dependent on market interest
rates.
High interest rates, driven by sustained inflationary pressures,
may impact the valuation of fixed income investments and reduce fee
income. The Group's risk exposure to rising interest rates also
arises from the potential impact to the present value of future
fees for unit-linked businesses, such as in Indonesia and Malaysia,
as well as the impact to the present value of the future profits
for accident and health products, such as in Hong Kong. Exposure to
higher interest rates also arises from the potential impact to the
value of fixed income assets in the shareholder funds.
The Group's risk exposure to lower/decreased interest rates arises
from the guarantees of some non-unit-linked products with a savings
component, including the Hong Kong, Singapore and CPL's
participating and non-participating businesses. This exposure
results from the potential for an asset and liability mismatch,
where long-dated liabilities and guarantees are backed by
short-dated assets.
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The Group Capital and ALM Committee is a management committee
supporting the identification, assessment and management of key
financial risks to the achievement of the Group's business
objectives. The Committee also oversees ALM, solvency and liquidity
risks of the local businesses as well as the declaration and
management of non-guaranteed benefits for participating and
universal life lines of business. Local business units are
responsible for the management of their own asset and liability
positions, with appropriate governance in place. The objective of
the local business unit ALM process is to meet policyholder
liabilities with the returns generated from the investment assets
held, while maintaining the financial strength of capital and
solvency positions. The ALM strategy adopted by the local business
units considers the liability profile and related assumptions of
in-force business and new products to appropriately manage
investment risk within ALM risk appetite, under different scenarios
in accordance with policyholders' reasonable expectations, and
economic and local regulatory requirements. Factors such as
the availability of matching assets, diversification, currency and
duration are considered as appropriate. The assumptions and
methodology used in the measurement of assets and liabilities for
ALM purposes conform with local solvency regulations. Assessments
are carried out on an economic basis which conforms to the Group's
internal economic capital methodology.
The Group's appetite for interest rate risk requires that assets
and liabilities should be tightly matched for exposures where
assets or derivatives exist that can cover these exposures.
Interest rate risk is accepted where this cannot be hedged,
provided that this arises from profitable products and to the
extent that such interest rate risk exposure remains part of a
balanced exposure to risks and is compatible with a robust solvency
position. When asset and liability duration mismatch is not
eliminated, it is monitored and managed through local risk and
asset liability management committees and Group risk limits
consistent with the Group's appetite for interest rate
risk.
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Risk description
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Risk management
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Market risks to our investments continued
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Equity and property investment risk
The shareholder exposure to equity price movements arises from
various sources, including from unit-linked products where fee
income is linked to the market value of funds under management.
Exposure also arises from participating businesses through
potential fluctuations in the value of future shareholders' profits
and where bonuses declared are based broadly on historical and
current rates of return from the businesses' investment portfolios,
which include equities.
The material exposures to equity risk in the Group's businesses
include CPL's exposure to equity risk through investments in equity
assets for most of its products, including participating and
non-participating savings products and protection and unit-linked
products. The Hong Kong business and, to a lesser extent, the
Singapore business contribute to the Group's equity risk exposure
due to the equity assets backing participating products. The
Indonesia and Malaysia businesses are exposed to equity risk
through their unit-linked products and, in the case of Malaysia,
exposure also arises from participating and unit-linked
business.
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The Group has limited acceptance for exposures to equity risk from
non-participating products if it is not rewarded for taking the
equity risk. The Group accepts equity exposure that arises from
future fees (including shareholder transfers from the participating
businesses) but limits its exposure to policyholder guarantees by
hedging against equity movements and guarantees where it is
considered economically optimal to do so.
Where equity risk is accepted, it is explicitly defined by the
strategic asset allocation, as well as monitored and managed
through local risk and ALM committees. Overall exposure to equity
risk from the participating businesses is also managed through
Group risk limits consistent with the Group's appetite for equity
risk.
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Foreign exchange risk
The geographical diversity of Prudential's businesses means that it
is exposed to the risk of foreign exchange rate fluctuations. Some
entities within the Group write policies, invest in assets or enter
into other transactions in local currencies or currencies not
linked to the Group's reporting/functional currency, the US dollar.
Although this limits the effect of exchange rate movements on local
operating results, it can lead to fluctuations in the Group's US
dollar-reported financial statements. This risk is further detailed
in section 1.6 of the Risk factors.
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The Group accepts the currency risk that emerges from profits
retained locally to support the growth of the Group's business and
the translation risks from capital being held in the local currency
of the business to meet local regulatory and market requirements.
However, in cases where a surplus arising in an overseas operation
supports Group capital or shareholders' interest (ie remittances),
this exposure is hedged if it is economically optimal to do so. The
Group does not accept significant shareholder exposures to foreign
exchange risks in currencies outside the local
territory.
Foreign exchange risk is managed by the Group Capital and ALM
Committee through the implementation of asset allocation on funds
which captures the exposure to non-local-denominated
assets.
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Liquidity risk
|
Prudential's liquidity risk arises from the need to have sufficient
liquid assets to meet policyholder and third-party payments as they
fall due, considered under both business-as-usual and stressed
conditions. It includes the risk arising from funds composed of
illiquid assets and results from a mismatch between the liquidity
profile of assets and liabilities. Liquidity risk may impact market
conditions and valuation of assets in a more uncertain way than
other risks like interest rate or credit risk. It may arise, for
example, where external capital is unavailable at sustainable cost,
where derivatives transactions require a sudden significant need of
liquid assets or cash to post as collateral to meet derivatives
margin requirements, or where redemption requests are made against
funds managed for external clients (both retail and institutional).
Liquidity risk is considered material at the level of the
Group.
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The Group has no appetite for any business to have insufficient
resources to cover its outgoing cash flows, or for the Group as a
whole to not meet cash flow requirements from its debt obligations
under any plausible scenario. The Group has significant internal
sources of liquidity sufficient to meet its expected cash
requirements for at least 12 months from the date the financial
statements are approved, without having to resort to external
sources of funding. The Group has a total of $1.6 billion of
undrawn committed facilities that can be made use of, expiring in
2029. Access to further liquidity is available through the debt
capital markets and the Group's extensive commercial paper
programme. Prudential has maintained a consistent presence as an
issuer in the market for the past decade.
A number of risk management tools are used to manage and mitigate
liquidity risk, including the following:
- The Group's Liquidity Risk
Policy;
- Regular assessment and reporting
by the Group and business units of liquidity coverage ratios, which
are calculated under both base case and stressed
scenarios;
- The Group's Liquidity Risk
Management Plan;
- The Group's Collateral Management
Framework;
- The Group's contingency plans and
identified sources of liquidity;
- The Group's ability to access the
money and debt capital markets; and
- The Group's access to external
committed credit facilities.
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Risk Description
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Risk management
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Credit risk
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Credit risk is the potential for loss resulting from a borrower's
failure to meet its contractual debt obligation(s). Counterparty
risk, a type of credit risk, is the probability that a counterparty
defaults on its contractual obligation(s) causing the other
counterparty to suffer a loss. These risks arise from the Group's
investments in bonds, reinsurance arrangements, derivative
contracts with third parties, and its cash deposits with banks.
Credit spread risk, another type of credit risk, arises when the
interest rate/return on a loan or bond is disproportionately low
compared with another investment with a lower risk of default.
Invested credit and counterparty risks are considered a material
risk for the Group's business units.
The total debt securities at 31 December 2023 held by the Group's
operations were $83.1 billion (31 December 2022: $77.0 billion).
The majority (83 per cent, 31 December 2022: 84 per cent) of the
portfolio are investments either held in unit-linked funds or that
support insurance products where policyholders participate in the
returns of a specified pool of investments1.
The gains or losses on these investments will largely be offset by
movements in policyholder liabilities2.
The remaining 17 per cent (31 December 2022: 16 per cent) of the
debt portfolio (the 'shareholder debt portfolio') are investments
where gains and losses broadly impact the income statement, albeit
short-term market fluctuations are recorded outside of adjusted
operating profit.
- Group
sovereign debt: Prudential invests in bonds
issued by national governments. This sovereign debt holding within
the shareholder debt portfolio represented 55 per cent or $7.8
billion3 of
the total shareholder debt portfolio as at 31 December 2023 (31
December 2022: 41 per cent or $4.9 billion). The particular risks
associated with holding sovereign debt are detailed further in the
disclosures in the Risk factors. The total exposures held by the
Group in sovereign debt securities at 31 December 2023 are given in
note C1 of the Group's IFRS financial
statements.
- Corporate debt
portfolio: In
the shareholder debt portfolio, corporate debt exposures totalled
$5.8 billion of which $5.4 billion or 94 per cent were investment
grade rated (31 December 2022: $6.6 billion of which $6.1 billion
or 93 per cent were investment grade rated).
- Bank debt
exposure and counterparty credit risk: The banking sector represents a
material concentration in the Group's corporate debt portfolio
which largely reflects the composition of the fixed income markets
across the regions in which Prudential is invested. As such,
exposure to banks is a key part of its core investments, considered
to be a material risk for the Group, as well as being important for
the hedging and other activities undertaken to manage its various
financial risks.
At 31 December 2023:
- 94 per cent of the Group's
shareholder portfolio (excluding all government and
government-related debt) is investment grade
rated4.
In particular, 59 per cent of the portfolio is
rated4 A-
and above (or equivalent); and
- The
Group's shareholder portfolio is well diversified: no individual
sector5 makes
up more than 13 per cent of the total portfolio (excluding the
financial and sovereign sectors).
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The Group's holdings across its life portfolios are mostly in local
currency and with a largely domestic investor base. These
portfolios are generally positioned towards high-quality names,
including those with either government or considerable parent
company balance sheet support. Areas which the Group is actively
monitoring include ongoing developments in the global banking
sector, effects of the global economic slowdown on the invested
assets, the impacts of the tightening of monetary policy in the
Group's key markets, higher refinancing costs, heightened
geopolitical tension and protectionism, the ongoing downsizing of
the Chinese Mainland property sector and more widely across the
Chinese Mainland economy, as well as high indebtedness in African
countries. The impacts of these closely monitored trends include
potential for deterioration in the credit quality of the Group's
invested credit exposures, particularly due to rising funding costs
and overall credit risks, and the extent of downward pressure on
the fair value of the Group's portfolios. The Group's portfolio is
generally well diversified in relation to individual
counterparties, although counterparty concentration is monitored,
particularly in local markets where depth (and therefore the
liquidity of such investments) may be low. The Group has appetite
to accept credit risk to the extent that it remains part of a
balanced portfolio of sources of income for shareholders and is
compatible with a robust solvency position. This risk is further
detailed in sections 1.4 and 1.5 of the Risk factors.
The Group actively reviews its investment portfolio to improve the
robustness and resilience of the solvency position. A number of
risk management tools are used to manage and mitigate credit and
counterparty credit risk, including the following:
- The Group Credit Risk Policy and
the Group Dealing Controls Policy;
- The Global Counterparty Limit
Framework and concentration limits on large
names;
- Collateral arrangements for
derivative, secured lending reverse repurchase and reinsurance
transactions which aim to provide a high level of credit
protection; and
- The Group Executive Risk
Committee and Group Investment Committee's oversight of credit and
counterparty credit risk and sector and/or name-specific
reviews.
Exposure to the banking sector is considered a material risk for
the Group. Derivative and reinsurance counterparty credit risk
exposure is managed using an array of risk management tools,
including a comprehensive system of limits. Prudential manages the
level of its counterparty credit risk by reducing its exposure or
using additional collateral arrangements where
appropriate.
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Risk description
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Risk management
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The Group's sustainability (including ESG and climate-related)
risks
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These include sustainability risks associated with environmental
considerations such as climate change (including physical and
transition risks), societal risks arising from diverse stakeholder
commitments and expectations and governance-related
risks.
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Material and emerging risks associated with key sustainability
themes may undermine the long-term success of a business by
adversely impacting its reputation and brand, and ability to
attract and retain customers, investors, employees and distribution
and other business partners, and therefore the results of its
operations and delivery of its strategy and long-term financial
success. The Group's sustainability strategy is centered on three
key pillars (providing simple and accessible health and financial
protection, investing responsibly and creating a sustainable
business), each of which increases the expectations of the Group's
stakeholders with regards to the Group's potential external
environmental and social impact. Sustainability risks arise from
the activities that support implementation of the Group's strategy,
which include developing sustainable and inclusive offerings,
continuing to decarbonise the Group's investment portfolio in a
science-informed approach to facilitate becoming a net zero asset
owner by 2050 whilst financing a just and inclusive transition, and
advancing the diversity, equity and inclusion and belonging
strategy to empower existing employees.
Potential regulatory compliance and litigation risks exist globally
and across Asia, as sustainability-related topics remain high on
the agenda of both local regulators and international supervisory
bodies, including the International Association of Insurance
Supervisors (IAIS) and the International Sustainability Standards
Board (ISSB), which published its inaugural sustainability and
climate-related disclosure requirements in June 2023. Delivery of
the Group's Sustainability Strategy, including the decarbonisation
commitments and the development of sustainable and inclusive
offerings, heightens the risk of accusations of misleading or
unsubstantiated representations to the extent of the environmental
or societal impact of the Group's activities and the sustainability
features of new products (eg greenwashing), which subsequently
increases the risk of potential litigation or reputational damage.
Further details of the Group's sustainability-related risks and
regulations are included in sections 2.1 and 4.1 of the Risk
factors.
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As custodians of stakeholder value for the long term, the Group
seeks to manage sustainability risks and their potential impact on
its business and stakeholders through transparent and consistent
implementation of its strategy in its markets and across
operational, underwriting and investment activities. It is enabled
by strong internal governance, sound business practices and a
responsible investment approach, with sustainability-related
considerations integrated into investment processes and decisions
and the performance of fiduciary and stewardship duties, including
via voting and active engagement decisions with respect to investee
companies, as both an asset owner and an asset manager. Climate
risk, the Group's reporting against the recommendations of the Task
Force on Climate-Related Financial Disclosures (TCFD), and progress
on the Group's external climate-related commitments, remain a
priority focus for the GRC for 2024. Further information on the
Group's sustainability governance and strategy, as well as the
management of material sustainability themes, is included in the
Group's 2023 Sustainability Report.
The Group participates in networks, industry forums and working
groups, such as the Net Zero Asset Owner Alliance (NZAOA),
Principles for Responsible Investment (PRI) and CRO Forum, to
further develop understanding and support collaborative action in
relation to sustainability risks and promoting a just and inclusive
transition. The Group also actively engages with, and responds to,
discussions, consultations and information-gathering exercises with
local regulators, international supervisory bodies and global
industry standard setters.
The Group Risk Framework continues to be critically evaluated and
updated where required to ensure both sustainability-related
considerations and risks to the Group, including those arising from
stakeholder expectations of the external impact of the Group's
activities, are appropriately captured. Risk management and
mitigation of sustainability risks are embedded within the Group
Risk Framework and risk processes, including:
- Consideration within the emerging
risk identification and evaluation processes that emerging
sustainability themes and the associated risks can potentially
quickly change from immaterial to material
(dynamic-materiality);
- Reflection in the risk taxonomy
that the Group can be both impacted by sustainability issues as
well as having an impact on these in the external world ('double
materiality');
- The addition of 'social and
environmental responsibility' as a strategic risk within the risk
taxonomy to consider the potential risks arising from the external
impact of the Group's activities;
- Workshops and function-wide
training on specific risk themes, including sustainability risk
principles, greenwashing risk and the risks associated with
delivery of the Group's external responsible investment
commitments;
- Definition of appropriate (and
longer) time horizons with respect to climate risk management, and
the requirement to consider time horizons where required in
risk-based decision-making; and
- Deep dives into emerging and
increasingly material sustainability themes, including
climate-related risks, and development of Board-level and broader
Group-wide training.
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Risk description
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Risk management
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Risks from the nature of our business and our industry
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These include the Group's non-financial risks including operations
processes, change management, information security, IT
infrastructure and data privacy, as well as customer conduct, legal
and regulatory compliance risks. Insurance risks and business
concentration risks are also assumed by the Group in providing its
products. Furthermore, there are risks associated with the
oversight of the Group's joint ventures and associates stemming
from our operation in certain markets.
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Non-financial risks
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The complexity of Prudential, its activities and the extent of
transformation in progress creates a challenging operating
environment and exposure to a variety of non-financial risks which
are considered to be material at a Group level.
The Group's non-financial risks, which are not exhaustive and
discussed further in section 3 of the Risk factors, are outlined
below.
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Alongside the Non-Financial Risk Appetite Framework, other risk
policies and standards are in place that individually engage with
specific non-financial risks, including operations processes,
change management, third-party and outsourcing management, business
continuity, fraud, financial crime as well as information security,
IT infrastructure and data privacy. These policies and standards
include subject matter expert-led processes that are designed to
identify, assess, manage and control non-financial risks,
including:
- Reviews of key non-financial
risks and challenges within Group and business units' business
plans during the annual planning cycle, to support business
decisions;
- Corporate insurance programmes to
limit the financial impact of operational
risks;
- Oversight of risk management
during the transformation life cycle, project prioritisation and
the risks, interdependencies and possible conflicts arising from a
large portfolio of transformation activities;
- Screening and transaction
monitoring systems for financial crime and a programme of
compliance control monitoring reviews and regular risk
assessments;
- Internal and external review of
cyber security capability and defences;
- Regular updating and risk-based
testing of disaster recovery plans and the Critical Incident
Procedure process;
- Established processes to deliver
the highest quality of service to fulfil customers' needs and
expectations; and
- Active
engagement in and monitoring of regulatory
developments.
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Operations processes risk
Operations processes risk is the risk of failure to adequately or
accurately process different types of operational transactions,
including customer servicing and asset and investment management
operations. Due to human error, among other reasons, operations and
process control incidents do occur from time to time and no system
or process can entirely prevent occurrence.
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The Group aims to manage the risk effectively by maintaining
operational resilience and honouring commitments to customers and
stakeholders, whilst avoiding material adverse financial loss or
impact on its reputation. Further detail on the risks to the Group
arising from system issues or control gaps is included in sections
3.1 and 3.3 in the Risk factors.
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Change management risk
Change management risk remains a material risk for Prudential, with
a number of significant change programmes under way which, if not
delivered and executed effectively with adequate and capable
resources to defined timelines, scope and cost, may negatively
impact its operational capability, control environment, employees,
reputation and ability to deliver its strategy and maintain market
competitiveness. The current portfolio of transformation and
significant change programmes includes (i) the implementation and
embedding of large-scale regulatory/industry changes; (ii) the
expansion of the Group's digital capabilities and use of
technology, platforms and analytics; and (iii) improvement of
business efficiencies through operating model changes, including
those relating to the Group's central, asset management and
investment oversight functions. Further detail on the risks to the
Group associated with large-scale transformation and complex
strategic initiatives is included in section 3.1 of the Risk
factors.
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The Group aims to ensure that, for both transformation and
strategic initiatives, strong programme governance is in place with
embedded risk expertise to achieve ongoing and nimble risk
oversight, with regular risk monitoring and reporting to risk
committees. The Group's Transformation Risk Framework is in place
alongside the Group's existing risk policies and frameworks with
the aim to ensure appropriate governance and controls are in place
to mitigate these risks. The Group also enhanced its governance
framework in 2023 to better oversee the implementation and risk
management of digital platforms. This includes the establishment of
digital governance forums that oversee digital transformation from
various dimensions such as customer-centricity, strategic,
financial, operational and risk management. In addition, Prudential
is continuously enhancing strategic capabilities through internal
talent development and talent acquisition. Developing an
engaged workforce that provides adequate resources for our people
to manage change, connect, grow and succeed is one of the
priorities for the company.
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Risk description
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Risk management
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Non-financial risks continued
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Third-party and outsourcing management risk
The Group's outsourcing and third-party relationships require
distinct oversight and risk management processes. The Group has a
number of important third-party relationships, with both market
counterparties and outsourcing partners, including distribution,
technology and ecosystem providers. The Group maintains material
strategic partnerships and bancassurance arrangements, which create
a reliance on the operational resilience and performance of
outsourcing and business partners. This risk is explored in more
depth in section 3.3 of the Risk factors.
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The Group's requirements for the management of material outsourcing
arrangements have been incorporated in its Group Third-Party Supply
and Outsourcing Policy, aligned to the requirements of the HKIA's
GWS Framework, and which outlines the governance in place in
respect of material outsourcing and third-party arrangements and
the Group's monitoring and risk assessment framework. This aims to
ensure that appropriate contract performance and risk mitigation
measures are in place over these arrangements. In addition, the
Group Third-Party Risk Oversight Framework is in place to set out
the Group's third-party risk management and oversight standards
that guide the Group senior management and RCS function to oversee,
challenge and manage the Group's third-party risk profile in a
consistent and coherent way.
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Model risk
Model risk is the risk of adverse financial, regulatory,
operational, or reputational impact, or misinformed business and
strategic decision-making resulting from reliance on a model or
user-developed application (UDA) that is inaccurate, incorrect or
misused. The Group utilises various tools and they form an integral
part of operational functions including the calculation of
regulatory or internal capital requirements, the valuation of
assets and liabilities, determining hedging requirements, assessing
projects and strategic transactions, and acquiring new business via
digital platforms.
Technological developments, in particular in the field of
artificial intelligence (AI) and the increased use of generative
AI, pose new considerations on model risk oversight provided under
the Group Risk Framework.
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The Group has no appetite for model or UDA related incidents
leading to regulatory breaches. There is limited appetite for
failures to develop, implement and monitor appropriate risk
mitigation measures to manage model and UDA risk. The Group's model
and UDA risk is managed and mitigated via the Model and UDA Risk
Framework which applies a risk-based approach to tools (including
those under development) with the aim to ensure a proportionate
level of risk management. The framework requirements
include:
- Set of risk oversight, management
and governance requirements;
- Regular risk assessment
requirements of all tools taking into account potential impact on
various stakeholders, including policyholders;
and
- Regular independent validation
(including limitations, known errors and approximations) of all
Group critical tools.
An oversight forum for the use of AI and ensuring compliance with
the key ethical principles is also in place and adopted by the
Group with the aim to ensure the safe use of AI.
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Fraud risk
Prudential is exposed to fraud risk, including fraudulent insurance
claims, transactions, or procurement of services, that are made
against or through the business.
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The Group's Counter Fraud Policy and analytics-led tooling are in
place to set out the required standards to enhance fraud
detection, prevention and investigation activities with the
objective to protect resources to support sustainable business
growth. The policy also sets out the framework to tackle fraud with
the goals of safeguarding customers, protecting local businesses
and the Group's reputation, and providing assurance that fraud risk
is managed within appetite.
The Group undertakes strategic activities to monitor and evaluate
the evolving fraud risk landscape, mitigate the likelihood of fraud
occurring and increase the rate of detection. The Group has a
mature confidential reporting
system in place, through which employees and other
stakeholders can
report concerns relating to potential misconduct. The process and
results of this system are overseen by the Group Audit
Committee.
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Risk description
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Risk management
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Non-financial risks continued
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Financial crime risk
As with all financial services firms, Prudential is exposed to
risks relating to money laundering (the risk that the products or
services of the Group are used by customers or other third parties
to transfer or conceal the proceeds of crime); sanctions compliance
breaches (the risk that the Group undertakes business with
individuals and entities on the lists of the main sanctions
regimes); and bribery and corruption (the risk that employees or
associated persons seek to influence the behaviour of others to
obtain an unfair advantage or receive improper benefits). Further
detail on the risks to the Group associated with operating in
high-risk markets is included in section 3.6 of the Risk
factors.
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The Group-wide policies on anti-money laundering, sanctions and
anti-bribery and corruption risks reflect the requirements
applicable to all staff in all offices and businesses. Screening
and transaction monitoring systems are in place across the
Group.
The Group has continued to strengthen and enhance its financial
crime risk management capability through investment in advanced
analytics and AI tools. Proactive detective capabilities are being
implemented across the Group and delivered through a centralised
monitoring hub to further strengthen oversight of financial crime
risks in the areas of procurement and third-party management. Risk
assessments are performed annually for businesses and offices
across all locations. Due diligence reviews and assessments against
the Group's financial crime policies are performed as part of the
Group's business acquisition process.
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Information security, IT infrastructure and data privacy
risks
Risks related to malicious attacks on Prudential systems, service
disruption, exfiltration of data, loss of data integrity and the
impact on the privacy of our customer data remain prevalent,
particularly as the accessibility of attacking tools available to
potential adversaries increases. Regulatory developments in cyber
security and data protection are progressing worldwide and may
increase the complexity of requirements and obligations required
for companies. Further detail on the risks to the Group associated
with operating in high-risk markets is included in sections 3.4 and
3.5 of the Risk factors.
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The Group adheres to data minimisation and 'privacy-by-design'
principles, where data is only collected and used for its intended
purpose and is not retained longer than necessary. The handling of
customers' data is governed by specific policies and frameworks,
such as the Group Information Security Policy, the Group Privacy
Policy and the Group Data Policy, to ensure compliance with all
applicable laws and regulations, and the ethical use of customer
data.
Despite the rise in ransomware activity due to the availability of
ransomware exploit toolkits and Ransomware-as-a-Service (RaaS) for
threat actors, the Group has a number of defences in place to
protect its systems from cyber security attacks. Prudential
has adopted a holistic risk management approach which is designed
to prevent and disrupt potential attacks against the Group as well
as third-party partner systems and to manage the recovery process
should an attack take place. Other defences include, but are not
limited to: (i) distributed denial of services (DDoS) protection
for the Group's websites via web application firewall services;
(ii) AI-based endpoint security software; (iii) continuous security
monitoring; (iv) network-based intrusion detection; and (v)
employee training and awareness campaigns to raise understanding of
attacks utilising email phishing techniques. Cyber insurance
coverage is in place to provide some protection against potential
financial losses, and the cyber attack simulation exercises have
been carried out to enhance preparedness. The Group has also
established various processes to ensure the effectiveness of
information security and privacy mechanisms deployed, which include
setting up a dedicated ethical hacking team to perform testing on
the Group's systems to identify potential vulnerabilities, engaging
external consultants to perform penetration testing on our systems,
and engaging external consultants to perform independent
assessments on both security operations centre and the information
and privacy function as a whole to further improve the efficiency
of the functions. A private Bug Bounty Programme has also been
established to provide a mechanism for invited external security
practitioners to report security issues and vulnerabilities. This
is further supported by a Vulnerability Disclosure Programme that
allows independent security researchers to report security issues
and vulnerabilities via the Prudential websites.
The Group has subscribed to services from independent security
consultants to continuously monitor our external security posture.
As the Group continues to develop and expand digital services and
emerging products, its reliance on third-party service providers
and business partners who specialise in niche capabilities is also
increasing. In 2023, among many companies around the world, the
Group's businesses in Malaysia were affected by the global MOVEit
data-theft attack, where a zero-day vulnerability was exploited at
MOVEit, a software solution providing secured file transfer
services, with infringements to data security, integrity and
privacy. As a result, this incident directly impacted the Group's
reputation and compliance with
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Risk description
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Risk management
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Non-financial risks continued
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Information security, IT infrastructure and data privacy risks
continued
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regulatory and data privacy requirements. Following the threats,
various actions have been taken, including isolating the affected
server, a thorough investigation, and customer and authority
notifications. Potential enhancements have been identified from the
review and specific actions have been implemented to address these.
Apart from this event, the Group did not experience any cyber
security and data breaches with a material impact on its business
strategy, operations or financial condition in 2023.
In addition, the Group is proactively monitoring possible advanced
social engineering attacks related to corporate activities, for
example, deepfakes, the use of AI-generated synthetic medium to
imitate senior executives to conduct fraudulent activities. The
Group is taking steps to mitigate such attacks, pragmatic measures
include raising regular cyber security awareness, implementing
robust preventative and detective controls, and having a
well-defined incident response plan as part of a wider cyber
resilience strategy.
The Group Infrastructure Policy was revamped in 2023 to ensure
comprehensive governance and assurance of our technology
components. A new enterprise operating model was designed based on
an innovation-led technology operations structure, mature internal
capabilities, and an aligned outsourcing model. Furthermore,
businesses remained focused on digital ecosystems for strategic
growth in 2023. A resiliency enhancement programme has been put in
place to enhance capabilities in managing disruptions or failures
on system platforms serving our customers. This includes
implementing robust measures such as identifying and removing
single-points-of-failure (SPOF) infrastructure, disaster recovery
plans, and backup systems.
Alongside continuous technology development, the Group's Technology
Risk Management function is primarily responsible for technology
risk identification, assessment, mitigation, monitoring and
reporting across different technology domains to provide advisory,
assurance and operations support for holistic technology risk
management including information security and privacy.
Specifically, key risk indicators have been enhanced to cover key
technology risk areas, annual risk assessment is conducted to
identify specific risks, priorities and focus areas, and deep-dive
reviews are conducted on different technology domains to provide
assurance of controls to manage technology risks. In addition, the
Group Technology Risk Committee is a sub-committee of the Group
Executive Risk Committee, which oversees the effectiveness of
technology risk management including information security and
privacy across the Group. Work was undertaken in 2023 to further
enhance the maturity of the technology risk operating model which
includes organisational structure improvements, policy enhancements
and enriched key risk indicators to provide a quantifiable overlay
to overseeing and managing technology risks. The Group's internal
audits also regularly include cyber security as part of its audit
coverage. Cyber and privacy risks are reported regularly to the GRC
by the Group Chief Technology Risk Officer. In addition, the GRC
and Group Audit Committee receive more detailed briefings at least
twice annually from the Group Chief Technology Officer. Both the
Group Chief Technology Risk Officer and Group Chief Technology
Officer are experienced professionals with more than 20 years of
experience in information technology and cyber security. Further,
the Group Executive Committee (GEC) participates in annual cyber
tabletop exercises and risk workshops to ensure members are well
equipped to respond to a cyber or information security incident and
fully understand the latest threats and regulatory
expectations.
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Risk description
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Risk management
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Non-financial risks continued
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Customer conduct risk
Prudential's conduct of business, especially in the design and
distribution of its products and the servicing of customers, is
crucial in ensuring that the Group's commitment to meeting its
customers' needs and expectations is met. The Group's Customer
Conduct Risk Framework reflects management's focus on customer
outcomes.
Factors that may increase conduct risk can be found throughout the
product life cycle, from the complexity of the Group's products and
services to its diverse distribution channels, which include its
agency workforce, virtual face-to-face sales, and sales via online
digital platforms.
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The Group has developed a Group Customer Conduct Risk Policy which
sets out five customer conduct standards that the business is
expected to meet, being:
- Treat customers fairly, honestly
and with integrity;
- Provide and promote products and
services that meet customer needs, are clearly explained and that
deliver real value;
- Manage customer information
appropriately, and maintain the confidentiality of customer
information;
- Provide and promote high
standards of customer service; and
- Act fairly and promptly to
address customer complaints and any errors
found.
Conduct risk is managed via a range of controls that are assessed
through the Group's Conduct Risk Assessment Framework, reviewed
within its monitoring programmes, and overseen within reporting to
its boards and committees.
Management of the Group's conduct risk is key to the Group's
strategy. Prudential's conduct risks are managed and mitigated
using the following, among other tools:
- The Group's Code of Conduct and
conduct standards, product underwriting and other related risk
policies, and supporting controls including the Group's fraud risk
control programme;
- A culture that supports the fair
treatment of the customer, incentivises the right behaviour through
proper remuneration structures, and provides a safe environment to
report conduct risk-related issues via the Group's internal
processes and the Speak Out programme;
- Distribution controls, including
monitoring programmes relevant to the type of business (insurance
or asset management), distribution channel (agency, bancassurance
or digital) and ecosystem, to help ensure sales are conducted in a
manner that considers the fair treatment of customers within
digital environments;
- Quality of sales processes,
services and training, and use of other initiatives such as special
requirements for vulnerable customers, to improve customer
outcomes;
- Appropriate claims management and
complaint handling practices; and
- Regular
deep dive assessments on, and monitoring of, conduct risks and
periodic conduct risk assessments.
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Legal and regulatory compliance risk
Prudential operates in highly regulated markets and under the
ever-evolving requirements and expectations of diverse and dynamic
regulatory, legal and tax regimes which may impact its business or
the way the business is conducted. The complexity of legal and
regulatory (including sanctions) compliance continues to evolve and
increase, representing a challenge for international businesses.
Compliance with the Group's legal or regulatory obligations
(including in respect of international sanctions) in one
jurisdiction may
conflict with the law or policy objectives of another
jurisdiction or
may be seen as supporting the law or policy objectives of one
jurisdiction over another, creating additional legal,
regulatory compliance
and reputational risks. These risks may be increased where the
scope of regulatory requirements and obligations are uncertain, and
where specific cases applicable to the Group are complex. In
certain jurisdictions in which Prudential operates there are
several ongoing policy initiatives and regulatory developments
which will impact the way Prudential is supervised. Further
information on specific areas of regulatory and
supervisory focus and changes are included in section 4 of the
Risk factors.
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Regulatory developments are monitored by the Group at a national
and global level and these considerations form part of the Group's
ongoing engagement with government policy teams, industry groups
and regulators.
Risk management and mitigation of regulatory risk at Prudential
includes a comprehensive set of compliance and financial crime
operating arrangements, such as policies, procedures, reporting
protocols, risk management measures, disclosures and training, to
ensure ongoing compliance with regulatory and legal obligations.
Appropriate controls or tools have been systematically integrated
into the daily operations of Prudential:
- Close monitoring and assessment
of our business controls and regulatory landscape, with explicit
compliance consideration of risk themes in strategic decisions and
cross-border activities including payments;
- Ongoing engagement with national
regulators, government policy teams and international standard
setters; and
- Compliance
oversight to ensure adherence to new regulatory developments,
including those associated with greenwashing
risk.
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Risk description
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Risk management
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Insurance risks
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Insurance risks make up a significant proportion of Prudential's
overall risk exposure. The profitability of the Group's businesses
depends on a mix of factors including levels of, and trends in,
mortality (policyholders dying), morbidity (policyholders becoming
ill or suffering an accident) and policyholder behaviour
(variability in how customers interact with their policies,
including utilisation of withdrawals, take-up of options and
guarantees and persistency, ie lapsing/surrendering of policies),
and increases in the costs of claims over time (claim inflation).
The risks associated with adverse experience relative to
assumptions associated with product performance and customer
behavior are detailed in section 3.7 of the Risk factors. The Group
has appetite for retaining insurance risks in the areas where it
believes it has expertise and operational controls to manage the
risk and where it judges it to be more value-creating to do so
rather than transferring the risk, and only to the extent that
these risks remain part of a balanced portfolio of sources of
income for shareholders and are compatible with a robust solvency
position.
Inflationary and other economic pressures have also impacted
morbidity experience in several markets. Elevated interest rates
may lead customers to lapse in preference for alternate saving
options that offer higher levels of guarantees. A high-inflation
environment, and the broader economic effects of recessionary
concerns, may also increase lapses, surrenders and fraud, as well
as heighten premium affordability challenges.
The principal drivers of the Group's insurance risk vary across its
business units. In Hong Kong, Singapore, Indonesia and Malaysia, a
significant volume of health and protection business is written,
and the most significant insurance risks are medical claims
inflation risk, morbidity risk and persistency
risk.
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Insurance risks are managed and mitigated using the following,
among other methods:
- The Group's Insurance
Policy;
- The Group's Product and
Underwriting Risk Policy, which sets out the required standards for
effective product and underwriting risk management and approvals
for new, or changes to existing, products (including the role of
the Group), and the processes to enable the measurement of
underwriting risk. The policy also describes how the Group's
Customer Conduct Risk Policy is met in relation to new product
approvals and current and legacy products;
- The Group's Counter Fraud Policy
(see the 'Fraud risk' section above);
- Using persistency, morbidity and
longevity assumptions that reflect recent experience and
expectation of future trends, and the use of industry data and
expert judgement where appropriate;
- Using reinsurance to mitigate
mortality and morbidity risks;
- Ensuring appropriate medical
underwriting when policies are issued and appropriate claims
management practices when claims are received in order to mitigate
morbidity risk;
- Maintaining the quality of sales
processes and training, and using initiatives to increase customer
retention in order to mitigate persistency
risk;
- The use of mystery shopping to
identify opportunities for improvement in sales processes and
training; and
- Using product repricing and other
claims management initiatives in order to mitigate morbidity and
medical claims inflation risk.
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Medical claims inflation risk
A key assumption in these markets is the rate of medical claims
inflation, which is often in excess of general price inflation. The
cost of medical treatment could increase more than expected,
resulting in higher than anticipated medical claims cost passed on
to Prudential.
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This risk is best managed by retaining the right to reprice
products and appropriate overall claims limits within policies,
either per type of medical treatment or in total across a policy,
annually and/or over the policy lifetime. Medical reimbursement
downgrade experience (where the policyholder reduces the level of
the coverage/protection in order to reduce premium payments)
following any repricing is also monitored by the Group's
businesses.
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Morbidity risk
Morbidity risk is the risk of deviations in the future frequency
and magnitude of non-fatal accident and sickness claims relative to
initial assumptions that are adverse to shareholder value.
It can be influenced by a range of factors including:
inflationary, economic and other pressures on the cost of
medical treatment; medical advances which can reduce the incidence
and improve recovery rates of serious health conditions but can
also increase diagnosis rates and/or increase treatment costs of
certain conditions; government and regulatory policies;
opportunistic activities (including fraud); and natural events
(including pandemics). Morbidity risk can also result from: product
design features that incentivise adverse policyholder behaviour;
inappropriate or insufficiently informed initial assumptions;
claims volatility due to random fluctuation or a large-scale
systemic event; insufficient recognition of an individual's
medical; financial and/or and other relevant circumstances
during the policy application assessment process; and/or
ineffective claims assessments leading to payment of claims
that are inconsistent with the insurance product's contract and/or
best practice.
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Morbidity risk is managed through prudent product design,
underwriting and claims management, and for certain products, the
right to reprice where appropriate. Prudential's morbidity
assumptions reflect its recent experience and expectation of future
trends for each relevant line of business.
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Risk description
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Risk management
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Insurance risks continued
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Persistency risk
Persistency risk results from adverse changes in policy
surrenders, paid-ups
and other policy discontinuances. In general, lower persistency
experience results in deterioration of profits and shareholder
value and can be an indicator of inadequate sales quality controls,
and can elevate conduct, reputational and regulatory
risks. Persistency risk generally stems from
misalignment between customer needs and purchased product as a
result of insufficient product collaterals and/or sales process,
insufficient post-sale communication and engagement with the
customer leading to a deterioration of appreciation of the value of
their policy, operational barriers to premium renewal payment,
and/or changes in policyholder circumstances resulting from
external drivers.
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Persistency risk is managed by appropriate controls across the
product life cycle. These include: review and revisions to product
design and incentive structures where required; ensuring
appropriate training and sales processes, including those ensuring
active customer engagement and high service quality; appropriate
customer disclosures and product collaterals;
use of customer retention initiatives; and post-sale
management through
regular experience monitoring. Strong risk management
and mitigation
of conduct risk and the identification of common
characteristics of
business with high lapse rates is also crucial. Where appropriate,
allowance is made for the relationship (either assumed or observed
historically) between persistency and investment returns. Modelling
this dynamic policyholder behaviour is particularly important when
assessing the likely take-up rate of options embedded within
certain products.
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Business concentration risk
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Prudential operates in markets in both Asia and Africa via various
channels and product mix; although largely diversified at the Group
level, several of these markets are exposed to certain levels of
concentration risk. From a channel concentration
perspective, some
of the Group's key markets rely on agency and some markets rely on
bancassurance. From a product concentration perspective, some
of the Group's markets focus heavily on specific product
types, depending on the target customer segments. Geographically,
the Greater China (Hong Kong, the Chinese Mainland and Taiwan)
region contributes materially to the Group's top and bottom lines.
Uncertainties in macroeconomic and geopolitical conditions as well
as regulatory changes may elevate business concentration risk
including any potential slowdown in business from Mainland Chinese
visitors and in the Chinese Mainland, and adversely impact the
Group's business and financial condition.
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To improve business resilience, the Group continues to look for
opportunities to enhance business diversification by building
multi-market growth engines as part of its strategy.
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Risks associated with the oversight of the Group's joint ventures
and associates
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Prudential operates, and in certain markets is required by local
regulation to operate, through joint ventures and other joint
ownership or associates. For such operations, the level of control
exercisable by the Group depends on the terms of the contractual
agreements between participants. Whilst the joint ventures and
associates are run as separate entities, the Group's interests are
best safeguarded by our ability to effectively oversee and
influence these joint venture and associates in a way that is
proportionate to our ownership level and control. Further
information on the risks to the Group associated with its joint
ventures and other shareholders and third parties are included in
section 3.6 of the Risk factors.
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The Group exercises primary oversight and control over joint
ventures and associates through our nominated directors and other
representatives on the Board and Board Committees, whose
appointments are subject to regular review. The Group has effective
access to management information on these businesses via the Board
and Board Committees, the businesses' public disclosures, and
established regular touchpoints with key business functions of
these organisations (eg audit). Key updates on joint ventures and
associates are provided to the Group's governance such as the Risk
Committee and the Audit Committee.
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Notes
(1)
Reflecting products that are classified as Variable Fee Approach
only.
(2)
With the exception of investments backing the shareholders' 10 per
cent share of the estate within the Hong Kong participating
fund
(3)
Excluding assets held to cover linked liabilities and those of the
consolidated investment funds.
(4)
Based on middle ranking from Standard & Poor's, Moody's and
Fitch. If unavailable, NAIC and other external ratings and then
internal ratings have been used.
(5)
Source of segmentation: Bloomberg Sector, Bloomberg Group and
Merrill Lynch. Anything that cannot be identified from the three
sources noted is classified as other.
Risk factors
A number of risk factors may affect the financial condition,
results of operations and/or prospects of Prudential and its wholly
and jointly owned businesses, as a whole, and, accordingly, the
trading price of Prudential's shares. The risk factors mentioned
below should not be regarded as a complete, exhaustive and
comprehensive statement of all potential risks and uncertainties.
The information given is as of the date of this document, and any
forward-looking statements are made subject to the factors
specified under 'Forward-looking statements'.
1.
Risks relating to Prudential's financial situation
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1.1 Prudential's businesses are inherently subject to market
fluctuations and general economic conditions, each of which may
adversely affect the Group's business, financial condition, results
of operations and prospects.
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Uncertainty, fluctuations or negative trends in global and national
macroeconomic conditions and investment climates could have a
material adverse effect on Prudential's business, financial
condition and results of operations, including as a result of
increased strategic, business, insurance, product and customer
conduct risks.
Global financial markets are subject to uncertainty and volatility
created by a variety of factors. Examples of these factors include:
actual or expected changes in both monetary and regulatory policies
in the Chinese Mainland, the US and other jurisdictions together
with their impact on base interest rates and the valuation of all
asset classes and inflation expectations; slowdowns or reversals in
world or regional economic growth from geopolitical conflicts
and/or global issues such as pandemics, etc.; and sector-specific,
for examples in banking, real estate, etc., slowdowns or
deteriorations which have the potential to have contagion impacts.
Other factors include fluctuations in global commodity and energy
prices, concerns over the serviceability of sovereign debt in
certain economies, the increased level of geopolitical and
political risk and policy-related uncertainty, socio-political and
climate-driven events, etc. The transition to a lower carbon
economy, the timing and speed of which is uncertain and will vary
by country, may also result in greater uncertainty, fluctuations or
negative trends in asset valuations and reduced liquidity,
particularly for carbon-intensive sectors, and may have a bearing
on inflation levels. The extent of the financial market and
economic impact of these factors may be highly uncertain and
unpredictable and influenced by the actions, including the duration
and effectiveness of mitigating measures by governments,
policymakers and the public.
The adverse effects of such factors could be felt principally
through the following items:
- Changes
to interest rates could reduce Prudential's capital strength and
impair its ability to write significant volumes of new business.
Increases in interest rates could adversely impact the financial
condition of the Group through changes in the present value of
future fees for unit-linked businesses and/or the present value of
future profits for accident and health products; and/or reduce the
value of the Group's assets and/or have a negative impact on its
assets under management and profit. Decreases in interest rates
could: increase the potential adverse impact of product guarantees
included in non-unit-linked products with a savings component;
reduce investment returns on the Group's portfolios; impact the
valuation of debt securities; and/or increase reinvestment risk for
some of the Group's investments from accelerated prepayments and
increased redemptions.
- A
reduction in the financial strength and flexibility of corporate
entities may result in a deterioration of the credit rating profile
and valuation of the Group's invested credit portfolio (which may
lead to an increase in regulatory capital requirements for the
Group or its businesses), increased credit defaults and debt
restructurings and wider credit and liquidity spreads, resulting in
realised and unrealised credit losses. Regulations imposing or
increasing restrictions on the amount of company debt financing,
such as those placing limits on debt or liability ratios, may also
reduce the financial flexibility of corporate entities. Similarly,
securitised assets in the Group's investment portfolio are subject
to default risk and may be adversely impacted by delays or failures
of borrowers to make payments of principal and interest when due.
Where a widespread deterioration in the financial strength of
corporate entities occurs, any assumptions on the ability and
willingness of governments to provide financial support may need to
be revised.
- Failure
of Prudential's counterparties (such as banks, reinsurers and
counterparties to cash management and risk transfer or hedging
transactions) to meet commitments, or legal, regulatory or
reputational restrictions on the Group's ability to deal with these
counterparties, could give rise to a negative impact on
Prudential's financial position and on the accessibility or
recoverability of amounts due or the adequacy of collateral.
Geographic or sector concentrations of counterparty credit risk
could exacerbate the impact of these events where they
materialise.
- Estimates
of the value of financial instruments becoming more difficult
because in certain illiquid, volatile or closed markets,
determining the value at which financial instruments can be
realised is highly subjective. Processes to ascertain such values
require substantial elements of judgement, assumptions and
estimates (which may change over time). Where the Group is required
to sell its investments within a defined time frame, such market
conditions may result in the sale of these investments at below
expected or recorded prices.
- Illiquidity
of the Group's investments. The Group holds certain investments
that may, by their nature, lack liquidity or have the potential to
lose liquidity rapidly, such as investment funds (including money
market funds), privately placed fixed maturity securities, mortgage
loans, complex structured securities and alternative investments.
If these investments were required to be liquidated on short
notice, the Group could experience difficulty in doing so and could
be forced to sell them at a lower price than it otherwise would
have been able to realise.
- A
reduction in revenue from the Group's products where fee income is
linked to account values or the market value of the funds under
management. Sustained inflationary pressures which may drive higher
interest rates may also impact the valuation of fixed income
investments and reduce fee income.
- Increased
illiquidity, which includes the risk that expected cash inflows
from investments and operations will not be adequate to meet the
Group's anticipated short-term and long-term policyholder benefits
and expense payment obligations. Increased illiquidity also adds to
the uncertainty over the accessibility of financial resources which
in extreme conditions could impact the functioning of markets and
reduce capital resources as valuations decline. This could occur if
external capital is unavailable at sustainable cost, increased
liquid assets are required to be held as collateral under
derivative transactions or redemption restrictions are placed on
Prudential's investments in illiquid funds. In addition,
significant redemption requests could also be made on Prudential's
issued funds and while this may not have a direct impact on the
Group's liquidity, it could result in reputational damage to
Prudential. The potential impact of increased illiquidity is more
uncertain than for other risks such as interest rate or credit
risk.
For some non-unit-linked products with a savings component it may
not be possible to hold assets which will provide cash flows to
match those relating to policyholder liabilities. This may
particularly be the case in those markets where bond markets are
less developed or where the duration of policyholder liabilities is
longer than the duration of bonds issued and available in the
market, and in certain markets where regulated premium and claim
values are set with reference to the interest rate environment
prevailing at the time of policy issue. This results in a mismatch
due to the duration and uncertainty of the liability cash flows and
the lack of sufficient assets of a suitable duration. While this
residual asset/liability mismatch risk can be managed, it cannot be
eliminated. If interest rates in these markets are lower than those
used to calculate premium and claim values over a sustained period,
this could have a material adverse effect on Prudential's reported
profit and the solvency of its business units. In addition, part of
the profit from the Group's operations is related to bonuses for
policyholders declared on participating products, which are
impacted by the difference between actual investment returns of the
participating fund (which are broadly based on historical and
current rates of return on equity, real estate and fixed income
securities) and minimum guarantee rates offered to policyholders.
This profit could be lower in particular in a sustained low
interest rate environment.
In general, upheavals in the financial markets may affect general
levels of economic activity, employment and customer behaviour. As
a result, insurers may experience an elevated incidence of claims,
frauds, lapses, partial withdrawals or surrenders of policies, and
some policyholders may choose to defer or stop paying insurance
premiums or reduce deposits into retirement plans. Uncertainty over
livelihoods, elevated cost of living and challenges in
affordability may adversely impact the demand for insurance
products and increase regulatory risk in meeting regulatory
definitions and expectations with respect to vulnerable customers
(see risk factor 3.7). In addition, there may be a higher incidence
of counterparty failures. If sustained, this environment is likely
to have a negative impact on the insurance sector over time and may
consequently have a negative impact on Prudential's business,
balance sheet and profitability. For example, this could occur if
the recoverable value of intangible assets for bancassurance
agreements is reduced. New challenges related to market
fluctuations and general economic conditions may continue to
emerge. For example, sustained inflationary pressures driving
interest rates to even higher levels may lead to increased lapses
for some guaranteed savings products where higher levels of
guarantees are offered by products of the Group's competitors,
reflecting consumer demand for returns at the level of, or
exceeding, inflation. High inflation, combined with an economic
downturn or recession, may also result in affordability challenges,
adversely impacting the ability of consumers to purchase insurance
products. Rising inflation, via medical claims inflation (with
rising medical import prices a factor under current market
conditions), may adversely impact the profitability of the Group's
businesses.
Any of the foregoing factors and events, individually or together,
could have a material adverse effect on Prudential's business,
financial condition, results of operations and
prospects.
1.2 Geopolitical and political risks and uncertainty may adversely
impact economic conditions, increase market volatility and
regulatory compliance risks, cause operational disruption to the
Group and impact the implementation of its strategic plans, which
could have adverse effects on Prudential's business, financial
condition, results of operations and prospects.
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The Group is exposed to geopolitical and political risks and
uncertainty in the diverse markets in which it operates. Such risks
may include:
- The
application of government regulations, executive powers, sanctions,
protectionist or restrictive economic and trade policies or
measures adopted by businesses or industries which increase trade
barriers or restrict trade, sales, financial transactions, or the
transfer of capital, investment, data or other intellectual
property, with respect to specific territories, markets, companies
or individuals;
- An
increase in the volume and pace of domestic regulatory changes,
including those applying to specific sectors;
- The
increased adoption or implementation of laws and regulations which
may purport to have extra-territorial
application;
- An
increase in military tensions, regional hostilities or new
conflicts which may disrupt business operations, investments and
growth;
- Withdrawals
or expulsions from existing trading blocs or agreements or
financial transaction systems, or fragmentation of systems,
including those which facilitate cross-border
payments;
- The
implementation of measures favouring local enterprises including
changes to the maximum level of non-domestic ownership by foreign
companies, differing treatment of foreign-owned businesses under
regulations and tax rules, or international trade disputes
affecting foreign companies;
- Increased
costs due to government mandates or regulations imposing a
financial contribution to the government as a condition for doing
business; and
- Measures
which require businesses of overseas companies to operate through
locally incorporated entities or with requirements on minimum local
representation on executive or management
committees.
The above risks may have an adverse impact on Prudential through
their effects on the macroeconomic outlook and the environment for
global, regional and national financial markets. Prudential may
also face heightened sanction risks driven by geopolitical
conflicts as well as increased reputational risks. The above risks
may also adversely impact the economic, business, legal and
regulatory environment in specific markets or territories in which
the Group, its joint ventures or jointly owned businesses, sales
and distribution networks, or third-party service providers have
operations. For internationally active groups such as Prudential,
operating across multiple jurisdictions, such measures may also add
to the complexity of legal and regulatory compliance and increase
the risk of conflicts between the requirements of one jurisdiction
and another. See risk factor 4.1 below.
Geopolitical and political risks and uncertainty may also adversely
impact the Group's operations and its operational resilience.
Increasing geopolitical and political tensions may lead to
conflict, civil unrest and/or disobedience as well as increases in
domestic and cross-border cyber intrusion activity. Such events
could impact operational resilience by disrupting Prudential's
systems, operations, new business sales and renewals, distribution
channels and services to customers, which may result in a reduction
in contributions from business units to the central cash balances
and profit of the Group, decreased profitability, financial loss,
adverse customer impacts and reputational damage and may impact
Prudential's business, financial condition, results of operations
and prospects.
Legislative or regulatory changes and geopolitical or political
risks which adversely impact Hong Kong's international trading and
economic relationships may result in adverse sales, operational and
product distribution impacts to the Group due to the territory
being a key market which also hosts Group head office
functions.
1.3 As a holding company, Prudential is dependent upon its
subsidiaries to cover operating expenses and dividend
payments.
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The Group's insurance and asset management operations are generally
conducted through direct and indirect subsidiaries, which are
subject to the risks discussed elsewhere in this 'Risk factors'
section.
As a holding company, Prudential's principal sources of funds are
remittances from subsidiaries, shareholder-backed funds, the
shareholder transfer from long-term funds and any amounts that may
be raised through the issuance of equity, debt and commercial
paper.
Certain of Prudential's subsidiaries are subjected to insurance,
asset management, foreign exchange and tax laws, rules and
regulations (including in relation to distributable profits that
can limit their ability to make remittances). In some
circumstances, including where there are changes to general market
conditions, this could limit Prudential's ability to pay dividends
to shareholders or to make available funds held in certain
subsidiaries to cover the operating expenses of other members of
the Group.
A material change in the financial condition of any of Prudential's
subsidiaries may have a material effect on its business, financial
condition, results of operations and prospects.
1.4 Prudential's investment portfolio is subject to the risk of
potential sovereign debt credit deterioration.
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Investing in sovereign debt creates exposure to the direct or
indirect consequences of geopolitical or political, social or
economic changes (including changes in governments, heads of state
or monarchs), military conflicts, pandemics and associated
disruption, and other events affecting the markets in which the
issuers of such debt are located and the creditworthiness of the
sovereign. Investment in sovereign debt obligations involves risks
that are different to investment in the debt obligations of
corporate issuers. In addition, the issuer of the debt or the
governmental authorities that control the repayment of the debt may
be unable or unwilling to repay principal or pay interest when due
(or in their agreed currency) in accordance with the terms of such
debt, and Prudential may have limited recourse to compel payment in
the event of a default. A sovereign debtor's willingness or ability
to repay principal and to pay interest in a timely manner may be
affected by, among other factors, its financial position, the
extent and availability of its foreign currency reserves, the
availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy
as a whole, the sovereign debtor's policy toward local and
international lenders, geopolitical tensions and conflicts and the
political constraints to which the sovereign debtor may be
subject.
Moreover, governments may use a variety of techniques, such as
intervention by their central banks or imposition of regulatory
controls or taxes, to devalue their currencies' exchange rates, or
may adopt monetary, fiscal and other policies (including to manage
their debt burdens) that have a similar effect, all of which could
adversely impact the value of an investment in sovereign debt even
in the absence of a technical default. Periods of economic
uncertainty may affect the volatility of market prices of sovereign
debt to a greater extent than the volatility inherent in debt
obligations of other types of issuers.
In addition, if a sovereign default or other such events described
above were to occur, as has happened on certain occasions in the
past, other financial institutions may also suffer losses or
experience solvency or other concerns, which may result in
Prudential facing additional risks relating to investments in such
financial institutions that are held in the Group's investment
portfolio. There is also risk that public perceptions about the
stability and creditworthiness of financial institutions and the
financial sector generally might be adversely affected, as might
counterparty relationships between financial
institutions.
If a sovereign were to default on or restructure its obligations,
or adopt policies that devalued or otherwise altered the currencies
in which its obligations were denominated, this could have a
material adverse effect on Prudential's business, financial
condition, results of operations and prospects.
1.5 Downgrades in Prudential's financial strength and credit
ratings could significantly impact its competitive position and
damage its relationships with creditors or trading
counterparties.
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Prudential's financial strength and credit ratings, which are used
by the market to measure its ability to meet policyholder
obligations, are important factors affecting public confidence in
Prudential's products, and as a result its competitiveness.
Downgrades in Prudential's ratings as a result of, for example,
decreased profitability, increased costs, increased indebtedness or
other concerns could have an adverse effect on its ability to
market products, retain current policyholders and attract new
policyholders, as well as the Group's ability to compete for
acquisition and strategic opportunities. Downgrades could have an
adverse effect on the Group's financial flexibility, including its
ability to issue commercial paper at acceptable levels and pricing,
requirements to post collateral under or in connection with
transactions, and ability to manage market risk exposures. The
interest rates at which Prudential is able to borrow funds are
affected by its credit ratings, which are in place to measure the
Group's ability to meet its contractual obligations.
In addition, changes in methodologies and criteria used by rating
agencies could result in downgrades that do not reflect changes in
the general economic conditions or Prudential's financial
condition.
In addition, any such downgrades could have a material adverse
effect on Prudential's business, financial condition, results of
operations and prospects. Prudential cannot predict what actions
rating agencies may take, or what actions Prudential may take in
response to any such actions, which could adversely affect its
business.
1.6 Prudential is subject to the risk of exchange rate fluctuations
owing to the geographical diversity of its businesses.
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Due to the geographical diversity of Prudential's businesses,
Prudential is subject to the risk of exchange rate fluctuations.
Prudential's operations generally write policies and invest in
assets denominated in local currencies, but in some markets,
Prudential also writes policies and invests in assets denominated
in non-local currencies, primarily in the US dollar. Although this
practice limits the effect of exchange rate fluctuations on local
operating results, it can lead to fluctuations in Prudential's
consolidated financial statements upon the translation of results
into the Group's presentation currency. This exposure is not
currently separately managed. The Group presents its consolidated
financial statements in US dollars. The results of some entities
within the Group are not denominated in or linked to the US dollar
and some enter into transactions which are conducted in non-US
dollar currencies. Prudential is subject to the risk of exchange
rate fluctuations from the translation of the results of these
entities and non-US dollar transactions and the risks from the
maintenance of the HK dollar peg to the US dollar. In cases where a
non-US dollar denominated surplus arises in an operation which is
to be used to support Group capital or shareholders' interest (ie
remittances), this currency exposure may be hedged where considered
economically favourable. Prudential is also subject to the residual
risks arising from currency swaps and other derivatives that are
used to manage the currency exposure.
2. Risks relating to sustainability (including environmental,
social and governance (ESG) and climate-related)
matters
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2.1 The failure to understand and respond effectively to the risks
associated with sustainability factors could adversely affect
Prudential's achievement of its long-term strategy.
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A failure to manage the material risks associated with key
sustainability themes, including those detailed below, may inhibit
the Group's ability to meet its sustainability-related commitments
and undermine its sustainability credentials by adversely impacting
the Group's reputation and brand, and its ability to attract and
retain customers and employees, and therefore the results of its
operations and delivery of its strategy and long-term financial
success.
a Environmental risks
Environmental concerns, notably those associated with climate
change and its social and economic impacts, but also including
those associated with biodiversity and nature degradation, present
long-term risks to the sustainability of Prudential and may impact
its customers and other stakeholders.
Prudential's investment horizons are long term, and it is therefore
exposed to the long-term impact of climate change risks, which
include the financial and non-financial impact of the transition to
a lower carbon economy, physical, reputational and shareholder,
customer or third-party litigation risks. The global transition to
a lower carbon economy may have an adverse impact on investment
valuations and liquidity as the financial assets of
carbon-intensive companies in some asset sectors re-price as a
result of increased operating costs and a reduction in demand for
their products and services. The speed of this transition, and the
extent to which it is orderly and managed versus disorderly and
reactive, will be influenced by factors such as changes in public
policy, technology and market or investor sentiment. The potential
impact of these factors on the valuation of investments may also
have a broader economic impact that may adversely affect customers
and their demand for the Group's products. Direct physical risks
associated with the impacts of climate change combined with the
potential economic impacts of the transition to a lower carbon
economy have the potential to disproportionately impact the Asia
and Africa markets in which Prudential operates and invests. The
Group's stakeholders increasingly expect and/or rely on the Group
to support an orderly, inclusive and sustainable transition based
on an understanding of relevant market and company-level transition
plans with consideration given to the impact on the economies,
businesses, communities and customers in these
markets.
The Group's ability to sufficiently understand and appropriately
respond to transition risk and its ability to deliver on its
external carbon reduction commitments and the implementation of
sustainability considerations in existing or new sustainability or
climate-orientated investment strategies and products may be
limited by insufficient or unreliable data on carbon exposure,
transition plans of the investee company assets in which it
invests, or inability to divest as planned. The direct physical
impacts of climate change, including shorter-term event-driven
(acute) physical risks such as increasingly frequent and severe
hurricanes and wildfires, and those associated with longer-term
shifts in climate patterns such as elevated temperatures and
prolonged drought (chronic physical risks), are likely to become
increasingly significant factors in the mortality and morbidity
risk assessments for the Group's insurance product underwriting and
offerings and their associated claims profiles. Similarly,
nature-related physical risks can impact life and health
liabilities where, for example, pollution, poor water quality,
waste contamination and overexploitation of the natural environment
can all contribute to biodiversity degradation, which in turn can
potentially pose threats to human health. Such short-term and
long-term environmental changes in markets where Prudential or its
key third parties operate could adversely impact the Group's
operational resilience and its customers, which may potentially
occur through migration or displacement both within and across
borders.
The pace and volume of global standards and sustainability,
environmental and climate-related regulations emerging across the
markets in which the Group operates, the need to deliver on
existing and new exclusions or restrictions on investments in
certain sectors, engagement and reporting commitments and the
demand for externally assured reporting may give rise to
compliance, operational, disclosure and litigation risks which may
be increased by the multi-jurisdictional coordination required in
adopting a consistent risk management approach. The launch of
sustainability-focused funds or products, or the (method of)
incorporation of sustainability considerations within the
investment process for existing products, may increase the risks
related to the perceived fulfilment of fiduciary duties to
customers and investors by the Group's appointed asset managers,
and may subsequently increase regulatory compliance, customer
conduct, product disclosure and litigation risks. Prudential's
voluntary memberships of, or participation within, industry
organisations and groups or their initiatives may increase
stakeholder expectations of the Group's acquiescence or compliance
with their publicised positions or aims. The reputational and
litigation risks of the Group may subsequently increase where the
stated positions or aims of such industry organisations or their
initiatives continue to evolve, or where jurisdictions interpret
their objectives as adversely impacting on markets or consumers,
including for example, perceived conflicts with anti-trust laws.
See risk factor 4.1 for details of sustainability including ESG and
climate-related regulatory and supervisory developments with
potential impacts for the Group.
A failure to understand, manage and provide greater transparency of
its exposure to these climate-related risks may have increasingly
adverse implications for Prudential and its
stakeholders.
b Social risks
Social risks that could impact Prudential may arise from a failure
to consider the rights, diversity, wellbeing, changing needs, human
rights and interests of its customers and employees and the
communities in which the Group or its third parties operate.
Perceived or actual inequity and income disparities (both within
developed markets and within the Group's markets), intensified by
the recent pandemic, have the potential to further erode social
cohesion across the Group's markets which may increase operational
and disruption risks for Prudential and impact the delivery of the
Group's strategy on developing affordable and accessible products
to meet the needs of people across these markets. Direct physical
impacts of climate change and deterioration of the natural
environment, together with the actions that support the global
transition to a lower carbon economy, may disproportionately impact
the stability of livelihoods and health of lower socioeconomic
groups within the markets in which the Group operates. These risks
are heightened as Prudential operates in multiple jurisdictions
that are particularly vulnerable to climate change and biodiversity
degradation, with distinct local cultures and
considerations.
Evolving social norms and emerging population risks associated with
public health trends (such as an increase in obesity and mental
health deterioration) and demographic changes (such as population
urbanisation and ageing), as well as potential migration due to
factors including climate-related developments, may affect customer
lifestyles and therefore may impact the level of claims under the
Group's insurance product offerings.
As a provider of insurance and investment services, the Group is
increasingly focused on making its products more accessible through
the use of digital services, technologies and distribution methods
to customers. As a result, Prudential has access to extensive
amounts of customer personal data, including data related to
personal health, and an increasing ability to analyse and interpret
this data through the use of complex tools, machine learning and
artificial intelligence (AI) technologies. The Group is therefore
exposed to an increase in technology risk, including potential
unintended consequences from algorithmic bias, as well as
regulatory, ethical and reputational risks associated with customer
data misuse or security breaches. These risks are explained in risk
factors 3.4 and 3.5 below. The increasing digitalisation of
products, services and processes may also result in new and
unforeseen regulatory requirements and stakeholder expectations,
including those relating to how the Group supports its customers
through this transformation.
Failure to foster an inclusive, diverse and open environment for
the Group's employees in accordance with the principles of the
Universal Declaration of Human Rights and the International Labour
Organisation's core labour standards could impact the ability to
attract and/or retain employees and increase potential reputational
risk. The business practices within the Group's third-party supply
chain and investee companies with regards to topics including
labour standards, respect of human rights and modern slavery also
expose the Group to potential reputational risk.
c Governance
A failure to maintain high standards of corporate governance may
adversely impact the Group and its customers and employees and
increase the risk of poor decision-making and a lack of oversight
and management of its key risks. Poor governance may arise where
key governance committees have insufficient independence, a lack of
diversity, skills or experience in their members, or unclear (or
insufficient) oversight responsibilities and mandates. Inadequate
oversight over remuneration also increases the risk of poor senior
management behaviours.
Prudential operates across multiple jurisdictions and has a group
and subsidiary governance structure which may add further
complexity to these considerations. Participation in joint ventures
or partnerships where Prudential does not have direct overall
control and the use of third-party service providers increase the
potential for reputational risks arising from inadequate
governance.
Sustainability risks may directly or indirectly impact Prudential's
business and the achievement of its strategic focus on providing
greater and more accessible health and financial protection,
responsible stewardship and investment within the Group's market to
support a just and inclusive transition, developing a sustainable
business that delivers a positive impact on its broad range of
stakeholders, which range from customers, institutional investors,
employees and suppliers, to policymakers, regulators, industry
organisations and local communities. A failure to transparently and
consistently implement the Group's Sustainability Strategy across
its local businesses and operational, underwriting and investment
activities, as well as a failure to implement and uphold
responsible business practices, may adversely impact the financial
condition and reputation of the Group. This may also negatively
impact the Group's stakeholders, who all have expectations,
concerns and aims related to sustainability matters, which may
differ, both within and across stakeholder groups and the markets
in which the Group operates. In its investment activities,
Prudential's stakeholders increasingly have expectations of, and
place reliance on, an approach to responsible investment that
demonstrates how sustainability considerations are effectively
integrated into investment decisions, responsible supply chain
management and the performance of fiduciary and stewardship duties.
These duties include effective implementation of exclusions, voting
and active engagement decisions with respect to investee companies,
as both an asset owner and an asset manager, in line with
internally defined procedures and external commitments. The
increased demands and expectations of stakeholders for transparency
and disclosure of the activities that support these duties further
heightens disclosure risks for the Group, including those
associated with potentially overstating or misstating the positive
environmental or societal impacts of the Group's activities,
products and services (eg greenwashing).
3. Risks relating to Prudential's business activities and
industry
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3.1 The implementation of large-scale transformation, including
complex strategic initiatives, gives rise to significant design and
execution risks and may affect Prudential's operational capability
and capacity. Failure of these initiatives to meet their objectives
may adversely impact the Group and the delivery of its
strategy.
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Where required in order to implement its business strategies for
growth, meet customer needs, improve customer experiences,
strengthen operational resilience, meet regulatory and industry
requirements, and maintain market competitiveness, Prudential from
time to time undertakes corporate restructuring, transformation
programmes and acquisitions/disposals across its business. Many
such change initiatives are complex, inter-connected and/or of
large scale, and include improvement of business efficiencies
through operating model changes, advancing the Group's digital
capability, expanding strategic partnerships, and industry and
regulatory-driven change. There may be a material adverse effect on
Prudential's business, employees, customers, financial condition,
results of operations and prospects if these initiatives incur
unplanned costs, are subject to implementation delays, or fail to
fully meet their objectives. Leadership changes and changes to the
business and operational model of the Group increase uncertainty
for its employees, which may affect operational capacity and the
ability of the Group to deliver its strategy. There may also be
adverse implications for the Group in undertaking transformation
initiatives such as placing additional strain on employees or
operational capacity, and weakening the control environment.
Implementing initiatives related to the revised strategy for the
Group, control environment transformation, significant accounting
standard changes, such as IFRS 17, and other regulatory changes in
major businesses of the Group, such as those related to the agency
transformation at the Indonesia businesses, may amplify these
risks. Risks relating to these regulatory changes are explained in
risk factor 4.1 below.
The speed of technological change in the business could outpace the
Group's ability to anticipate all the unintended consequences that
may arise from such change. Innovative technologies, such as AI,
expose Prudential to potential additional regulatory, information
security, privacy, operational, ethical and conduct risks.
Specifically, the increasing use of AI could lead to increased
scrutiny from regulators, potential bias in decision-making
processes, and unforeseen vulnerabilities in information security.
The ethical implications of AI use, such as data privacy and
transparency in automated decisions, are also potential areas of
concern. If inadequately managed, these risks could result in
customer detriment and reputational damage.
3.2 Prudential's businesses are conducted in highly competitive
environments with rapidly developing demographic trends. The
profitability of the Group's businesses depends on management's
ability to respond to these pressures and trends.
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The markets for financial services are highly competitive, with a
number of factors affecting Prudential's ability to sell its
products and its profitability, including price and yields offered,
financial strength and ratings, range of product lines and product
quality, ability to implement and comply with regulatory changes,
the imposition of regulatory sanctions, brand strength and name
recognition, investment management performance and fund management
trends, historical bonus levels, the ability to respond to
developing demographic trends, customer appetite for certain
savings products (which may be impacted by broader economic
pressures), and technological advances. In some of its markets,
Prudential faces competitors that are larger, have greater
financial resources or a greater market share, offer a broader
range of products or have higher bonus rates. Further, heightened
competition for talented and skilled employees, agents and
independent financial advisers may limit Prudential's potential to
grow its business as quickly as planned or otherwise implement its
strategy. Technological advances, including those enabling
increased capability for gathering large volumes of customer health
data and developments in capabilities and tools for analysing and
interpreting such data (such as AI and machine learning), may
result in increased competition to the Group, both from within and
outside the insurance industry, and may increase the competition
risks resulting from a failure to be able to attract or retain
talent.
The Group's principal competitors include global life insurers,
regional insurers and multinational asset managers. In most
markets, there are also local companies that have a material market
presence.
Prudential believes that competition will intensify across all
regions in response to consumer demand, digital and other
technological advances (including the use of AI to improve
operational efficiency and enhance customer experiences), the need
for economies of scale and the consequential impact of
consolidation, regulatory actions and other factors. Prudential's
ability to generate an appropriate return depends significantly
upon its capacity to anticipate and respond appropriately to these
competitive pressures. This includes managing the potential adverse
impacts to the commercial value of the Group's existing sale and
distribution arrangements, such as bancassurance arrangements, in
markets where new distribution channels develop.
Failure to do so may adversely impact Prudential's ability to
attract and retain customers and, importantly, may limit
Prudential's ability to take advantage of new business arising in
the markets in which it operates, which may have an adverse impact
on the Group's business, financial condition, results of operations
and growth prospects.
3.3 Adverse experience in the operational risks inherent in
Prudential's business, and those of its material outsourcing
partners, could disrupt its business functions and have a negative
impact on its business, financial condition, results of operations
and prospects.
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Operational risks are present in all of Prudential's businesses,
including the risk of loss arising from inadequate or failed
internal processes, systems or human error, misconduct, fraud, the
effects of natural or man-made catastrophic events (such as natural
disasters, pandemics, cyber attacks, acts of terrorism, civil
unrest and other catastrophes) or other external events. These
risks may also adversely impact Prudential through its partners.
Prudential relies on the performance and operations of a number of
bancassurance, product distribution, outsourcing (including but not
limited to external technology, data hosting and payments), and
service partners. These include back office support functions, such
as those relating to technology infrastructure, development and
support, and customer-facing operations and services, such as
product distribution and services (including through digital
channels), and investment operations. This creates reliance upon
the resilient operational performance of these partners and exposes
Prudential to the risk that the operations and services provided by
these partners are disrupted or fail. Further, Prudential operates
in extensive and evolving legal and regulatory environments which
adds to the complexity of the governance and operation of its
business processes and controls.
Exposure to such risks could impact Prudential's operational
resilience and ability to perform necessary business functions if
there are disruptions to its systems, operations, new business
sales and renewals, distribution channels and services to
customers, or could result in the loss of confidential or
proprietary data. Such risks, as well as any weaknesses in
administration systems (such as those relating to policyholder
records) or actuarial reserving processes, may also result in
increased expenses, as well as legal and regulatory sanctions,
decreased profitability, financial loss and customer conduct risk
impacts. This could damage Prudential's reputation and relationship
with its customers and business partners. A failure to adequately
oversee service partners (or their technology and operational
systems and processes) could result in significant service
degradation or disruption to Prudential's business operations and
services to its customers, which may have reputational or conduct
risk implications and could have a material adverse effect on the
Group's business, financial condition, results of operations and
prospects.
Prudential's business requires the processing of a large number of
transactions for a diverse range of products. It also employs
complex and inter-connected technology and finance systems, models
and user-centric applications in its processes to perform a range
of operational functions. These functions include the calculation
of regulatory or internal capital requirements, the valuation of
assets and liabilities, and the acquisition of new business using
AI and digital applications. Many of these tools form an integral
part of the information and decision-making frameworks used by
Prudential and the risk of adverse consequences arising from
erroneous or misinterpreted tools used in core business activities,
decision-making and reporting exists. Errors or limitations in
these tools, or their inappropriate usage, may lead to regulatory
breaches, inappropriate decision-making, financial loss, customer
detriment, inaccurate external reporting or reputational damage.
The long-term nature of much of the Group's business also means
that accurate records are to be maintained securely for significant
time periods.
The performance of the Group's core business activities and the
uninterrupted availability of services to customers rely
significantly on, and require significant investment in, resilient
IT applications, infrastructure and security architectural design,
data governance and management and other operational systems,
personnel, controls, and mature processes. During large-scale
disruptive events or times of significant change, or due to other
factors impacting operational performance including adequacy of
skilled/experienced personnel, the resilience and operational
effectiveness of these systems and processes at Prudential and/or
its third-party service providers may be adversely impacted. In
particular, Prudential and its business partners are making
increasing use of emerging technological tools and digital
services, or forming strategic partnerships with third parties to
provide these capabilities. Automated distribution channels and
services to customers increase the criticality of providing
uninterrupted services. A failure to implement appropriate
governance and management of the incremental operational risks from
emerging technologies may adversely impact Prudential's reputation
and brand, the results of its operations, its ability to attract
and retain customers and its ability to deliver on its long-term
strategy and therefore its competitiveness and long-term financial
success.
Although Prudential's technology, compliance and other operational
systems, models and processes incorporate strong governance and
controls designed to manage and mitigate the operational and model
risks associated with its activities, there can be no complete
assurance as to the resilience of these systems and processes to
disruption or that governance and controls will always be
effective. Due to human error, among other reasons, operational and
model risk incidents do occur from time to time and no system or
process can entirely prevent them. Prudential's legacy and other
technology systems, data and processes, as with operational systems
and processes generally, may also be susceptible to failure or
security/data breaches.
3.4 Cyber security risks, including attempts to access or disrupt
Prudential's technology systems, and loss or misuse of personal
data, could have potential adverse financial impacts on the Group
and could result in loss of trust from Prudential's customers and
employees and reputational damage, which in turn could have
material adverse effects on the Group's business, financial
condition, results of operations and prospects.
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Prudential and its business partners are increasingly exposed to
the risk that individuals (which includes connected persons such as
employees, contractors or representatives of Prudential or its
third-party service providers, and unconnected persons) or groups
may intentionally or unintentionally disrupt the availability,
confidentiality and integrity of its technology systems or
compromise the integrity and security of data (both corporate and
customer), including disruption from ransomware (malicious software
designed to restrict Prudential's access to data until the payment
of a sum of money and to exfiltrate data with a threat to publicly
expose Prudential data if a ransom payment is not paid), and
targeted and untargeted but sophisticated attacks. Where these
risks materialise, this could result in disruption to key
operations, make it difficult to recover critical data or services
or damage assets, any of which could result in loss of trust from
Prudential's customers and employees, reputational damage and
direct or indirect financial loss.
The vast amount of personal and financial data held by financial
services companies makes them attractive targets for cyber crime
groups. The ease and accessibility of ransomware exploit toolkits
and Ransomware-as-a-Service (RaaS) for threat actors contribute to
the increase in ransomware activity. At the same time, cyber
security threats continue to evolve globally in sophistication and
potential significance. Prudential's increasing profile in its
current markets and those in which it is entering, growing customer
interest in interacting with their insurance providers and asset
managers through the internet and social media, improved brand
awareness, and increasing adoption of the Group's digital platforms
could also increase the likelihood of Prudential being considered a
target by cyber criminals.
There is an increasing requirement and expectation on Prudential
and its business partners not only to hold the data of customers,
shareholders and employees securely, but also to ensure its ongoing
accuracy and that it is being used in a transparent, appropriate
and ethical way, including in decision-making where automated
processes are employed. As Prudential and its business partners
increasingly adopt digital technology in business operations, the
data the Group generates creates an opportunity to enhance customer
engagement while maintaining a responsibility to keep customers'
personal data safe. Various policies and frameworks are in place to
govern the handling of customers' data. A failure to adhere to
these polices may result in regulatory scrutiny and sanctions and
detriment to customers and third-party partners, and may adversely
impact the reputation and brand of the Group, its ability to
attract and retain customers, and deliver on its long-term
strategy, and therefore the results of its operations.
The risk to the Group of not meeting these requirements and
expectations may be increased by the development of cloud-based
infrastructure and the usage of digital distribution and service
channels, which can collect a broader range of personal and
health-related data from individuals at increased scale and speed,
and the use of complex tools, machine learning and AI technologies
to process, analyse and interpret this data.
New and currently unforeseeable regulatory, reputational and
operational issues may also arise from the increased use of
emerging technology such as generative AI which requires careful
consideration and guardrails established to enable its safe use.
Regulatory developments in cyber security and data protection
continue to progress worldwide. In 2023, the momentum in focus on
data privacy continued to increase, with regulators in Asia
introducing new data privacy laws or enhancing existing ones (eg
new data protection laws in Vietnam in June 2023 and extensive
amendments to the Korean data privacy law). Such developments may
increase the complexity of requirements and obligations in this
area, in particular where they include national security
restrictions or impose differing and/or conflicting requirements
compared with those of other jurisdictions. These risks may also
increase the financial and reputational implications for Prudential
of regulatory non-compliance or a significant breach of IT systems
or data, including at its joint ventures or third-party service
providers. The international transfer of data may, as a global
organisation, increase regulatory risks for the Group.
Prudential has been, and likely will continue to be, subject to
potential damage from computer viruses, unauthorised access and
cyber security attacks such as 'denial of service' attacks,
phishing and disruptive software campaigns. Despite the
multi-layered security defences in place, there can be no assurance
that such events will not take place and they may have material
adverse consequential effects on Prudential's business, financial
condition, results of operations and prospects.
3.5 Prudential's digital platforms may heighten existing business
risks to the Group or introduce new risks as the markets in which
it operates, and its partnerships and product offerings
evolve.
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Prudential's digital platforms are subject to a number of risks. In
particular, these include risks related to: legal and regulatory
compliance and the conduct of business; the execution of complex
change initiatives; information security and data privacy; the use
of models (including those using artificial intelligence) and the
handling of personal data; the resilience and integrity of IT
infrastructure and operations; and those relating to the management
of third parties. These existing risks for the Group may be
increased due to a number of factors:
- The
number of current and planned markets in which Prudential's digital
platforms operate, each with their own laws and regulations,
regulatory and supervisory authorities, the scope of application of
which may be uncertain or change at pace, may increase regulatory
compliance risks;
- The
implementation of planned digital platforms and services, which may
require the delivery of complex, inter-connected change initiatives
across current and planned markets. This may give rise to design
and execution risks, which could be amplified where these change
initiatives are delivered concurrently;
- The
increased volume, breadth and sensitivity of data on which the
digital platforms are dependent and to which the Group has access,
holds, analyses and processes through its models, increases data
security, privacy and usage risks. Furthermore, the use of complex
models, including where AI is used for critical decision-making, in
an application's features and offerings may give rise to ethical,
operational, conduct, litigation and reputational risks if they do
not function as intended;
- Reliance
on and/or collaboration with a number of third-party partners and
providers, which may vary according to the market. This may
increase operational disruption risks to the uninterrupted
provision of services to customers, regulatory compliance and
conduct risks, and the potential for reputational risks;
and
- Support
for, and development of, the platform being provided outside some
of the individual markets in which the platform operates, which may
increase the complexity of local legal and regulatory
compliance.
New product offerings and functionality may be developed and
provided through the digital platforms, which may introduce new
regulatory, operational, conduct and strategic risks for the Group.
Regulations may be introduced, which limit the permitted scope of
online or digitally distributed insurance and asset management
services and may restrict current or planned offerings provided by
the platform.
A failure to implement appropriate governance and management of the
incremental and new risks detailed above may adversely impact
Prudential's reputation and brand, its ability to attract and
retain customers, its competitiveness, its ability to deliver on
its long-term strategy and the financial position of the
Group.
3.6 Prudential operates in certain markets with joint venture
partners and other shareholders and third parties. These businesses
face the same risks as the rest of the Group and also give rise to
certain risks to Prudential that the Group does not face with
respect to its wholly-owned subsidiaries.
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Prudential operates, and in certain markets is required by local
regulation to operate, through joint ventures and other joint
ownership or third-party arrangements (including associates). The
financial condition, operations and reputation of the Group may be
adversely impacted, or the Group may face regulatory censure, in
the event that any of its partners fails or is unable to meet its
obligations under the arrangements, encounters financial
difficulty, or fails to comply with local or international
regulation and standards such as those pertaining to the prevention
of financial crime and sustainability (including climate-related)
risks (see risk factor 2 above). Reputational risks to the Group
are amplified where any joint ventures or jointly owned businesses
carry the Prudential name.
A material proportion of the Group's business comes from its joint
venture and associate businesses in the Chinese Mainland and India,
respectively. For such operations the level of control exercisable
by the Group depends on the terms of the contractual agreements as
well as local regulatory constraints applicable to the joint
venture and associate businesses, such as listing requirements; and
in particular those terms providing for the allocation of control
among, and continued cooperation between, the participants. As a
result, the level of oversight, control and access to management
information the Group is able to exercise at these operations may
be lower compared to the Group's wholly-owned businesses. This may
increase the uncertainty for the Group over the financial condition
of these operations, including the valuation of their investment
portfolios and the extent of their invested credit and counterparty
credit risk exposure, resulting in heightened risks to the Group as
a whole. This may particularly be the case where the geographies in
which these operations are located experience market or
sector-specific slowdowns, disruption, volatility or deterioration
(such as the negative developments in the Chinese Mainland property
sector and more widely across the Chinese Mainland economy). In
addition, the level of control exercisable by the Group could be
affected by changes in the maximum level of foreign ownership
imposed on foreign companies in certain jurisdictions. The exposure
of the Group to the risks detailed in risk factor 3.1 above may
also increase should the Group's strategic initiatives include the
expansion of the Group's operations through joint ventures or
jointly owned businesses.
In addition, a significant proportion of the Group's product
distribution is carried out through agency arrangements and
contractual arrangements with third-party service providers not
controlled by Prudential, such as bancassurance arrangements, and
the Group is therefore dependent upon the continuation of these
relationships. The effectiveness of these arrangements, or
temporary or permanent disruption to them, such as through
significant deterioration in the reputation, financial position or
other circumstances of the third-party service providers, material
failure in controls (such as those pertaining to the third-party
service providers' systems failure or the prevention of financial
crime), regulatory changes affecting their governance or operation,
or their failure to meet any regulatory requirements could
adversely affect Prudential's reputation and its business,
financial condition, results of operations and
prospects.
3.7 Adverse experience relative to the assumptions used in pricing
products and reporting business results could significantly affect
Prudential's business, financial condition, results of operations
and prospects.
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In common with other life insurers, the profitability of the
Group's businesses depends on a mix of factors including mortality
and morbidity levels and trends, policy surrenders and take-up
rates on guarantee features of products, investment performance and
impairments, unit cost of administration and new business
acquisition expenses.
The Group's businesses are subject to inflation risk. In
particular, the Group's medical insurance businesses are also
exposed to medical inflation risk. The potential adverse impacts to
the profitability of the Group's businesses from the upheavals in
financial markets and levels of economic activity on customer
behaviours are described in risk factor 1.1 above. While the Group
has the ability to reprice some of its products, the frequency of
repricing may need to be increased. Such repricing is dependent on
the availability of operational and resource capacity to do so, as
well as the Group's ability to implement such repricing in light of
the increased regulatory and societal expectations reflecting the
affordability of insurance products and the protection of
vulnerable customers, as well as the commercial considerations of
the markets the Group operates in. The profitability of the Group's
businesses also may be adversely impacted by the medical
reimbursement downgrade experience following any
repricing.
Prudential, like other insurers, needs to make assumptions about a
number of factors in determining the pricing of its products, for
setting reserves, and for reporting its capital levels and the
results of its long-term business operations. A further factor is
the assumptions that Prudential makes about future expected levels
of the rates of early termination of products by its customers
(known as persistency). This is relevant to a number of lines of
business in the Group. Prudential's persistency assumptions reflect
a combination of recent past experience for each relevant line of
business and expert judgement, especially where a lack of relevant
and credible experience data exists. Any expected change in future
persistency is also reflected in the assumptions. If actual levels
of persistency are significantly different than assumed, the
Group's results of operations could be adversely
affected.
In addition, Prudential's business may be adversely affected by
epidemics, pandemics and other effects that give rise to a large
number of deaths or additional sickness claims, as well as
increases to the cost of medical claims. Pandemics, significant
influenza and other epidemics have occurred a number of times
historically, but the likelihood, timing or severity of future
events cannot be predicted. The effectiveness of external parties,
including governmental and non-governmental organisations, in
combating the spread and severity of any epidemics, as well as
pharmaceutical treatments and vaccines (and their roll-outs) and
non-pharmaceutical interventions, could have a material impact on
the Group's claims experience.
Prudential uses reinsurance to selectively transfer mortality,
morbidity and other risks. This exposes the Group to: the
counterparty risk of a reinsurer being unable to pay reinsurance
claims or otherwise meet their commitments; the risk that a
reinsurer changes reinsurance terms and conditions of coverage, or
increases the price of reinsurance which Prudential is unable to
pass on to its customers; the risk of ambiguity in the reinsurance
terms and conditions leading to uncertainty whether an event is
covered under a reinsurance contract; and the risk of being unable
to replace an existing reinsurer, or find a new reinsurer, for the
risk transfer being sought.
Any of the foregoing, individually or together, could have a
material adverse effect on Prudential's business, financial
condition, results of operations and prospects.
4. Risks relating to legal and regulatory requirements
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4.1 Prudential conducts its businesses subject to regulation and
associated regulatory risks, including a change to the basis of the
regulatory supervision or intervention of the Group, the level of
regulatory scrutiny arising from the Group's reported events, the
effects and pace of changes in the laws, regulations, policies and
their interpretations and any industry/accounting standards in the
markets in which it operates.
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Any non-compliance with government policy and legislation,
financial control measures on companies and individuals, regulation
or regulatory interpretation applying to companies in the financial
services and insurance industries in any of the markets in which
Prudential operates (including those related to the business
conduct of Prudential or its distributors), or decisions taken by
regulators in connection with their supervision of members of the
Group, which in some circumstances may be applied retrospectively,
may adversely affect Prudential. Further, the impact from
regulatory changes may be material to Prudential, for instance,
changes may be required to its product range, distribution
channels, sales and servicing practices, handling of data,
competitiveness, profitability, capital requirements, risk
management approaches, corporate or governance structure, financial
and non-financial disclosures and reported results and financing
requirements. Other changes in capital-related regulations have the
potential to change the extent of sensitivity of capital to market
factors, regulators in jurisdictions in which Prudential operates
may impose requirements affecting the allocation of capital and
liquidity between different business units in the Group, whether on
a geographic, legal entity, product line or other basis. Regulators
may also change solvency requirements, methodologies for
determining components of the regulatory or statutory balance
sheet, including the reserves and the level of capital required to
be held by individual businesses (with implications to the Group
capital position). Furthermore, as a result of interventions by
governments in light of financial and global economic conditions,
there may continue to be changes in government regulation and
supervision of the financial services industry, potentially
resulting in tightened customer protection, higher capital
requirements, restrictions on transactions and enhancement of
supervisory powers.
In the markets in which Prudential operates, it is subject to
regulatory requirements for ongoing operations as well as
obligations with respect to financial crime, including anti-money
laundering, and sanctions compliance, which may either impose
obligations on the Group to act in a certain manner or restrict the
way that it can act in respect of specified individuals,
organisations, businesses and/or governments. A failure to do so
may adversely impact the reputation of Prudential and/or result in
the imposition of legal or regulatory sanctions or restrictions on
the Group. For internationally active groups such as Prudential,
operating across multiple jurisdictions including cross-border
activities increases the complexity and volume of legal and
regulatory compliance challenges. Compliance with Prudential's
legal or regulatory obligations, including those in respect of
international sanctions, in one jurisdiction may conflict with the
law or policy objectives of another jurisdiction, or may be seen as
supporting the law or policy objectives of that jurisdiction over
another, creating additional legal, regulatory compliance and
reputational risks for the Group. Geopolitical and global tensions
may also lead to realignment among blocs or global polarisation and
decoupling, which may lead to an increase in the volume and
complexity of international sanctions. These risks may be increased
where uncertainty exists on the scope of regulatory requirements
and obligations, and where the complexity of specific cases
applicable to the Group is high.
Further information on specific areas of regulatory and supervisory
requirements or changes are included below.
a Group-wide Supervision
(GWS)
The Hong Kong Insurance Authority (Hong Kong IA) is the Group-wide
supervisor for Prudential. The Hong Kong IA's Group-wide
Supervision (GWS) Framework applies on a principles-based and
outcome-focused approach, which allows the Hong Kong IA to exercise
direct regulatory powers over the designated holding companies of
multinational insurance groups. Prudential has in place various
monitoring mechanisms and controls to ensure ongoing sustainable
compliance and to promote constructive engagement with the Hong
Kong IA as its Group-wide supervisor.
b Global regulatory developments and
systemic risk regulation
There are a number of ongoing global regulatory developments which
could potentially impact Prudential's businesses in the many
jurisdictions in which they operate. Mandated by the Financial
Stability Board (FSB), this work includes standard setting and
guidance in the areas of systemic risk (including climate-related
risks) and the Insurance Capital Standard (ICS).
For the insurance sector, the International Association of
Insurance Supervisors (IAIS) continues to monitor and assess
systemic risk through the Holistic Framework (HF) which effectively
replaced the Global Systemically Important Insurer (G-SII)
designations in 2019. The FSB continues to receive an annual update
on the outcomes of the IAIS's global monitoring exercise which will
include IAIS's assessment of systemic risk. The FSB reserves the
right to publicly express its views on whether an individual
insurer is systemically important in the global context and the
application of any necessary HF supervisory policy measures to
address such systemic importance. In November 2025, the FSB will
review the process for assessing and mitigating systemic risk under
the HF. Following this review the FSB will, as necessary, adjust
its process which could include reinstating an updated G-SII
identification process. Many of the prior G-SII measures have been
adopted into IAIS's Insurance Core Principles (ICPs) and Common
Framework (ComFrame), described below, as well as under the Hong
Kong IA's GWS Framework. As an Internationally Active Insurance
Group (IAIG), Prudential is subject to these measures.
The IAIS's ComFrame establishes quantitative and qualitative
supervisory standards and guidance focusing on the effective
Group-wide supervision of IAIGs. The ICS is the quantitative
element of ComFrame and a consolidated capital standard in the
final phase of development, coming into effect in 2025. Prudential
has been designated an IAIG by the Hong Kong IA following an
assessment against the established qualitative criteria in
ComFrame, and will be required to either adopt ICS or demonstrate
its current Group capital supervisory framework to be
outcome-equivalent with ICS.
The development of ICS has been conducted in two phases: a
five-year monitoring phase, which commenced at the beginning of
2020, followed by an implementation phase. An alternative to the
ICS called the 'Aggregation Method' has also been developed in the
US by the National Association of Insurance Commissioners; the IAIS
is in the process of evaluating whether it produces comparable
outcomes to the ICS.
There is a risk attached to the manner in which regulators from
member jurisdictions may choose to implement the HF and ICS which
could lead to additional burdens or adverse impacts to the Group.
As a result, there remains a degree of uncertainty over the
potential impact of such changes on the Group.
c Regional regulatory regime
developments
In 2023, regulators in the markets in which we operate continued to
focus on the financial resilience of the insurance industry
(including to address issues of solvency and rising interest
rates), the protection of customers in relation to product and
service performances and operational soundness with appropriate
governance and controls. New regulations and guidelines were issued
in several markets whereby the industry is required to assess,
monitor and manage non-financial and financial risks, including
insurance risk, capital and solvency. Business conduct and consumer
protection remain the key priorities for regulators in Asia, with
emphases on product design, remuneration structure, marketing
literature, sales and servicing practices, and various operational
processes including specifically for investment management and
oversight of third parties and technology vendors.
Major regulatory changes and reforms are in progress in some of the
Group's key markets, with some uncertainty on the full impact to
Prudential:
- In
the Chinese Mainland, regulatory developments across a number of
industries including the financial sector have continued,
potentially increasing compliance risk to the Group. Key regulatory
developments in the Chinese Mainland include the
following:
- As
part of the regulatory reform, the Chinese government has
consolidated oversight of the financial industry directly under the
State Council and announced a new national financial regulator, the
National Financial Regulatory Administration (NFRA) to replace the
China Banking and Insurance Regulatory Commission (CBIRC) on 18 May
2023. The NFRA is authorised to overall supervise and regulate the
Chinese Mainland banking and insurance markets to ensure financial
institutions operate in a stable manner in compliance with the law
and meet their obligations to customers. Key changes implemented by
the NFRA include: reductions in statutory valuation interest rates
for life insurance products, which are expected to lower pricing
interest rate, effective from July 2023; and solvency relief
measures through the China Risk Oriented Solvency System Phase II
(C-ROSS II), effective from September 2023. In early 2024, further
regulatory changes have been issued including: reductions in
crediting rates for universal life products; requirements on
consistency between reported and incurred bancassurance commissions
and expenses; and new measures for setting requirements for
insurance sales conduct, product design, marketing and
disclosures.
- The
amendment of the Insurance Law of the People's Republic of China is
in progress with emphasis on corporate governance including
appointment of directors, fiduciary duties, and supervision of
participating and investment-linked product (ILP) policies. The
implementation timeline is yet to be announced.
- In
Indonesia, regulatory and supervisory focus on the insurance
industry remains high. In 2023, the Otoritas Jasa Keuangan (OJK)
issued a five-year industry roadmap with plans to establish an
insurance industry that upholds high integrity, strengthens
consumer and public protection, and supports national economic
growth. The roadmap covers areas to enhance policyholder protection
as well as other aspects on licensing, data, capital, products,
actuarial, risk and controls. Implementation of this roadmap is in
three phases from 2023 to 2027, including foundation strengthening,
consolidation and momentum creation, and alignment and
growth.
- In
Malaysia, Bank Negara Malaysia (BNM) has initiated a multi-phase
review of its current risk-based capital (RBC) frameworks for
insurers and Takaful operators since 2019, which includes
quantitative impact studies carried out in 2022, the issuance of
exposure drafts and a parallel run in 2023, prior to the potential
full implementation targeting by the end of 2024 at the earliest.
BNM also revised its policy on Management of Customer Information
and Permitted Disclosures in April 2023, which sets out
requirements regarding controls in collection, storage, use,
transmission, sharing, disclosure and disposal of customer
information. Furthermore, a new regulation on professionalism of
agents came into effect on 1 January 2024, requiring additional
'fit and proper' and due diligence procedures as enhanced agent
onboarding and screening requirements.
- In
Hong Kong, the revised Guideline GL3 on anti-money laundering (AML)
and counter-terrorism financing (CTF) was published with an
effective date of 1 June 2023. The Hong Kong Government also
proposed to establish a Policy Holders' Protection Scheme in
December 2022 as a safety net for policyholders in the event of an
insurer's insolvency. Public views were sought in 2023 and the
legislation process is expected to commence in the second half of
2024 at the earliest.
- In
Singapore, the Monetary Authority of Singapore (MAS) has designated
the Group's Singapore business as a domestic systemically important
insurer. Furthermore, in order to mitigate money laundering risk in
the financial sector as a whole, the MAS has been soliciting
feedback from industry stakeholders to improve anti-money
laundering standards. Further regulatory developments are
expected.
- In
Thailand, the Office of Insurance Commission presented draft
amendments to the life and non-life insurance laws in December
2023, aimed at elevating governance standards within the insurance
industry. The amendments are currently under
review.
- In
Vietnam, the amended Insurance Law took effect on 1 January 2023.
The new law contains provisions on RBC, with a five-year grace
period, effective from 1 January 2028. The Vietnamese Government
also issued a decree for personal data privacy guidance with an
effective date of 1 July 2023, which provides definitions of
personal data with examples of sensitive personal data, the rights
of data subjects, and notification and data transfer requirements
pertaining to the use of data. Another implementing circular of the
Insurance Law issued in November 2023 also requires mandatory voice
recording for sales, agency remuneration limits, and a cooling-off
period for lending customers.
- In
the Philippines, financial product and customer service
requirements were issued by the Insurance Commission in March 2023
with an 18-month transition period for adoption. The new
requirements include product and service disclosures, a systematic
approach to customer assistance and conduct risk management, as
well as additional complaints filing.
- In
India, the Insurance Regulatory and Development Authority of India
(IRDAI) continues to focus on industry reform. Its 'Insurance for
All by 2047' proposal aims to ensure that every citizen and
enterprise in India has adequate life, health and property
insurance cover. The IRDAI is promoting the use of technology, such
as big data, AI and machine learning, to transform the insurance
landscape in the country, in order to become the sixth-largest
insurance market by 2032. A new income tax rule took effect from 1
April 2023, which makes maturity proceeds of insurance policies
taxable for policies issued from this date which have annual
premiums exceeding INR 500,000. Another IRDAI regulation issued in
March 2023 removed commission payment limits for insurers, with the
aim of giving more operational flexibility to insurers and
enhancing insurance penetration.
The increasing use of emerging technological tools and digital
services across the industry is likely to lead to new and
unforeseen regulatory requirements and issues, including
expectations regarding the governance, ethical and responsible use
of technology, AI and data. Distribution and product suitability
linked to innovation continues to set the pace of conduct
regulatory change in Asia. Prudential falls within the scope of
these conduct regulations, requiring that regulatory changes are
appropriately implemented.
The pace and volume of sustainability-related regulatory changes
including ESG and climate-related changes are also increasing.
Regulators including the Hong Kong IA, the Monetary Authority of
Singapore, the BNM in Malaysia and the Financial Supervisory
Commission in Taiwan are in the process of developing supervisory
and disclosure requirements or guidelines related to environmental
and climate change risk management. Other regulators are expected
to develop or are at different stages of developing similar
requirements. While the Hong Kong IA has yet to propose any
insurance-specific regulations on sustainability and climate, it
has regularly emphasised its increasing focus in this area in order
to support Hong Kong's position as a regional green finance hub. In
2023, the Hong Kong IA invited Hong Kong authorised insurers to
participate in a survey regarding their implementation of climate
risk management practices. The purpose of the survey was for the
Hong Kong IA to understand any gaps and challenges faced by the
insurance sector in managing climate-related financial risks and to
develop appropriate guidance for insurers. International regulatory
and supervisory bodies, such as the International Sustainability
Standards Board (ISSB) and Taskforce on Nature-related Disclosures,
are progressing on global sustainability and climate-related
disclosure requirements. Recent high-profile examples of government
and regulatory enforcement and civil actions against companies for
misleading investors on sustainability and ESG-related information
demonstrate that disclosure, reputational and litigation risks
remain high and may increase, in particular as companies increase
their disclosures or product offerings in this area. International
and local regulatory and industry bodies are beginning to establish
principles and standards with regards to the use of sustainability
and ESG nomenclature in the labelling of investment products. These
changes and developments may give rise to regulatory compliance,
customer conduct, operational, reputational and disclosure risks
requiring Prudential to coordinate across multiple jurisdictions in
order to apply a consistent risk management approach.
A rapid pace and high volume of regulatory changes and
interventions, and the swiftness of their application, including
those driven by the financial services industry, have been observed
in recent years across many of the Group's markets. The
transformation and regulatory changes have the potential to
introduce new, or increase existing, regulatory risks and
supervisory interest while increasing the complexity of ensuring
concurrent regulatory compliance across markets driven by the
potential for increased intra-Group connectivity and dependencies.
In jurisdictions with ongoing policy initiatives and regulatory
developments which will impact the way Prudential is supervised,
these developments are monitored at market and group level and
inform the Group's risk framework and engagement with government
policymakers, industry groups and regulators.
d IFRS 17
IFRS 17 became effective from 1 January 2023 and the first external
reporting under this basis was in half year 2023. The new standard
requires a fundamental change to accounting, presentation and
disclosures for insurance contracts as well as the application of
significant judgement and new estimation techniques. These changes
mean that investors, rating agencies and other stakeholders may
take time to gain familiarity with the new standard and to
interpret the Group's business performance and dynamics. In
addition, comparison with previous financial reporting periods will
be more challenging in the short term. New systems, processes and
controls have been developed to align with the new IFRS 17 basis
and are expected to mature over time. In the short term there may
be increased operational risk associated with these new systems and
processes.
Apart from IFRS 17, any other changes or modification to IFRS
accounting policies may also require a change in the way in which
future results will be determined and/or a retrospective adjustment
of reported results to ensure consistency.
e Investor contribution
schemes
Various jurisdictions in which Prudential operates have created
investor compensation schemes that require mandatory contributions
from market participants in some instances in the event of a
failure of a market participant. As a major participant in the
majority of its chosen markets, circumstances could arise in which
Prudential, along with other companies, may be required to make
such contributions.
4.2 The conduct of business in a way that adversely impacts the
fair treatment of customers could have a negative impact on
Prudential's business, financial condition, results of operations
and prospects or on its relations with current and potential
customers.
|
In the course of its operations and at any stage of the customer
and product life cycle, the Group or its intermediaries may conduct
business in a way that adversely impacts customer outcomes and the
fair treatment of customers ('conduct risk'). This may arise
through a failure to design, provide and promote suitable products
and services to customers that meet their needs, are clearly
explained or deliver real value, provide and promote a high
standard of customer service, appropriately and responsibly manage
customer information, or appropriately handle and assess
complaints. A failure to identify or implement appropriate
governance and management of conduct risk may result in harm to
customers and regulatory sanctions and restrictions, and may
adversely impact Prudential's reputation and brand, its ability to
attract and retain customers, its competitiveness, and its ability
to deliver on its long-term strategy. There is an increased focus
by regulators and supervisors on customer protection, suitability
and inclusion across the markets in which the Group operates,
thereby increasing regulatory compliance and reputational risks to
the Group in the event the Group is unable to effectively implement
the regulatory changes and reforms stated in risk factor 4.1
above.
Prudential is, and in the future may continue to be, subject to
legal and regulatory actions in the ordinary course of its business
on matters relevant to the delivery of customer outcomes. Such
actions relate, and could in the future relate, to the application
of current regulations or the failure to implement new regulations,
regulatory reviews of broader industry practices and products sold
(including in relation to lines of business that are no longer
active) in the past under acceptable industry or market practices
at the time and changes to the tax regime affecting products.
Regulators may also focus on the approach that product providers
use to select third-party distributors and to monitor the
appropriateness of sales made by them and the responsibility of
product providers for the deficiencies of third-party
distributors.
There is a risk that new regulations introduced may have a material
adverse effect on the sales of the products by Prudential and
increase Prudential's exposure to legal risks. Any regulatory
action arising out of the Group's position as a product provider
could have an adverse impact on the Group's business, financial
condition, results of operations and prospects, or otherwise harm
its reputation.
4.3 Litigation, disputes and regulatory investigations may
adversely affect Prudential's business, financial condition, cash
flows, results of operations and prospects.
|
Prudential is, and may in the future be, subject to legal actions,
disputes and regulatory investigations in various contexts,
including in the ordinary course of its insurance, asset management
and other business operations. These legal actions, disputes and
investigations may relate to aspects of Prudential's businesses and
operations that are specific to Prudential, or that are common to
companies that operate in Prudential's markets. Legal actions and
disputes may arise under contracts, regulations or from a course of
conduct taken by Prudential, including class action litigation.
Although Prudential believes that it has adequately provided in all
material respects for the costs of litigation and regulatory
matters, no assurance can be provided that such provisions are
sufficient. Given the large or indeterminate amounts of damages
sometimes sought, other sanctions that might be imposed and the
inherent unpredictability of litigation and disputes, it is
possible that an adverse outcome could have an adverse effect on
Prudential's business, financial condition, cash flows, results of
operations and prospects.
4.4 Changes in tax legislation may result in adverse tax
consequences for the Group's business, financial condition, results
of operations and prospects.
|
Tax rules, including those relating to the insurance industry, and
their interpretation may change, possibly with retrospective
effect, in any of the jurisdictions in which Prudential operates.
Significant tax disputes with tax authorities, and any change in
the tax status of any member of the Group or in taxation
legislation or its scope or interpretation could affect
Prudential's business, financial condition, results of operations
and prospects.
The Organisation for Economic Co-operation and Development (OECD)
is currently undertaking a project intended to modernise the global
international tax system, commonly referred to as Base Erosion and
Profit-Shifting 2.0. The project has two pillars. The first pillar
is focused on the allocation of taxing rights between jurisdictions
for in-scope multinational enterprises that sell cross-border goods
and services into countries with little or no local physical
presence. The second pillar is focused on developing a global
minimum tax rate of 15 per cent applicable to in-scope
multinational enterprises.
On 8 October 2021 the OECD issued a statement setting out the
high-level principles which have been agreed by over 130
jurisdictions involved in the project. Based on the 8 October 2021
OECD statement, Prudential does not expect to be affected by
proposals under the first pillar given they include an exemption
for regulated financial services companies.
On 20 December 2021 the OECD published detailed model rules for the
second pillar, with implementation of the rules initially envisaged
by 2023. Due to the complexity of the rules, the implementation
date was subsequently postponed to commence no earlier than 2024 to
provide multinational enterprises and tax authorities sufficient
time to prepare. These rules will apply to the Group when
implemented into the national law of jurisdictions where it has
entities within the scope of the rules. On 14 March 2022 the OECD
issued detailed guidance to assist with interpreting the model
rules. As part of the OECD's development of the implementation
framework, the OECD published guidance on transitional safe
harbours on 20 December 2022, and additional administrative
guidance on 2 February 2023, 17 July 2023 and 18 December 2023
providing further updates and clarifications on how to interpret
the model rules. The OECD is expected to publish further new
guidance in 2024 which will affect the interpretation of already
implemented legislation.
A number of jurisdictions in which the Group has operations -
Japan, Korea, Luxembourg, Vietnam and the UK - have implemented
either a global minimum tax or a domestic minimum tax at a rate of
15 per cent, in line with the OECD proposals, effective for 2024
onwards. Malaysia has implemented both the global minimum tax and
domestic minimum tax effective for 2025 onwards. Other
jurisdictions where Prudential has a taxable presence, including
Hong Kong, Singapore and Thailand, intend to implement the
proposals for 2025 onwards.
For those jurisdictions where either a global minimum tax or a
domestic minimum tax or both have been implemented with effect for
2024, no material impact to the Group's IFRS tax charge for the
2024 financial year is expected. The implementation of a global
minimum tax and a domestic minimum tax in Malaysia effective for
2025 is not expected to have a material impact for the Group's IFRS
tax charge for the 2025 financial year. These assessments consider
a number of factors including whether the transitional safe harbour
is expected to apply based on the most recent filings of tax
returns, country-by-country reporting and financial statements of
the relevant entities. In some jurisdictions a global minimum tax
but not a domestic minimum tax regime has been implemented and the
Group's operations in that jurisdiction will not be subject to the
rules as they are wholly domestic operations.
For those jurisdictions, such as Hong Kong and Singapore, where the
proposals are expected to be implemented with effect from 2025
onwards, work is ongoing to assess the potential impact and
guidance will be provided in due course. As a result, the full
extent of the long-term impact on the Group's business, tax
liabilities and profits remains uncertain.
In addition to the global minimum tax and domestic minimum tax
rules, both Korea and Luxembourg have also implemented an
undertaxed profits rule effective for 2025 onwards. The undertaxed
profits rule is intended as a backstop provision to deal with
jurisdictions in case of any delay or not implementing the global
minimum tax or domestic minimum tax rules. As the rules in Hong
Kong (where Prudential plc has been tax-resident since 3 March
2023) are expected to be in force and would apply to Prudential plc
from 2025, the undertaxed profits rules implemented in Korea and
Luxembourg are not expected to have any practical application to
the Group.
Definitions of Performance Metrics
Adjusted operating profit
Adjusted IFRS operating profit based on longer-term investment
returns. This alternative performance measure is reconciled to IFRS
profit for the year in note B1.1 of the IFRS financial results and
a fuller definition given in note B.1.2.
Adjusted shareholder equity
Adjusted shareholders' equity represents the sum of Group IFRS
shareholders' equity and CSM, net of reinsurance (unless attaching
wholly to policyholders) and tax.
See note C 3.1 (B) and II(ii) of the additional information for
reconciliation to IFRS shareholders' equity.
Agency new business profit
New business profit generated from the agency channel.
Annual premium equivalent (APE) sales
A measure of new business activity that comprises the aggregate of
annualised regular premiums and one-tenth of single premiums on new
business written during the year for all insurance
products.
See note II(vi) of the additional information for further
explanation.
Average monthly active agents
An active agent is defined as agents that sell at least one case
with a Prudential life insurance entity in the month. Average
active agents per month is expressed for each reporting period as
the sum of active agents in each month divided by the number of
months in the period.
Bancassurance new business profit
New business profit generated from the bancassurance
channel.
Customer numbers
A customer is defined as a unique individual or entity who holds
one or more policies, that has premiums paid, with a Prudential
life insurance entity, including 100 per cent of customers of the
Group's joint ventures and associate. Group business is a single
customer for the purpose of this definition.
Customer relationship net promoter score (NPS)
Net Promoter Score on overall strength of customer relationship,
based on customers' survey responses to how likely they would be to
recommend Prudential. It measures the response on a scale of 0 - 10
where 9 or 10 are Promoters, 7 or 8 are Passives and 0 - 6 are
Detractors. The score equates to the percentage of promoters less
percentage of detractors.
Customer retention rate
Calculated as the number of customers at the beginning of the
period minus exits during the year (net of reinstatement) over the
number of customers at the beginning of the period.
Eastspring total funds under management or advice
Total funds under management or advice including external funds
under management, money market funds, funds managed on behalf of
M&G plc and internal funds under management or
advice.
Eastspring investment performance - percentage of funds under
management outperforming benchmarks
This measure represents funds under management at the balance sheet
date held in funds which outperform their performance
benchmark as a percentage of total funds under management over
the time period stated (1 or 3 years). Total funds under management
exclude funds with no performance benchmark.
Eastspring cost/income
ratio
The cost/income ratio is calculated as operating expenses, adjusted
for commissions and share of contribution from joint ventures and
associates, divided by operating income, adjusted for commission,
share of contribution from joint ventures and associates and
performance related fees. See note II(v) to the additional
information for calculation.
EEV shareholders' equity
Shareholders' equity prepared in accordance with the EEV Principles
issued by the European Insurance CFO Forum in 2016.
See note II(viii) of the additional information for reconciliation
to IFRS shareholders' equity.
EEV Shareholders' value per share
EEV shareholders' equity per share is calculated as closing EEV
shareholders' equity divided by the number of issued shares at the
end of the period. See EEV basis results for
calculation.
GWS capital surplus over GPCR
Estimated GWS capital resources in excess of the GPCR attributable
to the shareholder business, before allowing for the 2023 second
cash interim dividend. Prescribed capital requirements are set at
the level at which the local regulator of a given entity can impose
penalties, sanctions or intervention measures. The estimated GWS
group capital adequacy requirements require that total eligible
Group capital resources are not less than the GPCR.
GWS coverage ratio
Estimated GWS coverage ratio of capital resources over GPCR
attributable to the shareholder business, before allowing for the
2023 second cash interim dividend.
Health new business profit
New business profit from health products, which typically are
annually renewable and would involve diagnosis and treatment from
licensed physicians/medical facilities. Critical illness products
paying lump sum benefits are not in scope.
IFRS Shareholders' value per share
IFRS shareholders' equity per share is calculated as closing IFRS
shareholders' equity divided by the number of issued shares at the
end of the period. See note II(iv) to the additional information
for calculation
Moody's total leverage basis
Leverage measure calculated as the Group gross debt, including
commercial paper as a proportion of the sum of IFRS shareholders'
equity, 50 per cent of the surplus in the Group's with-profit funds
and the Groups gross debt including commercial paper. Calculated
with no adjustment for the value of contractual service margin in
equity.
Net cash remitted by business units
Net cash amounts remitted by businesses are included in the holding
company cash flow, which is disclosed in detail in note I(iv) of
the Additional financial information. This comprises dividends and
other transfers from businesses, net of capital injections, that
are reflective of earnings and capital generation.
Net zero
A state in which greenhouse gas emissions from activities in the
value chain of an organisation are reduced as close to zero as
possible, with any residual emissions balanced by removals from the
atmosphere, in a time frame consistent with the Paris Agreement.
Our ambition is that the assets we hold on behalf of our insurance
companies will be net zero by 2050, as part of Prudential's
signatory requirements to the UN-Convened Net Zero Asset Owner
Alliance (NZAOA).
New business profit
Presented on a post-tax basis, on business sold in the year,
calculated in accordance with EEV principles.
New business profit is reconciled to IFRS new business CSM in note
II(vii) to the additional information.
New Business Profit on embedded value (New business profit/average
EEV shareholders' equity for insurance business
operations)
Calculated as new business profit divided by the average EEV
shareholders' equity for insurance business operations, excluding
goodwill attributable to equity holders. See note II(ix) of the
additional for calculation.
Net Group operating free surplus generated
Operating Free Surplus Generated (see definition below) less
Central costs, eliminations, restructuring costs and IFRS 17 costs,
net of tax.
New Business Profit per active agent
Average monthly agency new business profit divided by the active
agents per month. Includes 100 per cent of new business profit and
active agents in Joint Ventures and Associates.
Operating Free Surplus Generated from insurance and asset
management business
Operating free surplus generated: For insurance operations free
surplus generated represents amounts emerging from the in-force
business net of amounts reinvested in writing new business and
excludes non-operating items. For asset management business it
equates to post-tax operating profit for the period. Restructuring
costs are excluded.
Operating free surplus generated from in-force insurance and asset
management business
Operating free surplus generated from in-force insurance and asset
management business: Operating free surplus generated from in-force
insurance business which represents amounts emerging from the
in-force business during the year before deducting amounts
reinvested in writing new business and excludes non-operating
items. For asset management businesses, it equates to post-tax
operating profit for the year. Restructuring costs are presented
separately from the business unit amount.
Further information is set out in "movement in Group free surplus"
of the EEV basis results.
Operating return on embedded value (Operating profit/average EEV
shareholders' equity)
Calculated as EEV operating profit divided by the average EEV
shareholders' equity for continuing operations. See note II(ix) of
the additional for calculation.
Penetration rate of strategic bank customer base
Number of Prudential customers as percentage of total bank
customers. The measure and target pertains to seven strategic bank
partners (excluding partners of joint ventures and associates and
partnerships in, Cambodia and Laos).
Tier 1 capital resources
Tier 1 capital in accordance with the classification of tiering
capital under the GWS framework which reflects the different local
regulatory regimes along with guidance issued by the Hong Kong
IA.
Weighted Average Carbon Intensity (WACI)
Reflects a portfolio's exposure to carbon-intensive companies,
expressed in tCO2e/$m revenue. The WACI is currently the market
standard for measuring the carbon footprint of an investment
portfolio, as described by global disclosure frameworks such as the
Taskforce for Climate-related Financial Disclosures
(TCFD).
Basis for Strategic Objectives
New business profit growth objective
Our new business growth objective assumes average exchange rates of
2022 and economic assumptions made by Prudential in calculating the
EEV basis supplementary information for the year ended 31 December
2022, and are based on regulatory and solvency regimes applicable
across the Group at the time the objectives were set. Assume that
the existing EEV and Free Surplus methodology at December 2022 will
be applicable over the period.
Operating free surplus generated from in-force insurance and asset
management business growth objective
Our Operating free surplus generated from in-force insurance and
asset management business growth objective assumes average exchange
rates of 2022 and economic assumptions made by Prudential in
calculating the EEV basis supplementary information for the year
ended 31 December 2022, and are based on regulatory and solvency
regimes applicable across the Group at the time the objectives were
set. Assume that the existing EEV and Free Surplus methodology at
December 2022 will be applicable over the period.
Shareholder Information
Forward-Looking Statements
This document contains 'forward-looking statements' with respect to
certain of Prudential's (and its wholly and jointly owned
businesses') plans and its goals and expectations relating to
future financial condition, performance, results, strategy and
objectives. Statements that are not historical facts, including
statements about Prudential's (and its wholly and jointly owned
businesses') beliefs and expectations and including, without
limitation, commitments, ambitions and targets, including those
related to sustainability (including ESG and climate-related)
matters, and statements containing the words 'may', 'will',
'should', 'continue', 'aims', 'estimates', 'projects', 'believes',
'intends', 'expects', 'plans', 'seeks' and 'anticipates', and words
of similar meaning, are forward-looking statements. These
statements are based on plans, estimates and projections as at the
time they are made, and therefore undue reliance should not be
placed on them. By their nature, all forward-looking statements
involve risk and uncertainty.
A number of important factors could cause actual future financial
condition or performance or other indicated results to
differ
materially from those indicated in any forward-looking statement.
Such factors include, but are not limited to:
- current
and future market conditions, including fluctuations in interest
rates and exchange rates, inflation (including resulting interest
rate rises), sustained high or low interest rate environments, the
performance of financial and credit markets generally and the
impact of economic uncertainty, slowdown or contraction (including
as a result of the Russia-Ukraine conflict, conflict in the Middle
East, and related or other geopolitical tensions and conflicts),
which may also impact policyholder behaviour and reduce product
affordability;
- asset
valuation impacts from the transition to a lower carbon
economy;
- derivative
instruments not effectively mitigating any
exposures;
- global
political uncertainties, including the potential for increased
friction in cross-border trade and the exercise of laws,
regulations and executive powers to restrict trade, financial
transactions, capital movements and/or
investment;
- the
longer-term impacts of Covid-19, including macro-economic impacts
on financial market volatility and global economic activity and
impacts on sales, claims (including related to treatments deferred
during the pandemic), assumptions and increased product
lapses;
- the
policies and actions of regulatory authorities, including, in
particular, the policies and actions of the Hong Kong Insurance
Authority, as Prudential's Group-wide supervisor, as well as the
degree and pace of regulatory changes and new government
initiatives generally;
- the
impact on Prudential of systemic risk and other group supervision
policy standards adopted by the International Association of
Insurance Supervisors, given Prudential's designation as an
Internationally Active Insurance Group;
- the
physical, social, morbidity/health and financial impacts of climate
change and global health crises, which may impact Prudential's
business, investments, operations and its duties owed to
customers;
- legal,
policy and regulatory developments in response to climate change
and broader sustainability-related issues, including the
development of regulations and standards and interpretations such
as those relating to sustainability (including ESG and
climate-related) reporting, disclosures and product labelling and
their interpretations (which may conflict and create
misrepresentation risks);
- the
collective ability of governments, policymakers, the Group,
industry and other stakeholders to implement and adhere to
commitments on mitigation of climate change and broader
sustainability-related issues effectively (including not
appropriately considering the interests of all Prudential's
stakeholders or failing to maintain high standards of corporate
governance and responsible business practices);
- the
impact of competition and fast-paced technological
change;
- the
effect on Prudential's business and results from mortality and
morbidity trends, lapse rates and policy renewal
rates;
- the
timing, impact and other uncertainties of future acquisitions or
combinations within relevant industries;
- the
impact of internal transformation projects and other strategic
actions failing to meet their objectives or adversely impacting the
Group's operations or employees;
- the
availability and effectiveness of reinsurance for Prudential's
businesses;
- the
risk that Prudential's operational resilience (or that of its
suppliers and partners) may prove to be inadequate, including in
relation to operational disruption due to external
events;
- disruption
to the availability, confidentiality or integrity of Prudential's
information technology, digital systems and data (or those of its
suppliers and partners) including the Pulse
platform;
- the
increased non-financial and financial risks and uncertainties
associated with operating joint ventures with independent partners,
particularly where joint ventures are not controlled by
Prudential;
- the
impact of changes in capital, solvency standards, accounting
standards or relevant regulatory frameworks, and tax and other
legislation and regulations in the jurisdictions in which
Prudential and its affiliates operate; and
- the
impact of legal and regulatory actions, investigations and
dispute
These factors are not exhaustive. Prudential operates in a
continually changing business environment with new risks emerging
from time to time that it may be unable to predict or that it
currently does not expect to have a material adverse effect on its
business. In addition, these and other important factors may, for
example, result in changes to assumptions used for determining
results of operations or re-estimations of reserves for future
policy benefits. Further discussion of these and other important
factors that could cause actual future financial condition or
performance to differ, possibly materially, from those anticipated
in Prudential's forward-looking statements can be found under the
'Risk Factors' heading of this document.
Any forward-looking statements contained in this document speak
only as of the date on which they are made. Prudential expressly
disclaim any obligation to update any of the forward-looking
statements contained in this document or any other forward-looking
statements it may make, whether as a result of future events, new
information or otherwise except as required pursuant to the UK
Prospectus Rules, the UK Listing Rules, the UK Disclosure Guidance
and Transparency Rules, the Hong Kong Listing Rules, the SGX-ST
Listing Rules or other applicable laws and
regulations.
Prudential may also make or disclose written and/or oral
forward-looking statements in reports filed with or furnished to
the US Securities and Exchange Commission, the UK Financial Conduct
Authority, the Hong Kong Stock Exchange and other regulatory
authorities, as well as in its annual report and accounts to
shareholders, periodic financial reports to shareholders, proxy
statements, offering circulars, registration statements,
prospectuses, prospectus supplements, press releases and other
written materials and in oral statements made by directors,
officers or employees of Prudential to third parties, including
financial analysts. All such forward-looking statements are
qualified in their entirety by reference to the factors discussed
under the 'Risk Factors' heading of this document.
Cautionary Statements
This document does not constitute or form part of any offer or
invitation to purchase, acquire, subscribe for, sell, dispose of or
issue, or any solicitation of any offer to purchase, acquire,
subscribe for, sell or dispose of, any securities in any
jurisdiction nor shall it (or any part of it) or the fact of its
distribution, form the basis of, or be relied on in connection
with, any contract therefor.
2023 Second
interim dividend
Ex-dividend
date
|
28
March 2024 (UK and Hong Kong)
|
|
1
April 2024 (Singapore)
|
Record
date
|
2
April 2024
|
Payment
date
|
16
May 2024 (UK, Hong Kong and ADR holders)
On
or around 23 May 2024 (Singapore)
|
The total number of Prudential plc shares in issue as at 31
December 2023 was 2,753,520,756. Each ordinary share carries the
right to one vote on a poll at general meetings of Prudential plc.
If votes are cast on a show of hands, each shareholder present in
person or by proxy, or in the case of a corporation, each of its
duly authorised corporate representatives, has one
vote.
Corporate Governance
Corporate governance codes - statement of compliance
The Company has dual primary listings in Hong Kong (main board
listing) and London (premium listing) and has adopted a governance
structure based on the Hong Kong and UK Corporate Governance
Codes (the HK and UK Codes).
The Board confirms that, for the year under review, the Company
has applied the principles and complied with the provisions
of the UK Code. The Company has also complied with the
provisions of the HK Code, other than provision E.1.2(d), which
requires companies, on a comply or explain basis, to have a
remuneration committee which makes recommendations to a main board
on the remuneration of non-executive directors. This
provision is not compatible with provision 34 of the UK Code, which
recommends that the remuneration of non-executive directors be
determined in accordance with the Articles of Association or,
alternatively, by the Board. Prudential has chosen to adopt a
practice in line with the recommendations of the UK
Code.
> The HK Code is available from www.hkex.com.hk
> The UK Code is available from www.frc.org.uk
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: 20 March
2024
|
PRUDENTIAL
PUBLIC LIMITED COMPANY
|
|
|
|
By:
/s/ Ben Bulmer
|
|
|
|
Ben
Bulmer
|
|
Group
Chief Financial Officer
|