a5132h
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-
European Ebedded Value (EEV) basis results
EEV results highlights
|
2023
|
|
2022
|
|
|
|
AER
|
|
CER
|
|
$m
|
|
$m
|
% change
|
|
$m
|
% change
|
New business
profit note
(i)
|
3,125
|
|
2,184
|
43%
|
|
2,149
|
45%
|
Annual premium equivalent
(APE) note
(i)
|
5,876
|
|
4,393
|
34%
|
|
4,287
|
37%
|
New business margin (APE) (%)
|
53%
|
|
50%
|
+3pp
|
|
50%
|
+3pp
|
Present value of new business premiums (PVNBP)
|
28,737
|
|
22,406
|
28%
|
|
22,080
|
30%
|
|
|
|
|
|
|
|
|
Operating free surplus
generated notes
(i)(ii)
|
2,007
|
|
2,193
|
(8)%
|
|
2,173
|
(8)%
|
Operating free surplus generated from
in-force insurance and asset management
business notes
(i)(ii)
|
2,740
|
|
2,760
|
(1)%
|
|
2,725
|
1%
|
|
|
|
|
|
|
|
|
EEV operating
profit notes
(i)(iii)
|
4,546
|
|
3,952
|
15%
|
|
3,901
|
17%
|
EEV operating profit, net of non-controlling interests
|
4,526
|
|
3,923
|
15%
|
|
3,872
|
17%
|
Operating return on average EEV shareholders' equity, net of
non-controlling interests (%)
|
10%
|
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing EEV shareholders' equity, net of non-controlling
interests
|
45,250
|
|
42,184
|
7%
|
|
42,038
|
8%
|
Closing EEV shareholders' equity, net of non-controlling interests
per share (in cents)
|
1,643¢
|
|
1,534¢
|
7%
|
|
1,529¢
|
7%
|
Notes
(i)
Results are presented before deducting the amounts attributable to
non-controlling interests. This presentation is applied
consistently throughout this document, unless stated
otherwise.
(ii)
Operating free surplus generated is for long-term and asset
management businesses only and is stated before restructuring and
IFRS 17 implementation costs, centrally incurred costs and
eliminations.
(iii)
Group EEV operating profit is stated after restructuring and IFRS
17 implementation costs, centrally incurred costs and
eliminations.
European Embedded Value (EEV) basis results
Basis of preparation
IFRS profit for insurance contracts largely reflects the level of
services provided for a given period. Unearned future profits
expected on those same insurance contracts are contained in a
separate liability called the contractual service margin. These
future profits have been derived on a risk neutral basis (including
a liquidity premium), namely without allowing for the real world
investment return that will be earned on the assets held. By
contrast, EEV reflects all future profits, with no equivalent
liability to the contractual service margin, but values those
profits on a risk adjusted real world basis, namely allowing for
the future investment returns that are expected to be earned by the
assets held but uses a higher discount rate that allows for the
uncertainties in these cash flows. The value of future new business
is excluded from the embedded value.
The EEV Principles provide consistent definitions of the components
of EEV, a framework for setting assumptions and an approach to the
underlying methodology and disclosures. The EEV Principles were
designed to provide guidance and common principles that could be
understood by both users and preparers alongside prescribing a
minimum level of disclosures to enable users to understand an
entity's methodology, assumptions and key judgements as well as the
sensitivity of an entity's EEV to key assumptions. Results prepared
under the EEV Principles represent the present value of the
shareholders' interest in the post-tax future profits (generally on
a local statutory basis) expected to arise from the current book of
long-term business, after sufficient allowance has been made for
the aggregate risks in the business. The shareholders' interest in
the Group's long-term business is the sum of the shareholders'
total net worth and the value of in-force
business.
For the purposes of preparing EEV results, insurance joint ventures
and associates are included at the Group's proportionate share of
their embedded value and not at their market value. Asset
management and other non-insurance subsidiaries, joint ventures and
associates are included in the EEV results at the Group's
proportionate share of IFRS shareholders' equity, with central
Group debt shown on a market value basis. Further information is
contained in note 5.
Key features of the Group's EEV methodology include:
Economic assumptions: The projected post-tax profits assume a level
of future investment return and are discounted using a risk
discount rate. Both the risk discount rate and the investment
return assumptions are updated at each valuation date to reflect
current market risk-free rates, such that changes in market
risk-free rates impact all projected future cash flows. Risk-free
rates, and hence investment return assumptions, are based on
observable market data, with current market risk-free rates assumed
to remain constant and do not revert to longer-term rates over
time. Different products will be sensitive to different
assumptions, for example, participating products or products with
guarantees are likely to benefit disproportionately from higher
assumed investment returns.
Time value of financial options and guarantees: Explicit quantified
allowances are made for the time value of financial options and
guarantees (TVOG). The TVOG is determined by weighting the
probability of outcomes across a large number of different economic
scenarios and is typically less applicable to health and protection
business that generally contains more limited financial options or
guarantees. At 31 December 2023, the TVOG is $(290) million
(31 December 2022: $(151) million). The magnitude of the TVOG
at 31 December 2023 would be approximately equivalent to a 6
basis point (2022: 3 basis point) increase in the weighted average
risk discount rate.
Allowance for risk in the risk discount rates: Risk discount rates
are set equal to the risk-free rate at the valuation date plus
product-specific allowances for market and non-market risks. Risks
that are explicitly captured elsewhere, such as via the TVOG, are
not included in the risk discount rates.
The allowance for market risk is based on a product-by-product
assessment of the sensitivity of shareholder cash flows to varying
market returns. This approach reflects the inherent market risk in
each product group and results in lower risk discount rates for
products where the majority of shareholder profit is uncorrelated
to market risk and appropriately higher risk discount rates for
products where there is greater market exposure for
shareholders.
For example, for health and protection products, which represent 51
per cent of the value of in-force business (31 December 2022: 51
per cent) and 40 per cent of new business profit (31 December 2022:
43 per cent), the major sources of shareholder profits are
underwriting profits or fixed shareholder charges which have low
market risk sensitivity. The proportion of health and protection
business varies with interest rates as well as the mix of business
sold in the current period.
The construct of UK-style with-profits or similar participating
funds in some business units, representing 27 per cent of the value
of in-force (31 December 2022: 26 per cent) and 14 per cent of new
business profit (31 December 2022: 18 per cent), reduce the market
volatility of both policyholder and shareholder cash flows due to
smoothed bonus declarations and for some markets the presence of an
estate. Accordingly, 78 per cent of the value of in-force (31
December 2022: 77 per cent) is products with low market risk
sensitivity and this is reflected in the overall risk discount
rate.
For unit-linked products where fund management charges fluctuate
with the investment return, a portion of the profits will typically
be more sensitive to market risk due to the higher proportion of
equity-type assets in the investment portfolio resulting in a
higher risk discount rate. This business represents 13 per cent of
the value of in-force (31 December 2022: 17 per cent) and 4 per
cent of the value of new business profit (31 December 2022: 11 per
cent) which limits the impact on the overall risk discount
rate.
The remaining parts of the business, 9 per cent of the value of
in-force business (31 December 2022: 6 per cent) and 42 per cent of
the value of new business (31 December 2022: 28 per cent), relate
to other products not covered by the above. The high proportion of
new business in the current period reflects the higher proportion
of savings product in Hong Kong as the border
reopened.
The allowance for non-market risk comprises a base Group-wide
allowance of 50 basis points plus additional allowances for
emerging market risk where appropriate. At 31 December 2023, the
total allowance for non-market risk is equivalent to a $(3.0)
billion (31 December 2022: $(2.8) billion) reduction, or around (7)
per cent (31 December 2022: (7) per cent) of the embedded
value.
Movement in Group EEV shareholders' equity
|
|
2023 $m
|
|
2022 $m
|
|
Note
|
Insurance
and asset
management
operations
|
Other
(central)
operations
|
Group
total
|
|
Group
total
|
New business profit
|
1
|
3,125
|
-
|
3,125
|
|
2,184
|
Profit from in-force business
|
2
|
1,779
|
-
|
1,779
|
|
2,358
|
Long-term business
|
|
4,904
|
-
|
4,904
|
|
4,542
|
Asset management
|
|
254
|
-
|
254
|
|
234
|
Operating profit from long-term and asset management
businesses
|
|
5,158
|
-
|
5,158
|
|
4,776
|
Other income (expenditure)
|
5
|
-
|
(420)
|
(420)
|
|
(542)
|
Operating profit (loss) before restructuring and IFRS 17
implementation costs
|
|
5,158
|
(420)
|
4,738
|
|
4,234
|
Restructuring and IFRS 17 implementation costs
|
|
(72)
|
(120)
|
(192)
|
|
(282)
|
Operating profit (loss) for the year
|
|
5,086
|
(540)
|
4,546
|
|
3,952
|
Short-term fluctuations in investment returns
|
2
|
(62)
|
(8)
|
(70)
|
|
(6,874)
|
Effect of changes in economic assumptions
|
2
|
(589)
|
-
|
(589)
|
|
(1,571)
|
(Loss) profit attaching to corporate transactions
|
|
-
|
(22)
|
(22)
|
|
57
|
Mark-to-market value movements on core structural
borrowings
|
6
|
-
|
(153)
|
(153)
|
|
865
|
Non-operating results
|
|
(651)
|
(183)
|
(834)
|
|
(7,523)
|
Profit (loss) for the year
|
|
4,435
|
(723)
|
3,712
|
|
(3,571)
|
Non-controlling interests share of (profit)
|
|
(20)
|
-
|
(20)
|
|
(29)
|
Profit (loss) for the year attributable to equity holders of the
Company
|
|
4,415
|
(723)
|
3,692
|
|
(3,600)
|
Equity items:
|
|
|
|
|
|
|
Foreign exchange movements on operations
|
|
(135)
|
1
|
(134)
|
|
(1,195)
|
Intra-group dividends and investment in
operations note
(i)
|
|
(1,702)
|
1,702
|
-
|
|
-
|
External dividends
|
|
-
|
(533)
|
(533)
|
|
(474)
|
New share capital subscribed
|
|
-
|
4
|
4
|
|
(4)
|
Other movements note
(ii)
|
|
118
|
(81)
|
37
|
|
(127)
|
Net increase (decrease) in shareholders' equity
|
|
2,696
|
370
|
3,066
|
|
(5,400)
|
Shareholders' equity at beginning of year note
(v)
|
|
40,262
|
1,922
|
42,184
|
|
47,584
|
Shareholders' equity at end of year
|
|
42,958
|
2,292
|
45,250
|
|
42,184
|
|
|
|
|
|
|
|
Contribution to Group EEV:
|
|
|
|
|
|
|
At end of year:
|
|
|
|
|
|
|
Long-term business
|
2
|
41,528
|
-
|
41,528
|
|
38,857
|
Asset management and other
|
5
|
663
|
2,292
|
2,955
|
|
2,565
|
Shareholders' equity, excluding goodwill attributable to equity
holders
|
|
42,191
|
2,292
|
44,483
|
|
41,422
|
Goodwill attributable to equity holders
|
|
767
|
-
|
767
|
|
762
|
Shareholders' equity at end of year
|
|
42,958
|
2,292
|
45,250
|
|
42,184
|
|
|
|
|
|
|
|
At beginning of year:
|
|
|
|
|
|
|
Long-term business note
(v)
|
2
|
38,857
|
-
|
38,857
|
|
44,875
|
Asset management and other
|
5
|
643
|
1,922
|
2,565
|
|
1,931
|
Shareholders' equity, excluding goodwill attributable to equity
holders
|
|
39,500
|
1,922
|
41,422
|
|
46,806
|
Goodwill attributable to equity holders
|
|
762
|
-
|
762
|
|
778
|
Shareholders' equity at beginning of
year note
(v)
|
|
40,262
|
1,922
|
42,184
|
|
47,584
|
|
2023
|
|
2022
|
EEV shareholders' equity per share (in
cents) note
(iii)
|
Insurance
and asset
management
operations
|
Other
(central)
operations
|
Group
total
|
|
Group
total
|
At end of year:
|
|
|
|
|
|
Based on shareholders' equity, net of goodwill attributable to
equity holders
|
1,532¢
|
83¢
|
1,615¢
|
|
1,507¢
|
Based on shareholders' equity at end of year
|
1,560¢
|
83¢
|
1,643¢
|
|
1,534¢
|
At beginning of year:
|
|
|
|
|
|
Based on shareholders' equity, net of goodwill attributable to
equity holders
|
1,437¢
|
70¢
|
1,507¢
|
|
1,696¢
|
Based on shareholders' equity at beginning of year
|
1,464¢
|
70¢
|
1,534¢
|
|
1,725¢
|
|
2023
|
|
2022
|
EEV basis basic earnings per
share note
(iv)
|
Before non-controlling interests
|
After non-
controlling
interests
|
Basic
earnings
per share
|
|
Basic
earnings
per share
|
|
$m
|
$m
|
cents
|
|
cents
|
Based on operating profit
|
4,546
|
4,526
|
165.1¢
|
|
143.4¢
|
Based on profit (loss) for the year
|
3,712
|
3,692
|
134.7¢
|
|
(131.6)¢
|
Notes
(i)
Intra-group dividends represent dividends that have been paid in
the year. Investment in operations reflects movements in share
capital.
(ii)
Other movements include reserve movements in respect of valuation
changes on the retained interest in Jackson prior to its disposal
in 2023, share-based payments, treasury shares and intra-group
transfers between operations that have no overall effect on
the Group's shareholders' equity.
(iii)
Based on the number of issued shares at 31 December 2023 of 2,754
million shares (31 December 2022: 2,750 million
shares).
(iv)
Based on weighted average number of issued shares of 2,741 million
shares in 2023, which excludes those held in employee share trusts
(2022: 2,736 million shares).
(v)
Balance at the beginning of the year after the adoption of HK
RBC.
Movement in Group free surplus
Operating free surplus generation is the financial metric we use to
measure the internal cash generation of our business operations and
for our life operations is generally based on (with adjustments as
discussed below) the capital regimes that apply locally in the
various jurisdictions in which the Group operates. It 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. For insurance business, free surplus is generally based
on (with adjustments including recognition of certain intangibles
and other assets that may be inadmissible on a regulatory basis)
the excess of the regulatory basis net assets (EEV total net worth)
over the EEV capital required to support the covered business. For
shareholder-backed businesses, the level of EEV required capital
has been based on the Group Prescribed Capital Requirements (GPCR)
used in our GWS (Group Wide Supervision) reporting as set out in
note 7.1(e).
Adjustments are also made to enable free surplus to be a better
measure of shareholders' resources available for distribution as
described in the reconciliation to GWS surplus as disclosed in note
I(i) of the Additional unaudited financial information. For asset
management and other non-insurance operations (including the
Group's central operations), free surplus is taken to be IFRS
shareholders' equity, net of goodwill attributable to shareholders,
with central Group debt recorded as free surplus to the extent that
it is classified as capital resources under the Group's capital
regime. A reconciliation of EEV free surplus to the GWS shareholder
capital surplus over group minimum capital requirements is also set
out in note I(i) of the Additional unaudited financial
information.
|
|
2023 $m
|
|
2022 $m
|
|
Note
|
Insurance
and asset
management
operations
|
Other
(central)
operations
|
Group
total
|
|
Group
total
note (i)
|
Expected transfer from in-force business
|
|
2,635
|
-
|
2,635
|
|
2,406
|
Expected return on existing free surplus
|
|
234
|
-
|
234
|
|
347
|
Changes in operating assumptions and experience
variances
|
|
(383)
|
-
|
(383)
|
|
(227)
|
Operating free surplus generated from in-force long-term
business
|
|
2,486
|
-
|
2,486
|
|
2,526
|
Investment in new business note
(i)
|
|
(733)
|
-
|
(733)
|
|
(567)
|
Long-term business
|
2
|
1,753
|
-
|
1,753
|
|
1,959
|
Asset management
|
|
254
|
-
|
254
|
|
234
|
Operating free surplus generated from long-term and asset
management businesses
|
|
2,007
|
-
|
2,007
|
|
2,193
|
Other income (expenditure)
|
|
-
|
(420)
|
(420)
|
|
(542)
|
Restructuring and IFRS 17 implementation costs
|
|
(72)
|
(120)
|
(192)
|
|
(277)
|
Operating free surplus generated
|
|
1,935
|
(540)
|
1,395
|
|
1,374
|
Non-operating free surplus generated note
(ii)
|
|
(188)
|
(35)
|
(223)
|
|
(1,924)
|
Free surplus generated for the year
|
|
1,747
|
(575)
|
1,172
|
|
(550)
|
Equity items:
|
|
|
|
|
|
|
Net cash flows paid to parent company note
(iii)
|
|
(1,611)
|
1,611
|
-
|
|
-
|
External dividends
|
|
-
|
(533)
|
(533)
|
|
(474)
|
Foreign exchange movements on operations
|
|
(25)
|
1
|
(24)
|
|
(316)
|
New share capital subscribed
|
|
-
|
4
|
4
|
|
(4)
|
Other movements and timing differences
|
|
27
|
10
|
37
|
|
(127)
|
Net movement in free surplus before non-controlling interests and
before net subordinated debt redemption
|
|
138
|
518
|
656
|
|
(1,471)
|
Net subordinated debt redemption
|
6
|
-
|
(421)
|
(421)
|
|
(1,699)
|
Net movement in free surplus before non-controlling
interests
|
|
138
|
97
|
235
|
|
(3,170)
|
Change in amounts attributable to non-controlling
interests
|
|
(9)
|
-
|
(9)
|
|
(10)
|
Balance at beginning of year note
(iv)
|
|
6,678
|
5,551
|
12,229
|
|
15,409
|
Balance at end of year
|
|
6,807
|
5,648
|
12,455
|
|
12,229
|
Representing:
|
|
|
|
|
|
|
Free surplus excluding distribution rights and other
intangibles
|
|
5,663
|
2,855
|
8,518
|
|
8,390
|
Distribution rights and other intangibles
|
|
1,144
|
2,793
|
3,937
|
|
3,839
|
Balance at end of year
|
|
6,807
|
5,648
|
12,455
|
|
12,229
|
|
|
2023 $m
|
|
2022 $m
|
Contribution to Group free surplus:
|
Note
|
Insurance
and asset
management
operations
|
Other
(central)
operations
|
Group
total
|
|
Group
total
|
At end of year:
|
|
|
|
|
|
|
Long-term business
|
2
|
6,144
|
-
|
6,144
|
|
6,035
|
Asset management and other
|
5
|
663
|
5,648
|
6,311
|
|
6,194
|
Free surplus at end of year
|
|
6,807
|
5,648
|
12,455
|
|
12,229
|
At beginning of year:
|
|
|
|
|
|
|
Long-term business note
(iv)
|
2
|
6,035
|
-
|
6,035
|
|
7,320
|
Asset management and other
|
5
|
643
|
5,551
|
6,194
|
|
8,089
|
Free surplus at beginning of
year note
(iv)
|
|
6,678
|
5,551
|
12,229
|
|
15,409
|
Notes
(i)
Free surplus invested in new business primarily represents
acquisition costs and amounts set aside for required
capital.
(ii)
Non-operating free surplus generated for other (central) operations
represents the post-tax IFRS basis short-term fluctuations in
investment returns, the movement in the mark-to-market value
adjustment on core structural borrowings which did not meet the
qualifying conditions as set out in the Insurance (Group Capital)
Rules and gain or loss on corporate transactions for other
entities.
(iii)
Net cash flows to parent company reflect the cash remittances
as included in the holding company cash flow at transaction rates.
The difference to the intra-group dividends and investment in
operations in the movement in EEV shareholders' equity primarily
relates to intra-group loans, other non-cash items, and foreign
exchange.
(iv)
Balance at the beginning of the year after the adoption of
HK RBC.
Notes on the EEV basis results
1 Analysis of new business profit and EEV for insurance business
operations
|
2023
|
|
New
business
profit
(NBP)
|
Annual
premium
equivalent
(APE)
|
Present
value of new
business
premiums
(PVNBP)
|
New
business
margin
(APE)
|
New
business
margin
(PVNBP)
|
Closing EEV
shareholders'
equity,
excluding
goodwill
|
|
$m
|
$m
|
$m
|
%
|
%
|
$m
|
CPL (Prudential's share)
|
222
|
534
|
2,020
|
42%
|
11%
|
3,038
|
Hong Kong
|
1,411
|
1,966
|
10,444
|
72%
|
14%
|
17,702
|
Indonesia
|
142
|
277
|
1,136
|
51%
|
13%
|
1,509
|
Malaysia
|
167
|
384
|
1,977
|
43%
|
8%
|
3,709
|
Singapore
|
484
|
787
|
5,354
|
61%
|
9%
|
7,896
|
Growth markets and other
|
699
|
1,928
|
7,630
|
36%
|
9%
|
7,674
|
Total long-term operations
|
3,125
|
5,876
|
28,561
|
53%
|
11%
|
41,528
|
|
|
|
|
|
|
|
|
2022 (AER)
|
|
New
business
profit
(NBP)
|
Annual
premium
equivalent
(APE)
|
Present
value of new
business
premiums
(PVNBP)
|
New business
margin
(APE)
|
New business
margin
(PVNBP)
|
Closing EEV
shareholders'
equity,
excluding
goodwill
|
|
$m
|
$m
|
$m
|
%
|
%
|
$m
|
CPL (Prudential's share)
|
387
|
884
|
3,521
|
44%
|
11%
|
3,259
|
Hong Kong
|
384
|
522
|
3,295
|
74%
|
12%
|
16,576
|
Indonesia
|
125
|
247
|
1,040
|
51%
|
12%
|
1,833
|
Malaysia
|
159
|
359
|
1,879
|
44%
|
8%
|
3,695
|
Singapore
|
499
|
770
|
6,091
|
65%
|
8%
|
6,806
|
Growth markets and other
|
630
|
1,611
|
6,580
|
39%
|
10%
|
6,688
|
Total long-term operations
|
2,184
|
4,393
|
22,406
|
50%
|
10%
|
38,857
|
|
|
|
|
|
|
2022 (CER)
|
|
New
business
profit
(NBP)
|
Annual
premium
equivalent
(APE)
|
Present
value of new
business
premiums
(PVNBP)
|
New business
margin
(APE)
|
New business
margin
(PVNBP)
|
Closing EEV
shareholders'
equity,
excluding
goodwill
|
|
$m
|
$m
|
$m
|
%
|
%
|
$m
|
CPL (Prudential's share)
|
368
|
840
|
3,346
|
44%
|
11%
|
3,195
|
Hong Kong
|
384
|
523
|
3,296
|
73%
|
12%
|
16,568
|
Indonesia
|
122
|
240
|
1,014
|
51%
|
12%
|
1,853
|
Malaysia
|
154
|
347
|
1,813
|
44%
|
8%
|
3,542
|
Singapore
|
512
|
791
|
6,254
|
65%
|
8%
|
6,921
|
Growth markets and other
|
609
|
1,546
|
6,357
|
39%
|
10%
|
6,616
|
Total long-term operations
|
2,149
|
4,287
|
22,080
|
50%
|
10%
|
38,695
|
Note
The movement in new business profit from long-term operations is
analysed as follows:
|
$m
|
2022 new business profit
|
2,184
|
Foreign exchange movement
|
(35)
|
Sales volume
|
796
|
Effect of changes in interest rates and other economic
assumptions
|
(37)
|
Business mix, product mix and other items
|
217
|
2023 new business profit
|
3,125
|
2 Analysis of movement in net worth and value of in-force business
for insurance business operations
|
2023 $m
|
|
2022 $m
|
|
Free
surplus
|
Required
capital
|
Net
worth
|
Value of
in-force business
|
Embedded
value
|
|
Embedded
value
|
|
|
|
|
|
note (i)
|
|
note (i)
|
Balance at beginning of year after adoption of HK RBC
|
6,035
|
5,556
|
11,591
|
27,266
|
38,857
|
|
44,875
|
New business contribution
|
(733)
|
582
|
(151)
|
3,276
|
3,125
|
|
2,184
|
Existing business - transfer to net worth
|
2,635
|
(261)
|
2,374
|
(2,374)
|
-
|
|
-
|
Expected return on existing business note
(ii)
|
234
|
236
|
470
|
1,652
|
2,122
|
|
2,559
|
Changes in operating assumptions, experience variances and other
items note(iii)
|
(383)
|
(70)
|
(453)
|
110
|
(343)
|
|
(201)
|
Operating profit before restructuring and IFRS 17 implementation
costs
|
1,753
|
487
|
2,240
|
2,664
|
4,904
|
|
4,542
|
Restructuring and IFRS 17 implementation costs
|
(55)
|
-
|
(55)
|
-
|
(55)
|
|
(116)
|
Operating profit
|
1,698
|
487
|
2,185
|
2,664
|
4,849
|
|
4,426
|
Non-operating result note
(iv)
|
(188)
|
(36)
|
(224)
|
(427)
|
(651)
|
|
(8,469)
|
Profit (loss) for the year
|
1,510
|
451
|
1,961
|
2,237
|
4,198
|
|
(4,043)
|
Non-controlling interests share of (profit) loss
|
(2)
|
(1)
|
(3)
|
(10)
|
(13)
|
|
(22)
|
Profit (loss) for the year attributable to equity holders of the
Company
|
1,508
|
450
|
1,958
|
2,227
|
4,185
|
|
(4,065)
|
Foreign exchange movements
|
(21)
|
(22)
|
(43)
|
(93)
|
(136)
|
|
(1,146)
|
Intra-group dividends and investment in operations
|
(1,502)
|
-
|
(1,502)
|
-
|
(1,502)
|
|
(999)
|
Other movements note
(v)
|
124
|
-
|
124
|
-
|
124
|
|
192
|
Balance at end of year
|
6,144
|
5,984
|
12,128
|
29,400
|
41,528
|
|
38,857
|
(i) Total embedded value
The total embedded value for long-term business operations at the
end of each year, excluding goodwill attributable to equity
holders, can be analysed as follows:
|
31 Dec 2023 $m
|
31 Dec 2022 $m
|
Value of in-force business before deduction of cost of capital and
time value of options and guarantees
|
30,436
|
28,126
|
Cost of capital
|
(746)
|
(709)
|
Time value of options and guarantees note
|
(290)
|
(151)
|
Net value of in-force business
|
29,400
|
27,266
|
Free surplus
|
6,144
|
6,035
|
Required capital
|
5,984
|
5,556
|
Net worth
|
12,128
|
11,591
|
Embedded value
|
41,528
|
38,857
|
Note
The time value of options and guarantees (TVOG) arises from the
variability of economic outcomes in the future and is, where
appropriate, calculated as the difference between an average
outcome across a range of economic scenarios, calibrated around a
central scenario, and the outcome from the central economic
scenario, as described in note 7.1(d). At 31 December 2023, the
TVOG is $(290) million, with the substantial majority arising in
Hong Kong.
(ii) Expected return on existing business
The expected return on existing business comprises the expected
unwind of discounting effects on the opening value of in-force
business and required capital (after allowing for updates to
economic and operating assumptions) and the expected return on
existing free surplus, as described in note 7.2(c). The movement in
this amount compared to the prior year from long-term operations is
analysed as follows:
|
$m
|
2022 expected return on existing business
|
2,559
|
Foreign exchange movement
|
(28)
|
Effect of changes in interest rates and other economic
assumptions
|
(513)
|
Growth in opening value of in-force business and other
items
|
104
|
2023 expected return on existing business
|
2,122
|
(iii) Changes in operating assumptions, experience variances and
other items
Overall, the total impact of operating assumption changes,
experience variances and other items in 2023 was $(343) million
(2022: $(201) million), comprising changes in operating assumptions
of $85 million in 2023 (2022: $32 million) and experience variances
and other items of $(428) million (2022: $(233)
million).
(iv) Non-operating results
The EEV non-operating result from long-term operations can be
summarised as follows:
|
2023 $m
|
2022 $m
|
Short-term fluctuations in investment
returns note
(i)
|
(62)
|
(6,893)
|
Effect of change in economic assumptions note(ii)
|
(589)
|
(1,571)
|
Loss attaching to corporate transactions
|
-
|
(5)
|
Non-operating results
|
(651)
|
(8,469)
|
Notes
(i)
Short-term fluctuations in investment returns of $(62) million
mainly reflect the impact of lower than expected equity returns in
some regions broadly offset by higher than expected bond gains,
following the decrease in interest rates in many markets during the
year.
(ii)
The charge of $(589) million for the effect of changes in economic
assumptions primarily arises from decreases in interest rates and
credit spreads in some markets, resulting in lower fund earned rate
that impact future cashflows, partially offset by the positive
effect of lower risk discount rates. The effects and impacts vary
between businesses and products.
(v) Other reserve movements
Other movements include reserve movements in respect of intra-group
loans and other intra-group transfers between operations that have
no overall effect on the Group's shareholders' equity.
3 Sensitivity of results for insurance business
operations
(a) Sensitivity analysis - economic assumptions
The tables below show the sensitivity of the new business profit
and the embedded value for insurance business operations
to:
- 1
per cent and 2 per cent increases in interest rates and 0.5 per
cent decrease in interest rates. This allows for consequential
changes in the assumed investment returns for all asset classes,
market values of fixed interest assets, local statutory reserves,
capital requirements and risk discount rates (but excludes changes
in the allowance for market risk);
- 1
per cent rise in equity and property yields;
- 1
per cent and 2 per cent increases in the risk discount rates. The
main driver for changes in the risk discount rates from period to
period is changes in interest rates, the impact of which is
expected to be partially offset by a corresponding change in
assumed investment returns, the effect of which is not included in
the risk discount rate sensitivities. The impact of higher
investment returns can be approximated as the difference between
the sensitivity to increases in interest rates and the sensitivity
to increases in risk discount rates;
- For
embedded value only, 20 per cent fall in the market value of equity
and property assets; and
- For
embedded value only, holding the group minimum capital requirements
(GMCR) under the GWS Framework in contrast to EEV required capital
based on the group prescribed capital requirements (GPCR). This
reduces the level of capital and therefore the level of charge
deducted from the embedded value for the cost of locked-in required
capital. This has the effect of increasing EEV.
The sensitivities shown below are for the impact of instantaneous
and permanent changes (with no trending or mean reversion) on the
embedded value of long-term business operations and include the
combined effect on the value of in-force business and net assets
(including derivatives) held at the valuation dates indicated. The
results only allow for limited management actions, such as changes
to future policyholder bonuses, where applicable. If such economic
conditions persisted, the financial impacts may differ to the
instantaneous impacts shown below. In this case, management could
also take additional actions to help mitigate the impact of these
stresses. No change in the mix of the asset portfolio held at the
valuation date is assumed when calculating sensitivities, while
changes in the market value of those assets are recognised. The
sensitivity impacts are expected to be non-linear. To aid
understanding of this non-linearity, impacts of both a 1 per cent
and 2 per cent increase to interest rates and risk discount rates
are shown.
If the changes in assumptions shown in the sensitivities were to
occur, the effects shown below would be recorded within two
components of the profit analysis for the following period, namely
the effect of changes in economic assumptions and short-term
fluctuations in investment returns. In addition to the sensitivity
effects shown below, the other components of the profit for the
following period would be calculated by reference to the altered
assumptions at the end of that period, for example, new business
profit and expected return on existing business are calculated with
reference to end of period economic assumptions.
New business profit from insurance business
|
2023 $m
|
2022 $m
|
New business profit
|
3,125
|
2,184
|
Sensitivity to alternative economic assumptions:
|
|
|
Interest rates and consequential effects - 2% increase
|
(175)
|
220
|
Interest rates and consequential effects - 1% increase
|
(88)
|
134
|
Interest rates and consequential effects - 0.5%
decrease
|
35
|
(97)
|
Equity/property yields - 1% rise
|
139
|
160
|
Risk discount rates - 2% increase
|
(917)
|
(551)
|
Risk discount rates - 1% increase
|
(529)
|
(309)
|
Embedded value of insurance business
|
31 Dec 2023 $m
|
31 Dec 2022 $m
|
Embedded
value note
|
41,528
|
38,857
|
Sensitivity to alternative economic assumptions:
|
|
|
Interest rates and consequential effects - 2% increase
|
(4,154)
|
(3,988)
|
Interest rates and consequential effects - 1% increase
|
(2,172)
|
(2,067)
|
Interest rates and consequential effects - 0.5%
decrease
|
1,133
|
1,058
|
Equity/property yields - 1% rise
|
1,856
|
1,884
|
Equity/property market values - 20% fall
|
(1,863)
|
(1,840)
|
Risk discount rates - 2% increase
|
(8,015)
|
(7,371)
|
Risk discount rates - 1% increase
|
(4,516)
|
(4,155)
|
Group minimum capital requirements
|
117
|
117
|
Note
Embedded value includes Africa operations following the change in
the Group's operating segments in 2023. In the context of the
Group, Africa's results are not materially impacted by the above
sensitivities.
New business sensitivities vary with changes in business mix and
APE sales volumes. In particular, the directional movements in the
new business profit interest rate sensitivities from 31 December
2022 to 31 December 2023 reflect the significantly higher new
business levels in 2023 along with a greater proportion of sales to
Hong Kong.
For a 1 per cent increase in assumed interest rates, the $(2,172)
million negative effect comprises a $(4,516) million negative
impact of increasing the risk discount rate by 1 per cent,
partially offset by a $2,344 million benefit from assuming 1 per
cent higher investment returns. Similarly, for a 2 per cent
increase in assumed interest rates the $(4,154) million negative
effect comprises a $(8,015) million negative impact of increasing
the risk discount rates by 2 per cent, partially offset by a $3,861
million benefit from higher assumed investment returns. Finally,
for a 0.5 per cent decrease in assumed interest rates, there would
be a $1,133 million positive effect reflecting the benefit of a 0.5
per cent reduction in risk discount rates being partially offset by
lower assumed investment returns. These offsetting impacts are
sensitive to economics and the net impact can therefore change from
period to period depending on the current level of interest
rates.
In order to illustrate the impact of varying specific economic
assumptions, all other assumptions are held constant in the
sensitivities above and therefore, the actual changes in embedded
value, were these economic effects to materialise, may differ from
the sensitivities shown. For example, market risk allowances would
likely be increased within the risk discount rate if interest rates
increased by 1 per cent, leading to a reduction of $(1,969) million
(compared with the $(2,172) million impact shown above). However,
if interest rates actually decreased by 0.5 per cent, it would lead
to a $1,043 million increase (compared with the $1,133 million
increase shown above).
(b) Sensitivity analysis - non-economic
assumptions
The tables below show the sensitivity of the new business profit
and the embedded value for long-term business operations
to:
- 10
per cent proportionate decrease in maintenance expenses (for
example, a 10 per cent sensitivity on a base assumption of $10 per
annum would represent an expense assumption of $9 per
annum);
- 10
per cent proportionate decrease in lapse rates (for example, a 10
per cent sensitivity on a base assumption of 5.0 per cent would
represent a lapse rate of 4.5 per cent per annum);
and
- 5
per cent proportionate decrease in base mortality (ie increased
longevity) and morbidity rates.
New business profit from insurance business
|
2023 $m
|
2022 $m
|
New business profit
|
3,125
|
2,184
|
Maintenance expenses - 10% decrease
|
61
|
48
|
Lapse rates - 10% decrease
|
212
|
134
|
Mortality and morbidity - 5% decrease
|
114
|
99
|
Embedded value of insurance business
|
|
|
|
31 Dec 2023 $m
|
31 Dec 2022 $m
|
Embedded value
|
41,528
|
38,857
|
Maintenance expenses - 10% decrease
|
440
|
411
|
Lapse rates - 10% decrease
|
1,806
|
1,533
|
Mortality and morbidity - 5% decrease
|
1,514
|
1,300
|
4 Expected transfer of value of in-force business and required
capital to free surplus for long-term business operations on a
discounted basis
The table below shows how the value of in-force business (VIF) and
the associated required capital for long-term business operations
are projected as emerging into free surplus over future years. Cash
flows are projected on a deterministic basis and are discounted at
the appropriate risk discount rate. The modelled cash flows use the
same methodology underpinning the Group's EEV reporting and so are
subject to the same assumptions and sensitivities. The projected
emergence of VIF and required capital into free surplus in 2023
will be the starting point for expected free surplus generation
next year, after updating for operating and economic assumption
changes. See note I(v) of the additional financial information for
further detail.
|
Total
expected
|
Expected period of conversion of future post-tax distributable
earnings and required capital flows to free surplus at 31
Dec
|
|
Emergence
|
1-5 years
|
6-10 years
|
11-15 years
|
16-20 years
|
21-40 years
|
40+ years
|
2023 ($m)
|
35,223
|
9,897
|
6,744
|
4,884
|
3,749
|
7,590
|
2,359
|
(%)
|
100%
|
28%
|
19%
|
14%
|
11%
|
21%
|
7%
|
|
|
|
|
|
|
|
|
2022 ($m)
|
32,648
|
9,764
|
6,038
|
4,360
|
3,424
|
6,910
|
2,152
|
(%)
|
100%
|
30%
|
19%
|
13%
|
10%
|
21%
|
7%
|
The required capital and value of in-force business for long-term
business operations can be reconciled to the total discounted
emergence of future free surplus shown above as
follows:
|
31 Dec 2023 $m
|
31 Dec 2022 $m
|
Required capital note
2
|
5,984
|
5,556
|
Value of in-force business (VIF) note
2
|
29,400
|
27,266
|
Other items *
|
(161)
|
(174)
|
Long-term business operations
|
35,223
|
32,648
|
*'Other items' represent the impact of the TVOG and amounts
incorporated into VIF where there is no definitive time frame for
when the payments will be made or receipts received. These items
are excluded from the expected free surplus generation profile
above.
5 EEV basis results for other (central) operations
EEV results for other income and expenditure represents the
post-tax IFRS results for other (central) operations (before
restructuring and IFRS 17 implementation costs). It mainly includes
interest costs on core structural borrowings and corporate
expenditure for head office functions that are not
recharged/allocated to the insurance and asset management
business.
Certain costs incurred within the head office functions are
recharged to the insurance operations and recorded within the
results for those operations. The assumed future expenses within
the value of in-force business for insurance operations allow for
amounts expected to be recharged by the head office functions on a
recurring basis. Other costs that are not recharged to the
insurance operations are shown as part of other income and
expenditure for the current period and are not included within the
projection of future expenses for in-force insurance
business.
In line with the EEV Principles, the allowance for the future costs
of internal asset management services within the EEV results for
long-term insurance operations excludes the projected future
profits generated by any non-insurance entities within the Group in
providing those services (ie the EEV for long-term insurance
operations includes the projected future profit or loss from asset
management and service companies that support the Group's covered
insurance businesses). Following the implementation of IFRS 17, a
similar adjustment is made to eliminate the intra-group profit
within the results of central operations.
The EEV shareholders' equity for other operations is taken to be
IFRS shareholders' equity, with central Group debt shown on a
market value basis. Free surplus for other operations is taken to
be IFRS shareholders' equity, net of goodwill attributable to
equity holders, with central Group debt recorded as free surplus to
the extent that it is classified as capital resources under the
Group's capital regime. Under the GWS Framework, debt instruments
issued at the date of designation which met the transitional
conditions set by the Hong Kong IA are included as GWS eligible
group capital resources. In addition, debt issued since the date of
designation which met the qualifying conditions as set out in the
Insurance (Group Capital) Rules are also included as GWS eligible
group capital resources.
Shareholders' equity for other operations can be compared across
metrics as shown in the table below.
|
2023 $m
|
2022 $m
|
IFRS shareholders' equity
|
2,018
|
1,495
|
Mark-to-market value adjustment on central
borrowings note
6
|
274
|
427
|
EEV shareholders' equity
|
2,292
|
1,922
|
Debt instruments treated as capital resources
|
3,356
|
3,629
|
Free surplus of other (central) operations
|
5,648
|
5,551
|
6 Net core structural borrowings of shareholder-financed
businesses
|
31 Dec 2023 $m
|
|
31 Dec 2022 $m
|
|
IFRS
basis
|
Mark-to
-market
value
adjustment
|
EEV
basis at
market
value
|
|
IFRS
basis
|
Mark-to
-market
value
adjustment
|
EEV
basis at
market
value
|
|
note (ii)
|
note (iii)
|
|
|
note (ii)
|
note (iii)
|
|
Holding company cash and short-term
investments note
(i)
|
(3,516)
|
-
|
(3,516)
|
|
(3,057)
|
-
|
(3,057)
|
Central borrowings:
|
|
|
|
|
|
|
|
Subordinated
debt
|
2,297
|
(205)
|
2,092
|
|
2,286
|
(306)
|
1,980
|
Senior
debt
|
1,636
|
(69)
|
1,567
|
|
1,975
|
(121)
|
1,854
|
Total central borrowings
|
3,933
|
(274)
|
3,659
|
|
4,261
|
(427)
|
3,834
|
Net core structural borrowings of shareholder-financed
businesses
|
417
|
(274)
|
143
|
|
1,204
|
(427)
|
777
|
Notes
(i)
Holding company includes centrally managed Group holding companies
and service companies.
(ii)
As recorded in note C5.1 of the IFRS consolidated financial
statements.
(iii)
The movement in the value of core structural borrowings includes
redemptions in the year and foreign exchange effects for pounds
sterling denominated debts. The movement in the mark-to-market
value adjustment can be analysed as follows:
|
2023 $m
|
2022 $m
|
Mark-to-market value adjustment at beginning of year
|
(427)
|
438
|
Credit (charge) included in the income statement
|
153
|
(865)
|
Mark-to-market value adjustment at end of year
|
(274)
|
(427)
|
7 Methodology and accounting presentation
7.1 Methodology
(a) Covered business
The EEV basis results for the Group are prepared for 'covered
business' as defined by the EEV Principles. Covered business
represents the Group's long-term insurance business (including the
Group's investments in joint venture and associate insurance
operations), for which the value of new and in-force contracts is
attributable to shareholders.
The EEV results for the Group's covered business are then combined
with the post-tax IFRS results of the Group's asset management and
other operations (including interest costs on core structural
borrowings and corporate expenditure for head office functions that
is not recharged/allocated to the insurance operations), with an
adjustment to deduct the unwind of expected margins on the internal
management of the assets of the covered business. Under the EEV
Principles, the results for covered business incorporate the
projected margins of attaching internal asset management, as
described in note (g) below.
(b) Valuation of in-force and new business
The EEV basis results are prepared incorporating best estimate
assumptions about all relevant factors including levels of future
investment returns, persistency, mortality, morbidity and expenses,
as described in note 8(c). These assumptions are used to project
future cash flows. The present value of the projected future cash
flows is then calculated using a discount rate, as shown in note
8(a), which reflects both the time value of money and all other
non-diversifiable risks associated with the cash flows that are not
otherwise allowed for.
The total profit that emerges over the lifetime of an individual
contract as calculated under the EEV basis is the same as that
calculated under the IFRS basis. Since the EEV basis reflects
discounted future cash flows, under the EEV methodology the profit
emergence is advanced, thus more closely aligning the timing of the
recognition of profit with the efforts and risks of current
management actions, particularly with regard to business sold
during the period.
New business
In determining the EEV basis value of new business, premiums are
included in projected cash flows on the same basis of
distinguishing regular and single premium business as set out in
the Group's new business sales reporting.
New business premiums reflect those premiums attaching to the
covered business, including premiums for contracts classified as
investment contracts under IFRS 17. New business premiums for
regular premium products are shown on an annualised
basis.
New business profit represents profit determined by applying
operating and economic assumptions as at the end of the period. New
business profitability is a key metric for the Group's management
of the development of the business. In addition, new business
margins are shown by reference to annual premium equivalent (APE)
and the present value of new business premiums (PVNBP). These
margins are calculated as the percentage of the value of new
business profit to APE and PVNBP. APE is calculated as the
aggregate of regular premiums on new business written in the period
and one-tenth of single premiums. PVNBP is calculated as the
aggregate of single premiums and the present value of expected
future premiums from regular premium new business, allowing for
lapses and the other assumptions made in determining the EEV new
business profit.
(c) Cost of capital
A charge is deducted from the embedded value for the cost of
locked-in required capital supporting the Group's long-term
business. The cost is the difference between the nominal value of
the capital held and the discounted value of the projected releases
of this capital, allowing for post-tax investment earnings on the
capital.
The EEV results are affected by the movement in this cost from
period to period, which comprises a charge against new business
profit and generally a release in respect of the reduction in
capital requirements for business in force as this runs
off.
Where required capital is held within a with-profits long-term
fund, the value placed on surplus assets within the fund is already
adjusted to reflect its expected release over time and so no
further adjustment to the shareholder position is
necessary.
(d) Financial options and guarantees
Nature of financial options and guarantees
Participating products, principally written in the Chinese
Mainland, Hong Kong, Malaysia, Singapore and Taiwan, have both
guaranteed and non-guaranteed elements. These products provide
returns to policyholders through bonuses that are smoothed. There
are two types of bonuses: regular and final. Regular bonuses are
declared once a year and, once credited, are guaranteed in
accordance with the terms of the particular products. Final bonuses
are guaranteed only until the next bonus declaration.
There are also various non-participating long-term products with
guarantees. The principal guarantees are those for whole-of-life
contracts with floor levels of policyholder benefits that typically
accrue at rates set at inception and do not vary subsequently with
market conditions. Similar to participating products, the
policyholder charges incorporate an allowance for the cost of
providing these guarantees, which, for certain whole-of-life
products in Hong Kong, remains constant throughout varying economic
conditions, rather than reducing as the economic environment
improves and vice versa.
Time value
The value of financial options and guarantees comprises the
intrinsic value (arising from a deterministic valuation on best
estimate assumptions) and the time value (arising from the
variability of economic outcomes in the future).
Where appropriate (ie where financial options and guarantees are
explicitly valued under the EEV methodology), a full stochastic
valuation has been undertaken to determine the time value of
financial options and guarantees. The economic assumptions used for
the stochastic calculations are consistent with those used for the
deterministic calculations. Assumptions specific to the stochastic
calculations reflect local market conditions and are based on a
combination of actual market data, historic market data and an
assessment of long-term economic conditions. Common principles have
been adopted across the Group for the stochastic asset models, such
as separate modelling of individual asset classes with an allowance
for correlations between various asset classes. Details of the key
characteristics of each model are given in note 8(b).
In deriving the time value of financial options and guarantees,
management actions in response to emerging investment and fund
solvency conditions have been modelled. Management actions
encompass, but are not confined to, investment allocation
decisions, levels of regular and final bonuses and credited rates.
Bonus rates are projected from current levels and varied in
accordance with assumed management actions applying in the emerging
investment and fund solvency conditions. In all instances, the
modelled actions are in accordance with approved local practice and
therefore reflect the options available to management.
(e) Level of required capital and net worth
In adopting the EEV Principles, Prudential has based required
capital on the applicable local statutory regulations, including
any amounts considered to be required above the local statutory
minimum requirements to satisfy regulatory
constraints.
For shareholder-backed businesses, the level of required capital
has been based on the GPCR.
- For
CPL, the level of required capital follows the approach for
embedded value reporting issued by the China Association of
Actuaries (CAA) reflecting the C-ROSS regime. The CAA has started a
project to assess whether any changes are required to the embedded
value guidance in the Chinese Mainland given changes in regulatory
rules, regulations and the external market environment since the
standard was first issued. To date, no outcomes have been proposed
by the CAA and Prudential has made no change to its EEV basis for
CPL in 2023. At such time that there is a new basis, Prudential
will consider the effect of proposals.
- For
Hong Kong participating business, the HK RBC regime recognises the
value of future shareholder transfers on an economic basis as
available capital with an associated required capital. Within EEV,
the shareholder value of participating business continues to be
recognised as VIF with no recognition within free surplus and no
associated required capital.
- For
Singapore life operations, the level of net worth and required
capital is based on the Tier 1 Capital position under the
risk-based capital framework (RBC2), which removes certain negative
reserves permitted to be recognised in the full RBC2 regulatory
position applicable to the Group's GWS capital position, in order
to better reflect free surplus and its
generation.
Free surplus is the shareholders' net worth in excess of required
capital. For the Hong Kong business, the HK RBC framework requires
liabilities to be valued on a best estimate basis and capital
requirements to be risk based. EEV free surplus excludes regulatory
surplus that arises where HK RBC technical provisions are lower
than policyholder asset shares or cash surrender values to more
realistically reflect how the business is managed.
(f) With-profits business and the treatment of the
estate
For the Group's relevant operations, the proportion of surplus
allocated to shareholders from the with-profits funds has been
based on the applicable profit distribution between shareholders
and policyholders. The EEV methodology includes the value
attributed to the shareholders' interest in the residual estate of
the in-force with-profits business. In any scenarios where the
total assets of the life fund are insufficient to meet policyholder
claims in full, the excess cost is fully attributed to
shareholders. As required, adjustments are also made to reflect any
capital requirements for with-profits business in excess of the
capital resources of the with-profits funds.
(g) Internal asset management
In line with the EEV Principles, the long-term business EEV
includes the projected future profit from asset management and
service companies that support the Group's covered insurance
businesses. The results of the Group's asset management operations
include the current period profit from the management of both
internal and external funds. EEV basis shareholders' other income
and expenditure is adjusted to deduct the expected profit
anticipated to arise in the current period in the opening VIF from
internal asset management and other services. This deduction is on
a basis consistent with that used for projecting the results for
covered insurance business. Accordingly, Group operating profit
includes the actual profit earned in respect of the management of
these assets.
(h) Allowance for risk and risk discount rates
Overview
Under the EEV Principles, discount rates used to determine the
present value of expected future cash flows are set by reference to
risk-free rates plus a risk margin.
The risk-free rates are largely based on local government bond
yields at the valuation date and are assumed to remain constant and
do not revert to longer-term rates over time.
The risk margin reflects any non-diversifiable risk associated with
the emergence of distributable earnings that is not allowed for
elsewhere in the valuation. In order to better reflect differences
in relative market risk volatility inherent in each product group,
Prudential sets the risk discount rates to reflect the expected
volatility associated with the expected future shareholder cash
flows for each product group in the embedded value model, rather
than at a Group level.
Where financial options and guarantees are explicitly valued under
the EEV methodology, risk discount rates exclude the effect of
these product features.
The risk margin represents the aggregate of the allowance for
market risk and allowance for non-diversifiable non-market risk. No
allowance is required for non-market risks where these are assumed
to be fully diversifiable.
Market risk allowance
The allowance for market risk represents the beta multiplied by the
equity risk premium.
The beta of a portfolio or product measures its relative market
risk. The risk discount rates reflect the market risk inherent in
each product group and hence the volatility of product-specific
cash flows. These are determined by considering how the profit from
each product is affected by changes in expected returns across
asset classes. By converting this into a relative rate of return,
it is possible to derive a product-specific beta. This approach
contrasts with a top-down approach to market risk where the risks
associated with each product are not directly reflected in the
valuation basis.
The Group's methodology allows for credit risk in determining the
best estimate returns and through the market risk allowance, which
covers expected long-term defaults, a credit risk premium (to
reflect the volatility in downgrade and default levels) and
short-term downgrades and defaults.
Allowance for non-diversifiable non-market risks
The majority of non-market and non-credit risks are considered to
be diversifiable. The allowance for non-market risk comprises a
base Group-wide allowance of 50 basis points plus additional
allowances for emerging market risk where appropriate. The level
and application of these allowances are reviewed and updated based
on assessment of the Group's exposure and experience in the
markets.
At 31 December 2023, the total allowance for non-diversifiable
non-market risk is equivalent to a $(3.0) billion, or (7) per cent,
reduction to the embedded value of insurance business
operations.
(i) Foreign currency translation
Foreign currency profits and losses have been translated at average
exchange rates for the period. Foreign currency transactions are
translated at the spot rate prevailing at the date of the
transactions. Foreign currency assets and liabilities have been
translated at closing exchange rates. The principal exchange rates
are shown in note A1 of the Group IFRS financial
statements.
(j) Taxation
In determining the post-tax profit for the period for covered
business, the overall tax rate includes the impact of tax effects
determined on a local regulatory basis. Tax payments and receipts
included in the projected future cash flows to determine the value
of in-force business are calculated using tax rates that have been
announced and substantively enacted by the end of the reporting
period.
7.2 Accounting presentation
(a) Analysis of post-tax profit
To the extent applicable, the presentation of the EEV profit or
loss for the period is consistent with the classification between
operating and non-operating results that the Group applies for the
analysis of IFRS results. Operating results are determined as
described in note (b) below and incorporate the
following:
- New
business profit, as defined in note 7.1(b)
above;
- Expected
return on existing business, as described in note (c)
below;
- The
impact of routine changes of estimates relating to operating
assumptions, as described in note (d) below;
and
- Operating
experience variances, as described in note (e)
below.
In addition, operating results include the effect of changes in tax
legislation, unless these changes are one-off and structural in
nature, or primarily affect the level of projected investment
returns, in which case they are reflected as a non-operating
result.
Non-operating results comprise:
- Short-term
fluctuations in investment returns;
- Mark-to-market
value movements on core structural borrowings;
- Effect
of changes in economic assumptions; and
- The
impact of corporate transactions, if any, undertaken in the
year.
Total profit or loss in the period attributable to shareholders and
basic earnings per share include these items, together with actual
investment returns. The Group believes that operating profit, as
adjusted for these items, better reflects underlying
performance.
(b) Investment returns included in operating
profit
For the investment element of the assets covering the total net
worth of long-term insurance business, investment returns are
recognised in operating results at the expected long-term rates of
return. These expected returns are calculated by reference to the
asset mix of the portfolio.
(c) Expected return on existing business
Expected return on existing business comprises the expected unwind
of discounting effects on the opening value of in-force business
and required capital and the expected return on existing free
surplus. The unwind of discount and the expected return on existing
free surplus are determined after adjusting for the effect of
changes in economic and operating assumptions in the current period
on the embedded value at the beginning of the period, for example,
the unwind of discount on the value of in-force business and
required capital is determined after adjusting both the opening
value and the risk discount rates for the effect of changes in
economic and operating assumptions in the current
period.
(d) Effect of changes in operating assumptions
Operating profit includes the effect of changes to operating
assumptions on the value of in-force business at the end of the
reporting period. For presentational purposes the effect of changes
is delineated to show the effect on the opening value of in-force
business as operating assumption changes, with the experience
variances subsequently being determined by reference to the
assumptions at the end of the reporting period, as discussed
below.
(e) Operating experience variances
Operating profit includes the effect of experience variances on
operating assumptions, such as persistency, mortality, morbidity,
expenses and other factors, which are calculated with reference to
the assumptions at the end of the reporting period.
(f) Effect of changes in economic
assumptions
Movements in the value of in-force business at the beginning of the
period caused by changes in economic assumptions, net of the
related changes in the time value of financial options and
guarantees, are recorded in non-operating results.
8 Assumptions
(a) Principal economic assumptions
The EEV results for the Group's covered business are determined
using economic assumptions where both the risk discount rates and
long-term expected rates of return on investments are set with
reference to risk-free rates of return at the end of the reporting
period. Both the risk discount rate and expected rates of return
are updated at each valuation date to reflect current market
risk-free rates, with the effect that changes in market risk-free
rates impact projected future cash flows. The risk-free rates of
return are largely based on local government bond yields and are
assumed to remain constant and do not revert to longer-term rates
over time. The risk-free rates of return are shown below for each
of the Group's insurance operations. Expected returns on equity and
property assets and corporate bonds are derived by adding a risk
premium to the risk-free rate based on the Group's long-term view
and, where relevant, allowing for market volatility.
As described in note 7.1(h), risk discount rates are set equal to
the risk-free rate at the valuation date plus allowances for market
risk and non-diversifiable non-market risks appropriate to the
features and risks of the underlying products and
markets.
Risks that are explicitly allowed for elsewhere in the EEV basis,
such as via the cost of capital and the time value of options and
guarantees, as set out in note 2(i), are not included in the risk
discount rates.
|
Risk discount rate %
|
|
10-year government bond yield %
|
|
Equity return
(geometric) %
|
|
New business
|
|
In-force business
|
|
|
|
31 Dec
|
31 Dec
|
|
31 Dec
|
31 Dec
|
|
31 Dec
|
31 Dec
|
|
31 Dec
|
31 Dec
|
|
2023
|
2022
|
|
2023
|
2022
|
|
2023
|
2022
|
|
2023
|
2022
|
CPL
|
7.1
|
7.4
|
|
7.1
|
7.4
|
|
2.6
|
2.9
|
|
6.6
|
6.9
|
Hong Kong note
(i)
|
4.7
|
4.8
|
|
5.5
|
5.5
|
|
3.9
|
3.9
|
|
7.4
|
7.4
|
Indonesia
|
9.0
|
10.0
|
|
9.9
|
10.6
|
|
6.7
|
7.3
|
|
11.0
|
11.5
|
Malaysia
|
5.6
|
5.8
|
|
6.2
|
6.5
|
|
3.8
|
4.1
|
|
7.3
|
7.6
|
Philippines
|
12.3
|
14.5
|
|
12.3
|
14.5
|
|
6.1
|
7.3
|
|
10.3
|
11.5
|
Singapore
|
4.6
|
5.0
|
|
4.8
|
5.2
|
|
2.7
|
3.1
|
|
6.2
|
6.6
|
Taiwan
|
3.3
|
3.5
|
|
4.2
|
4.0
|
|
1.3
|
1.3
|
|
5.3
|
5.3
|
Thailand
|
10.0
|
10.0
|
|
10.0
|
10.0
|
|
2.8
|
2.7
|
|
7.0
|
7.0
|
Vietnam
|
3.7
|
6.9
|
|
4.1
|
6.7
|
|
2.3
|
5.0
|
|
6.6
|
9.3
|
Total weighted average (new business)note
(ii)
|
5.6
|
6.9
|
|
n/a
|
n/a
|
|
3.8
|
4.2
|
|
7.2
|
7.5
|
Total weighted average (in-force business) note
(ii)
|
n/a
|
n/a
|
|
5.9
|
6.4
|
|
3.6
|
4.0
|
|
7.1
|
7.6
|
Notes
(i)
For Hong Kong, the assumptions shown are for US dollar denominated
business. For other businesses, the assumptions shown are for local
currency denominated business.
(ii)
Total weighted average assumptions have been determined by
weighting each business's assumptions by reference to the EEV basis
new business profit and the closing net value of in-force business.
The changes in the risk discount rates for individual businesses
reflect the movements in the local government bond yields, changes
in the allowances for market risk (including as a result of changes
in asset mix), and, if applicable, non-diversifiable non-market
risk, and changes in product mix.
(iii)
Expected long-term inflation assumptions range from 1.5 per
cent to 5.5 per cent for both years shown above.
(b) Stochastic assumptions
Details are given below of the key characteristics of the models
used to determine the time value of financial options and
guarantees as referred to in note 7.1(d).
- The
stochastic cost of guarantees is primarily of significance for the
Hong Kong, Vietnam, Taiwan, Singapore and Malaysia
businesses;
- The
principal asset classes are government bonds, corporate bonds and
equity;
- Interest
rates are projected using a stochastic interest rate model
calibrated to the current market yields;
- Equity
returns are assumed to follow a log-normal
distribution;
- The
corporate bond return is calculated based on a risk-free return
plus a mean-reverting spread;
- The
volatility of equity returns ranges from 17 per cent to 35 per cent
for both years; and
- The
volatility of government bond yields ranges from 1.1 per cent to
2.0 per cent for both years.
(c) Operating assumptions
Best estimate assumptions are used for projecting future cash
flows, where best estimate is defined as the mean of the
distribution of future possible outcomes. The assumptions are
reviewed actively and changes are made when evidence exists that
material changes in future experience are reasonably certain. Where
experience is expected to be adverse over the short term, a
provision may be established.
Assumptions required in the calculation of the time value of
financial options and guarantees, for example relating to
volatilities and correlations, or dynamic algorithms linking
liabilities to assets, have been set equal to the best estimates
and, wherever material and practical, reflect any dynamic
relationships between the assumptions and the stochastic
variables.
Demographic assumptions
Persistency, mortality and morbidity assumptions are based on an
analysis of recent experience, and reflect expected future
experience. When projecting future cash flows for medical
reimbursement business that is repriced annually, explicit
allowance is made for expected future premium inflation and
separately for future medical claims inflation.
Expense assumptions
Expense levels, including those of the service companies that
support the Group's long-term business, are based on internal
expense analysis and are appropriately allocated to acquisition of
new business and renewal of in-force business. For mature business,
it is Prudential's policy not to take credit for future cost
reduction programmes until the actions to achieve the savings have
been delivered. Expense overruns are reported where these are
expected to be short-lived, including businesses that are growing
rapidly or are sub-scale.
Expenses comprise costs borne directly and costs
recharged/allocated from the Group head office functions in London
and Hong Kong that are attributable to the long-term insurance
(covered) business. The assumed future expenses for the long-term
insurance business allow for amounts expected to be
recharged/allocated by the head office functions.
Corporate expenditure, which is included in other income and
expenditure, comprises expenditure of the Group head office
functions in London and Hong Kong that is not recharged/allocated
to the long-term insurance or asset management operations,
primarily for corporate related activities that are charged as
incurred, together with restructuring and IFRS 17 implementation
costs incurred across the Group.
Tax rates
The assumed long-term effective tax rates for operations reflect
the expected incidence of taxable profit or loss in the projected
future cash flows as explained in note 7.1(j). The local standard
corporate tax rates applicable are as follows:
|
%
|
CPL
|
25.0
|
Hong Kong
|
16.5% on 5% of premium income
|
Indonesia
|
22.0
|
Malaysia
|
24.0
|
Philippines
|
25.0
|
Singapore
|
17.0
|
Taiwan
|
20.0
|
Thailand
|
20.0
|
Vietnam
|
20.0
|
9 Insurance new business
|
Single premiums
|
|
Regular premiums
|
|
Annual premium equivalents (APE)
|
|
Present value of new business premiums (PVNBP)
|
|
2023 $m
|
2022 $m
|
|
2023 $m
|
2022 $m
|
|
2023 $m
|
2022 $m
|
|
2023 $m
|
2022 $m
|
CPL note
(i)
|
487
|
1,254
|
|
485
|
759
|
|
534
|
884
|
|
2,020
|
3,521
|
Hong Kong
|
235
|
842
|
|
1,942
|
438
|
|
1,966
|
522
|
|
10,444
|
3,295
|
Indonesia
|
230
|
250
|
|
254
|
222
|
|
277
|
247
|
|
1,136
|
1,040
|
Malaysia
|
93
|
99
|
|
375
|
350
|
|
384
|
359
|
|
1,977
|
1,879
|
Singapore
|
989
|
2,628
|
|
688
|
507
|
|
787
|
770
|
|
5,354
|
6,091
|
Growth markets:
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
8
|
9
|
|
157
|
148
|
|
158
|
149
|
|
326
|
308
|
Cambodia
|
1
|
-
|
|
18
|
18
|
|
18
|
18
|
|
74
|
69
|
India note
(ii)
|
270
|
273
|
|
206
|
196
|
|
233
|
223
|
|
1,145
|
1,148
|
Laos
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
2
|
1
|
Myanmar
|
-
|
-
|
|
6
|
3
|
|
6
|
3
|
|
19
|
6
|
Philippines
|
56
|
61
|
|
170
|
176
|
|
175
|
182
|
|
612
|
615
|
Taiwan
|
132
|
157
|
|
882
|
486
|
|
895
|
503
|
|
3,308
|
1,835
|
Thailand
|
143
|
150
|
|
232
|
220
|
|
246
|
235
|
|
999
|
932
|
Vietnam
|
19
|
99
|
|
195
|
288
|
|
197
|
298
|
|
1,321
|
1,666
|
Total
|
2,663
|
5,822
|
|
5,610
|
3,811
|
|
5,876
|
4,393
|
|
28,737
|
22,406
|
Notes
(i)
New business in CPL is included at Prudential's 50 per cent
interest in the joint venture.
(ii)
New business in India is included at Prudential's 22 per cent
interest in the associate.
(iii)
The table above is provided as an indicative volume measure of
transactions undertaken in the reporting period that have the
potential to generate profit for shareholders. The amounts shown
are not, and not intended to be, reflective of revenue recorded in
the IFRS consolidated income statement.
10 Post balance sheet events
Dividends
The second interim dividend for the year ended 31 December
2023, which was approved by the Board of Directors after
31 December 2023, is described in note B5 of the Group IFRS
consolidated financial statements.
Share repurchase programme to neutralise 2023 employee and agent
share scheme issuance
On 16 January 2024, the Company announced that the share repurchase
programme in respect of 3,851,376 ordinary shares that it announced
on 5 January 2024 and commenced on 8 January has been completed.
The purpose of the share repurchase programme was to offset
dilution from the vesting of awards under employee and agent share
schemes during 2023. The Company has repurchased 3,851,376 ordinary
shares in aggregate (representing 0.14 per cent of the total number
of ordinary shares in issue at the end of the year (as disclosed in
note C8)) at a volume weighted average price of £8.2676 per
ordinary share for a total consideration of approximately £32
million.
This information is provided by RNS, the news service of the London
Stock Exchange. RNS is app
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
|