REG - Prudential PLC Prudential Fdg(Asia) - Prudential plc – FY23 Results – Business Review
20/03/2024 07:00
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RNS Number : 4970H Prudential PLC 20 March 2024
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 Change on
AER basis 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 2,740 2,760 (1)% 1%
business
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/ (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 name(1) 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
billion(2); 'Fast-growing' as it is estimated that our markets will
collectively generate incremental annual gross written premiums of almost US$1
trillion(3) in 2033 compared with 2022.
We hold the top three positions in 10 out of the 14 Asian life markets(4) in
which we have a presence. We are in the top five in six of our eight African
markets(4). Our multi-channel agency and bancassurance distribution platform
of scale has around 68,000 average monthly active agents. We are the number
one independent insurer in Asia bancassurance(5), and our Asia-based in-house
investment arm, Eastspring, has over US$ 237 billion in assets under
management and is ranked in the top 10 in six of its markets(6).
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 units(9) 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 units(9) that have a standardised approach
for measuring customer advocacy. Four further business units(9) 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 objectives(7):
- 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 basis(8), 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 Full Year 2023 Objective 2027(7)
Actual exchange rate 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 Full Year 2023 Objective 2027(7)
Actual exchange rate 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 markets(4).
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 units(9). 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 units(9) in the
top quartile (up from three in 2022). Eight out of ten business units(9) 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 units(9) 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 units(9) 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 release(1) 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 8% 5%
operations*
% 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 2,740 2,760 (1) 2,725 1
business
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 656 (1,471)
redemption
Net subordinated debt redemption (421) (1,699)
Increase (decrease) in Group free surplus before amounts attributable to 235 (3,170)
non-controlling interests
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 8,518 8,390
intangibles
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 cent(2) (31 December 2022: 21 per
cent(2), 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 Mark-to-market value EEV IFRS Mark-to-market value EEV
basis basis basis 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 insurers(1).
In 2023, we significantly outperformed the market increasing our market share,
resulting in a number one ranking for the offshore business(1). 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 cities(2) in the Greater Bay Area, with a
population of over 85 million people(3).
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 markets(1). 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 share(1), 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 operator(1)
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 plans(1). 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 market(1).
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 share(1)
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 Asia(4), 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)
The global economic and geopolitical environment may impact the Group directly
by affecting trends in financial markets and asset values, as well as driving
short-term volatility.
Risks in this category include the market risks to our investments and the
credit quality of our investment portfolio, as well as liquidity risk.
Global economic and geopolitical conditions
Prudential operates in a macroeconomic and global financial market environment
that continues to present significant uncertainties and potential challenges.
For example, 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.
Risk description Risk management
Market risks to our investments
The value of Prudential's direct investments is impacted by fluctuations in The Group has appetite for market risk where it arises from profit-generating
equity prices, interest rates, credit spreads, foreign exchange rates and insurance activities to the extent that it remains part of a balanced
property prices. There is also potentially indirect impact through the value portfolio of sources of income for shareholders and is compatible with a
of the net equity of its joint ventures and associates. Although inflation robust solvency position. The Group's market risks are managed and mitigated
remains at decades-level highs in certain global markets, the Group's direct by the following:
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 - The Group Market Risk Policy;
affordability and existing challenges in persistency are detailed in the
Insurance risks section below. - 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.
Interest rate risk, including asset liability management (ALM) The Group Capital and ALM Committee is a management committee supporting the
identification, assessment and management of key financial risks to the
Interest rate risk is driven by the impact of the valuation of Prudential's achievement of the Group's business objectives. The Committee also oversees
assets (particularly government and corporate bonds) and liabilities, which ALM, solvency and liquidity risks of the local businesses as well as the
are dependent on market interest rates. declaration and management of non-guaranteed benefits for participating and
universal life lines of business. Local business units are responsible for the
High interest rates, driven by sustained inflationary pressures, may impact management of their own asset and liability positions, with appropriate
the valuation of fixed income investments and reduce fee income. The Group's governance in place. The objective of the local business unit ALM process is
risk exposure to rising interest rates also arises from the potential impact to meet policyholder liabilities with the returns generated from the
to the present value of future fees for unit-linked businesses, such as in investment assets held, while maintaining the financial strength of capital
Indonesia and Malaysia, as well as the impact to the present value of the and solvency positions. The ALM strategy adopted by the local business units
future profits for accident and health products, such as in Hong Kong. considers the liability profile and related assumptions of in-force business
Exposure to higher interest rates also arises from the potential impact to the and new products to appropriately manage investment risk within ALM risk
value of fixed income assets in the shareholder funds. appetite, under different scenarios in accordance with policyholders'
reasonable expectations, and economic and local regulatory requirements.
The Group's risk exposure to lower/decreased interest rates arises from the Factors such as the availability of matching assets, diversification, currency
guarantees of some non-unit-linked products with a savings component, and duration are considered as appropriate. The assumptions and methodology
including the Hong Kong, Singapore and CPL's participating and used in the measurement of assets and liabilities for ALM purposes conform
non-participating businesses. This exposure results from the potential for an with local solvency regulations. Assessments are carried out on an economic
asset and liability mismatch, where long-dated liabilities and guarantees are basis which conforms to the Group's internal economic capital methodology.
backed by short-dated assets.
The Group's appetite for interest rate risk requires that assets and
liabilities should be tightly matched for exposures where assets or
derivatives exist that can cover these exposures. Interest rate risk is
accepted where this cannot be hedged, provided that this arises from
profitable products and to the extent that such interest rate risk exposure
remains part of a balanced exposure to risks and is compatible with a robust
solvency position. When asset and liability duration mismatch is not
eliminated, it is monitored and managed through local risk and asset liability
management committees and Group risk limits consistent with the Group's
appetite for interest rate risk.
Risk description Risk management
Market risks to our investments continued
Equity and property investment risk The Group has limited acceptance for exposures to equity risk from
non-participating products if it is not rewarded for taking the equity risk.
The shareholder exposure to equity price movements arises from various The Group accepts equity exposure that arises from future fees (including
sources, including from unit-linked products where fee income is linked to the shareholder transfers from the participating businesses) but limits its
market value of funds under management. Exposure also arises from exposure to policyholder guarantees by hedging against equity movements and
participating businesses through potential fluctuations in the value of future guarantees where it is considered economically optimal to do so.
shareholders' profits and where bonuses declared are based broadly on
historical and current rates of return from the businesses' investment Where equity risk is accepted, it is explicitly defined by the strategic asset
portfolios, which include equities. allocation, as well as monitored and managed through local risk and ALM
committees. Overall exposure to equity risk from the participating businesses
The material exposures to equity risk in the Group's businesses include CPL's is also managed through Group risk limits consistent with the Group's appetite
exposure to equity risk through investments in equity assets for most of its for equity risk.
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.
Foreign exchange risk 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
The geographical diversity of Prudential's businesses means that it is exposed capital being held in the local currency of the business to meet local
to the risk of foreign exchange rate fluctuations. Some entities within the regulatory and market requirements. However, in cases where a surplus arising
Group write policies, invest in assets or enter into other transactions in in an overseas operation supports Group capital or shareholders' interest (ie
local currencies or currencies not linked to the Group's reporting/functional remittances), this exposure is hedged if it is economically optimal to do so.
currency, the US dollar. Although this limits the effect of exchange rate The Group does not accept significant shareholder exposures to foreign
movements on local operating results, it can lead to fluctuations in the exchange risks in currencies outside the local territory.
Group's US dollar-reported financial statements. This risk is further detailed
in section 1.6 of the Risk factors. 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.
Liquidity risk
Prudential's liquidity risk arises from the need to have sufficient liquid The Group has no appetite for any business to have insufficient resources to
assets to meet policyholder and third-party payments as they fall due, cover its outgoing cash flows, or for the Group as a whole to not meet cash
considered under both business-as-usual and stressed conditions. It includes flow requirements from its debt obligations under any plausible scenario. The
the risk arising from funds composed of illiquid assets and results from a Group has significant internal sources of liquidity sufficient to meet its
mismatch between the liquidity profile of assets and liabilities. Liquidity expected cash requirements for at least 12 months from the date the financial
risk may impact market conditions and valuation of assets in a more uncertain statements are approved, without having to resort to external sources of
way than other risks like interest rate or credit risk. It may arise, for funding. The Group has a total of $1.6 billion of undrawn committed facilities
example, where external capital is unavailable at sustainable cost, where that can be made use of, expiring in 2029. Access to further liquidity is
derivatives transactions require a sudden significant need of liquid assets or available through the debt capital markets and the Group's extensive
cash to post as collateral to meet derivatives margin requirements, or where commercial paper programme. Prudential has maintained a consistent presence as
redemption requests are made against funds managed for external clients (both an issuer in the market for the past decade.
retail and institutional). Liquidity risk is considered material at the level
of the Group. A number of risk management tools are used to manage and mitigate liquidity
risk, including the following:
- The Group's Liquidity Risk Policy;
- Regular assessment and reporting by the Group and business units of
liquidity coverage ratios, which are calculated under both base case and
stressed scenarios;
- The Group's Liquidity Risk Management Plan;
- The Group's Collateral Management Framework;
- The Group's contingency plans and identified sources of liquidity;
- The Group's ability to access the money and debt capital markets; and
- The Group's access to external committed credit facilities.
Risk Description Risk management
Credit risk
Credit risk is the potential for loss resulting from a borrower's failure to The Group's holdings across its life portfolios are mostly in local currency
meet its contractual debt obligation(s). Counterparty risk, a type of credit and with a largely domestic investor base. These portfolios are generally
risk, is the probability that a counterparty defaults on its contractual positioned towards high-quality names, including those with either government
obligation(s) causing the other counterparty to suffer a loss. These risks or considerable parent company balance sheet support. Areas which the Group is
arise from the Group's investments in bonds, reinsurance arrangements, actively monitoring include ongoing developments in the global banking sector,
derivative contracts with third parties, and its cash deposits with banks. effects of the global economic slowdown on the invested assets, the impacts of
Credit spread risk, another type of credit risk, arises when the interest the tightening of monetary policy in the Group's key markets, higher
rate/return on a loan or bond is disproportionately low compared with another refinancing costs, heightened geopolitical tension and protectionism, the
investment with a lower risk of default. Invested credit and counterparty ongoing downsizing of the Chinese Mainland property sector and more widely
risks are considered a material risk for the Group's business units. across the Chinese Mainland economy, as well as high indebtedness in African
countries. The impacts of these closely monitored trends include potential for
The total debt securities at 31 December 2023 held by the Group's operations deterioration in the credit quality of the Group's invested credit exposures,
were $83.1 billion (31 December 2022: $77.0 billion). The majority (83 per particularly due to rising funding costs and overall credit risks, and the
cent, 31 December 2022: 84 per cent) of the portfolio are investments either extent of downward pressure on the fair value of the Group's portfolios. The
held in unit-linked funds or that support insurance products where Group's portfolio is generally well diversified in relation to individual
policyholders participate in the returns of a specified pool of counterparties, although counterparty concentration is monitored, particularly
investments(1). The gains or losses on these investments will largely be in local markets where depth (and therefore the liquidity of such investments)
offset by movements in policyholder liabilities(2). The remaining 17 per cent may be low. The Group has appetite to accept credit risk to the extent that it
(31 December 2022: 16 per cent) of the debt portfolio (the 'shareholder debt remains part of a balanced portfolio of sources of income for shareholders and
portfolio') are investments where gains and losses broadly impact the income is compatible with a robust solvency position. This risk is further detailed
statement, albeit short-term market fluctuations are recorded outside of in sections 1.4 and 1.5 of the Risk factors.
adjusted operating profit.
The Group actively reviews its investment portfolio to improve the robustness
- Group sovereign debt: Prudential invests in bonds issued by national and resilience of the solvency position. A number of risk management tools are
governments. This sovereign debt holding within the shareholder debt portfolio used to manage and mitigate credit and counterparty credit risk, including the
represented 55 per cent or $7.8 billion(3) of the total shareholder debt following:
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 - The Group Credit Risk Policy and the Group Dealing Controls Policy;
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 - The Global Counterparty Limit Framework and concentration limits on
in note C1 of the Group's IFRS financial statements. large names;
- Corporate debt portfolio: In the shareholder debt portfolio, corporate - Collateral arrangements for derivative, secured lending reverse
debt exposures totalled $5.8 billion of which $5.4 billion or 94 per cent were repurchase and reinsurance transactions which aim to provide a high level of
investment grade rated (31 December 2022: $6.6 billion of which $6.1 billion credit protection; and
or 93 per cent were investment grade rated).
- The Group Executive Risk Committee and Group Investment Committee's
- Bank debt exposure and counterparty credit risk: The banking sector oversight of credit and counterparty credit risk and sector and/or
represents a material concentration in the Group's corporate debt portfolio name-specific reviews.
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 Exposure to the banking sector is considered a material risk for the Group.
part of its core investments, considered to be a material risk for the Group, Derivative and reinsurance counterparty credit risk exposure is managed using
as well as being important for the hedging and other activities undertaken to an array of risk management tools, including a comprehensive system of limits.
manage its various financial risks. Prudential manages the level of its counterparty credit risk by reducing its
exposure or using additional collateral arrangements where appropriate.
At 31 December 2023:
- 94 per cent of the Group's shareholder portfolio (excluding all
government and government-related debt) is investment grade rated(4). In
particular, 59 per cent of the portfolio is rated(4) A- and above (or
equivalent); and
- The Group's shareholder portfolio is well diversified: no individual
sector(5) makes up more than 13 per cent of the total portfolio (excluding the
financial and sovereign sectors).
Risk description Risk management
The Group's sustainability (including ESG and climate-related) risks
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.
Material and emerging risks associated with key sustainability themes may As custodians of stakeholder value for the long term, the Group seeks to
undermine the long-term success of a business by adversely impacting its manage sustainability risks and their potential impact on its business and
reputation and brand, and ability to attract and retain customers, investors, stakeholders through transparent and consistent implementation of its strategy
employees and distribution and other business partners, and therefore the in its markets and across operational, underwriting and investment activities.
results of its operations and delivery of its strategy and long-term financial It is enabled by strong internal governance, sound business practices and a
success. The Group's sustainability strategy is centered on three key pillars responsible investment approach, with sustainability-related considerations
(providing simple and accessible health and financial protection, investing integrated into investment processes and decisions and the performance of
responsibly and creating a sustainable business), each of which increases the fiduciary and stewardship duties, including via voting and active engagement
expectations of the Group's stakeholders with regards to the Group's potential decisions with respect to investee companies, as both an asset owner and an
external environmental and social impact. Sustainability risks arise from the asset manager. Climate risk, the Group's reporting against the recommendations
activities that support implementation of the Group's strategy, which include of the Task Force on Climate-Related Financial Disclosures (TCFD), and
developing sustainable and inclusive offerings, continuing to decarbonise the progress on the Group's external climate-related commitments, remain a
Group's investment portfolio in a science-informed approach to facilitate priority focus for the GRC for 2024. Further information on the Group's
becoming a net zero asset owner by 2050 whilst financing a just and inclusive sustainability governance and strategy, as well as the management of material
transition, and advancing the diversity, equity and inclusion and belonging sustainability themes, is included in the Group's 2023 Sustainability Report.
strategy to empower existing employees.
The Group participates in networks, industry forums and working groups, such
Potential regulatory compliance and litigation risks exist globally and across as the Net Zero Asset Owner Alliance (NZAOA), Principles for Responsible
Asia, as sustainability-related topics remain high on the agenda of both local Investment (PRI) and CRO Forum, to further develop understanding and support
regulators and international supervisory bodies, including the International collaborative action in relation to sustainability risks and promoting a just
Association of Insurance Supervisors (IAIS) and the International and inclusive transition. The Group also actively engages with, and responds
Sustainability Standards Board (ISSB), which published its inaugural to, discussions, consultations and information-gathering exercises with local
sustainability and climate-related disclosure requirements in June 2023. regulators, international supervisory bodies and global industry standard
Delivery of the Group's Sustainability Strategy, including the decarbonisation setters.
commitments and the development of sustainable and inclusive offerings,
heightens the risk of accusations of misleading or unsubstantiated The Group Risk Framework continues to be critically evaluated and updated
representations to the extent of the environmental or societal impact of the where required to ensure both sustainability-related considerations and risks
Group's activities and the sustainability features of new products (eg to the Group, including those arising from stakeholder expectations of the
greenwashing), which subsequently increases the risk of potential litigation external impact of the Group's activities, are appropriately captured. Risk
or reputational damage. Further details of the Group's sustainability-related management and mitigation of sustainability risks are embedded within the
risks and regulations are included in sections 2.1 and 4.1 of the Risk Group Risk Framework and risk processes, including:
factors.
- 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.
Risk description Risk management
Risks from the nature of our business and our industry
These include the Group's non-financial risks including operations processes,
change management, 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.
Non-financial risks
The complexity of Prudential, its activities and the extent of transformation Alongside the Non-Financial Risk Appetite Framework, other risk policies and
in progress creates a challenging operating environment and exposure to a standards are in place that individually engage with specific non-financial
variety of non-financial risks which are considered to be material at a Group risks, including operations processes, change management, third-party and
level. outsourcing management, business continuity, fraud, financial crime as well as
information security, IT infrastructure and data privacy. These policies and
The Group's non-financial risks, which are not exhaustive and discussed standards include subject matter expert-led processes that are designed to
further in section 3 of the Risk factors, are outlined below. 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.
Operations processes risk The Group aims to manage the risk effectively by maintaining operational
resilience and honouring commitments to customers and stakeholders, whilst
Operations processes risk is the risk of failure to adequately or accurately avoiding material adverse financial loss or impact on its reputation. Further
process different types of operational transactions, including customer detail on the risks to the Group arising from system issues or control gaps is
servicing and asset and investment management operations. Due to human error, included in sections 3.1 and 3.3 in the Risk factors.
among other reasons, operations and process control incidents do occur from
time to time and no system or process can entirely prevent occurrence.
Change management risk The Group aims to ensure that, for both transformation and strategic
initiatives, strong programme governance is in place with embedded risk
Change management risk remains a material risk for Prudential, with a number expertise to achieve ongoing and nimble risk oversight, with regular risk
of significant change programmes under way which, if not delivered and monitoring and reporting to risk committees. The Group's Transformation Risk
executed effectively with adequate and capable resources to defined timelines, Framework is in place alongside the Group's existing risk policies and
scope and cost, may negatively impact its operational capability, control frameworks with the aim to ensure appropriate governance and controls are in
environment, employees, reputation and ability to deliver its strategy and place to mitigate these risks. The Group also enhanced its governance
maintain market competitiveness. The current portfolio of transformation and framework in 2023 to better oversee the implementation and risk management of
significant change programmes includes (i) the implementation and embedding of digital platforms. This includes the establishment of digital governance
large-scale regulatory/industry changes; (ii) the expansion of the Group's forums that oversee digital transformation from various dimensions such as
digital capabilities and use of technology, platforms and analytics; and (iii) customer-centricity, strategic, financial, operational and risk management. In
improvement of business efficiencies through operating model changes, addition, Prudential is continuously enhancing strategic capabilities through
including those relating to the Group's central, asset management and internal talent development and talent acquisition. Developing an engaged
investment oversight functions. Further detail on the risks to the Group workforce that provides adequate resources for our people to manage change,
associated with large-scale transformation and complex strategic initiatives connect, grow and succeed is one of the priorities for the company.
is included in section 3.1 of the Risk factors.
Risk description Risk management
Non-financial risks continued
Third-party and outsourcing management risk The Group's requirements for the management of material outsourcing
arrangements have been incorporated in its Group Third-Party Supply and
The Group's outsourcing and third-party relationships require distinct Outsourcing Policy, aligned to the requirements of the HKIA's GWS Framework,
oversight and risk management processes. The Group has a number of important and which outlines the governance in place in respect of material outsourcing
third-party relationships, with both market counterparties and outsourcing and third-party arrangements and the Group's monitoring and risk assessment
partners, including distribution, technology and ecosystem providers. The framework. This aims to ensure that appropriate contract performance and risk
Group maintains material strategic partnerships and bancassurance mitigation measures are in place over these arrangements. In addition, the
arrangements, which create a reliance on the operational resilience and Group Third-Party Risk Oversight Framework is in place to set out the Group's
performance of outsourcing and business partners. This risk is explored in third-party risk management and oversight standards that guide the Group
more depth in section 3.3 of the Risk factors. senior management and RCS function to oversee, challenge and manage the
Group's third-party risk profile in a consistent and coherent way.
Model risk The Group has no appetite for model or UDA related incidents leading to
regulatory breaches. There is limited appetite for failures to develop,
Model risk is the risk of adverse financial, regulatory, operational, or implement and monitor appropriate risk mitigation measures to manage model and
reputational impact, or misinformed business and strategic decision-making UDA risk. The Group's model and UDA risk is managed and mitigated via the
resulting from reliance on a model or user-developed application (UDA) that is Model and UDA Risk Framework which applies a risk-based approach to tools
inaccurate, incorrect or misused. The Group utilises various tools and they (including those under development) with the aim to ensure a proportionate
form an integral part of operational functions including the calculation of level of risk management. The framework requirements include:
regulatory or internal capital requirements, the valuation of assets and
liabilities, determining hedging requirements, assessing projects and - Set of risk oversight, management and governance requirements;
strategic transactions, and acquiring new business via digital platforms.
- Regular risk assessment requirements of all tools taking into account
Technological developments, in particular in the field of artificial potential impact on various stakeholders, including policyholders; and
intelligence (AI) and the increased use of generative AI, pose new
considerations on model risk oversight provided under the Group Risk - Regular independent validation (including limitations, known errors and
Framework. 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.
Fraud risk 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
Prudential is exposed to fraud risk, including fraudulent insurance claims, investigation activities with the objective to protect resources to support
transactions, or procurement of services, that are made against or through the sustainable business growth. The policy also sets out the framework to tackle
business. 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.
Risk description Risk management
Non-financial risks continued
Financial crime risk The Group-wide policies on anti-money laundering, sanctions and anti-bribery
and corruption risks reflect the requirements applicable to all staff in all
As with all financial services firms, Prudential is exposed to risks relating offices and businesses. Screening and transaction monitoring systems are in
to money laundering (the risk that the products or services of the Group are place across the Group.
used by customers or other third parties to transfer or conceal the proceeds
of crime); sanctions compliance breaches (the risk that the Group undertakes The Group has continued to strengthen and enhance its financial crime risk
business with individuals and entities on the lists of the main sanctions management capability through investment in advanced analytics and AI tools.
regimes); and bribery and corruption (the risk that employees or associated Proactive detective capabilities are being implemented across the Group and
persons seek to influence the behaviour of others to obtain an unfair delivered through a centralised monitoring hub to further strengthen oversight
advantage or receive improper benefits). Further detail on the risks to the of financial crime risks in the areas of procurement and third-party
Group associated with operating in high-risk markets is included in section management. Risk assessments are performed annually for businesses and offices
3.6 of the Risk factors. 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.
Information security, IT infrastructure and data privacy risks 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
Risks related to malicious attacks on Prudential systems, service disruption, retained longer than necessary. The handling of customers' data is governed by
exfiltration of data, loss of data integrity and the impact on the privacy of specific policies and frameworks, such as the Group Information Security
our customer data remain prevalent, particularly as the accessibility of Policy, the Group Privacy Policy and the Group Data Policy, to ensure
attacking tools available to potential adversaries increases. Regulatory compliance with all applicable laws and regulations, and the ethical use of
developments in cyber security and data protection are progressing worldwide customer data.
and may increase the complexity of requirements and obligations required for
companies. Further detail on the risks to the Group associated with operating Despite the rise in ransomware activity due to the availability of ransomware
in high-risk markets is included in sections 3.4 and 3.5 of the Risk factors. 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
Risk description Risk management
Non-financial risks continued
Information security, IT infrastructure and data privacy risks continued 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.
Risk description Risk management
Non-financial risks continued
Customer conduct risk 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:
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 - Treat customers fairly, honestly and with integrity;
Group's commitment to meeting its customers' needs and expectations is met.
The Group's Customer Conduct Risk Framework reflects management's focus on - Provide and promote products and services that meet customer needs, are
customer outcomes. clearly explained and that deliver real value;
Factors that may increase conduct risk can be found throughout the product - Manage customer information appropriately, and maintain the
life cycle, from the complexity of the Group's products and services to its confidentiality of customer information;
diverse distribution channels, which include its agency workforce, virtual
face-to-face sales, and sales via online digital platforms. - 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.
Legal and regulatory compliance risk Regulatory developments are monitored by the Group at a national and global
level and these considerations form part of the Group's ongoing engagement
Prudential operates in highly regulated markets and under the ever-evolving with government policy teams, industry groups and regulators.
requirements and expectations of diverse and dynamic regulatory, legal and tax
regimes which may impact its business or the way the business is conducted. Risk management and mitigation of regulatory risk at Prudential includes a
The complexity of legal and regulatory (including sanctions) compliance comprehensive set of compliance and financial crime operating arrangements,
continues to evolve and increase, representing a challenge for international such as policies, procedures, reporting protocols, risk management measures,
businesses. Compliance with the Group's legal or regulatory obligations disclosures and training, to ensure ongoing compliance with regulatory and
(including in respect of international sanctions) in one jurisdiction may legal obligations. Appropriate controls or tools have been systematically
conflict with the law or policy objectives of another jurisdiction or may be integrated into the daily operations of Prudential:
seen as supporting the law or policy objectives of one jurisdiction over
another, creating additional legal, regulatory compliance and reputational - Close monitoring and assessment of our business controls and regulatory
risks. These risks may be increased where the scope of regulatory requirements landscape, with explicit compliance consideration of risk themes in strategic
and obligations are uncertain, and where specific cases applicable to the decisions and cross-border activities including payments;
Group are complex. In certain jurisdictions in which Prudential operates there
are several ongoing policy initiatives and regulatory developments which will - Ongoing engagement with national regulators, government policy teams and
impact the way Prudential is supervised. Further information on specific areas international standard setters; and
of regulatory and supervisory focus and changes are included in section 4 of
the Risk factors. - Compliance oversight to ensure adherence to new regulatory developments,
including those associated with greenwashing risk.
Risk description Risk management
Insurance risks
Insurance risks make up a significant proportion of Prudential's overall risk Insurance risks are managed and mitigated using the following, among other
exposure. The profitability of the Group's businesses depends on a mix of methods:
factors including levels of, and trends in, mortality (policyholders dying),
morbidity (policyholders becoming ill or suffering an accident) and - The Group's Insurance Policy;
policyholder behaviour (variability in how customers interact with their
policies, including utilisation of withdrawals, take-up of options and - The Group's Product and Underwriting Risk Policy, which sets out the
guarantees and persistency, ie lapsing/surrendering of policies), and required standards for effective product and underwriting risk management and
increases in the costs of claims over time (claim inflation). The risks approvals for new, or changes to existing, products (including the role of the
associated with adverse experience relative to assumptions associated with Group), and the processes to enable the measurement of underwriting risk. The
product performance and customer behavior are detailed in section 3.7 of the policy also describes how the Group's Customer Conduct Risk Policy is met in
Risk factors. The Group has appetite for retaining insurance risks in the relation to new product approvals and current and legacy products;
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 - The Group's Counter Fraud Policy (see the 'Fraud risk' section above);
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 - Using persistency, morbidity and longevity assumptions that reflect
with a robust solvency position. recent experience and expectation of future trends, and the use of industry
data and expert judgement where appropriate;
Inflationary and other economic pressures have also impacted morbidity
experience in several markets. Elevated interest rates may lead customers to - Using reinsurance to mitigate mortality and morbidity risks;
lapse in preference for alternate saving options that offer higher levels of
guarantees. A high-inflation environment, and the broader economic effects of - Ensuring appropriate medical underwriting when policies are issued and
recessionary concerns, may also increase lapses, surrenders and fraud, as well appropriate claims management practices when claims are received in order to
as heighten premium affordability challenges. mitigate morbidity risk;
The principal drivers of the Group's insurance risk vary across its business - Maintaining the quality of sales processes and training, and using
units. In Hong Kong, Singapore, Indonesia and Malaysia, a significant volume initiatives to increase customer retention in order to mitigate persistency
of health and protection business is written, and the most significant risk;
insurance risks are medical claims inflation risk, morbidity risk and
persistency risk. - The use of mystery shopping to identify opportunities for improvement in
sales processes and training; and
- Using product repricing and other claims management initiatives in order
to mitigate morbidity and medical claims inflation risk.
Medical claims inflation risk This risk is best managed by retaining the right to reprice products and
appropriate overall claims limits within policies, either per type of medical
A key assumption in these markets is the rate of medical claims inflation, treatment or in total across a policy, annually and/or over the policy
which is often in excess of general price inflation. The cost of medical lifetime. Medical reimbursement downgrade experience (where the policyholder
treatment could increase more than expected, resulting in higher than reduces the level of the coverage/protection in order to reduce premium
anticipated medical claims cost passed on to Prudential. payments) following any repricing is also monitored by the Group's businesses.
Morbidity risk Morbidity risk is managed through prudent product design, underwriting and
claims management, and for certain products, the right to reprice where
Morbidity risk is the risk of deviations in the future frequency and magnitude appropriate. Prudential's morbidity assumptions reflect its recent experience
of non-fatal accident and sickness claims relative to initial assumptions that and expectation of future trends for each relevant line of business.
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.
Risk description Risk management
Insurance risks continued
Persistency risk Persistency risk is managed by appropriate controls across the product life
cycle. These include: review and revisions to product design and incentive
Persistency risk results from adverse changes in policy surrenders, paid-ups structures where required; ensuring appropriate training and sales processes,
and other policy discontinuances. In general, lower persistency experience including those ensuring active customer engagement and high service quality;
results in deterioration of profits and shareholder value and can be an appropriate customer disclosures and product collaterals; use of customer
indicator of inadequate sales quality controls, and can elevate conduct, retention initiatives; and post-sale management through regular experience
reputational and regulatory risks. Persistency risk generally stems from monitoring. Strong risk management and mitigation of conduct risk and the
misalignment between customer needs and purchased product as a result of identification of common characteristics of business with high lapse rates is
insufficient product collaterals and/or sales process, insufficient post-sale also crucial. Where appropriate, allowance is made for the relationship
communication and engagement with the customer leading to a deterioration of (either assumed or observed historically) between persistency and investment
appreciation of the value of their policy, operational barriers to premium returns. Modelling this dynamic policyholder behaviour is particularly
renewal payment, and/or changes in policyholder circumstances resulting from important when assessing the likely take-up rate of options embedded within
external drivers. certain products.
Business concentration risk
Prudential operates in markets in both Asia and Africa via various channels To improve business resilience, the Group continues to look for opportunities
and product mix; although largely diversified at the Group level, several of to enhance business diversification by building multi-market growth engines as
these markets are exposed to certain levels of concentration risk. From a part of its strategy.
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.
Risks associated with the oversight of the Group's joint ventures and
associates
Prudential operates, and in certain markets is required by local regulation to The Group exercises primary oversight and control over joint ventures and
operate, through joint ventures and other joint ownership or associates. For associates through our nominated directors and other representatives on the
such operations, the level of control exercisable by the Group depends on the Board and Board Committees, whose appointments are subject to regular review.
terms of the contractual agreements between participants. Whilst the joint The Group has effective access to management information on these businesses
ventures and associates are run as separate entities, the Group's interests via the Board and Board Committees, the businesses' public disclosures, and
are best safeguarded by our ability to effectively oversee and influence these established regular touchpoints with key business functions of these
joint venture and associates in a way that is proportionate to our ownership organisations (eg audit). Key updates on joint ventures and associates are
level and control. Further information on the risks to the Group associated provided to the Group's governance such as the Risk Committee and the Audit
with its joint ventures and other shareholders and third parties are included Committee.
in section 3.6 of the Risk factors.
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
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.
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.
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.
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.
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.
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.
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
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.
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
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.
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.
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.
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.
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.
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.
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.
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
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.
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
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