REG - Prudential PLC Prudential Fdg(Asia) - Prudential plc – FY23 Results – Additional Info
20/03/2024 11:45
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RNS Number : 5120H Prudential PLC 20 March 2024
Index to the additional financial information
I Additional financial information
I(i) Group capital position
Prudential applies the Insurance (Group Capital) Rules set out in the
Group-wide Supervision (GWS) Framework issued by the Hong Kong IA to determine
group regulatory capital requirements (both minimum and prescribed levels).
For regulated insurance entities, the capital resources and required capital
included in the GWS capital measure for Hong Kong IA Group regulatory purposes
are based on the local solvency regime applicable in each jurisdiction. The
Group holds material participating business in Hong Kong, Singapore and
Malaysia. Alongside the total 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 Group Minimum Capital Requirements
(GMCR) and the Group Prescribed Capital Requirements (GPCR) from these
participating funds.
Estimated GWS capital position
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). The estimated Group Tier 1 capital
resources are $18.3 billion with headroom over the GMCR of $12.4 billion
(31 December 2022: $12.1 billion), representing a coverage ratio of 313 per
cent (31 December 2022: 328 per cent).
31 Dec 2023 31 Dec 2022 (note (1))
Shareholder Add Total Shareholder Add Total Change
policyholder policyholder in total
note (3) note (4) note (3) note (4) note (5)
Group capital resources ($bn) 24.3 14.3 38.6 23.2 12.6 35.8 2.8
of which: Tier 1 capital resources ($bn) (note (2)) 17.1 1.2 18.3 15.9 1.5 17.4 0.9
Group Minimum Capital Requirement ($bn) 4.8 1.1 5.9 4.4 0.9 5.3 0.6
Group Prescribed Capital Requirement ($bn) 8.2 11.4 19.6 7.6 10.1 17.7 1.9
GWS capital surplus over GPCR ($bn) 16.1 2.9 19.0 15.6 2.5 18.1 0.9
GWS coverage ratio over GPCR (%) 295% 197% 307% 202% (5)%
GWS Tier 1 surplus over GMCR ($bn) 12.4 12.1 0.3
GWS Tier 1 coverage ratio over GMCR (%) 313% 328% (15)%
Notes
(1) The 31 December 2022 GWS capital results do not reflect the impact of
the redemption of $0.4 billion of senior debt in January 2023. Allowing for
this redemption reduces the estimated shareholder GWS capital surplus over
GPCR to $15.2 billion with a coverage ratio of 302 per cent and reduces the
estimated total GWS capital surplus over GPCR to $17.7 billion with a
coverage ratio of 200 per cent. The total GWS Tier 1 over GMCR capital
position is unaffected by this redemption.
(2) The classification of tiering of capital under the GWS framework
reflects the different local regulatory regimes along with guidance issued by
the Hong Kong IA. At 31 December 2023, total Tier 1 capital resources of
$18.3 billion comprises: $24.3 billion of total shareholder capital resources;
less $(3.6) billion of Prudential plc issued sub-ordinated and senior Tier 2
debt capital; less $(3.6) billion of local regulatory tiering classifications
which are classified as GWS Tier 2 capital resources primarily in Singapore
and the Chinese Mainland; plus $1.2 billion of Tier 1 capital resources in
policyholder funds.
(3) This allows for any associated diversification impacts between the
shareholder and policyholder positions reflected in the total company results
where relevant.
(4) The total company GWS coverage ratio over GPCR presented above
represents the eligible group capital resources coverage ratio as set out in
the GWS framework while the total company GWS tier 1 coverage ratio over GMCR
represents the tier 1 group capital coverage ratio.
(5) Refer to section on Material changes in GMCR, GPCR, tier 1 group capital
and eligible group capital resources below.
GWS sensitivity analysis
The estimated sensitivity of the GWS capital position (based on the GPCR) to
changes in market conditions as at 31 December 2023 and 31 December 2022 are
shown below, for both the shareholder and the total capital position.
Shareholder
31 Dec 2023 31 Dec 2022
Impact of market sensitivities Surplus ($bn) Coverage ratio Surplus ($bn) Coverage ratio
Base position 16.1 295% 15.6 307%
Impact of:
10% increase in equity markets 0.4 (3)% 0.3 (3)%
20% fall in equity markets (2.5) (17)% (1.9) (14)%
50 basis points reduction in interest rates 0.7 11% 0.4 4%
100 basis points increase in interest rates (2.1) (25)% (1.1) (15)%
100 basis points increase in credit spreads (1.0) (12)% (0.8) (9)%
Total
31 Dec 2023 31 Dec 2022
Impact of market sensitivities Surplus ($bn) Coverage ratio Surplus ($bn) Coverage ratio
Base position 19.0 197% 18.1 202%
Impact of:
10% increase in equity markets 1.2 1% 1.2 1%
20% fall in equity markets (4.0) (13)% (3.6) (12)%
50 basis points reduction in interest rates 0.4 3% 0.0 0%
100 basis points increase in interest rates (1.4) (8)% (0.6) (3)%
100 basis points increase in credit spreads (1.4) (7)% (1.2) (6)%
The sensitivity results above reflect the impact on the Group's insurance
business operations as at the valuation dates. The sensitivity results assume
instantaneous market movements and reflect all consequential impacts as at the
valuation date. These results also allow for limited management actions such
as changes to future policyholder bonuses and rebalancing investment
portfolios where relevant. If such economic conditions persisted, the
financial impacts may differ to the instantaneous impacts shown above. In this
case, management could also take additional actions to help mitigate the
impact of these stresses. These actions include, but are not limited to,
market risk hedging, further rebalancing of investment portfolios, increased
use of reinsurance, repricing of in-force benefits, changes to new business
pricing and the mix of new business being sold.
GWS Risk Appetite and capital management
The Group's capital management framework focuses on achieving sustainable,
profitable growth and retaining a resilient balance sheet.
The Group monitors regulatory capital, economic capital and rating agency
capital metrics and manages the business within its risk appetite by remaining
within its economic and regulatory capital limits. In respect of regulatory
capital limits, a capital buffer above the GPCR is held to ensure the Group
can withstand volatility in markets and operational experience, with capital
resources remaining sufficient to cover the GPCR even after significant
stresses. The calibration of the capital buffer reflects the Group's risk
profile and the external economic environment, and is set and reviewed
regularly by the Board.
Typically, this requires a Group shareholder coverage ratio of above 150 per
cent of the shareholder GPCR to be maintained and de-risking management
actions will be taken as necessary to maintain this buffer. No maximum limit
on the GWS coverage ratio has been set. While the GWS shareholder capital
position is a key metric for assessing regulatory solvency, and for risk
management, there are some elements of the shareholder GWS capital surplus
which will only become available as cash flow for distribution over time. The
Group's Free Surplus metric is a better measure of the shareholder capital
available for distribution, and is used as the primary metric for assessing
the Group's sources and uses of capital in the Group's capital management
framework, and underpinning the Group's dividend policy.
At 31 December 2023, the Group's Free Surplus stock (excluding distribution
rights and other intangibles) was $8.5 billion, compared to the GWS
shareholder surplus of $16.1 billion and a reconciliation is shown below.
The uses of capital, for both organic and inorganic opportunities, are
assessed by reference to expected shareholder returns and payback periods,
relative to risk-adjusted hurdle rates which are set centrally.
Reflecting the Group's capital allocation priorities, a portion of the free
surplus generated in each period will be retained for reinvestment in new
business and capabilities, particularly in the areas of Customer,
Distribution, Health and Technology, and dividends will be determined
primarily based on the Group's operating free surplus generation after
allowing for the capital strain of writing new business and recurring central
costs. Recognising our conviction in the Group's revised strategy, when
determining the annual dividend we look through the investments in new
business and investments in capabilities and continue to expect the 2024
annual dividend to grow in the range of 7 to 9 per cent. To the extent that
free surplus arises which is not required to support organic and inorganic
growth opportunities, consideration will be given to returning capital to
shareholders.
Separate from the capital management framework applied for shareholder-owned
capital, the capital held in ring-fenced with-profits funds supports
policyholder investment freedom, which increases expected returns for our
with-profits funds' customers. GWS policyholder capital surplus is not
available for distribution out of the ring-fenced funds other than as a
defined proportion distributable to shareholders when policyholder bonuses are
declared. Policyholder fund capital surplus is deployed over time to increase
investment risk in the with-profits funds in order to target higher customer
returns, or distributed as higher customer bonuses, in line with the specific
with-profits bonus policies which apply to each ring-fenced fund. The result
of applying these policies is that the aggregate policyholder fund GPCR
coverage ratio is typically lower than the GPCR shareholder coverage ratio.
The total GWS coverage ratio, which is an aggregate of the policyholder and
shareholder capital positions, is therefore usually lower than the shareholder
coverage ratio, but also less sensitive in stress scenarios, as is shown in
the GWS sensitivity analysis section above as at 31 December 2023. The total
GWS coverage ratio is the Group's regulatory solvency metric to which Group
supervision applies, and this total regulatory coverage ratio is managed to
ensure it remains above the GPCR by applying separate shareholder and
policyholder risk appetite limits, as described above.
Analysis of movement in total regulatory GWS capital surplus (over GPCR)
A summary of the movement in the 31 December 2022 regulatory GWS capital
surplus (over GPCR) of $18.1 billion to $19.0 billion at 31 December 2023 is
set out in the table below.
2023 $bn
Total GWS surplus at 1 Jan (over GPCR) 18.1
Shareholder free surplus generation
In force operating capital generation 2.1
Investment in new business (0.7)
Total operating free surplus generation 1.4
External dividends (0.5)
Non-operating movements including market movements (0.2)
Other capital movements (including foreign exchange movements) (0.5)
Movement in free surplus (see EEV basis results for further detail) 0.2
Other movements in GWS shareholder surplus not included in free surplus 0.3
Movement in contribution from GWS policyholder surplus (over GPCR) 0.4
Net movement in GWS capital surplus (over GPCR) 0.9
Total GWS surplus at 31 Dec (over GPCR) 19.0
Further detail on the movement in free surplus of $0.2 billion is included in
the Movement in Group free surplus section of the Group's EEV basis results.
Other movements in GWS shareholder surplus not included in free surplus are
driven by the differences described in the reconciliation shown later in this
section. This includes movements in distribution rights and other intangibles
(which are expensed on day one under the GWS requirements) and movements in
the restriction applied to free surplus to better reflect shareholder
resources that are available for distribution.
Material changes in GMCR, GPCR, tier 1 group capital and eligible group
capital resources
Detail on the material changes in GPCR, GMCR, eligible group capital resources
and tier 1 group capital are provided below.
- Total eligible capital resources has increased by $2.8 billion to $38.6
billion at 31 December 2023 (31 December 2022: $35.8 billion). This
includes a $0.9 billion increase in tier 1 group capital to $18.3 billion
(31 December 2022: $17.4 billion). The increase in total eligible capital
resources and tier 1 group capital is primarily driven by positive operating
capital generation over the year, partially offset by external dividends paid,
debt redeemed and market movements over the year.
- Total regulatory GPCR has increased by $1.9 billion to $19.6 billion at
31 December 2023 (31 December 2022: $17.7 billion) and the total regulatory
GMCR has increased by $0.6 billion to $5.9 billion at 31 December 2023
(31 December 2022: $5.3 billion). The increase in GPCR and GMCR is primarily
driven by new business sold over the year, partially offset by the release of
capital as the policies mature or are surrendered and market movements over
the year.
Reconciliation of Free Surplus to total regulatory GWS capital surplus (over
GPCR)
31 Dec 2023 $bn
Capital resources Required capital Surplus
Free surplus excluding distribution rights and other intangibles* 14.5 6.0 8.5
Restrictions applied in free surplus for China C-ROSS II (note (1)) 1.7 1.4 0.3
Restrictions applied in free surplus for HK RBC (note (2)) 6.1 0.7 5.4
Restrictions applied in free surplus for Singapore RBC (note(3)) 2.0 0.1 1.9
Add GWS policyholder surplus contribution 14.3 11.4 2.9
Total regulatory GWS capital surplus (over GPCR) 38.6 19.6 19.0
* As per the 'Free surplus excluding distribution rights and other
intangibles' shown in the statement of Movement in Group free surplus of the
Group's EEV basis results.
Notes
(1) Free surplus applies the embedded value reporting approach issued by the
China Association of Actuaries (CAA) in the Chinese Mainland and includes a
requirement to establish a deferred profit liability within EEV net worth
which leads to a reduction in EEV free surplus as compared to the C-ROSS II
surplus reported for local regulatory purposes. Further differences relate to
the treatment of subordinated debt within CPL which is excluded from EEV free
surplus and which contributes to C-ROSS II surplus for local regulatory
reporting.
(2) EEV free surplus for Hong Kong under the HK RBC regime excludes
regulatory surplus that is not considered distributable immediately. This
includes HK RBC technical provisions that are lower than policyholder asset
shares or cash surrender floors as well as the value of future shareholder
transfers from participating business (net of associated required capital)
which are included in the shareholder GWS capital position.
(3) EEV free surplus for Singapore is based on the Tier 1 requirements under
the RBC2 framework, which excludes certain negative reserves permitted to be
recognised in the full RBC 2 regulatory position used when calculating the GWS
capital surplus (over GPCR).
Reconciliation of Group IFRS shareholders' equity to Group total GWS capital
resources
31 Dec 2023 $bn
Group IFRS shareholders' equity 17.8
Remove goodwill and intangibles recognised on the IFRS consolidated statement (4.7)
of financial position
Add debt treated as capital under GWS (note (1)) 3.6
Asset valuation differences (note (2)) (0.8)
Remove IFRS 17 contractual service margin (CSM) (including joint ventures and 21.0
associates) (note (3))
Liability valuation (including insurance contracts) differences excluding IFRS 0.5
17 CSM (note (4))
Differences in associated net deferred tax liabilities (note (5)) 0.9
Other (note (6)) 0.3
Group total GWS capital resources 38.6
Notes
(1) As per the GWS Framework, debt in issuance at the date of designation
that satisfy the criteria for transitional arrangements and qualifying debt
issued since the date of designation are included as Group capital resources
but are treated as liabilities under IFRS.
(2) Asset valuation differences reflect differences in the basis of valuing
assets between IFRS and local statutory valuation rules, including deductions
for inadmissible assets. Differences include for some markets where government
and corporate bonds are valued at book value under local regulations but are
valued at market value under IFRS.
(3) The IFRS 17 contractual service margin (CSM) represents a discounted
stock of unearned profit which is released over time as services are provided.
On a GWS basis the level of future profits will be recognised within the
capital resources to the extent permitted by the local solvency reserving
basis. Any restrictions applied by the local solvency bases (such as
zeroization of future profits) is captured in the liability valuation
differences line.
(4) Liability valuation differences (excluding the CSM) reflect differences
in the basis of valuing liabilities between IFRS and local statutory valuation
rules. This includes the negative impact of moving from the IFRS 17 best
estimate reserving basis to a more prudent local solvency reserving basis
(including any restrictions in the recognition of future profits) offset by
the fact that certain local solvency regimes capture some reserves within the
required capital instead of the capital resources.
(5) Differences in associated net deferred tax liabilities mainly results
from the tax impact of changes in the valuation of assets and liabilities.
(6) Other differences mainly reflect the inclusion of subordinated debt in
Chinese Mainland as local capital resources on a C-ROSS II basis as compared
to being held as a liability under IFRS.
Basis of preparation for the Group GWS capital position
Prudential applies the Insurance (Group Capital) Rules set out in the GWS
Framework to determine group regulatory capital requirements (both minimum and
prescribed levels). The summation of local statutory capital requirements
across the Group is used to determine group regulatory capital requirements,
with no allowance for diversification between business operations. The GWS
eligible group capital resources is determined by the summation of capital
resources across local solvency regimes for regulated entities and IFRS
shareholders' equity (with adjustments described below) for non-regulated
entities.
In determining the GWS eligible group capital resources and required capital
the following principles have been applied:
- For regulated insurance entities, capital resources and required capital
are based on the local solvency regime applicable in each jurisdiction, with
minimum required capital set at the solo legal entity statutory minimum
capital requirements and prescribed capital requirement set at the level at
which the local regulator of a given entity can impose penalties, sanctions
or intervention measures;
- The classification of tiering of eligible capital resources under the
GWS framework reflects the different local regulatory regimes along with
guidance issued by the Hong Kong IA. In general, if a local regulatory regime
applies a tiering approach then this should be used to determine tiering of
capital on a GWS capital basis, where a local regulatory regime does not apply
a tiering approach then all capital resources should be included as Group Tier
1 capital. For non-regulated entities tiering of capital is determined in line
with the Insurance (Group Capital) Rules.
- For asset management operations and other regulated entities, the
capital position is derived based on the sectoral basis applicable in each
jurisdiction, with minimum required capital based on the solo legal entity
statutory minimum capital requirement;
- For non-regulated entities, the capital resources are based on IFRS
shareholder equity after deducting intangible assets. No required capital is
held in respect of unregulated entities;
- For entities where the Group's interest is less than 100 per cent, the
contribution of the entity to the GWS eligible group capital resources and
required capital represents the Group's share of these amounts and excludes
any amounts attributable to non-controlling interests. This does not apply to
investment holdings which are not part of the Group;
- Investments in subsidiaries, joint ventures and associates (including,
if any, loans that are recognised as capital on the receiving entity's balance
sheet) are eliminated from the relevant holding company to prevent the double
counting of capital resources;
- Under the GWS Framework, debt instruments in issuance at the date of
designation that satisfy the criteria for transitional arrangements and
qualifying debt issued since the date of designation are included in eligible
group capital resources as tier 2 group capital;
- At 31 December 2023 all debt instruments with the exception of the
senior debt issued in 2022 are included as Group capital resources. The
eligible amount permitted to be included as Group capital resources for
transitional debt is based on the net proceeds amount translated using 31
December 2020 exchange rates for debt not denominated in US dollars;
- The total company GWS capital basis is the capital measure for Hong Kong
IA Group regulatory purposes as set out in the GWS framework. This framework
defines the eligible group capital resources coverage ratio (or total company
GWS coverage ratio over GPCR as presented above) as the ratio of total company
eligible group capital resources to the total company GPCR and defines the
tier 1 group capital coverage ratio (or total company GWS tier 1 coverage
ratio over GMCR as presented above) as the ratio of total company tier 1 group
capital to the total company GMCR; and
- Prudential also presents a shareholder GWS capital basis which excludes
the contribution to the Group GWS eligible group capital resources, the GMCR
and GPCR from participating business in Hong Kong, Singapore and Malaysia. In
Hong Kong the present value of future shareholder transfers from the
participating business are included in the shareholder GWS eligible capital
resources along with an associated required capital, this is in line with the
local solvency presentation. The shareholder GWS coverage ratio over GPCR
presented above reflects the ratio of shareholder eligible group capital
resources to the shareholder GPCR.
I(ii) Analysis of total segment profit by business unit
The table below presents the 2022 results on both AER and CER bases to
eliminate the impact of exchange translation.
2023 $m 2022 $m 2023 vs 2022 %
AER CER AER CER
CPL 368 271 258 36% 43%
Hong Kong 1,013 1,162 1,162 (13)% (13)%
Indonesia 221 205 200 8% 11%
Malaysia 305 340 329 (10)% (7)%
Singapore 584 570 585 2% 0%
Growth markets and other
Philippines 146 131 129 11% 13%
Taiwan 115 116 111 (1)% 4%
Thailand 120 116 117 3% 3%
Vietnam 357 402 395 (11)% (10)%
Other 86 53 48 62% 79%
Share of related tax charges from joint ventures and associate (78) (90) (85) 13% 8%
Insurance business 3,237 3,276 3,249 (1)% 0%
Eastspring 280 260 255 8% 10%
Total segment profit 3,517 3,536 3,504 (1)% 0%
(a) Eastspring adjusted operating profit
2023 $m 2022 AER $m
Operating income before performance-related fees (note (1)) 700 660
Performance-related fees (2) 1
Operating income (net of commission) (note (2)) 698 661
Operating expense (note (2)) (372) (360)
Group's share of tax on joint ventures' operating profit (46) (41)
Adjusted operating profit 280 260
Average funds managed or advised by Eastspring $225.9bn $229.4bn
Margin based on operating income (note (3)) 31bps 29bps
Cost/income ratio (note II(v)) 53% 55%
Notes
(1) Operating income before performance-related fees for Eastspring can be
further analysed as follows (institutional below includes internal funds under
management or under advice). As stated in section (b) below, during the year
the Group has reclassified funds under management and associated income
between Retail and Institutional.
Retail Margin Institutional Margin Total Margin
$m bps $m bps $m bps
2023 353 67 347 20 700 31
2022 319 64 341 19 660 29
(2) Operating income and expense include the Group's share of contribution
from joint ventures. In the consolidated income statement of the Group IFRS
financial results, the net income after tax of the joint ventures and
associates is shown as a single line item. A reconciliation is provided in
note II(v)of this additional information.
(3) Margin represents operating income before performance-related fees as a
proportion of the related funds under management or advice. Monthly closing
internal and external funds managed or advised by Eastspring have been used to
derive the average. Any funds held by the Group's insurance operations that
are not managed or advised by Eastspring are excluded from these amounts.
(b) Eastspring total funds under management or advice
Eastspring manages funds from external parties and also funds for the Group's
insurance operations. In addition, Eastspring advises on certain funds for the
Group's insurance operations where the investment management is delegated to
third-party investment managers. The table below analyses the total funds
managed or advised by Eastspring.
During the year the Group 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, where known, 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.
Comparatives have been restated to be on a comparable basis.
31 Dec 2023 $bn 31 Dec 2022 AER $bn
External funds under management, excluding funds managed on behalf of M&G
plc (note (1))
Retail 50.8 42.7
Institutional 31.6 28.7
Money market funds (MMF) 11.8 10.5
94.2 81.9
Funds managed on behalf of M&G plc (note (2)) 1.9 9.3
External funds under management 96.1 91.2
Internal funds:
Internal funds under management 110.0 104.1
Internal funds under advice 31.0 26.1
141.0 130.2
Total funds under management or advice (note (3)) 237.1 221.4
Notes
(1) Movements in external funds under management, excluding those managed on
behalf of M&G plc, are analysed below:
2023 $m 2022 AER $m
At 1 Jan 81,949 93,956
Market gross inflows 91,160 81,942
Redemptions (85,983) (84,397)
Market and other movements 6,997 (9,552)
At 31 Dec* 94,123 81,949
* The analysis of movements above includes $11,775 million relating
to Asia Money Market Funds at 31 December 2023 (31 December 2022: $10,495
million). Investment flows for 2023 include Eastspring Money Market Funds
gross inflows of $66,340 million (2022: $61,063 million) and net inflows of
$1,123 million (2022: net outflows of $(869) million).
(2) Movements in funds managed on behalf of M&G plc are analysed below:
2023 $m 2022 AER $m
At 1 Jan 9,235 11,529
Net flows (7,604) (765)
Market and other movements 293 (1,529)
At 31 Dec 1,924 9,235
(3) Total funds under management or advice are
analysed by asset class below:
31 Dec 2023 31 Dec 2022* AER
Funds under management Funds under advice Total Total
$bn % of total $bn % of total $bn % of total $bn % of total
Equity 50.7 25% 1.4 5% 52.1 22% 45.5 21%
Fixed income 40.6 20% 3.3 11% 43.9 19% 47.9 22%
Multi-asset 99.9 48% 26.2 84% 126.1 53% 114.1 51%
Alternatives 2.0 1% 0.1 0% 2.1 1% 2.2 1%
Money Market Funds 12.9 6% - 0% 12.9 5% 11.7 5%
Total funds 206.1 100% 31.0 100% 237.1 100% 221.4 100%
* The presentation of asset classes has been expanded to better
reflect the Eastspring management view and how products are sold and marketed
to clients. Multi-asset funds include a mix of debt, equity and other
investments. Comparatives have been presented on a comparable basis.
I(iii) Group funds under management
For Prudential's asset management businesses, funds managed on behalf of third
parties are not recorded on the balance sheet. They are, however, a driver of
profitability. Prudential therefore analyses the movement in the funds under
management each year, focusing on those which are external to the Group and
those primarily held by the Group's insurance businesses. The table below
analyses the funds of the Group held in the balance sheet and the external
funds that are managed by Prudential's asset management businesses.
31 Dec 2023 $bn 31 Dec 2022 AER $bn
Internal funds 183.3 166.3
Eastspring external funds, including M&G plc (as analysed in note I(ii) 96.1 91.2
above)
Total Group funds under management (note) 279.4 257.5
Note
Total Group funds under management comprise:
31 Dec 2023 $bn 31 Dec 2022 AER $bn
Total investments held on the balance sheet* 162.9 149.9
External funds of Eastspring, including M&G plc 96.1 91.2
Internally managed funds held in joint ventures and associates, excluding 20.4 16.4
assets attributable to external unit holders of the consolidated collective
investment schemes and other adjustments
Total Group funds under management 279.4 257.5
* Includes 'Investment in joint ventures and associates accounted for using
the equity method' as shown on the balance sheet.
I(iv) Holding company cash flow
The holding company cash flow describes the movement in the cash and
short-term investments of the centrally managed group holding companies and
differs from the IFRS cash flow statement, which includes all cash flows in
the year including those relating to both policyholder and shareholder funds.
The holding company cash flow is therefore a more meaningful indication of the
Group's central liquidity.
2023 $m 2022 AER $m
Net cash remitted by business units (note (1)) 1,611 1,304
Net interest paid (note (2)) (51) (204)
Corporate expenditure (note (3)) (271) (232)
Centrally funded recurring bancassurance fees (182) (220)
Total central outflows (504) (656)
Holding company cash flow before dividends and other movements 1,107 648
Dividends paid (533) (474)
Operating holding company cash flow after dividends but before other movements 574 174
Other movements
Issuance and redemption of debt (393) (1,729)
Other corporate activities (note (4)) 226 248
Total other movements (167) (1,481)
Net movement in holding company cash flow 407 (1,307)
Cash and short-term investments at 1 Jan (note (5)) 3,057 3,572
Foreign exchange movements 52 (113)
Inclusion of amounts at 31 Dec from additional centrally managed entities - 905
(note (6))
Cash and short-term investments at 31 Dec 3,516 3,057
Notes
(1) Net cash remitted by business units comprise dividends and other
transfers, net of capital injections, that are reflective of earnings and
capital generation. The remittances are net of cash advanced to CPL of $176
million in anticipation of a future capital injection as described in Note D3
of the IFRS financial statements.Following the update to the definition of
holding company cash and short term investments at 31 December 2022, higher
levels of interest and investment income were earned in 2023, largely on the
balances brought into the updated definition. This together with lower
interest payments led to a reduction in net interest paid in 2023 as compared
with the prior year.
(2) Including IFRS 17 implementation and restructuring costs paid in the
year.
(3) Cash inflows for other corporate activities were $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.
(4) Proceeds from the Group's commercial paper programme are not included in
the holding company cash and short-term investments balance, as shown in the
reconciliation below.
(5) 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. This updated definition includes all cash and short-term investments
held by central holding and service companies, including amounts previously
managed on a regional basis. These balances are now being centrally managed by
the Group's Treasury function. This refinement increased holding company cash
and short-term investment balances by $0.9 billion at 31 December 2022.
The table below shows the reconciliation of the Cash and cash equivalents
unallocated to a segment (Central operations)held on the IFRS balance sheet
(as shown in note C1) and Cash and short-term investments at 31 December as
shown above:
31 Dec 2023 $m 31 Dec 2022 $m
Cash and cash equivalents of Central operations held on balance sheet 1,590 1,809
Less: amounts from commercial paper (699) (501)
Add: Deposits with credit institutions of Central operations held on balance 2,625 1,749
sheet
Cash and short-term investments 3,516 3,057
I(v) Reconciliation of EEV expected transfer of value of in-force business and
required capital to free surplus
The table below shows how the EEV value of in-force business (VIF) and the
associated required capital for long-term insurance business operations are
projected as emerging into free surplus over the next 40 years. Although circa
6 per cent of the embedded value emerges after this date, analysis of cash
flows emerging in the years shown is considered most meaningful. The modelled
cash flows use the same methodology underpinning the Group's embedded value
reporting and so are subject to the same assumptions and sensitivities used to
prepare our 2023 results.
In addition to showing the amounts, on both a discounted and undiscounted
basis, expected to be generated from all in-force business at 31 December
2023, the table also presents the future free surplus expected to be generated
from the investment made in new business during 2023 over the same 40-year
period.
31 Dec 2023 $m
Expected generation from Expected generation from new business written in 2023*
all in-force business*
Expected period of emergence Undiscounted Discounted Undiscounted Discounted
2024 2,360 2,274 294 283
2025 2,325 2,118 195 173
2026 2,314 1,989 207 175
2027 2,283 1,849 199 161
2028 2,171 1,667 209 159
2029 2,122 1,538 209 151
2030 2,068 1,422 199 139
2031 2,057 1,335 204 133
2032 2,072 1,272 198 124
2033 2,023 1,177 214 127
2034 1,997 1,091 242 136
2035 1,995 1,032 243 129
2036 1,972 969 224 115
2037 1,980 924 231 112
2038 1,964 868 224 103
2039 1,965 826 201 91
2040 1,979 788 201 86
2041 1,990 751 202 83
2042 1,985 710 200 79
2043 1,983 674 207 77
2044-2048 9,852 2,837 968 319
2049-2053 9,900 2,131 944 243
2054-2058 9,740 1,526 983 205
2059-2063 9,738 1,096 899 141
Total free surplus expected to emerge in the next 40 years 80,835 32,864 8,097 3,544
* The analysis excludes amounts incorporated into VIF and required capital
at 31 December 2023 where there is no definitive time frame for when the
payments will be made or receipts received. It also excludes any free surplus
projected to emerge after 2063.
The expected free surplus generation from new business written in 2023 can be
reconciled to the new business profit as follows:
2023 $m
Undiscounted expected free surplus generation for years 2024 to 2063 8,097
Less: discount effect (4,553)
Discounted expected free surplus generation for years 2024 to 2063 3,544
Discounted expected free surplus generation for years after 2063 278
Discounted expected free surplus generation from new business written in 2023 3,822
Free surplus investment in new business (733)
Other items* 36
New business profit 3,125
* Other items represent the impact of the TVOG on new business, foreign
exchange effects and other non-modelled items. Foreign exchange effects arise
as EEV new business profit amounts are translated at average exchange rates
and the expected free surplus generation is translated at closing rates.
The discounted expected free surplus generation from in-force business can be
reconciled to the embedded value for long-term business operations as follows:
31 Dec 2023 $m
Discounted expected generation from all in-force business for years 2024 to 32,864
2063
Discounted expected generation from all in-force business for years after 2063 2,359
Discounted expected generation from all in-force business at 31 Dec 2023 35,223
Free surplus of long-term business operations at 31 Dec 2023 6,144
Other items* 161
EEV for long-term business operations 41,528
* Other items represent the impact of the TVOG and other
non-modelled items.
The undiscounted expected free surplus generation from all in-force business
at 31 December 2023 can be reconciled to the amount that was expected to be
generated at 31 December 2022 as follows:
2023 2024 2025 2026 2027 2028 Other Total
$m $m $m $m $m $m $m $m
2022 expected free surplus generation for years 2023 to 2062 2,658 2,327 2,201 2,155 2,087 2,010 66,078 79,516
Less: Amounts expected to be realised in the current year (2,658) - - - - - - (2,658)
Add: Expected free surplus to be generated in year 2063 (excluding 2023 new - - - - - - 1,957 1,957
business)
Foreign exchange differences - (9) (9) (9) (9) (8) (245) (289)
New business - 294 195 207 199 209 6,993 8,097
Operating movements - (70) 6 25 85 38 487 571
Non-operating and other movements - (182) (68) (64) (79) (78) (5,888) (6,359)
2023 expected free surplus generation for years 2024 to 2063 2,360 2,325 2,314 2,283 2,171 69,382 80,835
At 31 December 2023, the total free surplus expected to be generated over the
next five years (2024 to 2028 inclusive) for long-term business operations,
using the same assumptions and methodology as those underpinning 2023 embedded
value reporting, was $11.5 billion (31 December 2022: $11.4 billion).
At 31 December 2023, the total free surplus expected to be generated on an
undiscounted basis over the next 40 years for long-term business operations is
$80.8 billion, $1.3 billion higher than the $79.5 billion expected at the end
of 2022. The increase is driven by new business offset by the effect of
adverse market and other movements.
Actual underlying free surplus generated in 2023 from long-term business in
force at the end of 2022, before restructuring and IFRS 17 implementation
costs, was $2.5 billion, after allowing for $(0.4) billion of changes in
operating assumptions and experience variances. This compares with the
expected 2023 realisation at the end of 2022 of $2.7 billion and can be
analysed further as follows:
2023 $m
Expected transfer from in-force business to free surplus 2,635
Expected return on existing free surplus 234
Changes in operating assumptions and experience variances (383)
Underlying free surplus generated from long-term business in force before 2,486
restructuring and IFRS 17 implementation costs
2023 free surplus expected to be generated at 31 December 2022 2,658
I(vi) New business schedules
The format of the schedules is consistent with the distinction between
insurance and investment products as applied for previous reporting periods.
Insurance products refer to those classified as contracts of insurance
business for local regulatory reporting purposes. New business premiums
reflect those premiums attaching to covered business, including premiums from
contracts designed as investment contracts under IFRS reporting. Regular
premium products are shown on an annualised basis.
The details shown for insurance products include contributions from contracts
that are classified under IFRS 17, 'Insurance Contracts', as not containing
significant insurance risk. These products are described as investment
contracts or other financial instruments under IFRS 17, primarily represent
unit-linked business and which are included on the balance sheet as investment
contracts and similar contracts written in insurance operations.
Investment products referred to in the tables for funds under management are
unit trusts, mutual funds and similar types of retail fund management
arrangements. These are unrelated to insurance products that are classified as
investment contracts under IFRS 17, as described in the preceding paragraph,
although similar IFRS recognition and measurement principles apply to the
acquisition costs and fees attaching to this type of business.
Annual premium equivalent (APE) and new business profit (NBP) are determined
using the EEV methodology set out in note 6 of our EEV basis results
supplement. In determining the EEV basis value of new business written in the
year when policies incept, premiums are included at projected cash flows on
the same basis of distinguishing regular and single premium business as set
out for local statutory basis reporting. APE sales are subject to rounding.
Schedule A Insurance new business (AER and CER)
AER Single premiums Regular premiums APE PVNBP
2023 2022 +/(-) 2023 2022 +/(-) 2023 2022 +/(-) 2023 2022 +/(-)
$m $m % $m $m % $m $m % $m $m %
CPL (Prudential's 50% share) 487 1,254 (61)% 485 759 (36)% 534 884 (40)% 2,020 3,521 (43)%
Hong Kong 235 842 (72)% 1,942 438 343% 1,966 522 277% 10,444 3,295 217%
Indonesia 230 250 (8)% 254 222 14% 277 247 12% 1,136 1,040 9%
Malaysia 93 99 (6)% 375 350 7% 384 359 7% 1,977 1,879 5%
Singapore 989 2,628 (62)% 688 507 36% 787 770 2% 5,354 6,091 (12)%
Growth markets:
Africa 8 9 (11)% 157 148 6% 158 149 6% 326 308 6%
Cambodia 1 - - 18 18 - 18 18 - 74 69 7%
India (Prudential's 22% share) 270 273 (1)% 206 196 5% 233 223 4% 1,145 1,148 0%
Laos - - - - - - - - - 2 1 100%
Myanmar - - - 6 3 100% 6 3 100% 19 6 217%
Philippines 56 61 (8)% 170 176 (3)% 175 182 (4)% 612 615 0%
Taiwan 132 157 (16)% 882 486 81% 895 503 78% 3,308 1,835 80%
Thailand 143 150 (5)% 232 220 5% 246 235 5% 999 932 7%
Vietnam 19 99 (81)% 195 288 (32)% 197 298 (34)% 1,321 1,666 (21)%
Total insurance operations 2,663 5,822 (54)% 5,610 3,811 47% 5,876 4,393 34% 28,737 22,406 28%
CER Single premiums Regular premiums APE PVNBP
2023 2022 +/(-) 2023 2022 +/(-) 2023 2022 +/(-) 2023 2022 +/(-)
$m $m % $m $m % $m $m % $m $m %
CPL (Prudential's 50% share) 487 1,191 (59)% 485 721 (33)% 534 840 (36)% 2,020 3,346 (40)%
Hong Kong 235 842 (72)% 1,942 439 342% 1,966 523 276% 10,444 3,296 217%
Indonesia 230 244 (6)% 254 216 18% 277 240 15% 1,136 1,014 12%
Malaysia 93 95 (2)% 375 337 11% 384 347 11% 1,977 1,813 9%
Singapore 989 2,698 (63)% 688 521 32% 787 791 (1)% 5,354 6,254 (14)%
Growth markets:
Africa 8 8 - 157 125 26% 158 125 26% 326 256 27%
Cambodia 1 - - 18 18 - 18 18 - 74 69 7%
India (Prudential's 22% share) 270 260 4% 206 186 11% 233 212 10% 1,145 1,092 5%
Laos - - - - - - - - - 2 1 100%
Myanmar - - - 6 3 100% 6 3 100% 19 6 217%
Philippines 56 60 (7)% 170 172 (1)% 175 178 (2)% 612 602 2%
Taiwan 132 151 (13)% 882 465 90% 895 480 86% 3,308 1,756 88%
Thailand 143 151 (5)% 232 222 5% 246 237 4% 999 939 6%
Vietnam 19 98 (81)% 195 283 (31)% 197 293 (33)% 1,321 1,636 (19)%
Total insurance operations 2,663 5,798 (54)% 5,610 3,708 51% 5,876 4,287 37% 28,737 22,080 30%
Schedule B Insurance new business APE and PVNBP (AER and CER)
APE AER CER
2023 $m 2022 $m 2023 $m 2022 $m
H1 H2 H1 H2 H1 H2 H1 H2
CPL (Prudential's 50% share) 394 140 507 377 386 148 464 376
Hong Kong 1,027 939 227 295 1,028 938 227 296
Indonesia 150 127 110 137 149 128 105 135
Malaysia 185 199 172 187 180 204 161 186
Singapore 386 401 390 380 384 403 396 395
Growth markets:
Africa 85 73 76 73 78 80 60 65
Cambodia 9 9 7 11 9 9 7 11
India (Prudential's 22% share) 128 105 120 103 127 106 111 101
Laos - - - - - - - -
Myanmar 3 3 1 2 3 3 1 2
Philippines 94 81 87 95 93 82 82 96
Taiwan 339 556 281 222 333 562 258 222
Thailand 118 128 99 136 116 130 96 141
Vietnam 109 88 136 162 107 90 131 162
Total insurance operations 3,027 2,849 2,213 2,180 2,993 2,883 2,099 2,188
PVNBP AER CER
2023 $m 2022 $m 2023 $m 2022 $m
H1 H2 H1 H2 H1 H2 H1 H2
CPL (Prudential's 50% share) 1,481 539 2,119 1,402 1,449 571 1,939 1,407
Hong Kong 5,364 5,080 1,774 1,521 5,371 5,073 1,773 1,523
Indonesia 629 507 442 598 622 514 419 595
Malaysia 915 1,062 845 1,034 895 1,082 791 1,022
Singapore 2,441 2,913 3,184 2,907 2,428 2,926 3,236 3,018
Growth markets:
Africa 170 156 151 157 155 171 119 137
Cambodia 38 36 30 39 38 36 30 39
India (Prudential's 22% share) 619 526 609 539 616 529 562 530
Laos 1 1 - 1 1 1 - 1
Myanmar 8 11 4 2 8 11 3 3
Philippines 331 281 297 318 329 283 279 323
Taiwan 1,254 2,054 994 841 1,228 2,080 917 839
Thailand 470 529 394 538 462 537 382 557
Vietnam 709 612 885 781 699 622 851 785
Total insurance operations 14,430 14,307 11,728 10,678 14,301 14,436 11,301 10,779
Note
Comparative results for the first half (H1) and second half (H2) of 2022 are
presented on both actual exchange rates (AER) and constant exchange rates
(CER). The H2 amounts are presented on year-to-date average exchange rates
(including the effect of retranslating H1 results for movements in average
exchange rates between H1 and the year-to-date).
Schedule C Insurance new business profit and margin (AER and CER)
AER CER
2023 2022 2023 2022
HY FY HY FY HY FY HY FY
New business profit ($m)
CPL (Prudential's 50% share) 171 222 217 387 167 222 199 368
Hong Kong 670 1,411 211 384 671 1,411 211 384
Indonesia 61 142 52 125 60 142 49 122
Malaysia 73 167 70 159 71 167 65 154
Singapore 198 484 244 499 197 484 248 512
Growth markets and other 316 699 304 630 311 699 284 609
Total insurance business 1,489 3,125 1,098 2,184 1,477 3,125 1,056 2,149
New business margin (NBP as a % of APE)
CPL 43% 42% 43% 44% 43% 42% 43% 44%
Hong Kong 65% 72% 93% 74% 65% 72% 93% 73%
Indonesia 41% 51% 47% 51% 40% 51% 47% 51%
Malaysia 39% 43% 41% 44% 39% 43% 40% 44%
Singapore 51% 61% 63% 65% 51% 61% 63% 65%
Growth markets and other 36% 36% 38% 39% 36% 36% 38% 39%
Total insurance business 49% 53% 50% 50% 49% 53% 50% 50%
New business margin (NBP as a % of PVNBP)
CPL 12% 11% 10% 11% 12% 11% 10% 11%
Hong Kong 12% 14% 12% 12% 12% 14% 12% 12%
Indonesia 10% 13% 12% 12% 10% 13% 12% 12%
Malaysia 8% 8% 8% 8% 8% 8% 8% 8%
Singapore 8% 9% 8% 8% 8% 9% 8% 8%
Growth markets and other 9% 9% 9% 10% 9% 9% 9% 10%
Total insurance business 10% 11% 9% 10% 10% 11% 9% 10%
Schedule D Investment flows and FUM (AER)
2023 $m 2022 $m
Eastspring: H1 H2 H1 H2
Third-party retail: (note (i)(ii))
Opening FUM 42,696 46,551 46,644 42,080
Net flows:
- Gross Inflows 7,237 10,738 7,470 4,809
- Redemptions (5,337) (7,110) (8,117) (4,476)
1,900 3,628 (647) 333
Other movements 1,955 600 (3,917) 283
Closing FUM 46,551 50,779 42,080 42,696
Third-party institutional: (note (ii))
Opening FUM 28,758 30,369 35,063 27,315
Net flows:
- Gross Inflows 3,932 2,914 4,143 4,618
- Redemptions (3,975) (4,344) (5,282) (4,750)
(43) (1,430) (1,139) (132)
Other movements 1,654 2,630 (6,609) 1,575
Closing FUM 30,369 31,569 27,315 28,758
Total third-party closing FUM (excluding MMF and funds held on behalf of 76,920 82,348 69,395 71,454
M&G plc)
Note
(i) Mandatory Provident Fund (MPF) product flows in Hong Kong are included
at Prudential's 36 per cent interest in the Hong Kong MPF business.
(ii) During the year the Group 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, where known, is a retail or institutional investor, as described
in I(ii)(b).
II Calculation of alternative performance measures
Prudential uses alternative performance measures (APMs) to provide more
relevant explanations of the Group's financial position and performance. This
section sets out explanations for each APM and reconciliations to relevant
IFRS balances.
II(i) Reconciliation of adjusted operating profit to profit before tax
Adjusted operating profit presents the operating performance of the business.
This measurement basis distinguishes adjusted operating profit from other
constituents of total profit or loss for the year, including short-term
fluctuations in investment returns and gain or loss on corporate transactions.
More details on how adjusted operating profit is determined are included in
note B1.2 to the IFRS consolidated financial statements. A full reconciliation
to profit after tax is given in note B1.1 to the IFRS consolidated financial
statements.
II(ii) Adjusted shareholders' equity
Following the implementation of IFRS 17, the Group has introduced a new IFRS
equity measure termed 'Adjusted IFRS shareholders' equity', which is
calculated by adding the IFRS 17 expected future profit (CSM) to IFRS
shareholders' equity for all entities in the Group (including joint ventures
and associates). Management believe this is a helpful measure that provides a
reconciliation to the embedded value framework which is often used for
valuations. The main difference between the Group's EEV measure and adjusted
shareholders' equity is economics as explained in note II(viii).
31 Dec 2023 $m 31 Dec 2022 $m
IFRS shareholders' equity as reported in the financial statements 17,823 16,731
Add: CSM, including joint ventures and associates and net of reinsurance* 21,012 19,989
Remove: CSM asset attaching to reinsurance contracts wholly attributable to 1,367 1,295
policyholders*
Less: Related deferred tax adjustments for the above* (2,856) (2,804)
Adjusted shareholders' equity 37,346 35,211
* See note C3.1 to the Group IFRS consolidated financial statements
for the split of the balances excluding joint ventures and associates and the
Group's share relating to joint ventures and associates.
II(iii) Return on IFRS shareholders' equity
This measure is calculated as adjusted operating profit, after tax and
non-controlling interests, divided by average IFRS shareholders' equity.
Detailed reconciliation of adjusted operating profit to IFRS profit before tax
for the Group is shown in note B1.1 to the Group IFRS financial results.
2023 $m 2022 $m
Adjusted operating profit 2,893 2,722
Tax on adjusted operating profit (444) (539)
Adjusted operating profit attributable to non-controlling interests (11) (11)
Adjusted operating profit, net of tax and non-controlling interests 2,438 2,172
IFRS shareholders' equity at beginning of year 16,731 18,936
IFRS shareholders' equity at end of year 17,823 16,731
Average IFRS shareholders' equity 17,277 17,834
Operating return on average IFRS shareholders' equity (%) 14% 12%
II(iv) Calculation of shareholders' equity per share
IFRS shareholders' equity per share is calculated as closing IFRS
shareholders' equity divided by the number of issued shares at the end of the
periods.
31 Dec 2023 31 Dec 2022
Number of issued shares at the end of the year (million shares) 2,754 2,750
Closing IFRS shareholders' equity ($ million) 17,823 16,731
Group IFRS shareholders' equity per share (cents) 647¢ 608¢
Closing adjusted shareholders' equity ($ million) 37,346 35,211
Group adjusted shareholders' equity per share (cents) 1,356¢ 1,280¢
II(v) Calculation of 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.
2023 $m 2022 $m
IFRS revenue 497 513
Share of revenue from joint ventures and associates 330 303
Commissions and other (129) (155)
Performance-related fees 2 (1)
Operating income before performance-related fees (note) 700 660
IFRS charges 376 398
Share of expenses from joint ventures and associates 125 117
Commissions and other (129) (155)
Operating expense 372 360
Cost/income ratio (operating expense/operating income before 53% 55%
performance-related fees)
Note
IFRS revenue and charges for Eastspring are included within the IFRS Income
statement in 'other revenue' and 'non-insurance expenditure' respectively.
Operating income and expense include the Group's share of contribution from
joint ventures and associates. In the condensed consolidated income statement
of the Group IFRS financial results, the net income after tax from the joint
ventures and associates is shown as a single line item.
II(vi) Insurance premiums
New business sales are provided as an indicative volume measure of
transactions undertaken in the reporting period that have the potential to
generate profits for shareholders. The Group reports Annual Premium Equivalent
(APE) new business sales as a measure of the new policies sold in the year,
which is calculated as the aggregate of regular premiums and one-tenth of
single premiums on new business written during the year for all insurance
products, including premiums for contracts designated as investment contracts
and excluded from the scope of IFRS 17. The use of one-tenth of single
premiums is to normalise policy premiums into the equivalent of regular annual
payments. This measure is commonly used in the insurance industry to allow
comparisons of the amount of new business written in a period by life
insurance companies, particularly when the sales contain both single premium
and regular premium business.
Renewal or recurring premiums are the subsequent premiums that are paid on
regular premium products. Gross premiums earned is the measure of premiums as
defined under the previous IFRS 4 basis and reflects the aggregate of single
and regular premiums of new business sold in the year and renewal premiums on
business sold in previous years but excludes premiums for policies classified
as investment contracts without discretionary participation features under
IFRS, which are recorded as deposits. Gross premiums earned is no longer a
metric presented under IFRS 17 and is not directly reconcilable to primary
statements. The Group believes that renewal premiums and gross premiums earned
are useful measures of the Group's business volumes and growth during the
year.
2023 $m 2022 $m
Gross premiums earned 22,248 23,344
Gross premiums earned from joint ventures and associates 3,973 4,439
Total Group, including joint ventures and associates 26,221 27,783
Renewal insurance premiums 18,125 18,675
Annual premium equivalent (APE) 5,876 4,393
Life weighted premium income 24,001 23,068
II(vii) Reconciliation between EEV new business profit and IFRS new business
CSM
2023 $m 2022 $m
EEV new business profit 3,125 2,184
Economics and other (note (1)) (1,006) (424)
New rider sales (note (2)) (94) (66)
Related tax on IFRS new business CSM (note (3)) 323 370
IFRS new business CSM 2,348 2,064
Notes
(1) EEV is calculated using 'real-world' economic assumptions that are based
on the expected returns on the actual assets held with an allowance for risk
in the risk discount rate. Under IFRS 17, 'risk neutral' economic assumptions
are applied with assets assumed to earn and the cash flows discounted at risk
free plus liquidity premium (where applicable). Both measures update these
assumptions each period end based on current interest rates.
(2) Under EEV, new business profit arising from additional or new riders
attaching to existing contracts, product upgrades and top-ups are reported as
current period new business profit. Under IFRS 17 reporting, new business
profit from such rider sales and upgrades are required to be treated as
experience variances of the existing contracts.
(3) IFRS 17 new business CSM is gross of tax, while EEV new business profit
is net of tax. Accordingly, the related tax that on the IFRS 17 new business
CSM is added back. All of the other reconciling items in the table have been
presented net of related taxes.
II(viii) Reconciliation between EEV shareholders' equity and IFRS
Shareholders' equity
The table below shows the reconciliation of EEV shareholders' equity and IFRS
shareholders' equity at the end of the years:
31 Dec 2023 $m 31 Dec 2022 $m
EEV shareholders' equity 45,250 42,184
Adjustments for non-market risk allowance:
Allowance for non-market risks in EEV (note (1)) 2,968 2,760
IFRS risk adjustment, net of related deferred tax adjustments (note (2)) (2,279) (1,803)
Mark-to-market value adjustment of the Group's core structural borrowings (274) (427)
(note (3))
Economics and other valuation differences (note (4)) (8,319) (7,503)
Adjusted shareholders' equity (note II(ii)) 37,346 35,211
Remove: CSM, including joint ventures and associates and net of reinsurance (21,012) (19,989)
CSM asset attaching to reinsurance contracts wholly attributable to (1,367) (1,295)
policyholders
Add: Related deferred tax adjustments for the above 2,856 2,804
IFRS shareholders' equity 17,823 16,731
Notes
(1) The allowance for non-diversifiable non-market risk in EEV comprises a
base Group-wide allowance of 50 basis points plus additional allowances for
emerging market risk where appropriate.
(2) Includes the Group's share of joint ventures and associates and net of
reinsurance.
(3) The Group's core structural borrowings are fair valued under EEV but are
held at amortised cost under IFRS.
(4) EEV is calculated using 'real-world' economic assumptions that are based
on the expected returns on the actual assets held with an allowance for risk
in the risk discount rate. Under IFRS 17, 'risk neutral' economic assumptions
are applied with the cash flows discounted using risk free plus liquidity
premium (where applicable). Other valuation differences include contract
boundaries and non-attributable expenses which are small.
II(ix) Calculation of return on embedded value
Operating return on embedded value is calculated as the EEV operating profit
for the year as a percentage of average EEV basis shareholders' equity.
2023 $m 2022 $m
EEV operating profit for the year 4,546 3,952
Operating profit attributable to non-controlling interests (20) (29)
EEV operating profit, net of non-controlling interests 4,526 3,923
Shareholders' equity at beginning of year 42,184 47,584
Shareholders' equity at end of year 45,250 42,184
Average shareholders' equity 43,717 44,884
Operating return on average shareholders' equity (%) 10% 9%
New business profit over embedded value is calculated as the EEV new business
profit for the year as a percentage of average EEV basis shareholders' equity
for insurance business operations, excluding goodwill attributable to equity
holders. New business profit is attributed to the shareholders of the Group
before deducting the amount attributable to non-controlling interests.
2023 $m 2022 $m
New business profit 3,125 2,184
Average EEV shareholders' equity for insurance business operations, excluding 40,193 41,866
goodwill attributable to equity holders
New business profit on embedded value (%) 8% 5%
Average embedded value has been based on opening and closing EEV basis
shareholders' equity for insurance business operations, excluding goodwill
attributable to equity holders, as follows:
2023 $m 2022 $m
Shareholders' equity at beginning of year 38,857 44,875
Shareholders' equity at end of year 41,528 38,857
Average shareholders' equity 40,193 41,866
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. END FR UKVURSUUOAURRecent news on Prudential
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