REG - Prudential PLC Prudential Fdg(Asia) - Prudential plc – FY23 Results – IFRS
20/03/2024 08:15
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RNS Number : 5744H Prudential PLC 20 March 2024
IFRS disclosures
Prudential plc 2023 results
International Financial Reporting Standards (IFRS) financial results
Consolidated income statement
Note 2023 $m 2022* $m
Insurance revenue B1.4 9,371 8,549
Insurance service expense:
Claims incurred (2,913) (2,563)
Directly attributable expenses incurred (1,258) (1,221)
Amortisation of insurance acquisition cash flows (2,745) (2,453)
Other insurance service expenses (197) (30)
(7,113) (6,267)
Net expense from reinsurance contracts held (171) (105)
Insurance service result 2,087 2,177
Investment return:
Interest revenue calculated using the effective interest method 340 237
Other investment return on financial investments 9,423 (29,617)
B1.4 9,763 (29,380)
Fair value movement on investment contract liabilities (24) 67
Net insurance and reinsurance finance income (expense):
Net finance (expense) income from insurance contracts (8,839) 28,623
Net finance income (expense) from reinsurance contracts held 191 (1,193)
(8,648) 27,430
Net investment result 1,091 (1,883)
Other revenue B1.4 369 436
Non-insurance expenditure B2 (990) (1,019)
Finance costs: interest on core structural borrowings of shareholder-financed (172) (200)
businesses
(Loss) gain attaching to corporate transactions B1.1 (22) 55
Share of loss from joint ventures and associates, net of related tax (91) (85)
Profit (loss) before tax (being tax attributable to shareholders' and 2,272 (519)
policyholders' returns) (note)
Tax charge attributable to policyholders' returns (175) (124)
Profit (loss) before tax attributable to shareholders' returns 2,097 (643)
Total tax charge attributable to shareholders' and policyholders' returns B3.1 (560) (478)
Remove tax charge attributable to policyholders' returns 175 124
Tax charge attributable to shareholders' returns B3.2 (385) (354)
Profit (loss) for the year 1,712 (997)
Attributable to:
Equity holders of the Company 1,701 (1,007)
Non-controlling interests 11 10
Profit (loss) for the year 1,712 (997)
Earnings per share (in cents) Note 2023 2022*
Based on profit (loss) attributable to equity holders of the Company: B4
Basic 62.1¢ (36.8)¢
Diluted 61.9¢ (36.8)¢
* The Group has adopted IFRS 9, 'Financial Instruments' and IFRS 17,
'Insurance Contracts' from 1 January 2023 as described in note A2.1.
Accordingly, the comparative results and the related notes have been
re-presented from those previously published.
Note
This measure is the formal profit before tax measure under IFRS. It is not the
result attributable to shareholders principally because total corporate tax of
the Group includes those taxes on the income of consolidated with-profits and
unit-linked funds that, through adjustments to benefits, are borne by
policyholders. These amounts are required to be included in the tax charge
under IAS 12. Consequently, the IFRS profit before tax measure is not
representative of pre-tax profit attributable to shareholders.
Consolidated statement of comprehensive income
2023 $m 2022* $m
Profit (loss) for the year 1,712 (997)
Other comprehensive income (loss):
Exchange movements arising during the year (135) (613)
Valuation movements on retained interest in Jackson classified as
available-for-sale under IAS 39: (note)
Unrealised (loss) arising during the year (125)
Deduct net gains included in the income statements on disposal (62)
(187)
Total items that may be reclassified subsequently to profit or loss (135) (800)
Valuation movements on retained interest in Jackson classified as fair value 8
through other comprehensive income under IFRS 9 note
Total items that will not be reclassified subsequently to profit or loss 8
Total comprehensive income (loss) for the year 1,585 (1,797)
Attributable to:
Equity holders of the Company 1,585 (1,797)
Non-controlling interests - -
Total comprehensive income (loss) for the year 1,585 (1,797)
* The Group has adopted IFRS 9, 'Financial Instruments' and IFRS 17,
'Insurance Contracts' from 1 January 2023 as described in note A2.1.
Accordingly, the comparative results have been re-presented from those
previously published.
Note
On the adoption of IFRS 9 at 1 January 2023, the Group elected to measure its
retained interest in the equity securities of Jackson at fair value through
other comprehensive income. The Group has subsequently disposed of its
remaining interest in Jackson in 2023. In 2022, these securities were measured
at available-for-sale under IAS 39.
Consolidated statement of changes in equity
Year ended 31 Dec 2023 $m
Note Share Share Retained Translation Fair value Share- Non- Total
capital premium earnings reserve reserve under holders' controlling equity
IFRS 9 equity interests
Reserves
Profit for the year - - 1,701 - - 1,701 11 1,712
Other comprehensive (loss) income - - - (124) 8 (116) (11) (127)
Total comprehensive income (loss) for the year - - 1,701 (124) 8 1,585 - 1,585
Transactions with owners of the Company
Dividends B5 - - (533) - - (533) (7) (540)
Transfer of fair value reserve following disposal of investment in Jackson - - 71 - (71) - - -
Reserve movements in respect of share-based payments - - (5) - - (5) - (5)
Effect of transactions relating to non-controlling interests - - 16 - - 16 - 16
New share capital subscribed C8 1 3 - - - 4 - 4
Movement in own shares in respect of share-based payment plans - - 25 - - 25 - 25
Net increase (decrease) in equity 1 3 1,275 (124) (63) 1,092 (7) 1,085
Balance at 1 Jan 182 5,006 10,653 827 63 16,731 167 16,898
Balance at 31 Dec 183 5,009 11,928 703 - 17,823 160 17,983
Year ended 31 Dec 2022* $m
Note Share Share Retained Translation Available-for-sale Share- Non- Total
capital premium earnings reserve reserve under IAS 39 holders' controlling equity
equity interests
Reserves
Profit (loss) for the year - - (1,007) - - (1,007) 10 (997)
Other comprehensive loss - - - (603) (187) (790) (10) (800)
Total comprehensive loss for the year - - (1,007) (603) (187) (1,797) - (1,797)
Transactions with owners of the Company
Dividends B5 - - (474) - - (474) (8) (482)
Reserve movements in respect of share-based payments - - 24 - - 24 - 24
Effect of transactions relating to non-controlling interests - - 49 - - 49 - 49
New share capital subscribed C8 - (4) - - - (4) - (4)
Movement in own shares in respect of share-based payment plans - - (3) - - (3) - (3)
Net decrease in equity - (4) (1,411) (603) (187) (2,205) (8) (2,213)
Balance at 1 Jan
As previously reported 182 5,010 10,216 1,430 250 17,088 176 17,264
Effect of initial application of IFRS 17 and classification overlay of IFRS 9, - - 1,848 - - 1,848 (1) 1,847
net of tax
As restated after effect of changes 182 5,010 12,064 1,430 250 18,936 175 19,111
Balance at 31 Dec 182 5,006 10,653 827 63 16,731 167 16,898
* The Group has adopted IFRS 9, 'Financial Instruments' and IFRS 17,
'Insurance Contracts' from 1 January 2023 as described in note A2.1.
Accordingly, the comparative results have been re-presented from those
previously published.
Consolidated statement of financial position
31 Dec 2023 $m 31 Dec 2022 $m 1 Jan 2022 $m
Note note (i) note (i)
Assets
Goodwill C4.1 896 890 907
Other intangible assets C4.2 3,986 3,884 4,015
Property, plant and equipment 374 437 495
Insurance contract assets C3.1 1,180 1,134 1,250
Reinsurance contract assets C3.1 2,426 1,856 2,787
Deferred tax assets C7.2 156 140 132
Current tax recoverable C7.1 34 18 20
Investments in joint ventures and associates accounted for using the equity 1,940 2,259 2,698
method
Investment properties C1 39 37 38
Loans C1 578 590 771
Equity securities and holdings in collective investment schemes (note (ii)) C1 64,753 57,679 61,601
Debt securities (note (ii)) C1 83,064 77,016 99,154
Derivative assets C2.2 1,855 569 481
Deposits C1 5,870 6,275 4,741
Accrued investment income 1,003 983 1,017
Other debtors 1,161 968 955
Cash and cash equivalents 4,751 5,514 7,170
Total assets 174,066 160,249 188,232
Equity
Shareholders' equity 17,823 16,731 18,936
Non-controlling interests 160 167 175
Total equity 17,983 16,898 19,111
Liabilities
Insurance contract liabilities C3.1 139,840 126,242 149,798
Reinsurance contract liabilities C3.1 1,151 1,175 1,254
Investment contract liabilities without discretionary participation features C2.2 769 663 722
Core structural borrowings of shareholder-financed businesses C5.1 3,933 4,261 6,127
Operational borrowings C5.2 941 815 861
Obligations under funding, securities lending and sale and repurchase 716 582 223
agreements
Net asset value attributable to unit holders of consolidated investment funds 2,711 4,193 5,664
Deferred tax liabilities C7.2 1,250 1,139 1,167
Current tax liabilities C7.1 275 208 185
Accruals, deferred income and other creditors 4,035 2,866 2,624
Provisions 224 206 234
Derivative liabilities C2.2 238 1,001 262
Total liabilities 156,083 143,351 169,121
Total equity and liabilities 174,066 160,249 188,232
Notes
(i) The Group has adopted IFRS 9 'Financial instruments' and IFRS 17
'Insurance Contracts' from 1 January 2023 as described in note A2.1.
Accordingly, the 31 December 2022 and 1 January 2022 comparative statements of
financial position and related notes have been re-presented from those
previously published.
(ii) Included within equity securities and holdings in collective investment
schemes and debt securities as at 31 December 2023 are $2,001 million of
lent securities and assets subject to repurchase agreements (31 December
2022: $1,571 million).
Consolidated statement of cash flows
Note 2023 $m 2022* $m
Cash flows from operating activities
Profit (loss) before tax (being tax attributable to shareholders' and 2,272 (519)
policyholders' returns)
Adjustments to profit before tax for non-cash movements in operating assets
and liabilities:
Investments (14,539) 22,717
Other non-investment and non-cash assets 23 (35)
Insurance and reinsurance contract assets and liabilities 12,787 (20,440)
Other non-insurance liabilities 42 (665)
Investment income and interest payments included in profit before tax (4,378) (3,912)
Operating cash items:
Interest receipts 2,872 2,589
Interest payments (75) (16)
Dividend receipts 1,650 1,523
Tax paid (406) (449)
Other non-cash items 584 285
Net cash flows from operating activities (note (i)) 832 1,078
Cash flows from investing activities
Purchases of property, plant and equipment (44) (34)
Proceeds from disposal of property, plant and equipment 2 -
Acquisition of business and intangibles (note (ii)) (415) (298)
Cash advanced to CPL (note (i)) (176) -
Disposal of Jackson shares 273 293
Net cash flows from investing activities (360) (39)
Cash flows from financing activities
Structural borrowings of shareholder-financed operations: (note (iii))
Issuance of debt, net of costs - 346
Redemption of debt (393) (2,075)
Interest paid (188) (204)
Payment of principal portion of lease liabilities (93) (101)
Equity capital:
Issues of ordinary share capital C8 4 (4)
External dividends:
Dividends paid to equity holders of the Company B5 (533) (474)
Dividends paid to non-controlling interests (7) (8)
Net cash flows from financing activities (1,210) (2,520)
Net decrease in cash and cash equivalents (738) (1,481)
Cash and cash equivalents at 1 Jan 5,514 7,170
Effect of exchange rate changes on cash and cash equivalents (25) (175)
Cash and cash equivalents at 31 Dec 4,751 5,514
* The Group has adopted IFRS 9, 'Financial Instruments' and IFRS 17,
'Insurance Contracts' from 1 January 2023 as described in note A2.1.
Accordingly, the comparative results have been re-presented from those
previously published.
Notes
(i) Included in net cash flows from operating activities are dividends
from joint ventures and associates of $209 million (2022: $112 million).
Cash advanced to CPL, the Group's joint venture in the Chinese Mainland, of
$176 million was made in anticipation of a future capital injection as
described in note D3.
(ii) Cash flows from acquisition of business and intangibles include amounts
paid for distribution rights. There were no acquisitions of businesses in the
year
(iii) Structural borrowings of
shareholder-financed businesses exclude borrowings to support short-term fixed
income securities programmes, lease liabilities and other borrowings of
shareholder-financed businesses. Cash flows in respect of these borrowings are
included within cash flows from operating activities. The changes in the
carrying value of the structural borrowings of shareholder-financed businesses
for the Group are analysed below:
Balance at 1 Jan $m Cash movements $m Non-cash movements $m Balance at 31 Dec $m
Issuance Redemption Foreign exchange Other
of debt of debt movement movements
2023 4,261 - (393) 58 7 3,933
2022 6,127 346 (2,075) (147) 10 4,261
Notes to the consolidated financial statements
A Basis of preparation
A1 Basis of preparation and exchange rates
Basis of preparation
These consolidated financial statements have been prepared in accordance with
IFRS Standards as issued by the IASB and UK-adopted international accounting
standards. At 31 December 2023, there were no unadopted standards effective
for the year ended 31 December 2023 which had an impact on the consolidated
financial statements of the Group, and there were no differences between
UK-adopted international accounting standards and IFRS Standards as issued by
the IASB in terms of their application to the Group.
The Group has adopted IFRS 17, 'Insurance Contracts' and IFRS 9, 'Financial
Instruments' (including any consequential amendments to other standards) as
issued by the IASB and as adopted for use in the UK from 1 January 2023, as
discussed in note A2.1. The transition date of the Group for IFRS 17 was 1
January 2022. Except for the changes from the adoption of these two standards
and the new and amended IFRS Standards as described in note A2.2, the
accounting policies applied by the Group in determining the IFRS financial
results in these consolidated financial statements are the same as those
previously applied in the Group's consolidated financial statements for the
year ended 31 December 2022 as disclosed in the 2022 annual report.
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the years ended 31 December 2023 but is
derived from those accounts. The auditors have reported on the 2023 statutory
accounts. Statutory accounts for 2022 have been delivered to the Registrar of
Companies, and those for 2023 will be delivered following the Company's Annual
General Meeting. The auditors' report was: (i) unqualified; (ii) did not
include a reference to any matters to which the auditors drew attention by way
of emphasis without qualifying their report; and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
Going concern basis of accounting
The Directors have made an assessment of going concern covering a period to 31
March 2025, being at least 12 months from the date these consolidated
financial statements are approved. In making this assessment, the Directors
have considered both the Group's current performance, solvency and liquidity
and the Group's business plan taking into account the Group's principal risks,
and the mitigations available to address them, as well as the results of the
Group's stress and scenario testing, as described further in the Risk review
section (including the Viability statement).
Based on the above, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue their operations for
a period to 31 March 2025, being at least 12 months from the date these
consolidated financial statements are approved. No material uncertainties
that may cast significant doubt on the ability of the Company and the Group to
continue as a going concern have been identified. The Directors therefore
consider it appropriate to continue to adopt the going concern basis of
accounting in preparing these consolidated financial statements for the year
ended 31 December 2023.
Exchange rates
The exchange rates applied for balances and transactions in currencies other
than the presentation currency of the Group, US dollars (USD) were:
USD : local currency Closing rate at year end Average rate for the year to date
31 Dec 2023 31 Dec 2022 1 Jan 2022 2023 2022
Chinese yuan (CNY) 7.09 6.95 6.37 7.09 6.73
Hong Kong dollar (HKD) 7.81 7.81 7.80 7.83 7.83
Indian rupee (INR) 83.21 82.73 74.34 82.60 78.63
Indonesian rupiah (IDR) 15,397.00 15,567.50 14,252.50 15,230.82 14,852.24
Malaysian ringgit (MYR) 4.60 4.41 4.17 4.56 4.40
Singapore dollar (SGD) 1.32 1.34 1.35 1.34 1.38
Taiwan dollar (TWD) 30.69 30.74 27.67 31.17 29.81
Thai baht (THB) 34.37 34.56 33.19 34.80 35.06
UK pound sterling (GBP) 0.78 0.83 0.74 0.80 0.81
Vietnamese dong (VND) 24,262.00 23,575.00 22,790.00 23,835.92 23,409.87
Foreign exchange translation
Certain notes to the consolidated financial statements present comparative
information at constant exchange rates (CER), in addition to the reporting at
actual exchange rates (AER) used throughout the consolidated financial
statements. AER are actual historical exchange rates for the specific
accounting year, being the average rates over the year for the income
statement and the closing rates at the balance sheet date for the statement of
financial position. CER results are calculated by translating prior year
results using the current year foreign exchange rate, ie current year average
rates for the income statement and current year closing rates for the
statement of financial position.
A2 New accounting pronouncements in 2023
A2.1 Adoption of IFRS 17 and IFRS 9
The Group adopted IFRS 17 'Insurance Contracts' and IFRS 9 'Financial
Instruments', including any consequential amendments to other standards, from
1 January 2023.
IFRS 17, 'Insurance contracts'
IFRS 17 introduces significant changes to the way insurance and reinsurance
contracts are accounted for, albeit the scope of IFRS 17 and IFRS 4 is very
similar. Therefore, nearly all of the Group's insurance and investment
contracts with discretionary participation features (DPF) accounted under IFRS
4 are now accounted under IFRS 17.
IFRS 4 permitted insurers to continue to use the statutory basis of accounting
for insurance assets and liabilities that existed in their jurisdictions prior
to January 2005. IFRS 17 replaces this with a new measurement model that
establishes principles for the recognition, measurement, presentation and
disclosure of insurance contracts, reinsurance contracts and investment
contracts with DPF.
Insurance contracts are aggregated into groups for measurement purposes.
Groups of insurance contracts are determined by identifying portfolios of
insurance contracts, each comprising contracts subject to similar risks and
managed together, and dividing each portfolio into annual cohorts (ie by year
of issue) and each annual cohort into groups based on the profitability of
contracts. Portfolios of reinsurance contracts held are assessed for
aggregation separately from portfolios of insurance contracts issued.
When determining 'similar risks' the Group does not divide risks within a
contract, eg riders sold under a single contract would not be split by risk
type. The Group have therefore identified three broad categories of risks
referred to as 'dominant' risks, namely, protection, investment and to a less
material extent longevity. The requirement 'managed together' is assessed
within the geographical boundary of each local business unit. Each ring-fenced
fund is considered to be managed separately.
Under IFRS 17 groups of contracts are measured on initial recognition as the
total of:
- Fulfilment cash flows, comprising the best estimate of the present value
of future cash flows within the contract boundary that are expected to arise
and an explicit risk adjustment for non-financial risk; and
- A contractual service margin (CSM) that represents the deferral of any
day-one gains arising on initial recognition.
Day-one losses, any subsequent losses on onerous contracts and reversal of
those losses arising from groups of insurance contracts are recognised
directly in the income statement. For groups of reinsurance contracts held,
any net gains or losses at initial recognition are recognised as CSM unless
the net cost of purchasing reinsurance relates to past events, in which case
such net cost is recognised immediately in the income statement.
Under IFRS 17 insurance contracts are measured under the General Measurement
Model (GMM), Variable Fee Approach (VFA) or Premium Allocation Approach (PAA).
The Group predominantly uses the VFA and GMM, depending on the specific
characteristics of the insurance contracts. The Group makes very limited use
of the PAA for some small portfolios of short duration contracts. Reinsurance
contracts held are measured under the GMM.
Approximately 72 per cent of the CSM (including joint ventures and associates
and net of reinsurance) at transition (as described below) was calculated
under the VFA and relates to the Group's with-profits and shareholder-backed
participating products and unit-linked products with a low proportion of
protection riders. The remaining approximately 28 per cent of the CSM at
transition was calculated under the GMM and includes the Group's non-profit
protection products and unit-linked products with a high proportion of
protection riders.
The fulfilment cash flows are updated each reporting date to reflect current
conditions. For contracts with direct participating features which are
accounted for under the VFA, on initial recognition the CSM represents the
variable fee to shareholders and it is adjusted to reflect the effect of
changes in economics as well as experience variances and/or assumptions
changes that relate to future services. For contracts accounted for under GMM,
the CSM is accreted using the discount rates determined at the date of initial
recognition (the 'locked-in discount rates') and only adjusted to reflect the
effect of non-economic experience variances and/or assumptions changes that
relate to future services. The adjustments to the CSM for GMM business are
determined using the locked-in discount rates. Further information on the
subsequent measurement of the CSM is contained within note C3.4.
IFRS 17 is applied retrospectively unless impractical to do so. The effect of
adopting IFRS 17 retrospectively adjusts shareholders' equity as at the date
of transition of 1 January 2022. At the transition date, the opening balance
sheet for IFRS 17 is established, as set out in the section 'Effect of
adoption of IFRS 17 and IFRS 9' below.
With the adoption of IFRS 17, certain line items in the Group's consolidated
statement of financial position have been replaced with new line items. For
example, the Group now presents separately the carrying amount of portfolios
of:
- Insurance contracts issued that are assets;
- Insurance contracts issued that are liabilities;
- Reinsurance contracts held that are assets; and
- Reinsurance contracts held that are liabilities.
Further, the line items in the consolidated income statement have been changed
significantly compared with reporting under IFRS 4. In accordance with the
IFRS 17 requirements, the following line items are no-longer reported: Gross
premiums earned, Outward reinsurance premiums, Benefits and claims,
Reinsurers' share of benefits and claims, Movements in unallocated surplus of
with-profits funds and Acquisition costs. Those are replaced with the
following IFRS 17 line items:
- Insurance revenue;
- Insurance service expenses;
- Net income (expense) from reinsurance contracts held; and
- Net insurance finance income (expenses).
Determination of discount rates
IFRS 17 enables discount rates to be calculated on a top-down or bottom-up
basis. The Group elects to determine discount rates on a bottom-up basis,
starting with a liquid risk-free yield curve and adding an illiquidity premium
to reflect the characteristics of the insurance contracts.
Risk-free rates are based on government bond yields for all currencies except
HKD where risk-free rates are based on swap rates due to the higher liquidity
of the HKD swap market. Government bond yields and swap rates are obtained
from publicly available data sources. Yield curves are constructed by using a
market-observed curve up to a last liquid point and then extrapolating to an
ultimate forward rate.
Where cash flows vary based on the return on underlying items, the projected
earned rate is set equal to the discount rate. Where stochastic modelling
techniques are used, the projected average investment returns are calibrated
to be equal to the deterministic discount rate (including the illiquidity
premium).
The illiquidity premium is calculated as the yield-to-maturity on a reference
portfolio of assets with similar liquidity characteristics to the insurance
contracts, (in particular, corporate bonds) less the risk-free curve, and an
allowance for credit risk.
The allowance for credit risk includes a credit risk premium which is derived
through a lifetime projection of expected bond cash flows, allowing for the
cost of downgrades and defaults, a rebalancing rate of projected downgrades
and a recovery rate in the event of default. The allowance for credit risk
varies by currency ranging between 20bps and 56bps at 31 December 2023 (31
December 2022: between 23bps and 56bps) .
A proportion of the reference portfolio's illiquidity premium (either 0%, 50%
or 100%) is applied to portfolios of insurance contracts reflecting the
liquidity characteristics of the insurance contracts. The liquidity
characteristics are assessed from the policyholders' perspective.
Consideration is given to the nature of premiums, the level of underwriting,
and the surrender and other benefit features of the portfolios. A product's
illiquidity premium is restricted to be no greater than reasonably expected to
be earned on the assets backing the insurance contract liabilities, over the
duration of the insurance contracts.
The following tables set out the range of yield curves used to discount cash
flows of insurance contracts for major currencies. The range reflects the
proportion of illiquidity premium applied by business unit and portfolio.
31 Dec 2023 %
1 year 5 years 10 years 15 years 20 years
Chinese yuan (CNY) 2.07 - 2.33 2.41 - 2.67 2.59 - 2.85 2.70 - 2.96 2.76 - 3.02
Hong Kong dollar (HKD) 4.76 - 5.23 3.75 - 4.22 3.76 - 4.23 3.89 - 4.36 3.95 - 4.42
Indonesian rupiah (IDR) 6.47 - 6.96 6.63 - 7.12 6.73 - 7.22 6.94 - 7.43 7.03 - 7.52
Malaysian ringgit (MYR) 3.31 - 3.56 3.67 - 3.92 3.78 - 4.03 4.09 - 4.34 4.33 - 4.58
Singapore dollar (SGD) 3.62 - 4.37 2.67 - 3.42 2.71 - 3.46 2.77 - 3.52 2.74 - 3.49
United States dollar (USD) 4.81 - 5.64 3.86 - 4.69 3.90 - 4.73 4.01 - 4.84 4.36 - 5.19
31 Dec 2022 %
1 year 5 years 10 years 15 years 20 years
Chinese yuan (CNY) 2.09 - 2.84 2.65 - 3.29 2.88 - 3.52 3.05 - 3.69 3.14 - 3.79
Hong Kong dollar (HKD) 4.85 - 6.14 3.96 - 5.25 3.78 - 5.07 3.82 - 5.11 3.84 - 5.13
Indonesian rupiah (IDR) 5.65 - 6.13 6.72 - 7.20 7.29 - 7.77 7.51 - 7.99 7.77 - 8.25
Malaysian ringgit (MYR) 3.52 - 3.91 3.91 - 4.29 4.13 - 4.52 4.35 - 4.73 4.49 - 4.88
Singapore dollar (SGD) 3.83 - 4.94 2.86 - 3.98 3.11 - 4.22 2.91 - 4.02 2.49 - 3.61
United States dollar (USD) 4.75 - 5.91 4.02 - 5.17 3.89 - 5.05 3.98 - 5.15 4.27 - 5.43
1 Jan 2022 %
1 year 5 years 10 years 15 years 20 years
Chinese yuan (CNY) 2.21 - 2.60 2.63 - 2.99 2.81 - 3.19 3.00 - 3.65 3.12 - 3.71
Hong Kong dollar (HKD) 0.43 - 1.44 1.24 - 2.26 1.47 - 2.48 1.62 - 2.64 1.91 - 2.92
Indonesian rupiah (IDR) 3.43 - 4.81 5.55 - 6.93 7.04 - 8.42 7.43 - 8.81 7.74 - 9.12
Malaysian ringgit (MYR) 2.25 - 2.58 3.19 - 3.52 3.72 - 4.05 4.13 - 4.46 4.34 - 4.67
Singapore dollar (SGD) 0.60 - 1.58 1.38 - 2.35 1.72 - 2.70 1.99 - 2.97 2.14 - 3.12
United States dollar (USD) 0.38 - 1.30 1.27 - 2.20 1.53 - 2.46 1.69 - 2.61 2.01 - 2.93
Approach to transition to IFRS 17
Transition refers to the determination of the opening balance sheet for the
first year of comparative information presented under IFRS 17 (ie at 1 January
2022). The future cash flows and risk adjustment are measured on a current
basis in the same manner as they would be calculated for subsequent
measurement. The key component of transition is therefore the determination of
the CSM.
The standard requires IFRS 17 to be applied retrospectively (the 'Full
Retrospective Approach') unless impracticable. If a fully retrospective
approach is impracticable there is an option to choose either a Modified
Retrospective Approach or a Fair Value Approach. Prudential has adopted the
Modified Retrospective Approach for cohorts of business for which expected
cash flows at the date of initial recognition are not available but where
actual historic cash flows are available. If reasonable and supportable
information necessary to apply the modified retrospective approach is not
available, the fair value approach must be applied.
The CSM of the groups of insurance contracts transitioned under retrospective
approaches (ie full retrospective approach and modified retrospective
approach) has been calculated as if the Group had only prepared annual
financial statements before the transition date (ie transition CSM has been
measured using a year-to-date approach).
Full Retrospective Approach (FRA)
Under the FRA, each group of insurance contracts has been identified,
recognised and measured as if IFRS 17 had always applied. The CSM was
calculated at initial recognition of a group of contracts based on the facts
and circumstances at that time (ie without use of hindsight). This CSM was
then rolled forward to the transition date in line with the requirements of
the standard.
Modified Retrospective Approach (MRA)
The objective of the MRA is to achieve the closest possible outcome to
retrospective application possible using reasonable and supportable
information without undue cost and effort. A number of specific modifications
are permitted under the MRA. The Group has adopted the following
modifications:
- To use information at the transition date to identify insurance contract
groups;
- To use information at the transition date to assess eligibility for the
variable fee approach; and
- To use information at the transition date to identify discretionary cash
flows.
General Measurement Model (GMM)
Under the MRA for GMM business, the cash flows at the date of initial
recognition of a group of insurance contracts have been estimated as the cash
flows at the earliest available date (ie the first year when the FRA is
practicable, referred to as the 'earlier date'), adjusted by the cash flows
that are known to have occurred between these two dates. A number of further
specific modifications are permitted. The Group has adopted the following
modifications:
- To estimate the risk adjustment at the date of initial recognition as
the risk adjustment at the earlier date adjusted by the expected release of
risk before that date based on the risk adjustment release pattern for similar
contracts;
- To estimate CSM amortisation in line with run-off of the coverage units;
and
- If there is a loss component at initial recognition, to estimate the
amount allocated to the loss component before the transition date using a
systematic allocation consistent with the modifications adopted above.
Discount rates at the date of initial recognition were determined using
observable market data at that date.
Variable Fee Approach (VFA)
Under the MRA for VFA business, the CSM at the transition date for a group of
insurance contracts has been determined as:
- The total fair value of the underlying items at that date; minus
- The fulfilment cash flows at that date; plus or minus
- An adjustment for:
- Amounts charged to policyholders before that date;
- Amounts paid before that date not varying with underlying items;
- The change in the risk adjustment caused by the release from risk before
that date; and minus
- An estimate of the amounts that would have been recognised in profit or
loss for services provided before the transition date by comparing the
remaining coverage units at the transition date with the coverage units
provided under the group of contracts before the transition date.
In implementing this approach, the amounts charged to policyholders, the
amounts paid not varying with underlying items and coverage units have been
adjusted for the time value of money.
Fair Value Approach (FVA)
The insurance contracts of the Group under the FVA generally represent groups
of contracts that were written many years ago where suitable historical
information required to apply the retrospective transition approaches is no
longer practicably available.
Under the FVA, the CSM at the transition date is the difference between the
fair value of the insurance contracts, determined in accordance with IFRS 13
Fair Value Measurement, and the fulfilment cash flows at that date.
IFRS 13 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value of groups of insurance
contracts has therefore been interpreted as the compensation that a market
participant would require for taking on the relevant obligation under the
contracts.
The fair value has been determined using a cost of capital approach by
reference to a quantum of capital required to be held in order to fulfil the
contracts and a required return on that capital. Expected cash flows and the
required locked-in capital are projected forward over the duration of the
groups of contracts and discounted at the required rate of return. These
calculations are based on the following key assumptions:
- The expected cash flows reflect the future cost that a market
participant would expect to incur in fulfilling the obligations under the
contracts. The fair value has been based on the same scope of cash flows as
are included in the calculation of the best estimate liability. In particular,
the same contract boundaries are assumed in the calculation of the fair value
and best estimate liability. However, the measurement of those cash flows need
not be the same.
- The required locked-in capital is the level of capital realistically
required for a business to operate in the relevant jurisdiction.
- The required rate of return is compensation the Group would expect a
market participant to require to enter into a transaction to transfer the
liability associated with the insurance contracts at the transition date. This
return has been determined using the Capital Asset Pricing Model, including
allowance for both financial risk and uncertainty in non-financial risk.
A number of specific modifications are permitted under the FVA. The Group has
adopted the following modifications:
- To use information at the transition date to identify groups of
insurance contracts;
- To use information at the transition date to assess eligibility for the
VFA;
- To use information at the transition date to identify discretionary cash
flows;
- To use information at the transition date to assess whether a contract
meets the definition of an investment contract with DPF; and
- To group annual cohorts of business.
The allocation of opening CSM by transition approach is given in note C3.2(b),
alongside a segmental split.
IFRS 9, 'Financial Instruments'
IFRS 9 replaced IAS 39 Financial Instruments: Recognition and Measurement for
annual periods beginning on or after 1 January 2018. The Group met the
eligibility criteria, under the amendments to IFRS 4 to apply the temporary
exemption from IFRS 9, deferring the initial application date of IFRS 9 to
align with the initial application of IFRS 17.
The adoption of IFRS 9 has affected the following three areas:
The classification and the measurement of financial assets and liabilities
IFRS 9 redefines the classification of financial assets. Based on the way in
which the assets are managed in order to generate cash flows and their
contractual cash flow characteristics (whether the cash flows represent
'solely payments of principal and interest'), financial assets are classified
into one of the following categories: amortised cost, fair value through other
comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). An
option is also available at initial recognition to irrevocably designate a
financial asset as at FVTPL if doing so eliminates or significantly reduces
accounting mismatches. The Company has made the election under IFRS 9 to
measure its retained interest in Jackson at FVOCI. Under this designation,
only dividend income from this retained interest is recognised in the profit
or loss of the Company. Unrealised gains and losses are recognised in other
comprehensive income and there is no recycling to the profit or loss on
derecognition. This was the only investment classified at FVOCI at 1 January
2023.
A table explaining the original measurement categories under IAS 39 and the
new measurement categories under IFRS 9 for each class of the Group's
financial assets and financial liabilities as at 1 January 2023 is set out in
the section 'Effect of adoption of IFRS 17 and IFRS 9' below.
The calculation of the impairment charge relevant for financial assets held at
amortised cost or FVOCI
A new impairment model based on an expected credit loss approach replaced the
incurred loss impairment model under IAS 39, resulting in earlier recognition
of credit losses compared with IAS 39. This aspect is the most complex area of
IFRS 9 and involves significant judgements and estimation processes.
As discussed above, the vast majority of the financial investments of the
Group are held at FVTPL to which these requirements do not apply. Accordingly,
no significant amount of additional impairment was recognised by the Group
under the expected credit loss approach as a result of the adoption of IFRS 9.
The hedge accounting requirements which are more closely aligned with the risk
management activities
The Group has not applied hedge accounting treatment under IAS 39 and
therefore, there is no impact in this area for the Group upon the adoption of
IFRS 9.
Effect of adoption of IFRS 17 and IFRS 9
The adoption of IFRS 17 has significant changes to the accounting for
insurance and reinsurance contracts, as discussed above. The Group's approach
to transition to IFRS 17 is set out in the preceding section. The Group has
restated the 2022 comparative amounts and presented a restated consolidated
statement of financial position as at 1 January 2022.
The implementation of IFRS 9 has an insignificant impact on the Group's
financial statements. As permitted by IFRS 9, the Group has not restated the
comparatives on initial application of the standard but the Group is taking
advantage of the classification overlay as permitted by the Amendment to IFRS
17, 'Initial Application of IFRS 17 and IFRS 9 - Comparative Information'
issued in December 2021. In accordance with this amendment, the balance sheet
at 1 January 2022 reflects the change in classification of certain debt
securities to amortised cost from fair value through profit and loss, certain
loans to fair value through profit and loss from amortised cost and the
recognition of IFRS 9 expected credit losses for certain mortgage loans that
continue to be classified as amortised cost. With the exception of these
changes, for which the overall net asset impact is insignificant at less than
$5 million, the consolidated statement of financial position as of 1 January
2022 as restated under IFRS 17 has been presented to reflect the
classification and measurement under IAS 39.
Consolidated statement of financial position at transition date 1 January 2022
The following table shows the Group's consolidated statement of financial
position as at 1 January 2022 restated under the IFRS 17 basis and the
summarised effects of the adoption of the new standard.
At 31 Dec 2021 $m Effects of adoption of IFRS 17 $m At 1 Jan 2022 $m
(as reported under Presentation Measurement (as restated under
IFRS 4) changes changes IFRS 17)
note(i) note (ii)
Assets
Goodwill 907 - - 907
Deferred acquisition costs and other intangible assets:
Deferred acquisition costs 2,815 (39) (2,776) -
Other intangible assets 4,043 - (28) 4,015
6,858 (39) (2,804) 4,015
Insurance contract assets n/a - 1,250 1,250
Reinsurance contract assets 9,753 (22) (6,944) 2,787
Deferred tax assets 266 (134) - 132
Other non-investment and non-cash assets 3,448 (1,022) 61 2,487
Investment properties 38 - - 38
Investments in joint ventures and associates accounted for using the equity 2,183 - 515 2,698
method
Total financial investments:
Policy loans 1,733 (1,733) - -
Other loans 829 - (58) 771
Equity securities and holdings in collective investment schemes 61,601 - - 61,601
Debt securities 99,094 - 60 99,154
Derivative assets 481 - - 481
Deposits 4,741 - - 4,741
168,479 (1,733) 2 166,748
Cash and cash equivalents 7,170 - - 7,170
Total assets 199,102 (2,950) (7,920) 188,232
Equity
Shareholders' equity 17,088 - 1,848 18,936
Non-controlling interests 176 - (1) 175
Total equity 17,264 - 1,847 19,111
Liabilities
Insurance contract liabilities* 156,485 4,243 (10,930) 149,798
Reinsurance contract liabilities n/a - 1,254 1,254
Investment contract liabilities without discretionary participation features 814 - (92) 722
Core structural borrowings of shareholder-financed businesses 6,127 - - 6,127
Operational borrowings 861 - - 861
Deferred tax liabilities 2,862 (1,696) 1 1,167
Other liabilities 14,689 (5,497) - 9,192
Total liabilities 181,838 (2,950) (9,767) 169,121
Total equity and liabilities 199,102 (2,950) (7,920) 188,232
* Included within insurance contract liabilities at 31 December
2021 are investment contracts with DPF and unallocated surplus of with-profits
funds under IFRS 4.
Notes
(i) The presentation changes as shown in the table above principally arise
from the following effects of the adoption of IFRS 17:
- Inclusion of insurance and reinsurance related receivable and payable
balances within IFRS 17 insurance and reinsurance contract assets and
liabilities
Under IFRS 17, the measurement of a group of insurance contracts requires
inclusion of all the future cash flows within the boundary of each contract
and as a result, all insurance and reinsurance related receivable and payable
balances (eg premiums receivable and claims payable) that were previously
separately presented on the balance sheet are now in effect included within
the insurance and reinsurance contract balances under IFRS 17.
- Policy loans
Applying the same IFRS 17 measurement principles described above, policy loans
related cash flows including any accrued interest income (previously included
in 'Accrued investment income') are also included within the fulfilment cash
flows of the associated group of insurance contracts.
- Deferred tax liabilities
In line with IAS 12, deferred tax assets and liabilities have been netted as
appropriate. The deferred tax liabilities arising from expected future
distributions of the Singapore with-profits funds have been reclassified to be
part of the insurance contract liabilities under IFRS 17.
(ii) The measurement changes shown in the table above principally reflect
the following measurement differences arising from the adoption of IFRS 17:
- Deferred acquisition costs (DAC)
Acquisition cash flows are taken into account in determining the day-one CSM
of a group insurance contracts. As such, explicit assets for DAC are not
required and the IFRS 4 balances are removed. DAC relating to investment
contracts without discretionary participation features remains as an asset and
has been reclassified to 'Other debtors' under 'Other non-investment and
non-cash items'.
- Insurance and reinsurance contract assets and liabilities
The adjustments represent insurance and reinsurance contract measurement
differences between IFRS 4 and IFRS 17, which primarily relate to the
following effects:
- the establishment of a CSM under IFRS 17 in accordance with the
transition rules, intended to represent the unamortised amount of expected
future profit deferred upon initial recognition of an insurance contract for
all in-force contracts;
- the establishment of an explicit risk adjustment for non-financial
risk under IFRS 17;
- release of prudence in the IFRS 4 policyholder liabilities to leave
the best estimate liability; and
- the change in treatment of the unallocated surplus of with-profits
funds such that the shareholders' share is recognised in shareholders' equity
after allowing for measurement differences between IFRS 4 and IFRS 17.
- Tax
- Current tax assets and liabilities are calculated for each entity in
the Group based on local tax rules, and the basis of tax varies between
jurisdictions. For insurance entities in the Group, the current tax is
calculated based on either the financial statements prepared under local
generally accepted accounting principles (GAAP), or the regulatory return
prepared under relevant regulatory rules, or on an alternative basis (for
example, Hong Kong, where most life insurance business is taxed by reference
to net premiums). Current tax assets and liabilities at transition date are
not impacted by the adoption of IFRS 17 at Group level as the adoption for the
Group financial statements has no impact on local tax calculations. For
jurisdictions where the basis of tax is the local financial statements,
current tax assets and liabilities will be calculated applying IFRS 17 if and
when the standard is adopted locally, and subject to local tax rules for
transitional adjustments. The impact of any such local adoption on the Group
financial statements will be considered when relevant.
- Deferred tax balances are adjusted to reflect the deferred tax effects
of the measurement adjustments arising from transition to IFRS 17 described
above. The methods of calculating deferred tax are unchanged. Where insurance
and reinsurance contract assets and liabilities give rise to a tax deduction
or taxable income when they are recovered or settled, measurement changes to
these balances, without equal changes in current taxable income, give rise to
corresponding changes to the deferred tax balances at the tax rates expected
to apply when the deferred tax assets or liabilities are realised or settled.
- Investments in joint ventures and associates accounted for using the
equity method
The adjustments represent the Group's share of the impact of the transition of
the balance sheets of the Group's life joint ventures and associate (being
CPL, India and the Takaful business in Malaysia) from IFRS 4 to IFRS 17,
arising principally from the measurement differences as described above.
A2.2 Adoption of other new accounting pronouncements
In addition to IFRS 17 and IFRS 9, the Group has adopted the following
amendments in these consolidated financial statements. The adoption of these
amendments has had no significant impact on the Group financial statements.
- Amendments to IAS 1 and IFRS Practice Statement 2 'Disclosure of
accounting policies' issued in February 2021;
- Amendments to IAS 8 'Definition of Accounting Estimates' issued in
February 2021;
- Amendments to IAS 12 'Deferred tax related to assets and liabilities
arising from a single transaction' issued in May 2021; and
- Amendments to IAS 12 'International Tax Reform - Pillar Two Model Rules'
issued in May 2023. Further details are provided in notes B3.2 and C7.2.
B Earnings performance
B1 Analysis of performance by segment
B1.1 Segment results
2023 $m 2022 $m 2023 vs 2022 %
AER CER AER CER
Note note (i) note (i) note (i) note (i) note (i)
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 (note (ii)) 746 728 715 2% 4%
Eastspring 280 260 255 8% 10%
Total segment profit B1.3 3,517 3,536 3,504 (1)% 0%
Other income and expenditure unallocated to a segment:
Net investment return and other items (note (iii)) (21) (44) (44) 52% 52%
Interest payable on core structural borrowings (172) (200) (200) 14% 14%
Corporate expenditure (note (iv)) (230) (276) (277) 17% 17%
Total other expenditure (423) (520) (521) 19% 19%
Restructuring and IFRS 17 implementation costs (note (v)) (201) (294) (293) 32% 31%
Adjusted operating profit B1.2 2,893 2,722 2,690 6% 8%
Short-term fluctuations in investment returns (774) (3,420) (3,404) 77% 77%
(Loss) gain attaching to corporate transactions (22) 55 55 n/a n/a
Profit (loss) before tax attributable to shareholders 2,097 (643) (659) n/a n/a
Tax charge attributable to shareholders' returns B3.2 (385) (354) (346) (9)% (11)%
Profit (loss) for the year 1,712 (997) (1,005) n/a n/a
Attributable to:
Equity holders of the Company 1,701 (1,007) (1,014) n/a n/a
Non-controlling interests 11 10 9 10% 22%
Profit (loss) for the year 1,712 (997) (1,005) n/a n/a
Basic earnings per share (in cents) 2023 2022 2023 vs 2022 %
AER CER AER CER
Note note (i) note (i) note (i) note (i) note (i)
Based on adjusted operating profit, net of tax and non-controlling interest B4 89.0¢ 79.4¢ 78.5¢ 12% 13%
Based on profit (loss) for the year, net of non-controlling interest B4 62.1¢ (36.8)¢ (37.0)¢ n/a n/a
Notes
(i) Segment results are attributed to the shareholders of the Group before
deducting the amount attributable to the non-controlling interests. This
presentation is applied consistently throughout the document. For definitions
of AER and CER refer to note A1.
(ii) The Growth markets and other segment includes non-insurance entities
that support the Group's insurance business and the result for this segment is
after deducting the corporate taxes arising from the life joint ventures and
associates.
(iii) Net investment return and other items
includes an adjustment to eliminate intercompany profits as described below.
Entities within the Prudential Group can provide services to each other, the
most significant example being the provision of asset management services by
Eastspring to the life entities. If the associated expenses are deemed
attributable to the entity's insurance contracts then the costs are included
within the estimate of future cashflows when measuring the insurance contract
under IFRS 17. In the Group's consolidated accounts, IFRS 17 requires the
removal of the intercompany profit from the measurement of the insurance
contract. Put another way the future cash flows include the cost to the Group
(not the insurance entity) of providing the service. In the period that the
service is provided the entity undertaking the service, for example
Eastspring, recognises the profit it earns as part of its results. To avoid
any double counting an adjustment is included with the centre's 'net
investment return and other item' to remove the benefit already recognised
when valuing the insurance contract.
(iv) Corporate expenditure as shown above is
for head office functions.
(v) Restructuring and IFRS 17 implementation costs include those incurred in
insurance and asset management operations of $(81) million (2022: $(137)
million), largely comprising the costs of Group-wide projects including the
implementation of IFRS 17 (this includes one-off costs associated with
embedding IFRS 17), reorganisation programmes and initial costs of
establishing new business initiatives and operations.
B1.2 Determining operating segments and performance measure of operating
segments
Operating segments
The Group's operating and reported segments for financial reporting purposes
are defined and presented in accordance with IFRS 8 'Operating Segments'.
There have been no changes to the Group's operating segments from those
reported in the Group's consolidated financial statements for the year ended
31 December 2022.
Operations and transactions which do not form part of any business unit are
reported as 'Unallocated to a segment' and generally comprise head office
functions.
Performance measure
The performance measure of operating segments utilised by the Group is IFRS
operating profit based on longer-term investment returns (adjusted operating
profit) as described below. 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. Note B1.1 shows the reconciliation from adjusted
operating profit to total profit (loss) for the year.
A comparison of the Group's 2022 adjusted operating profit under the previous
IFRS 4 basis and the IFRS 17 basis is provided below:
2022 $m
IFRS 4 basis adjusted operating profit as previously published 3,375
Difference (653)
IFRS 17 basis adjusted operating profit 2,722
IFRS 17 adjusted operating profit is circa $650 million lower than under IFRS4
in 2022. This broadly comprises:
- a circa $200 million reduction from the prohibition of day-one profit
recognition from new business under IFRS17;
- a circa $250 million reduction from changes in the subsequent timing of
profit recognition, mainly related to differences on protection products; and
- a circa $200 million reduction due to a one-off uplift in IFRS4 arising as
a result of the adoption of Risk Based Capital in Hong Kong.
Determination of adjusted operating profit
(a) Approach adopted for insurance businesses
The measurement of adjusted operating profit reflects that, for the insurance
business, assets and liabilities are held for the longer term. The Group
believes 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. This concept was previously applied
under IFRS 4, but the changing measurement model under IFRS 17 has impacted
how such short-term fluctuations are determined.
The method of allocating profit between operating and non-operating components
involves applying longer-term rates of return to the Group's assets held by
insurance entities (including joint ventures and associates). These
longer-term rates of return are not applied when assets and liabilities move
broadly in tandem and hence the effect on profit from short-term market
movements is more muted. In summary the Group applies the following approach
when attributing the 'net investment result' between operating and
non-operating profit:
- Returns on investments that meet the definition of an 'underlying item',
namely those investments that determine some of the amounts payable to a
policyholder such as assets within unit linked funds or with-profits funds,
are recorded in adjusted operating profit on an actual return basis. The
exception is for investments backing the shareholders' 10 per cent share of
the estate within the Hong Kong with-profits fund. Changes in the value of
these investments, including those driven by market movements, pass through
the income statement with no liability offset. Consequently adjusted operating
profit recognises investment return on a longer-term basis for these assets.
- For insurance contracts measured under the GMM, the impact of market
movements on both the non-underlying insurance contract balances and the
investments they relate to are considered together. Adjusted operating profit
allows for the long-term credit spread (net of the expected defaults) or
long-term equity risk premium on the debt and equity-type instruments
respectively. Deducted from this amount is the unwind of the illiquidity
premium included in the current discount rate for the liabilities.
- Some GMM BEL components are calculated by reference to the investment
return of assets, even if the BEL component itself is not considered an
underlying item, for example the BEL component related to future fee income or
a guarantee. In these cases for the purposes of determining operating profit,
the BEL component is calculated assuming a longer-term investment return and
any difference between the actual return arising in the period and the
longer-term investment return is taken to non-operating profit. There is no
impact on the balance sheet of this allocation.
- A longer-term rate of return is applied to all other investments held by
the Group's insurance business for the purposes of calculating adjusted
operating profit. More details on how longer-term rates are determined are set
out below.
The difference between the net investment result recorded in the income
statement and the longer-term returns determined using the above principles is
recorded as 'short-term fluctuations in investment returns' as a component of
non-operating profit.
The 'insurance service result' is recognised in adjusted operating profit in
full with the exception of gains or losses that arise from market and other
related movements on onerous contracts measured under the variable fee
approach. If these gains and losses are capable of being offset across more
than one annual cohort of the same product or fund as applicable, then the
adjusted operating profit is determined by amortising the net of the future
profits and losses on all contracts where profits or losses can be shared. Any
difference between this and the insurance service results presented in the
income statement is classified as part of 'short-term fluctuations in
investment returns', a component of non-operating profit.
(b) Determination of longer-term returns
The longer-term rates of return are estimates of the long-term trend
investment returns having regard to past performance, current trends and
future expectations. These rates are broadly stable from year to year but may
be different between regions, reflecting, for example, differing expectations
of inflation in each business unit. The assumptions are for the returns
expected to apply in equilibrium conditions. The assumed rates of return do
not reflect any cyclical variability in economic performance and are not set
by reference to prevailing asset valuations.
For collective investment schemes that include different types of assets (eg
equities and debt securities), weighted assumptions are used reflecting the
asset mix underlying the relevant fund mandates.
Debt securities and loans
For debt securities and loans, the longer-term rates of return are estimates
of the long-term government bond yield, plus the estimated long-term credit
spread over the government bond yield, less an allowance for expected credit
losses. The credit spread and credit loss assumptions reflect the mix of
assets by credit rating. Longer-term rates of return range from 2.8 per cent
to 8.4 per cent for 2023 (2022: 2.8 per cent to 7.8 per cent).
Equity-type securities
For equity-type securities, the longer-term rates of return are estimates of
the long-term trend investment returns for income and capital. Longer-term
rates of return range from 8.6 per cent to 15.7 per cent for 2023 and 2022.
Derivative value movements
In the case where derivatives change the nature of other invested assets (eg
by lengthening the duration of assets, hedging overseas bonds to the currency
of the local liabilities, or by providing synthetic exposure to equities), the
longer-term return on those invested assets reflects the impacts of the
derivatives.
(c) Non-insurance businesses
For these businesses, the determination of adjusted operating profit reflects
the underlying economic substance of the arrangements and excludes market
related items only where it is expected these will unwind over time.
B1.3 Analysis of adjusted operating profit by driver
Management assesses adjusted operating profit by breaking it down into the key
components that drive performance each period. This analysis changes from the
previous IFRS 4 driver breakdown as the new IFRS 17 measurement model leads to
different drivers being relevant. The new basis is not directly reconcilable
to the old basis.
The table below analyses the Group's adjusted operating profit into the
underlying drivers using the following categories:
- Adjusted release of CSM, which is net of reinsurance, represents the
release from the CSM for the insurance services provided in the period
adjusted for the reduction in CSM release that would occur if gains on
profitable contracts were combined with losses on onerous contracts for those
contracts where gains and losses can be shared across cohorts as described in
note B1.2.
- Release of risk adjustment, which is net of reinsurance, represents the
amount of risk adjustment recognised in the income statement representing
non-financial risk that expired in the period net of the amount that was
assumed to be covered by under any reinsurance contracts in place. The only
difference between the amount shown in the table below and the amount included
within Insurance service result on the consolidated income statement is the
amount relating to the Group's life joint ventures and associates that use the
equity method of accounting.
- Experience variances represent the difference between the actual amounts
incurred or received in the period and that assumed within the best estimate
liability for insurance and reinsurance contracts. It covers items such as
claims, attributable expenses and premiums to the extent that they relate to
current or past service.
- Other insurance service result primarily relates to movements on onerous
contracts that impact adjusted operating profit (ie excluding those discussed
in B1.2).
- Net investment result on longer-term basis comprises the component of
the 'net investment result' that has been attributed to adjusted operating
profit by applying the approach as described in note B1.2.
- Other insurance income and expenditure represent other sources of income
and expenses that are not considered to be attributable to insurance contracts
under IFRS 17.
- Share of related tax charges from joint ventures and associates
represents the related tax on the adjusted operating profit of the Group's
life joint ventures and associates accounted for using the equity method.
Under IFRS, the Group's share of results from its investments in joint
ventures and associates accounted for using the equity method is included as a
single line in the Group's profit before tax on a net of related tax basis. In
the table below, the results of the life joint ventures and associates are
analysed by adjusted operating profit drivers and on a pre-tax basis, with
related tax shown separately in order for the contribution from the life joint
ventures and associates to be included in the profit driver analysis on a
consistent basis with the rest of the insurance business operations.
2023 $m 2022 $m 2023 vs 2022 %
AER CER AER CER
Adjusted release of CSM (note (i)) 2,205 2,265 2,242 (3)% (2)%
Release of risk adjustment 218 179 178 22% 22%
Experience variances (118) (66) (62) (79)% (90)%
Other insurance service result (109) (204) (195) 47% 44%
Adjusted insurance service result (note (i)) 2,196 2,174 2,163 1% 2%
Net investment result on longer-term basis (note (ii)) 1,241 1,290 1,271 (4)% (2)%
Other insurance income and expenditure (122) (98) (100) (24)% (22)%
Share of related tax charges from joint ventures and associates (78) (90) (85) 13% 8%
Insurance business 3,237 3,276 3,249 (1)% 0%
Eastspring 280 260 255 8% 10%
Other income and expenditure (423) (520) (521) 19% 19%
Restructuring and IFRS 17 implementation costs (201) (294) (293) 32% 31%
Adjusted operating profit, as reconciled to profit (loss) for the year in note 2,893 2,722 2,690 6% 8%
B1.1
Notes
(i) The adjusted release of CSM and the adjusted insurance service result
are reconciled to the information in the consolidated income statement as
follows:
2023 $m 2022 $m
Release of CSM, net of reinsurance as included within Insurance service result 1,990 2,013
on the consolidated income statement
Add amounts relating to the Group's life joint ventures and associates that 218 229
are accounted for on equity-method
Release of CSM, net of reinsurance as shown in note C3.2
Insurance 2,414 2,413
Reinsurance (206) (171)
2,208 2,242
Adjustment to release of CSM for the treatment adopted for adjusted operating (3) 23
profit purposes of combining losses on onerous contracts and gains on
profitable contracts that can be shared across more than one annual cohort
Adjusted release of CSM as shown above 2,205 2,265
2023 $m 2022 $m
Insurance service result as shown in the consolidated income statement 2,087 2,177
Add amounts relating to the Group's life joint ventures and associates that 148 112
are accounted for on equity-method
Insurance service result as shown in note C3.2
Insurance 2,424 2,396
Reinsurance (189) (107)
2,235 2,289
Removal of losses or gains from reversal of losses on those onerous contracts 68 (33)
that meet the criteria in note B1.2 less the change to the release of CSM
shown above
Other primarily related to policyholder tax* (107) (82)
Adjusted insurance service result as shown above 2,196 2,174
* Other primarily relates to the revenue recognised to cover the tax
charge attributable to policyholders that is included in the insurance service
result in the income statement. This revenue is fully offset by the actual tax
charge attributable to policyholders that is included, as required by IAS 12,
in the tax line in the income statement resulting in no net impact to profit
after tax and so have been offset in the analysis of adjusted operating
profit.
(ii) In addition, net investment result on longer-term basis is reconciled
to the net investment result in the consolidated income statement as follows:
2023 $m 2022 $m
Net investment result as shown in the consolidated income statement 1,091 (1,883)
Remove investment return of non-insurance entities (142) (53)
Remove short-term fluctuations in investment return included in non-operating 774 3,420
profit*
Other items* (482) (194)
Net investment result on longer-term basis as shown above 1,241 1,290
* These reconciling line items include the impact from the Group's
life joint ventures and associates.
B1.4 Revenue
2023 $m
Insurance operations (note (i))
Hong Kong Indonesia Malaysia Singapore Growth Eastspring Inter-segment elimination Total segment Unallocated to a segment Total
markets
and other
Amounts relating to changes in the liability for remaining coverage:
Expected claims and other directly attributable expenses 1,089 582 642 970 670 - - 3,953 - 3,953
Change in risk adjustment for non-financial risk 73 35 24 55 41 - - 228 - 228
Release of CSM for services provided 787 187 203 478 538 - - 2,193 - 2,193
Other adjustments (note (ii)) 73 32 31 45 71 - - 252 - 252
Recovery of insurance acquisition cash flows 1,207 306 234 435 563 - - 2,745 - 2,745
Insurance revenue 3,229 1,142 1,134 1,983 1,883 - - 9,371 - 9,371
Other revenue (note (iii)) 22 4 4 - 39 299 - 368 1 369
Total revenue from external customers 3,251 1,146 1,138 1,983 1,922 299 - 9,739 1 9,740
Intra-group revenue - - - - - 184 (184) - - -
Interest income 1,033 92 239 785 627 7 - 2,783 164 2,947
Dividend and other investment income 775 93 151 528 117 3 - 1,667 7 1,674
Investment appreciation (depreciation) 2,155 50 177 1,490 1,309 4 - 5,185 (43) 5,142
Investment return 3,963 235 567 2,803 2,053 198 (184) 9,635 128 9,763
Total revenue 7,214 1,381 1,705 4,786 3,975 497 (184) 19,374 129 19,503
2022 $m
Insurance operations (note (i))
Hong Kong Indonesia Malaysia Singapore Growth Eastspring Inter-segment elimination Total segment Unallocated to a segment Total
markets
and other
Amounts relating to changes in the liability for remaining coverage:
Expected claims and other directly attributable expenses 969 438 563 935 736 - - 3,641 - 3,641
Change in risk adjustment for non-financial risk 53 33 20 33 30 - - 169 - 169
Release of CSM for services provided 737 274 215 442 513 - - 2,181 - 2,181
Other adjustments (note (ii)) 30 16 - 27 32 - - 105 - 105
Recovery of insurance acquisition cash flows 1,051 309 231 378 484 - - 2,453 - 2,453
Insurance revenue 2,840 1,070 1,029 1,815 1,795 - - 8,549 - 8,549
Other revenue (note (iii)) 65 6 - 1 33 330 - 435 1 436
Total revenue from external customers 2,905 1,076 1,029 1,816 1,828 330 - 8,984 1 8,985
Intra-group revenue - - - - 1 199 (200) - - -
Interest income 927 83 208 724 601 4 - 2,547 50 2,597
Dividend and other investment income 689 77 183 576 107 1 - 1,633 25 1,658
Investment depreciation (23,615) (69) (386) (6,679) (2,860) (21) - (33,630) (5) (33,635)
Investment return (21,999) 91 5 (5,379) (2,151) 183 (200) (29,450) 70 (29,380)
Total revenue (19,094) 1,167 1,034 (3,563) (323) 513 (200) (20,466) 71 (20,395)
Notes
(i) The Group's share of the results from the joint ventures and
associates including CPL that are equity accounted for is presented in a
single line within the Group's profit before tax on a net of related tax
basis, and therefore not shown in the analysis of revenue line items above.
(ii) Other adjustments comprise experience adjustment for premium receipts
relating to past and current services provided under insurance contracts and
insurance revenue earned from contracts measured under the PAA.
(iii) Other revenue comprises revenue from
external customers and consists primarily of revenue from the Group's asset
management business of $299 million (2022: $330 million).
B1.5 Additional segmental analysis of profit after tax
2023 $m 2022 $m
CPL (note) (577) (345)
Hong Kong 976 (742)
Indonesia 156 108
Malaysia 257 178
Singapore 512 (7)
Growth markets and other (note) 775 314
Eastspring 254 234
Total segment 2,353 (260)
Unallocated to a segment (central operations) (641) (737)
Total profit (loss) after tax 1,712 (997)
Note
The Growth markets and other segment comprises all other Asia and Africa
insurance businesses alongside other amounts that are not included in the
segment profit of an individual business unit, including tax on life joint
ventures and associates that are accounted for on an equity-method basis.
Accordingly, on the segmental analysis of the profit after tax basis above,
the amount shown for CPL is before tax (with its tax being included in the
Growth markets and other segment). The Group's share of CPL's post-tax result
was $(366) million (2022: $(275) million).
B2 Tax charge
B2.1 Total tax charge by nature
The total tax charge in the income statement is as follows:
2023 $m 2022 $m
Hong Kong (129) (106)
Indonesia (43) (27)
Malaysia (98) (44)
Singapore (174) (61)
Growth markets and other (103) (210)
Eastspring (26) (26)
Total segment (note) (573) (474)
Unallocated to a segment (central operations) 13 (4)
Total tax charge (note) (560) (478)
Note
Profit before tax includes Prudential's share of profit after tax from the
joint ventures and associates that are equity-accounted for. Therefore, the
actual tax charge in the income statement does not include tax arising from
the results of joint ventures and associates including CPL.
B2.2 Reconciliation of effective tax rate
In the reconciliation below, the expected tax rate reflects the corporation
tax rates that are expected to apply to the taxable profit or loss for the
year. It reflects the corporation tax rates of each jurisdiction weighted by
reference to the amount of profit or loss contributing to the aggregate
result. The reconciliation of the expected to actual tax charge/credit and
the percentage impact of reconciliation items on shareholder effective tax
rate are provided below.
2023 2022
$m % $m %
Profit (loss) before tax (being tax attributable to shareholders' and 2,272 (519)
policyholders' returns)
Tax charge attributable to policyholders' returns (note (i)) (175) (124)
Profit (loss) before tax attributable to shareholders' returns 2,097 (643)
Tax (charge) credit at the expected rate (399) 19 % 85 13 %
Effects of recurring tax reconciliation items:
Income not taxable or taxable at concessionary rates (note (ii)) 80 (4)% 61 9%
Deductions and losses not allowable for tax purposes (note (iii)) (136) 6% (196) (30)%
Items related to taxation of life insurance businesses (note (iv)) 137 (7)% (129) (20)%
Deferred tax adjustments including unrecognised tax losses 13 (1)% (45) (7)%
Effect of results of joint ventures and associates (note (v)) (38) 2% (32) (5)%
Irrecoverable withholding taxes (note (vi)) (63) 3% (55) (9)%
Other (2) 1% (15) (2)%
Total charge on recurring items (9) 0% (411) (64)%
Effects of non-recurring tax reconciliation items:
Adjustments to tax charge in relation to prior years (note (vii)) 42 (2)% 1 0%
Movements in provisions for open tax matters (note (viii)) (15) 1% (40) (6)%
Adjustments in relation to business disposals and corporate transactions (4) 0% 11 2%
Total credit (charge) on non-recurring items 23 (1)% (28) (4)%
Tax charge attributable to shareholders' returns (385) (354)
Tax charge attributable to policyholders' returns (note (i)) (175) (124)
Tax charge attributable to shareholders' and policyholders' returns (560) (478)
Profit before tax attributable to shareholders' returns analysed into:
Adjusted operating profit 2,893 2,722
Non-operating result (note (ix)) (796) (3,365)
Profit (loss) before tax attributable to shareholders' returns 2,097 (643)
Tax charge attributable to shareholders' returns analysed into:
Tax charge on adjusted operating profit (444) (539)
Tax credit on non-operating result (note (ix)) 59 185
Tax charge attributable to shareholders' returns (385) (354)
Actual tax rate on:
Adjusted operating profit:
Including non-recurring tax reconciling items (note (x)) 15% 20%
Excluding non-recurring tax reconciling items 16% 18%
Profit before tax attributable to shareholders' returns (note (x)) 18% (55)%
Notes
(i) The tax charge attributable to policyholders of $(175)
million (2022: $(124) million) is equal to the profit before tax attributable
to policyholders as a result of accounting for policyholder income after the
deduction of expenses on a post-tax basis.
(ii) Income not taxable or taxable at concessionary rates primarily
relates to non-taxable investment income in Growth markets and Singapore.
(iii) Deductions and losses not allowable for tax purposes primarily
relates to non-deductible head office costs in Other operations.
(iv) Items related to taxation of life insurance businesses primarily
relates to Hong Kong where the taxable profit is computed as 5 per cent of net
insurance premiums.
(v) Profit before tax includes Prudential's share of profit after
tax from the joint ventures and associates. Therefore, the actual tax charge
does not include tax arising from profit or loss of joint ventures and
associates and is reflected as a reconciling item.
(vi) The Group incurs withholding tax on remittances received from
certain jurisdictions and on certain investment income. Where these
withholding taxes cannot be offset against corporate income tax or otherwise
recovered, they represent a cost to the Group. Irrecoverable withholding tax
on remittances is included in Other operations and is not allocated to any
segment. Irrecoverable withholding tax on investment income is included in the
relevant segment where the investment income is reflected.
(vii) Adjustments to tax charge in relation to prior years primarily
relates to 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.
(viii) The statement of financial position contains the following provisions
in relation to open tax matters.
2023 $m
Balance at 1 Jan (79)
Movements in the current year included in tax charge attributable to (15)
shareholders
Other movements (including interest arising on open tax matters and amounts 1
included in the Group's share of profits from joint ventures and associates,
net of related tax)
Balance at 31 Dec (93)
(ix) 'Non-operating result' is used to refer to items excluded from adjusted
operating profit and includes short-term investment fluctuations in investment
returns and corporate transactions. The tax charge on non-operating result is
calculated using the tax rates applicable to investment profit or loss
recorded in the non-operating result for each entity, and then adjusting for
any discrete items included in the total tax charge that relate specifically
to the amounts (other than investment related profit or loss) included in the
non-operating result. The difference between this tax on non-operating result
and the tax charge calculated on profit before tax is the tax charge on
adjusted operating profit.
(x) The actual tax rates of the relevant business operations are shown
below:
2023 %
Hong Kong Indonesia Malaysia Singapore Growth Eastspring Other Total
markets operations attributable to
and other shareholders
Tax rate on adjusted operating profit 7% 22% 22% 16% 20% 9% 2% 15%
Tax rate on profit before tax 7% 22% 20% 16% 11% 9% 2% 18%
2022 %
Hong Kong Indonesia Malaysia Singapore Growth Eastspring Other Total
markets operations attributable to
and other shareholders
Tax rate on adjusted operating profit 4% 19% 26% 16% 33% 10% 0% 20%
Tax rate on profit before tax (7)% 16% 25% 63% 40% 10% (1)% (55)%
Actual tax rates on adjusted operating profit for each segment for 2022
prepared applying IFRS 17 as shown in the table above are generally consistent
with the tax rates previously published for 2022 results prepared applying
IFRS 4. The tax rates on adjusted operating profit for Growth markets and
other and the Group total as shown in the table above differ from the
equivalent tax rates previously published under IFRS 4 for 2022 due primarily
to differences in the proportions of adjusted operating profit contributed by
entities with different tax rates. Actual tax rates on profit before tax for
2022 prepared under IFRS 17 differ from the equivalent tax rates previously
published under IFRS 4 for 2022 primarily due to non-taxable and
non-deductible amounts, such as investment gains or losses, making up a
different proportion of total profit before tax for each segment and the Group
total under each standard.
B3 Earnings per share
2023
Before Tax Non-controlling interests Net of tax Basic Diluted
tax and non- earnings earnings
controlling per share per share
interests
$m $m $m $m cents cents
Based on adjusted operating profit 2,893 (444) (11) 2,438 89.0¢ 88.7¢
Short-term fluctuations in investment returns (774) 59 - (715) (26.1)¢ (26.0)¢
Loss attaching to corporate transactions (22) - - (22) (0.8)¢ (0.8)¢
Based on profit for the year 2,097 (385) (11) 1,701 62.1¢ 61.9¢
For 2023, the weighted average number of shares for calculating basic earnings
per share, which excludes those held in employee share trusts, is 2,741
million. After including a dilutive effect of the Group's share options and
awards (see note B2.2) of 6 million, the weighted average number of shares for
calculating diluted earnings per share is, 2,747 million.
2022
Before Tax Non-controlling interests Net of tax Basic Diluted
tax and non- earnings earnings
controlling per share per share
interests
$m $m $m $m cents cents
Based on adjusted operating profit 2,722 (539) (11) 2,172 79.4¢ 79.4¢
Short-term fluctuations in investment returns (3,420) 185 1 (3,234) (118.2)¢ (118.2)¢
Gain attaching to corporate transactions 55 - - 55 2.0¢ 2.0¢
Based on loss for the year (643) (354) (10) (1,007) (36.8)¢ (36.8)¢
For 2022, the weighted average number of shares for calculating basic and
diluted earnings per share, which excludes those held in employee share
trusts, was 2,736 million. As the Group made a loss for the year in 2022, the
potential ordinary shares from the Group's share options and awards (see note
B2.2) would be anti-dilutive and therefore not included in the diluted
earnings per share calculation as it is not permissible for the diluted
earnings per share to be greater than the basic earnings per share.
B4 Dividends
2023 2022
Cents per share $m Cents per share $m
Dividends relating to reporting year:
First interim dividend 6.26¢ 172 5.74¢ 154
Second interim dividend 14.21¢ 392 13.04¢ 359
Total relating to reporting year 20.47¢ 564 18.78¢ 513
Dividends paid in reporting year:
Current year first interim dividend 6.26¢ 172 5.74¢ 154
Second interim dividend for prior year 13.04¢ 361 11.86¢ 320
Total paid in reporting year 19.30¢ 533 17.60¢ 474
First and second interim dividends are recorded in the period in which they
are paid.
Dividend per share
The 2023 first interim dividend of 6.26 cents per ordinary share was paid to
eligible shareholders on 19 October 2023.
On 16 May 2024, Prudential will pay a second interim dividend of 14.21 cents
per ordinary share for the year ended 31 December 2023. The second interim
dividend will be paid to shareholders recorded on the UK register at 6.00pm
(British Summer Time) and to shareholders on the HK branch register at 4.30pm
(Hong Kong Time) on 2 April 2024 (Record Date), and also to the Holders of US
American Depositary Receipts (ADRs) as at 2 April 2024. The second interim
dividend will be paid on or about 23 May 2024 to shareholders with shares
standing to the credit of their securities accounts with The Central
Depository (Pte) Limited (CDP) at 5.00pm (Singapore Time) on the Record Date.
Shareholders holding shares on the UK or HK share registers will continue to
receive their dividend payments in either GBP or HKD respectively, unless they
elect to receive dividend payments in USD. Elections must be made through the
relevant UK or HK share registrar on or before 24 April 2024. The
corresponding amounts per share in GBP and HKD are expected to be announced on
or about 2 May 2024. The USD to GBP and HKD conversion rates will be
determined by the actual rates achieved by Prudential buying those currencies
prior to the subsequent announcement.
Holders of ADRs will continue to receive their dividend payments in USD.
Shareholders holding an interest in Prudential shares through CDP in Singapore
will continue to receive their dividend payments in SGD at an exchange rate
determined by CDP.
Shareholders on the UK register are eligible to participate in a Dividend
Reinvestment Plan.
C Financial position
C1 Group assets and liabilities
C1.1 Group investments by business type
The analysis below is structured to show the investments of the Group's
subsidiaries by reference to the differing degrees of policyholder and
shareholder economic interest of the different types of business.
Debt securities are analysed below according to the issuing government for
sovereign debt and to credit ratings for the rest of the securities. The Group
uses the middle of the Standard & Poor's, Moody's and Fitch ratings, where
available. Where ratings are not available from these rating agencies, local
external rating agencies' ratings and lastly internal ratings have been used.
Securities with none of the ratings listed above are classified as unrated and
included under the 'below BBB- and unrated' category. The total securities
(excluding sovereign debt) that were unrated at 31 December 2023 were
$1,181 million (31 December 2022: $1,152 million). Additionally, government
debt is shown separately from the rating breakdowns in order to provide a more
focused view of the credit portfolio.
In the table below, AAA is the highest possible rating. Investment grade
financial assets are classified within the range of AAA to BBB- ratings.
Financial assets which fall outside this range are classified as below BBB-.
The following table classifies assets into those that primarily back the
Group's participating funds that are measured under the variable fee approach,
those backing unit-linked funds, other investments held within the insurance
entities, Eastspring's investments and those that are unallocated to a segment
(principally centrally held investments).
In terms of the investments held by the insurance businesses, those within
funds with policyholder participation and those within unit-linked funds
represent underlying items. The gains or losses on these investments will be
offset by movements in policyholder liabilities and therefore adjusted
operating profit reflects the actual investment return on these assets. The
exception is for investments backing the shareholders' 10 per cent share of
the estate within the Hong Kong with-profits fund. Changes in the value of
these investments, including those driven by market movements, pass through
the income statement with no liability offset. Consequently adjusted operating
profit recognises investment return on a longer-term basis for these assets.
In terms of other assets held within the insurance entities, these largely
comprise assets backing IFRS shareholders' equity or are non-underlying items
backing GMM liabilities and therefore the returns on these other investments
are recognised in adjusted operating profit at a longer-term rate.
31 Dec 2023 $m
Asia and Africa Unallocated Group
to a segment total
Insurance
Funds with policyholder participation Unit-linked funds Other Eastspring Total
note (i)
Debt securities
Sovereign debt
Indonesia 393 611 525 - 1,529 - 1,529
Singapore 3,006 607 929 - 4,542 - 4,542
Thailand 2 4 1,957 - 1,963 - 1,963
United Kingdom - 5 87 - 92 - 92
United States 23,552 84 2,351 - 25,987 - 25,987
Vietnam 3,143 30 173 - 3,346 - 3,346
Other (predominantly Asia) 4,375 664 1,732 28 6,799 - 6,799
Subtotal 34,471 2,005 7,754 28 44,258 - 44,258
Other government bonds
AAA 1,533 94 119 - 1,746 - 1,746
AA+ to AA- 120 17 29 - 166 - 166
A+ to A- 689 95 239 - 1,023 - 1,023
BBB+ to BBB- 271 57 56 - 384 - 384
Below BBB- and unrated 502 11 63 2 578 - 578
Subtotal 3,115 274 506 2 3,897 - 3,897
Corporate bonds
AAA 1,214 147 243 - 1,604 - 1,604
AA+ to AA- 2,716 440 934 - 4,090 - 4,090
A+ to A- 10,918 460 2,179 - 13,557 1 13,558
BBB+ to BBB- 9,466 714 2,055 - 12,235 1 12,236
Below BBB- and unrated 2,280 500 356 - 3,136 - 3,136
Subtotal 26,594 2,261 5,767 - 34,622 2 34,624
Asset-backed securities
AAA 174 2 54 - 230 - 230
AA+ to AA- 6 - 2 - 8 - 8
A+ to A- 30 - 7 - 37 - 37
BBB+ to BBB- 7 - 2 - 9 - 9
Below BBB- and unrated - 1 - - 1 - 1
Subtotal 217 3 65 - 285 - 285
Total debt securities (notes (ii)(iv)) 64,397 4,543 14,092 30 83,062 2 83,064
Loans
Mortgage loans 65 - 83 - 148 - 148
Other loans 430 - - - 430 - 430
Total loans 495 - 83 - 578 - 578
Equity securities and holdings in collective investment schemes
Direct equities 18,711 12,075 182 128 31,096 - 31,096
Collective investment schemes 24,529 7,546 1,580 2 33,657 - 33,657
Total equity securities and holdings in collective investment schemes 43,240 19,621 1,762 130 64,753 - 64,753
Other financial investments (note (iii)) 2,893 396 1,707 101 5,097 2,628 7,725
Total financial investments 111,025 24,560 17,644 261 153,490 2,630 156,120
Investment properties - - 39 - 39 - 39
Cash and cash equivalents 1,054 647 1,287 173 3,161 1,590 4,751
Total investments 112,079 25,207 18,970 434 156,690 4,220 160,910
31 Dec 2022 $m
Asia and Africa Unallocated
to a segment
Insurance
Funds with policyholder participation Unit-linked funds Other Eastspring Total Group
total
note (i)
Debt securities
Sovereign debt
Indonesia 565 589 400 3 1,557 - 1,557
Singapore 3,240 507 917 67 4,731 - 4,731
Thailand - - 1,456 - 1,456 - 1,456
United Kingdom - 4 - - 4 - 4
United States 21,580 54 257 - 21,891 - 21,891
Vietnam 2,263 12 135 - 2,410 - 2,410
Other (predominantly Asia) 3,663 646 1,666 27 6,002 - 6,002
Subtotal 31,311 1,812 4,831 97 38,051 - 38,051
Other government bonds
AAA 1,480 85 108 - 1,673 - 1,673
AA+ to AA- 112 21 20 - 153 - 153
A+ to A- 765 139 233 - 1,137 - 1,137
BBB+ to BBB- 327 77 99 - 503 - 503
Below BBB- and unrated 483 22 67 - 572 - 572
Subtotal 3,167 344 527 - 4,038 - 4,038
Corporate bonds
AAA 1,094 181 268 - 1,543 - 1,543
AA+ to AA- 2,356 385 1,151 - 3,892 - 3,892
A+ to A- 9,233 524 2,345 - 12,102 - 12,102
BBB+ to BBB- 9,515 1,325 2,344 1 13,185 - 13,185
Below BBB- and unrated 2,918 444 454 - 3,816 - 3,816
Subtotal 25,116 2,859 6,562 1 34,538 - 34,538
Asset-backed securities
AAA 228 5 85 - 318 - 318
AA+ to AA- 7 1 2 - 10 - 10
A+ to A- 25 - 9 - 34 - 34
BBB+ to BBB- 17 - 6 - 23 - 23
Below BBB- and unrated 2 1 1 - 4 - 4
Subtotal 279 7 103 - 389 - 389
Total debt securities (note (ii)) 59,873 5,022 12,023 98 77,016 - 77,016
Loans
Mortgage loans 92 - 48 - 140 - 140
Other loans 450 - - - 450 - 450
Total loans 542 - 48 - 590 - 590
Equity securities and holdings in collective investment schemes
Direct equities 15,000 11,379 202 61 26,642 266 26,908
Collective investment schemes 22,015 6,760 1,992 2 30,769 2 30,771
Total equity securities and holdings in collective investment schemes 37,015 18,139 2,194 63 57,411 268 57,679
Other financial investments (note (iii)) 3,010 379 1,599 107 5,095 1,749 6,844
Total financial investments 100,440 23,540 15,864 268 140,112 2,017 142,129
Investment properties - - 37 - 37 - 37
Cash and cash equivalents 1,563 749 1,266 127 3,705 1,809 5,514
Total investments 102,003 24,289 17,167 395 143,854 3,826 147,680
Notes
(i) Funds with policyholder participation represent investments held to
support insurance products where policyholders participate in the returns of a
specified pool of investments (excluding unit-linked policies) that are
measured using the variable fee approach.
(ii) Of the Group's debt securities, the following amounts were held by the
consolidated investment funds:
31 Dec 2023 $m 31 Dec 2022 $m
Debt securities held by the consolidated investment funds 11,116 11,899
(iii) Other financial investments comprise
derivative assets and deposits.
C2 Measurement of financial assets and liabilities
C2.1 Determination of fair value
The fair values of the financial instruments for which fair valuation is
required under IFRS Standards are determined by the use of quoted market
prices for exchange-quoted investments, or by using quotations from
independent third parties, such as brokers and pricing services or by using
appropriate valuation techniques. Climate change does not directly impact fair
values particularly where these are built on observable inputs (ie level 1 and
level 2), which represent the majority of the Group's financial instruments as
discussed below.
The estimated fair value of derivative financial instruments reflects the
estimated amount the Group would receive or pay in an arm's-length
transaction. This amount is determined using quoted prices if exchange listed,
quotations from independent third parties or valued internally using standard
market practices.
The fair value of the subordinated and senior debt issued by the Group is
determined using quoted prices from independent third parties.
Valuation approach for level 2 fair valued assets and liabilities
A significant proportion of the Group's level 2 assets are corporate bonds,
structured securities and other non-national government debt securities. These
assets, in line with market practice, are generally valued using a designated
independent pricing service or quote from third-party brokers. These
valuations are subject to a number of monitoring controls, such as comparison
to multiple pricing sources where available, monthly price variances, stale
price reviews and variance analysis on prices achieved on subsequent trades.
When prices are not available from pricing services, quotes are sourced
directly from brokers. Prudential seeks to obtain a number of quotes from
different brokers so as to obtain the most comprehensive information available
on their executability. The selected quote is the one which best represents an
executable quote for the security at the measurement date.
Generally, no adjustment is made to the prices obtained from independent third
parties. Adjustments are made in only limited circumstances, where it is
determined that the third-party valuations obtained do not reflect fair value
(eg either because the value is stale and/or the values are extremely diverse
in range). Securities valued in such manner are classified as level 3 where
these significant inputs are not based on observable market data.
Valuation approach for level 3 fair valued assets and liabilities
Investments valued using valuation techniques include financial investments
which by their nature do not have an externally quoted price based on regular
trades, and financial investments for which markets are no longer active as a
result of market conditions, eg market illiquidity.
The Group's valuation policies, procedures and analyses for instruments
categorised as level 3 are overseen by Business Unit committees as part of the
Group's wider financial reporting governance processes. The procedures
undertaken include approval of valuation methodologies, verification
processes, and resolution of significant or complex valuation issues. In
addition, the Group has minimum standards for independent price verification
to ensure valuation accuracy is regularly independently verified. Adherence to
this policy is monitored across the business units.
C2.2 Valuation hierarchy
The table below shows the assets and liabilities carried at fair value
analysed by level of the IFRS 13 'Fair Value Measurement' defined fair value
hierarchy. This hierarchy is based on the inputs to the fair value measurement
and reflects the lowest level input that is significant to that measurement.
All assets and liabilities held at fair value are classified as FVTPL at 31
December 2023. At 31 December 2022, $266 million of financial assets
classified as AFS under IAS 39 related to the Group's retained interest in
Jackson, which was disposed of in 2023. All assets and liabilities held at
fair value are measured on a recurring basis.
Financial instruments at fair value
31 Dec 2023 $m
Level 1 Level 2 Level 3
Quoted prices Valuation based Valuation based Total
(unadjusted)
on significant
on significant
in active markets
observable
unobservable
market inputs
market inputs
note (iii)
Loans - 430 - 430
Equity securities and holdings in collective investment schemes 56,327 5,562 2,864 64,753
Debt securities (note (i)) 64,004 19,020 40 83,064
Derivative assets 1,460 395 - 1,855
Derivative liabilities (58) (180) - (238)
Total financial investments, net of derivative liabilities 121,733 25,227 2,904 149,864
Investment contract liabilities without DPF (note (ii)) - (769) - (769)
Net asset value attributable to unit holders of consolidated investment funds (2,711) - - (2,711)
Total financial instruments at fair value 119,022 24,458 2,904 146,384
Percentage of total (%) 81% 17% 2% 100%
31 Dec 2022 $m
Level 1 Level 2 Level 3
Quoted prices Valuation Valuation Total
(unadjusted) based based
in active markets on significant on significant
observable unobservable
market inputs market inputs
note (iii)
Loans - 447 3 450
Equity securities and holdings in collective investment schemes 49,725 7,130 824 57,679
Debt securities (note (i)) 57,148 19,763 38 76,949
Derivative assets 82 487 - 569
Derivative liabilities (778) (223) - (1,001)
Total financial investments, net of derivative liabilities 106,177 27,604 865 134,646
Investment contract liabilities without DPF (note (ii)) - (663) - (663)
Net asset value attributable to unit holders of consolidated investment funds (4,193) - - (4,193)
Total financial instruments at fair value 101,984 26,941 865 129,790
Percentage of total (%) 78% 21% 1% 100%
Notes
(i) Of the total level 2 debt securities of$19,020 million at 31 December
2023 (31 December 2022: $19,763 million), $10 million (31 December 2022: $37
million) are valued internally.
(ii) For Investment contract liabilities without DPF, it is assumed that
these investment contracts are not quoted in an active market and do not have
readily available published prices and that their fair values are determined
using valuation techniques. It is assumed that all significant inputs used in
the valuation are observable and these investment contract liabilities are
classified in level 2.
(iii) At 31 December 2023, the Group held
$2,904 million (31 December 2022: $865 million) of net financial instruments
at fair value within level 3. This represents 2 per cent (2022: less than one
per cent) of the total fair valued financial assets, net of financial
liabilities and comprises the following:
- Equity securities and holdings in collective investment schemes of
$2,864 million (31 December 2022: $823 million) are externally valued using
the net asset value of the invested entities and consist primarily of property
and infrastructure funds held by the participating funds. Equity securities of
$1 million (31 December 2022: $1 million) are internally valued. Internal
valuations are inherently more subjective than external valuations; and
- Other sundry individual financial instruments of a net asset of $40
million (31 December 2022: $41 million).
Of the net financial instruments of $2,904 million (31 December 2022: $865
million) referred to above:
- A net asset of $2,866 million (31 December 2022: $830 million) is held
by the Group's with-profits and unit-linked funds and therefore shareholders'
profit and equity are not immediately impacted by movements in the valuation
of these financial instruments; and
- The remaining level 3 investments comprise a net asset of $38 million
(31 December 2022: $35 million) and are primarily corporate bonds valued
using external prices adjusted to reflect the specific known conditions
relating to these bonds (eg distressed securities). If the value of all these
level 3 financial instruments decreased by 10 per cent, the change in
valuation would be $(4) million (31 December 2022: $(4) million), which would
reduce shareholders' equity by this amount before tax.
C3 Insurance and reinsurance contracts
The amounts recorded in the balance sheet as insurance and reinsurance
contract asset and liabilities are set out in the table below (on the left
hand side), broken out into their component parts. Additionally presented on
the right hand side are the same amounts but including the Group's share of
the relevant amounts of its joint venture and associates, which are equity
accounted for on the statement of financial position and hence all assets and
liabilities of those businesses are included in a separate line.
Management believe that the movement in the CSM is a key driver for
understanding changes in profitability from period to period and as the
Group's share of the results of the joint ventures and associates are included
in the Group's adjusted operating and total profit, it is relevant to
understand the movement in insurance assets and liabilities including those
entities too.
C3.1 Group overview
(a) Analysis of Group insurance and reinsurance contract assets and
liabilities
The table below provides an analysis of portfolio of insurance and reinsurance
(RI) contract assets and liabilities held on the Group's statement of
financial position:
Excluding JVs and associates Including JVs and associates (note (i))
Assets Liabilities Net liabilities (assets) Assets Liabilities Net liabilities (assets)
Insurance RI Insurance RI Insurance RI Insurance RI Insurance RI Insurance RI
$m $m $m $m $m $m $m $m $m $m $m $m
note (ii) note (ii)
As at 31 Dec 2023
Best estimate liabilities (BEL) 3,952 1,175 120,115 1,182 116,163 7 3,998 1,315 139,673 1,222 135,675 (93)
Risk adjustment for non-financial risk (RA) (631) (84) 1,713 (21) 2,344 63 (630) (67) 1,969 (24) 2,599 43
Contractual service margin (CSM) (2,173) 1,335 18,011 (10) 20,184 (1,345) (2,176) 1,321 20,176 (19) 22,352 (1,340)
Insurance contract balances 1,148 2,426 139,839 1,151 138,691 (1,275) 1,192 2,569 161,818 1,179 160,626 (1,390)
Assets for insurance acquisition cash flows 32 - 1 - (31) - 32 - 1 - (31) -
Insurance and reinsurance contract (assets) liabilities 1,180 2,426 139,840 1,151 138,660 (1,275) 1,224 2,569 161,819 1,179 160,595 (1,390)
As at 31 Dec 2022
Best estimate liabilities (BEL) 3,540 508 107,582 1,162 104,042 654 3,562 652 124,297 1,193 120,735 541
Risk adjustment for non-financial risk (RA) (505) (39) 1,418 (44) 1,923 (5) (502) (21) 1,662 (47) 2,164 (26)
Contractual service margin (CSM) (1,929) 1,387 17,239 57 19,168 (1,330) (1,921) 1,369 19,383 54 21,304 (1,315)
Insurance contract balances 1,106 1,856 126,239 1,175 125,133 (681) 1,139 2,000 145,342 1,200 144,203 (800)
Assets for insurance acquisition cash flows 28 - 3 - (25) - 28 - 3 - (25) -
Insurance and reinsurance contract (assets) liabilities 1,134 1,856 126,242 1,175 125,108 (681) 1,167 2,000 145,345 1,200 144,178 (800)
As at 1 Jan 2022 (transition date)
Best estimate liabilities (BEL) 3,818 1,752 126,438 1,474 122,620 (278) 3,993 1,916 142,146 1,501 138,153 (415)
Risk adjustment for non-financial risk (RA) (547) (15) 1,661 (46) 2,208 (31) (575) 1 1,868 (49) 2,443 (50)
Contractual service margin (CSM) (2,050) 1,050 21,699 (174) 23,749 (1,224) (2,161) 1,023 23,787 (176) 25,948 (1,199)
Insurance contract balances 1,221 2,787 149,798 1,254 148,577 (1,533) 1,257 2,940 167,801 1,276 166,544 (1,664)
Assets for insurance acquisition cash flows 29 - - - (29) - 29 - - - (29) -
Insurance and reinsurance contract (assets) liabilities 1,250 2,787 149,798 1,254 148,548 (1,533) 1,286 2,940 167,801 1,276 166,515 (1,664)
Notes
(i) The Group's investments in JVs and associates are accounted for on an
equity method and the Group's share of insurance and reinsurance contract
liabilities and assets as shown above relate to the life business of CPL,
India and Takaful business in Malaysia.
(ii) At 31 December 2023 and 2022 the Group's exposure to credit risk
arising from insurance contracts issued is not material to the Group as
premiums receivable from an individual party (policyholders and
intermediaries) is not material to the Group.
(b) Adjusted shareholders' equity
31 Dec 2023 $m 31 Dec 2022 $m 1 Jan 2022 (transition date) $m
Balances excluding Group's share relating to Total including Balances excluding Group's share relating to Total including Balances excluding Group's share relating to Total including
JVs and associates JVs and associates JVs and associates JVs and associates JVs and associates JVs and associates JVs and associates JVs and associates JVs and associates
Shareholders' equity 15,883 1,940 17,823 14,472 2,259 16,731 16,238 2,698 18,936
CSM, net of reinsurance 18,839 2,173 21,012 17,838 2,151 19,989 22,525 2,224 24,749
Remove: CSM asset attaching to reinsurance contracts wholly attributable to 1,367 - 1,367 1,295 - 1,295 1,144 - 1,144
policyholders
Less: Related tax adjustments (2,347) (509) (2,856) (2,295) (509) (2,804) (2,531) (527) (3,058)
Adjusted shareholders' equity 33,742 3,604 37,346 31,310 3,901 35,211 37,376 4,395 41,771
C3.2 Analysis of movements in insurance and reinsurance contract balances
(including JVs and associates)
(a) Analysis of movements in insurance and reinsurance contract balances by
measurement component
An analysis of movements in insurance and reinsurance contract balances by
measurement component and including the Group's share of insurance and
reinsurance contract liabilities and assets relate to the life JVs and
associates is set out below:
Including JVs and associates
2023 $m
Insurance Reinsurance
BEL RA CSM Total BEL RA CSM Total
note (b) note (b)
Opening assets (3,562) 502 1,921 (1,139) (652) 21 (1,369) (2,000)
Opening liabilities 124,297 1,662 19,383 145,342 1,193 (47) 54 1,200
Net opening balance at 1 Jan 120,735 2,164 21,304 144,203 541 (26) (1,315) (800)
Changes that relate to future service
Changes in estimates that adjust the CSM (1,142) 341 801 - 62 43 (105) -
Changes in estimates that result in losses or reversal of losses on onerous 224 (8) - 216 (93) - - (93)
contracts
New contracts in the year (2,687) 317 2,429 59 86 (6) (81) (1)
(3,605) 650 3,230 275 55 37 (186) (94)
Changes that relate to current service
Release of CSM to profit or loss - - (2,414) (2,414) - - 206 206
Release of risk adjustment to profit or loss - (242) - (242) - 27 - 27
Experience adjustments (170) - - (170) 50 - - 50
(170) (242) (2,414) (2,826) 50 27 206 283
Changes that relate to past service
Adjustments to assets/liabilities for incurred claims 130 (3) - 127 - - - -
Insurance service result (3,645) 405 816 (2,424) 105 64 20 189
Net finance (income) expense from insurance and reinsurance contracts
Accretion of interest on GMM contracts 158 52 307 517 (3) (3) (47) (53)
Other net finance (income) expense 10,379 (20) (12) 10,347 (155) 9 - (146)
10,537 32 295 10,864 (158) 6 (47) (199)
Total amount recognised in income statement 6,892 437 1,111 8,440 (53) 70 (27) (10)
Effect of movements in exchange rates (49) (2) (63) (114) 2 (1) 2 3
Total amount recognised in comprehensive income 6,843 435 1,048 8,326 (51) 69 (25) (7)
Cash flows
Premiums received net of ceding commissions paid 26,224 - - 26,224 (1,137) - - (1,137)
Insurance acquisition cash flows (4,802) - - (4,802) - - - -
Claims and other insurance service expenses net of recoveries from reinsurance (13,144) - - (13,144) 554 - - 554
received*
Total cash flows 8,278 - - 8,278 (583) - - (583)
Other changes (note) (181) - - (181) - - - -
Closing assets (3,998) 630 2,176 (1,192) (1,315) 67 (1,321) (2,569)
Closing liabilities 139,673 1,969 20,176 161,818 1,222 (24) (19) 1,179
Net closing balance at 31 Dec 135,675 2,599 22,352 160,626 (93) 43 (1,340) (1,390)
Including JVs and associates
2022 $m
Insurance Reinsurance
BEL RA CSM Total BEL RA CSM Total
note (b) note (b)
Opening assets (3,993) 575 2,161 (1,257) (1,916) (1) (1,023) (2,940)
Opening liabilities 142,146 1,868 23,787 167,801 1,501 (49) (176) 1,276
Net opening balance at 1 Jan 138,153 2,443 25,948 166,544 (415) (50) (1,199) (1,664)
Changes that relate to future service
Changes in estimates that adjust the CSM 4,214 (226) (3,988) - 284 10 (294) -
Changes in estimates that result in losses or reversal of losses on onerous 162 (52) - 110 (17) - - (17)
contracts
New contracts in the period (2,210) 259 2,027 76 (37) - 37 -
2,166 (19) (1,961) 186 230 10 (257) (17)
Changes that relate to current service
Release of CSM to profit or loss - - (2,413) (2,413) - - 171 171
Release of risk adjustment to profit or loss - (184) - (184) - 5 - 5
Experience adjustments (119) - - (119) (80) - - (80)
(119) (184) (2,413) (2,716) (80) 5 171 96
Changes that relate to past service
Adjustments to assets/liabilities for incurred claims 133 1 - 134 28 - - 28
Insurance service result 2,180 (202) (4,374) (2,396) 178 15 (86) 107
Net finance (income) expense from insurance and reinsurance contracts
Accretion of interest on GMM contracts 182 13 294 489 (8) (6) (39) (53)
Other net finance (income) expense (28,612) (12) 117 (28,507) 1,215 10 4 1,229
(28,430) 1 411 (28,018) 1,207 4 (35) 1,176
Total amount recognised in income statement (26,250) (201) (3,963) (30,414) 1,385 19 (121) 1,283
Effect of movements in exchange rates (3,070) (78) (681) (3,829) 3 5 5 13
Total amount recognised in comprehensive income (29,320) (279) (4,644) (34,243) 1,388 24 (116) 1,296
Cash flows
Premiums received net of ceding commissions paid 27,916 - - 27,916 (1,013) - - (1,013)
Insurance acquisition cash flows (3,690) - - (3,690) - - - -
Claims and other insurance service expenses net of recoveries from reinsurance (12,241) - - (12,241) 567 - - 567
received*
Total cash flows 11,985 - - 11,985 (446) - - (446)
Other changes (note) (83) - - (83) 14 - - 14
Closing assets (3,562) 502 1,921 (1,139) (652) 21 (1,369) (2,000)
Closing liabilities 124,297 1,662 19,383 145,342 1,193 (47) 54 1,200
Net closing balance at 31 Dec 120,735 2,164 21,304 144,203 541 (26) (1,315) (800)
Including investment component.
Note
Other changes include movements in insurance contract liabilities arising from
adjustments to remove the incurred non-cash expenses (such as depreciation,
amortisation) from insurance contract asset/liability balance.
Accretion of interest includes interest on policy loans.
(b) Analysis of CSM by transition approach including JVs and associates
Insurance contracts (including JVs and associates)
2023 $m 2022 $m
Contracts Contracts Other Total CSM Contracts Contracts Other Total CSM
under MRA
under FVA
contracts*
under MRA
under FVA
contracts*
Balance at 1 Jan 2,033 4,102 15,169 21,304 2,467 5,355 18,126 25,948
Changes that relate to future service
Changes in estimates that adjust the CSM 117 496 188 801 (92) (707) (3,189) (3,988)
New contracts in the year - - 2,429 2,429 - - 2,027 2,027
117 496 2,617 3,230 (92) (707) (1,162) (1,961)
Changes that relate to current service
Release of CSM to profit or loss (247) (458) (1,709) (2,414) (250) (511) (1,652) (2,413)
(130) 38 908 816 (342) (1,218) (2,814) (4,374)
Net finance income (expenses) from insurance contracts 66 9 220 295 83 54 274 411
Effect of movements in exchange rates (47) (6) (10) (63) (175) (89) (417) (681)
Balance at 31 Dec 1,922 4,143 16,287 22,352 2,033 4,102 15,169 21,304
* Other contracts represent groups of insurance contracts measured
under the full retrospective approach at the transition date, 1 January 2022
and groups of contracts recognised on or after the transition date.
The majority of the CSM on transition on insurance contracts under MRA arises
from CPL while the majority of the CSM on transition under FVA arises from the
Hong Kong and Singapore businesses.
The transition approach adopted by the Group's main business segments for the
different cohorts of their insurance contracts is summarised in the table
below. The overlap between approaches reflects the fact that the approaches
used vary by insurance contract portfolio and year of issue (cohort).
FRA MRA FVA
Cohort Cohort Cohort
CPL n/a 2016 - 2021 Pre 2016
Hong Kong 2010 - 2021 n/a Pre 2010
Singapore 2009 - 2021 n/a Pre 2009
Malaysia 2010 - 2021 2000 - 2009 Pre 1999
(Unit-linked) (Unit-linked) (Unit-linked)
2010-2021 Pre-2009
(Non Participating) (Non-participating)
Pre-2021
(Other)
Indonesia (note (i)) 2010 - 2021 2007 - 2009 Pre 2007
Growth markets and other (note (ii)) See note See note See note
Notes
(i) The cohorts shown are in respect of Indonesia's unit-linked
portfolios.
(ii) CSM on transition for Growth markets primarily arises from Vietnam,
Taiwan and the Philippines. Vietnam has applied the FRA for cohorts from 2013
- 2021, MRA for cohorts from 2008 - 2012 and FVA for cohorts prior to 2013.
Taiwan and the Philippines have applied the FRA for cohorts from 2010 - 2021
and FVA for all cohorts prior to 2010.
Reinsurance contracts (including JVs and associates)
2023 $m 2022 $m
Contracts Contracts Other Total CSM Contracts Contracts Other Total CSM
under MRA
under FVA
contracts*
under MRA
under FVA
contracts*
Balance at 1 Jan - (55) (1,260) (1,315) - (46) (1,153) (1,199)
Changes that relate to future service
Changes in estimates that adjust the CSM - (17) (88) (105) - (22) (272) (294)
New contracts in the year - - (81) (81) - - 37 37
- (17) (169) (186) - (22) (235) (257)
Changes that relate to current service
Release of CSM to profit or loss - 10 196 206 - 10 161 171
- (7) 27 20 - (12) (74) (86)
Net finance income (expenses) from reinsurance contracts - (2) (45) (47) - (1) (34) (35)
Effect of movements in exchange rates - 1 1 2 - 4 1 5
Balance at 31 Dec - (63) (1,277) (1,340) - (55) (1,260) (1,315)
* Other contracts represent groups of reinsurance contracts measured
under the full retrospective approach at the transition date, 1 January 2022
and groups of contracts recognised on or after the transition date.
The CSM on transition on reinsurance contracts held primarily arises from the
Hong Kong segment, which has predominantly applied the FRA to transition
reinsurance cohorts from 2010 - 2021 and the FVA for reinsurance cohorts prior
to 2010.
(c) Additional analysis of insurance and reinsurance contract balances by
segment
The table below provides an analysis of portfolio of insurance and reinsurance
contract balances, excluding assets for insurance acquisition cash flows, by
segment. The balances presented include Group's share of insurance contract
balances relating to the life business of CPL, India and Takaful business in
Malaysia, which are accounted for on an equity method in the consolidated
statement of financial position.
Insurance $m Reinsurance $m
BEL RA CSM Total BEL RA CSM Total
As at 31 Dec 2023
CPL 13,029 152 1,652 14,833 4 (3) (22) (21)
Hong Kong 60,761 776 8,536 70,073 (44) 84 (1,429) (1,389)
Indonesia 2,197 206 739 3,142 22 (7) (6) 9
Malaysia 5,910 357 2,127 8,394 26 (7) 6 25
Singapore 31,770 687 4,962 37,419 (146) 3 149 6
Growth markets and other 22,008 421 4,336 26,765 45 (27) (38) (20)
Total insurance segments 135,675 2,599 22,352 160,626 (93) 43 (1,340) (1,390)
As at 31 Dec 2022
CPL 10,989 149 1,699 12,837 2 (3) (21) (22)
Hong Kong 54,347 482 7,857 62,686 465 17 (1,405) (923)
Indonesia 2,032 199 1,046 3,277 8 (3) - 5
Malaysia 5,452 334 2,241 8,027 31 (7) (2) 22
Singapore 28,752 629 4,522 33,903 40 (3) 141 178
Growth markets and other 19,163 371 3,939 23,473 (5) (27) (28) (60)
Total insurance segments 120,735 2,164 21,304 144,203 541 (26) (1,315) (800)
Summarised movement analysis of insurance and reinsurance contract balances by
segment
Insurance $m
CPL Hong Kong Indonesia Malaysia Singapore Growth markets and other Total insurance segments
Net opening balance at 1 Jan 2022 11,273 80,186 3,720 8,342 36,643 26,380 166,544
Insurance service result (73) (696) (117) (242) (546) (722) (2,396)
Net finance income (expenses) from insurance contracts
Accretion of interest on GMM contracts 206 37 37 95 31 83 489
Other net finance (income) expense 87 (21,912) 26 (77) (4,956) (1,675) (28,507)
293 (21,875) 63 18 (4,925) (1,592) (28,018)
Total amount recognised in income statement 220 (22,571) (54) (224) (5,471) (2,314) (30,414)
Effect of movements in exchange rates (1,019) (153) (307) (454) 117 (2,013) (3,829)
Total amount recognised in comprehensive income (799) (22,724) (361) (678) (5,354) (4,327) (34,243)
Total cash flows 2,363 5,216 (69) 366 2,684 1,425 11,985
Other changes - 8 (13) (3) (70) (5) (83)
Net closing balance at 31 Dec 2022 / 1 Jan 2023 12,837 62,686 3,277 8,027 33,903 23,473 144,203
Insurance service result (98) (755) (146) (254) (598) (573) (2,424)
Net finance income (expenses) from insurance contracts
Accretion of interest on GMM contracts 227 (1) 43 100 6 142 517
Other net finance (income) expense 692 3,646 145 498 2,657 2,709 10,347
919 3,645 188 598 2,663 2,851 10,864
Total amount recognised in income statement 821 2,890 42 344 2,065 2,278 8,440
Effect of movements in exchange rates (259) (11) 46 (336) 621 (175) (114)
Total amount recognised in comprehensive income 562 2,879 88 8 2,686 2,103 8,326
Total cash flows 1,434 4,509 (186) 364 884 1,273 8,278
Other changes - (1) (37) (5) (54) (84) (181)
Net closing balance at 31 Dec 2023 14,833 70,073 3,142 8,394 37,419 26,765 160,626
Reinsurance $m
CPL Hong Kong Indonesia Malaysia Singapore Growth markets and other Total insurance segments
Net opening balance at 1 Jan 2022 (25) (1,663) 8 15 59 (58) (1,664)
Insurance service result 6 63 - 10 4 24 107
Net finance income (expenses) from reinsurance contracts
Accretion of interest on GMM contracts (1) (45) - 1 (1) (7) (53)
Other net finance (income) expense - 1,246 (1) 1 (6) (11) 1,229
(1) 1,201 (1) 2 (7) (18) 1,176
Total amount recognised in income statement 5 1,264 (1) 12 (3) 6 1,283
Effect of movements in exchange rates 1 4 (1) - 4 5 13
Total amount recognised in comprehensive income 6 1,268 (2) 12 1 11 1,296
Total cash flows (3) (535) (1) (5) 118 (20) (446)
Other changes - 7 - - - 7 14
Net closing balance at 31 Dec 2022 / 1 Jan 2023 (22) (923) 5 22 178 (60) (800)
Insurance service result 8 135 2 9 17 18 189
Net finance income (expenses) from reinsurance contracts
Accretion of interest on GMM contracts (1) (38) - 1 (8) (7) (53)
Other net finance (income) expense - (154) (6) - 1 13 (146)
(1) (192) (6) 1 (7) 6 (199)
Total amount recognised in income statement 7 (57) (4) 10 10 24 (10)
Effect of movements in exchange rates 3 (2) (1) (1) (1) 5 3
Total amount recognised in comprehensive income 10 (59) (5) 9 9 29 (7)
Total cash flows (9) (407) 9 (6) (181) 11 (583)
Other changes - - - - - - -
Net closing balance at 31 Dec 2023 (21) (1,389) 9 25 6 (20) (1,390)
(d) Contractual service margin
The following tables illustrate when the Group expects to recognise the
remaining CSM in profit or loss after the reporting date based on the
assumptions and economics in place at the year ends shown. Future new business
is excluded.
(i) Insurance contracts - expected recognition of the CSM
31 Dec 2023 $m
Total as reported on the consolidated statement of financial position Group's share relating to Total including Group's share relating to
JVs and associates
JVs and associates
1 year or less 2,041 226 2,267
After 1 year to 2 years 1,780 190 1,970
After 2 years to 3 years 1,586 165 1,751
After 3 years to 4 years 1,412 146 1,558
After 4 years to 5 years 1,283 127 1,410
After 5 years to 10 years 4,604 474 5,078
After 10 years to 15 years 2,924 293 3,217
After 15 years to 20 years 1,781 195 1,976
After 20 years 2,773 352 3,125
Total CSM 20,184 2,168 22,352
31 Dec 2022 $m
Total as reported on the consolidated statement of financial position Group's share relating to Total including Group's share relating to
JVs and associates
JVs and associates
1 year or less 1,981 219 2,200
After 1 year to 2 years 1,751 175 1,926
After 2 years to 3 years 1,555 155 1,710
After 3 years to 4 years 1,385 138 1,523
After 4 years to 5 years 1,217 122 1,339
After 5 years to 10 years 4,306 454 4,760
After 10 years to 15 years 2,705 292 2,997
After 15 years to 20 years 1,666 201 1,867
After 20 years 2,602 380 2,982
Total CSM 19,168 2,136 21,304
(ii)Reinsurance contracts - expected recognition of the CSM
31 Dec 2023 $m
Total as reported on the consolidated statement of financial position Group's share relating to Total including Group's share relating to
JVs and associates JVs and associates
1 year or less (177) (2) (179)
After 1 year to 2 years (132) - (132)
After 2 years to 3 years (103) 1 (102)
After 3 years to 4 years (85) 1 (84)
After 4 years to 5 years (74) 1 (73)
After 5 years to 10 years (268) 3 (265)
After 10 years to 15 years (173) 2 (171)
After 15 years to 20 years (113) - (113)
After 20 years (220) (1) (221)
Total CSM (1,345) 5 (1,340)
31 Dec 2022 $m
Total as reported on the consolidated statement of financial position Group's share relating to Total including Group's share relating to
JVs and associates JVs and associates
1 year or less (122) (2) (124)
After 1 year to 2 years (111) 2 (109)
After 2 years to 3 years (100) 2 (98)
After 3 years to 4 years (89) 2 (87)
After 4 years to 5 years (80) 2 (78)
After 5 years to 10 years (301) 5 (296)
After 10 years to 15 years (188) 3 (185)
After 15 years to 20 years (119) 1 (118)
After 20 years (220) - (220)
Total CSM (1,330) 15 (1,315)
C3.3 Products and determining contract liabilities
(a) Measurement of insurance and reinsurance contracts
Separating components
A contract has an investment component if there is an amount (which could be
zero) that the contract requires the entity to repay to the policyholder in
all circumstances that have commercial substance. The surrender value, net of
policy loans (where these exist), is accounted as the investment component of
a contract. Participating and non-participating (such as whole-life and
endowment) contracts have explicit surrender values. There are a relatively
small number of products that do not have a surrender value, and the
investment components of these contracts are determined on a case-by-case
basis. The non-distinct investment components are excluded from insurance
revenue and insurance service expenses.
At initial recognition, the Group is required to separate the following
components and account for them as if they were stand-alone contracts.
- Distinct investment components. An investment component is distinct if
and only if (a) the insurance and investment components are not highly
interrelated and (b) a contract with equivalent terms is, or could be, sold
separately in the same market or jurisdiction.
- Embedded derivatives that do not meet the definition of an insurance
contract and whose economic characteristics and risks are not closely related
to those of the host contract.
- Distinct services other than insurance contract services. A service
component is distinct if it is not highly interrelated with the insurance
component and the entity provides no significant service in integrating the
service component with the insurance component
There are no material instances within the Group where distinct investment
components, distinct services or embedded derivatives are separated from
insurance contracts.
Asset management services for investments held under an insurance contract are
not separated.
Subsequent measurement of CSM
The CSM of each group of contracts is calculated at each reporting date as
follows.
The carrying amount of the CSM of contracts measured under the GMM at each
reporting date is the carrying amount at the start of the year, adjusted for:
(a) the CSM of any new contracts that are added to the group in the year; (b)
interest accreted at locked-in discount rate; (c) changes in fulfilment cash
flows arising from operating assumption changes and variances that relate to
future services except for those relating to onerous contracts; (d) the effect
of currency exchange differences on the CSM; and (e) the amount of CSM
recognised in profit or loss in the year based on the coverage units.
The carrying amount of the CSM of contracts measured under the VFA at each
reporting date is the carrying amount at the start of the year, adjusted for:
(a) the CSM of any new contracts that are added to the group in the year; (b)
the change in the amount of the Group's share of the fair value of the
underlying items; (c) changes in fulfilment cash flows arising from both
operating and economic assumption changes and variances that relate to future
services except for those relating to onerous contracts; (d) the effect of
currency exchange differences on the CSM; and (e) the amount of CSM recognised
in profit or loss in the year based on the coverage units.
The table below provides a description of the material features of each of the
key products written by the Group, together with the measurement model used to
determine their contract liabilities under IFRS 17.
Contract type Description and material features Measurement model
With-profits contracts (written in Hong Kong, Singapore and Malaysia) Provides savings and/or protection where the basic sum assured can be enhanced All with-profits contracts of the Group written in Hong Kong, Singapore and
by a profit share (or bonus) from the underlying fund as determined at the Malaysia are measured using the VFA model.
discretion of the local business unit.
The shareholders' share of the excess of the assets of the with-profits funds
With-profits products often offer a guaranteed maturity or surrender value. over policyholder liabilities is recognised within shareholders' equity.
Declared regular bonuses are guaranteed once vested. Future bonus rates and
cash dividends are not guaranteed. Market value adjustments and surrender
penalties are used for certain products where the law permits such
adjustments. Guarantees are predominantly supported by the segregated funds
and their estates.
Additional health and protection benefits can be provided through riders
(which are not separated from the base with-profits contracts).
Other participating contracts Similar to the with-profits contracts, other participating contracts include Other participating contracts of the Group are measured under the VFA model
savings and/or protection elements, with policyholders and shareholders except for the contracts that are written by the Group's life joint venture,
sharing in the returns of the underlying funds. CPL, where the GMM approach is applied.
Unit-linked contracts Combines savings with health and protection riders (which, under IFRS 17, are Unit-linked contracts are measured either under the VFA or the GMM depending
not separated from the base contract). The cash value of the policy primarily on the relative size of the savings and protection benefits of the contract.
depends on the value of the underlying unitised funds. The larger the protection component the more likely the contract is required
to be measured under the GMM.
Health and protection - Shareholder- backed participating critical illness Shareholder-backed participating critical illness contracts are written by the Shareholder-backed participating critical illness contracts are measured under
contracts Group's Hong Kong business. These products combine critical illness and death the VFA.
benefits with a savings element. These are whole life products and have
regular premium payments with a limited payment term.
Health and protection - Other In addition to supplementary heath and protection contract products attached Stand-alone non-par health and protection (excluding shareholder-backed
to with-profits and unit-linked contracts described above, the Group also participating critical illness) contracts are measured under the GMM.
offers stand-alone health and protection products.
These are non-participating contracts that provide mortality and/or morbidity
benefits including health, disability, critical illness and accident coverage.
Non-participating term, whole life and endowment assurance contracts Non-participating savings and/or protection where the benefits are guaranteed, These contracts are measured under the GMM.
determined by a set of defined market-related parameters, or determined at the
discretion of the local business unit. These products often offer a guaranteed
maturity and/or surrender value. It is common in Asia for regulations or
market-driven demand and competition to provide some form of capital value
protection and minimum crediting interest rate guarantees. This is reflected
within the guaranteed maturity and surrender values. Guarantees are supported
by shareholders.
The fair value of underlying items of the Group's direct participating
contracts at 31 December 2023, excluding the Group's share of the amounts
that relate to life JVs and associates, is $127,570 million (31 December
2022: $115,489 million). The Group's direct participating contracts are the
contracts that are measured under the VFA model and as discussed in the table
above comprise primarily the Group's with-profits, unit-linked and
shareholder-backed participating critical illness contracts. Those underlying
items comprise primarily investments in debt securities, equity securities and
holdings in collective investment schemes. The underlying items also include
the related reinsurance assets and the policyholders' interest in the excess
net assets of relevant participating funds.
C4 Intangible assets
C4.1 Goodwill
Goodwill shown on the consolidated statement of financial position represents
amounts allocated to businesses in Asia and Africa in respect of both acquired
asset management and life businesses. There has been no impairment as at
31 December 2023 and 2022.
2023 $m 2022 $m
Carrying value at 1 Jan 890 907
Exchange differences 6 (17)
Carrying value at 31 Dec 896 890
C4.2 Other intangible assets
2023 $m 2022 $m
Distribution rights Other intangibles Total Distribution rights Other Total
intangibles
note (i) note (ii) note (i) note (ii)
Balance at 1 Jan
Cost 5,176 489 5,665 5,037 425 5,462
Accumulated amortisation (1,546) (235) (1,781) (1,255) (192) (1,447)
3,630 254 3,884 3,782 233 4,015
Additions 415 83 498 206 83 289
Amortisation charge (330) (49) (379) (301) (48) (349)
Disposals and transfers - (6) (6) - (6) (6)
Exchange differences and other movements (6) (5) (11) (57) (8) (65)
Balance at 31 Dec 3,709 277 3,986 3,630 254 3,884
Comprising:
Cost 5,585 537 6,122 5,176 489 5,665
Accumulated amortisation (1,876) (260) (2,136) (1,546) (235) (1,781)
Notes
(i) Distribution rights relate to amounts that have been paid or have
become unconditionally due for payment as a result of past events in respect
of the bancassurance partnership arrangements for the bank distribution of
Prudential's insurance products for a fixed period of time. The distribution
rights amounts are amortised on a basis to reflect the pattern in which the
future economic benefits are expected to be consumed by reference to new
business production levels.
(ii) Included within other intangibles are software and licence fees.
C5 Borrowings
C5.1 Core structural borrowings of shareholder-financed businesses
31 Dec 2023 $m 31 Dec 2022 $m
Subordinated debt:
US$750m 4.875% Notes 750 750
€20m Medium Term Notes 2023 (note (ii)) - 21
£435m 6.125% Notes 2031 551 520
US$1,000m 2.95% Notes 2033 996 995
Senior debt: (note (i))
£300m 6.875% Notes 2023 (note (ii)) - 361
£250m 5.875% Notes 2029 301 281
US$1,000m 3.125% Notes 2030 988 987
US$350m 3.625% Notes 2032 347 346
Total core structural borrowings of shareholder-financed businesses 3,933 4,261
Notes
(i) The senior debt ranks above subordinated debt in the event of
liquidation.
(ii) The £300 million Notes were redeemed on 20 January 2023. The €20
million Medium Term Notes were redeemed on 10 July 2023.
C5.2 Operational borrowings
31 Dec 2023 $m 31 Dec 2022 $m
Borrowings in respect of short-term fixed income securities programmes 699 501
(commercial paper)
Lease liabilities under IFRS 16 234 299
Other borrowings 8 15
Total operational borrowings 941 815
C6 Risk and sensitivity analysis
Group overview
The Group's risk framework and the management of risks attaching to the
Group's consolidated financial statements including financial assets,
financial liabilities and insurance liabilities, together with the
inter-relationship with the management of capital, have been included in the
Risk review report.
The financial and insurance assets and liabilities on the Group's statement of
financial position are, to varying degrees, subject to market and insurance
risk and other changes of assumptions that may have an effect on IFRS basis
profit or loss and shareholders' equity as described below. The market and
insurance risks and also sustainability-related risks, including how they
affect Group's operations and how these are managed are discussed in the Risk
review report referred to above. The sustainability-related risks discussed in
the Risk review report include in particular the potential long-term impact of
environmental risks associated with climate change (including physical and
transition risks) on the Group's investments and liabilities.
Sensitivity analyses of IFRS profit or loss, shareholders' equity and CSM to
key market and other risks for the insurance operations are provided in
section C6.1 below. The sensitivity analyses provided show the effect on
profit after tax, shareholders' equity and CSM to changes in the relevant risk
variables, all of which are considered to be reasonably possible at the
relevant balance sheet date. The sensitivities reflect consequential impacts
from market movements at the valuation date.
The sensitivity of the Group's Eastspring and central operations to market
risks is discussed in section C6.2.
The Group benefits from diversification benefits achieved through the
geographical spread of the Group's operations and, within those operations,
through a broad mix of product types. The simplified sensitivities below are
calculated at the individual business unit level and aggregated to show the
Group impact and no group level adjustments are made.
Relevant correlation factors include:
- Correlation across geographic regions for both financial and
non-financial risk factors; and
- Correlation across risk factors for mortality and morbidity, expenses,
persistency and other risks.
The geographical diversity of the Group's business means that it has some
exposure to the risk of foreign exchange rate fluctuations where a group
undertaking has a functional currency that differs to US dollar, the Group's
presentational currency. Consistent with the Group's accounting policies, the
profits of these business units are translated at average exchange rates and
shareholders' equity at the closing rate for the reporting period. For 2023
and 2022, the rates for the most significant operations are given in note A1.
The Group has no exposure to currency fluctuation from business units that
operate in USD, or currencies pegged to the USD (such as HKD), and reduced
exposure to currencies partially managed to the USD within a basket of
currencies (such as SGD). The impact of changes of foreign exchange rates on
the Group's assets and liabilities from the above exposure is recorded as part
of Other comprehensive income and in 2023 represented a loss of $124 million
(2022: loss of $603 million) which corresponds to 1 per cent of opening
shareholders' equity (2022: 3 per cent). Additionally note B1.1 'Segment
Results' shows the Group's segment and total profit for 2022 as if it had been
prepared using the same exchange rates as 2023, giving an indication of how
foreign exchange rates impact the Group's profit and loss.
A 10 per cent increase (strengthening of the US dollar) or decrease (weakening
of the US dollar) in these rates would have reduced or increased profit for
the year and shareholders' equity of the Group respectively as follows:
31 Dec 2023 $m 31 Dec 2022 $m
Change in local currency to $ exchange rates Decrease of 10% Increase of 10% Decrease of 10% Increase of 10%
Profit after tax for the year 152 (124) 49 (40)
Shareholders' equity 1,256 (1,028) 1,182 (967)
The Group is also exposed to foreign exchange gains and losses on assets and
liabilities held by the Group's undertakings in a currency other than their
functional currency. These will often be managed by derivatives or by having
assets and liabilities that match in terms of currency.
C6.1 Insurance operations
(a) Sensitivity to key market risks
The table below shows the sensitivity of profit after tax, shareholders'
equity and CSM as at 31 December 2023 and 2022 for insurance segments to the
following market risks:
- 1 per cent increase and 0.5 per cent decrease in observable risk-free
interest rates (as described in note A3.1(a)) in isolation and subject to a
floor of zero; and
- Instantaneous 10 per cent rise and 20 per cent fall in the market value
of equity and property assets. The equity risk sensitivity analysis assumes
that all equity indices fall by the same percentage.
The sensitivities below only allow for limited management actions such as
changes to policyholder bonuses and re-pricing for medical business, where
applicable. If the economic conditions set out in the sensitivities persisted,
the financial impacts may differ to the instantaneous impacts shown below.
Given the continuous risk management processes in place, management could take
additional actions to help mitigate the impact of these stresses, including
(but not limited to) increased use of reinsurance, repricing of in-force
benefits, changes to new business pricing and the mix of new business being
sold.
The impact of changes in interest rates and equity values impacts both assets
and liabilities. For assets backing insurance contract liabilities and those
related liabilities, these impacts will vary depending on whether insurance
contracts are classified as VFA or GMM. In addition there will be impacts from
other shareholder assets that back IFRS shareholders equity rather than
insurance contract liabilities. The vast majority of the Group's investments
are classified as FVTPL and so movements as a result of interest rate and
equity markets directly impact profit, unless they are offset by corresponding
movements in the Group's liabilities.
For VFA contracts (which include the majority of the Group's participating and
unit-linked contracts but not all as discussed in note A2.1) movements in
underlying assets are matched by a movement in insurance liabilities. Changes
in BEL and risk adjustment as a result of a change in discount rate or from
changes in the variable fee (that is dependent on the value of underlying
assets) are taken as a change to the CSM with no immediate impact on profit or
shareholders' equity. There will however be an impact on profit and
shareholders' equity from changes to the CSM amortisation as a result of
changes both to the CSM and the discounting of the coverage units. Onerous
contracts with no CSM will also have impacts going directly to the income
statement.
For GMM contracts, the CSM is calculated on a locked-in basis (ie using
discount rates applied at the dates of initial recognition of each group of
contracts), whereas the BEL and risk adjustment are calculated using a current
discount rate. This accounting mismatch passes through the income statement.
The impact will depend on whether the BEL is an asset or a liability. For BEL
assets, which are largely offset by CSM liabilities, (ie for certain
protection contracts where future premiums are expected to exceed future
claims and expenses) increases in interest rates will reduce the BEL asset
with no impact on the CSM liability and hence reduce profit. For a BEL
liability, where the BEL and CSM liabilities are backed by invested assets,
(eg certain Universal Life contracts) there are likely to be offsetting asset
impacts (for example BEL liabilities and bond values will both reduce as
interest rates increase) and the impact on profit will be dependent on any
mismatches between assets and liabilities together with the impact of the CSM
being calculated on a locked-in basis.
For other shareholder assets, that are not backing insurance contract
liabilities increases in interest rates and falls in equity markets reduce
asset values, which under the Group's accounting policy pass directly through
the income statement and hence reduce profit (vice-versa for decreases in
interest rates and increases in equity markets).
The income statement volatilities stated above lead to a volatility in the
shareholders' equity to the same extent.
Base values 2023 $m 2022 $m
Profit (loss) after tax for the year from insurance segments 2,099 (494)
Group shareholders' equity as at 31 Dec 17,823 16,731
CSM as at 31 Dec including JVs and associates 21,012 19,989
Insurance segments 31 Dec 2023 $m 31 Dec 2022 $m
Interest rates and consequential effects Decrease of 0.5% Increase of 1% Decrease of 0.5% Increase of 1%
Increase/(decrease) to shareholders' equity and profit after tax:
Financial assets 6,815 (12,004) 5,873 (10,362)
Net insurance contract liabilities (including CSM) (7,332) 12,191 (6,120) 10,295
Net effect on shareholders' equity and profit after tax (note) (328) 24 (127) (165)
Increase/(decrease) to CSM liability:
CSM 358 (880) 220 (850)
Insurance segments 31 Dec 2023 $m 31 Dec 2022 $m
Equity/property market values Decrease of 20% Increase of 10% Decrease of 20% Increase of 10%
Increase/(decrease) to shareholders' equity and profit after tax:
Financial assets (13,359) 6,681 (11,884) 5,939
Net insurance contract liabilities (including CSM) 12,288 (6,254) 10,927 (5,571)
Net effect on shareholders' equity and profit after tax (note) (822) 327 (735) 283
Increase/(decrease) to CSM liability:
CSM (1,392) 618 (1,303) 550
Note
The net effect on shareholders' equity and profit after tax reflects the net
pre-tax effect on the financial assets and net insurance contract liabilities
shown above, together with the pre-tax effect on other non-insurance
liabilities and the related tax impact.
The sensitivity of the insurance segments presented as a whole at a given
point in time will also be affected by a change in the relative size of the
individual businesses. Changes to the results of the Africa insurance
operations from interest rate or equity price changes would not materially
impact the Group's results.
The Group uses the segment measure 'Adjusted operating profit' to review the
performance of the business (see note B1.2 for how this measure is
determined). The impact on 'Adjusted operating profit' will be more muted than
on total profit as long-term asset returns are assumed for surplus assets and
long-term spreads are assumed for GMM business. Adjusted operating profit will
be impacted by changes in CSM amortisation for VFA business following the
impact of economic changes on underlying assets and discount rates that impact
the value of variable fees, and on the value of onerous contracts losses (or
reversal thereof) taken directly to the income statement. The changes in CSM
amortisation result from changes both to the CSM and the discounting of the
coverage units.
The pre-tax adjusted operating profit impacts for a decrease of 0.5 per cent
and an increase of 1 per cent in interest rates at 31 December 2023 were $(30)
million and $33 million, respectively (2022: $(47) million and $54 million,
respectively).
The pre-tax adjusted operating profit impacts for a decrease of 20 per cent
and an increase of 10 per cent in equity/property market values at 31 December
2023 were $(186) million and $83 million, respectively (2022: $(157) million
and $66 million, respectively).
(b) Sensitivity to insurance risk
For insurance operations, adverse persistency experience can impact the
overall IFRS profitability of certain types of business written. This risk is
managed at a business unit level through regular monitoring of experience and
the implementation of management actions as necessary. These actions could
include product enhancements, increased management focus on premium
collection, as well as other customer retention efforts. The potential
financial impact of lapses is often mitigated through the specific features of
the products, eg surrender charges, or through the availability of premium
holiday or partial withdrawal policy features. The effects of these management
actions have not been factored into the sensitivities below.
In addition many of the business units are exposed to mortality and morbidity
risk and changes in maintenance expense level.
Changes to the assumed levels of persistency, mortality, morbidity and
expenses from that when the contract is first recognised will impact the
overall profitability of the insurance contract. These risks are managed on a
portfolio basis and reinsurance can be used to mitigate the risk the Group
has. In particular for certain medical contracts, product repricing is a key
management action that is embedded in the process to mitigate morbidity risk.
A degree of medical product repricing is assumed to have been undertaken in
the mortality and morbidity sensitivity results shown in the table below.
In terms of the impact on the Group's financial results, changes to
shareholders' equity or profit or loss will occur over the life of the
contract, as changes to future cash flows from altered assumptions are
recognised as an increase or decrease of CSM (except for onerous contracts),
which is then amortised to profit and loss (and hence shareholders' equity)
over time.
The table below shows how the shareholders' equity and CSM would have
increased or decreased if changes in the future assumptions in insurance risk
that were reasonably possible at the reporting date had occurred. This
analysis presents the sensitivities both before and after risk mitigation by
reinsurance and assumes that the other variables remain constant.
2023 $m
Net effect on shareholders' equity and profit after tax Net effect on CSM
Sensitivity to insurance risk: Gross of reinsurance Net of reinsurance Gross of reinsurance Net of reinsurance
Maintenance expenses - 10% increase (77) (71) (420) (427)
Lapse rates - 10% increase (88) (76) (1,363) (1,496)
Mortality and morbidity - 5% increase (131) (96) (638) (261)
2022 $m
Net effect on shareholders' equity and profit after tax Net effect on CSM
Sensitivity to insurance risk: Gross of reinsurance Net of Gross of reinsurance Net of
reinsurance
reinsurance
Maintenance expenses - 10% increase (58) (57) (365) (365)
Lapse rates - 10% increase (78) (70) (1,179) (1,274)
Mortality and morbidity - 5% increase (88) (79) (548) (217)
The pre-tax adjusted operating profit impacts, net of reinsurance, for a 10
per cent increase in maintenance expenses, a 10 per cent increase in lapse
rates and a 5 per cent increase in mortality and morbidity were $(61) million,
$(95) million and $(85) million, respectively (2022: $(53) million, $(69)
million and $(67) million, respectively).
A 10 per cent decrease in the maintenance expense and lapse rate assumptions
would have a broadly similar opposite effect on profit and shareholders'
equity to the sensitivities shown above. The effect from a 5 per cent decrease
in mortality and morbidity assumptions is dependent on the degree of product
repricing assumed to have been undertaken.
C6.2 Eastspring and central operations
The profit for the year of Eastspring is sensitive to the level of assets
under management, as this significantly affects the value of management fees
earned by the business in the current and future periods. Assets under
management will rise and fall as market conditions change, with a
consequential impact on profitability.
Eastspring holds a small amount of investments direct on its balance sheet,
including investments in respect of seeding capital into retail funds it sells
to third parties (see note C1). Eastspring's profit will therefore have some
exposure to the market movements of these investments.
At 31 December 2023 Central operations did not hold significant financial
investments other than short-term deposits and money market funds held by the
Group's treasury function for liquidity purposes and so there is immaterial
sensitivity to market movements.
C7 Tax assets and liabilities
C7.1 Current tax
At 31 December 2023, of the $34 million (31 December 2022: $18 million)
current tax recoverable, the majority is expected to be recovered within 12
months after the reporting period.
At 31 December 2023, the current tax liability of $275 million (31 December
2022: $208 million) includes $93 million (31 December 2022: $79 million) of
provisions for uncertain tax matters. Further detail is provided in note B3.2.
C7.2 Deferred tax
The statement of financial position contains deferred tax assets of $156
million (31 December 2022: $140 million) and deferred tax liabilities of
$1,250 million (31 December 2022: $1,139 million), which are presented on a
net basis in each of the categories below for the purpose of this movement
analysis only:
2023 $m
Net deferred tax (assets) liabilities at Movement in Other Net deferred tax (assets) liabilities at 31 Dec
1 Jan income movements
statement including
foreign
exchange
movements
Unrealised losses or gains on investments (129) 268 (10) 129
Balances relating to insurance and reinsurance contracts 1,255 (87) 2 1,170
Short-term temporary differences (96) 2 - (94)
Unused tax losses (31) (79) (1) (111)
Net deferred tax liabilities (note) 999 104 (9) 1,094
2022 $m
Net deferred tax (assets) liabilities Effect of initial application of IFRS 17 and classification overlay of Restated net deferred tax (assets) liabilities Movement in Other Net deferred tax (assets) liabilities
at 1 Jan IFRS 9 at 1 Jan income movements at 31 Dec
statement including
foreign
exchange
movements
Unrealised losses or gains on investments 239 - 239 (361) (7) (129)
Balances relating to insurance and reinsurance contracts 2,091 (1,092) 999 297 (41) 1,255
Short-term temporary differences 333 (469) (136) 29 11 (96)
Unused tax losses (67) - (67) 32 4 (31)
Net deferred tax liabilities (note) 2,596 (1,561) 1,035 (3) (33) 999
Note
Deferred tax assets and deferred tax liabilities in the statement of financial
position are offset at an entity level (or in some cases at a jurisdiction
level where relevant tax grouping rules apply) as permitted under IAS 12.
The Group has applied the mandatory exemption from recognising and disclosing
information on the associated deferred tax assets and liabilities at
31 December 2023 as required by the amendments to IAS 12 'International Tax
Reform - Pillar Two Model Rules' referred to in note A2.2.
C8 Share capital, share premium and own shares
2023 2022
Issued shares of 5p each fully paid Number of Share Share Number of Share Share
ordinary shares capital premium ordinary shares capital premium
$m $m $m $m
Balance at 1 Jan 2,749,669,380 182 5,006 2,746,412,265 182 5,010
Shares issued under share-based schemes 3,851,376 1 3 3,257,115 - 2
Shares issued under Hong Kong public offer and international placing in 2022 - - - - (6)
Balance at 31 Dec 2,753,520,756 183 5,009 2,749,669,380 182 5,006
Options outstanding under save as you earn schemes to subscribe for shares at
each year end shown below are as follows:
Share price range
Number of shares to subscribe for from to Exercisable by year
(in pence) (in pence)
31 Dec 2023 1,671,215 737p 1,455p 2029
31 Dec 2022 1,858,292 737p 1,455p 2028
Transactions by Prudential plc and its subsidiaries in Prudential plc shares
The Group buys and sells Prudential plc shares ('own shares') in relation to
its employee share schemes through the trusts established to facilitate the
delivery of shares under employee incentive plans.
During the year, the trusts purchased a total number of shares of 3,888,138
(2022: 5,498,486) and the cost of acquiring these shares, including shares
purchased for members under employee share purchase plans was $54 million
(2022: $77 million). The cost in USD shown has been calculated from the share
prices in pounds sterling using the monthly average exchange rate for the
month in which those shares were purchased. At 31 December 2023, 10.0 million
(31 December 2022: 12.6 million) Prudential plc shares were held in the
trusts.
Other than as disclosed above, the Company and its subsidiaries did not
purchase, sell or redeem any Prudential plc listed securities during 2023.
Subsequent to the year end, the Company commenced and completed a share
repurchase programme in January 2024 in respect of 3,851,376 ordinary shares
as disclosed in note D2.
D Other information
D1 Contingencies and related obligations
The Group is involved in various litigation and regulatory proceedings from
time to time. While the outcome of such litigation and regulatory issues
cannot be predicted with certainty, the Group believes that their ultimate
outcome will not have a material adverse effect on the Group's financial
condition, results of operations, or cash flows.
Litigation developments during the year include a case regarding a historic
transaction connected to the legal and beneficial ownership of 49 per cent of
the ordinary shares of the holding company of Prudential Assurance Malaysia
Berhad. Prudential currently owns 51 per cent of this entity but consolidates
the entity at 100 per cent reflecting the economic interest of the Group.
Prudential has been successful at court hearings relating to the transaction
concerned both in the first instance and at the subsequent appeal stage. In
July 2023, the Federal Court, which is Malaysia's highest Court, granted leave
to allow the appellant to further appeal the case in the Federal Court. The
appeals process is ongoing.
D2 Post balance sheet events
Dividends
The 2023 second interim dividend approved by the Board of Directors after
31 December 2023 is as described in note B5.
Share repurchase programme to neutralise 2023 employee and agent share scheme
issuance
On 16 January 2024, the Company announced that the share repurchase programme
in respect of 3,851,376 ordinary shares that it announced on 5 January 2024
and commenced on 8 January has been completed. The purpose of the share
repurchase programme was to offset dilution from the vesting of awards under
employee and agent share schemes during 2023. The Company has repurchased
3,851,376 ordinary shares in aggregate (representing 0.14 per cent of the
total number of ordinary shares in issue at the end of the year (as disclosed
in note C8)) at a volume weighted average price of £8.2676 per ordinary share
for a total consideration of approximately £32 million.
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