M&G plc
Annual Report and Accounts 2022
Building
on our
strengths
Contents
1–91
Strategic Report
2
3
4
6
8
10
14
16
17
20
32
40
42
46
48
52
56
58
68
90
91
Performance highlights
M&G at a glance
Introducing Edward Braham and Andrea Rossi
Our business model
Market and industry trends
Our strategy
Our key performance measures
Chair’s statement
Group Chief Executive Officer’s statement
Business and financial review
Our approach to sustainability
Section 172 statement
Our stakeholders
Clients
Our colleagues
Social impact
Non-financial reporting statement
Risk management
Climate-related disclosures
Viability statement
Basis of preparation
165–329
Financial information
166
Independent auditors’ report
180 Consolidated financial statements
309 Company financial statements
318 Supplementary information
92–164
Governance
93
94
97
98
Chair’s introduction to governance
Board of Directors
Governance at a glance
Board activities
101 Division of responsibilities
and Boardroom practice
105 Board effectiveness and evaluation
106 Corporate Governance Code
108 Nomination Committee Report
110 Audit Committee Report
117
Risk Committee Report
119 Directors’ Remuneration Report
124 Directors’ Remuneration Policy
134 Remuneration at a glance
141 Annual Report on Remuneration
160 Directors’ Report
164 Statement of Directors’ Responsibilities
and Financial information
Despite the immense
challenges of this volatile
macro environment,
we’ve stayed true to our
purpose: helping people
manage and grow their
savings and investments,
responsibly.”
Edward Braham
Chair
Stay up-to-date with
more information at:
mandg.com
330–337
Other information
331 Shareholder information
332 Glossary
337 Contact us
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Introduction
Building on our strengths
“It’s an exciting time to
join M&G. We have great
capabilities and all the
foundations in place for long-
term, sustainable growth.”
Andrea Rossi
Group Chief Executive Officer
M&G plc Annual Report and Accounts 2022 | 1
Strategic ReportGovernanceFinancial informationOther information Performance highlights
Measuring our progress
Financial highlights
Non-financial highlights
KPM APM REM
Adjusted operating profit before taxi
£529m(2021: £721m)
KPM APM REM
Total capital generationii
£(397)m(2021: £1,822m)
KPM APM REM
Operating capital generationii
£821m(2021: £1,117m)
KPM APM
Assets under management and administration
£342.0bn
(2021: £370.0bn)
KPM
IFRS result after tax
£(1,619)m
(2021: £92m)
KPM APM
Shareholder Solvency II coverage ratioiii
199%(2021: 218%)
KPM APM
Net client flows (excluding Heritage)
£0.3bn inflow
(2021: £0.6bn inflow)
Key
KPM Key performance measure (defined in glossary)
APM Alternative performance measure (defined in glossary)
REM
Linked to remuneration measures for Executive Directors
2 | M&G plc Annual Report and Accounts 2022
REM
Female representation on the M&G
Executive Committee and direct reports
37%(2021: 35%)
REM
Ethnic diversity within the M&G
Executive Committee and direct reports
12%(2021: 13%)
REM
Net promoter score (Retail and Savings)
+14(2021 restated: +9iv)
REM
Employee sustainable engagement score
72(2021: n/aᵛ)
REM
Direct carbon emissions:
Scope 1 and 2vi
1,526tCO2e
(2021: 1,887tCO2e)
i Adjusted operating profit before tax is profit before tax excluding
short-term fluctuations from investment returns, profit or loss on
disposal of business and corporate transactions, amortisation and
impairment of intangible assets acquired in business combinations,
restructuring and other costs.
ii Total capital generation is the total change in Solvency II surplus
capital before dividends and capital movements. Operating capital
generation is the total capital generation adjusted to exclude tax
and market movements relative to those expected under long-term
assumptions, and to remove other non-operating items, including
shareholder restructuring and other costs.
iii Shareholder Solvency II coverage ratio is the ratio of our own funds
to solvency capital requirement (SCR), excluding the contribution
to own funds and SCR from our ring-fenced With-Profits Fund.
The Solvency II position is presented assuming a recalculation of
transitional measures in line with management’s estimate of market
and operating conditions as at the valuation date.
iv Basis of calculation changed from three month to six month
rolling average.
v We moved to a new provider for OneVoice surveys in October
2022, including a new question set and new scoring methodology.
The 2021 score is therefore not available on the same basis.
vi When reporting totals, market-based emissions are used. Note that
the 2021 figure has been restated, see page 76 for details.
M&G at a glance
A leader in savings and investments
We help our clients to save and invest, through responsible,
long-term investment decisions that benefit wider society
Our purpose
To help people manage and grow their
savings and investments, responsibly
Find out more about our purpose and
how it informs our strategy on page 10
Our values
Care
We act with care – treating clients
and colleagues with the same level of respect
that we would expect for ourselves. We also invest
with care, making choices for the long term.
Integrity
We empower our colleagues to do the right thing,
honouring our commitments to others and
acting with conviction. Our business is built
on trust and we don’t take that lightly.
Our business
£342.0bni
total assets under management and administration
(2021: £370.0bn)
Asset Management
£154.2bn
third-party assets managed
(2021: £156.7bn)
£149.9bn
Retail and Savings assets managed
by our Asset Management business
(2021: £168.6bn)
£36.5bn
assets not managed by our
Asset Management business
(2021: £42.5bn)
Retail and Savings
Find out more in our business model pages 6-7
and business and financial review pages 20-31
Our international reach
Who we serve
26Markets
globally
37Offices
worldwide
4
Continents
4.8mRetail
clients
800+Institutional
clients
i Total AUMA includes £1.4bn (2021: £2.2bn) of corporate assets not recognised within either Asset Management or Retail and Savings.
M&G plc Annual Report and Accounts 2022 | 3
Strategic ReportGovernanceFinancial informationOther information Introducing Edward Braham and Andrea Rossi
A conversation with our new
Chair and Group Chief Executive Officer
Edward Braham and Andrea Rossi discuss their
first impressions of M&G, how they work together,
the new focus to our strategy and their ambitions
for the company
Q You both started
at M&G this year.
How has it been?
AR: We’ve both been busy! I’ve been
getting to know the business, and
meeting colleagues, clients and
investors to get their perspectives.
By engaging with different stakeholders,
I now know where our capabilities
are strongest and how we can grow
M&G, in line with our values.
Our differentiated business model is
one of the main reasons why I wanted
to join M&G. We have three distinct, yet
balanced and complementary parts.
We lead with the Asset Manager, the
core of our business, it both serves and
is supported by Heritage and Wealth –
working together, all thrive.
EB: M&G is a great business with strong
foundations. It’s been a challenging
year for many, but for M&G one of
achievement and creating opportunity.
We’ve invested in our Board and
Executive team, and given a new focus
to our strategy so we can build on M&G’s
fantastic capabilities, central to which
are our exceptional colleagues. I’ve
been very impressed with the breadth
and depth of talent at M&G, and the
drive and determination to succeed.
4 | M&G plc Annual Report and Accounts 2022
This is about bringing our capabilities
together to unlock potential and
drive our business forward.”
Q How would
you describe
your relationship?
EB: We have the same collaborative
approach and we complement each
other well. Andrea has brought real
dynamism to our business. His energy,
focus, ambition and track record of
delivery are exactly what we need for
the next phase of M&G’s growth journey.
Andrea is very strong on ownership,
accountability and delivery…
AR: …while Edward provides me with
vital challenge. We speak almost every
day, and we’re like good sparring
partners, because we help improve each
other’s thinking through constructive
debate. We have reviewed the business
and we are absolutely aligned on our
ambitions for M&G. We are also clear
on what needs to be done to achieve
our aims.
Q How important is
M&G’s purpose to
your success?
AR: Our purpose lies at the heart of our
strategy – how we take care of savings
and investments for our clients for the
long term. We live in volatile times,
but we have a proud heritage and we
are a trusted savings and investments
provider for millions of people. We want
to be able to provide long-term financial
reassurance for clients and help our
stakeholders in their transition towards
a sustainable future.
Edward Braham
Chair
EB: The word “responsibly” is widely
bandied around, but at M&G it’s
deliberately chosen. It applies across many
different levels and for all our stakeholders:
behaving responsibly with our colleagues
each day; acting responsibly with
our clients’ savings and investments;
and showing our responsibility for
our communities and environment in
our products, actions and corporate
responsibility programmes.
Q How has M&G’s
strategy changed?
AR: The strategy hasn’t changed, but it
now has a sharper focus.
We want to be a business that delivers
consistently superior shareholder
returns. How will we do this? By being
nimble enough to anticipate and respond
to our clients’ needs, and delivering
great service and value. We will
achieve our ambitions if we focus on
financial strength, simplification and
profitable growth.
Leading with our Asset Management
business, we will continue to leverage
the inherent advantages of our
financial resilience and strong balance
sheet, and the increasing scale of our
Wealth distribution.
We are also working hard to simplify
M&G, and to empower colleagues
closest to our clients – to drive
engagement, improve outcomes
and unleash innovation. We are investing
in our digital capabilities to ensure we
make financial advice more accessible
in the UK market, and to deliver strong
service to support our clients.
We’re confident this strategy will help
us deliver in our home UK market, and
will also lead to building our profitable
international business.
EB: It’s about building on our strengths,
and making sure our clients stay front
and centre of how we do business.
We will continue to respond to and
address their needs; from innovating
with sustainable investments, to
digitising our Wealth platform to attract
more advisers and drive flows.
Q What are your
ambitions for M&G?
EB: I’m convinced we can drive profitable
growth for M&G. This is not about
being the biggest – it’s about bringing
our capabilities together to unlock
potential and drive our business forward.
And by doing this, we will deliver
superior returns through attractive
dividends and earnings growth.
AR: M&G is a great company, with
a bright future. There are lots of
opportunities both in the UK and
internationally for us to make an impact.
I want M&G to be admired as a leader in
savings and investments. It’s ambitious –
but I absolutely believe we can do it.
Our purpose lies at the heart
of our strategy, and informs
everything we do.”
Andrea Rossi
Group Chief Executive Officer
M&G plc Annual Report and Accounts 2022 | 5
Strategic ReportGovernanceFinancial informationOther information Our business model
Leveraging our strengths to drive value
Our differentiated business model, investment
expertise, and client-led approach create long-term,
sustainable value for all our stakeholders
As an international savings and
investments business, we manage
and administer £342 billion of financial
assets for the benefit of our clients.
Our clients consist of a broad range of
individuals, pension funds, insurance
companies, wealth managers, financial
advisers and other distribution
partners across 26 markets.
We provide a wide range of savings
and investments products and
services to our clients, who trust us to
manage their assets responsibly and
help them achieve their financial goals.
We segment our business into
Asset Management and Retail and
Savings, which reflects the range of
propositions and services we offer to
our clients.
What we do
Our Asset Management business
manages more than £300 billion
in client assets. We are among the
largest managers of private assets
in Europe. We are also recognised
for our broad public fixed income
expertise, a long track record in
multi-asset solutions, and a growing
range of sustainability-driven thematic
equities products.
In Retail and Savings, our PruFund
range is one of Europe’s largest multi-
asset propositions. It provides access
to insurance-based solutions such as
smoothing, with a distinctive blend
of public and private investments,
delivering average investment returns
of 6.7% a year over the past 18 years.
In addition, M&G Wealth offers
a comprehensive savings proposition
to UK clients, including investment
solutions, portfolio allocation
and advice.
Retail and Savings also includes our
Heritage portfolio of traditional
with-profits and annuity policies.
We use our financial strength, scale
and long-term investment horizon
to provide security to our clients
and enable our investment teams to
build new capabilities that enhance
financial outcomes.
Heritage
Retail and Savings
Asset Manager
Wealth
Retail and Savings
Risk and investment
solutions, providing scale
and a resilient underpin
to the Group
International active
investment manager with
differentiated high-value
investment capabilities
Integrated proposition
including PruFund, serving
UK clients across the
distribution spectrum
Supports client-
focused innovation
through long-term capital,
and is the largest client
of the Asset Manager
Powers the solutions
we offer to our clients
providing strong investment
expertise and access
to private markets
Enhances access to clients
through strong brands
and intermediary
relationships
Strong balance sheet
and resilient earnings and
capital generation
Capital light, with
growing fee-based and
diversified revenues
Capital light, growing market
with high persistency
as we aim to deliver superior shareholder returns
6 | M&G plc Annual Report and Accounts 2022
Clients are at the core of everything we do What makes us different
The outcomes we
aim to deliver
Differentiated business model
We combine the investment expertise of our asset
manager and the broad investment needs of the
With-Profits Fund to manufacture distinctive
investment solutions. The scale, strength and long-term
investment horizon of the With-Profits Fund enable
our investment teams to develop new sources of
investment performance, enhancing the financial returns
and range of innovative strategies we offer to our clients.
In the UK, our M&G Wealth savings proposition
brings us close to our clients and their advisers,
allowing us to develop a deep understanding of their
needs and enhancing their access to our products
and services.
Recognised expertise in active
asset management
We have a long track record in multi-asset solutions,
and are also recognised for our broad public fixed
income expertise, and our growing range of
sustainability-driven thematic equities products.
Underpinned by a strong focus on sustainability,
a well-established brand and a broad international
footprint, our investment capabilities position
us well across a variety of clients.
Aligned to growth markets
The scope of our activities is aligned to substantial
growth areas in our target markets across the UK, Europe
and Asia, where long-term dynamics are favourable.
With an established track record in entering new
markets, both in terms of geography and investment
capability, and adapting to changes in our clients’
needs, we are well placed to deliver growth.
Find out more about market trends
on page 8
Attractive financial prospects
We have committed to generating cumulative operating
capital of £2.5 billion over the three years to 2024.
Supported by a well-capitalised balance sheet and
a resilient, diverse earnings profile, we will keep
investing in a targeted set of high-potential growth
opportunities, while delivering secure and attractive
shareholder returns.
Find out more about our strategy
on page 10
Clients
Strong investment
outcomes delivered
through innovative
propositions that
address clients’
financial needs.
Find out more
about our clients
on pages 46-47
Investors
Sustainable,
attractive returns,
with balance of
profitable growth
and dividends.
Find out more
about our financial
performance
on pages 20-31
Colleagues
A great place to work
with growth and
talent development
opportunities, fully
embracing new ways
of working.
Find out more
about our
colleagues
on pages 48-51
Communities
Supporting
resilient, inclusive
communities through
urban regeneration
and economic
empowerment.
Find out more
about our
communities
pages 52-55
M&G plc Annual Report and Accounts 2022 | 7
Strategic ReportGovernanceFinancial informationOther information Market and industry trends
Understanding market dynamics
The savings and investments market benefits from supportive
long-term trends, for which we are well positioned, but also faces
near-term challenges. We are alert to these dynamics to ensure
we stay relevant and competitive
The economic outlook is uncertain
Recent global events
have introduced a new
level of macroeconomic
uncertainty, which makes
saving for the future all
the more challenging
– Growth in the global economy is
slowing as a result of geopolitical
tensions, monetary policy tightening
and disruption from the pandemic.
– Supply chain issues and energy security
concerns have created inflationary
pressures, leading to rising costs for
businesses and consumers.
– Global investment markets have
responded by pulling back from
growth sectors against a more volatile
backdrop, seeking near-term refuge
in less risky assets.
M&G response
– Everyone needs a range of savings and
investments solutions that can adapt to
changes in their individual situation and
the wider economic environment. By
investing our clients’ money across a broad
range of asset classes, we can deliver
superior financial outcomes, in line with
their needs. Our flagship PruFund Growth
fund allows clients to invest in a carefully
managed combination of asset classes,
while offering a smoothing mechanism
to reduce volatility. PruFund Growth has
delivered 6.7% in average annual returns
over the past 18 years.
– Helping people access financial advice
more easily is a top priority for M&G
Wealth. We have invested heavily in
expanding our range of services to our
clients and their advisers: we have added
a leading model portfolio service, grown
our UK adviser business to 500 advisers,
and we are introducing digital features to
streamline client data gathering and reduce
the cost of advice.
Client needs are changing
We manage money for
a broad range of clients
across 26 markets.
Their investment needs
are continually evolving,
while technology is
transforming the service
they expect
Find out more about our
approach to clients on
page 46
– Despite recent market turmoil,
most of our clients continue to
seek long-term investment opportunities
beyond traditional asset classes,
i.e. in private assets, to generate higher,
more diversified returns.
– The ubiquitous rise of digital is leading
clients around the world to expect
seamless, real-time interactions with
well-informed specialists.
– Broader availability and generalised use
of data are enabling companies to develop
a deeper understanding of each client’s
needs and how they evolve over time.
This allows them to reach out to their
clients in a more personalised way and
offer solutions that better fit those needs.
M&G response
– As one of the UK and Europe’s leading
managers of private assets, our investment
expertise is well aligned to areas of high
demand. We are also growing capabilities
in thematic and sustainable strategies
across a broad range of asset classes.
Our PruFund Growth fund, with a 27%
allocation to private assets, offers individual
investors strong exposure to this hard-to-
access asset class.
– We are enhancing the digital experience we
offer to our clients: this will make it easier
and faster for them to get in touch with us,
access the money we manage for them
and get the information they need. We are
also leveraging data to proactively reach
out to them about their needs in a more
personalised way.
8 | M&G plc Annual Report and Accounts 2022
Sustainability is a growing focus
As a major provider
of private capital, the
savings and investments
industry plays a critical
role in progressing
sustainability issues to
deliver positive change
for the benefit of the
environment, individuals
and wider society
Find out more about our
approach to sustainability
on page 32
M&G response
– We are continuing to develop our approach
to sustainability across the Group, both in
how we run our business and in the way
we manage assets on behalf of our clients.
As a major investor, we also aim to help
the companies we invest in to progress
their own transition.
– We have set public sustainability targets
across our activities, with a focus on
climate, diversity and inclusion.
– We are growing our expertise in
sustainable investment through
the acquisition of impact investment
specialist responsAbility, the ongoing
deployment of our £5 billion investment
mandate (Catalyst) from the With-Profits
Fund and the launch of new M&G funds.i
– Institutions, such as pension funds and
insurance companies, expect asset
managers to offer investment opportunities
to help them meet their sustainable
investing objectives.
– Massive investment is required in response
to global challenges such as climate
change and nature loss, and to ensure
safe, sustainable energy sources, food and
infrastructure. The financial sector has the
opportunity to direct capital to companies
that will accelerate the shift to a more
sustainable economy, and help them to
advance their own transition.
– We recognise the scale of change
required to transition the global economy
to mitigate the effects of climate change
and believe that the combined efforts of
key stakeholders such as policymakers,
corporates and asset managers can make
a real impact from a societal and economic
perspective. This brings both significant
responsibility and tremendous opportunity
to M&G as conviction-led, responsible
investors and stewards of the long-term
savings of millions of clients.
Margins are under pressure
The savings and
investments industry
is under increasing
pressure: revenue
levels are falling, while
investments in technology
and asset class expertise
remain high
Find out more about
our strategy on
page 10
– Revenues continue to suffer from
M&G response
competitive pressures and the rise of
low-cost passive asset management
strategies.
– Investment costs remain high, driven by
steady client demand for more global
savings and investments solutions,
new regulations, growing technology
requirements in digital and data and
the need to build up capabilities across
data science.
– To better meet client demand, companies
are expanding their offering along the
value chain, attracting higher flow volumes
through additional investments and
increased running costs.
– We focus on markets and segments where
we can offer differentiating solutions to our
clients, such as private assets in Europe
and thematic and sustainable strategies.
– We partner with select technology
providers to accelerate our capability build,
for instance in hybrid advice.
– We have developed a full-service Wealth
business for UK clients to access a broad
range of savings solutions, directly through
our own advice teams or via other financial
advisers. This gives us the opportunity to
participate in the economics of the entire
savings value chain.
i Such as the Better Health fund and the Diversity and Inclusion fund
M&G plc Annual Report and Accounts 2022 | 9
Strategic ReportGovernanceFinancial informationOther information Our strategy
Delivering on our strategy
We have a proud history in managing savings and investments,
delivering superior outcomes for our clients through our investment
expertise and innovative propositions, in line with our purpose
Through the combination of our
differentiated business model and a
deep understanding of our clients’ needs,
we offer a broad and distinctive set of
savings and investments propositions.
We are investing in our digital
capabilities to ensure we make financial
advice more accessible in the UK market,
and to deliver strong service to support
all of our clients.
We use our scale and leading position in
the market as a force for good, directing
investments to influence positive change.
We aim to advance sustainability inside
and outside M&G, for all our stakeholders.
Better understand client needs
Apply the knowledge and insights
we gain from our clients to better
understand their needs and design
relevant propositions
Deliver high-value outcomes
Leverage our broad investment
expertise to generate financial
outcomes that help our clients
achieve their financial goals
with confidence
Driven by our purpose
Our
purpose
Help people manage
and grow their savings
and investments,
responsibly
Enable our clients
Help people make informed decisions
to save and prepare for their future
Deploy digital capabilities to make
financial advice more accessible and
enhance the support we provide
Act responsibly
Allow our clients to invest their
savings in a way that supports the
transition to a sustainable economy
Deliver on our sustainability
commitments, while supporting
companies in their own transition
Our strategy
We want to build on our strengths and generate profitable growth, in line with our purpose.
Maintain
our financial
strength
Simplify
our
business
Deliver
profitable
growth
Ensuring our clients
can depend on us, while
rewarding shareholders
Becoming more nimble
and efficient in how we work
to best serve our clients
Building on our strengths
to better anticipate and
address our clients’ needs
10 | M&G plc Annual Report and Accounts 2022
Maintain our
financial strength
Maintaining our financial strength
is essential. Our clients must have
confidence in our ability to manage
their money and deliver superior
outcomes over the long term.
We reward shareholders with
attractive and dependable
dividends, so we invest carefully,
using our experience and
expertise, to target high-potential
growth opportunities.
Our priorities:
– Deliver proactive
financial management
– Maintain strict capital allocation
– Diversify revenues
Maintain strict
capital allocation
All capital allocation decisions aim to
enhance our financial prospects as
well as total shareholder returns.
Diversify revenues
We aim to increase the contribution
of our Asset Management business
to total earnings, while diversifying
revenue sources across clients and
geographies, in turn improving the
resilience of our revenue model.
We have a well-capitalised balance
sheet and a resilient earnings profile,
supported by predictable and
recurring underlying capital generation
from Heritage.
We will reinforce our financial strength
by successfully executing our growth
strategy. Through this, we expect to
generate higher and more sustainable
earnings, with improvements in
operating margins and greater
financial flexibility.
Deliver proactive
financial management
We will maintain our disciplined
approach to financial strength by taking
a proactive approach to managing the
balance sheet and solvency position.
Act responsibly
Investing on behalf of with-profits clients
to create a more sustainable world
M&G’s Catalyst strategy is investing up to £5 billion into
innovative privately owned global businesses that aim
to tackle some of the world’s biggest environmental and
social challenges.
In May 2022, M&G became a cornerstone investor
in Northern Gritstone, the new investment business
focused on university spin-outs. Northern Gritstone’s
philosophy of “profit with purpose” is aligned with M&G’s
approach to investing: seeking to combine attractive
returns for shareholders with wider positive, societal and
economic impact.
Northern Gritstone aims to help academics commercialise
ground-breaking scientific ideas, creating new businesses
and high-skilled jobs. Alex Seddon, head of M&G’s Catalyst
team, explains: “British universities have a growing reputation
for exceptional research capabilities, successful spin-outs
and innovation hubs. The momentum around Northern
Gritstone is fuelling a thriving northern venture ecosystem,
widening access for investors to back exceptional talent.”
M&G plc Annual Report and Accounts 2022 | 11
Strategic ReportGovernanceFinancial informationOther information Our strategy continued
Simplify
our business
To deliver our strategy and drive
improvements that best serve
our clients, we need to transform
how we operate, while investing to
enhance our capabilities.
Our priorities:
– Streamline our organisation
– Digitise and automate
– Modernise our technology estate
Simplifying the way in which we operate
is essential to our future growth: we
want to unlock the potential we have in
the organisation by making it easier for
our colleagues and partners to team
up across the business, work with our
clients to design the solutions they
want, and deliver them more quickly.
Streamline our organisation
By removing management layers
we will reduce the complexity of our
decision-making and governance
processes. We want to empower our
operational teams on the ground, and
equip them with the levers they need
to steer and grow the business in each
country. In turn this will ensure that
our propositions are best positioned to
meet the needs of our clients.
Digitise and automate
We are enhancing our clients’
experience through the use of digital
features, to make it easier for them to
engage with us. We are automating
our processes, to help reduce the time
it takes us to serve them. We are also
investing in our data and analytics
capabilities to better understand client
needs, develop relevant propositions
and engage with clients in a more
informed and personalised way.
Modernise our
technology estate
Moving to enhanced agile systems
will enable us to expand the range
of services we offer to our clients,
while better responding to changes
to what they need.
A major focus of our work is
encouraging more women to consider
data or technology as a career option
as the data landscape continues
to evolve. I’m so proud we’ve
partnered with Women in Data.”
Debbie Kerr
M&G data scientist
Enable our clients
Creating an exceptional place to work
Debbie Kerr is a data scientist at M&G – she was also nominated as
a Rising Star in our 2022 Inclusion Awards. She explains her work:
“I joined M&G on a graduate scheme and found my home in data. I love
the problem-solving aspects of the job and the business challenge of
using data to tell impactful stories. My role focuses on delivering products
into the hands of our clients, which is varied and challenging.
I also work on developing diversity and inclusion initiatives at M&G.
We’ve made a lot of progress, including our partnership with Women
in Data (WiD), using its platform to attract more women to work in
data and build a network of support around career advancement in
the industry.”
12 | M&G plc Annual Report and Accounts 2022
Deliver profitable
growth
We will focus on targeted
opportunities where our
differentiated propositions
and services give us a strong
starting point.
Our priorities:
– Grow external flows
in Asset Management
– Deploy a full savings and advice
offering in the UK
– Offer innovative solutions
to selected defined benefit
pension funds
In the rest of the world, we will serve
Latin American pension funds and
wealth distribution partners out of
our office in Miami. We aim to grow
our South African business, in which
we own a majority share. We are
also looking to strengthen our ability
to serve Middle Eastern sovereign
wealth funds.
Across our six investment hubs around
the world, we will continue to develop
innovative investment strategies
and solutions:
Our growth strategy consists of three
complementary plays:
– We will expand our off-platform
offering, which has historically
focused on pension decumulation,
to a broader range of solutions near
and at retirement.
– We aim to increase the adoption
of our platform among selected
advisers by improving their digital
experience, while expanding the
range of investment solutions we
offer, including our PruFund range.
– We aim to expand our long-
– We aim to grow flows into our M&G
Grow external flows
in Asset Management
Our growth priorities in Asset
Management centre on our strengths
in fixed income and private assets,
and increasing demand for thematic
and sustainable strategies in equities
and multi-assets.
In the UK, we will keep adapting
our institutional investment
strategies to the evolving needs of
pensions schemes as they de-risk.
We will also expand our offering to
the large distribution platforms and
advice networks, as they seek to
support their clients.
In Continental Europe, we aim to build
on the strength of our Institutional
business, where our expertise is
well aligned with the needs of pension
and insurance clients. We will also work
more closely with leading wholesale
partners in our target markets, to
develop customised solutions that
support their own client propositions.
In Asia, we will invest selectively
to support longer-term growth,
focusing on Hong Kong, Japan, Korea,
Singapore and Taiwan. We will build
on our existing client relationships
and track record by expanding our
local distribution reach, while growing
our investment expertise.
established fixed income expertise,
building on our global platform and
extensive experience in managing
Group assets.
– We will strengthen our private asset
origination outside the UK to broaden
our product range, while maintaining
a strong focus on sustainability.
– We will enrich our differentiation
in multi-assets and equities, by
developing our range of thematic
and sustainable strategies.
– We are also looking to further deploy
the multi-asset allocation approach
that powers our PruFund proposition,
by expanding the distribution of its
sister product, Future+, in selected
European markets, and launching
new client solutions with a similar
risk-managed outcome.
Deploy a full savings and
advice offering in the UK
M&G Wealth’s end-to-end savings
proposition comprises our historical
off-platform offering centred on our
smoothed PruFund product, a model
portfolio solution, a digitally enabled
adviser platform, a market-leading
hybrid advice capability and an advice
business of 500 advisers.
This combination meets the needs
of a wide range of financial advisers
and clients, which will allow us to
increase flows into our platform
and savings solutions.
advice business, by leveraging
digitisation and hybrid advice to
streamline the advice process, while
offering our Heritage clients a more
customised experience as they retire,
leading to better outcomes.
Offer innovative solutions
to selected defined benefit
pension funds
The dramatic change in market
conditions that led to the Liability-
Driven Investment crisis in 2022 is
causing UK pension schemes across
the market to fundamentally reassess
their strategies.
Our investment expertise, our financial
strength, the scale of the With-
Profits Fund and our experience in
annuities position us well to support
defined benefit pension funds as their
needs evolve.
We are exploring ways in which we can
help selected funds at different levels
of their funding maturity, or where they
face specific challenges in de-risking
their assets. We are looking to develop
traditional and capital-light solutions,
including those that could leverage
the strength and unique features of
the With-Profits Fund.
M&G plc Annual Report and Accounts 2022 | 13
Strategic ReportGovernanceFinancial informationOther information Our key performance measures
Financial highlights
These key performance measures are used to
monitor and assess our progress against our strategy
Adjusted operating
profit before tax
Total capital
generation
IFRS result
after tax
Operating capital
generation
KPM APM REM
KPM APM REM
KPM
KPM APM REM
£529m
(2021: £721m)
£(397)m
(2021: £1,822m)
£(1,619)m
(2021: £92m)
£821m
(2021: £1,117m)
Adjusted operating profit before
tax demonstrates our longer-term
performance to equity holders, as
it is less affected by short-term
market volatility and non-recurring
items than IFRS profit before tax.
Performance in 2022
Our adjusted operating profit
before tax of £529 million
(2021: £721 million) decreased
by 27%, driven mainly by a fall
in the annuity margin due to
the impact from rising yields;
an increase in expenses
in the Asset Management
business; and negative foreign
exchange movements on
the USD subordinated debt
within our Corporate Centre.
These have been partly offset by
an increase in the with-profits
shareholder transfer.
Find out more on page 21.
Net client flows
(excluding Heritage)
The level of surplus capital is an
important financial consideration.
Capital generation measures the
change in surplus capital during
the period, before dividends and
capital movements. It is integral
to running and monitoring our
business, our decisions on capital
allocation and investment, and our
dividend policy.
Performance in 2022
Total capital generation was
negative £397 million (2021:
positive £1,882 million), reflecting
the significant swing in market
movements compared with overall
positive market movements
over 2021.
Find out more on page 23.
(Loss)/profit after tax
demonstrates our financial
performance to shareholders
during the year on an IFRS basis.
Operating capital generation
demonstrates the longer-term
view of the movements in our
surplus capital, as it is less
affected by short-term market
volatility and non-recurring items
than total capital generation.
Performance in 2022
IFRS result after tax attributable
to equity holders decreased to
£1,619 million loss (2021:
£92 million profit), as market
conditions have led to unrealised
losses on surplus assets in the
annuity portfolio, and derivative
contracts held to protect the
Solvency II balance sheet.
Find out more on page 22.
Performance in 2022
Underlying capital generation
increased 27% to £615 million,
primarily driven by higher
expected returns on surplus
assets in the annuity portfolio.
Operating capital generation fell
during 2022 by 26%, driven mainly
by a number of management
actions in 2021 that were not
repeated in 2022.
Find out more on page 23.
Shareholder
Solvency II
coverage ratio
Assets under
management and
administration (AUMA)
Dividend per share
(ordinary)
KPM APM
KPM APM
KPM APM
KPM
£0.3bn inflow
(2021: £0.6bn inflow)
199%
(2021: 218%)
£342.0bn
(2021: £370.0bn)
19.6p
(2021: 18.3p)
Net client flows indicate how
our business grows, and
how successful it is at retaining
and attracting new clients.
Performance in 2022
Net client flows saw the
Wholesale Asset Management
and Wealth business return to a
net client inflow position in 2022.
Institutional Asset Management
had net client outflows, driven by
the market volatility.
Find out more on page 322.
Key
The shareholder view of the
Solvency II coverage ratio
provides a more relevant
reflection of our capital strength
than the regulatory Solvency II
coverage ratio.
Performance in 2022
Our shareholder Solvency II
coverage ratio remains strong but
reduced from 218% to 199% at
31 December 2022, after paying
dividends of £465 million, the
£503 million cost of the buy-back
programme and other capital
movements such as acquisitions
in the year.
Find out more on page 24.
AUMA is a key indicator of our
scale, and demonstrates our
potential earnings from investment
return and fee income.
Dividend per share is the return
of value to shareholders for each
share held.
Performance in 2022
AUMA decreased by £28 billion
compared to 2021, predominantly
driven by adverse market
movements, partly offset by
the inclusion of AUMA from our
acquisitions in the year.
Find out more on page 322.
Performance in 2022
Having paid an interim dividend in
September 2022 of 6.2 pence per
share, the Board has agreed to pay
a second interim dividend of 13.4
pence per share on 27 April 2023.
Find out more on page 16.
KPM Key performance measure APM Alternative performance measure REM Linked to remuneration measures for Executive Directors
Our strategy:
Maintain our financial strength
Simplify our business
Deliver profitable growth 10 point sustainability plan:
14 | M&G plc Annual Report and Accounts 2022
Non-financial highlights
We measure success in how we balance the interests of all
our stakeholders, including colleagues, clients and communities
Female representation on the
M&G Executive Committee
and direct reports
Ethnic diversity within the
M&G Executive Committee
and direct reports
Net Promoter Score
(Retail and Savings)
REM
+14
(2021 restated: +9i)
Net promoter score (NPS) is a measure of
the willingness of a company’s clients to
recommend its products or services to others.
It is measured across a rolling six month period.
Performance in 2022
In 2022, we focused on simplification,
stabilisation and excellent service to make
it easier for clients to do business with us.
We were therefore pleased to see our net
promoter score increase from +9 to +14 by
the end of the year.
Find out more on page 46.
REM
37%
(2021: 35%)
REM
12%
(2021: 13%)
Female representation within the Executive
Committee and their direct reports as at
31 December 2022.
Black, Asian or minority ethnic representation
within the Executive Committee and their direct
reports as at 31 December 2022.
Performance in 2022
We continue to make progress towards our
target of 40% female representation in senior
leadership by 2025. Initiatives to support our
target include partnerships with Everywoman,
Women in Data, City Hive and 100 Women in
Finance to provide networking, mentoring and
career development opportunities.
Find out more on page 50.
Performance in 2022
Work is ongoing to achieve our target of
20% ethnic minority diversity within senior
leadership by 2025. There are a number of
initiatives underway, including expanded use
of job boards targeting diverse candidates;
for example, posting investment and asset
management roles on the Black Women in
Asset Management job board.
Find out more on page 51.
Direct carbon emissions:
Scope 1 and 2ii
Employee sustainable
engagement score
REM
1,526tCO2e
(2021 (restated): 1,887tCO2e)
REM
72
(2021: n/a)
Scope 1 emissions are our direct emissions
from the combustion of fuel, fugitive emissions
and company-owned vehicles. Scope 2
emissions cover our indirect emissions from
the purchase of electricity (including use
of company electrical vehicles), heating
and cooling.
We have reported our Scope 2 emissions using
both the location- and market-based methods
in line with the Greenhouse Gas Protocol Scope
2 Guidance.
Performance in 2022
Scope 1 and 2 emissions have decreased
year on year by 19%, from 1,887 tCO2e in 2021
to 1,526 tCO2e in 2022. The decrease was
primarily driven by a reduction in natural gas
emissions linked to the relocation from our
legacy Craigforth office to our new more energy
efficient site in Kildean, and through reductions
in our office footprint as we have adjusted to
the needs of the business as we adopt hybrid
working practices.
Find out more on page 76.
Employee engagement is the degree to which
employees invest themselves to drive positive
organisational outcomes. We measure this
in our OneVoice survey, asking colleagues
how happy they are at work and if they would
recommend M&G as a great place to work.
The aggregate score (or the average of the
responses) across both questions is presented
as the sustainable engagement score.
We moved to a new provider for OneVoice
surveys in October 2022, including a new
question set and new scoring methodology.
The 2021 score is therefore not available on
the same basis.
Performance in 2022
Our response rate to the OneVoice survey was
79% by the end of 2022 (2021: 75%). We scored
highly in awareness of culture and purpose,
while colleague responses showed key areas
to prioritise in 2023 are barriers to execution
and team collaboration.
Find out more on page 48.
Key
KPM Key performance measure APM Alternative performance measure REM Linked to remuneration measures for Executive Directors
i Basis of calculation changed from three month to six month rolling average.
ii When reporting totals, market-based emissions are used. Note that the 2021
figure has been restated, see page 76 for details.
M&G plc Annual Report and Accounts 2022 | 15
Strategic ReportGovernanceFinancial informationOther information Chair’s statement
Positioned to deliver long-term success
Our clear purpose and refreshed leadership team
are driving a positive, dynamic business culture
M&G has made good progress over the
past year, against the backdrop of a
volatile macro environment. I would like
to thank all colleagues for welcoming
me in March 2022, and for the skill, hard
work and commitment they have shown
over the last 12 months.
Our client-led offer
We exist to serve our diverse clients:
almost five million savers and
pensioners, over 800 institutions
around the world, and more than
3,500 intermediaries who advise their
own clients.
Through our investment expertise,
the advice we offer and our risk
management capabilities, we help our
clients to manage and grow their savings
and investments, responsibly.
Acting responsibly
We have a robust governance approach
and aim to act responsibly, in all senses
of the word. For us, “responsibly” is
a benchmark for much more than our
approach to sustainability, including
robust financial management and mutual
respect, which underpins our culture.
Building strong teams
We were delighted to welcome Andrea
Rossi as Group Chief Executive Officer
in October. Andrea is an inspiring leader,
who has deep experience in both global
asset management and insurance,
a strong track record of delivering
profitable growth and outstanding
client outcomes.
In May, Kathryn McLeland joined as
Chief Financial Officer, bringing fresh
energy as well as knowledge and
experience from her long career with
a leading bank. She is passionate about
developing a sustainable approach
to doing business, as well as creating
sustainable investment solutions.
We also welcomed Dev Sanyal as a
Non-Executive Director. He has a
profound knowledge of sustainable
energy, as well as international finance
and fund management experience.
We’re committed to making M&G
more diverse and inclusive and believe
we are on track to meet our 2025
commitments of 40% women and 20%
ethnicity in leadership. The benefits of a
diverse Board and workforce cannot be
underestimated: it attracts a wider pool
of talent, helps us to retain good people,
improves our working environment and
makes for better decision-making.
John Foley’s career at M&G and
Prudential spanned more than 20 years
and included leading M&G through its
demerger from Prudential and listing on
the London Stock Exchange. On behalf
of the Board I thank him for all he
has done.
I would also like to thank Fiona
Clutterbuck for taking on the role of
Interim Chair. She led the Group through
a challenging period and we are very
grateful for all she achieved.
Dividend and capital return
The Board’s policy is to pay stable
or increasing dividends over time.
In 2022, we announced a share
buy-back programme, which was
completed in October and returned
nearly £500 million to shareholders.
Having paid an interim dividend in
September 2022 of 6.2 pence per share,
the Board proposes a second interim
dividend for 2022 of 13.4 pence per
share, payable in April 2023. The total
dividend of 19.6 pence per share is
7.1% higher year-on-year, reflecting the
reduced number of shares in issue after
the buy-back, and the Board’s decision
to maintain the total dividend at last
year’s level.
Building on our strengths
I am convinced that our differentiated
business model, investment expertise
and client-led approach, together
with scale and long-term investment
horizon, provide security to our clients.
By building on these strengths, we
are well positioned to grow profitably,
creating long-term, sustainable value
for all our stakeholders.
Edward Braham
Chair
Powerful, fundamental
capabilities lie at the heart
of our business.”
Edward Braham
Chair
16 | M&G plc Annual Report and Accounts 2022
Group Chief Executive Officer’s statement
Targeting profitable growth
We are delivering strong operating capital generation, which
allows us to invest and focus on profitable growth. But we can
only unlock profitability if we simplify our business
Our performance in 2022 has
demonstrated the underlying strength
and resilience of our differentiated
business model in challenging markets.
The war in Ukraine and inflationary
environment have highlighted global
vulnerability to supply shocks and the
impact of these on social, economic and
political resilience.
In difficult times like these, clients value
our expertise and support to navigate
financial uncertainty as evidenced
by continued positive net client flows
(excluding Heritage) of £0.3 billion in
2022, compared to £0.6 billion in 2021.
Our adjusted operating profit before
tax remained resilient at £529 million
(2021: £721 million) and we are on track
to achieve our £2.5 billion operating
capital generation target. Over the
course of the year, we also returned
nearly £1 billion to shareholders.
This robust performance is testament
to the hard work of our talented and
dedicated colleagues, and long-term
relationships we have built over time
with our clients.
Our structure is our
strategic advantage
Our differentiated business model,
with three distinct, yet balanced and
complementary parts, I believe gives
us a strategic advantage and the
right foundations to grow profitably
and responsibly.
We lead with the Asset Manager at
the core of our business, with Heritage
and Wealth supporting its growth and
enabling it to prosper: together, all thrive.
We have a well-capitalised balance
sheet and we have shown we have
a resilient earnings profile. We have
robust investment capabilities, a
broad geographical reach, and strong
relationships with a wide range of
clients: individuals, financial institutions,
wealth managers, financial advisers and
other distribution partners.
Excellent investment
capabilities
Our Asset Management business now
manages more than £300 billion in
client assets around the world, including
£150 billion for our Retail and Savings
clients. Our investment expertise
encompasses one of the largest private
assets businesses in Europe and a
broad public fixed income range, as
well as sustainability-driven multi-
assets and thematic equities products.
We complement our Asset Management
offering with PruFund. At over £58 billion
in assets, PruFund is one of the largest
multi-asset investment propositions in
the UK and Europe.
I’d like to highlight the strong
performance of Wholesale Asset
Management, with net client flows
improving by £4.3 billion compared
to last year.
We are delighted with this achievement,
which is a result of the tremendous work
by our colleagues over several years.
The recovery in our UK business was
demonstrated by our Wholesale net
sales ranking returning to the top 10 in
the final quarter of 2022. At the same
time, Wealth net client flows increased
by £1.6 billion compared to last year, due
to improved flows into PruFund.
Over the course of 2022, our Institutional
business experienced marginal net client
outflows of £0.7 billion (2021: £5.8 billion
net client inflows), with redemptions
triggered by the mini-budget in the UK
in September. The Institutional team
delivered significant advised wins in
public debt and real estate during the
year, and retains a healthy pipeline
of opportunities.
Our European franchise performed well,
with strong flows in Italy, in part thanks
to our Global Listed Infrastructure Fund.
In Asia, we have seen net client inflows
from institutional clients in Japan, Hong
Kong and Singapore, and wholesale
clients in Taiwan across a range of
asset classes. We were the third largest
asset manager by net sales in the Asian
cross-border wholesale market in 2022.
We have hired a new Asia fixed income
team, establishing a truly international
capability in this important asset class.
Our business model gives us a
strong platform. We will build
on it by identifying the right
opportunities to unlock value.”
Andrea Rossi
Group Chief Executive Officer
M&G plc Annual Report and Accounts 2022 | 17
Strategic ReportGovernanceFinancial informationOther information Group Chief Executive Officer’s statement continued
Deliver high-value outcomes
Creating solutions that support well-being,
sustainability and community across Europe
In early 2023, we launched the M&G European Living
Property Fund, building on our market-leading £1.3 billion
UK residential property investment strategy, which has
developed around 3,500 rental homes to date.
The fund aims to provide institutional investors with attractive
risk adjusted returns through investment in Europe’s
residential sectors, including student housing, single and
multi-family housing and retirement living.
It has already made an initial investment of €75 million to
acquire 124 recently refurbished apartments in a landmark
Art Nouveau building in central Helsinki - the first building in
Finland to receive the highest green building certification for
its class in Europe for features including reuse of waste heat.
The fund launched with €578 million of capital, including
an investment of €178 million by the With-Profits Fund as
part of its longer-term strategy to increase exposure to the
residential sector in Europe.
Expanding our Retail and
Savings products
Our Retail and Savings business is
vital to the Group, providing resilient
and predictable capital generation
throughout the economic cycle. It also
allows our investment teams to build
new capabilities, which enhance
financial returns to our clients, while
providing the scale to take our innovative
investment products to market.
Our Wealth business enhances our
reach through strong brands and
intermediary relationships in the UK.
With PruFund at its core, it can address
the needs of a broad range of individual
clients in a large and growing market.
Future+ is a new family of global
multi-asset funds delivering smoothed
outcomes, designed to replicate the
success of our flagship PruFund range
outside the UK.
Meeting rising demand from
individual clients
We created M&G Wealth, our integrated
wealth management business, to meet
rising demand for easily accessible
investment advice and wealth solutions.
We now offer access to a broad and
integrated range of savings and advice
solutions for UK clients, through financial
advisers, hybrid advice and direct
digital channels, such as our new &me
investing app.
We are scaling our capabilities through
organic growth and acquisitions and
aim to complement our existing network
of advisers with Continuum (Financial
Services), a fast-growing provider of
independent financial advice.
We have maintained our focus on
improving the quality of client service
and outcomes, and I am pleased
that our Retail and Savings client Net
Promoter Score, covering both Wealth
and Heritage clients, has improved to 14
(2021: 9).
We are also exploring ways in which
we can support selected defined
benefit pension funds as their needs
evolve, providing innovative insurance
solutions by drawing on our investment
expertise, financial scale and
annuities experience.
In 2022, we added PruFund Planet
to our platform. This is the first time
that PruFund has been offered on
any investment platform in the UK.
We have also made Future+ available
to investors in Italy and Ireland.
This adds a new growth driver to our
international activities.
18 | M&G plc Annual Report and Accounts 2022
Our ambition is to become
the go-to asset manager for
international investors seeking
exposure to European assets.”
Andrea Rossi
Group Chief Executive Officer
A long-term,
responsible investor
Over recent years we have seen a seismic
shift in investing, as institutions and
individuals become more sustainability
focused. We recognise the scale of
change required to transition the global
economy to mitigate the effects of climate
change, and we believe that we can
make a real impact from a societal and
economic perspective. This brings both
significant responsibility and opportunity
to M&G as conviction-led, responsible
investors and stewards of the long-term
savings of millions of clients.
Although we are still at the start of our
journey, we are focused on making
progress towards our sustainability
commitments on climate and diversity
and inclusion. We continue to identify
investment opportunities in climate
solutions and those that support a just
transition. We are embedding our Net
Zero Investment Framework across
our investment teams, and engaging
with the companies in which we
invest on their ESG policies including
climate change.
We also continue to expand our
sustainable investing expertise with
the launch of new thematic funds,
the acquisition of responsAbility and
deploying the £5 billion With-Profits
Fund Catalyst mandate to invest in
innovative businesses working to create
a more sustainable world.
Simplification
and profitable growth
Our financial strength underpins
attractive and dependable returns to
shareholders, as does our rigorous
approach to capital management.
Now we need to build on these
strengths, and ensure our strategy
continues to anticipate and meet the
needs of our clients. We are narrowing
our focus to three priorities: maintaining
financial strength, simplifying our
business, and targeting profitable
growth. We are investing in our digital
capabilities to ensure we make financial
advice more accessible in the UK market,
and to deliver strong service to support
all of our clients.
The simpler an organisation is, the closer
it is to its clients, the better experience
and service they will receive. This is
a core part of our strategy to unlock
growth and increase revenue, but we
have to be equally focused on costs and
simplify the way we work. I want us to
act faster and more efficiently.
To enable this, we have launched a
transformation programme targeting
£200 million of cost savings gross of
inflation by the end of 2025.
By 2025, we also aim to reduce our
Asset Manager cost/income ratio
to below 70%, but this is not the
destination: our longer term ambition is
a cost/income ratio in the range of 66%
to 68%.
In continuing to transform our business,
we will empower colleagues and
improve accountability, pushing
operational accountability into the
business areas that are close to our
clients. This will make M&G a better
place to work and we will also become
easier to do business with, deliver better
client outcomes and drive growth.
To meet our £200 million cost savings
target we will improve client journeys
through digitalisation; remove
management layers and streamline
governance, enhancing our approach to
shared services and outsourcing; and
optimise our operating model.
We will focus the business on targeted
opportunities where we believe our
differentiated propositions and services
give us a good starting point. By having
this focus we expect to deliver increased
adjusted operating profit from Asset
Management and Wealth to more
than 50% of the Group total by the
end of 2025. Our targets are ambitious
but achievable.
Empowering our teams
We want to create an exceptional place
to work - a positive environment where
colleagues can bring their true selves to
work and are inspired to do their best for
our clients. I’m committed to ensuring
our colleagues continue to have the right
support, advice and resources so they
can continue to grow.
In 2022, we continued to evolve our
well-being support, extending our
families policy to include neonatal
support. We also provided a one-off,
non-pensionable payment to colleagues
earning less than £50,000 to help
alleviate the impact of the cost-of-
living crisis.
We are committed to creating both
a diverse and inclusive workforce,
and playing our part across the wider
financial services industry.
We support industry-wide initiatives to
develop diversity, and were one of the
first companies in our sector to publish
an ethnicity target in leadership and
to voluntarily publish ethnicity pay gap
data. Our mean gender pay gap for
2022 is stable at 29.2% (2021: 29.3%)
and the mean ethnicity pay gap was
5.5% (2021: 5.7%). We are committed
to having 40% women and 20% ethnic
diversity in our senior leadership by
2025. At the end of 2022, we had made
progress towards these commitments
but there are still further improvements
required, with 37% women and 12%
ethnic diversity in our senior leadership.
Executive and
leadership changes
We welcomed Kathryn McLeland as
Chief Financial Officer in May. We have
also added to our Executive team
during the year, with Benoît Macé as
Chief Strategy and Transformation
Officer and Louise Shield as Corporate
Affairs Director.
Jack Daniels, Chief Investment Officer
and Managing Director of M&G Asset
Management will retire later in the
year, after more than 20 years with
M&G. I would like to thank him for his
contribution to the business and in
particular the significant impact he made
as Managing Director. Jack is being
replaced by Joseph Pinto, who will join
us later this month.
Priorities for 2023
Our operational environment remains
challenging, but as we look to the next
12 months we are confident that we
have the right strategy in place and that
we are taking the right management
actions to ensure our business continues
to perform well, delivering superior
returns through attractive dividends and
earnings growth.
We are aiming to create a leading
international savings and investment
business, leveraging our strengths to
best address our clients’ needs and
delivering sustainable growth in markets
with recurring, fee-based revenues:
leading with the Asset manager,
leveraging the Heritage balance sheet
and Wealth distribution.
This isn’t about being the biggest,
it’s about driving a step change
in profitability.
Andrea Rossi
Group Chief Executive Officer
M&G plc Annual Report and Accounts 2022 | 19
Strategic ReportGovernanceFinancial informationOther information Business and financial review
A message from our Chief Financial Officer
In 2022, a year of significant macroeconomic uncertainty,
our financial performance has demonstrated the resilience
of our business
I’m pleased to present my first set of
annual results as Chief Financial Officer
of M&G. These results demonstrate
our strengths and the resilience of our
business in what has been a challenging
macroeconomic environment.
Wholesale Asset Management
returned to net client inflows for the
first time since 2018 of £0.5 billion
(2021: £3.8 billion net client outflows),
demonstrating the ongoing turnaround
of the business.
Our Institutional business saw net client
outflows of £0.7 billion (2021: £5.8 billion
net client inflows) with the domestic
Institutional business impacted by the
UK mini-budget crisis in the second half
of the year.
We have returned to net client inflows
in our Wealth business with a total of
£0.2 billion, which compares to net
client outflows of £1.4 billion in 2021.
This turnaround in net client flows was
driven mainly by strong performance in
our PruFund offerings.
Total AUMA decreased to £342.0 billion
(2021: £370.0 billion), predominantly
driven by negative market movements
from the volatility experienced in
markets throughout a challenging year,
partly offset by the inclusion of AUMA
from the acquisitions made in the year.
Our IFRS result has been significantly
impacted by the meaningful increase in
yields over the year, with the unrealised
fair value losses on the surplus assets in
the annuity portfolio and the fair value
losses on the interest rate hedging we
have in place to protect our Solvency II
capital position leading to a significant
loss after tax attributable to equity
holders for the year of £1,619 million
(2021: £92 million profit). Importantly,
our dividend payment capacity is linked
to the value of available capital in our
subsidiaries which is strong.
Adjusted operating profit before tax
of £529 million (2021: £721 million)
has been affected by the impact of
rising yields on the annuity margin and
a foreign exchange loss on our USD
denominated subordinated debt. In M&G
Wealth, adjusted operating profit more
than doubled to £96 million, due to an
increase in shareholder transfers from
PruFund driven by strong investment
returns for our clients.
Despite a reduction in total capital
generation, which has fallen to £(397)
million compared with £1,822 million
at 31 December 2021 as a result of
adverse market movements, our
shareholder Solvency II coverage ratio
remains strong at 199% (2021: 218%).
The coverage ratio is calculated after
dividends, the cost of the share buy-
back and the dilutive impact from the
recognition of deferred tax assets due to
the mark to market losses on our assets.
We are on track to deliver our
target of £2.5 billion of cumulative
operating capital generation by 2024
with operating capital generation of
£821 million in the year. We are also
targeting £200 million of cost savings
across the Group, and a reduction
in the core asset management cost/
income ratio to below 70% by 2025.
We also plan to take action to reduce our
leverage ratio to below 30% by 2025.
As we focus the business on our
strengths we are targeting adjusted
operating profit from Asset Management
and Wealth to be over 50% of the Group
total by the end of 2025.
We paid an interim ordinary dividend
of £154 million equal to 6.2 pence per
share, in line with our policy of paying
one-third of the previous year total
dividend, on 29 September 2022.
A second interim dividend of £310 million
equal to 13.4 pence per share will be
paid on 27 April 2023, which means 19.6
pence per share of total dividends were
paid to shareholders in 2022, alongside
the share buy-back.
On a personal note, I am delighted with
the progress we have made this year
despite the challenges posed by the
continued economic and geopolitical
uncertainty. In 2023 we will be publishing
our IFRS 17 compliant results for the first
time, marking the end of what has been
a significant implementation programme
for our business and the insurance
industry as a whole.
Kathryn McLeland
Chief Financial Officer
We have delivered another resilient
performance, which is a testament to
the diversification of our business model
and the determination of our people.”
Kathryn McLeland
Chief Financial Officer
20 | M&G plc Annual Report and Accounts 2022
Adjusted operating profit before tax
The following table shows adjusted operating profit before tax split by segment and source of earnings:
£m
Core Asset Management
Performance fees (including carried interest) and investment return
Asset Management
Wealth
Heritage
Other
Retail and Savings
Corporate Centre
Adjusted operating profit before tax
Adjusted operating profit before tax
was £529 million for the year ended
31 December 2022 (2021: £721 million).
In Asset Management, the reduction in
adjusted operating profit to £264 million
(2021: £315 million) is mainly driven
by an increase in expenses as we
continue building out the capability
and operations of our international
investment function. In addition, there
has been an increase in the operational
cost base linked to inflation.
For the year ended
31 December
2022
213
51
264
96
466
10
572
(307)
529
2021
277
38
315
41
620
(1)
660
(254)
721
This has led to a reduction in Retail
and Savings adjusted operating profit
to £572 million (2021: £660 million).
Corporate Centre costs have increased
which is largely driven by adverse
foreign exchange movements of
£50 million (2021: £4 million) on the
USD subordinated debt. Changes in
executive leadership have resulted
in additional remuneration and
recruitment costs.
Despite the challenging markets, which
resulted in a decrease in investment
return from £17 million to £(5) million, the
income earned from performance fees
and carried interest in the period has
increased by £35 million to £56 million.
In Retail and Savings, the total with-
profits shareholder transfer net of
hedging and other gains/losses has
increased by £86 million to £354 million,
benefitting from the strong investment
performance. However, this has been
offset by a £142 million fall in the annuity
margin driven by the upwards movement
in yields and other one-off benefits
from 2021 that did not repeat in 2022,
including a prior year release of the
annuity sales practices review provision
of £31 million in 2021.
M&G plc Annual Report and Accounts 2022 | 21
Strategic ReportGovernanceFinancial informationOther information Business and financial review continued
Adjusted operating profit before tax to IFRS (loss)/profit after tax
The following table shows a reconciliation of adjusted operating profit before tax to IFRS (loss)/profit after tax:
£m
Fee-based revenues
Annuity margin
With-profit shareholder transfer net of hedging gains/losses
Adjusted operating income
Adjusted operating expenses
Other shareholder losses
Share of profit from joint ventures and associates
Adjusted operating profit attributable to non-controlling interests
Adjusted operating profit before tax
Short-term fluctuations in investment returns
Profit on disposal of business and corporate transactions
Amortisation and impairment of intangible assets acquired in business combinations
Restructuring and other costs
IFRS profit attributable to non-controlling interests
IFRS (loss)/profit before tax attributable to equity holders
Tax credit attributable to equity holders
IFRS (loss)/profit after tax attributable to equity holders
For the year ended
31 December
2022
2021
1,346
1,254
227
354
369
268
1,927
1,891
(1,165)
(1,063)
(214)
–
(19)
529
(101)
6
(12)
721
(2,484)
(537)
–
(35)
(147)
19
(2,118)
499
(1,619)
35
(4)
(146)
12
81
11
92
The interest rate swaps and the equity
hedges provide some protection to the
Solvency II balance sheet but there is
no corresponding item to protect on the
IFRS balance sheet, and therefore when
the fair value of the derivatives change
as interest rates and equity markets
move, there are no offsetting fair value
movements on an IFRS basis leading to
an overall loss in the current year.
Amortisation and impairment of
intangible assets includes a £25 million
(2021: £nil) impairment of goodwill in
relation to the M&G Wealth Platform
business related to the uncertainty
around long-term market growth in the
current macroeconomic environment.
Restructuring and other costs of
£147 million (2021: £146 million) relate to
£56 million (2021: £35 million) in relation
to the transformation of the business,
£17 million (2021: £48 million) in respect
of our future ways of working and
associated changes to our office spaces
and £32 million (2021: £45 million) in
relation to the development of the M&G
Wealth platform business. A significant
part of our transformation programme
is the on-going project to migrate our
multiple policy administrative systems to
one single system.
We have incurred costs of £11 million
(2021: £6 million) in relation to this
programme in 2022 and expect to
complete this programme over the next
two to three years.
The equity holders’ effective tax rate for
the year ended 31 December 2022 was
23.6% (2021: (13.6%)). Excluding non-
recurring items, the equity holders’
effective tax rate was 18.1% (2021: 9.9%).
The equity holders’ effective tax rate of
23.6% was higher than the UK statutory
rate of 19% (2021: 19%). This reflects a
favourable position (higher tax benefit
on the pre-tax loss position) and is
primarily due to the beneficial impact
of recognising deferred tax assets on
current period tax losses, for which the
majority have been measured at the new
UK corporation tax rate of 25% that is
effective from 1 April 2023. This benefit
was partially offset by the adverse
impact of deductions not allowable for
tax purposes.
Further information on tax is provided
in Note 9 of the consolidated
financial statements.
IFRS (loss)/profit after tax
IFRS result after tax attributable to
equity holders is a £1,619 million loss
compared with a £92 million profit in
2021. The loss is primarily reflective
of a £2,484 million loss in the year
(2021: £537 million loss) from short-term
fluctuations in investment returns, offset
in part by a tax credit of £499 million.
In Retail and Savings, market conditions
have led to significant losses from
short-term fluctuations in investment
returns in 2022. These losses primarily
comprise a £1,301 million loss
(2021: £99 million loss) from fair value
movements on the surplus assets in
the annuity portfolio and a £989 million
loss (2021: £103 million loss) on interest
rate swaps purchased to protect PAC’s
Solvency II capital position against falls
in interest rates, both due to significant
rising yields in the year. These are
particularly impacted by longer-term
yields which have increased by over 270
basis points, in some instances, over the
course of the year.
These losses were partly offset by a
positive movement on the hedging
instruments held to protect the future
shareholder transfers from falling
equity markets which moved to a gain of
£104 million (2021: £248 million loss) as
a result of falls in the US and European
equity stock markets.
22 | M&G plc Annual Report and Accounts 2022
For the year ended
31 December
2022
246
641
(259)
628
193
821
(1,225)
(166)
173
(397)
2021
313
459
(288)
484
633
1,117
917
(181)
(31)
1,822
Other impacts include losses on interest
rate swaps of £989 million (31 December
2021: £103 million), as the swaps are
designed to protect the fund in a falling
interest rate environment, a reduction
in the benefit from the present value
of shareholder transfers less equity
hedges to £454 million (31 December
2021: £653 million), and a reduction in
capital requirements of £1,034 million.
Restructuring and other costs of
£166 million reflects the impact on
the capital position of transformation
costs outlined in the discussion on IFRS
results, and additionally includes the
impact of moving to the Investment
Firms Prudential Regime, the new
regulatory regime for investment firms.
Capital generation
The following table shows an analysis of total capital generation:
£m
Asset Management underlying capital generation
Retail and Savings underlying capital generation
Corporate Centre underlying capital generation
Underlying capital generation
Other operating capital generation
Operating capital generation
Market movements
Restructuring and other
Tax
Total capital generation
Total capital generation for 2022 is
negative £397 million, compared
to positive £1,822 million in 2021.
Capital generation has been adversely
affected by significant market volatility
and a lower benefit from management
actions. However, underlying capital
generation, which represents the capital
generated by the performance of the
business, has increased to £628 million
from £484 million.
Asset management underlying capital
generation has fallen to £246 million
(2021: £313 million) driven by the fall
in adjusted operating profit and an
increase in risk capital held in respect of
credit and market risk, due to increased
foreign exchange stresses and
seeding activities.
Corporate Centre underlying capital
generation has improved by £29 million
to negative £259 million due to a fall
in capital requirements of £8 million
(2021: £8 million increase) and higher
investment income received on assets
held, which more than offset an increase
in head office costs.
Other operating capital generation has
fallen by £440 million to £193 million
largely as a result of one-off benefits
in 2021 not being repeated in 2022.
These include the benefit from the
Major Model Change, the release of
£150 million of counterparty risk capital
in respect of the transfer of annuity
business to Rothesay Life plc and a
larger benefit compared to 2022 in
respect of asset trading in the annuity
portfolio, particularly in relation to
property sales.
Market movements over 2022
have resulted in a negative impact
of £1,225 million (31 December
2021: £917 million positive impact)
following a fall in US and Asian equity
markets, the widening of credit spreads,
and a substantial increase in interest
rates. The main impact is as a result of
losses on the value of surplus annuity
assets of £1,602 million (31 December
2022: £64 million loss). On a Solvency II
basis there are more surplus assets in
the annuity book than on an IFRS basis,
as the measurement basis for Solvency II
liabilities does not include an allowance
for prudence and therefore the total fair
value of the assets used to back them is
lower than on an IFRS basis.
M&G plc Annual Report and Accounts 2022 | 23
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Capital position
The shareholder Solvency II ratio
remains strong at 199% (2021: 218%).
However, M&G plc’s Solvency II
surplus fell to £4.6 billion as at
31 December 2022 (2021: £6.2 billion),
predominately impacted by lower own
funds but market movements have
also reduced the solvency capital
requirement. Own Funds has reduced
by £2.1 billion, driven by negative total
capital generation of £397 million (2021:
positive £1,822 million) combined
with a deduction of £465 million
(2021: £466 million) from dividends
paid to shareholders in the year, a
reduction of £503 million as a result of
the share buy-back, and a reduction of
c.£200 million (2021: £32 million) from
other capital movements, (primarily
the acquisitions of Sandringham,
TCF and responsAbility).
Our With-Profits Fund continues to
have a strong Solvency II coverage
ratio of 362%. This is higher than
the 302% reported at 31 December
2021; the distribution of excess
surplus to policyholders of £1.5 billion,
coupled with market movements
contributed to a reduction in surplus
over the period however, both of
these items also reduced the solvency
capital requirements.
In particular, the sharp increase in
yields and fall in equity assets reduced
exposure to market risks - and thus
reduced the amount of capital that
needs to be held against these risks -
resulting in an overall increase in the
with-profits solvency ratio despite
the fall in surplus as a result of market
movements. The run-off of capital
requirements also contributed to the
increase in this ratio.
The regulatory Solvency II coverage
ratio of M&G plc as at 31 December
2022 was 164% (2021: 168%). This view
of solvency combines the shareholder
position and the With-Profits Fund but
excludes all surplus within the With-
Profits Fund.
The shareholder, With-Profits Fund,
and regulatory views of the Solvency
II position presented here assume
transitional measures on technical
provisions that have been recalculated
using management’s estimate of
the impact of operating and market
conditions at the valuation date.
Capital Management Framework
The primary focus of our capital management framework is to maintain financial strength and reward shareholders
with attractive returns. This is achieved through actively managing M&G plc’s solvency position and the quality of
capital held.
When deploying additional capital, we prioritise investments in the business that can generate long-term sustainable
earnings growth. Any investment will always be measured against the financial attractiveness of capital returns,
as well as our Risk Appetite Framework.
Financial
strength and
flexibility
Considers shareholder
Solvency II coverage ratio,
Parent Company liquidity,
and leverage ratio
Capital
returns
When appropriate and
through relevant structures
e.g. buy-back
Attractive
dividends
Stable or increasing
dividend per share
Investments
in the business
Organic investments
and acquisitions
that accelerate
corporate strategy
24 | M&G plc Annual Report and Accounts 2022
Financing and liquidity
The following table shows key financing and liquidity information:
£m
Nominal value of subordinated debt
Shareholder Solvency II own funds
Leverage ratio
As at 31 December
2022
3,264
9,268
35%
2021
3,216
11,409
28%
The main metric we use to manage our debt is the leverage ratio, defined as nominal value of debt as a percentage of M&G plc’s
shareholder Solvency II own funds. Our leverage ratio of 35% at 31 December 2022 has increased from 28% at 31 December
2021, as a result of the fall in Solvency II Own Funds in the year due to the impact of market movements as set out earlier under
Capital position. For further detail on shareholder Solvency II own funds, see Note 37.2.2.
The following table shows the movement in cash and liquid assets held by the Parent Company during the period:
£m
Opening cash and liquid assets at 1 January
Cash dividends from subsidiaries
Corporate costs
Interest paid on core structural borrowings
Cash dividends paid to equity holders
Share buy-back
Capital injection to subsidiaries
Other
Closing cash and liquid assets at 31 Decemberi
For the year ended
31 December
2022
1,709
391
(140)
(190)
(465)
(503)
(11)
26
2021
1,040
1,458
(112)
(186)
(466)
–
(25)
–
817
1,709
i Closing cash and liquid assets at 31 December 2022 included a £793 million (2021; £1,651 million) inter-company loan asset with Prudential Capital plc,
which acts as the Group’s treasury function.
Movements in cash and liquid assets
held by the Parent Company for the year
ended 31 December 2022 represent the
dividends and payments that arise in the
normal course of business. Total cash
and liquid assets have decreased with
dividend payments to equity holders
of £465 million (2021: £466 million),
interest paid on structural borrowings
of £190 million (2021: £186 million) and
£503 million in respect of the share buy-
back scheme completed in the year.
This has been partly offset by
cash dividends of £391 million
(2021: £1,458 million) received from
our subsidiaries. As part of our cash
management processes, £185 million
of dividends from PAC and M&G Group
Limited in the year have been retained
in lower level holding companies to
fund the acquisitions of Sandringham
and TCF, and our partnership with
Moneyfarm and therefore cash
dividends from subsidiaries are not
comparable year on year. Also, a
large dividend was received from
PAC via the intermediate holding
company in 2021, in line with our
capital management framework.
Dividends
We paid a dividend of 12.2 pence per
share, equal to £311 million, on 28 April
2022. In addition, we paid an interim
ordinary dividend of 6.2 pence per
share, equal to £154 million, in line
with our policy of paying one-third
of the previous year total dividend,
on 29 September 2022. A second
interim dividend of 13.4 pence per share,
equal to roughly £310 million, will be paid
on 27 April 2023.
M&G plc Annual Report and Accounts 2022 | 25
Strategic ReportGovernanceFinancial informationOther information Business and financial review continued
Asset Management
The ongoing turnaround in our Wholesale Asset Management
business is demonstrated by net client inflows in the year. However,
the challenging market conditions in the UK led to net client outflows
in Institutional Asset Management
Assets under management and administration and net client flows
Net client flows
For the year ended
31 December
2022
(0.7)
0.5
–
(0.2)
2021
5.8
(3.8)
–
2.0
AUMAi
As at 31 December
2022
99.2
53.9
1.1
2021
103.1
52.7
0.9
154.2
156.7
The net outflows are a combination of
the gross outflows, particularly in the
second half of the year of £8.9 billion
(H2 2021: £5.3 billion) driven by the
mini-budget, and the reduced gross
inflows of £3.1 billion to £13.1 billion
(2021: £16.2 billion) reflecting changing
client behaviour when markets
are volatile.
Institutional Asset Management
AUMA decreased by £3.9 billion to
£99.2 billion mainly driven by negative
market movements from the public debt
channel, partly offset by £2.9 billion
additional AUMA from the acquisition
of responsAbility.
Our expertise in private assets, which
offers private fixed income, alternatives,
real estate and infrastructure equity
offerings, is a key component of our
institutional investment capability, and
represents a resilient, high-margin
source of revenues. Our private assets
under management increased 6% to
£76.6 billion of AUMA as at 31 December
2022 (2021: £72.6 billion).
£bn
Institutional Asset Management
Wholesale Asset Management
Other
Total Asset Management
i £12.7 billion of total asset management AUMA relates to assets under advice (2021: £7.9 billion).
Our Asset Management business saw
net client outflows of £0.2 billion, against
the backdrop of extremely volatile
markets, compared with net client
inflows of £2.0 billion in 2021.
Following the change in operating
segmentation of our business in
2021, we have renamed Retail Asset
Management to Wholesale Asset
Management to better reflect the
nature of the business. Wholesale Asset
Management returned to a net
client inflow position of £0.5 billion
(2021: £3.8 billion net client outflow)
for the first time since 2018 following
actions taken to improve investment
performance and reposition the
business. Although a reduction on the
£0.8 billion net client inflows reported at
30 June 2022, this reflects the elevated
economic volatility experienced in the
second half of the year.
Performance has improved markedly
with 68%ⁱⁱ of Wholesale funds now in the
upper two performance quartiles over
one year (31 December 2021: 45%).
Our partnerships with European
distributors have enabled us to deliver
strong inflows into our investment
solutions channel, which accounted
for £1.9 billion of net client inflows in
the year.
This was partly offset by net client
outflows experienced in the other parts
of our wholesale business of £1.4 billion,
driven by economic uncertainty
and heightened market volatility.
Despite this £1.4 billion net client
outflow, we have seen the success of
our newer propositions in the year such
as the Global Listed Infrastructure Fund,
investing in sustainable infrastructure
companies and investment trusts.
This fund delivered £1.5 billion of net
client inflows predominantly into our
International Wholesale business in
the year.
Wholesale Asset Management AUMA
increased £1.2 billion to £53.9 billion
with negative market movements
of £1.5 billion in the year, more than
offset by positive other movements of
£2.2 billion.
Net client outflows of £0.7 billion
(2021: £5.8 billion net client inflows) in
our Institutional Asset Management
business reflect the significant market
volatility experienced in the year.
This was particularly evident in our
UK Institutional business with net
client outflows of £2.3 billion, with a
notable spike in outflows following
September’s mini-budget. In contrast,
our International Institutional business
continued to deliver strong net client
inflows of £1.6 billion.
ii Source: M&G plc and Morningstar Inc.
26 | M&G plc Annual Report and Accounts 2022
Adjusted operating profit before tax
The following table shows an analysis of adjusted operating profit before tax:
£m
Fee-based revenuesi
Adjusted operating income
Adjusted operating expenses
Other shareholder (loss)/profit)
Share of profit from joint ventures and associates
Adjusted operating profit attributable to non-controlling interests
Adjusted operating profit before tax
For the year ended
31 December
2022
1,051
1,051
(763)
(5)
–
(19)
264
2021
976
976
(672)
17
6
(12)
315
i £306 million of the fee-based revenue is in respect of assets managed on behalf of Retail and Savings (2021: £303 million).
Adjusted operating profit before tax
from our Asset Management business
has decreased 16% to £264 million
in the year ended 31 December 2022
(2021: £315 million) primarily driven by
increased expenses.
Following the acquisition of a controlling
interest in MandG Investments Southern
Africa Pty (Limited) (MGSA) (formerly
PPMSA) in July 2021, the presentation
of revenues and costs in relation to
MGSA are now fully represented within
fee-based revenues and operating
expenses respectively. Pre-acquisition
the profit on MGSA was represented by
the share of profit on joint ventures and
associates, therefore the impact on the
revenue and expenses is not directly
comparable year-on-year.
Revenue earned by Institutional
Asset Management has increased
to £598 million (2021: £539 million)
which includes an additional £17 million
of revenue recognised from MGSA,
and £23 million of revenue from
responsAbility, which was acquired in
May 2022. This was marginally offset by
lower Wholesale Asset Management
fee-based revenues of £397 million
(2021: £414 million) as we continue to
experience the remaining impact from
the lower pricing structure applied to
our UK OEICs in February 2021 and
the impact of market volatility in the
year. In addition, income earned from
performance fees and carried interest in
the year has increased by £33 million to
£56 million.
The Asset Management average
fee margin of 32bps was in line with
31 December 2021. Average fee margins
in the Institutional Asset Management
business increased to 29bps
(2021: 27bps) driven by the inclusion
of responsAbility while the Wholesale
Asset Management fee margins
decreased to 38bps (2021: 39bps).
Adjusted operating expenses have
increased by £91 million to £763 million
(2021: £672 million) with an additional
£20 million of costs recognised relating
to MGSA and £22 million in relation to
responsAbility. In addition, we have
incurred increased costs relating to the
further development of our capabilities
and operations across our international
investment function of £20 million and a
further £21 million increase as a result of
the impact of inflation on our cost base.
The cost/income ratio for the Asset
Management business increased to
77% (31 December 2021: 70%) reflective
of the rising operating expenses of the
business and the impact of inflation in
the year.
Other shareholder (loss)/profit primarily
relates to investment return on seed
investments and units held to hedge
management incentive schemes which
has fallen by £22 million compared with
the prior year reflecting the falls in equity
markets in the year.
Capital generation
The following table shows an analysis of operating capital generation:
£m
Underlying capital generation
Other operating capital generation
Operating capital generation
Operating capital generated by Asset
Management decreased to £213 million
(2021: £328 million), driven by a decrease
in underlying capital generation due to
the fall in adjusted operating profit, and
an increase in risk capital held in respect
of credit and market risk.
For the year ended
31 December
2022
246
(33)
213
2021
313
15
328
The fall in other operating capital
generation is attributable to an
increased allocation of operational risk
capital (offset elsewhere in the Group),
and lower investment return.
On 1 January 2022, M&G Investments
adopted the new Investment Firms
Prudential Regime (IFPR).
The impact of the change in capital
regime was a decrease in capital of
£35 million primarily in relation to
deferred tax assets that could no longer
be recognised. This one-off impact is
not included in determining operating
capital generation but included in total
capital generation as restructuring
and other.
M&G plc Annual Report and Accounts 2022 | 27
Strategic ReportGovernanceFinancial informationOther information Business and financial review continued
Retail and Savings
We are seeing continued growth of our Wealth business and a strong
performance from our with-profits business. However, the current
economic conditions have resulted in an overall decline in adjusted
operating profit and a significant IFRS loss after tax
Assets under management and administration and net client flows
£bn
Wealth
Heritage
Other
Total Retail and Savings
Net client flows
For the year ended
31 December
AUMAi
As at 31 December
2022
0.2
(6.0)
0.3
(5.5)
2021
(1.4)
(6.9)
–
(8.3)
2022
83.4
94.1
8.9
186.4
2021
84.2
117.8
9.1
211.1
i £149.9 billion of AUMA is managed internally by the Group’s Asset Management businesses (2021: £168.6 billion).
Wealth net client inflows increased
to £0.2 billion compared with net
client outflows of £1.4 billion in 2021.
This turnaround in net client flows
was driven mainly by inflows into
PruFund following strong investment
performance and improved service
levels. The trends underscore
the importance of broadening
the proposition offered in our
Wealth business.
Retail and Savings AUMA decreased
to £186.4 billion driven by a fall in
Heritage AUMA due to adverse
market movements of £17.7 billion
and net client outflows of £6.0 billion
(2021: £6.9 billion).
Wealth AUMA decreased to £83.4 billion
primarily due to adverse market
movements of £3.4 million, partly
offset by a £2.4 billion increase in
AUMA from the completion of the
Sandringham acquisition.
The acquisition of Sandringham has
provided our clients with access
to whole of market advice, and our
partnership with Moneyfarm has
provided direct investment services
to our UK clients. To complete our
offering, we have also acquired TCF
Fund Managers LLP, a provider of model
portfolio services. TCF has since been
renamed M&G Wealth Investments.
Other Retail and Savings AUMA
decreased to £8.9 billion as a result of
market movements despite positive net
client inflows of £0.3 billion.
Overall Retail and Savings (excluding
Heritage) experienced net client inflows
of £0.5 billion. PruFund is an investment
solution offered to customers of both
Wealth and Other Retail and Savings.
PruFund experienced net client inflows
of £0.8 billion in 2022 (2021: £1.4 billion
net outflows) across both business lines.
This was partly offset by outflows of
£0.3 billion from other Retail and Savings
business in the year.
28 | M&G plc Annual Report and Accounts 2022
For the year ended
31 December
2022
295
227
354
876
(295)
(9)
572
2021
278
369
268
915
(296)
41
660
Adjusted operating profit before tax
The following table shows an analysis of adjusted operating profit before tax:
£m
Fee-based revenues
Annuity margin
With-profits shareholder transfer net of hedging and other gains/losses
Adjusted operating income
Adjusted operating expenses
Other shareholder (loss)/profit
Adjusted operating profit before tax
Adjusted operating profit before
tax from our Retail and Savings
business reduced to £572 million
(2021: £660 million) primarily driven by
a decrease of £142 million in the annuity
margin, partly offset by an increase in
fee-based revenues of £17 million, and
an increase in the result from the with-
profits business of £86 million.
Fee-based revenues increased
by £17 million to £295 million and
includes an additional £27 million due
to the recognition of revenue from
Sandringham for the first time.
The decrease in annuity margin is
primarily driven by rising yields in the
period due to differences in the duration
of the long-term annuity liabilities and
the assets held to back them.
The duration mismatch between
these assets and liabilities resulted
in a loss of £122 million in the period
(2021: £6 million).
The with-profits shareholder transfer
net of hedging and other gains/
losses increased to £354 million
(2021: £268 million). The gross with-
profits shareholder transfer increased
to £446 million (2021: £366 million)
primarily as a result of strong investment
performance in 2021 and 2022.
The result also benefited from the
release of the provision for expense
overruns of £15 million which had been
established on new business written in
the With-Profits Fund due to lower sales
volumes in 2021.
This was partly offset by fair value
losses of £102 million (2021: £60 million)
on the derivative instruments used
to mitigate equity risk in respect of
shareholder transfers.
Adjusted operating expenses are
broadly stable year-on-year.
Other shareholder (loss)/profit is
down on 2021 with the recognition of a
£35 million insurance reserve in relation
to initial expenses on the Future+
business and also includes a number of
insurance reserve movements in relation
to legacy remediation programmes and
other provisions.
Adjusted operating profit before tax sources of earnings
The following table shows adjusted operating profit before tax split by source of earnings:
£m
Wealth
Heritage
– of which Annuities
– of which traditional with-profits
Other Retail and Savings
Adjusted operating profit before tax
Adjusted operating profit before tax
from our Wealth business increased
to £96 million (2021: £41 million) driven
by an improvement in the net result
from PruFund business to £128 million
(2021: £63 million). The gross with-
profits shareholder transfer of
£146 million (2021: £115 million) and the
release of £15 million (2021: £33 million
loss) expense overruns previously
recognised, as noted above, are partly
offset by fair value losses on hedges of
£33 million (2021: £19 million).
For the year ended
31 December
2022
96
466
227
226
10
572
2021
41
620
369
205
(1)
660
The loss from Wealth’s platform and
advice business increased to £24 million
(2021: £4 million loss) driven by an
increase in expenses as we modernise
the business, including the digitalisation
of the platform. This is key to our
strategy for delivering profitable growth.
Heritage adjusted operating profit
decreased 25% to £466 million
(2021: £620 million) largely driven by
the reduction in the annuity margin,
which is analysed further below.
Traditional with-profits business net
result increased in the year to £226 million
(2021: £205 million) as a result of strong
investment performance in 2021 and 2022.
Other Retail and Savings is up £11 million,
primarily driven by an increase in profits
from the business written in Poland,
alongside a benefit from extending the
term of the agreement to reimburse the
With-Profits Fund for its contribution
to the costs for growing the business
written in Poland, offset in part by the
recognition of an insurance reserve for
initial expenses on the Future+ business.
M&G plc Annual Report and Accounts 2022 | 29
Strategic ReportGovernanceFinancial informationOther information Business and financial review continued
The following table provides further analysis of the annuity margin:
£m
Return on excess assets and margin release
Asset trading and portfolio management actions
Longevity assumption changes
Other
Annuity margin
The annuity liabilities and the assets
that back them are well matched on
an IFRS basis but small differences in
durations exist. With annuity liabilities’
durations being overall shorter than the
backing assets, losses occur in a rising
rate environment. As a result there
was a £116 million increase in duration
mismatching losses within Other.
Additionally, the Other annuity margin
has decreased as a result of one-off
benefits from 2021 that did not repeat
in 2022 including a £31 million benefit
from the release of the Thematic Review
of Annuity Sales Practices (TRASP)
provision in the year.
Recurring sources of earnings from
the annuity book are primarily the
return on assets held to back capital
requirements and the release of the
margins held in respect of credit risk,
mortality and expenses. These recurring
sources of earnings decreased by 5%
to £163 million (2021: £172 million) mainly
driven by a lower benefit in the year from
the release of credit default allowances.
During 2022, we earned £35 million from
asset trading and portfolio management
actions, compared with £10 million in
2021 which was impacted by losses on
property disposals due to the impact on
the valuation of annuity liabilities.
The benefit from longevity assumption
changes has increased by £68 million
to £193 million mainly due to lower
expected future improvements
in mortality rates (see Note 26.1.3
for more detail on the Group’s
longevity assumptions).
For the year ended
31 December
2022
2021
163
35
193
(164)
227
172
10
125
62
369
Credit quality of fixed income assets in
the annuity portfolio remained strong
in 2022. 98% (2021: 98%) of the debt
securities held by the shareholder
annuity portfolio are investment grade
and only 20% (2021: 18%) are BBB.
Downgrades experienced in the year
have been relatively moderate, with
less than 5% (2021: 3%) of bonds in the
shareholder annuity portfolio subject
to a downgrade.
Adjusted operating profit excludes
the impact of £2,484 million
(2021: £542 million) short-term
fluctuations in investment return in
the Retail and Savings segment as
market conditions have led to unrealised
losses on surplus assets in the annuities
portfolio and derivative contracts held
to protect the Solvency II balance sheet,
leading to an overall IFRS loss in the year.
30 | M&G plc Annual Report and Accounts 2022
Capital generation
The following table shows an analysis of operating capital generation:
£m
Wealth
– of which with-profits
– In-force
– New business
– of which Platform and advice
Heritage
– of which with-profits
– of which Shareholder annuity and other
Other Retail and Savings
Underlying capital generation
Model improvements
Assumption changes
Management actions and other (incl. experience variances)
For the year ended
31 December
2022
155
180
216
(36)
(25)
503
192
311
(17)
641
(17)
158
53
194
835
2021
49
60
112
(52)
(11)
378
142
236
32
459
116
18
487
621
1,080
Other operating capital generation
Operating capital generation
During the year we have revised our
capital generation methodology to
reallocate realised gains and losses on
hedges to protect future shareholder
transfers from falling equity markets,
from underlying capital generation
to other operating capital generation
(management actions and other).
We have not restated comparatives.
The value of realised losses on the equity
hedges was £33 million (31 December
2021: £94 million). There was no impact
on overall operating capital generation.
In Wealth, the contribution to underlying
capital generation from in-force
with-profits business increased to
£216 million (2021: £112 million), an
increase of £56m after allowing for
the methodology change to reallocate
£48 million of realised losses on equity
hedges for 2021 to other operating
capital generation. Underlying capital
generation for with-profits business
relates to the expected return on
the present value of shareholder
transfers adjusted for movements
in the capital held against these
transfers. The increase is primarily as
a result of a reduction in the solvency
capital requirement.
Despite higher new business sales, new
business strain reduced to £36 million
(31 December 2021: £52 million) since
the higher sales avoided the repeat of
the expense overrun we experienced
in 2021 and allowed us to release a
£15 million provision.
Underlying capital generation across the
remainder of Wealth fell marginally over
the period reflecting losses in respect of
the Platform and Advice business.
Underlying capital generation from
Heritage increased £125 million to
£503 million. The traditional with-
profits business in Heritage generated
underlying capital of £192 million
during the year to 31 December 2022
(2021: £142 million). This is comparable
with the previous year after allowing
for the change in methodology to
reallocate the equity hedge impact to
other operating.
There also continued to be significant
underlying capital generation from
the shareholder annuity and other
business, contributing £311 million
(2021: £236 million). The increase in
underlying capital generation for the
annuity business is driven by an increase
in the expected return on surplus assets
in the annuity portfolio as a result of
substantial rises in yields over 2021.
Underlying capital generation for
other Retail and Savings business
reduced due to the requirement to hold
capital in respect of anticipated new
business in 2023 which is linked to our
strategic priorities.
Other operating capital generation
decreased to £194 million
(2021: £621 million), largely as a result
of one-off benefits in 2021 that have not
been repeated. This includes a decrease
in model improvements of £113 million
to negative £17 million largely due to
the one-off benefit from the major
model change in 2021 that updated
the modelling methodology for credit
assets. The benefit from management
actions and other also decreased by
£434 million to £53 million with 2021
benefitting by £150 million from the
release of counterparty risk in respect
of the transfer of annuity business to
Rothesay Life plc and higher operating
capital generation from asset trading
in the annuity portfolio of £140 million,
following sizable property sales.
These decreases were partially offset by
an increase in the benefit from longevity
assumption changes.
M&G plc Annual Report and Accounts 2022 | 31
Strategic ReportGovernanceFinancial informationOther information Our approach to sustainability
Sustainability and M&G
We continue to embed our 10-point sustainability plan, focused
on climate action and D&I. By strengthening our sustainability
governance structure, we aim to accelerate progress against
our commitments
The bigger
picture
We believe sustainability requires an
understanding of the interdependence
of people, economy and the
environment – stepping back to see
the bigger picture. From a business
perspective, this means understanding
environmental and social impacts, and
incorporating these into our processes
and decision-making.
Global challenges such as climate
change and nature loss require major
effort across economies, including
from the financial services industry.
As a leading savings and investments
business, we are focused on the long
term, making responsible decisions
with the aim of protecting and growing
our clients’ assets, while considering
the interests of all stakeholders.
There is a growing focus on
sustainability across the market.
This informs our strategy and aligns
with our purpose – to help people
manage and grow their savings and
investments, responsibly.
One of our strategic priorities is to
deliver profitable growth by building
on our asset management expertise,
allowing us to meet increasing
demand for sustainability and impact-
focused investments.
Executing our strategy requires
further investment in capabilities,
so we can continue to develop
innovative propositions for our clients.
Advocacy through stewardship
and engaging in public forums is an
important element of our approach
and this means promoting positive
real-world change inside and outside
of M&G.
i Previously we had described our operational
target as ‘Net Zero 2030’. While our ambition
has not changed, we have updated the
articulation of the commitment to be in
line with the latest industry guidance.
32 | M&G plc Annual Report and Accounts 2022
Our sustainability commitments
When setting our sustainability strategy, we decided to prioritise two areas for
action: climate change and diversity and inclusion. We hold ourselves accountable
with specific commitments in these areas. These are:
Commitments to climate change:
– To achieve a near term carbon emissions reduction of 46% across our
operations (Scope 1, 2 and Scope 3 travel) by 2030 at the latestⁱ
– To achieve net zero carbon emissions across our investment portfolios by
2050, to align with the Paris Agreement on climate change
Find out more on our progress in our climate-related disclosures on
page 74
Commitments to diversity and inclusion:
– To achieve 40% female representation and 20% representation from Black,
Asian and minority ethnic backgrounds by 2025
– As an asset owner, to evaluate the diversity policy of investment managers
that manage assets on our behalf, and how investment managers challenge
investee companies to improve and maintain diversity
– To continue to meet our external benchmarks, including the National Equality
Standard and LGBT Great Equality Index
Find out more on our progress in our D&I strategy on
page 50
Key themes in 2022
#1: Energy transition
The energy crisis, exacerbated by
Russia’s war on Ukraine, has intensified
action by governments to address the
trilemma of energy security, affordability
and sustainability. Increasing investment
in renewable energy not only helps
to mitigate future geopolitical risk
and energy price inflation, but also
presents opportunity for innovation
and new infrastructure, spurring
economic development.
Our extensive private assets capability
means we are strongly positioned
to support the deployment of low-
carbon solutions and infrastructure
in developed and emerging markets.
We are also aligning our public asset
portfolios with the energy transition,
for example through our thermal coal
investment policies.
#2: Nature loss
Nature plays a critical role in the
fight against climate change.
Effective mitigation and adaptation
depends on preserving the capacity of
natural systems to sequester carbon
and regulate the climate.
In 2022, the UN Biodiversity Conference
(COP 15) ended with an agreement to halt
and reverse nature loss. Compared with
the drivers of climate change, the causes
of biodiversity loss are much more
location-specific.
M&G participated in a range of nature-
focused forums in 2022, including
the All-Party Parliamentary Group
on Biodiversity, and the Taskforce on
Nature-related Financial Disclosures
(TNFD). This participation should
enable us to embed any new disclosure
frameworks effectively in the future.
#3: Just transition
The world’s poor are particularly
vulnerable to the effects of climate
change, yet the least responsible for
historical emissions. This injustice
was a central theme at the UN climate
change (COP 27) negotiations in
Sharm El-Sheikh in 2022, and has
informed initiatives such as Just Energy
Transition Partnerships.
The investment needed to decarbonise
the global economy is enormous,
bringing major opportunities to transform
industries and enable the ‘Global South’
to develop more sustainably.
However, success hinges on the transition
protecting the lives and livelihoods
of those affected. Fairness must be
built into transition decision-making,
considering where capital is needed most.
Through our emerging markets impact
business, responsAbility, we directly
finance sustainable development across
developing countries. The just transition
is a central component in our position on
thermal coal, reflected in different phase-
out timelines for the OECD and EU (2030)
and developing countries (2040).
#4: Economy-wide change
We collectively consume more resources
than the Earth can regenerate, and are
likely to face irreversible environmental
impacts. Addressing these threats
requires major structural economic and
behavioural change, clear policy signals,
and incentives for climate solutions.
From an investment perspective, we
are aware that divestment does not
automatically translate into real-world
change. Stewardship, advocacy and
direct capital deployment are important
routes to enabling a sustainable
transition. Active engagement and
voting is an integral part of our
approach and is captured in our ESG
investment policies.
#5: Sustainability disclosures
Sustainability disclosure standards
continue to advance. The International
Sustainability Standards Board (ISSB)
has finalised its sustainability and
climate reporting standards, following
extensive consultations. In the EU,
the Corporate Sustainability Reporting
Directive (CSRD) was formally adopted
by the European Parliament following
adoption of the Sustainable Finance
Disclosure Regulation (SFDR) in 2021.
The proportion of funds in our SICAV
fund range compliant with SFDR Articles
8 and 9 has increased to 54% at the end
of 2022, up from 30% at the end of 2021.
In the UK, the Financial Conduct
Authority (FCA) opened a consultation
on a package of measures aimed at
tackling greenwashing, in the form of the
Sustainable Disclosure Requirements
(SDR). The UK Transition Plan Taskforce
(TPT) has also launched a consultation
on private sector climate transition
plans. We support these developments,
and are providing feedback on relevant
consultations. Increased disclosure will
help provide transparency for investors,
and increases accountability across
the industry.
Our sustainability principles
We consider sustainability and ESG factors when determining our
corporate strategy and new business initiatives
We embed sustainability considerations throughout our business
We consider the interests of all our stakeholders and ensure our
views on sustainability are consistent with our long-term approach
We manage our businesses – and hold our investee companies –
to the principle of ‘acting responsibly’
We identify and incorporate ESG risk factors into our general risk
management process. Find out more on page 37
We regularly review our sustainability thinking to align with scientific
and technological improvements, and changes in the global economy,
ethics and consumer preferences. We aspire to be a thought leader,
to innovate and to advance understanding of sustainability issues
We use our influence as a global investor and asset owner to drive
positive change in sustainability policy and corporate standards.
We believe in active asset ownership and management, encouraging
companies to transition towards a sustainable future
Act responsibly
Powering homes in Africa and Asia
Through our investment in off-grid solar network Sun
King, M&G is helping to transform lives in developing
countries. Sun King delivers clean energy to over 82 million
people, enabling entrepreneurs to run small businesses
and families to light and power their homes safely and
affordably, without using dangerous kerosene lanterns.
Sun King has so far eliminated 22 million tonnes of carbon
emissions and saved consumers $4.4 billion.
This investment, made by Catalyst on behalf of with-profits
policyholders, will help Sun King to continue to scale its
technology, service and financing capabilities to support
millions more energy consumers in Africa and Asia.
M&G plc Annual Report and Accounts 2022 | 33
Strategic ReportGovernanceFinancial informationOther information Our approach to sustainability continued
Maintaining a holistic view
Our 10-point plan sets out key steps and enablers to drive
sustainability and support real-world positive change
Our 10-point plan, launched in May
2021, contains clear objectives to
help us embed sustainability across
the business and support real-world
positive change. Climate change
is a major area of focus, both from
an operational and investment
perspective, and we are cognisant of
related challenges, such as biodiversity
loss, that require urgent attention.
We believe the integration of
environmental, social and governance
(ESG) factors, and active ownership
through engagement and voting, is a
key element in managing and growing
our clients’ assets.
Demand for sustainability and impact-
focused investment strategies is
growing, and our Planet+ range of
funds now covers a range of themes
to meet the evolving preferences and
needs of clients. We have developed
a clear set of sustainability-related
policies that help us take a structured
and joined-up approach, for example
when it comes to our position on a
just transition.
Measurement is important for
understanding our impact, integrating
ESG considerations, data and
analytics capabilities. We place a
major emphasis on collaboration and
advocacy, working with industry peers
and policymakers to lift ambition.
Delivering on our plan and wider
strategy will not be possible
without the right culture, and this
is why diversity and inclusion, and
building company-wide awareness
of sustainability, is critical.
Align all our
people behind
our sustainability
ambition
10
Be diverse and
inclusive as a business
and as an investor
Reduce our
operational emissions
and set an example
with our corporate
sustainability practices1
9
8
7
Lead collective
action to
deliver change
Develop our
pathway to
net zero 2050
1
Integrate ESG
into our investments
and accelerate
engagement
Our 10-point
Sustainability
Plan
2
5
3
4
Grow our Planet+
fund range
Set standards
in sustainability
and ESG policies
Set standards
in disclosure and
measurement
6
Help clients
and their advisers
understand the
opportunities, risks
and outcomes of
sustainable investing
1 Previously we had described our operational target as ‘Net Zero 2030’. While our ambition has not
changed, we have updated the articulation of the commitment to be in line with industry guidance.
34 | M&G plc Annual Report and Accounts 2022
Our sustainability principles and our 10-point plan align with our purpose, which informs our strategy and priorities.
Find out more on our strategy on
page 10
10-point plan
Further details
Develop our pathway
to net zero 2050
Net zero actions to meet our 2050 target are
in ‘Investments – implementation strategy’
on page 77.
Link to our purpose
Act responsibly
1
2
3
4
5
6
7
8
9
10
Integrate ESG into
our investments and
accelerate engagement
Information on our ESG integration is
in ‘Investments – implementation and
engagement strategy’ on pages 77 to 81.
Act responsibly,
Deliver high-value
outcomes
Grow our Planet+
fund range
Set standards in
sustainability and
ESG policies
The many opportunities that sustainability
presents, including growth of our Planet+ fund
range, are described on pages 72 and 73.
Act responsibly,
Deliver high-value
outcomes
Details of our thermal coal investment policies
are included in ‘Investments – implementation
strategy’ on page 77.
Act responsibly,
Deliver high-value
outcomes
Set standards in disclosure
and measurement
Help clients and their advisers
understand the opportunities,
risks and outcomes of
sustainable investing
Lead collective action
to deliver change
Reduce our operational
emissions and set an
example with our corporate
sustainability practices
Be diverse and inclusive as a
business and as an investor
Our 2022 climate-related disclosures on pages
68-89 reflect updated guidelines, and includes
improvements in metric coverage.
We actively engage on ESG issues (page 81).
Act responsibly, Deliver
high-value outcomes
More details on our engagement and activities
with clients on sustainability can be found on
pages 46-47 and 80-81.
Better understand
client needs, Enable
our clients
Read more on our responsible engagement with
investees, regulators, industry bodies and focus
groups on pages 45 and 81.
Act responsibly,
Deliver high-value
outcomes
Actions to enable us to meet our 2030 target
are detailed in climate change and our
operations on pages 74-76.
Act responsibly
Our initiatives to improve diversity and inclusion
are detailed on pages 49-51. As an investor, we
have signed up to the Investing in Women Code.
Deliver high-value
outcomes
Align all our people behind
our sustainability ambition
Training on sustainability is available to all
colleagues via our internal Sustainability Hub.
Act responsibly
Act responsibly
Becoming more diverse in the way we invest
In December, M&G became the first large UK asset manager to sign the UK Government’s
Investing in Women Code, on behalf of our Catalyst private assets strategy.
Less than 1% of all venture capital in the UK is invested in female-founded ventures, which
represents a huge missed opportunity to create growth and jobs in the economy and to
create value for investors. As a signatory of the Code, we aim to help female entrepreneurs
access the funding they need to scale their businesses.
Working in partnership with a behavioural science consultancy, Catalyst is identifying nudges,
or process design interventions, to deliver better diversity outcomes and will be researching
new ways to break down barriers that female and other diverse founders experience in
accessing funding.
M&G plc Annual Report and Accounts 2022 | 35
Strategic ReportGovernanceFinancial informationOther information Our approach to sustainability continued
Sustainability governance
Enhancing our sustainability governance structures and
sustainability training this year will bring further clarity
to our oversight of sustainability now and in the future
Board oversight
The Board is ultimately responsible for
setting M&G’s sustainability strategy and
ESG values and principles. The Board
delegates specific duties to sub-
committees as follows:
– Reporting in the Annual Report and
Accounts and any other material
public documents in respect of
climate change and ESG matters (for
compliance with relevant regulations,
legislation and standards) is included
in the Audit Committee’s terms of
reference, available on our website.
– Assessment of ESG risk within the
Group Risk Management Framework,
including climate-related stress
and scenario testing, the reporting
of climate-related risk disclosures
and provision of advice to the Board
in setting M&G’s ESG strategy, is
included in the Risk Committee’s terms
of reference, available on our website.
Responsibility for sustainability at an
individual level is assigned to our Chief
Financial Officer, who has previous
experience in climate stress testing and
sustainable impact investing.
The Chief Financial Officer is a member
of both the Board and Group Executive
Committee, facilitating communication
between the Board and management.
In discharging its responsibilities,
including setting M&G’s sustainability
strategy, the Board is supported by
management and ensures a clear
division of responsibilities between
the Chair, the Group Chief Executive
Officer, the Senior Independent Director
and the Non-Executive Directors
through their membership of the Audit
and Risk Committees.
Regular Risk and Compliance reporting
is provided to both the M&G Risk
Committee and the M&G Executive
Risk Committee through the Chief
Risk and Compliance Officer’s report
– setting out current risk issues,
events in the period and as a risk
assessment of our key risks against
appetite. This includes consideration of
sustainability and ESG risks.
During 2022, the Audit Committee
discussed and approved our approach to
sustainability reporting for 2023.
In 2022, sustainability matters – including
a review of commitments and targets –
were discussed as required at a number
of Board meetings. From 2023, these will
be included as part of a regular update
presented by the Chief Financial Officer.
Sustainability training
and expertise
To enable the Board to perform its
role more effectively, members were
provided with a number of training
sessions on sustainability topics during
the year.
These included dedicated training on the
link between growth and sustainability,
along with wider training on ESG
reporting and assurance for the Non-
Executive Directors.
In November 2022, a briefing session
was provided to the Board, executive
management and sustainability leaders
by Professor Cameron Hepburn, a
Director at the Smith School of Enterprise
and the Environment. This session
covered a smooth transition to net
zero and where potential investment
opportunities will arise.
Board oversight
M&G Plc Board
Responsible for setting Group’s business strategy, including ESG, purpose, values and culture
Fund Board
Regulated
Entity Boardi
Accountability and oversight of ESG for the
investments/products within their remit
Audit
Committee
Risk
Committee
Remuneration
Committee
Nomination
Committee
Reporting and
assurance
Assessment of risk,
including ESG risks
Senior management
remuneration targets
Board skills
and experience
i
Includes the
With-Profits
Committee
Executive oversight
Group Executive Committee
Responsible for implementing the Group’s business strategy
Management Disclosure
Committee
Executive Investment
Committee
Executive Risk
Committee
Executive Sustainability
Committee
Reporting and
disclosure
Climate investment strategy for
our asset management business
Assessment of risk,
including ESG risks
Group sustainability strategy
and commitments
Find out more on Board and Committee attendance on
page 100
36 | M&G plc Annual Report and Accounts 2022
In addition to the training schedule
for the year, in June 2022 the Risk
Committee received a presentation
on greenwashing risk.
This session covered what risks fall
under greenwashing and how these
can present, including: policies,
risk reporting, funds and products,
and external stakeholder perceptions.
As a result of this presentation,
the Risk Committee approved
further action in a number of areas,
including updates to staff training,
and certain fund-related actions
relating to terminology and ratings.
As well as the previous experience
of our new Chief Financial Officer,
two additional appointments in 2022
have enhanced the Board’s knowledge
and experience on sustainability:
Dev Sanyal joined the M&G Board as
a Non-Executive Director on 16 May
2022. Mr Sanyal brings with him a
deep experience in renewable energy,
including solar, wind, hydrogen
and bioenergy.
Andrea Rossi, our newly appointed
Group Chief Executive, has experience
as a Non-Executive Director of
REsustain, a firm he co-founded in
April 2021, which developed a platform
that helps reduce the carbon intensity
of commercial real estate.
Management’s role
Executive management, as members of
the Group Executive Committee, report
directly into the Group Chief Executive
Officer, allowing material climate and
other ESG issues and policy decisions to
be escalated to the Board. In discharging
their responsibilities, management
attend various committees, such as the
M&G Executive Risk Committee and
M&G Executive Investment Committee,
to enable information sharing between
business units and to monitor climate-
related issues. Find out more about the
oversight of climate-related issues by
these committees on page 69.
At the Group Executive Committee level,
responsibility for sustainability strategy,
policy, commitments and governance
model, including climate, sits with our
Chief Financial Officer.
A Central Sustainability Office was
created in 2022 to implement a
Group-wide sustainability governance
operating model, shape the group’s
sustainability strategy and policy, and
oversee delivery of its commitments.
As part of this, an Executive
Sustainability Committee was also
formed in 2022, and is chaired by our
Chief Financial Officer. The Executive
Sustainability Committee is
responsible for:
– supporting the Board in the successful
execution of M&G’s sustainability
strategy, policy, public sustainability
commitments and disclosures;
– promoting and driving a collaborative
approach across M&G;
– tracking the progress and delivery
of sustainability commitments and
targets;
– tracking sustainability spend and
forecasts and the sustainability
programme costs;
– reviewing sustainability emerging
topics and risks, as presented to the
committee by risk; and
– reviewing external ESG disclosures.
Sustainability disclosures and reporting
that are considered material to the
Group are presented to the Management
Disclosure Committee (MDC), which
has responsibility for external reporting
and disclosure, prior to submission to
the Audit Committee. The MDC is also
chaired by the Chief Financial Officer.
ESG risk management
Sustainability and ESG have been
identified as a principal risk to our
business. Find out more about this on
page 61 of the Risk Management section.
Across M&G and its subsidiaries,
we continue to integrate sustainability
risk into a range of activities across
the three lines of defence (first line,
risk and compliance and internal audit).
Sustainability risks are identified,
assessed and managed under the
M&G ESG Risk Management framework
and policy.
Consideration of sustainability and
ESG risk is built into our decision-making
processes, and is a requirement of key
strategic Board risk assessment papers.
Climate change risk is integrated into
our scenario analysis process, which
explores a number of scenarios, not all
climate-based, with both top-down and
bottom-up consideration over a range of
time horizons.
Risks and opportunities arising from
climate change are discussed in
more detail within our climate-related
disclosures on pages 70-73.
Find out more on Risk Management on
page 61
Remuneration
Our Executive Committee’s reward
structure is linked to the core
performance management scorecards,
which include sustainability-
related metrics.
The executive LTIP arrangements
for 2022 included a 7.5% weighting
attributed to our organisational
emissions reduction, and a 7.5%
weighting attributed to our gender
diversity targets. For the 2023 LTIP, the
Remuneration Committee have added an
ethnicity diversity target and increased
the overall weighting for sustainability-
related targets from 15% to 25%.
These objectives and remuneration
structures, including any sustainability-
related targets, are reviewed annually.
Find out more in the Directors
Remuneration Report on
page 146
Policy
Our Operational Environmental Policy
provides oversight of the requirements
we have set for our own environmental
footprint from the operation of our
buildings, business-related travel
and supply chain, and is sponsored
by our Chief People and Corporate
Affairs Officer.
Across our investments, there are ESG
investment policies in place for both
M&G Investments and The Prudential
Assurance Company Limited (PAC).
The M&G Investments Policy is owned
by our Chief Investment Officer and
the PAC Policy is owned by the Head
of Treasury and Investment Office.
M&G plc Annual Report and Accounts 2022 | 37
Strategic ReportGovernanceFinancial informationOther information Our approach to sustainability continued
Our climate disclosures (including TCFD)
Taking action on climate change is a key priority
in our approach to sustainability
Our climate-related disclosures in this report are consistent with the four pillars and 11 recommended disclosures as set out by
the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD). Our disclosures this year have been
updated to reflect the recommended disclosures in the 2021 TCFD Annex published in October 2021, and have been prepared
in line with the all-sector guidance and the supplementary guidance for asset owners and asset managers.
The majority of these disclosures can be found in the dedicated climate-related section of the report on pages 68-89. As climate
is a consideration across a number of areas of the business, the table below provides a high-level description of our response to
each of the TCFD recommendations, and where relevant disclosures can be found in this report.
TCFD pillars
Governance
Board’s oversight of
climate-related risks
and opportunities
Description
Further information
The M&G plc Board is responsible for setting our strategic approach
to sustainability (including climate) and related values and principles.
Sustainability governance
page 36
In discharging its responsibilities, the Board is supported by the
Risk Committee, Audit Committee and newly formed Executive
Sustainability Committee.
Management’s role in
assessing and managing
risks and opportunities
Management’s responsibility for assessing risks and opportunities
arising from climate change sits with the Group Executive Committee,
supported by a newly formed Executive Sustainability Committee.
Management of actions and opportunities arising from the
assessment of ESG risks (including climate) is discussed at the M&G
Risk Committee and M&G Executive Risk Committee, through the
Chief Risk and Compliance Officer’s report.
Sustainability governance
page 36
Climate governance
and strategy page 69
Climate risks and
opportunities page 70
Strategy
Climate-related risks
and opportunities the
organisation has identified
The impact on the
organisation’s
businesses, strategy
and financial planning
Resilience of the
organisation’s strategy,
based on different
climate-related scenarios
Risk management
Processes for identifying
and assessing
climate-related risks
Processes for managing
climate-related risks
We take a holistic view of climate change risks across transition
and physical risks, over a range of timeframes. We have also
identified a range of climate-related opportunities, through the
setting of appropriate investment strategies, and also through the
decarbonisation of our operations as a business.
Acting responsibly is part of our purpose, which informs our
strategy. As part of our strategy to deliver targeted growth, we are
focusing on using our asset management expertise and scale to
invest in thematic and sustainability-focused strategies, including
climate solutions.
Climate risks and
opportunities
pages 70-73
Climate governance and
strategy page 69
Climate risks and
opportunities page 70-73
Our strategy page 10
As part of our Own Risk and Solvency Assessment (ORSA), we have
used our in-house climate modelling to explore potential financial
impacts of transition and physical risks through three different
climate scenarios (an orderly, disorderly and ‘hot house’ outcome).
In addition to this balance sheet modelling, we have undertaken
asset-by-asset climate modelling to better understand risks and
opportunities across the investments we manage.
Climate risks
pages 70-71
Scenario analysis
page 84
Financial statements
from page 180
The identification, assessment and management of climate-related
risks, along with other ESG-related risks, is integrated into M&G’s
ESG Risk Management Framework.
Climate risks and
opportunities
pages 70-73
We have implemented measures to manage climate-related
risks. For our operations, these include environmental policy
and supplier due diligence and engagement for our corporate
operations. For our investment portfolios, we have implemented
our Thermal Coal Investment Policy and a stewardship programme
for our investments.
Climate risks and
opportunities
pages 70-73
ESG risk management
pages 37
Integration of climate risks
into the organisation’s overall
risk management
The identification, assessment and management of ESG risk is
conducted in line with M&G’s Risk Management Framework, with
risk governance based on the ‘three lines of defence’ model.
Risk management
page 61
38 | M&G plc Annual Report and Accounts 2022
TCFD pillars
Description
Further information
Metrics and targets
Metrics used by the
organisation to assess
climate-related risks
and opportunities in line
with its strategy and risk
management process
GHG emissions
Targets used by the
organisation to manage
climate-related risks
and opportunities and
performance against targets
To assess climate-related risks and opportunities, we focus on
all our operational and Scope 1 & 2 investment portfolio carbon
emissions. We intend to phase in additional Scope 3 emissions as
data becomes more robust, and are developing further metrics to
monitor and manage climate-related risks.
Operational emission
metrics pages 74-76
Investment emission
metrics pages 82-87
For example, we have disclosed metrics on financed emissions across
our investment portfolios on pages 82-87 where data is available.
We do not currently disclose metrics on internal carbon pricing or
capital allocation. However we may consider these in future as industry
consensus and green taxonomies become more established.
We have compiled our global GHG emissions statement in
accordance with the Companies (Directors’ Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018.
Greenhouse Gas
Emissions Statement
page 76
We have also calculated financed carbon emissions and
weighted average carbon intensity for a portion of our assets
under management.
Climate metrics
page 82
We have set ourselves near-term operational carbon reduction
targets aligned with the Paris Agreement. Find out more about
these targets and how they are measured on pages 74-75.
We have committed to achieving carbon net zero in aggregate
across our investment portfolios by 2050, to align with the Paris
Agreement. This is supported by our interim targets, created as
part of our memberships of the Net Zero Asset Managers initiative
(NZAMi) and Net-Zero Asset Owner Alliance (NZAOA), which are
discussed further on pages 78-79.
Our sustainability plan
page 34
Operational targets -
page 74-75
Investments –
implementation strategy
pages 77-79
Progress over 2022
To support transparency around climate transition plans, our shareholders were invited to vote on our transition roadmap
through a ‘Say on Climate’ resolution at the AGM in May 2022. A majority of votes cast were in favour of the resolution, but we
also received some constructive feedback, which we are taking into consideration as we review and further develop our plan.
Taking this feedback into account, in November 2022, we published a further update setting out key ESG developments since
the AGM, including progress on interim targets outlined below.
In September 2022, we published our first interim asset owner targets towards achieving net zero by 2050 as part of our NZAOA
commitment. Find out more on page 79. Our asset manager also reported on progress against its interim targets, showing that as
at 31 December 2021, the emissions intensity (tCO2e/£m invested) of in scope listed equity and public fixed income investments
had reduced by 25.7% and 13.9%, respectively, since 2019. In April 2022, our Asset Manager Thermal Coal Investment Policy
came into effect, with a clear engagement-focused approach to phasing out coal in both OECD countries
and the rest of the world. Find out more on page 77.
We have made progress in reducing our operational footprint. In 2022, we moved into new offices in Stirling (Kildean), which
replaces our Craigforth site. The building is fully electric (supplied by REGO-backed renewable energy) and is significantly more
energy efficient than our Craigforth office. We also completed further work with our supply chain in the year, and contacted more
than 1,000 suppliers to help us better understand and assess our indirect emissions impact. Our new preferred suppliers list is
beginning to incorporate minimum sustainability standards and disclosures. Find out more on pages 74-75.
Priorities for 2023
In 2023, we will continue to focus on actions that will progress us towards meeting our net zero and carbon reduction
commitments. This includes identifying investment opportunities in climate solutions and those that support a just transition,
embedding our Net Zero Investment Framework across our investment teams, implementing our Asset Manager Thermal Coal
Investment Policy, and engaging with our investee companies to bring them into alignment with our climate priorities.
Managing climate-related risks and opportunities, including meaningful delivery against emissions reduction targets, requires
reliable data and methodologies and we will continue to develop our analytical capabilities, including use of a new climate
scenario model. As major owners and investors in private markets, we will continue to develop new methodologies for measuring
private asset emissions, and hope to increase the scope of assets covered by our interim climate targets for the asset manager
and asset owner.
Our operational climate priorities for 2023 also include identifying further energy-saving opportunities across our largest sites
and continuing engagement with colleagues on how they can support our operational sustainability journey. We will also work
with our supply chain to assess their carbon impact, rolling out minimum sustainability requirements for our preferred suppliers
and requiring detail on current action and future plans that address their sustainability impacts.
M&G plc Annual Report and Accounts 2022 | 39
Strategic ReportGovernanceFinancial informationOther information Section 172 Statement
How the Board fulfils its duties
Understanding the needs of our stakeholders is essential to help
us fulfil our purpose and drive value creation over the longer term.
We consider all their needs when reaching decisions, responsibly
The following pages provide more detail on how, as a Board, we have fulfilled our duties (set out under
Section 172(i) (a) to (f) of the Companies Act 2006) and how we have engaged with and taken account of
our stakeholders’ interests over 2022. We have also described how we have considered each of our key
stakeholders and their views. Links to further information are throughout the Strategic Report.
How the Board fulfils its Section 172 duties
Section 172 of the Companies Act 2006 requires a company director to act in the way he or she considers, in good faith,
would most likely promote the success of the company for the benefit of its members as a whole. The following aspects
demonstrate how the Board establishes a structure to help it fulfil the Section 172 duties.
Establishing our purpose, strategy, culture and values
The Board sets and monitors the culture and values for M&G and this sets the tone of how we want to do business.
Our culture and values inform our purpose, and are an essential underpin for our decision-making on strategy and what
we want to achieve. Find out more on page 10.
Board skills and stewardship
The establishment of a strong Board is essential for successful stewardship of M&G. We seek to recruit and retain Directors
with diverse skills and expertise to govern all decision-making. We develop our Directors through a comprehensive
induction process, and engagement with management, training and workshops. This process helps our Directors to
enhance their skills, so they can contribute to stronger decision making, and are better placed to help shape proposals
and provide constructive challenge. Find out more on page 101.
Board information
The Board has established guidelines and training for colleagues to ensure that material prepared for Directors is of a high
standard and considers all aspects relevant for Section 172, including the long-term impact and how stakeholders have
been considered. We encourage Directors to provide feedback to paper preparers to guide this process.
Board discussion and decision-making
As part of its discussions, the Board provides rigorous evaluation, risk management and challenge to ensure any decision
promotes our long-term sustainable success. The Board uses the Stakeholder Engagement actions summarised on pages
42-45 to inform its decision-making process.
Monitoring and review
The Board receives updates on the implementation of key decisions through management reporting. We schedule and
track post-implementation reviews on the Board’s forward agenda, so the Board can test its past decision-making.
40 | M&G plc Annual Report and Accounts 2022
Key decision #1
Key decision #2
Key decision #3
Key decision #4
Acquisition of
responsAbility –
January 2022
The acquisition of a majority
stake in responsAbility
Investments AG, a leader
in impact investing, which
is focused on private debt
and private equity across
emerging markets.
Appointment of
Chief Executive
The selection, nomination
and appointment in October
2022 of Andrea Rossi as
Group Chief Executive Officer.
Wealth acquisitions
M&G’s strategy to grow our
Wealth business through
strategic acquisitions.
Ongoing relationship
with Technology
Infrastructure Services
Approving a proposal to
extend our relationship with
Tata Consultancy Services
(TCS) for technology
infrastructure services
for five years.
Criteria considered
A, B, C, D, E, F
Criteria considered
A, B, C, D, E
Criteria considered
A, B, C, E, F
Criteria considered
A, B, C, E, F
Stakeholders considered
Clients, colleagues,
investors, regulators
and business partners
Decision-making process
The Board considered
a proposal to continue
our relationship with
TCS for our technology
infrastructure services.
The Board’s assessment
reviewed the quality of
TCS’s services provided to
date and considered plans
to expand the scope of the
contract to help drive our
‘Cloud-Only’ ambition. The
benefits: operational stability
of technology infrastructure
services for important
transitions during 2024 and
2025; time to decommission
legacy infrastructure; and
improve efficiency on a like-
for-like basis, all supported
our strategy to simplify our
business, and be efficient in
how we serve our clients.
Stakeholders considered
Clients, investors, regulators
and communities
Stakeholders considered
Clients, investors, regulators
and colleagues
Decision-making process
The search for a new Chief
Executive started with John
Foley’s decision to retire in
April 2022.
The Board was supported
by the Nomination
Committee throughout
the process that led to its
decision to appoint Andrea
Rossi.
Andrea’s skills and
experience across both
global asset management
and insurance were an ideal
fit for the long-term success
of our business.
For our employees, Andrea
provided an inspiring and
proven leader. For our
clients, he is an industry
expert with a focus on client
outcomes.
Through the usual
regulatory approvals
process we ensured
Andrea met all our
regulators requirements
and standards.
As for all our Directors, we
will ask our shareholders
to approve Andrea’s
appointment at the
2023 AGM.
Decision-making process
Our Executive and Strategy
teams recommended
the proposal to acquire
responsAbility to the Board
for approval. The acquisition
was an important initiative
to establish M&G’s
credentials for impact
investing and sustainability
Find out more on page 73.
The Board reviewed the
due diligence undertaken
to ensure the talent,
capabilities and cultural
fit of responsAbility’s
team were appropriate
and considered how it
would integrate into our
wider business.
We considered and
evaluated the valuation
basis for the acquisition
against the strategic
benefits for M&G and its
potential for future growth,
thinking about how the
acquisition matched our
strategy to drive a profitable
international business.
Our Risk team also provided
an opinion on the strategic
risks; operational integration
and ongoing oversight;
regulatory and compliance
matters. This allowed us
to properly consider the
impact of the new business
and ensure we could
maintain our high standards
of business conduct.
Stakeholders considered
Clients, colleagues,
investors, regulators
and business partners
Decision-making process
M&G Wealth was formed
to revitalise M&G’s market
position and prospects
in the UK. The new
structure supports better
understanding and enabling
clients, by responding to
structural market dynamics
across the value chain
and capitalising on the
opportunity to meet rising
demand for investment
advice and wealth solutions
across an expanding UK
retail market.
The Board reviewed
business forecasts,
which showed that by
2025 M&G Wealth could
contribute significantly to
new asset flows across all
channels (controlled and
intermediated distribution).
Across 2022, we acquired
Sandringham Partners and
TCF Investments, entered
in a partnership with
MoneyFarm and agreed to
acquire an initial 49.9% stake
in Continuum (Financial
Services).
As part of its strategic
planning, the Board
balanced the prospects for
these businesses and how
they would deliver profitable
growth for M&G, as well
as the immediate financial
impact of the acquisitions,
and cash availability for
other demands.
Key criteria –key to decision criteria:
A: The likely consequences of any decision in the long term B: The interests of our employees
C: The need to foster our business relationships with suppliers, clients and others D: The impact of our operations on the community and the environment
E: The desirability of maintaining a reputation for high standards of business conduct F: The need to act fairly as between members
M&G plc Annual Report and Accounts 2022 | 41
Strategic ReportGovernanceFinancial informationOther information Our stakeholders
How we engage
Colleagues
How we engage
Action and progress
Culture Programme
The Board receives quarterly data, including people data and a culture
dashboard in order to monitor the organisation’s culture.
Colleague surveys
Listening to colleague feedback is vital. Our ‘OneVoice’ survey captures
feedback and tracks engagement across M&G. Each function has its
own action plan and progress is tracked by and discussed with the
Group Executive Committee.
Employee Voice
Our Non-Executive Directors attend Colleague Forum meetings and
reflect on feedback they receive during those sessions.
M&G Unwrapped and colleague communication
As well as colleague messages delivered by senior managers using a
variety of formats such as email, video, and interactive virtual meetings,
the Chair and members of our Group Executive Committee take part in
interviews for ‘M&G Unwrapped’, a TV-style programme that explores
changes in the world and what this means for M&G and our clients.
We share these with colleagues via a dedicated communication channel.
Find out more about our colleagues on pages 48-51.
Our Culture Programme was a key focus during
2022. The Board recognises its crucial role in
overseeing and ensuring stewardship of M&G’s
strong culture to ensure it remains aligned with
purpose, values and strategy.
The Board and Group Executive Committee
discussed colleague survey results to identify
areas for improvement, which were then
communicated back to the business. The Board
uses this insight from colleagues to shape
decisions on employee facing policies
and operations. From 2023, we will run
quarterly employee surveys to provide more
regular feedback.
The Board received feedback on the six Employee
Voice sessions in 2022, together with high-level
observations from participants. In addition, the
Board held a session with our Colleague Forum
in Kildean during a site visit. This enabled the
Board to see colleague and client experiences first
hand and apply this when considering client and
employee matters in the Boardroom.
‘Unwrapped’ provides colleagues with valuable
insight into how our business is developing,
introduces leaders at M&G and provides other
practical updates. In 2022, interviews included
a joint session with Andrea Rossi and Edward
Braham, inviting questions from M&G colleagues.
This allows the Board to ensure a strong, aligned
and accessible message on our strategy.
42 | M&G plc Annual Report and Accounts 2022
Clients
How we engage
Action and progress
Responsibility
Our Group Chief Executive Officer leads our Executive team, which has
responsibility for clients and is overseen by the Board.
Strategy
The Board approves our client-focused strategy and Business Plan, and
oversees our culture to deliver our purpose.
The Board receives regular reports including
client feedback, customer scores, servicing and
technology issues. In 2023, we will host a Board
deep dive on key developments and thematic
trends in retail, wholesale and institutional markets.
During 2022, the Board established its approach to
Consumer Duty regulations and received detailed
reports on how this will be implemented.
The Board used agenda time to consider several
Wealth acquisitions, and our overall plan to support
our strategy to offer a full savings and advice
proposition to our UK clients. We included several
sessions on client strategies as part of our Board
strategy offsite in June, including geographic
focus, client views on sustainability and customer
interaction in the digital era.
Communities
How we engage
Action and progress
Community investment strategy
Social responsibility is firmly embedded in M&G’s operations around the
world as an integral part of the way we do business. Our social purpose is
to build inclusive and resilient communities through urban regeneration,
economic empowerment and community building. We want to use our
community investment to help break down the barriers that prevent
people from living the life they want. Our framework for community
engagement provides support at a strategic and local level.
The Executive Committee reviews our corporate
responsibility (CR) strategy and performance
bi-annually, and the Board annually. In September,
the Board and Executive Committee visited the
annual CR Show in our Stirling offices, and met our
flagship and local charity partners.
Charity partnerships and donations
We work closely with our charity partners to develop strong, sustainable
projects that meet local needs. We nurture spaces and places that help
people and nature to thrive, giving people skills and opportunities to be
financially secure, and building and strengthening relationships within
and between communities.
Our 2022 community investment spend was
£4.3 million, of which £3.3 million was cash.
Over 1,345 colleagues dedicated 8,964 hours of
fundraising and volunteering in their communities.
M&G colleagues also donated £165,626 through
our payroll giving scheme.
M&G in the Community Fund
The M&G in the Community Fund is an annual grant programme
supporting local charities and projects with small donations.
The Committee includes over 40 colleagues across M&G locations.
Find out more about our community engagement on page 54.
The Community Fund has awarded grants to 260
charities globally across our markets.
M&G plc Annual Report and Accounts 2022 | 43
Strategic ReportGovernanceFinancial informationOther information Our stakeholders continued
Investors
How we engage
Action and progress
Results presentation
As part of the annual and half-year results, our Investor Relations team
produces market presentations covering strategy and business updates,
as well as the financial review of the period. We also engage with
investors through regulatory reporting, such as the Annual Report and
Accounts and the Interim report.
Meetings, roadshows and conferences
Throughout the year, management regularly meets and engages with
investors as part of results roadshows, at investor conferences, and sell-
side analysts events. We hold a mix of in-person and virtual meetings to
maximise investor engagement and efficiently manage time.
AGM
The Board recognises the AGM as an important formal interaction
with investors. We provide additional dedicated services to our retail
shareholders via the Group Secretariat team and our registrar, Equiniti.
Key information is on our website (in particular the Shareholder
Information section), including relevant material on corporate
governance, dividends, the AGM and share dealing, and answers to
frequently asked questions.
Shareholder climate consultation
Before our 2022 AGM, we engaged with major shareholders on our Say
on Climate Resolution, to vote to approve our Climate Transition Plan and
our climate-related financial disclosures for 2021, and were encouraged
that 79.57% of votes cast were in favour of the resolution. We then
engaged with major dissenting shareholders on our climate plans,
gaining comments on our interim net zero targets for our investment
portfolios, and on target-setting and monitoring.
Remuneration Committee Chair engagement with shareholders
We engage with investors on change to remuneration on an
ongoing basis.
In 2022, we continued to hold hybrid results
presentations. In the early morning of results
announcement days, we upload a pre-recorded
video and transcript of our Group Chief Executive
Officer and CFO presentations on our corporate
website. We invite sell-side equity analysts and
investors to attend a Q&A session with the Group
Chief Executive Officer and CFO at our office in
London, and offer virtual attendance to all investors
to ensure accessibility for everyone.
Over 2022, we carried out 114 interactions with
investors, representing c.54% of our shareholder
register, including potential as well as existing
investors. In April, we conducted meetings
between the Chair and our largest investors to
discuss broad governance topics and sustainability
disclosure. We also held introductory meetings
with our largest shareholders to introduce our new
Group Chief Executive Officer and CFO.
Our 2022 AGM was hybrid, with shareholders
attending both in person and online. We encourage
shareholders to use virtual meeting technology to
ask questions ‘live’, and to pre-register questions in
advance. The virtual meeting technology enables
shareholders to vote on AGM resolutions ‘live’ in
the meeting.
In September 2022, we published our internal
asset manager’s first formal set of interim targets
towards net zero by 2050, and our asset manager’s
progress against its initial interim targets set in
2021. We then updated our shareholders on this in
November 2022.
In 2022, as part of our triennial review of the
Remuneration Policy, the Remuneration Committee
Chair has engaged extensively with our largest
shareholders to gather and reflect their feedback
in the Policy.
We also engaged with advisory bodies such as
the Investment Association and Glass Lewis,
who we know provide voting guidance to many of
our shareholders.
44 | M&G plc Annual Report and Accounts 2022
Regulators
How we engage
Action and progress
Maintaining open and transparent relationships
We recognise the importance of maintaining open and transparent
regulatory relationships – communicating openly, working
collaboratively and providing the Financial Conduct Authority
(FCA), Prudential Regulation Authority (PRA) and all our other global
regulators with timely notification of issues. We aim to approach
our relationship with our regulators, as stakeholders, in an open and
constructive manner.
During 2022, ensuring we met both our regulatory
obligations, as an independent international
business, and the objectives of our policyholders
has remained a priority for us.
Engagement
The Chair, Group Chief Executive Officer and other Board and Executive
Committee members also meet regularly with the regulators and
supervisory teams at the PRA and FCA.
The Board and members of the Senior Executive
team have engaged extensively with our regulators
in 2022 on a range of topics as part of our
regular dialogue.
Reporting - Compliance
The Board receives a report on regulatory matters from the Regulatory
Affairs team within the Risk and Compliance function, at every Board
meeting. All relevant regulatory correspondence is made available to the
Board in a timely manner via a dedicated Reading Room.
Over 2022, the Board considered and discussed
various responses to specific regulator requests
and recommendations.
Business Partners
How we engage
Action and progress
Assessing Third Party Risk
The Chief Risk and Compliance Officer’s (CRCO) report to the Risk
Committee provides a regular assessment of key risks, including any
issues regarding third party suppliers and outsourcers.
The Risk Committee reviewed the Third Party
Risk Management and Outsourcing Policy and
its implementation.
Oversight
The Board oversees the performance of business partners and suppliers
through reporting from management and the risk function. Day-to-day
oversight is conducted by the operational teams and substantive issues
are escalated to the Board through the regular management reporting.
Third-Party oversight issues are reported by the second line to the
Risk Committee.
Board level approval of material partnerships.
The Board reviewed its delegated authority
framework and the work done by executives in
2022 to ensure it had the right oversight visibility of
strategic partnerships and contracts.
The Board approved an extension to our
partnership with TCS, to allow for infrastructure
transformation and a cloud-only strategy which will
help our delivery for clients.
Modern Slavery
The Board also approves M&G plc’s Modern Slavery statement which,
given the nature of our business and our use of third parties, is focused
on our efforts to detect and prevent modern slavery in our supply chain.
In 2022, a new training module on Conduct was
launched for all employees, which included
Modern Slavery topics. The Board undertook this
training alongside colleagues.
M&G plc Annual Report and Accounts 2022 | 45
Strategic ReportGovernanceFinancial informationOther information Clients
Our client focus lies at our core
We help clients achieve their financial goals
by understanding what matters most to them
We aim to deliver strong outcomes
for our clients through innovative
propositions that address their financial
needs. We work with 490 of our own
advisers and have an active relationship
with more than 3,000 advice firms.
We manage savings for 4.8 million
retail clients across all age and wealth
brackets. In our Asset Management
business, we manage assets of over
£150 billion on behalf of institutional
investors, global banks, discretionary
and advisory clients, working closely
with intermediaries and investment
consultants to meet our clients’ needs
across a broad range of strategies.
Such a broad base gives us a privileged
window into what matters most to
our clients and their advisers, and
helps us to deliver relevant, high-value
investment outcomes.
We are a responsible corporate,
aiming to make financial advice more
accessible, and advancing sustainability
inside and outside M&G. In line with
our strategy, we are transforming
and simplifying how we operate, and
investing in digital capabilities to become
more efficient.
Engaging with our clients
to understand them better
Research and engagement with our
clients helps us better align with their
needs, and informs how we design
our products, customer journeys
and communications.
In the UK, we are positioning ourselves
for the structural changes within the
UK defined benefit corporate pension
fund market, following the fallout from
the ‘mini’ budget in 2022, as many
of our clients look to de-risk on the
path to buy-out or self-sufficiency.
We continue to emphasise strategic
partnerships, both through funds and
bespoke solutions.
Our in-house insights and strategy team
leads on all our research and provides
content for Our Insights Hub, launched in
April 2022. We regularly share our plans
and seek retail client and adviser insights
through MyView.
In 2022, we explored how M&G can
best support clients facing the cost-of-
living crisis (COLC), so we can provide
appropriate support and help retail
clients understand how to manage
long-term financial plans, as well as
signposting them towards support.
We are reshaping M&G’s COLC strategy
going into 2023 and updating materials
to support retail clients and advisers.
In 2022, MyView held its first in-person
events with retail clients since the
pandemic to discuss how M&G can
better support them in achieving their
financial goals. Resulting actions and
insights are shaping our client priorities
in 2023, including:
– Digital journeys: better signposting
to M&G’s digital tools, guidance
and advice
– Communication: including value
of funds and changes, and regular
updates on market activity
– Accessibility: ensuring M&G services
are accessible for a less digitally
native generation
– Sustainability: educating investors
on climate change
We also work closely with our wholesale
and institutional clients around the
world to understand how their needs,
and those of their underlying clients,
are evolving. We then tailor strategies to
client objectives, such as sustainability.
In 2022, Asset Management
undertook...
– 1,681 sales-led events with
M&G investment professionals
– 102 live events
– 75 webcasts with almost 4,800
live viewers
Being easy to work with
In 2022, we focused on simplification,
stabilisation and excellent service to
make doing business with us easier
for clients and advisers, while laying
the foundations for future growth and
ongoing improvement.
Our multi-channel advice offering
combines digital journeys with access
to human-based advice.
Helping our clients to adopt digital
channels is strategically important and
enables us to offer a better experience,
so we are driving more retail clients
and advisers to self-serve and to think
“digital first”. It is also helping us gather
useful client information, provide a
more efficient service and speed up
our internal processes.
We’ve grown The Advice Partnership
(TAP), through the Advice Academy,
to address the gap between the number
of advisers in the marketplace and
the growing need for financial advice.
TAP clients can access advice on
investments they hold outside M&G,
empowering all TAP advisers to set their
own price for their services through
flexible charging; and launching TAP
new foundation platform to support
new recruits.
Over 2022, we also developed digital
pension claims, and extended the
digitisation of our retirement options
process. For advisers, we’ve improved
the digital experience for our platform
business – making it more intuitive
for advisers to manage their clients
and holdings.
MAP, our human-led, digitally supported
advice service, now has 1,100 clients,
doubling last year’s inflows to £100m.
We’ve made the service available to
more people by extending our eligible
client base and, by providing cheaper
advice to more clients, we are helping
to bridge the advice gap. Our new
digital appointment booking process
means retail clients can book their
own meetings, saving advisers 25%
of their time.
Our net promoter score has
improved over 2022
Our net promoter score (NPS) is a
measure of how likely clients are to
recommend us to other people.
Our NPS for Retail and Savings,
which covers both Wealth and
Heritage clients, has improved to
+14 at the end of 2022, from +9 at the
end of 2021, against a target of +11.
46 | M&G plc Annual Report and Accounts 2022
We absolutely act with integrity.
We take ownership and
accountability to do what’s right
for our our clients.”
Mandeep Chana
Commercial team Category Manager
Bringing clients along on
our sustainability journey
We recognise that we need to bring all
our clients with us on our sustainability
journey, and we are addressing this
with innovative sustainable and focused
products and education, as well as wider
community support. Find out more in our
Social impact section on pages 52-55.
We continue to support the transition
of many funds by enhancing their ESG
characteristics. By early 2023, over
75% of total wholesale SICAV funds
will offer our clients different levels
of ESG-enhanced, sustainability and
impact funds.
We launched our Real Asset Impact
Fund in 2022, focused on agriculture,
infrastructure and natural capital.
This is complemented by funds offered
by responsAbility. We also launched
two Catalyst Credit and Catalyst
Capital Funds.
Responsible and ESG investing can
be confusing, so we ensure our clients
are well informed. We are removing
jargon from our communications and
providing more detail to ensure clients
better understand this emerging
genre of investing.
In September 2022, we launched
The Active Impact Community (AIC)
platform for people in the UK to discuss
sustainability and investments. The AIC
offers fresh insight and a new audience to
M&G focused on sustainable investing.
Making more advice
available to more people
We help UK households save for
their future by improving access to
products and making financial advice
more accessible. Under the Pru
brand, we supported the “Pension
Attention” campaign in July 2022:
a cross-industry collaboration co-
ordinated by the Association of British
Insurers and the Pensions and Lifetime
Savings Association.
Over 2022, we have made the PruFund
Planet range of funds available to more
clients and advisers by adding it to
the M&G Wealth Platform, as well as
launching model portfolios. Over 2023,
we will be helping retail clients better
access useful fund information,
improving investor comprehension and
understanding of funds. We developed
our new &me app with MoneyFarm in
2022 for launch in 2023. Powered by
M&G Wealth, the app gives clients the
ability to search for future investments,
using a personalised approach.
Supporting our Heritage
clients to ‘go digital’
Over the past four years, we have
transformed our online services for retail
clients and advisers. Our digital offering
is easily accessible and our registered
digital client base has grown from 5%
in 2018, to 22% by the end of 2022, with
over 520,000 clients. We proactively
engage with clients and closed 87% of
escalated engagements within 24 hours
over 2022, rising to 100% of escalated
engagements in December 2022.
We offer a range of services and
capabilities, and digital communication
channels that allow clients and advisers
to self-serve - or send us a question or
request - 24/7.
We proactively engage with our
Heritage clients about their savings and
pensions needs, helping them move to
relevant savings solutions as they reach
retirement. In 2022, we invested in call
centre client support and our digital
capabilities, and 83% of all registered
clients are now registered paperless.
Our overall service has improved
across all areas of our Heritage business,
and client queries are now resolved
more easily and quickly. As a result,
clients are contacting us less.
Thinking digital first
– 20% of Heritage clients registered
for online services (2021: 17%)
– 83% of registered Heritage
clients are now paperless
(January 2022: 80%)
– 21% of Heritage servicing
interactions are digital
(January 2022: 17%)
Better understanding client needs
Helping advisers to provide the best possible client service
We’re helping clients manage and grow their savings and investments, responsibly.
Paul McGregor is a financial adviser with TAP in M&G Wealth. “People come to
M&G because they believe in our products and services, and I step in when needed
to underpin this with bespoke financial planning.
“What matters to me is having the opportunity to make a positive change in people’s
lives. I invest my time in understanding what people really want to achieve, and aim
to provide clarity and confidence to support wise financial decision-making.
“The evolution of services in M&G Wealth such as MAP, our hybrid financial advice
service for UK pension clients, means that clients have different options, and I can
focus my energy on clients where I can provide the most value.”
M&G plc Annual Report and Accounts 2022 | 47
Strategic ReportGovernanceFinancial informationOther information Our colleagues
Evolving our people approach
to support our growth
We’re committed to creating an exceptional place to
work – by building a safe, inclusive and diverse culture
and developing market-leading people policies
Inspiring people
to do their best
Our purpose at M&G is straightforward:
to help people manage and grow their
savings and investments, responsibly.
We also have a big responsibility to
do what’s in the best interests of
our colleagues.
Our ambition for M&G is to create an
exceptional place to work: a positive
environment where our colleagues enjoy
each day and feel inspired to do their
best for our clients. We want to make
working lives at M&G engaging and
fulfilling: we are creating a safe, inclusive
and diverse culture, which encourages
our core behaviours of inspiring others,
embracing change and delivering
success, while keeping things simple.
Our people approach is always adapting
to reflect what our colleagues want and
need. We are introducing new ways
of engaging with colleagues so we
can listen more effectively and gather
more data on what they want. We are
developing market-leading, progressive
people policies that meet the various
life stages of all our colleagues, and
creating simplified ways of working
through new internal processes. We are
also increasing our external partnerships
and ensuring we continue to build a
diverse team.
We believe that a strong culture is key
to our success. To ensure we maintain
this, we constantly monitor different
elements that we believe contribute
to our culture: from our client-centric
approach, to how we interact with
our colleagues.
Our Code of Conduct ensures we
conduct ourselves ethically, putting
our values and behaviours into action
every day with care and integrity, and
in accordance with our policies and
procedures, global laws and regulations.
48 | M&G plc Annual Report and Accounts 2022
Over 2022, we’ve continued to develop
policies and people processes to live
our behaviours every day, such as our
new “Say Thanks” app, launched in
2022, which reinforces behaviours for
everyone at M&G to call out great things
colleagues have done and say thank you.
Our culture
– Client-centric: clients are at the
heart of everything we do
– Accountable: everyone has
ownership and responsibility
for doing the right things and
delivering for our stakeholders
– One team: aligned to a common
purpose, strategy, and way
of behaving
– Inclusive: embraced in all we do
to ensure everyone can bring their
true selves to work
– Safe: colleagues can speak up
and feel able to challenge
– Respectful: we share a common
understanding of how we
should work
Engaging with colleagues
to create positive change
We continually encourage, listen to and act
on colleague feedback, so we can uncover
opportunities to improve, as well as
strengths to leverage, and create positive
change. Our annual OneVoice survey
helps us understand and drive action to
improve colleague engagement at M&G.
Our performance
in 2022 is testament
to the hard work
of our talented
and dedicated
colleagues, and our
excellent culture.”
Andrea Rossi
Group Chief Executive Officer
Our response rate for this survey was
79% in 2022 (2021: 75%). We scored
highly in awareness of culture and
purpose, while colleague responses
showed key areas to prioritise in 2023
are barriers to execution and team
collaboration. With our simplified
structure and refreshed strategy, we are
removing processes that overcomplicate
and hinder individual progress, such as
barriers related to technology. In 2023,
we will be expanding on-site IT support
across UK offices to resolve IT issues
more quickly.
We are focused on improving our data
gathering and delivery of colleague
feedback to evolve our people policies.
In 2023, we’re moving to quarterly
employee engagement surveys with a
new provider, which will provide us with
more data to act more effectively on
feedback, as well as giving colleagues
an improved experience. Our new way
of measuring engagement tracks how
happy people are at work and whether
they would recommend M&G as a great
place to work. We believe short, simple
feedback surveys taken more regularly
will create more timely, accurate,
and relevant insight into what our
people want.
“Unwrapped”, our new TV-style
programme for all colleagues, looks at
what’s changing in the world around us
and what this means for M&G and our
clients. Over the year, we’ve included
Q&As with our management team
and insights into different areas of the
business, and our Board ran a series
of interactive sessions to hear directly
from colleagues. Our other engagement
initiatives, such as town hall events,
Colleague Forum meetings, and Q&A
sessions with leaders, also help us
to understand more about what our
colleagues think and feel.
72Employee sustainable
engagement score.
Employee engagement is the degree to
which employees invest themselves to
drive positive organisational outcomes
Our colleague-led diversity networks
provide support and networking
opportunities, and are aligned with
our five global workstreams: Elevate,
our gender network; Enable, our
accessibility and neurodiversity network;
Embrace, our ethnicity, nationality
and faith network; Pride, our LGBTQ+
network; and Mind Matters, our mental
health and well-being network.
Our mean gender pay gap for 2022
is stable at 29.2% (2021: 29.3%) and
the mean ethnicity pay gap was 5.5%
(2021: 5.7%). We are proud to have
been one of the first companies in our
sector to publish an ethnicity target
in leadership and voluntarily publish
ethnicity pay gap data. We are now
reporting our third year of ethnicity
pay gap data.
Find out more about our D&I approach
in our sustainability section on
page 32
Find out more about our Board
gender composition on
page 97
Diversity and inclusion
throughout M&G
We know that continuing to improve
diversity at M&G makes good business
sense. A key part of our growth strategy
is investing in our talent and capabilities.
We recognise that our industry has
traditionally not been diverse and so we
take a holistic approach to improving
diversity across our talent management
life cycle, as well as actively supporting
industry-wide initiatives to develop
diversity in the finance industry.
Increasing and celebrating diversity and
inclusion (D&I) at M&G is embedded
in how we work. We have a five-year
plan, clear governance model, and
different D&I reporting metrics to ensure
process, planning and accountability.
From building our leadership team to
how we hire graduates, we have five
global workstreams that support our
ambition of building the most inclusive
culture, covering disability, gender,
ethnicity/nationality, life stages and
LGBTQ+. Our recruitment process
increasingly has our behaviours
embedded within it: we now ask specific
questions to ensure interviewees align
with how we behave at M&G.
Act responsibly
Helping young people to reach
their full potential in our industry
We sponsor Urban Synergy, an award-winning youth
empowerment charity. In 2022, M&G created a bespoke
programme of events to empower young people and help
them to reach their full potential.
Over the past year, we’ve run different events and
initiatives with Urban Synergy to give more young people
the opportunity to learn more about our business and
our industry:
– Work Experience Week with M&G: 11 students joined
us for a week to improve their understanding of asset
management, savings and investments, and highlight
different career opportunities available at M&G.
In December, our Apprenticeship Scheme Manager won
the Urban Synergy Work Experience Hero award.
– Financial literacy: we linked up with Lemonade Reward,
a financial well-being business, to deliver a session to
provide young people with the skills and knowledge to
manage money effectively, and to build foundations and
understanding for improved financial decision making.
– Recruitment: we delivered recruitment masterclasses to
give young people the best opportunity at starting their
careers. These workshops focused on developing skills
at different stages of the recruitment process, including
interview skills, preparing for aptitude tests, and ‘bringing
your best’ at assessment centres.
– Apprenticeship scheme: students visited our London
office in March and December as part of an Industry
Insights event, which included an introduction to our
business, meeting colleagues, a tour of the building
and finding out more about our apprenticeship scheme.
Two students were recruited into M&G’s 2022 apprentice
intake and are now making great progress on their
apprenticeship journey.
M&G plc Annual Report and Accounts 2022 | 49
Strategic ReportGovernanceFinancial informationOther information Our colleagues continued
Measuring D&I at M&G
Our targets ensure we are focused on
becoming more diverse and inclusive:
– Diversity in senior leadership:
40% women and 20% ethnic
diversity in senior leadership by
2025: At end 2022: 37% women
(2021: 35%); 12% ethnicity
(2021: 13%) in senior leadership
– Colleague Inclusion Index:
We aim for annual improvements
in our Colleague Inclusion Index.
From 2022, this is based on new
questions and a different scoring
methodology. Our 2022 score of
69 will be our baseline, and we will
monitor this on a quarterly basis.
We are an active part of positive D&I
change in our industry. We sponsor the
Financial Services Skills Commission,
resulting in the development of the
Inclusion Measurement Guide, a
framework that encourages the financial
sector to consistently measure inclusion.
We are building partnerships with
social mobility charities, including
Urban Synergy, the Talent Foundry and
Leonard Cheshire, improving diversity in
our own talent pipeline and building our
community outreach.
We hire using diverse job boards,
and post all investment and asset
management roles on Black Women in
Asset Management and Evenbreak, a job
board connecting disabled candidates
with organisations. We have increased
access to more diverse interns,
graduates and apprentices. In 2022,
19 apprentices joined us in September
(2021: 19), with 26% from Urban Synergy
and Talent Foundry. We received more
applications from male candidates
(72%), but 42% of our cohort was
female. We also increased the number
of neurodivergent candidates and
those from lower socio-economic
backgrounds, as defined by the Social
Mobility Index. Our apprenticeship
programme retained a high ranking in
the Top 100 Apprenticeship Employers
League Table for the insurance, asset
and investment management industries,
and has been one of the leaders in our
sector for the past three years.
Our Aspire career exploration
programme is building diverse teams
of colleagues in front office roles,
while providing more opportunities
for internal mobility:
– Our partnership with Everywoman,
a global learning and development
platform, provides access to
educational resources, advice from
senior women in business and a
network of global organisations.
– Our membership of 100 Women
in Finance, Black Women in
Asset Management, and LGBT
Great expands our ability to
offer colleagues opportunities
for mentoring, development and
networking, to enhance their
career growth.
Redefining traditional
approaches to colleague
well-being
Looking after colleagues’ health and
well-being is at the centre of our
ambition to make M&G an exceptional
place to work. We are constantly looking
at how to adapt, modify and introduce
new technologies so our colleagues can
access the support and resources they
need, regardless of their location.
Our HR policies are evolving to support
colleagues and give them the freedom to
achieve a healthy work-life balance and
positive well-being, while making sure
we do what is best for clients. We have
redefined the traditional definition of
well-being to provide a more holistic
approach: from physical support such
as yoga classes; to mental well-being
support, such as addressing the impacts
of grief; and financial well-being,
addressing economic pressures.
Our Inspiring Families policy evolved
in 2022 to include neonatal support.
We also launched our non-gender-
biased menopause policy, covering
menopause, perimenopause and
hormonal imbalances, and signed the
Menopause Pledge to demonstrate
our commitment to providing greater
menopause support.
Employee gender
%
Men
3,152
Women
2,685
54%
46%
Group Executive Committee
and their direct reports gender
%
Men
38
Women
22
63%
37%
Employee profile gender diversity
Number of people
32
18
5
4
6
4
Board
Group Executive
Committee (GEC)
GEC direct
reports
Men
Women
Employee profile gender diversity
Number of people
1,736
1,574
1,233
783
300
151
Other senior
management
Professionals
All other
employees
Men
Women
Under the Companies Act 2006 (the ‘Companies Act’), we are required to report on the gender diversity of our employees, our ‘senior managers’ and our
Board. The gender diversity of our employees is shown above and the Board data is shown on page 97. ‘Senior managers’ is defined by the Companies
Act, as anyone who has responsibility for planning, directing or controlling the activities of the company, or a strategically significant part of the company, and
must include the number of persons of each sex who were the directors of the undertakings included in the consolidation. Where such persons hold multiple
directorships across the Group they are only counted once. For this purpose, ‘senior managers’ includes our GEC members (excluding those on the Board),
our GEC direct reports and our ‘Other senior managers’ from the chart above. On this basis, we have 509 senior managers (337 male, 172 female).
50 | M&G plc Annual Report and Accounts 2022
The tough external environment in 2022
affected mental and financial well-being
for many. We provide colleagues with
24/7 access to well-being support via
our well-being hub. Our “Well-Being
Wednesday” sessions expanded in 2022
to provide colleagues with resources
on topics including financial well-
being, menopause and men’s health.
Over 2022, colleague usage of the M&G
well-being OnDemand channel was
up 87%.
As a Living Wage employer, we
committed to a one-off non-pensionable
payment in 2022: all UK colleagues
earning under £50,000 received
£1,200, while Eurozone colleagues
earning under €60,000 received
€1,200. We have promised to continue
monitoring the situation our colleagues
are facing, and our approach to the 2023
UK salary review was weighted towards
providing financial support to colleagues
in the lower and middle ranges of our
salary bands.
We are integrating well-being into
our broader approach to ESG:
covering inclusion, global warming,
environment and community. Our
GO-vember international well-being
challenge did just that – involving over
670 colleagues. Over 120 million steps
that we recorded during November
2022 contributed towards planting
over 700 trees in partnership with The
Tree Council, funding resources in
schools for disadvantaged students
and refurbishing homes for those
experiencing homelessness. Find out
more on how we engage with local
communities to create social impact
on page 52.
Working at M&G,
you very quickly
recognise the
importance of
your work and our
duty of care to
do our best for
our clients.”
Nina Bamford,
Global People Development team
Developing learning and
development to match needs
Our aim is to ensure that our colleagues
have access to high-quality learning
solutions and experiences aligned
with changing needs, enabling them
to develop and perform at their best.
Our online solutions enable our
colleagues to access learning from
anywhere, at any time that suits them.
We recognise that one of the most
critical things in creating the right
working environment is how we recruit
and develop managers, and we have
changed our approach: we now have
specific assessment tools we use
for recruitment.
We want to make sure that every
colleague is led by an exceptional
people manager who can help them
fulfil their potential. We’ve launched
an expectations model – a common
language across M&G setting out
the exceptional behaviours that all
colleagues can expect from our people
managers. We’ve also continued
to invest in developing our people
managers: 98% (1,318) have now
joined our People Manager Academy,
gaining access to targeted learning
and resources and the opportunity
to connect and collaborate with other
people managers globally. Over 10,000
academy learning hours were delivered
across 2022.
During the year, over 1,250 colleagues
enrolled in workshops aimed to
ensure they felt connected, included
and engaged within a hybrid
working environment.
We also simplified our end of year
performance review process and
provided training for colleagues and
managers, to ensure they get the best
out of their performance conversations.
Accreditations and awards
– LGBT Great gold standard
– Became members of the Armed
Services Covenant and received
Silver Level employer recognition
– Top 75 Employer in the Social
Mobility Index
– Fabiana Fedeli, Chief Investment
Officer – Equities, Multi Asset and
Sustainability at M&G, was named
one of Financial News’s 100 Most
Influential Women in Finance
Employee ethnicity
%
Black, Asian
and minority
ethnicⁱ
White
11%
89%
Group Executive Committee
and their direct reports ethnicity
%
Black, Asian
and minority
ethnicⁱ
White
12%
88%
Employee profile ethnicity diversity
Number of people
44
8
1
Board
9
6
1
Group Executive
Committee (GEC)
GEC direct
reports
Black, Asian and minority ethnici
White
Employee profile ethnicity diversity
Number of people
3,005
1,742
418
33
Other senior
management
274
305
Professionals
All other
employees
Black, Asian and minority ethnici
White
i
Includes our undisclosed population.
All data in graphs as of 31 December 2022.
M&G plc Annual Report and Accounts 2022 | 51
Strategic ReportGovernanceFinancial informationOther information
Social impact
Building safer and stronger
communities together
We invest in and support the communities where
we live and work around the world
Social responsibility is firmly embedded in M&G’s operations around the world, as an integral part of how we do business.
We aim to use our community investment to help break down barriers that prevent people from living the life they want,
and to provide a framework for community engagement and support at both a strategic and local level.
Our social purpose is to help build inclusive and resilient communities through urban regeneration, economic empowerment
and community building. We work closely with our charity partners to develop strong, sustainable projects that meet local needs.
Our purpose
To help people manage and grow their savings and investments, responsibly
Breaking barriers, building futures
Helping to build inclusive and resilient communities
Urban regeneration
Nurturing spaces and places that help
people and nature to thrive
Economic empowerment
Giving people skills and opportunities
to become financially secure
Community building
Building and strengthening relationships
within and between communities
Disaster and emergency response
To address the social housing crisis,
we have created two sister coalitions
in England and Poland, which are
developing a toolkit for repurposing
empty commercial and office spaces.
We hope to mainstream this model into
the work of other NGOs, public and
private sector organisations.
The impact of the Habitat project in
Poland this year has already gone
beyond individuals living in the
renovated properties: the Empty
Spaces to Homes research and toolkit
enabled Habitat Poland to co-lead
the shelter response for refugees in
Poland alongside the UNHCR (the UN
Refugee Agency).
Urban regeneration:
Nurturing spaces and places
that help people and nature
to thrive
Habitat for Humanity
Through our partnership with Habitat for
Humanity GB, we aim to help deliver the
Empty Spaces to Homes programme in
the UK and Europe. We are renovating
buildings: turning unused spaces into
homes for vulnerable groups, including
refugees, women fleeing domestic
abuse, young care leavers and low-
income families.
To date, we have renovated 8 empty
spaces into homes in England (London)
and Poland (Warsaw and Silesian
Region), and construction is currently
underway on more properties, including
new locations across Europe.
The Empty Spaces to Homes
programme is raising the standard
and expectations of care locally.
Thank you M&G, for making
this happen.”
Lydia Freeman
Children’s Care and Support, London Borough of Barking and Dagenham
52 | M&G plc Annual Report and Accounts 2022
The Tree Council
M&G want to give young people the
opportunity to connect with each other,
trees and nature, and to develop the
skills and knowledge to help tackle the
climate and ecological crises.
We have partnered with The Tree
Council, a national charity, to support
schools in urban areas with high levels
of deprivation (30% free school meals)
and nature-poor grounds. Between 2019
and 2022, our partnership has enabled
96,474 students in 325 UK schools
to take part in The Tree Council’s
‘Young Tree Champions’ programme.
School children across the country have
planted 2,705 wildlife-enhancing trees in
orchards, hedgerows or as standalone
trees to green their school grounds,
getting their hands dirty and connecting
with nature. Together we have also
enabled The Tree Council to deliver
training to more than 360 teachers,
who have embedded the programme in
their curriculum. School achievements
are celebrated each year during the
UK ‘Force for Nature Tour and Festival’
held at school assemblies, workshops
and online.
96,474
students in 325 schools have taken part in
The Tree Council’s ‘Young Tree Champions’
programmes since 2020
Act responsibly
Creating a greener future
Plantation Primary School in Liverpool has embedded the Young Tree Champions
programme across all year groups over the past two years. It is now engaging
neighbouring schools to propagate trees from seed and plant them out in their school
grounds next year. Plantation Primary also received a school visit during the Force for
Nature tour. The Tree Council team delivered informative and hands on tree health
workshops in the school’s grounds. “I just wanted to say a huge thank you to The Tree
Council for an amazing day yesterday. The kids haven’t stopped talking about it and
are asking about how they can become tree champions, which is just amazing.”
Clare Jones Teacher, Plantation Primary School, Liverpool
The Skills for Life workshops are
fantastic. They are heavily focused on
creativity and problem-solving skills –
exactly what our kids need.”
Teacher
Doon Academy, East Ayrshire
Economic empowerment:
Giving people the skills
and opportunities to
become financially secure
The Talent Foundry
Many disadvantaged students are
disproportionately affected by economic
challenges including the cost-of-living
crisis. By expanding our long-standing
Skills for Life programme, we increased
our support to disadvantaged young
people in 2022.
The Skills for Life programme consists
of interactive workshops delivered in
person, an online digital platform, and a
CV review service by M&G colleagues.
These opportunities support students
in understanding how best to promote
themselves when they are applying for
jobs, university, or apprenticeships.
In 2022, we reached 3,866 students
from over 80 UK secondary schools.
More than 500 hours of volunteer time
was donated by 130 M&G colleagues.
We also introduced Bridge to M&G, a
pilot pre-apprenticeship programme
providing bespoke training and
coaching support for school leavers
who wish to pursue vocational careers.
This programme helps to identify
apprenticeship opportunities, and helps
students prepare for applications and
assessment centres.
In 2022, students from 11 schools
and colleges completed our Bridge to
M&G programme, and three students
went on to secure apprenticeships
with M&G.
The best part of 10X is the
opportunity to apply the skills
I developed – such as teamwork
and communication – further on
in my life.”
10X student
Junior Achievement Europe
The 10X Challenge is an enterprise
programme and digital platform
that helps young people develop
entrepreneurial and financial capability
skills, particularly investment and
longer-term saving, and empowers
teachers to be confident about teaching
financial capability.
With M&G’s support, the programme
now engages students in schools across
France, Germany, Ireland, Italy, Poland,
Spain and the UK. From 2020 - 2022,
73,670 young people have taken part in
the 10X Challenge across the countries.
SOS Children’s Villages
This international programme helps
young people and their families in
Europe and India to realise their full
potential by accessing entrepreneurship
and leadership skills, enabling struggling
families to support their children’s health
and educational attainment.
We support young people through
digital mentorships with M&G
colleagues, distance learning activities,
and apprenticeships – helping
them to take the next steps in their
employability journey.
73,670
young people have taken part
in the 10X Challenge since 2020
M&G plc Annual Report and Accounts 2022 | 53
Strategic ReportGovernanceFinancial informationOther information Social impact continued
Act responsibly
Equipping vulnerable people
with skills and knowledge
Ambika lives in Bangalore, India, with her husband and
three children, and the support provided by the Family
Strengthening Programme over the last five years has been
life changing.
Ambika’s children were all anaemic and underweight, so
SOS Children’s Villages provided Ambika with nutritional
supplements to help restore their health and information on
the importance of a balanced diet. Her children also received
support with tuition fees and school supplies, allowing them
to attend school on a regular basis.
Ambika also enrolled in one of SOS India’s Self-Help Groups,
which equipped her with the skills and knowledge to
help her manage her money, including getting a personal
bank account and learning about savings and insurance.
Through the Self-Help Group, Ambika also took lessons
in entrepreneurship development, financial literacy,
communication, and parenting skills. Along with her husband,
Ambika now makes a comfortable living selling vegetables.
Community building:
Building and strengthening
relationships within and
between communities
Age UK
Age UK and M&G’s strategic partnership
is based on a shared goal to help
vulnerable older people prepare for the
biggest challenges of later life, giving
them the best chance of staying resilient
through the toughest times.
In 2020, we introduced Building
Resilience, a three-year programme
providing holistic support to older
people facing complex challenges.
The programme includes in-depth
information and advice, support and
referrals to appropriate services through
Age UK’s National Advice Line.
Now in its third year, M&G’s support
has enabled Age UK to help 4,470 older
people, equipping them with tools,
skills and opportunities needed to
build resilience, and supported 24,852
older people through calls to Age UK’s
National Advice Line.
54 | M&G plc Annual Report and Accounts 2022
Building futures around the world
Local community grants
Volunteering
Being a socially sustainable business
isn’t just about responsible investing -
but also demonstrating our commitment
to the communities in which we
operate. Colleague engagement is
a crucial part of this: many of our
colleagues are committed and involved
in community activity. We believe in
giving our colleagues the time and
financial support to help charities in
diverse communities across the world.
We know that our colleagues feel proud
to be part of our different initiatives to
support our communities, and this also
provides a strong sense of connection
and engagement.
M&G in the Community Fund
Our M&G in the Community Fund is an
annual grant programme that supports
local charities and projects with small
donations. The Committee includes over
40 colleagues across M&G locations
and, since its launch in September
2019, has awarded 260 charitable
grants globally.
Our network of community champions
across our offices are an important
part of how we connect with our
surrounding communities, and they lead
and promote local charity fundraising
and volunteering.
Working together, we direct funding
and volunteering through our local
community grants, giving our colleagues
ownership and the ability to choose
where to focus their support.
Since we launched Building
Resilience in 2020:
4,470
older people supported through in-depth
one-to-one information and advice sessions
£11mworth of unclaimed benefits identified
24,852
calls answered by Age UK’s National
Advice Line
Disaster and
emergency response:
Responding immediately and
effectively when a disaster strikes
We are committed to helping
communities across the world in times
of crisis or emergency. We feel it is our
responsibility to make a meaningful
contribution in the most appropriate
and prompt way.
We work with national and international
charity partners and provide opportunities
for colleagues to engage and get
involved where possible.
Helping our communities
through the cost-of-living crisis
The cost-of-living crisis is now stretching
small charities, already under pressure
following the pandemic.
In 2022, we seed funded the
Communities in Crisis Appeal in
partnership with UK Community
Foundations. This was a co-ordinated
and swift response to raising
national funding and distribution to
grassroots organisations working on
the frontline in some of the UK’s most
deprived communities.
Funds have been channelled
towards responding to immediate
needs directly caused by the crisis,
ensuring organisations can help the
most vulnerable. This has included
contributions to energy costs at
collective warm spaces and community
centres, core support for services
that provide food, security and debt
advice, and housing and mental health
service support.
Supporting refugees in crisis
In response to the Ukraine crisis, M&G
made emergency corporate donations in
2022 to support the relief efforts of our
established long-term charity partners
on the ground - SOS Children’s Villages,
Habitat for Humanity, and through the
British Red Cross.
Our strategic, two-pronged approach
helped enable immediate humanitarian
aid as well as the provision of longer-
term, affordable housing support to
those displaced by the conflict.
SOS Children’s Villages provided
immediate assistance with humanitarian
aid, identifying children in high-risk
areas and moving them to safer parts
of the country. Counselling and mental
health support is a key part of the
care provided, as these families have
experienced severe trauma.
Our donations supported the Ukrainian
Red Cross Society to carry out repairs
on vital infrastructure such as water
stations, homes, healthcare centres,
schools and community centres. It also
helped to enable the supply of medicines
and medical equipment to hospitals
and primary health care facilities and
supported the provision of food and
hygiene items.
Habitat for Humanity in Poland,
Hungary, Romania and Slovakia
worked with partners from other NGOs
in a united response to provide for
longer-term affordable housing needs.
Our colleagues in Poland also worked
with the charity to support refugees
arriving in the country.
Governance
Our operating model for Corporate
Responsibility (CR) guides and supports
each office to manage charitable
activities, within the framework of a
consistent, business-wide approach.
Our CR Governance Committee oversees
community investment activity as well as
agreeing strategy and spend. It includes
representation from senior management.
Our CR strategy and performance is
reviewed by M&G’s Executive Committee
bi-annually.
The CR team is responsible for managing
all our CR activities: devising community
investment initiatives, measuring
impact and spend, and tracking
performance against annual competitor
benchmarking, as well as refining issues
of key social importance to M&G, and
determining where we can have the
greatest social impact.
Charitable donations
We calculate our community investment
spend using the Business for Societal
Impact standard (B4SI). This includes
cash donations to registered charitable
organisations, as well as a cash
equivalent for in-kind contributions.
Our total community investment spend
in 2022 was £4.3 million, of which
£3.3 million was cash. The balance
included in-kind donations prepared
in accordance with B4SI guidelines.
This included 1,345 colleagues who
dedicated 8,964 hours of fundraising
and volunteering in their communities.
Furthermore, £165,626 was donated
across the business by our employees
through our payroll giving scheme.
Total community investment spend in 2022
£4.3mA
8,964
Total volunteering hours
A PwC has provided independent limited assurance
over the total community investment spend in 2022
(as indicated by A ) in accordance with International
Standard on Assurance Engagements 3000 (Revised)
‘Assurance Engagements other than Audits or Reviews
of Historical Financial Information’, issued by the
International Auditing and Assurance Standards Board.
The assurance statement can be found on our website.
Act responsibly
Funding education through charities
Our colleagues in Italy have used their local community grant to support
Ewe Mama Onlus in Uganda for the past two years. The charity provides
training and school education to some of the most vulnerable in Rwentobo.
The charity has built a vocational school for boys and girls, including those
with disabilities and an orphanage for girls.
Thanks to M&G’s support, the school has expanded to build a new nursery
for up to 200 children. Funds have also been used to build a dining hall, and
renew all the fences and gates on the perimeter. The dining hall will be used
by the nursery children, as well as the wider community for educational and
recreational activities.
M&G plc Annual Report and Accounts 2022 | 55
Strategic ReportGovernanceFinancial informationOther information Non-financial reporting statement
Playing our part as a responsible business
As a responsible business and as part of our
corporate responsibilities, we’ve developed new
policies/standards and enhanced existing policies
to reflect our continued commitments to ESG,
our employees, social matters, human rights,
and anti-corruption and anti-bribery
For details
Business model
ESG policies and activities
over the past year
Non-financial KPIs
Our colleagues
Principal risks
Social impact
Page
6-7
32-39
15
48-51
60-67
52-55
Anti-corruption
and anti-bribery
We’re committed to the highest levels
of integrity and business conduct and
have a zero tolerance approach to
bribery and corruption, given its adverse
impact on society and undermining of
economic development.
We require all colleagues, including
firms that conduct activity on our
behalf, to adhere to M&G’s financial
crime compliance policy and standard
requirements, which include anti-bribery
and anti-corruption controls, and to
carry out their duties with openness
and transparency.
Periodic mandatory training and
reporting requirements ensure that
colleagues (and associated persons) are
aware of their obligations under the UK
Bribery Act 2010, including additional
training requirements for certain front-
line colleagues.
Risk management and control failures
could lead to criminal prosecution,
fines or reprimands or cause significant
damage to M&G’s reputation.
Human rights
Our business is built on our core values
of care and integrity:
Care – we act with care, treating our
clients and colleagues with the same
respect we would expect ourselves and
we invest with care, making choices for
the long term.
Integrity – we empower our colleagues
at M&G to do the right thing, honouring
our commitments to others and acting
with conviction. Our business is built on
trust and we don’t take that lightly.
Care and integrity extend beyond our
company into the communities and
societies within which we operate.
A significant consideration to how we
do business and make the world a little
better along the way is a commitment
to support and respect Human Rights.
Human Rights concerns all of us and is
core to our business interests and we
believe in supporting Human Rights by
acting responsibly and with integrity in
everything we do. We are committed
to working with all our suppliers and
stakeholders to help end slavery, human
trafficking, child labour or any other
abuse of human rights.
As an international company, we operate
within many countries and communities.
We aim to comply with local laws and
regulations in every jurisdiction where
we operate, and strive to uphold the
principles and expectations outlined in
our Statement of Human Rights.
Our M&G Supply Chain Modern Slavery
Business Standard is reviewed and
approved annually. This supports the
management of modern slavery risk
and how we approach third-party
supplier relationships.
The Standard details how M&G defines
this risk and how we mitigate it within
our corporate activities, outlining our
internal processes to identify potential
exposure, how we effectively monitor
our suppliers, escalate any known/
potential exposures and actions that
need to be taken to assess viability in
greater detail.
Every year, we assess our approach
and ensure we meet the minimum
standards stipulated by the UK Home
Office, as well as ensuring we are
compliant in our license to operate in
line with the Modern Slavery Act 2015
(MSA). We regularly review how we
embed non-financial risks within our
third-party supplier lifecycle to ensure
continuous improvement and alignment
to regulatory policy and best practice,
including Modern Slavery related supply
chain risks.
Human Rights concerns all of us and
is core to our business interests. We
believe in supporting Human Rights by
acting responsibly and with integrity
in everything we do.”
Emma-Grace Brien
Supplier Risk Management Specialist
56 | M&G plc Annual Report and Accounts 2022
Our Commercial Procurement teams
across our UK businesses have
embedded a co-ordinated response
to the requirements of the MSA, with
a focus on our external supply chain:
– This course covered five subjects
including Modern Slavery, and
provided colleagues with an overview
of the behaviours we expect from
individuals as representatives of M&G.
– Colleagues have also completed a
refresher training course specific
to Modern Slavery Awareness.
Our Board and Senior Executives
have also undertaken this training
to demonstrate our commitment
to combating modern slavery and
human trafficking.
– We continue to refresh and
update M&G contracts for modern
slavery provisions.
We recognise our responsibility to
comply with all relevant legislation
included within the MSA. Our Modern
Slavery Transparency Act Statement
(to be published in May 2023), confirms
how we comply with all relevant
legislation and the steps we have taken
to assess and mitigate against the risk
of Modern Slavery and Human Rights
violations within our business and supply
chains, as well as how we have managed
and will continue to proactively monitor
those risks.
Adherence to policies
We have established a Group
Governance Framework (GGF) which
defines our approach to governance
and internal controls to meet regulatory
requirements. The GGF includes
information and policies to ensure
a consistent approach to how
colleagues work and make decisions,
below Board level. These policies
provide general principles by which
we conduct our business and
ourselves, and as an asset owner
and asset manager.
– Our Commercial Procurement team
highlights within all tender activity
our expectations around modern
slavery, regardless of the supplier
statutory position (suppliers under
the £36 million threshold, as set out
in the MSA, are not exempted from
our requirements).
– M&G has a Code of Conduct and
Supplier Code of Conduct, which
we regularly maintain. Both outline
the standards that we expect our
suppliers to adhere to, including
human rights and modern slavery-
related issues.
– Both Commercial Procurement and
Third Party Risk determine the nature
of services provided by suppliers and
identify associated risks, including
any potential risk exposure to modern
slavery. Where suppliers do not have
appropriate standards in place, we
will work in close collaboration to
improve standards.
– We focus our ongoing monitoring on
onboarding new material suppliers
to M&G, building on previous years’
reviews of our supplier base. We have
previously undertaken exercises to
review the common procurement
category themes and measure
our potential exposure to modern
slavery risk.
– As part of our ongoing ESG initiatives
we have carried out in-depth reviews
on M&G’s high risk suppliers with UK
originated spend, so we understand
the potential inherent risk to our
business. We have taken the necessary
steps to identify opportunities to
improve standards. We will continue
to work with suppliers to align their
approach to M&G.
– In June 2022, we produced a
new training module for all M&G
employees to complete: Conduct
at M&G.
Our Non-Financial Reporting
Statement covers the following policies
and standards:
– Financial Crime Compliance Policies
and Standards
– Statement of Human Rights
– Supply Chain Modern Slavery
Business Standard
Some of these policies are recently
implemented and will be reviewed
during 2023 - others are embedded
into our business.
We regularly review how non-financial
risks are embedded within our third-
party supplier lifecycle to ensure
continuous improvement and alignment
to regulatory policy and best practice.
During 2023, we will continue to
focus on embedding Modern Slavery
risk management as part of our
continuous improvement activities.
This will include reviews of supplier
onboarding, risk assessment and
due diligence processes and controls,
as well as our group-wide third-party
oversight governance.
M&G has zero tolerance to bribery
in our approach to doing business.
Our financial crime compliance policies,
business standards and resulting
framework ensures that we comply
with our obligations under applicable
law, with adequate controls to ensure
all Associated Persons (including
colleagues) are acting with integrity.
We also aim to embed the new Supply
Chain Modern Slavery Business
Standard and enhanced processes
into our business. This will allow us
to actively assess our position to
these risks and how we mitigate them
within our business and supply chain,
supporting our commitment to working
with our suppliers and stakeholders
to help end slavery, human trafficking,
child labour or any other abuse of
human rights.
M&G plc Annual Report and Accounts 2022 | 57
Strategic ReportGovernanceFinancial informationOther information Risk management
Our framework
Our risk management framework allows us to deliver for our clients
and shareholders, while managing risk within agreed appetite levels
In 2022, Risk and Compliance were
required to respond to a challenging
external environment while continuing
to build a more mature three lines
of defence model underpinned by
a stronger risk culture.
The external environment, driven by
geopolitical events was a key area
of focus during 2022. The Risk and
Compliance teams supported the
business in effectively responding
to the impact of both the conflict in
Ukraine and UK political instability.
While recent market volatility has
reduced there continues to be
considerable economic uncertainty
requiring us to remain focused on
these risks.
Progress was made across the
business during 2022 in building
on risk and control framework
foundations. Implementation work
continues into 2023 to reach target
maturity and we are focused on fully
embedding the framework in order
to do this.
Peter Grewal
Chief Risk and Compliance Officer
Risk framework
As part of our business, we take on
risk on behalf of our shareholders and
clients. We generate stakeholder value
by selectively taking exposure to risks
if they are adequately rewarded,
and can be appropriately quantified
and managed, safeguarding our ability
to meet client commitments, comply with
regulations and protect our reputation.
They are also expected to work together
to do the right thing for our clients,
wider stakeholders and our business.
The Board has ultimate responsibility for
these risks across M&G plc. To assist the
Board in discharging its responsibilities,
we have a comprehensive approach
to identifying, measuring, managing,
monitoring and reporting current and
emerging risks (the Risk Management
Cycle), supported by our embedded risk
culture and strong risk governance.
This is set out in our Risk Management
Framework, which is designed to
manage risk within agreed appetite
levels, aligned to delivering our strategy
and creating long-term value for clients
and shareholders.
Risk culture
The Board is responsible for instilling
an appropriate risk culture within M&G.
Working together with our senior
management, the Board promotes a
responsible culture of risk management
throughout M&G by emphasising
and embedding the importance of
balancing risk with profitability and
growth in decision-making, while also
ensuring compliance with regulatory
requirements and internal policies.
Our approach to risk culture is centred
around our business-wide ‘I Am Managing
Risk’ programme, which requires
colleagues to take personal responsibility
and accountability for identifying,
assessing, managing and reporting risk.
Whistleblowing
Our Whistleblowing policy includes
details of the whistleblower protections
we have in place across M&G plc, so that
anyone who does speak out feels safe
and confident in doing so.
This is supported by our Speak Out
programme which includes different
reporting channels, such as EthicsPoint,
a confidential reporting system provided
by an independent external service
provider. This system is managed by the
Speak Out team who report directly to
the Chief Risk and Compliance Officer.
All reports are taken seriously, with
qualifying reports being independently
and confidentially investigated, and all
investigations being governed by the
Speak Out programme.
Meetings are held bi-annually with
the Chair to share themes and
outcomes. Onward dissemination to
the Board is discussed and considered
at these meetings to manage any
potential conflicts of interest and to
maintain confidentiality.
Governance
The Risk Committee supports the Board
in governance activities by providing
leadership, direction and oversight.
Our risk framework and ‘three lines of defence’ model
Board
Risk Committee
First line of defence
Second line of defence
(Risk and Compliance)
Third line of defence
(Internal audit)
Risk identification and management
– Identify, own, manage and report risks
– Own specific risk policies
– Execute Business Plan and strategy
– Establish and maintain controls
– Stress and scenario modelling
– Operate within systems and controls
– Ongoing self-assessment of control
environment effectiveness
Oversight, advice and challenge
– Own risk and compliance framework
– Stress and scenario setting,
responsible for oversight
– Give proactive and reactive advice
and guidance
– Monitor risk and compliance and
assurance activities
– Report on risk and compliance
58 | M&G plc Annual Report and Accounts 2022
Independent assurance
– Independent assurance of first
and second lines of defence
– Independent thematic reviews
– Risk and controls assessment
The Audit Committee assists the
Board in meeting its responsibilities
for the integrity of our financial
reporting, including the effectiveness
of our internal control and risk
management systems.
The Remuneration Committee ensures
that our compensation structures
place appropriate weight on colleagues
adopting our risk culture and behaviours.
Our risk framework and system of
internal risk control supports our Board,
Risk and Audit Committees and is based
on the ‘three lines of defence’ model.
First line business areas identify and
manage risks and are overseen by
the second line Risk and Compliance
function. The second line is structurally
independent of the first line, and
provides risk oversight, advice and
challenge, as well as compliance
monitoring and assurance. Third line
Internal Audit is empowered by the
Audit Committee to audit the design and
effectiveness of our internal controls,
including the risk management system.
Risk appetite and limits
Risk appetite is the amount and type of
risk we are willing to accept in pursuit
of our business objectives. Our risk
appetite statements and limits specify
our risk appetite and tolerance to take
on risk. The statements and thresholds
are aligned to our business model and
strategy and cover significant financial
and non-financial risks. We have
established aggregate risk appetite
statements and limits for capital, liquidity
and dividend volatility. Our capital risk
appetite is supported by a solvency
intervention ladder which sets out
management actions that we should
consider or implement at different levels
of regulatory solvency.
We assess our ability to stay within our
risk appetite during the annual business
planning process, and monitor and
manage our actual position regularly
throughout the year.
In combination, the individual appetite
statements and limits are set so we
operate in line with the aggregate
approved risk appetite statements, even
when the individual limits are fully used.
We use prescribed indicators to inform
whether a risk may move out of appetite
and, together with limit utilisation, this is a
core element of our risk reporting to our
Board and Executive Risk Committees
with appropriate management actions.
Navigating geopolitical and macroeconomic developments
2022 has been a challenging year for the global economy with persistent
inflationary pressure, heightened recessionary fears, central bank tightening, rising
geopolitical risk and UK political instability driving negative market sentiments.
Recessionary fears in both European and US markets are expected to flow through
into 2023 as economic stresses from rate increases and rising inflation mount.
Surging energy prices from the conflict in Ukraine, and supply chain disruptions
driven by China’s zero Covid policy, have adversely impacted markets.
The conflict could pose a longer-term risk to market stability, with heightened
tensions between US and China adding to geopolitical concerns.
Our response to developments related to the Ukraine conflict was coordinated
by our Central Response Team, with monitoring groups of representatives
across M&G. We have limited exposure to Russia and Ukraine, but our
investment teams continue to monitor the geopolitical situation closely. We have
liaised with our regulators (the PRA and FCA) and responded to information
requests, for example in relation to our sanctions framework and cyber-attacks.
In the UK, political instability led to a spike in market volatility, requiring central
bank intervention, a significant increase in borrowing costs and a weakening of
Sterling. This has added to existing pressures on households and businesses.
To effectively manage our business and our clients’ assets through this volatile
period, we brought together colleagues from across M&G to provide an
enhanced monitoring and decision-making capability. Actions we have taken
include adjustments to risk limits and hedging portfolios to reduce the risk of
unexpected collateral calls.
The assessment identified that positive
progress has been made across M&G
during 2022 in building on the risk
and control framework foundations
previously put in place, but also
acknowledges that implementation
work continues into 2023 to reach
target maturity. Management attention
is therefore still required to fully
embed the framework, including
consistent performance of Key Control
Assessments across the business.
The Risk and Audit Committees at
M&G plc and subsidiary level collectively
monitor the timeliness with which
outstanding actions and embedding
plans are completed.
Effectiveness of risk
management and internal
controls
The Risk and Audit Committees have
considered the outcomes of the annual
assessment of risk management and
internal control effectiveness for 2022.
The assessment is performed for each
business area by the first line with
an independent second line opinion.
It is driven by Risk and Control Self
Assessments (RCSAs) conducted over
the year, along with consideration of
issues; notifiable events; compliance
with policy requirements; risk appetite
assessment; and regulatory feedback.
The business area assessments are
aggregated to provide a material
subsidiary and an overall group-wide
assessment. Internal Audit also provide
an independent assessment of the
overall control environment.
Our purpose is to help the
company to make informed
decisions, to meet its
strategic objectives.”
Peter Grewal
Chief Risk and Compliance Officer
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priorities
Change
from last
year
Increased
Risk management continued
Principal risks and uncertainties
1 Business environment and market forces
Principal risk
Management and mitigation
Outlook
Our annual strategic planning
process is overseen by the Risk
function and the Board, and
results in our approved strategy.
The process of strategy approval
considers the potential impact of
the wider business environment
and economy. Throughout the
year, we monitor and report on
the delivery of this plan.
The new M&G plc Group Chief
Executive Officer commenced in
role during 2022, with changes
to M&G plc Executive Committee
and the organisational structure
made shortly thereafter. This
included decentralisation and
increased accountability for
delivery of the Business Plan
for the CEOs of the Retail and
Savings and Asset Management
business units.
Macroeconomic headwinds are
expected to continue during
2023 including inflationary
pressures, rising interest
rates, UK political instability,
heightened recessionary fears in
Europe and US and geopolitical
instability. These headwinds may
have an impact on investment
performance and strategy.
The market continues to evolve
with a convergence of asset
management and wealth, and
changes to the value chain. There
continues to be competitive
pressure on fees and an
acceleration of pension de-risking.
Prioritisation of investment
and the successful delivery of
initiatives is required to achieve
our Business Plan.
Changing client preferences,
together with economic
and political conditions,
could adversely impact
our performance against
our strategy.
We operate in highly competitive
markets, while our client needs
and expectations are changing
rapidly. Economic factors,
including heightened levels of
inflation, may impact product
demand and our ability to
generate an appropriate return.
Increased geopolitical risks and
conflicts, and policy uncertainty,
may impact our products,
investments and operating model.
Our key savings proposition,
PruFund, accounts for a
significant proportion of our
inflows. We are also reliant
on our intermediated channel
for savings solutions sales.
This heightens our exposure to
changing economic conditions
and client preferences.
Our success depends upon our
capacity to anticipate and respond
to these external influences.
Key
Maintain our financial strength
Simplify our business
Deliver profitable growth
60 | M&G plc Annual Report and Accounts 2022
Strategic
priorities
Change
from last
year
Neutral
2 Sustainability and ESG
Principal risk
Management and mitigation
Outlook
A failure to address and embed
sustainability considerations
within our strategy, products,
operating model, communication
approach and our internal/
external changing landscape
could adversely impact on
our financial performance,
reputation and future growth.
Consequently we recognise
the risk and opportunity of
sustainability in our business
and the companies we invest in.
We consider and act upon a
broad range of issues including
those concerning greenwashing,
climate impact, diversity
and inclusion, and corporate
governance.
ESG Risk is considered in three
broad dimensions: Inside out –
how our business impacts on
the planet and society, as we
seek to create and drive value
for our clients; Outside in – the
impact of ESG factors on our
organisation, ensuring that any
“real time” response aligns to our
positioning on ESG; Reputation
– Our ability to meet a range of
key stakeholder expectations on
sustainability and ESG issues,
whilst reinforcing our brand
values of care and integrity.
Recognising the complex range
of risks that sit under ESG, we
have developed a specific ESG
risk management framework to
further enhance our approach to
the identification, assessment
and management of ESG risks,
based on the three lines of
defence model. The framework
is supported by the ESG Risk
Policy, which articulates our ESG
risk appetite and sets out key
business requirements.
The ESG risk management
framework consists of five core
components: ESG risk culture;
identifying and assessing ESG
risk; managing and reporting
effectively on ESG risk;
embedding risk governance;
and protecting reputation.
Consideration of ESG Risk is
built into the decision-making
processes and a requirement
of key strategic board risk
assessment papers and regular
reporting.
Climate change risk is integrated
into our scenario analysis process
with both top down and bottom
up consideration over a range of
time horizons.
The importance of robust ESG
risk management and controls will
continue to grow as the industry
further develops its approach
to ESG, addressing issues
such as the quality of ESG data,
greenwashing, enhancement of
climate change methodologies
and implementation of
regulatory requirements.
We anticipate the external ESG
risk environment to continue to
develop, with climate physical
and transition risks accelerating,
biodiversity emerging and social
issues continuing to be important.
As ESG approaches continue
to mature, we expect enhanced
scrutiny from various stakeholder
groups, including clients, investors
and regulators. Associated with
increased scrutiny is the ability
to manage greenwashing risk.
Greenwashing has the potential
for long-term impact upon
reputational risk if expectations
and deliverables are not met.
Sustainability disclosures,
driven by regulatory reporting
requirements, will continue
to improve transparency,
consistency and comparability.
We will implement enhancements
to our reporting capabilities
to meet developing reporting
requirements.
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3 Investment risk
Strategic
priorities
Change
from last
year
Increased
Strategic
priorities
Change
from last
year
Increased
Principal risk
Management and mitigation
Outlook
Our fund managers are
accountable for the performance
of the funds they manage,
and management of the risks
to the funds.
Independent Investment
Risk and Performance teams
monitor and oversee fund
performance, liquidity and risks,
reporting to the Chief Risk and
Compliance Officer.
Such activities feed into
established oversight and
escalation forums to identify,
measure and oversee investment
performance, investment risk
and fund liquidity risks.
Strong investment performance
underpins the success of our
business. Absolute performance
was impacted by headwinds of
rising interest rates, inflation
and recessionary fears during
2022 with these set to continue
in 2023. Sustainable strategies
have also faced headwinds as
they are underweight in energy
and materials sectors which
have performed well recently.
Underperformance is expected to
be recovered over the longer term
as these trends are expected to be
cyclical in nature.
We agree investment objectives
and risk profiles of our funds
and segregated mandates with
our clients.
A failure to deliver against these
objectives (including sustained
underperformance of funds),
to maintain risk profiles that
are consistent with our clients’
expectations, or to ensure
that fund liquidity profiles
are appropriate for expected
redemptions may all lead to poor
client outcomes and result in
fund outflows.
If these risks materialise for our
larger funds or a range of funds,
it may impact our profitability,
reputation and growth plans.
4 Credit
Principal risk
Management and mitigation
Outlook
We are exposed to the risk
that a party to a financial
instrument, banking transaction
or reinsurance contract causes
a financial loss to us by failing to
discharge an obligation.
For invested assets, this relates
to the risk of an issuer being
unable to meet their obligations,
while for trading or banking
activities this relates to the
risk that the counterparty
to any contract the business
enters into is unable to meet
their obligations.
Our solvency is also exposed
to changes in the value of
invested credit assets arising
from credit spread widening,
or credit rating downgrades.
Our Credit Risk Policy sets
standards for assessing,
measuring and managing credit
risk, monitored by a dedicated,
independent team.
We set and regularly review limits
for individual counterparties,
issuers and ratings, and monitor
exposures against these limits.
Our policy is to undertake
transactions with counterparties
and invest in instruments of
high quality. We have collateral
arrangements for derivatives,
secured lending, reverse
repurchase agreements and
reinsurance transactions.
Our credit risk exposure is
expected to reduce over time as
our annuity business runs off.
In the near term, threats to
credit sectors arise from
the deteriorating economic
environment. We continue to
monitor and review our credit risk
exposures, including assessments
of the impact (including any
indirect/second order impacts)
for the shareholder annuity fund
of a potential downgrade of the
UK government credit rating.
However, trading over the last
decade has led to a significant
increase in the proportion of
secured assets and a defensive
and diversified credit portfolio.
Key
Maintain our financial strength
Simplify our business
Deliver profitable growth
62 | M&G plc Annual Report and Accounts 2022
Strategic
priorities
Change
from last
year
Neutral
5 Market
Principal risk
Management and mitigation
Outlook
Our profitability and solvency are
sensitive to market fluctuations.
Significant changes in the level
or volatility of prices in equity,
property or bond markets could
have material adverse effects on
our revenues and returns.
Exchange rate movements could
impact fee and investment income
denominated in foreign currencies.
Material falls in interest rates
may increase the amount we
need to set aside to meet our
future obligations.
Market risk appetite is set and
monitored to limit our exposure
to key market risks, and we have
prescribed limits on the seed
capital provided for new funds.
Where appropriate, and subject
to risk limits and procedures, we
use derivatives for risk reduction
- to hedge equities, interest rates
and currency risks, for example.
We review regularly our hedging
and investment strategies,
including asset-liability matching,
informed by stress testing.
We have procedures to respond
to significant market events and
disruptions, bringing together
colleagues across M&G to
provide an enhanced monitoring
and decision-making capability.
Our market risk exposure is
expected to remain broadly level
over the Business Plan period,
primarily driven by PruFund new
business sales offset by the run-
off of existing in-force business.
2022 was a challenging year for
most global equity and fixed
income markets.
Persistent inflationary pressures,
recessionary fears across Europe,
central bank tightening (through
increase in interest rates and
unwinding of quantitative easing)
and rising geopolitical risk continue
to drive negative market sentiment.
Surging energy prices and supply
chain disruptions driven by China’s
zero Covid policy continue to
adversely impact markets, posing
a longer-term risk to market
stability, although gas prices have
started to reduce in late 2022/
early 2023 and China has relaxed
some Covid restrictions.
6 Corporate liquidity
Principal risk
Management and mitigation
Outlook
We must carefully manage the
risk that we have insufficient
cash resources to meet our
obligations to policyholders
and creditors as they fall due.
This includes ensuring each part
of our business and M&G plc as
a whole has sufficient resources
to cover outgoing cash flows,
under a range of severe but
plausible scenarios.
Risk appetite is set such that
we maintain adequate liquid
resources and our liquidity
position is regularly monitored
and stressed. We have detailed
liquidity contingency funding
plans in place to manage a
liquidity crisis.
Liquidity, cash and collateral
is managed for the Group by
Prudential Capital, which holds
liquid, high grade assets and has
access to external funding.
We expect the nature of our
exposure to liquidity risk to
remain materially unchanged in
the short term. We maintain strong
liquidity buffers and continue
to investigate options and
management actions to further
strengthen the liquidity position.
Strategic
priorities
Change
from last
year
Neutral
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year
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Strategic
priorities
Change
from last
year
Neutral
Risk management continued
7 Insurance
Principal risk
Management and mitigation
Outlook
We conduct annual reviews of
longevity assumptions, supported
by detailed assessments of actual
mortality experience and have a
team of specialists undertaking
longevity research.
Our exposure to insurance risk is
expected to reduce over the near
term mainly driven by a projected
reduction in longevity risk, as
the closed non-profit annuity
book runs-off.
Expense risk is also projected to
reduce, driven by the run-off of
the non-profit annuity business
partially offset by increases in
PruFund new business.
We perform regular stress
and scenario testing to
understand the size of insurance
risk exposures.
We have undertaken longevity
risk transfer transactions,
where attractive financial terms
are available from suitable
market participants.
We are exposed to the risk of loss
or of adverse change in the financial
situation of our business, or that of
our clients, resulting from changes
in the level, trend, or volatility of
mortality; longevity; morbidity;
persistency; expense and margin
pricing experience.
We make assumptions regarding
the life expectancy (longevity) of
our clients when determining the
amount that should be set aside to
pay future benefits and expenses.
Unexpected changes in the life
expectancy of our clients could have
a material adverse impact on both
profitability and solvency. This risk
mainly arises from our large annuity
book and, although we currently
do not write new annuity business
in the open market, the size of the
back-book remains significant.
8 Operational
Principal risk
Management and mitigation
Outlook
A material failure or operational
disruption in the processes and
controls supporting our activities,
that of our third-party suppliers or
of our technology could result in
poor client outcomes, reputational
damage, increased costs and
regulatory censure.
We are highly dependent on
technology and the loss or
sustained unavailability of
key hardware or software,
inadequate information
security arrangements and
ineffective use of digital
solutions could impact our
ability to operate effectively.
Additionally, serious failings in
the delivery, or persistent under
performance of third-party
supplier arrangements, could
impact the delivery of services
to our clients.
Our Operational Risk Policy defines
our approach to identifying,
assessing, managing and
reporting operational risks and
associated controls across the
business - including IT, data and
outsourcing arrangements.
Positive progress was made
across the business during 2022
in building on the risk and control
framework foundations previously
put in place. We are focused on
fully embedding the framework
and reaching operational maturity.
The increased cyber-security
threat arising from geopolitical
tensions and the continually
evolving external cyber-threat
landscape, technological
disruption and data loss remains
a significant threat both to our
business and that of our third
party suppliers. Our sustainable
secure programme continues to
improve the control environment
by delivering additional security
capabilities.
We apply business continuity and
crisis management requirements
across M&G. Our key business
services and the critical shared
services on which they rely need
an enhanced approach to avoid
causing intolerable harm. We achieve
this through our risk-based approach,
which considers the harm a service
could cause if disrupted.
We created our Technology Key
Control framework in line with
recognised best practice, including
the Information Security Forums
Standard of Good Practice and
Control Objectives for Information
and Related Technologies Governance
and Management Objectives.
We have enhanced oversight and risk
management of third parties across
M&G, including our approach to
selection, contracting and onboarding,
management and monitoring,
and termination and exiting.
64 | M&G plc Annual Report and Accounts 2022
Strategic
priorities
Change
from last
year
Neutral
Strategic
priorities
Change
from last
year
Neutral
9 Change
Principal risk
Management and mitigation
Outlook
Our strategy and the business
plan is underpinned by a number
of change activities which are
expected to drive fund flows
and efficiencies. As we simplify
the way we operate, our change
activities will strengthen critical
capabilities to streamline how
we serve our clients. Careful
prioritisation of investment spend
and delivery within expected
timescales is required to achieve
our Business Plan outcomes.
We have a number of significant
change programmes underway
to deliver our strategy for
growth, key financial and non-
financial benefits (including
cost savings, improved client
experiences, greater resilience
and strengthening our control
environment) and regulatory
change. Failure to deliver these
programmes within timelines,
scope and cost with our available
people and skill-set capacity
may impact our business model
and ability to deliver against our
Business Plan and strategy.
Project governance is in place
(including oversight) with
reporting and escalation of risks
to management and the Board.
Our Efficiency Board is responsible
for prioritisation decisions,
ensuring that the activities that
maximise our ability to achieve the
Business Plan, key regulatory items
and growth activity are delivered
and funded appropriately.
We employ a suite of metrics
to monitor and report on the
delivery, costs and benefits of
our transformation programmes.
We conduct regular deep-dive
assessments of transformation
programmes, individually
and collectively.
10 People
Principal risk
Management and mitigation
Outlook
The success of our operations is
highly dependent on our ability
to attract, retain and develop
highly qualified professional
people with the right mix of skills
and behaviours, to support our
positive culture and growth.
As a large and listed public
company, and as we continue to
re-focus our strategy, our people
risk and associated reputational
impact is heightened in areas
including our pay practices,
workloads and morale, the
conduct of colleagues or groups
of colleagues, and industrial
relations (our own and that of key
third-party providers).
Our HR framework is designed
to align colleague objectives
and remuneration to our
business strategy and culture.
It includes policies and
standards for diversity and
inclusion, employee relations,
remuneration, talent, resourcing,
performance and learning.
Our management and Board
receive regular reporting
on colleague issues and
developments, for example:
succession plans for critical talent;
management of industrial relations;
pay; culture and diversity.
We conduct regular surveys to
better understand our colleagues’
views on our business and culture.
Findings from these surveys
drive actions that improve our
colleagues’ experience.
We remain focused on culture
and work on our culture
programme continues with our
core foundations of having a
safe and respectful organisation.
Colleague responses to our regular
surveys reflected their belief that
people are treated with respect
and dignity in our organisation,
and that they feel it is safe to speak
their mind.
Our surveys have also
highlighted some uncertainty
amongst colleagues, this being
predominantly driven by the cost
of living crisis. Our 2023 annual
salary review focused on giving
a greater percentage increase to
staff at the lower end of the salary
scale and a cost of living support
payment was also made to UK
Colleagues during 2022 with a
commitment for a further payment
to be made in 2023.
Key
Maintain our financial strength
Simplify our business
Deliver profitable growth
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11 Regulatory compliance
Strategic
priorities
Change
from last
year
Neutral
Strategic
priorities
Change
from last
year
Neutral
Principal risk
Management and mitigation
Outlook
We operate in highly regulated
markets and interact with
regulators across the globe, in an
environment where the nature
and focus of regulation and laws
remain fluid.
There are a large number of
national and international
regulatory initiatives in progress,
with a focus on solvency and
capital standards, financial
crime, conduct of business and
systemic risks.
There are wide-ranging
consequences of non-compliance
or failing to adequately consider
regulatory expectations,
standards or principles, including
client detriment, reputational
damage, fines and restrictions
on operations or products.
12 Reputational
Accountability for compliance
with regulatory and legal
requirements sits with our senior
management. Our Compliance
function supports our businesses
by providing guidance to, and
oversight of, the business in
relation to regulatory compliance,
Financial Crime Compliance and
conflicts of interest, and carries
out routine monitoring and
deep-dive activities to assess
compliance with regulations
and legislation.
National and global regulatory
developments are monitored and
form part of our engagement
with government policy teams
and regulators, which includes
updates on our responses to
the changes.
In December 2022, the Chancellor
of the Exchequer announced a
set of reforms to drive growth and
competitiveness in the financial
services sector. These ‘Edinburgh
Reforms’ will increase the volume
and pace of regulatory change
that will be introduced in the
coming years and are also likely
to accelerate the UK’s regulatory
divergence from the EU.
Aligned to our strategic objectives,
ESG and international expansion
will also be key areas of focus.
We have activities underway
addressing these priorities and
are engaged with our regulators
on delivery in line with their
expectations.
Principal risk
Management and mitigation
Outlook
Our reputation is the sum of
our stakeholders’ perceptions,
which are shaped by the nature
of their expectations and our
ability to meet them. There is a
risk that through our activities,
behaviours or communications,
we fail to meet stakeholder
expectations and adversely
impact trust and reputation in
M&G or our brands.
Failure to effectively manage
reputational risk could impact
our revenues and cost base, our
ability to attract and retain the
best staff and potential regulatory
intervention or action.
Our Reputational Risk
Management framework and
dedicated Reputational Risk
team monitor and report on
reputational risks, using a
suite of metrics to monitor
stakeholder groups.
We have embedded Reputational
Risk Champions throughout our
business. They perform an active
role in identifying and monitoring
key reputational risks and drivers.
They also support our businesses
by creating processes that include
full consideration of reputational
risks in key decisions.
We have a relatively new
corporate identity, with a
newly appointed Group Chief
Executive Officer and so we are
subject to significant scrutiny
from different stakeholders.
Key to managing evolving
stakeholder expectations is
the need to address the material
aspects of sustainability risk,
in addition to our current
sustainability priorities –
climate change and diversity
and inclusion.
Key
Maintain our financial strength
Simplify our business
Deliver profitable growth
66 | M&G plc Annual Report and Accounts 2022
Strategic
priorities
Change
from last
year
Neutral
13 Conduct
Principal risk
Management and mitigation
Outlook
There is a risk that through the
acts or omissions of the firm, or
individuals within the firm, we
deliver poor or unfair outcomes
for clients, colleagues, or other
stakeholders, or that we affect
market integrity.
The FCA Consumer Duty regime
which will come into effect on 31
July 2023 (for new and existing
products and services) requires
firms to deliver good client
outcomes with focus on four areas
(products and services, price and
value, consumer understanding
and consumer support)
and to consider the needs,
characteristics and objectives
of clients at every stage of the
customer journey.
Observing the proper standards of
conduct in all its forms is essential
at M&G. Due to the broad nature
of conduct risk, management is
pervasive and reflected in policy
and processes including our
Code of Conduct and our Conflict
of Interest, Market Abuse and
Investment Communications
Recording policies.
Our Asset Management business
has launched a Conduct
Management Framework to
provide a consistent process
for conduct management in
relation to these policies and
our Retail and Savings business
is undertaking a Consumer
Duty programme.
Emerging risks
Emerging risks are potentially
significant newly developing
or evolving risks, generally
characterised by a high degree
of uncertainty - making them
difficult to quantify.
An annual assessment process
identifies our emerging risks,
and assesses those that will be
subject to management and
monitoring. The assessment
collates input from subject matter
experts across our first and
second lines of defence, as well
as external perspectives.
We review the development of
emerging risks during the year to
update our assessment. We also
review our preparedness should
a risk emerge, incorporating any
material developments since the
annual assessment.
Risk Theme
Description
Political
Economic
Sociological
Technological
Legal
Environmental
Increasing trade tensions and conflicts between the world’s
major trading blocs could lead to increased trade barriers, regulatory
fragmentation and the reversal of globalisation.
Post-pandemic market developments, high inflation and recessionary
fears, as well as potential monetary and fiscal policy response, drives
continued uncertainty and market volatility. The cost of living crisis in
many advanced economies also poses a variety of risks.
Socially, COVID-19 and high inflation have exposed inequalities around
income, gender, education and ethnicity. This widening inequality gap
is likely to fuel demands in social changes, creating a range of risks.
In addition, risks continue to emerge in relation to skills shortage and
talent, as well as around mental health.
The progress in artificial intelligence and cognitive computing may
result in unforeseen risks or unpredictable outcomes. Keeping pace
and managing obsolescence in the face of rapid change creates
strategic, financial and operational risks. The increased use of
technology also heightens evolving cyber risks.
The outlook for regulatory and legislative change (including in relation
to ESG) remains high, which could lead to potential compliance
challenges and increasing regulatory complexity.
The longer-term impacts on the environment, from a range of factors
including climate change, loss of biodiversity and ecosystem collapse,
are uncertain. Along with associated government action, this gives rise
to a range of risks.
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Our approach to climate change
Focusing on stewardship and real-world action,
to support the transition to a net zero world
Introduction
Climate change is a global problem
characterised by huge complexity,
uncertain timing and economy-wide
impacts. The scientific community
has given us a clear idea of the many
interconnected effects of a warming
planet, with extreme events already
affecting lives and livelihoods across
the world. Adding to the urgency,
there are signs that we are moving
closer to planetary tipping points –
thresholds beyond which change could
become irreversible.
While it is widely recognised that
there has been progress on many
fronts, not least when it comes to
renewable energy, decarbonisation is
not happening at the scale and pace
needed to keep the global temperature
rise within 1.5°C. Moving from
commitments and incremental change
to transformational action will require
greater action across the global
economy and much stronger policy and
regulatory signals from governments.
The transition to carbon net zero is
about reshaping the whole economy to
operate within planetary boundaries.
At M&G we want to help advance
private and public action, playing
our part by using the levers we have
to drive positive real-world change.
This includes communicating clear
transition expectations to investees and
stakeholders, as well as financing and
enabling solutions, to support our clients
on their climate journey. Our focus is
on implementation, collaboration and
advocacy, while constantly asking
ourselves if we are doing enough.
Objectives
– To reach net zero emissions by
2050 at the latest, following
Paris-aligned decarbonisation
pathways for both our investments
and operations.
– Contributing to real-world positive
impact by scaling investment in
climate solutions.
– Supporting a just transition
and advocating for economy-
wide change.
Priorities
– Embedding our Net Zero Investment
Framework (NZIF) across
the business.
– Progressing our climate stewardship
activities, with a focus on our
Hot 100 and thermal coal-related
investments (where a large proportion
of our transition-related risk
is concentrated).
– Identifying climate solutions and just
transition opportunities, including in
private assets where we can directly
finance innovation and help scale
green technologies.
– Increasing assets in scope of our
interim climate commitments.
– Strengthening our data and scenario
analysis capabilities, with a focus on
transition-relevant information.
– Engaging with our supply chain
to encourage ambitious transition
plans and reduce our indirect
operational emissions.
Developments
At our 2022 AGM, we held our first ‘Say
on Climate’ vote, giving shareholders an
opportunity to voice their views on our
transition plan. A majority expressed
support, but we also received some
constructive feedback, which we are
taking into consideration as we further
develop our plan. Taking this feedback
into account, in November 2022, we
published an update setting out key ESG
achievements since the AGM.
In April 2022, our Asset Manager
Thermal Coal Investment Policy came
into effect, defining our engagement and
divestment approach for covered assets,
to ensure phase-out of this major source
of global emissions (2030 in OECD and
EU countries and 2040 for the rest of
the world).
In September 2022, our asset owner
published its first interim targets as a
member of the Net-Zero Asset Owner
Alliance (NZAOA), including asset level,
sectoral and engagement commitments
(these targets are detailed on page 79).
Our asset manager also issued its first
progress report as part of the Net Zero
Asset Managers initiative (NZAMi).
Assets in-scope of our interim climate
targets have increased, reflecting asset
owner and asset manager alignment.
Our acquisition of impact specialist
responsAbility gives us significant
capability to support real-world climate
action in emerging markets, including
blended finance. Combined with
our Catalyst investment strategy,
which focuses on early-stage private
investments, we are well positioned to
meet growing client demand for impact
investing and to help finance mitigation
and adaptation activities across
the world.
68 | M&G plc Annual Report and Accounts 2022
Climate strategy and governance
Strategy
Our overarching climate strategy is to
use the climate transition levers available
to us to drive real-world decarbonisation
and support the transition to a net zero
economy. This in turn will allow us to
manage our transition risk as a business,
generating profitable growth in the
future, in line with our purpose.
From an investment perspective, we can
influence decarbonisation through two
principal channels: investment strategies
(making changes to our investment
portfolios and supporting climate
solutions) and stewardship (engaging
issuers to implement ambitious
transition plans).
We recognise the importance of directly
financing and enabling climate mitigation
and adaptation, particularly where
capital is scarce, and are building on our
existing capabilities to address this.
Divestment does not translate directly
into real-world emissions reductions,
and our preference is to encourage
change through engagement and voting.
Net zero is an economy-wide goal, and
we therefore emphasise advocacy and
broad change, collaborating with peers
and promoting ambitious climate policy
and regulation.
While our operational climate impact
is smaller than our financed emissions,
tackling this is an integral part of our
journey to becoming a net zero business.
We aim to drive down direct and indirect
emissions on a Paris-aligned timeline.
Our climate transition plan sets out
how we are addressing the risks and
opportunities of the transition as a
business and investors, and is available
on our website.
Board and management
The Board is ultimately responsible for
setting M&G’s sustainability strategy,
including climate change. The Board
and its sub-committees consider
climate-related risks, opportunities and
other issues.
In 2022, key discussion points
included consideration of the risks of
greenwashing, as well as implementing
the Central Sustainability Office.
The Board is responsible for approving
the Business Plan annually. Where we
have a reasonable estimate of the
income and expenditure related to
our climate actions, and these are
expected to materialise within the plan
period (three years), we capture it in
our business planning process: for
example, the costs required to deliver
on our sustainability and climate-related
opportunities and obligations.
Our Chief Financial Officer is the
executive responsible for sustainability
strategy, policy, commitments and our
governance model.
The Chief Financial Officer chairs the
Executive Sustainability Committee,
which is responsible for supporting the
Board in discharging its responsibility for
setting the Group’s ESG strategy.
Find out more on sustainability
governance on page 36
Risk oversight
The Risk Committee is
responsible for our assessment
of sustainability, including climate
risk. The Risk Committee is chaired
by a Non-Executive Director, to
maintain independence.
There were eight Risk Committee
meetings in 2022, including two joint
meetings with the Audit Committee.
Regular risk and compliance reporting
is provided to both the M&G Risk
Committee and M&G Executive
Risk Committee. The Chief Risk and
Compliance Officer sets out reports on
key issues, events and incidents, as well
as a risk assessment of our key risks
against our risk appetite. This includes
consideration of climate-related risks.
We continue to implement and integrate
our bespoke ESG Risk Management
framework across the business. At the
corporate level, this means including
climate change in risk assessments for
key strategic decisions, and helping to
guide investment and resources.
As part of the framework integration
process, we have established a ESG Risk
Governance structure, which includes
three discrete risk management working
groups that focus on environment
(including climate change), social and
governance risk issues.
Find out more on ESG risk
management on page 61
Reporting
We value the importance of clear and
decision-useful climate disclosures,
to enable all stakeholders to assess
our strategy and progress. Over 2022
we have continued to invest in our
sustainability reporting capabilities.
The Audit Committee is responsible for
oversight and development of assurance
around ESG reporting, including climate
disclosures. Our plan for external ESG
reporting in 2023 was approved by the
Audit Committee at the end of 2022.
Net zero transition
Key climate transition levers
Investment strategies
Stewardship
Advocacy
Operations
Product design
Financing climate
solutions
Investee and investment
manager engagement
Policy, industry and client
engagement
Voting
Transparency
and disclosure
Energy, travel
and waste
Supply chain
engagement
Real-world change – transition alignment
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Climate risks and opportunities
Climate risk overview
The identification, assessment and
management of climate-related
risks, along with other ESG-related
risks, is integrated into the M&G
ESG Risk Management framework.
As climate change is a critical aspect of
sustainability and ESG, a principal risk
for M&G, it is a key area of oversight
for our Risk and Compliance teams.
Consideration and prioritisation of
climate risk is also built into decision-
making and governance processes, and
is a requirement of key strategic Board
risk assessment papers.
Scenario analysis is an important
tool in the identification, assessment
and management of climate change
risk. We have continued developing
our in-house climate risk modelling
capability, and this is a priority for
further improvement. The results of this
modelling are on pages 84-87.
Climate risk identification
We combine a range of approaches
to help us identify, understand and
articulate climate risk, including
academic research, industry-shared
learning, scanning tools and relevant
data sources, scenario analysis and best
practice guides.
As part of our Own Risk and Solvency
Assessment (ORSA) we have used our
in-house climate modelling expertise to
explore the potential financial impacts
of physical and transition risks through
three different climate scenarios.
The scenarios, which use the Network
for Greening the Financial System
(NGFS) phase 2 scenarios as a base,
have been assessed over short- and
longer-term time horizons, covering both
an orderly and disorderly transition to a
low-carbon economy, and a ‘Hot House’
scenario where the transition is limited
and physical risks dominate.
The results of our 2022 modelling
indicate a modest impact over a
short-term horizon, but further out –
particularly in the disorderly and Hot
House scenarios – the uncertainty and
potential balance sheet effects become
more pronounced.
In addition to the overall balance
sheet modelling conducted as part of
the ORSA, we have also undertaken
more granular, asset-by-asset climate
modelling to support integration across
our investment teams. Find out more on
pages 85-87.
70 | M&G plc Annual Report and Accounts 2022
In 2022, we continued to invest in and
develop new capabilities in climate
analytics, drawing on expertise across our
business (including technology, investment
and risk professionals). For 2023, we
plan to further integrate these new
capabilities into our decision-making and
risk oversight processes.
Transition and physical risks
We approach climate risks through
multiple lenses, considering both the
potential effects on us as a business
and the degree to which we, directly
and indirectly, are generating impacts.
We believe a failure to align with the
climate transition poses significant
business risk, principally through the
investments we manage on behalf
of clients, but also from operational
and reputational perspectives.
The acquisition of M&G Southern Africa
has increased our overall investment
exposure to carbon-intensive issuers,
but is an opportunity for us to support a
just transition in this region.
Given how far the world is from meeting
the Paris Agreement temperature
goals, there is increasing risk of a
disorderly transition outcome, where
policy intervention and repricing of
assets happens abruptly rather than
in an orderly fashion. Our climate risk
analysis is therefore heavily focused
on transition-relevant metrics and
information, helping us assess the
degree of alignment with rapid, science-
based decarbonisation.
From a physical risk perspective,
impacts will continue to worsen due
to historical emissions and the world’s
current decarbonisation trajectory,
making investment in adaptation and
resilience critical. The ability to assess
vulnerability and exposure to acute
physical risk and extreme weather
is improving, but long-term chronic
physical risk could manifest in complex
and less obvious ways: for example,
food and water insecurity driving mass
movement of people; increased conflict
and inflationary pressures; or changing
disease patterns, including exposure to
novel viruses.
We are aware that traditional risk
management techniques, such as
diversification, are likely to be less
effective in a worst-case runaway
temperature scenario where the wider
economy is impacted. We therefore
recognise the importance of
collaboration and policy change to
drive ambitious decarbonisation as well
as adaptation.
Climate risk as a business
As a business, we are impacted by both
the physical and transition risks of climate
change. We are exposed to physical
and transition risks in our operations
and through our supply chain, both
of which could have an impact on our
costs. Our Workplace Solutions team
actively monitor our operational footprint,
mitigating against the risks arising.
We are also aware of reputational risk
to our business, such as not meeting
our targets or overstating our work.
Additionally, we need to ensure we are
holding ourselves to account, and to be an
example to others.
Climate risk as an asset owner
As an asset owner, we use several
methods to identify where investments
are exposed to climate risk, including
scenario analysis. We model our
portfolio exposures and how they
behave under different climate
scenarios, and will extend this capability
across our strategies, with regular
updates. This will help us identify climate-
related risks and how they are likely to
impact investments, as well as track how
individual exposures change over time.
Scenario modelling does not capture
all climate-related risks and relies on
many assumptions. We therefore also
consider various connected ESG issues,
and their impact on climate change.
We contextualise the findings in our
investment strategy at a portfolio level to
determine the best approach to address
these with asset managers.
Climate risk as an asset
manager
As an asset manager we use a range of
information, including portfolio alignment
data and scenario modelling, to identify
exposure to climate risk across our
clients’ portfolios (see page 85).
Key tools used to identify and assess
risks include our Portfolio Analytics
Tool (PAT) and Coal Tool, which
provide a quantitative assessment of
investees’ exposure to climate risks
and opportunities. Our ESG scorecard
also acknowledges the qualitative
nature of many environmental and social
considerations. Our analysis feeds into our
climate stewardship efforts, which is the
main way we seek to reduce exposure to
transition and physical risks.
For private investments, we have
expanded our scenario analysis to quantify
the financial impacts from physical risks
on infrastructure assets, in addition to our
already modelled real estate portfolios.
Overview
We take a holistic view of climate transition and physical risks across a range of timeframes (short term : <3 years; medium term:
3-10 years; long term: 10+ years). The main categories of these risks are illustrated in the table below and are applicable across
our different legal entities and business areas.
Climate risks
Description
Risks
Transition
Policy
and legal
Carbon
pricing, climate
regulation and
restrictions
on carbon-
intensive
activities.
Increased
climate litigation
(e.g. due to
greenwashing,
or failure
to meet
commitments)
Technology
Market
Reputation
Renewable
energy, cleaner
transport
and other
low-emission
products
and services
replacing
carbon-intensive
technologies,
causing
obsolecence
and potential
stranding
of assets
Changes in
consumer
and investor
preferences
(e.g. avoidance
of carbon-
intensive
products
and assets)
and related
pressure on
input/raw
material prices
Damage to
company’s
standing
among clients,
investors
and other
stakeholders
(e.g. from
greenwashing,
or failure to
meet climate
commitments
or regulatory
requirements)
Physical
Acute
physical
Increased
frequency
and severity
of extreme
weather
(e.g. storms,
wild fires and
heatwaves)
Chronic
physical
Longer-term
shifts in climate
patterns (e.g.
sea level rise
and changes
in precipitation
patterns) and
associated
impacts on
food and water
security, human
health and
geopolitical risk
Risk
level
Short term
(0-3 years)
Medium
term
(3-10 years)
Long term
(>10 years)
M
H
H
M
H
H
M
H
H
M
H
H
M
H
H
L
M
H
Investment
impacts
Corporate
impacts
Asset values and investment flows (AUMA)
M&G’s revenue,
costs, balance
sheet and ability
to attract and
retain employees
M&G’s revenue,
costs and
balance sheet
M&G’s
revenue, costs,
balance sheet
and ability
to attract
and retain
employees
M&G’s revenue,
costs, balance
sheet and
ability to retain
and attract
employees
Asset values and investment
flows (AUMA)
Damage and
disruption to
assets and
operations,
with impacts on
M&G’s revenue,
costs and
balance sheet
Damage and
disruption to
assets and
operations,
with impacts on
M&G’s revenue,
costs and
balance sheet
Monitoring and
management
ESG Risk Management Framework NZIF
Scenario analysis Thermal Coal Investment Policy Climate stewardship programme
Environmental Policy Supplier due diligence and engagement
H High M Medium L Low (Perceived inherent risk levels, based on a quantitative and qualitative assessment)
Monitoring and management
Both transition and physical risks have the potential to impact the value of the assets we manage on our clients’ behalf (find out
more about our investment scenario analysis on pages 84-87), which directly influences our revenue and assets held on our
balance sheet. We understand that climate-related risks can overlap and interact, creating compound and cascading impacts,
and that the precise timing and sequence is very hard to predict. However, the likelihood and potential impact of the risks in the
above table are rising. De-risking involves pulling our levers – investment strategy, stewardship, advocacy and operational change –
to ensure that the portfolios we manage, and our operations, are aligned with the transition, and resilient to physical impacts.
Our first-line risk management approach is embedded in our thermal coal policies and asset manager NZIF, which in turn inform
our climate stewardship engagement efforts and any potential divestment where we do not see sufficient progress. We are
willing to accept some time-bound transition risk exposure, as long as we can build confidence that investees are on sufficiently
ambitious decarbonisation trajectories. Physical risk is more prominent for some of the asset classes we manage, such as real
estate and infrastructure, and involve location-specific assessments of existing and new assets. Operationally, we are managing
both direct and indirect transition risks, for example through our renewable energy procurement and active engagement with
our supply chain. Taken together, the above efforts are also about protecting our reputation, as stakeholders increasingly
differentiate between climate leaders and laggards.
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Opportunities
Aligning our investments and operations with the transition also means identifying opportunities. Decarbonisation is a long-
term growth theme that is ultimately driven by necessity. To meet the world’s remaining 1.5°C carbon budget, climate action
has to accelerate and decouple from swings in the economy. The global energy transition alone requires a huge scaling up of
investment (around $4 trillion annually by 2030 according to the International Energy Agency).
Opportunity for M&G lies partly at a product level: offering investment strategies that meet clients’ evolving sustainability
needs and preferences. Greater capital allocation across asset classes and strategies to climate solutions is another significant
opportunity. Through private assets, we can directly help finance and enable mitigation and adaptation solutions. For public
assets, our emphasis is on stewardship and alignment with positive climate outcomes. We aim to lead by example, by creating
a climate-aware culture, and building long-term resilience to transition and physical impacts.
Climate opportunities
Opportunities
Investment strategy
Operational transition
Product design
Climate solutions
Direct operations and supply chain
Description
Meeting growing client
demand for sustainable and
climate-focused investment
strategies, both in public and
private markets. Engaging with
advisors and aligning wider
M&G products with a just
climate transition.
Allocating capital to climate
solutions (both mitigation
and adaptation), such as
renewable energy, clean
transport, sustainable
buildings, infrastructure and
regenerative agriculture.
Investment
impacts
Reducing portfolio transition risk and associated financial impacts
Asset values and investment flows (AUMA)
Corporate
impacts
Increased revenues (exposure to structural growth trend)
and retention and attraction of clients
Examples
– Planet+ range
– PruFund planet range
– Catalyst climate investments
– responsAbility climate investments
– Real estate (low-carbon buildings)
– Infracapital climate investments
– Conversion of SICAV funds to article 8/9
Decarbonising operations,
both direct and supply chain
emissions, strengthening
adaptation and resilience,
and creating a climate-aware
culture.
Indirect impact, including
improved climate expertise and
investment decisions within the
organisation
Lower/stable costs, improved
business and supply chain
resilience, and strengthened
recruitment (employee retention
and attraction)
– Operational net zero
implementation (renewable
energy, transport and waste)
– Supplier Climate
Engagement programme
Climate transition alignment and profitable growth
As a joint asset manager and asset owner with significant capabilities across both public and private markets, we are in a strong
position to identify climate-related opportunities and directly support the deployment of solutions that help the world mitigate
and adapt. We believe this is key to future-proofing M&G and driving profitable growth, and examples of how we continue to
develop solutions to address this opportunity are covered on page 73.
The net zero transition is not solely product-specific – it has to happen across our investment strategies, although the pace of
change will be different between sectors and countries. Indeed, the UK has some of the most ambitious decarbonisation targets
in the world, and we want to play our part to help the government execute against these.
Operationally, we are making strides to reduce both our direct and indirect carbon emissions, with our new energy-efficient
office in Kildean bringing a material reduction in our climate impact. Find out more about how we plan to maximise the
opportunities to decarbonise our direct operations and supply chain on pages 74-75.
72 | M&G plc Annual Report and Accounts 2022
Deliver outcomes
Investing in cleaner transport
In August 2022, Infracapital - our infrastructure investment
business, invested in Gridserve, one of the UK’s largest
electric vehicle charge point operators. What makes
Gridserve different is its ‘sun-to-wheel’ concept: its rapid
chargers are partially powered by renewable energy from
its solar farms. Just one acre of solar panels in England can
generate enough energy for one million miles of EV driving
each year.
Developing our investment
strategies and solutions
One of our strategic priorities is to
focus on our strengths in fixed income
and private assets, as private markets
are well positioned to contribute
significantly to the solutions and
management of risks. This is why we
have continued to broaden our offering
in these areas.
In particular, we believe that there is an
opportunity for us to expand our product
range in real estate and private credit to
better meet changes in client demand
(find out more on market and industry
trends on pages 8-9), including growing
interest in impact-oriented strategies.
Over 2022, we continued to expand
our capabilities, and further develop
solutions that allow our clients to invest
in impact-focused strategies.
In May 2022, we completed the
acquisition of responsAbility, whose
expertise in private assets and impact
investing across emerging markets
complements and enhances our existing
capabilities in an area of the market with
strong and growing client demand.
Following the acquisition, in December
2022 M&G Investments committed
£200m to two new investment
strategies in Asia and Latin America,
which seek to improve the production
and availability of healthy food
worldwide, as well as build resilience
to climate change.
Within M&G Investment’s Private Assets
team, new investment strategies and
impact funds are being developed.
In June 2022, we launched the Real
Assets Impact Fund. The fund uses a
proprietary impact framework to identify
investment opportunities that aims
to deliver measurable impact against
climate and societal outcomes.
Our public asset Planet+ range now
spans 38 funds, including strategies
focused on climate solutions and
alignment with the Paris Agreement.
The proportion of funds in our SICAV
fund range compliant with SFDR Articles
8 (where a financial product promotes
environmental or social characteristics)
and 9 (where a financial product has
sustainable investment as its objective)
has increased to 54% at the end of 2022,
up from 30% at the end of 2021.
As an asset owner, propositional
development and climate solutions
exposure is important too. Since we
launched PruFund Planet in 2021, clients
have been given the opportunity to
access the same smoothed returns and
risk profile as PruFund, with additional
positive environmental and societal
outcomes from their investment.
We continue to receive inflows into
PruFund Planet, and it forms the core
of our asset owner sustainable product
development strategy.
The PruFund Planet proposition is
a family of five funds differentiated
by risk level, with an investment
strategy and manager selection that
prioritises sustainability and positive
impact. The strategic asset allocation
process is similar to that used for other
propositions in the PruFund product
range, and spans across a broad range
of asset classes, both public and private.
Where PruFund Planet differs from
other PruFund propositions is that its
mandates are designed, and investment
managers selected, such that they focus
on environmental and social outcomes,
in addition to financial ones.
The asset owner is a cornerstone
investor in M&G’s Catalyst investment
strategy, which invests in assets that
contribute to a sustainable economy.
This is achieved by investing in
companies that act to avoid harm,
benefit stakeholders and contribute
to solutions.
The With-Profits Fund committed a total
of around £5 billion across Catalyst’s
equity and debt funds, and originally
seeded Catalyst in January 2021, with
capital being drawn as opportunities
are identified.
Across our business, we continue
to identify attractive climate-related
investments in many markets, and we
expect the opportunity set of climate
solutions to continue to expand as the
transition builds momentum.
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Climate change and our operations
Our approach to offsets
The use of carbon credits or offsets
is not a substitute for reducing our
emissions, and while we have purchased
offsets in 2022 for selected Scope 3
emissions, we remain committed to
continuing our efforts to reduce our
environmental and carbon emissions
footprint from corporate operations.
The use of offsets is currently part of our
transition process to achieve net zero
corporate emissions, and we intend to
do so through supporting high-quality
offset projects, which can be valuable
to help tackle climate change, protect
biodiversity, support local communities
and act as carbon sinks.
We have established offsetting
principles to support selection and
manage risk regarding the purchase
of carbon credits. All our credits are
also third-party verified by Verra.
These principles are aligned with the
Oxford Principles for Net Zero Aligned
Carbon Offsetting and consider the
source (accreditations, vintage and
leakage), category (avoidance, reduction
or storage), type (nature or technology
based) and associated co-benefits or
unintended consequences of projects.
We continue to assess the offsetting
market and emerging guidance to
further develop our future purchase of
offsets. In 2022, we have worked with a
consultant to buy offsets that support
a forest restoration project, assured to
Verra’s Verified Carbon Standard (VCS),
which is a nature-based, short-term
carbon removal project.
Deliver outcomes
Engagement strategy
Supply chain
The goods and services we procure are
a material source of Scope 3 corporate
operational emissions, and were
estimated to account for 90% of our
2019 total corporate baseline emissions.
In 2022, we contacted more than 1,000
of our suppliers, buildings on our work in
2021 to further understand and assess
our supply chain emissions.
Through this project we have reduced
our calculated supply chain emissions
by 42% by improving data quality and
obtaining actual supplier emissions data,
for a sampled reporting period. Of our
revised 2021 supply chain emissions it
was found that 20% of our emissions
were covered by organisations that have
set, or have committed to set, validated
science-based targets.
During 2022, we also introduced a
preferred supplier list, which will begin
to incorporate minimum sustainability
standards and disclosures.
Our existing Supplier Code of Conduct
(available on our website) requires all
suppliers to have clear procedures
in place to ensure direct and indirect
environmental impacts associated with
goods and services are understood,
measured and managed, and that supply
chain decisions involving a market
assessment include environmental
factors as part of the decision-making
criteria. The Supplier Code of Conduct
also includes conditions around
social factors such as wages and
working hours.
Kildean
In 2022, we moved into new offices at the Kildean Business Park in
Stirling, which replaces our Craigforth site. Our new office has been
designed to high sustainability standards and is currently being
assessed by BREEAM. The building is fully electric (supplied by REGO
backed renewable energy) and is significantly more energy-efficient
than our Craigforth office. The office also provides on-site free
electrical vehicle charging points for colleagues. Enhanced biodiversity
of the site and habitat development is being achieved through
extensive meadow areas and a range of planting, supporting
pollinating species. In decommissioning Craigforth we have donated
furniture, gardening equipment, stationery and other items to more
than 20 local charities, schools and community organisations.
We recognise that all of our corporate
activities have a climate impact, and
therefore need to be considered in our
operational decision-making.
Our corporate operations sustainability
strategy addresses this across three
key themes:
Our Places: reducing our emissions
from our offices and travel.
Our People: engaging our colleagues
so they understand how they can
support a reduction in emissions.
Our Partnerships: working with our
suppliers and service providers to
reduce our indirect emissions.
Implementation strategy
The carbon emissions from our
corporate operations is relatively
small compared with our investment
portfolio, but we actively seek to
minimise emissions where we have
direct control. To be confident that our
actions are in line with climate science,
we have reviewed our targets against
current industry guidance, and while
our ambitions are aligned to industry
practice, we will evolve how we discuss
our current commitments.
For our corporate operations, we have
set ourselves near-term operational
carbon reduction targets, aligned with
the Paris Agreement. These include:
– reducing Scope 1 & 2 (market-based)
carbon emissions from our direct
operations by 46% by 2030 from a
2019 baseline;
– reducing Scope 3 business travel
carbon emissions by 46% by 2030;
and
– engaging with suppliers to encourage
them to set ambitious carbon reduction
targets aligned with climate science,
with an aim to cover a minimum of 67%
of our Scope 3 supply chain emissions
by 2030.
For our corporate operations footprint,
we report on our defined Scope 1 & 2, and
selected Scope 3 emissions and obtain
third-party assurance on these emissions
(find out more on page 76). Details on our
financed emissions (Scope 3, category
15) are on pages 82-83.
Beyond 2030, we will continue to
reduce emissions from our corporate
operations to align with our 2050 target.
We have also committed to purchasing
100% renewable electricity across our
operational estate by 2025.
74 | M&G plc Annual Report and Accounts 2022
Colleagues
We support our colleagues to make
sustainable choices in our offices by
providing lower-carbon commute
opportunities, such as providing secure
cycle storage, shower rooms, drying
cupboards and the cycle-to-work
scheme for UK colleagues. Where we
have on-site restaurants, our caterers
provide seasonal and locally sourced
meal options and partner with suppliers
that focus on reducing food waste.
Training on sustainability is available
to all colleagues via our learning
and development pages and on the
Sustainability Hub on our intranet.
During 2022, as we returned to
offices, we hosted local events to
raise awareness around sustainability
opportunities, including an active
commute day at our new office in
Kildean, working with the local council to
promote the improved active commute
corridors available in the area.
Operational performance
Progress against targets
In 2022, reported Scope 1 & 2 (market-
based) emissions from our operations
were 1,526tCO2e; this is a decrease of
19% over 2021 and reduction of 62%
from 2019. Emissions from Scope
3 business travel for the year were
2,903tCO2e; this is an increase of
2,630tCO2e from 2021, but a reduction
of 68% from 2019.
Overall, across our reported Scope 1, 2
(market-based) and 3 emissions in 2022,
we have seen an increase of 2,587tCO2e
over 2021 as a result of COVID-19
restrictions being lifted, but a reduction
of 64% over the 2019 baseline.
Buildings
Scope 1 & 2 emissions from our offices
have decreased year-on-year by 25%
(2022: 1,350tCO2e, 2021: 1,797tCO2e).
In 2022, Scope 1 natural gas emissions
reduced by 21%; this reduction is linked
to the exit and relocation from our legacy
Craigforth office to our new Kildean site
during the summer, which has removed
our natural gas consumption for our
operations in Stirling. In 2022, there
has been a 8% reduction in energy
consumption from 2021. Savings have
been achieved through reductions in our
office footprint as we have adjusted to
the needs of the business as we adopt
hybrid working practices. In addition,
we have undertaken work to improve
the energy efficiency of our buildings.
For example, at our Mumbai office we
upgraded lighting throughout the office
and key IT infrastructure; and at our head
office in London we have updated the
lighting schedule to make better use of
external light conditions during the day.
Building environmental management
We operate an environmental
management system (EMS) certified
to ISO 14001 across much of our UK
estate. In 2022, we extended the scope
of the certification to include our offices
in Edinburgh and Bath. In early 2023,
we intend to formally incorporate our
new Stirling office into the scope of
certification. Our other office locations
- while not in the formal scope of the
certification - align with the principles
of our EMS through following the
requirements of our Environment Policy.
As part of our location strategy, we
review the sustainability of our offices
on an ongoing basis and during the
leasing process. In 2022, we actively
discussed environmental requirements
during lease negotiations, including
energy tariff type and provision of
environmental data.
Waste and water management
In 2022, waste generation from our
offices increased year-on-year (where
waste data is available) (2022: 409tCO2e,
318 tonnes, 2021: 92tCO2e, 142 tonnes)
and our UK operational recycling rate for
2022 was 67% (2021: 66%). The changes
in reported waste emissions and
volumes are attributed to an increase in
offices reporting on waste (12 in 2022 up
from 7 in 2021), colleagues returning to
the offices and additional waste arising
from office moves in Scotland.
We have continued our current zero
waste to landfill commitment for our
UK offices where we have operational
control, and promote this as best
practice for all other offices. As a result
of portfolio changes in 2022 to our
UK estate we diverted surplus items
(stationery, furniture, merchandise and
left items from colleagues) from disposal
by donating items to local schools,
charities and community organisations.
Reported water consumption in 2022
was 27,709m3 (4tCO2e); this includes
data from 25 offices in 2022. This is an
emissions increase of 47% on 2021, with
increased water consumption linked
to higher office occupancy and use by
colleagues. We continue to work with
our offices internationally to improve
reporting of this metric.
Renewable energy
As part of our ongoing commitment
to reduce our Scope 2 emissions as
members of RE100 - a global corporate
renewable energy initiative - we continue
to source renewable electricity across
our operational estate. We purchase
renewable energy from energy providers
in all of our UK offices where we have
operational control. During 2022, several
international offices transitioned to
renewable energy tariffs, including our
office in India and two offices in Poland.
In 2022, 99% (98% in 2021) of our
electricity use was provided by renewable
energy (0.4% on-site generation via
photovoltaic panels, 77.2% via direct
energy contracts, and 21.4% via energy
attribute certificates (EACs)).
Travel
As anticipated, following the lifting of
COVID-19 travel restrictions, reported
travel emissions (road, rail and air)
increased in 2022 to 3,079tCO2e,
(2021: 362tCO2e), though this is a 69%
reduction from 2019.
In 2022, we launched a new Global Travel
Policy which promotes the use of virtual
collaboration and sustainable modes of
travel, as part of our commitment to reduce
our carbon impact, while still recognising
that there are occasions where travel for
business purposes is required.
We communicate carbon impact data at
the point of booking when colleagues use
our central travel booking system. We’ve
increased the geographical scope of our
central travel booker to cover additional
regions, which will provide more accurate
reporting and may result in an increase in
reported travel emissions. In 2022, new
reporting accounted for 13% of total
reported rail and air travel.
In 2022, to support our transition to
a 100% fully electric fleet by 2026,
we updated our Company Car Policy.
It restricts the selection to electric
or ultra-low emissions vehicles (less
than 50g/km) only, with contribution
to a home charging unit for fully
electric vehicles. By year end 2022,
12% of our fleet comprised electric
vehicles, expected to increase to 33%
in 2023. In addition all cars available
through our colleague salary sacrifice
scheme are also limited to ultra-low
emissions vehicles.
Enforcement actions
No fines or regulatory actions
have occurred during the year for
environmental incidents.
M&G plc Annual Report and Accounts 2022 | 75
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Climate-related disclosures continued
Greenhouse Gas Emissions Statement
We have compiled our global greenhouse gas (GHG) emissions in accordance with the Companies (Directors’ Report) and
Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.
GHG emissions are broken down into three scopes; we have included full reporting for Scope 1 & 2, and selected Scope 3
reporting as best practice. Scope 1 emissions are our direct emissions from the combustion of fuel, fugitive emissions and
company-owned vehicles. Scope 2 emissions cover our indirect emissions from the purchase of electricity (including use
of company electrical vehicles), heating and cooling. We have reported our Scope 2 emissions using both the location and
market-based methods in line with the GHG Protocol Scope 2 Guidance. Our Scope 3 footprint currently includes business
travel (category 6) booked through our central travel management company, car travel in colleague-owned cars (category 6),
water consumption (category 1) and waste generation (category 5) from occupied properties (where data is available).
We continue to review the extent of our Scope 3 reporting and increase coverage where practicable, with the ambition of
formally reporting fully on purchased goods and services and capital goods (categories 1 and 2). Please refer to our Basis of
Reporting for further detail on our methodology, available on our website. Data is presented gross of any carbon offsets.
Scope 1 (tCO2e)
Scope 2 (tCO2e)
Location based
Scope 2 (tCO2e)
Market based
Scope 1&2 (tCO2e)
Energy
Natural gas, oil
(generators), vehicle
fleet, refrigerants
Electricity, purchased
heat and steam
Electricity, purchased
heat and steam
When reporting
totals market-based
emissions are used
EAC volumes (MWh)
Energy use (MWh)
tCO2e per FTE
(Scope 1&2)
2022
UK
1,350
2021 (restated)
2019 baseline
Total
1,435 A
UK
1,629
Total
1,703
UK
1,936
Total
2,128
2,065
4,079 A
2,253
4,228
4,213
5,849
11
91 A
3
184
105
1,880
1,361
1,526 A
1,632
1,887
2,041
4,008
204
16,974
3,677
21,257 A
0.25 A
42
18,130
3,555
22,313
0.33
22,941
26,205
0.74
Air travel (booked through central travel booker)
Land travel (booked through central travel booker)
Water (global where available data)
Waste (global where available data)
Total
Global Scope 1, 2 and selected Scope 3 (tCO2e)
1 January 2022 to 31 December 2022
2022
2,826
77
4
409
3,316 A
4,842 A
2021
(restated)
252
21
3
92
368
2,255
2019
8,946
127
11
365
9,449
13,457
2019
PwC has provided limited assurance over selected metrics reported for 2022 (as indicated by A ) in
accordance with International Standard on Assurance 3000 – ‘Assurance Engagement other than
Audits or Reviews of Historical Financial Information (ISAE 3000), issued by the International Auditing
and Assurance Standards Board and, in respect of the greenhouse gas emissions, in accordance with
International Standard on Assurance Engagements 3410 ‘Assurance engagements on greenhouse
gas statements’, issued by the International Auditing and Assurance Standards Board. The assurance
statement can be found on our website.
Operational control as defined by the Greenhouse Gas Protocol is where the Group has authority to
introduce and implement its operating policies at the operations.
M&G plc owns and manages certain investments held on its balance sheet in the financial statements,
over which it does not have operational control due to fund governance structures. These are
excluded from the scope of reporting under the operational control approach.
Scope 1 and 3 reporting uses the UK BEIS 2022 GHG Conversion Factors.
Scope 2 calculations use the IEA GHG 2022 Conversion Factors for location-based reporting.
Selected scope 3
(tCO2e)
Reporting period:
Baseline year:
Independent
assurance:
Consolidation
(boundary) approach:
Consistency with
financial statements:
Emission factor:
Market-based reporting uses supplier emission factors for our UK REGO-backed supply and RE-DISS
factors where available.
The Greenhouse Gas Protocol Corporate Accounting and Reporting Standard
Accounting
methodology:
Materiality threshold: 5%
Data restatements: Our 2021 reported Scope 1 & 2, and selected Scope 3 emissions have increased by 5.51% to
2,255tCO2e (previously 2,137tCO2e). The increase is largely attributed to additional gas consumption
(Scope 1) data received for our UK head office after the reporting period had completed.
76 | M&G plc Annual Report and Accounts 2022
Investments – implementation strategy
Real-world focus
We apply a ‘whole-of-system’ lens
to the climate transition, and believe
it is critical to distinguish portfolio
emissions reductions caused by capital
allocation from those that result from
real-world action by investees. As an
asset manager and asset owner, we are
focused on the latter, through effective
stewardship and climate advocacy.
We also want to support the deployment
of climate solutions, which present a
major structural growth opportunity.
For the transition to happen at pace, we
believe stronger policy and regulatory
signals are needed. We also believe
it is critical that the transition is just,
with costs and benefits shared fairly
between generations, communities and
regions. This approach forms the basis
of our position on a just transition to a
sustainable world, as published on our
website in 2021.
Net zero actions
Our transition implementation strategy
focuses on four actions:
– Engaging with investees to ensure
they have net zero targets, ideally
verified by SBTi
– Engaging with clients to encourage
a move towards Paris-alignment of
mandates and fund objectives
– Increasing capital directed to climate
solutions, companies and projects
– Transitioning portfolios, or if
unsuccessful, divesting
These are supported by:
– Collective action to accelerate
investee alignment with the Paris
Agreement climate goals
– Collaboration with regulators and
other organisations to improve climate
data reporting and standardise
measurement methodologies
– Continual development of our own
processes, data and reporting, so
we can deliver on our plans and
commitments effectively with
clear accountability
– Growing our range of sustainability and
climate-focused investment strategies
– Continued implementation of the asset
manager Thermal Coal Investment
Policy, especially with a just-transition
focus in non-OECD countries
Climate integration
Our asset manager NZIF draws on our
work as a member of the Paris Aligned
Investor Initiative and of the Institutional
Investor Group on Climate Change
(IIGCC). Both groups are establishing
actions, metrics and methodologies to
enable us to decarbonise our portfolios,
reduce climate-related risk and allocate
more capital to climate solutions.
The NZIF is integrated into our portfolio
analytics tool, providing investment
teams with a clear overview of key
metrics and ability to assess transition
alignment. While it currently only applies
to public equities and fixed income, we
will continue to work on other classes as
guidance becomes available.
We do not take a linear approach
to portfolio decarbonisation, to
avoid creating negative, unintended
consequences: for example, passing
the problem on to someone else
through divestment, and missing out
on transition-related opportunities.
We believe encouraging intensive
emitters to formulate robust transition
plans and invest in climate solutions is a
more effective approach.
Find out more about our
engagement strategy on
page 80-81
We produce a range of metrics to
identify and assess climate-related risks
and opportunities, and track progress
against our targets. Find out more
on our climate metrics pages 82-83.
This information helps our investment
teams understand the climate profile
and trajectory of a fund, and integrate
climate considerations into capital
allocation and stewardship decisions.
We also disclose climate metrics at a
product level, for example through fund
fact sheets and fund annual reports.
Approach to coal
Our approach to thermal coal provides
the foundation for dealing with other
high-carbon investments. Coal is a
priority because of its major global
emissions impact, and the significant
risk of stranded assets.
Our position, as set out in March 2021,
is that thermal coal needs to be phased
out by 2030 in OECD and EU countries,
and by 2040 in developing countries – a
forward-looking approach to enable
real-world, positive change.
In setting a later target year for coal
phase-out in developing countries, we
recognise that actions to address climate
change should not be disproportionately
borne by the poorest. We prioritise
engagement to influence companies
to adopt credible thermal coal phase-
out plans. However where companies
cannot or will not adopt a credible plan,
they will be classified for divestment and
excluded from further investment.
The Asset Manager Thermal Coal
Investment Policy, which came into
effect in April 2022, applies to all
listed equities and public fixed income
investments (excluding those managed
by M&G Southern Africa) actively
managed on behalf of clients, unless
a client has requested to opt out.
More details on in-scope assets and
policy thresholds can be found in the
coal policy on our website.
Our asset owner has developed its
own Asset Owner Thermal Coal Policy,
aligned with the Group thermal coal
position, which covers public assets.
A number of thermal coal divestments
were first considered in 2020, resulting
in exclusions across our shareholder
annuity and With-Profits Funds that
were implemented throughout 2021.
We have since updated our coal
exclusions to align with our asset
manager policy, with further divestments
made during 2022.
Taken together, these policies cover
40% of the Group’s AUMA at the end
of 2022.
M&G founding
member of NZAMi
Asset manager
sets first interim
NZAMi targets
Asset manager
Thermal Coal
Investment Policy
comes into effect
M&G holds
first ‘Say on
Climate’ vote
First NZAMi
progress report,
asset owner
publishes first NZAOA
interim targets
Dec ‘20
Nov ‘21
April ‘22
May ‘22
Sep ‘22
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Data and analysis
Our climate analysis combines
quantitative and qualitative inputs,
ensuring our assessments are holistic,
forward-looking and focused on
the most material and transition-
relevant issues.
Scenario modelling is a key tool to
help us understand how physical and
transition risks, and opportunities, could
impact the assets we manage over
time. One of the challenges of scenario
modelling is how to embed the outputs
in decision-making. To address this for
our fixed income and equity portfolios,
we have licensed Aladdin Climate,
an investor-focused climate model
for assessing transition and physical
risk. Aladdin Climate is embedded
within the main investment research
and monitoring workflows, providing
climate information alongside traditional
investment information, unlike previous
standalone scenario-modelling
solutions. Find out more on pages
84-89.
For our private assets, we have
expanded the existing Marsh model
to quantify the potential financial
impacts from physical risks on our
infrastructure assets, in addition to
our real estate equity holdings that are
already modelled.
Our investment teams have access to a
range of proprietary tools to help them
identify, assess and monitor climate risks
for different types of assets, drawing on
our ESG database. These include:
– Our proprietary ESG scorecard, which
is being enhanced to include further
climate considerations, including
use of Artificial Intelligence (AI) and
Natural Language Processing (NLP) to
improve our assessment of investees.
– Our portfolio analytics tool (PAT),
which incorporates NZIF metrics,
allows our investment teams to
monitor and visualise climate data
and enables them to track progress
against relevant benchmarks.
In 2022, the PAT was updated to
reflect the latest climate science and
bring the NZIF in line with relevant
IIGCC guidelines.
– Our Coal tool allows users to view
how portfolios and benchmarks are
positioned against the Asset Manager
Thermal Coal Investment Policy.
– Carbonator is a web-based
application that combines multiple
machine-learning models to estimate
the Scope 1 and 2 emissions of private
companies that do not disclose
adequate climate data.
In 2023, we will continue to strengthen
our climate analytics capabilities,
including expanding the coverage of
our data tools to include M&G Southern
Africa and more private assets.
Key priorities include continuing to
integrate the NZIF and scenario analysis
outputs into decision-making across
the business, leveraging our existing
data platform. We will also complement
binary portfolio-alignment data with our
modelling, to help our investment teams
build a clearer forward-looking picture of
the assets they manage.
Asset manager
All of our investment portfolios are
in scope of our 2050 net zero target.
As mentioned, portfolio change – i.e.
buying and selling assets – does not
automatically translate into real-world
emissions reductions. And the potential
for direct impact, or ‘additionality’, is
different between public and private
assets. To accelerate the transition
alignment of our portfolios, we are
using a combination of stewardship,
investment strategies, and advocacy as
our climate transition levers.
Interim commitments
In November 2021, our asset manager
set an initial interim target to halve the
emissions intensity of 20% of AUMA by
2030 (Scope 1 and 2 emissions).
In September 2022, we published our
first NZAMi progress report, against the
in-scope assets in 2021 of £58 billion.
In that progress report, we reported
that the emissions intensity (tCO2e/£m
invested) for the public corporate fixed
income portfolio declined by 13.9%
when compared with a revised 2019
baseline. The emissions intensity for the
listed equity portfolio fell by 25.7% over
this period.
In September, our asset owner
published its first formal set of interim
net zero targets, by committing
£99 billion of AUMA (2019 baseline)
covering equities, corporate debt and
real estate assets.
Following the release of the NZAOA
interim targets, our asset manager
has worked to align with these
commitments, increasing assets in
scope of their interim target significantly,
from 20% to 30.4% of the asset
manager’s AUMA, reflecting c.£92 billion
as at 31 December 2022. The updated
scope has been split by asset class in the
table below.
Assets in scope of interim target (%AUMA)
Public equities
Public corporate debt
Real estate
13.7%
13.4%
3.3%
We plan to continue to work with
external clients to gain their support
for Paris-aligned investment, through
focused engagement and by supporting
their implementation of credible climate
transition plans.
Private assets and real estate
Our private assets business invests
across a range of private markets,
including leveraged finance, unlisted
real estate equity, unlisted infrastructure
equity, real estate finance, private
asset-backed securities and books
of consumer loans and mortgages.
In general, private markets have
much less available climate data,
and the approach to modelling and
decarbonising assets can be very
sector-specific. Enhanced data
collection, management and reporting
for our private and alternative assets
has been a key focus over the past
12 months, and will remain so in 2023.
Over 2022, our real estate equity
business completed desk-based
decarbonisation modelling for our
internal client capital to set a specific
carbon reduction target for direct real
estate investments under the NZAOA
commitment. Implementation of the UK
and Europe Sustainable Development
and Refurbishment Framework has
continued, enhancing our standards on
operational and embodied carbon in
new developments and refurbishments.
The real estate business has undertaken
work to accelerate and improve its
approach to gathering tenant energy
usage data across our largest portfolios.
It has also completed further net zero
carbon audits. Priorities for 2023
include interim target setting, enhanced
decarbonisation modelling, and further
embedding of transition and climate-
related analysis in its processes and
decision-making.
78 | M&G plc Annual Report and Accounts 2022
Climate impact is one of our private
infrastructure arm, Infracapital’s 10
core ESG areas of focus and a strategic
priority. Infracapital continues to focus
on science-based net zero roadmaps
and is working with each portfolio
company to ensure robust climate
reporting. Scope 3 emissions were a
major focus in 2022, with over 85% of
the portfolio now disclosing this data.
The investment teams are working
with a third-party specialist to conduct
climate risk scenario analysis on critical
sites across the portfolio. This analysis
will inform the development of the
private infrastructure climate roadmap.
The current ESG focus areas for
Infracapital are available on our website.
Asset owner
As an asset owner, we have begun a
number of initiatives to mitigate climate
risks in our investment portfolios.
Key among these is the setting of 2030
interim emissions reduction targets, with
the aim of getting to net zero by 2050.
These were published in September
2022, using the NZAOA framework.
In September 2021, M&G plc joined
NZAOA, a group of 74 leading global
institutional investors committed to
transitioning their investment portfolios
to help limit global heating to 1.5°C.
In line with the NZAOA’s Target Setting
Protocol, we have set decarbonisation
targets for our public equity and
corporate issuer debt exposures, our
direct real estate exposure and higher
emitting sectors (see below).
We are now in the process of identifying
individual portfolio actions required to
achieve these targets.
Under the NZAOA framework, we are
also required to set engagement targets
for the companies in our investment
portfolios that emit the highest levels of
GHG emissions. These engagements are
now commencing in 2023.
Asset allocation/manager selection
From an ESG perspective, we consider
the purpose of manager selection to be
to identify an investment manager that
has the people, process and expertise
in place to meet the ESG requirements
specified by the asset owner in the
investment mandate. In order to achieve
this, we ensure our selection process
includes a comprehensive assessment
against ESG-specific criteria, to enable
an appropriate review of the managers’
alignment with our purpose, values
and priorities.
The asset owner awards mandates
to external asset managers where it
is in the best interest of asset owner
policyholders. As part of the manager
selection and monitoring processes,
manager data and analytics capabilities
are explored, and can be used to inform
the Manager Oversight team’s view of
asset manager expertise with respect
to monitoring and managing climate-
related financial risks.
Within the asset owner business, we
have designated teams responsible
for the selection of asset managers.
These teams perform investment due
diligence (DD) to assess managers’
ability to deliver the expected
investment performance or outcome
for a fund over the long term. This is
informed by our bespoke Request for
Proposal (RfP) process, which includes
a dedicated section of detailed ESG
investment-led questions. In turn,
this is supported by the RfP ESG DD
questionnaire, which aims to assess
managers’ wider stance on key ESG
issues and activities. This questionnaire
includes a specific section on climate
change, aiming to assess the robustness
and alignment of the manager’s climate
change and net zero ambitions against
our own.
Once an investment manager has been
selected and onboarded, the Manager
Oversight team conducts ongoing
DD reviews. Ongoing DD of existing
managers includes regular meetings
and site visits. ESG is a standing item on
the agenda for each quarterly meeting.
Ahead of these meetings, managers
are expected to complete the Quarterly
ESG DD questionnaire, which aims to
assess any changes to the managers’
ESG activities or priorities that may
have occurred.
Asset owner interim commitments
Engagement
Engaging with the 40 biggest
contributors to our financed
emissions, to encourage them to
set net zero targets that meet
best-practice criteria
Public equity and
corporate debt
50% reduction in emissions
intensity (tCO2e/$m invested) for
each asset class by 2030*
Real estate
36% reduction in emissions
intensity (kgCO2/m2) within our
directly owned real estate
portfolio by 2030*
Reducing emissions intensity (tCO2e/$m invested) by the amount below by 2030*, across the named sectors.
Sectoral decarbonisation
Utilities
60%
Transport, road
50%
Oil, gas and coal
50%
Transport, aviation
25%
Materials, steel
40%
Transport, shipping
25%
* 2030 refers to end of 2029. Target against 2019 baseline.
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Investments – engagement strategy
Shared urgency
The overarching objective of our climate
engagement is to ensure investee and
stakeholder alignment with the need
for effective action in harmony with the
Paris Agreement. We aim to establish a
shared sense of urgency and focus on
implementation and solutions.
We partly gauge progress through
data, published plans and actions to
implement these. However, we also
need confidence that the Boards
and management teams of investee
companies have the knowledge and
commitment needed to navigate the
momentous change that lies ahead.
As an asset manager, our engagements
help us make this judgement. Likewise,
as an asset owner, we need to ensure
that the asset managers we appoint are
aligned with our climate commitments
and able to demonstrate genuine
climate stewardship.
Asset manager
Stewardship, through engagement
and shareholder voting, is how we
communicate our expectations to
investees. We do this in a spirit of
collaboration and knowledge sharing,
mindful of the complex challenges
presented by climate change, but are
also aware of the very tight timelines
for Paris-aligned action. We believe all
companies should prioritise climate-
proofing their business models and
operations for the future.
Investees
Climate change is one of our top-
down engagement programmes
for investee companies, in both
developed and developing markets.
Our climate engagements focus on
strategy, disclosure, goals and targets
to achieve decarbonisation, as well
as stranded asset risk. At the highest
level, we expect investees to commit to
reaching net zero in line with the Paris
Agreement, and to provide credible
targets and metrics for how they will
do so. We also expect them to align any
direct or indirect lobbying activities with
ambitious climate action.
In 2020, we mapped our public holdings
to determine a targeted engagement
list of 100 investees, based on
highest emissions and largest M&G-
wide exposure.
80 | M&G plc Annual Report and Accounts 2022
This list, referred to as the Hot 100,
is updated on a half-yearly basis,
to represent a current account of
exposures, based on the most up-to-
date methodologies.
For each company, we create a specific
engagement strategy with a clear
objective, key performance indicators
to determine progress and a timetable
for engagement.
While we recognise that transition
plans are likely to evolve with improved
knowledge and data quality, if we detect
unwillingness or inability to align with
the transition, we will escalate. This may
include voting to replace Directors,
or joining forces with other investors
to increase pressure. Should these
efforts not generate results, we will
consider divesting.
By the end of 2022, we had either
assessed or engaged with 54 of the
Hot 100 companies identified in August
2022. This represents 74% of the
combined financed carbon emissions for
M&G’s holdings in this target group.
We also have an engagement
programme specifically targeting
investee companies with exposure to
thermal coal, to determine if they are
compliant with our Asset Manager
Thermal Coal Investment Policy.
The M&G Coal Appeals Committee has
identified a group of companies for
engagement, where investees appear
compliant, but phase-out plans for coal
either need a timeline or have not been
clearly communicated.
Over the course of 2022, nine new coal
engagements were initiated, in addition
to the 18 started in 2021, prior to the
policy coming into effect.
Of the nine engagements undertaken in
2022, three were successful, resulting in
those companies being compliant with
the coal policy and eligible for investment.
Two of the engagements were
unsuccessful, resulting in those investees
being added to the coal exclusions list
and divested. The remainder will be
followed up in 2023.
For our private investments, continual
engagement is important too. A key
focus for us is to encourage improved
climate-related disclosure, to help us
track decarbonisation efforts and better
understand risk exposure.
Collaborative engagement
Collaboration is critical to accelerate the
transition. We are active participants
in the Climate Action 100+ (CA100+)
initiative, which targets the world’s major
GHG emitters.
We represent the over 700 members of
CA100+ as co-leads on three specific
engagements, targeting investee
companies in the mining, chemicals
and energy sectors. We also sit on the
CA100+ Corporate Programme Advisory
Group, Escalation Working Group and
Net Zero Stewardship Working Group,
and are active members of six additional
company-specific working groups.
The CA100+ project is entering its
second phase in 2023, following a
consultation on its net zero company
benchmark. This will strengthen the
indicators used to assess the credibility
of companies’ climate actions, to close
data gaps and promote greater real-
world impact.
Client engagement
To support the transition, we need to
bring our clients on board. A key part of
this is being transparent about our plans,
and listening to their views. In the case
of our thermal coal policies, we wrote
to more than 203,000 clients to explain
why we are taking this step, and how
this will affect their investments. As an
asset manager, we aim to apply the
Thermal Coal Investment Policy across
all of our portfolios which are in scope
of the Policy. However, we recognise
that some clients may prefer not to
adopt our Thermal Coal Investment
Policy. We seek to work in partnership
with our clients to accommodate their
own climate and thermal coal-related
policies, subject to no investments in
companies expanding their thermal coal-
related capacity for any new business.
Climate
engagements
CA100+
engagements
31%
Climate engagements % of asset
manager FCE
38%
Engagement % of total asset manager
FCE in CA100+ companies
Asset owner
As an asset owner, we rely on the asset
managers we appoint to exercise direct
climate engagement in line with our
policies and objectives. Like our internal
asset manager, we place the emphasis
on science-based action and real-world
outcomes. We also believe that time and
effort needs to be focused on the most
carbon-intensive investees.
As part of our interim climate goals, we
have committed to engaging with the 40
biggest carbon emitters in our portfolios,
to encourage them to set net zero
targets in line with best practice criteria.
These issuers currently account for
more than 50% of the owned emissions
within our equity and corporate fixed
income portfolios.
External managers
Although engagements are led by
our asset managers, we maintain
accountability for the framework
used when interacting with investee
companies, and in turn commit to
engaging with our asset managers to
deliver our desired results. Having a
robust approach and process in place
to engage with asset managers is key
to ensure the best outcomes for our
policyholders and clients.
Overall, we expect engagement
processes and actions to be aligned
with the PAC ESG Investment Policy,
Shareholder Engagement Policy and
Voting Standard, as well as the agreed-
upon mandate. Should we feel that
there is persistent misalignment, we will
escalate our engagement.
The ESG & Regulatory team follows a
structured approach to engagement,
defined by the following actions:
– Annual letter of ESG priorities: we
endeavour to share an Annual Letter
of ESG Priorities with all our asset
managers, outlining our key areas
of focus, which will form the basis of
requests and dialogue throughout
that year.
– ESG engagement & voting analysis:
all asset managers will be requested
to submit regular ESG engagement
and voting templates to provide an
update on their stewardship activities.
This will be reviewed and assessed on
an ongoing basis.
– Ad-hoc ESG engagement: where
Policy advocacy
M&G is an active respondent to
consultations and calls for evidence
on ESG policy topics, including climate
change, in the UK and EU. We do
this individually and through trade
associations such as the Association of
British Insurers, Investment Association,
and UK Sustainable Investment and
Finance Association (UKSIF). M&G
chairs the ESG Committee of the
International Regulatory Strategy Group,
which provides extensive opportunities
to engage directly with – and to
influence – industry peers, regulators
and policymakers.
Our climate advocacy targets ambitious
transition policy frameworks and actions,
creating long-term clarity for private
sector decision-making. Among other
things, this includes consistent and high
quality corporate disclosures, proper
incentivisation of climate solutions,
support for credible transition activities,
meaningful prudential regulation reform
and due consideration of the related
challenge of nature and biodiversity
loss. We recognise that closing
the climate financing gap requires
direct deployment of capital towards
solutions, and we have worked with
UK policymakers on ways to increase
institutional investors’ allocation to
private assets.
Industry advocacy
As part of our ongoing active
memberships of the Investment
Association, Principles for Responsible
Investment, the Investor Forum and
IIGCC, among others, we continue to
participate in a range of meetings and
discussions, with climate change being a
key focus.
M&G plc is part of a coalition of
governments, businesses and
organisations in the Powering Past Coal
Alliance (PPCA). The PPCA promotes a
clear set of principles, including no new
financial services or investments for
unabated coal-fired power and advocacy
for the phase-out of existing capacity.
specific engagement activities require
further due diligence/escalation, or
where specific changes have occurred
within the managers’ ESG activities or
priorities that are a cause for concern,
the ESG & Regulatory team will aim
to organise ad-hoc engagement
meetings with the asset managers.
In the case of climate change, as detailed
within our Asset Owner ESG Investment
Policy, we rely on our investment
managers to engage with investee
companies to change behaviour, improve
disclosure and reduce emissions, as
well as allocate capital towards low-
emission sectors of the economy,
including climate solutions. Our asset
managers provide periodic reporting
of their engagements, covering
objectives and progress. We monitor
these engagements in select cases,
with a view to informing strategies and
positions. We will tilt our portfolios away
from investee companies that are not
on sufficiently ambitious emissions-
reduction paths, by instructing our asset
managers to change relative exposures
on our behalf.
We view the exclusion of any company
from a portfolio on the basis of their
carbon emissions as an action of last
resort that should only be taken if
we are certain that engagement will
not lead to meaningful strategic and
operational change.
Client engagement
In September 2022, we launched a pilot
of the Active Impact Community (AIC) in
the UK. The community provides a space
that allows its members to understand
and discuss the connection between
sustainability, investments and the role
the finance sector can play in addressing
societal challenges and mitigating
climate change. As the initiative is rolled
out further, we hope to gain insights into
how we can best address the needs of
potential clients through our products.
Industry and policy
engagement
We recognise the critical importance of
economy-wide change to tackle climate
change and that this requires stronger
policy and regulatory signals, as well
as collaboration with peers to promote
best practice and support practical
implementation across the financial
services industry.
M&G plc Annual Report and Accounts 2022 | 81
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Climate metrics
Introduction
We use a range of metrics to identify and assess climate-related risks and opportunities, and track progress against our targets.
This includes absolute metrics as well as intensity-based indicators that enable comparison across different issuers, portfolios
and transition scenarios. In addition to backward-looking data, which indicates the current emissions profile of an asset or
portfolio, we also use forward-looking metrics to assess transition alignment and risk exposures over time.
The key backward-looking metrics used across all our internal and external reporting are financed carbon emissions (FCE),
carbon footprint, and weighted average carbon intensity (WACI). For example, we assess FCE change at portfolio level to monitor
our overall portfolio emissions exposure, while we monitor carbon footprint (a measure of economic emissions intensity) to
assess progress against our asset manager and asset owner interim targets. WACI is used to understand our portfolio exposure
to carbon-intensive issuers. We currently rely on Scope 1 & 2 GHG emissions to inform investment decisions. While we monitor
Scope 3 emissions to inform targeted actions, such as engaging companies on transition plans, data quality and disclosure of this
emissions category remains poor, which makes it less reliable for decision-making. Details on definitions of metrics reported and
further limitations of data and assumptions can be found on pages 88-89.
Our emissions metrics have been calculated in accordance with Partnership for Carbon Accounting Financials (PCAF) guidance.
A notable change this year is the inclusion of M&G Southern Africa (MGSA), which is now under our operational control. This has
impacted our numbers due to the generally higher carbon footprint of issuers in that region. We have also included emissions
estimates for sovereign bonds for the first time, based on the PCAF methodology released in December 2022, and added
emissions data for our private infrastructure investment arm, Infracapital.
In our analysis, ‘coverage’ refers to the proportion of in-scope AUMA for which we have either reported or estimated emissions
data. Asset classes such as cash, derivatives as well as private assets (equity and debt), and asset-backed securities (ABS),
are not included, reflecting a lack of either climate accounting standards or mature data sources for these types of assets.
Externally managed mandates in which the asset owner are invested alongside other clients are also not included. This report
focuses on disclosing metrics at an M&G plc level, subject to asset classes included and coverage within these groups.
Public assets (equities and corporate fixed income)
The table below presents emissions metrics relating to public equities and corporate fixed income managed by our asset
manager, including on behalf of our asset owner (total AUMA of £175.3 billion). Underlying emissions data is sourced from MSCI.
AUMA in-scope for metrics presented (£bn)
Financed carbon emissions (FCE) – Scope 1 & 2 (‘000s tCO2e)
Financed carbon emissions (FCE) – Scope 3 (‘000s tCO2e)*
Carbon footprint – Scope 1 & 2 (tCO2e/£m invested)
Carbon footprint – Scope 3 (tCO2e/£m invested)*
WACI – Scope 1 & 2 (tCO2e/£m revenue)
WACI – Scope 3 (tCO2e/£m revenue)*
2022
(incl. MGSA)
Coverage
2022
(excl. MGSA)
2021
Coverage
175.3
12,995
80,683
106
660
230
1,233
N/A
70%
70%
70%
70%
81%
79%
165.3
9,499
58,254
84
514
176
1,045
178.0
12,412
N/A
101
N/A
244
N/A
N/A
69%
N/A
69%
N/A
82%
N/A
* Denotes a metric calculated for the first time this year, therefore no comparative data is available. The reference in the introduction above to limitations
on data quality for scope 3 financed emissions should also be noted.
The year-on-year movement in the emissions of our public equities and corporate fixed income portfolios were largely driven by a
reduction from financial movements, offset by the addition of our M&G Southern Africa business, with AUMA of £10 billion. M&G
acquired a controlling stake in the M&G Southern Africa business in July 2021, and it was deemed to be under operational control
from 2022, meaning that the financed emissions from the business are now included in our metrics.
Excluding M&G Southern Africa, the FCE (Scope 1 & 2) of public equities and public corporate fixed income portfolios dropped by
23.5% to 9,499 tCO2e over 2022. While the majority of this reduction was due to factors other than portfolio decarbonisation, a
small portion of the reduction can be attributed to divestments driven by sustainability-led considerations and implementation of
the Thermal Coal Investment Policy (TCIP) from April 2022, and also due to issuer-level decarbonisation.
Similarly, the carbon footprint (Scope 1 & 2) of the portfolio excluding M&G Southern Africa declined by 16.9%, meaning that in
aggregate, the emissions associated with each million pound invested across our public corporate assets ended the year lower.
As mentioned, the higher emissions intensity of investees in Southern Africa – largely due to a heavy reliance on coal-fired
power generation in the region – has led to an overall increase in our FCE and carbon footprint. The Just Energy Transition
Partnership announcement at COP26 in 2021 highlighted the issues faced by South Africa and many developing countries,
which need support to navigate the infrastructural challenges of adding low-carbon power generation capacity at a scale and
pace to phase out use of coal, while maintaining supply to meet the needs of a growing population and support the economy.
We appreciate this need for a just transition and view this as an opportunity, and continue to engage with government
departments, local companies, and industry bodies to support initiatives that reduce the fossil-fuel dependence of the
Southern African economy.
82 | M&G plc Annual Report and Accounts 2022
Sovereign debt
Financed sovereign production emissions (Scope 1 incl. LULUCF) (tCO2)
Financed sovereign consumption emissions (Scope 1,2,3 excl. exported emissions, incl. LULUCF) (tCO2)
Weighted average sovereign production intensity (Scope 1 incl. LULUCF) (‘000s tCO2/£m GDP PPP)
Weighted average sovereign consumption intensity (Scope 1,2,3 excl. exported emissions, incl. LULUCF)
(tCO2/ Capita)
2022
Coverage
8,927
17,625
0.4
99.7%
95.7%
99.7%
21.6
95.7%
Sovereign debt emissions data is reported for the first time this year, based on £24.7 billion of in-scope AUMA (including assets
managed by M&G Southern Africa). In the above table, we have included financed domestic production and consumption
emissions, and their respective weighted average intensities. LULUCF stands for Land Use, Land Use Change and Forestry.
Private assets (M&G Real Estate and Infracapital)
Real Estate – AUMA in-scope for metrics presented (£bn)
Real Estate – GHG emissions Scope 1 & 2 (‘000s tCO2e)
Real Estate – GHG emissions Scope 3 (‘000s tCO2e)
Real Estate – Carbon footprint scope 1 & 2 (tCO2e/£m invested)
Infracapital – AUMA in-scope for metrics presented (£bn)*
Infracapital – GHG emissions scope 1 & 2 (‘000s tCO2e)*
Infracapital – GHG emissions scope 3 (‘000s tCO2e)*
Infracapital – Carbon footprint scope 1 & 2 (tCO2e/£m invested)*
2022
Coverage
2021
Coverage
36.0
123.5
600.6
4.0
3.8
690.8
8.0
210.5
N/A
85%
85%
85%
N/A
87%
89%
87%
34.8
82.9
607.0
2.7
N/A
N/A
N/A
N/A
N/A
89%
89%
89%
N/A
N/A
N/A
N/A
* Denotes a metric calculated for the first time this year, therefore no comparative data is available
Our real estate assets recorded an increase in absolute emissions over the year (49% for Scope 1 & 2), primarily due to an
increase in building usage following the Covid pandemic, increased portfolio size outside of the UK – particularly in countries with
more carbon-intensive energy mixes – and improvements to the calculation methodology for Scope 3 emissions. As this is the
first year that we have reported on the carbon emissions for Infracapital, no prior year data is presented.
Backward-looking metrics not based on emissions
In addition to emissions-related data, we track metrics that indicate exposure to climate transition risks and opportunities,
including fossil fuel and EU Taxonomy-aligned exposures. These metrics are helpful in monitoring our overall position, but do not
include our private asset investments in climate solutions. They form the criteria for some of the NZIF categories we use, and help
inform strategic decisions such as our Climate Transition Plan.
The fossil fuel exposure data is also relevant from an engagement and voting perspective, as it captures many of the target
companies in our climate stewardship programme. The fossil fuel exposure metric including revenue from fossil fuel generation
is particularly relevant given our approach to thermal coal.
Fossil fuel and EU Taxonomy-aligned/Green bond exposure (public assets)
The table below covers fossil fuel and green exposures of our public equities and corporate fixed income portfolios.
Fossil fuel exposure (excl. revenue from power generation – £m)
Fossil fuel exposure (excl. revenue from power generation – %)
Fossil fuel exposure (revenue from fossil fuel power generation – £m)
Fossil fuel exposure (revenue from fossil fuel power generation – %)
EU Taxonomy-aligned (£m)
EU Taxonomy-aligned (%)
Green bonds - Corporate (£m)
Green bonds - Corporate (%)
Green bonds - Non-corporate (£m)
2022
8,780
5.0%
1,157
0.7%
6,585
3.8%
2,795
1.6%
259
2021
8,487
4.6%
1,029
0.8%
5,115
2.9%
1,865
1.0%
–
Metrics in the table above are based on the £175.3 billion of public assets presented on the previous page. Exposure to fossil
fuels has increased in absolute terms across both metrics presented in the table, partly reflecting market movements related to
the energy crisis and high oil prices over the year. On top of changes initiated by our investee companies, market movements and
portfolio changes, our fossil fuel exposure may also change due to increased data coverage from our data providers.
The metric previously reported as ‘Green Exposure’ has been split out into EU Taxonomy-aligned (based on MSCI’s Estimated EU
Taxonomy-aligned revenue for each issuer) and Green bonds (investments in CBI Aligned and CBI Certified Bonds). Both metrics
showed growth in terms of absolute value and proportion of overall AUMA. Non-corporate Green Bonds are presented for the
first time in 2022. The fossil fuel and EU Taxonomy metrics are based on a pro-rating of exposed/aligned issuer revenue.
M&G plc Annual Report and Accounts 2022 | 83
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Scenario analysis
Methodology and limitations
The scenario analysis presented below
covers assets managed by our asset
manager, including assets managed on
behalf of the asset owner. The majority
of the analysis covers public equities,
fixed income, and sovereign debt, with
the exception of the section on private
assets on page 87.
We use climate models that have
sufficient coverage across key funds
and our largest issuers, while covering
our most significant asset classes:
equities, corporate and sovereign
debt, real estate and infrastructure.
Recognising the different strengths and
weaknesses of climate models, M&G
has licensed a new scenario model in
2022 (Aladdin Climate) to complement
our existing suite of scenario-modelling
outputs. We have also expanded
our modelling to cover new asset
classes such as sovereign bonds
and infrastructure.
We rely on two modelling partners to
provide us with portfolio, sector, and
asset-level output data, including:
– future GHG emissions
– emissions intensity
– physical climate damages
– energy flows
– energy demand
– technological capabilities
This data is provided at an issuer,
sector, and portfolio level. The data
points are aggregated to calculate a
climate-adjusted valuation metric and
temperature-alignment metric for the
portfolio. With these results we seek
to improve our systematic approach
to identifying and evaluating climate-
related risks.
As with any model, the results are heavily
influenced by the assumptions made.
We recognise that the climate models
are based on stylised scenarios, and
attempt to capture the possible future
interplay between physical climate
impacts, policy and regulation, and
consumer behaviour at a global scale.
The scenarios are not predictive,
but rather help us explore a range
of potential outcomes. This analysis
is a useful tool for interrogating and
understanding how climate-related
developments could impact the assets
we administer and manage.
Another key observation is that the
data that underpins climate-scenario
modelling is reported by companies at
a lag relative to financial data. We have
used the most up-to-date information
available in all cases. However, for
a subset of our analysis, the GHG
emissions used in the scenario modelling
represents data from prior years.
For public listed equities, corporate debt
securities and sovereign debt, we assess
the financial impact of climate change
based on three Network for Greening
the Financial System (NGFS) scenarios:
– An orderly scenario, predicting a
temperature rise of less than 2°C
by 2100 as a result of immediate
climate action.
– A disorderly 2°C scenario, in which
climate action is not taken until 2030.
– A hot house scenario, which predicts
an average temperature change in
excess of 4°C by 2100, assuming no
global response to climate change.
For the real estate and infrastructure
asset modelling, our output is limited to
Representative Concentration Pathway
(RCP) 2.6 and 8.5 only, as produced by
the IPCC. These broadly align to the 2°C
orderly and 4°C hot house scenarios.
The output of this model is limited
to the identification of risk level, and
reinstatement value at risk.
This is partly due to the fact that the
model assesses only direct climate
risk and partly due to the nature of
the investments.
Find out more on the methodology
and limitations of the scenario analysis
performed on our investment portfolios
on pages 88-89.
Forward-looking metrics
The key forward-looking metrics that our
asset manager and asset owner monitor
across public assets are:
– Implied temperature rise: this metric
allows a user to quickly gauge if a
portfolio and issuer’s GHG emissions’
trajectory is aligned with the Paris
Agreement through sub-industry and
regional benchmark comparisons.
– Climate-adjusted value: this metric is
equivalent to value at risk (VaR), but
is calculated on a bottom-up basis,
by assessing the impact of different
climate scenarios on a company’s
financial position. The adjusted value
is calculated separately for physical
and transition risks as part of the
scenario model that we use across our
public portfolios (Aladdin Climate).
– Binary science-based targets: this
data shows the proportion of issuers
who have committed to setting
science-based targets, or had their
targets validated by the Science
Based Targets initiative (SBTi).
For private investments, we monitor
physical climate risk impacts across
fixed assets, such as our real estate and
infrastructure. Here we primarily monitor
the relative risk score against a range of
climate-related natural disasters, such
as storms, flooding and wildfires.
Scenario global emission trajectories
Million tons of CO2e/year
50,000
40,000
30,000
20,000
10,000
0
2020
2025
2030
2035
Year
Year
2040
2045
2050
2 degrees orderly
2 degrees disorderly
4 degrees Hot house
Source: Network for Greening the Financial System (NGFS)
84 | M&G plc Annual Report and Accounts 2022
Public assets (portfolio alignment)
Portfolio alignment indicators help us assess which portfolio companies have committed to, or are in the process of, aligning
to the Paris Agreement temperature goals. While companies are not net zero today, this reflects target setting and plans for
emissions reductions and is therefore a gauge of the transition alignment of our investment strategies going into the future.
The binary net zero alignment data below is based on public commitments from companies to set science-based targets and
have these validated by the Science Based Targets Initiative (SBTi). SBTi is a widely used framework for independently validated
science-based targets. The metrics presented exclude companies that may have established climate targets, but have not
committed to, or had targets validated by the SBTi. Our asset manager’s exposure to issuers with SBTi targets has increased
over the year, reflecting the growing adoption of science-based targets by companies.
Science-based targets (equities and fixed income)
The table below shows the proportion of our asset manager AUMA that have either committed to or set SBTi targets, together
representing £63.3 billion, or a total of 1,398 issuers.
SBTi target committed (%)i
SBTi target set (%)ii
i Company has committed to setting a science-based target via the SBTi.
ii Company has had its target validated by the SBTi.
2022
12.4
23.7
2021
12.1
20.3
Implied temperature rise
As part of our modelling, we have
calculated the implied temperature
rise (ITR) for each individual issuer
where data is available (covering 71%
of public equities and corporate debt
as at 31 December 2022). ITRs are a
fairly intuitive way to assess transition
alignment, by estimating an issuer’s
relative share of the remaining global
carbon budget consistent with the
Paris Agreement. In simple terms, it
shows what the global temperature
rise would be if the whole economy
followed the same emissions pathway
as the company, or portfolio, analysed.
Due to their simplicity, ITRs are
inherently limited and we recognise
the following:
– There is no commonly accepted
approach to temperature alignment
calculations, which makes
comparisons across different model
outputs problematic.
– The methodology we have used
allocates a carbon budget to
each company, and compares
that company’s progress and
expected future emissions against
that budget. The calculation is
sensitive to sector and geographical
emission assumptions.
– It is based on carbon intensity
(emissions per unit of revenue for each
investee), and on projections of future
GHG emissions which are subject to
significant uncertainties.
– The portfolio ITR is calculated as
the weighted average of individual
company ITRs.
– We do not use ITR in isolation, due
to the limitations mentioned, but
believe it provides useful indications of
alignment when viewed in conjunction
with other information.
Our ITR analysis shows that issuers
are aligned to a broad range of
temperature outcomes. While 28% of
M&G’s modelled AUMA is projected to
achieve alignment with a 1.5°C world
by 2030, a significant proportion is
projected to exceed 4°C (representing
carbon emissions significantly above a
Paris-aligned budget). The chart below
shows our relative ITR exposure, based
on portfolio weightings to a range
of temperature levels. Currently our
calculations indicate that more than
54% of assets exceed 2°C, given the
underlying issuers’ transition pathways.
Temperature alignment of investees
%
The weighted average warming potential
across modelled issuers (public equities
and corporate debt) is 2.6°C. Using the
updated climate model outputs on a
like-for-like basis, there has only been
a small change to the overall portfolio’s
temperature alignment for 2021 (2.5°C).
Note that the 2021 figure has been
restated to reflect the new model which
uses a different methodology from last
year’s model which showed 2.7°C ITR.
This is reflective of volatility from the
energy crisis and the inclusion of the
M&G Southern Africa business for 2022.
In summary, this analysis enables us
to identify companies that are leaders
and laggards in carbon emissions via a
simple metric, which aids comparison
and provides an input into investment
research and decision-making. It can be
considered a guide, to identifying sector
leaders during portfolio construction,
and inform engagement with laggards
to encourage greater transition ambition.
2.6ºC*
< 1.5
1.5-2
2-2.5
2.5-3
3-3.5
3.5-4
4 <
28%
18%
14%
19%
4%
3%
14%
* The weighted average warming potential across investees modelled is 2.6°C (2021: 2.5°C).
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Climate-related disclosures continued
Public assets (scenario
modelling results)
The climate modelling results help us
quantify the relative financial impacts
of climate change across different
emissions projections, and compare
our exposure to climate risks and
opportunities over time. Our bottom-
up approach provides estimates of the
financial impact on all issuers modelled,
as well as the impact on asset valuations.
From an asset value perspective,
there are a few key findings from
our scenario modelling:
– Overall, the results indicate that the
negative impacts on asset values will
be larger under a hot house scenario,
driven by the increasing physical risk
and second-order macroeconomic
impacts towards the end of the
scenario horizon.
– Compared with 2021, the relative
climate adjusted valuation impact
has marginally reduced across most
asset classes, while it has increased
slightly in terms of temperature
alignment. This is largely a result
of publicly listed issuers improving
their climate resilience on one hand,
counterbalanced by the inclusion
of our more carbon-intensive M&G
Southern Africa portfolio.
Climate adjusted value impact by sector (current to 2050)*
– Looking at the sectoral breakdown
of public listed equities and public
corporate debt, it is clear that the
orderly and disorderly scenario
impacts are most pronounced in
the energy and materials sectors
(where significant change is required
to decarbonise and align with the
transition). By contrast, under the hot
house scenario – physical impacts
only – asset valuations are impacted
fairly evenly across all sectors.
2°C orderly
2°C disorderly
4°C hot house
% change as a
result of climate
adjusted values
N/A
> 0%
-0% -1%
-1% -5%
-5% -10%
-10% -20%
< -20%
Sector
Communication services
Consumer discretionary
Consumer staples
Energy
Financials
Health care
Industrials
Information technology
Materials
Real Estate
Utilities
Sovereign debt
* The 2°C orderly and disorderly scenarios presented in this heatmap reflect transition risk impacts only with a coverage of 70%, and the 4°C hot house
scenario reflects physical risk impacts only having a coverage of 86%. Further details on methodology and limitations can be found on pages 88 and 89.
Debt
Equity
Debt
Equity
Debt
Equity
Issuer financial impact
The graph to the right illustrates the
relative net income impact on our public
listed equities and public corporate debt
investments across the three scenarios
assessed. They are expressed as a
relative shock against a counterfactual
scenario, and allow us to compare
the physical and transition outputs of
the scenario model (which currently
are estimated separately). Issuers are
impacted most severely in the 2°C
scenarios, with the timing of the impact
immediate in an orderly transition
and delayed in a disorderly transition.
In a 4°C physical-risk-only scenario,
the financial impact on a relative net
income is more muted.
86 | M&G plc Annual Report and Accounts 2022
Relative impact on net income across scenarios
)
%
i
(
t
c
a
p
m
e
v
i
t
a
e
r
e
m
o
c
n
l
i
t
e
N
2
0
-2
-4
-6
-8
-10
-12
2020
2025
2030
2035
Year
2040
2045
2050
2 degrees orderly
2 degrees disorderly
4 degrees Hot house
Source: Aladdin Climate
Private asset results
We have used the global insurance broker and risk advisor Marsh to assess our real estate and infrastructure exposure to
physical climate risk. Marsh uses XDI which quantifies the cost of extreme weather and climate change impacts to physical
assets, taking into account asset-specific information – how different types of assets in a specific location will perform in
different physical conditions. The scenarios used in this model are based on Representative Concentration Pathway (RCP) 2.6
and 8.5, as produced by the IPCC. These broadly align to the orderly 2°C scenario and a 4°C scenario.
Real estate
Total real estate
assets modelled
846
Assets modelled represent
8.6% of Group AUMA
Global average asset exposure to climate hazards
Size of circle is proportionate to the share of asset defined as at high risk of damage resulting from climate
hazards at each point in time.
Orderly
scenario
(RCP 2.6)
% portfolio high risk
Hot house
scenario
(RCP 8.5)
% portfolio high risk
2020
5.2%
2020
5.2%
2050
5.4%
2050
6.0%
2100
8.2%
2100
10.8%
For our directly owned real estate
equity portfolio, the physical climate
risk has remained similar to last year’s
levels, identifying only a relatively small
proportion of assets that are at high risk
from future climate conditions.
Under each scenario, assets were rated
low, medium or high risk (high risk
meaning at least 1% of an asset’s value
being at risk of damage per year).
The key conclusions of our real estate
analysis are that:
– under an orderly scenario (RCP 2.6)
between 5.4% and 8.2% of assets will
be rated high risk by 2050 and 2100,
respectively; and
– under a hot house scenario (RCP 8.5)
these percentages increase to 6.0%
and 10.8%.
Looking closer at these assets, it is
clear that for the large majority, the
physical risk is driven by their current
exposure to hydrometeorological
hazards (e.g., proximity to coast).
While future change to climatic
conditions will exacerbate financial
impacts, exposure to acute physical
risks can be mitigated through measures
such as insurance or localised flood
defences.The output of this model is
limited to the identification of risk level
and reinstatement value at risk partly
due to the fact that the model assesses
only direct climate risk and partly due to
the nature of the investments.
Infracapital
Total Infracapital
assets modelled
512
Assets modelled represent
1% of Group AUMA
Global average asset exposure to climate hazards
Size of circle is proportionate to the share of asset defined as at high risk of damage resulting from climate
hazards at each point in time.
Orderly
scenario
(RCP 2.6)
% of modelled
portfolio high risk
Hot house
scenario
(RCP 8.5)
% of modelled
portfolio high risk
2020
7.0%
2020
7.2%
2050
8.2%
2050
8.2%
2100
10.6%
2100
10.9%
For the first time we are including
climate risk assessments of our equity
Infrastructure portfolio’s critical assets’
exposure to direct physical risk.
The results suggest that from the
assets modelled, only a relatively small
proportion of assets are at high risk from
future climatic conditions.
Model results were analysed for asset
locations that were identified as medium
or high risk.
As with the real estate model,
assets were rated low, medium or
high risk under each scenario.
The key conclusions from our
Infracapital assessment are that:
– under an orderly scenario (RCP 2.6)
between 8.2% and 10.6% of assets
will be rated high risk by 2050 and
2100, respectively; and
– under a hot house scenario (RCP 8.5)
these percentages increase to 8.2%
and 10.9%.
M&G plc Annual Report and Accounts 2022 | 87
Strategic ReportGovernanceFinancial informationOther information Climate-related disclosures continued
Supplementary climate metric
and modelling information
Metric definitions
Financed Carbon Emissions (FCE)
represent the total financed greenhouse
gas emissions associated with a
portfolio of investments. For public
corporate assets, in line with PCAF
guidance (see formula below), we use
enterprise value including cash (EVIC)
to apportion ownership across the
equity and debt parts of issuers’ balance
sheets. Financed emissions are partly
a function of asset size, so can grow or
shrink due to changes in M&G’s AUMA.
Invest. valuei
EVICi
GHGi (tCO2e)
Carbon footprint refers to financed
emissions normalised by portfolio
value (GHG emissions per million
pounds of investment). This indicator
is particularly useful for comparative
purposes, but sensitive to factors
that do not relate to decarbonisation,
such as financial market movements
which influence portfolio value (the
denominator). Carbon footprint is used
to monitor progress against our net zero
interim targets.
Invest. valuei
EVICi
Portf. value (£million)
GHGi (tCO2e)
Weighted Average Carbon Intensity
(WACI) is a measure of the carbon
intensity of the portfolio, calculated as
the weighted average sum of carbon
emissions per million pound of issuer
sales. It is not based on emissions’
ownership (EVIC), like the above
mentioned metrics, but is widely used
to compare the climate profiles of
investment portfolios.
GHGi (tCO2e)
Salesi (£)
Invest. valuei
Portf. value
Other emission-related metrics we
calculate include carbon intensity
(GHG emissions per million pounds of
sales) for public assets, and total GHG
emissions for private assets.
In addition to backward-looking
metrics that are focused on emissions,
we monitor a range of indicators that
provide information on whether an asset,
or portfolio, is exposed to higher climate-
related transition risks or opportunities.
These include:
– Exposure to fossil fuels: these
metrics show our portfolio exposure
to issuers with revenues derived
from the whole value chain of oil, gas
and coal, with a separate metric for
issuers that generate revenue from
fossil fuel-based power generation.
These metrics indicate transition
risk, given the necessity of phasing
out fossil fuels to meet the Paris
Agreement goals.
– EU Taxonomy-aligned: this is
an estimate of the proportion of
AUMA invested in issuers that are
generating revenues aligned with
the sustainability categories in the
EU Taxonomy (including climate
mitigation and adaptation). It does not
include climate solutions investments
in our private funds such as Catalyst
or Infracapital.
– Climate commitment of issuers:
We monitor net zero alignment
across ‘committed’ and ‘targets
set’ SBTi categories and green
exposure. These metrics are helpful
in monitoring our overall position at
portfolio level and form the criteria for
some of the NZIF categories.
High level methodology
We have licensed two different climate
models from third-party providers to
undertake scenario analysis at the asset/
issuer level: Aladdin Climate for financial
assets (the ‘equities and bonds model’
covering public listed equities, corporate
and sovereign public debt); and Marsh
for assessing the private portfolio’s real
estate and infrastructure exposure to
physical climate risk. Physical climate
risk of the private portfolio is modelled
by Marsh using XDI which quantifies the
cost of extreme weather and climate
change impacts to physical assets,
taking into account asset-specific
information – how different types of
assets in a specific location will perform
in different physical conditions.
Both models are leveraging the
extensive expertise and experience
from third-party providers with
strong capabilities in climate scenario
modelling, and were selected following
extensive proof-of-concept exercises.
However, climate change scenario
modelling is an inherently complex
area and so the results presented
on pages 84-87 are influenced
by assumptions, judgements and
limitations. These include the nature of
scenario modelling itself, data limitations
and specific model limitations from our
modelling counterparties. The results
should be interpreted with this in mind.
The models provides outputs based on
the following scenarios:
– An orderly scenario, which is aligned
with Representative Concentration
Pathway (RCP) 2.6 and predicts
a temperature rise in the order of
1.5°C by the end of the century,
aligned with the Paris Agreement.
Important context for this scenario
is that the world currently remains
significantly off target in restricting
the temperature rise to below 2°C,
yet the industry often refers to this
as a ‘best case’ and it provides a
valuable reference point against
other scenarios.
– A disorderly scenario, which is
aligned with RCP 2.6 and predicts a
temperature rise lower than 2°C by
the end of century. However, climate
action to achieve this is not taken
until 2030, which delays transition
impacts and makes them more drastic.
This scenario is limited in that it
assumes coordinated policy action at
a global level by 2030. This scenario
is useful to explore transition risk
dynamics, and is only applicable to the
equities and bonds model.
– A hot house scenario, which is
aligned with RCP 8.5 and predicts
an average temperature change in
the order of 4.3°C by the end of the
century, assuming no global response
to climate change beyond what has
already been committed to. There are
concerns about the credibility of this
scenario. However, it is widely used in
industry to represent a ‘worst-case’
outcome and provides a valuable
comparison with the RCP 2.6 scenario
as an unlikely high-risk future.
88 | M&G plc Annual Report and Accounts 2022
Key assumptions: transition risk
As countries around the world increase
energy demand and transition to greener
energy sources, a key assumption is the
energy requirements and mix in each
region under each of the three scenarios.
Projections include both energy
reduction and change in the energy mix,
and show the high-level requirement
of a complete phase-out of coal in
the transition assumptions, as well as
significant reductions in gas, replaced
primarily by renewables such as wind,
solar and hydro energy. These impacts
– notably emissions trajectories, energy
demand and supply mix, carbon prices
and electrification assumptions - drive
major model results.
Key assumptions: physical risk
For the equities and bonds model,
macro-level assumptions about
how physical risks will impact GDP
pathways are applied across all
sectors, essentially allowing for implicit
estimation of second-order impacts
(e.g. supply chain impact). By contrast,
for the real estate and infrastructure
model, physical risk data from Marsh,
using XDI, calculate direct impacts at
specific location, meaning that outputs
of the model represent the projected
impact due to direct physical damage
to each asset, and do not take into
account second-order financial impacts
(e.g. business interruption).
Data limitations of
scenario analysis
There are three aspects of data
limitations impacting our scenario
analysis, reflecting the current industry-
wide challenges of climate modelling.
The first aspect is the input data since
for most assets modelled, we have used
company-specific data sourced from
third parties such as Aladdin, Evora
or Bloomberg. Many publicly listed
companies are measuring and reporting
their emissions, which is a required
data point for the calculation of climate-
related metrics. However, among smaller
and privately owned companies, this
data is not commonly reported.
The second aspect of data limitation
relates to lack of high-quality,
comprehensive and reliable data upon
which the model assumptions are based.
Examples are the lack of high-resolution
physical hazard data (at a 5mX5m grid
level) or the gaps in data relating to
supply-chain reliance, which prohibit
models from building explicit intra-
company dependencies. Models are
developed using proxies where data gaps
are present, to ensure conclusions are
based on the widest coverage possible.
The last aspect of data limitations relates
to the lack of historical data points to
calibrate and validate the model outputs.
In particular, the lack of historical data on
the relationship between climate risks
and financial outcomes makes it difficult
to interpret modelled outcomes far into
the scenario horizon with confidence.
Despite these limitations, scenario
analysis provides us with useful
information that can inform asset class
and portfolio level decision-making.
Limitations of the public
assets climate change model
At the counterparty and portfolio level,
the model assumes a constant balance
sheet with full foresight. While such
assumptions are necessary for model
feasibility, they do impact on the
reliability of the results. One of the
other limitations of the equities and
debt model is the timeline. The scenario
analysis provides outputs up to 30 years
in the future, and while this helps to
provide an estimate of the adjustment
in valuation by 2050, there are aspects
of the scenario interplay beyond 2050
that are not explored. Importantly, the
current version of the equities and bonds
model provides separate assessments
of physical and transition risks, which
reduces our ability to assess the
interdependencies across those climate
risk transmission mechanisms.
This transition module in particular only
takes into account Scope 1 & 2 GHG
emissions. There are some industries,
such as automotive, that are known
to be significant climate contributors
owing to high Scope 3 emissions, yet
these impacts are not explicitly explored.
Measurement and reporting of Scope
3 emissions is expected to improve and
will be incorporated into the analysis in
future as scenario analysis matures.
When assessing physical risk, the
geographic distribution of a company’s
financial activity and dependencies
is crucial. In the absence of such
information, the model follows a
top-down approach in determining
climate shocks at sectoral level through
macroeconomic pathways.
While this modelling approach implicitly
allows for second-order impacts from
climate change, it is less suitable for
distinguishing between outliers and
better performers at an asset level.
As a result of these limitations, the model
results need to be interpreted taking the
following caveats into consideration:
– Being a static asset portfolio, we
have not modelled likely investment
or asset allocation actions to mitigate
against climate-related impacts.
For example, in a disorderly scenario
we would likely have to carry out
significant reallocation across both
asset classes and geographies to align
with rapidly changing policies.
– We recognise the transmission
pathway interdependencies across
physical and transition risks, so
the model results need to be
interpreted taking this limitation
into consideration.
Limitations of the private
assets climate change model
The real estate and infrastructure
model uses climate peril data to model
the direct impact of physical climate
impacts globally. In some geographies
there is limited data, and the model
uses a range of underlying source data
at various resolutions to provide the
necessary coverage for the projected
perils. Similar to the equities and debt
securities climate change model, the
outputs provided by the real estate and
infrastructure modelling assumes a
number of key factors remain constant,
in particular the current level of regional
physical defence actions is assumed to
remain unchanged. Although national
defences may be upgraded in the future
this is not considered within the physical
climate risk projections.
Importantly, the scenario analysis for
private assets only assesses direct
physical risk and does not capture
other potential climate-related impacts
for those assets. It is important to
bear this in mind when interpreting
the results and also consider possible
second-order impacts of physical risk
(e.g. business disruption) as well as
the impacts from transition modelling
(e.g. asset valuation change due to a
deterioration in economic conditions).
M&G plc Annual Report and Accounts 2022 | 89
Strategic ReportGovernanceFinancial informationOther information Viability statement
In accordance with Section 31 of the UK
Corporate Governance Code, the Board
has undertaken a comprehensive and
robust assessment of the prospects and
viability of the Group.
Process for assessing
long-term prospects
The Group’s long-term prospects are
primarily assessed through the strategic
and financial planning process.
The Board considers the ongoing
sustainability and robustness of the
strategy and business model of the
Group, as explained on pages 6-13, over
the long-term due to the long dated
nature of our products. This includes
longer term themes like technology,
digitalisation and climate change which
is pertinent to the Group and our clients.
Find out more in Clients on pages 46-47.
The Board have also considered the
output of the financial planning process
reflected in the Business Plan which
covers the period to December 2025.
The Business Plan was approved by the
Board in December 2022, following a
robust review and challenge process.
The Business Plan contains detailed
financial forecasts, including the related
risks and mitigating actions over the
planning period. The forecasts have been
prepared based on the business model
that management is deploying to deliver
our key strategic priorities, as explained
on page 6-13. The Business Plan covers
all the key measures that underpin our
Financial Management Framework, which
includes metrics on capital, liquidity, debt
and earnings.
The Business Plan considers the
implications of current and emerging
risks and the resulting uncertainties that
these present to the achievement of the
Business Plan, including the principal
risks and uncertainties to which the
Group is exposed, as discussed on
pages 60-67. We assess these risks and
uncertainties through stress and scenario
testing as discussed below.
Progress against the Business Plan will
be monitored regularly by the Board.
The Board also considered and reviewed
the results of the annual Own Risk and
Solvency Assessment (ORSA), which is
an integral part of our risk management
process. The process helped the Board
to assess the resilience of the Group’s
solvency position to various risk and
stress scenarios. The Board confirms that
it has carried out a robust assessment
of the company’s emerging and
principal risks.
Period for assessing viability
The Board considers that the three-year
period to December 2025 is appropriate
for assessing viability. This aligns with the
business planning horizon and so, reflects
the period over which key strategic
initiatives will be delivered, principal
risks will be managed and results will
be monitored.
to determine scenarios that would result
in the shareholder solvency coverage
ratio falling below 100%. This included
a scenario where both market and
longevity risks were stressed.
The derived scenarios indicated that
the Group had the ability to withstand
severe events while still meeting its
capital requirements.
Assessment of viability
The Board assessed the financial and
operational impact of the Group’s
principal risks on the ability to deliver
the Business Plan. The Board reviews
the principal risks to ensure that they
reflect current market conditions and any
changes to the Group risk profile.
As part of the strategic and financial
planning process, we considered the
resilience of our financial position to
various combined risk scenarios.
The combined scenarios are developed
by the Risk and Resilience team, with
input from the Investment Office and
Finance. The process is overseen by the
Group Risk Committee.
The Business Plan was subjected to the
following combined risk scenarios based
on plausible pathways for the global
economy in the context of the current
high inflation environment and geo-
political uncertainty, along with actions
taken by central banks in the backdrop
of supply chain disruptions and changing
consumer behaviour:
– Optimistic – Inflation peaks and
starts falling, helped by easing
on supply chain disruptions.
Monetary tightening measures taken
by Central Banks stabilise and growth
is more robust due to consumer and
business resilience.
– Pessimistic – Inflation remains
high but comes down faster than
base owing to falling demand.
Accelerated downturn in activity
globally owing to demand destruction
of high inflation and tightened
financial conditions.
– Stagflation – Inflation remains high,
possibly going higher and ultimately
leading to demand destruction.
Central Bank monetary measures
tighten into restrictive territory
despite falling growth, due to
persistent inflation. Nominal wage
growth is outpaced by inflation, eating
into profit margins and impacting real
consumption and investment.
The stated scenarios were translated
into impacts on various macroeconomic
indicators to determine how delivery of
the Business Plan is affected.
In addition, as part of its ORSA, the
Group undertook reverse stress testing
Climate risk continues to be an area of
focus for the Board and although not
covered specifically in the Business Plan,
it has been assessed as part of our ORSA.
We continue to refine our climate-related
scenario testing approach and to assess
appropriate management actions that
could mitigate the impacts of climate-
related risks.
For the purpose of the ORSA, the
following scenarios were assessed:
– Net zero 2050 (orderly transition) –
Global warming limited to 1.5ºC by the
end of the century through stringent
climate policies and innovation,
reaching global net zero CO2
emissions around 2050.
– Delayed Transition (disorderly
transition) – Annual emissions do not
decrease until 2030. Strong policies
are needed to limit warming to
below 2ºC by the end of the century.
CO2 removal is limited.
– Current Policies (Hot-house world) -
Only currently implemented policies
are preserved, leading to high physical
risks. Warming exceeds 3ºC by the
end of the century.
In assessing viability, the Board also
considered the availability of the
£1.5 billion syndicated revolving credit
facility which matures in 2026. As at
31 December 2022, the facility remained
undrawn. In addition, the Group can
access an active £10 billion Medium Term
Note (MTN) programme to meet any
immediate liquidity requirements.
The results of the stress and scenario
testing demonstrated that due to the
robust risk management process in place
and the broad range of mitigating actions
available, such as access to immediate
liquidity funding and the ability to reduce
dividends, the Group is able to withstand
the impact in each case with regards to
meeting all liabilities as they fall due.
Statement of viability
Based on the results of the procedures
outlined above, the Board has a
reasonable expectation that the Group
will be able to continue in operation
and meet its liabilities as they fall due
over the three-year period ending
31 December 2025.
90 | M&G plc Annual Report and Accounts 2022
Basis of preparation
The Strategic Report presented in our Annual Report and Accounts for the year ended 31 December 2022 has been
prepared in accordance with the Companies Act 2006 and the Disclosure and Transparency Rules (DTR) issued by the
FCA. In accordance with Section 414C of the Companies Act 2006, DTR 4.1.8 and DTR 4.1.9, the Group is required to
provide a fair, balanced and understandable review of the business, including key performance indicators to the extent
necessary, and a description of the principal risks and uncertainties facing the Group.
The risk management section of the Strategic Report describes the principal risks and uncertainties on pages 60-67.
In preparing this Strategic Report we have considered the Guidance on the Strategic Report as issued by the Financial
Reporting Council in June 2022.
In addition the Board has also considered the guidelines with respect to alternative performance measures (APMs) as
issued by the European Securities and Markets Authority (ESMA) in October 2015.
Our Board believes that the APMs identified within the Strategic Report are useful for management and investors in
assessing the performance of the business during the year, in conjunction with the relevant IFRS results included within
the Group’s consolidated financial statements.
Approved by the Board of Directors and signed on their behalf by
Andrea Rossi
Group Chief Executive Officer
9 March 2023
M&G plc Annual Report and Accounts 2022 | 91
Strategic ReportGovernanceFinancial informationOther information Governance
93 Chair’s introduction to governance
94 Board of Directors
97 Governance at a glance
98 Board activities
101 Division of responsibilities and
Boardroom practice
105 Board effectiveness and evaluation
106 Corporate Governance Code
108 Nomination Committee Report
110 Audit Committee Report
117 Risk Committee Report
119 Directors’ Remuneration Report
124 Directors’ Remuneration Policy
134 Remuneration at a glance
141 Annual Report on Remuneration
160 Directors’ Report
164 Statement of Directors’
Responsibilities and
Financial information
92 | M&G plc Annual Report and Accounts 2022
Chair’s introduction to governance
Governance that supports our business
I am delighted to introduce M&G’s
Governance Report, having completed a
year as M&G’s Chair. Below I have set out
the key areas of governance on which
the Board has focused over 2022.
Board composition and
embedding
When John Foley announced his
retirement in April 2022, the Nomination
Committee commenced the succession
and skills planning, search and interview
processes that ultimately led to the
appointment of Andrea Rossi as our
Group Chief Executive Officer. It is a vital
part of the Board’s role to ensure that
the Group has in place a Chief Executive
with the skills and experience to lead
all aspects of our business. We were
delighted that Andrea joined M&G
in October 2022.
Kathryn McLeland, Chief Financial
Officer and Dev Sanyal, Non-Executive
Director also joined us in May 2022,
and we reported on the recruitment
processes for these roles in last year’s
Governance Report.
These three key appointments enhance
the Board’s experience and skillset, and
we are now focused on embedding our
relationships and becoming an efficient
working team.
Strategy
One of the most important duties of
the Board is to approve M&G’s strategy
and monitor its delivery. The Board
performed a review of our strategy, (set
out on pages 10-13) and, in particular,
considered all stakeholders when
thinking about how to focus our strategy
on financial strength, simplification and
profitable growth.
ESG focus and
shareholder engagement
Throughout the year, M&G has retained
its focus on environmental and climate
issues, to act responsibly. For the Board,
this included putting our first ‘Say on
Climate’ resolution to shareholders
at our 2022 AGM, covering both our
Climate Transition Plan and our TCFD
disclosures. Before the AGM, we spoke
to our major shareholders to gauge
their views and we were encouraged
that 79.57% of votes cast were in favour
of the resolution. We led a further
engagement process after the AGM to
listen to our dissenting shareholders,
and heard comments in relation to the
nature of our interim net zero targets for
our investment portfolios, and on target-
setting and monitoring.
We published a further update on our
climate plans in November 2022, setting
out key achievements since the AGM;
including the Asset Owner’s first formal
set of interim targets towards net zero
by 2050, and progress against Asset
Management’s initial interim targets set
in 2021.
Client focus
With the FCA’s introduction of the new
Consumer Duty regulations, effective
from July 2023, aimed at setting clearer
standards of consumer protection,
it is important we support this with
appropriate governance. We have
created six non-executive Consumer
Duty Champions across M&G, under
the leadership of the Retail and Savings
CEO, who will focus on the specific
consumer duties of individual entities,
and ensure that we are aligned in better
understanding client needs and enabling
our clients.
Going forward, we will receive reports at
the Board to ensure we hear the clients’
voice in everything we do. Find out more
on how we engage with clients and other
stakeholders on pages 40-45.
Review and evaluation
I believe that the Chair must lead on
reflecting on the Board’s performance
and how it can improve. In 2022,
we carried out our regular year-end
evaluation of Board and Committee
performance and individual evaluations
for all our Non-Executive Directors.
We identified several minor items in our
evaluation, such as enhancing the quality
of Board papers. I am fully committed
to making iterative improvements so
the Board can function as effectively
as possible, and to provide the
greatest value to our business and our
stakeholders. This supports our strategy
to be efficient in how we work, from the
top down.
AGM
We thank all our shareholders who
attended our AGM in 2022, who voted
via proxy or put forward questions.
We were very pleased to be able to
welcome shareholders to an in-person
meeting this year for the first time
since demerger. The Board continues
to view the AGM as a critical point in
our governance calendar at which all
shareholders can be heard and can
meet our Board members, including
Committee Chairs.
Edward Braham
Chair
The governance of
M&G contributes to its long-term
sustainable success and the Board
has successfully carried out its
duties throughout the year.”
Edward Braham
Chair
M&G plc Annual Report and Accounts 2022 | 93
GovernanceStrategic ReportFinancial informationOther information Board of Directors
Experienced leadership
This section shows the skills and experience of each
Director and the specific strengths they contribute
to M&G’s long-term sustainable success
Edward Braham
Chair
N – Chair
Appointment: 14 March 2022
Fiona Clutterbuck
Senior Independent Director
N R A R
Appointment: 9 October 2020
Andrea Rossi
Group Chief Executive Officer
Kathryn McLeland
Chief Financial Officer
Appointment: 10 October 2022
Appointment: 3 May 2022
Age: 61
Age: 64
Age: 56
Age: 51
Relevant skills and expertise
Relevant skills and experience
Relevant skills and experience
Relevant skills and expertise
Edward Braham joined us as
Chair in March 2022. Edward was
the Senior Partner of Freshfields
Bruckhaus Deringer LLP, the global
law firm, and before that was global
head of its Corporate practice.
While Senior Partner, he headed
the firm’s strategic growth in the
US, including establishing a new
office in Silicon Valley. Edward also
led on culture, diversity and ESG.
Edward was a leading international
lawyer in mergers and acquisitions,
with experience in many industries
including financial services.
Other appointments
– TheCityUK (Non-Executive
Director and Chair of international
Trade and Investment Group)
– HM Treasury (Non-Executive
Board member and Audit and
Risk and Nominations Committee
member)
Strengths
– Experienced leader of an
international people business.
– Broad sector experience from
advising public companies,
private equity investors,
infrastructure investors and
financial institutions and from
public affairs work for the
financial and related professional
services sectors, and the
professional and business
services sectors.
– Regulatory experience.
Fiona Clutterbuck was appointed
as the Senior Independent Director
in October 2020. She performed
the Interim Chair role from January
2021 until March 2022.
Fiona is a Non-Executive Director
at Sampo plc, the Nordic financial
services group. She was the Chair
of Paragon Banking Group PLC
until September 2020 and a Non-
Executive Director of Hargreaves
Lansdown plc until October 2020.
Her most recent executive role
was Head of Strategy, Corporate
Development and Communications
at Pearl/Phoenix Group (2008-
2018). She was previously Head of
Financial Institutions Advisory at
ABN AMRO Investment Bank and
Global Co-Head of the Financial
Institutions Group at HSBC
Investment Bank.
Fiona served as a Non-Executive
Director on the Investment
Funds Direct Limited Board until
January 2022.
Other appointments
– Sampo plc
(Non-Executive Director)
Strengths
– Background as barrister, banker
and a managing director.
– Significant banking, wealth and
asset management experience.
– Professional services and
technology-led innovation.
Kathryn McLeland was appointed as
Chief Financial Officer in May 2022.
Kathryn joined M&G from Barclays
PLC, where she was Group
Treasurer from 2018. She held
several senior roles there since
joining Barclays Capital in 2001.
Previously, Kathryn held investment
banking roles at Merrill Lynch and
Salomon Brothers International.
Other appointments
– Listing Authority Advisory Panel
(Deputy Chair)
Strengths
– Strategic, commercial finance
leader with significant global
international investment banking
and capital markets experience.
– Capital management and
strategy, funding and liquidity,
stress testing, principal
equity investments (including
sustainable impact and fin tech)
and investor relations.
– Champion of sustainability,
diversity and inclusion.
Andrea Rossi was appointed
Group Chief Executive Officer
in October 2022. He has more
than 25 years of experience in
financial services, in particular
on the global asset management
and insurance sectors. He was
CEO of AXA Investment Managers
and a member of the AXA Group
Executive Committee for six years.
Before that Andrea was CEO of
their Italian Insurance business, a
position he held for five years. He
also held a number of senior roles
across AXA’s insurance businesses
in France, the Mediterranean and
Middle East regions. Andrea began
his career with GE before moving to
AXA in 2001.
Before joining M&G, Andrea was
a Senior Advisor to the Boston
Consulting Group on Insurance
and Asset Management within the
firm’s Financial Institutions practice.
He is also a Non-Executive Director
of REsustain, a firm he co-founded
in April 2021 which developed
a platform that reduces carbon
intensity in commercial real estate.
Andrea graduated from INSEAD
with an MBA in 1994, and holds a
MsC in Economics and Commerce
from the University of Rome, “La
Sapienza”.
Other appointments
– REsustain
(Non-Executive Director)
– ARRM Capital Limited (Director)
Strengths
– Strong management and
leadership skills.
– Extensive experience of global
insurance and asset management
of scale, developed and emerging
markets, restructuring, growth
and transformation.
– Strong track record of
delivering profitable growth and
outstanding client outcomes.
94 | M&G plc Annual Report and Accounts 2022
Key
R
Risk Committee
A
Audit Committee
R
Remuneration Committee
Nomination Committee
N
Clive Adamson
Independent
Non-Executive Director
R – Chair A N
Appointment: 22 March 2019
Clare Chapman
Independent
Non-Executive Director
R – Chair N
Appointment: 15 March 2021
Dev Sanyal
Independent
Non-Executive Director
A R
Appointment: 16 May 2022 R
Age: 66
Age: 62
Age: 57
Relevant skills and experience
Relevant skills and experience
Relevant skills and expertise
Clive Adamson has considerable
experience of UK and global
economic, banking and regulatory
matters gained from an extensive
career in banking and financial
services regulation, including senior
executive and advisory positions
with the FCA and its predecessor,
the Financial Services Authority.
As well as his position on the
M&G Board, Clive is also a Non-
Executive Director and Chair of
the PAC Risk Committee.
He is Chair at Ashmore Group
plc and holds a number of Board
positions within the J.P. Morgan
Chase group: these include Chair
of J.P. Morgan Europe Ltd, which
houses the Chase UK digital
bank, Chair of Nutmeg Savings
& Investments Ltd and Non-
Executive Director and Chair of the
Audit Committee at J.P. Morgan
Securities Plc. He was previously a
Non-Executive Director and Chair
of the Risk Committee at Virgin
Money plc (formerly CYBG plc) and
a Senior Advisor at McKinsey & Co.
Other appointments
Clare Chapman chairs the
Remuneration Committee at Weir
Group. She is also Chair of ACAS,
the Advisory, Conciliation and
Arbitration Service for Great Britain,
and co-Chair of The Purposeful
Company, which focuses on
transforming UK business with
purposeful companies that create
long-term value by serving the
needs of society.
Her executive career included
HR leadership roles at BT Group,
the UK Department of Health and
Social Care and Tesco, as well as
international roles at Pepsi-Cola
International, covering West and
Central Europe, and Quaker Oats in
Chicago and London. She also has
experience in the Asian market.
Claire’s previous non-executive
experience includes chairing
the remuneration committees
at Kingfisher plc, G4S plc and
Heidrick & Struggles International
Inc. She was also a Trustee at
Reconcilliation Leaders Network.
Other appointments
– Weir Group
– Ashmore Group plc (Chair)
(Non-Executive Director)
– J.P. Morgan Europe Limited
– ACAS (Chair)
(Chair)
– Nutmeg Savings and Investment
Limited (Chair)
– J.P. Morgan Securities Plc
(Non-Executive Director)
Strengths
– The Purposeful Company
(Co-Chair and Steering Group
Member)
Strengths
– Executive background in HR.
– Telecomms, Retail and the
– Executive background as banker
Public Sector.
Dev is the Chief Executive Officer of
VARO Energy Group AG, a Swiss-
based diversified energy company.
He has been in this position since
1 January 2022. Until 31 December
2021 Dev was a member of bp’s
Group Executive committee
for over a decade. His 32-year
career at bp included heading
the Gas and Low Carbon Energy
business globally; Chief Executive,
Alternative Energy; as well as being
responsible for bp’s Europe and
Asia regions. Prior to that, he was
Group Treasurer and Chairman,
bp Investment Management Ltd;
Chief Executive Air bp International
and Chief Executive, bp Eastern
Mediterranean.
Dev was also an independent
Non-Executive Director of Man
Group plc between 2013 and 2022.
Other appointments
– VARO Energy
(Chief Executive Officer)
Strengths
– Global experience in building
and managing integrated low
carbon energy businesses.
– Deep knowledge of capital
markets and trading.
– Extensive track record in
management of complex
operations.
and regulator.
– Deep life insurance and with-
profits experience.
– Emerging markets investment
experience.
– Professional services.
M&G plc Annual Report and Accounts 2022 | 95
GovernanceStrategic ReportFinancial informationOther information
Board of Directors continued
Key
R
Risk Committee
A
Audit Committee
R
Remuneration Committee
Nomination Committee
N
Alan Porter
General Counsel and
Company Secretary
Appointment: 22 July 2019
Age: 59
Relevant skills and experience
Alan Porter was appointed General
Counsel and Company Secretary in
July 2019, having held the same role
at Prudential plc since September
2012. Prior to that, he was the
Group General Counsel of Tesco
plc for four years and held various
senior legal positions at British
American Tobacco plc and Farmers
Insurance Group. He began his
career at Simmons & Simmons.
Alan was Chairman of the GC100 –
the association of General Counsels
and Company Secretaries of the
FTSE 100 – from January 2018 to
January 2020, and was a member
of the Takeover Panel from 2007
until 2022.
Alan is a solicitor and also a member
of the State Bar of California.
Clare Thompson
Independent Non-Executive
Director
A – Chair R R N
Appointment: 7 May 2019
Massimo Tosato
Independent
Non-Executive Director
R
Appointment: 1 April 2020
Age: 68
Age: 68
Relevant skills and experience
Relevant skills and experience
Clare Thompson is an experienced
Non-Executive Director with a deep
understanding of the insurance
sector and extensive financial
services and audit experience.
Clare spent 23 years as lead
audit partner on major financial
services groups at PwC,
predominantly in the insurance
and investment sectors. Since
stepping down from her executive
career, Clare has several non-
executive directorships. Her
previous Non-Executive Director
roles include Direct Line Group plc
and The British United Provident
Association Limited (Bupa).
Clare is Chair of Investment Funds
Direct Limited (IFDL), the main M&G
Wealth Platform operating entity.
Clare is a Fellow of the Institute of
Chartered Accountants in England
and Wales.
Other appointments
– Financial Reporting Council
(Non-Executive Director)
Strengths
– Executive background as
accountant and audit partner.
– Significant advisory and
professional services work,
specifically for life insurance and
investment clients.
Massimo Tosato joined M&G as
an Independent Non-Executive
Director and is also Non-Executive
Chairman of M&G Group Limited,
MAGAIM and MAGIM. Massimo
has 40 years’ experience as
an investment banking and
international asset management
as an entrepreneur and senior
manager.
Massimo’s career has included
21 years at Schroders, where he
was recently Chief Executive of
Schroder Investment Management
Limited and Executive Vice
Chairman of Schroders plc. He
has also held non-executive
Board positions at Nutmeg, an
online discretionary investment
management start-up, Banca
Nazionale del Lavoro, and served
as Vice President of the European
Fund and Asset Management
Association (EFAMA).
Massimo is currently Non-Executive
Director of Banca Investis.
He was on the Board of Overseers
of Columbia Business School in
New York until June 2022 and
Non-Executive Director of Pictet
Asset Management in Geneva until
March 2020. Massimo served as an
Advisory Board member of Trilantic
Europe Capital Partners LLP until
January 2022.
Other appointments
– Banca Investis SpA
(Non-Executive Director)
Strengths
– Deep asset management
experience in executive career.
– CEO experience.
– Regulatory experience.
– International perspective.
96 | M&G plc Annual Report and Accounts 2022
Governance at a glance
A balanced Board, a balanced agenda
These pages tell you more about the composition of
the Board and its members, the meetings we have
held over 2022 and how we have spent our time
Find out more on the M&G
Diversity policy and goals on
pages 48-51
In April 2022, the FCA published amendments to its Listing Rules, which will require that M&G, in future reporting periods,
includes a ‘comply or explain’ statement in its Annual Report. This should state whether we have achieved certain board gender
and ethnic diversity targets, and requires us to disclose numerical data relating to the gender identity and ethnic background
of our Board and Executive Committee members. The requirements are based on the following targets:
– At least 40% of M&G’s Board is women (including those self-identifying as women).
– At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID)
or Chief Financial Officer (CFO)) is a woman (including those self-identifying as a woman).
– At least one member of the board is from a non-white ethnic minority background (as referenced in categories
recommended by the Office for National Statistics (ONS)).
Gender
Men
Women
Ethnic group
White British
Other white (including minority-white groups)
Mixed/multiple ethnic groups
Asian – Asian British
Nationality
British
Italian
Australian
French
Figures as at 31 December 2022
Number
of our Board
members
Percentage
of our Board
Number of senior
positions on our
Board (CEO, CFO,
SID and Chair)
Number in
executive
management
Percentage of
executive
management
5
4
5
3
–
1
6
2
1
–
56
44
56
33
–
11
67
22
11
–
2
2
2
2
–
–
2
1
1
–
6
4
6
3
–
1
7
1
1
1
60
40
60
30
–
10
70
10
10
10
We are pleased to confirm that M&G has achieved all the targets set out by the FCA. The proportion of women on our Board is
over 40%, two of the senior Board positions are filled by women (SID and CFO) and one of the Board is from a non-white ethnic
minority background.
How the Board spends its time
The Board balances its agenda to ensure it covers all statutory and regulatory duties, as well as allowing time to consider
strategic and governance matters. In 2022, the agenda was weighted between regular items and specific focus areas.
Our typical Board agenda allows time for:
General matters
Business updates
Strategy
Minutes and matters arising
and reports from the
Chairs of each committee
on its activities.
Regular performance,
financial and ESG reporting.
The Group Chief Executive
Officer, CEO – Retail and
Savings, Managing Director
– Asset Management and
Chief Financial Officer
will typically report in this
section, other members of
the Executive Committee will
report on an ad-hoc basis on
other matters that require
escalation to the Board.
Covers the oversight and
refresh of our strategic
objectives, projects and
transactions, as well as
approvals needed from
the Board under M&G’s
delegated authority
framework, including items
such as the business plan
and dividend.
Risk, regulatory
and governance
Regular reporting from
the Risk and Compliance,
Regulatory Affairs,
Legal and Company
Secretariat functions.
In addition to the regular reporting above, areas of progress for the Board in 2022 are set out in the table on
page 105
M&G plc Annual Report and Accounts 2022 | 97
GovernanceStrategic ReportFinancial informationOther information Board activities
The Board’s year
The timeline below sets out key events, decisions and
actions during 2022, and how we involved stakeholders
and took account of their interests
2022
Strategy, governance, risk and opportunity management
January
February
March
April
May
June
July
August
September
October
November
December
– Received regulatory
– Announced
approval for
acquisition of
Sandringham
Financial Partners
– Announced digital
wealth partnership
with Moneyfarm
– Approved acquisition
of responsAbility
Investments
AG, a leading
impact investor
acquisition of
TCF Investment,
becoming a
provider of model
portfolio services
– Approved Modern
Slavery statement
– Launched Future+/
PruFund in Europe
– Considered Board
evaluation, with
suggested actions
– Announced full-
year results and
declared dividend
to shareholders
– Approved share
buy-back
– Welcomed Edward
Braham to the Board
as Chair
.
– Approved Solvency
II Group reporting
– Approved updated
Culture Dashboard
– Approved
acquisition of
Continuum,
the financial
advisory firm
– Approved
Conflicts of
interest framework
– Welcomed
– Board
Strategy meeting
– Approved M&G’s
Sustainability
Report for
publication
Kathryn McLeland
as Chief
Financial Officer
– Welcomed Dev
Sanyal as Non-
Executive Director
– M&G’s AGM
takes place
– Completed
acquisition of
responsAbility
Investments AG
– PwC replaces
KPMG as
M&G’s auditor
– Reviewed employee
engagement plan
– Undertook deep
dives on
change,
transformation,
and greenwashing
– Approved M&G
Wealth - Growth
Plan for
financial advice
– Announced half-
year results and
interim dividend
– Launched
2022 Sharesave
– Official opening of
Kildean office
– Reviewed
Consumer Duty
project structure
and actions
– Reviewed
progress on Board
evaluation actions
– Reviewed Consumer
Duty high-level
implementation plan
– Received
annual Health &
Safety report
– Received
Sustainability
programme update
– Appointed Andrea
– Considered M&G’s
– Approved 2023-
Rossi as Group CEO,
replacing John Foley
strategy and
Business Plan
2025 Business Plan
– Considered
feedback from
firmwide employee
opinion survey
– Released IFRS
17 market update
– Approved Delegated
Authorities
Understanding the views of stakeholders, the interests of colleagues and the fostering of business relationships
– Commitment to our
suppliers and other
stakeholders to help
end modern slavery,
human trafficking,
child labour and
any other abuse
of human rights
– Oversight of
products that
will align with our
purpose to help
people manage and
grow their savings,
responsibly
– Evaluating our
performance and
effectiveness on
an ongoing basis
to bring the best to
all stakeholders
– Considering the
long-term prospects
for all stakeholders
in light of the
opportunity to meet
rising demand for
investment advice
and wealth solutions
across an expanding
UK retail market
– Considering our
colleagues as we
integrate new parts
into our business
– Thinking about
better understanding
the needs of clients
and enabling clients
– Supporting our
strategies to deploy
a full savings and
advice offering in
the UK and to grow
external flows in
asset management
– Meeting the
requirements of our
regulators on an
ongoing basis
– Maintaining
oversight of our
culture and thinking
about the best
ways to receive
information to
allow the Board to
monitor culture
– Considering our
stakeholders in the
round when we think
about conflicts,
and particularly
focussing on
protecting clients
through good
conflict awareness
and management
– Keeping the Board
skills robust and
up to date, in order
that they can serve
all stakeholders
in changing
environments
– Hearing from our
shareholders,
particularly our
retail shareholder
community, about
what matters
to them
– Considering the
requirements
of our investors
and regulators
that our business
have thorough
external assurance
– Thinking through
meaningful
employee
engagement by
planning who the
Board will meet
and what they will
talk about
– Considering
the views of the
regulator and
markets around
solvency and
risk appetite and
keeping our focus
on our strategy of
maintaining our
financial strength
– Taking into account
investor relations
over the longer-term
– Ensuring all our
stakeholders are
served by bringing
the right skills on
to the Board and
ensuring all our
Board members
can then support
and challenge the
business effectively
– Taking time to
look across the
business at our
strategy ambitions,
and in particular
thinking about our
shareholders and
colleagues over the
longer term
– Taking into
account our wider
communities and
environments as
well as serving
investor client
needs by publishing
clear updates on
our Sustainability
ambitions
and achievements
98 | M&G plc Annual Report and Accounts 2022
– Continuous review
– Considering
– Ensuring colleagues
– Ensuring our
– Thinking about what
of challenging
topics to test our
knowledge and
ensure we are
well informed as a
Board to support
all stakeholders
– Considering our
duties to Wealth
clients and the
long term success
of our business
for investors
and colleagues
in reviewing
our Wealth
business unit
business leadership
is strong and
effective to create
the right working
environment for
offerings for our
clients and the right
long term outcomes
for investors
we can offer both
our current and
future clients and
investors as we build
a Business Plan and
we can support
our strategy to
deliver profitable
growth and maintain
financial strength
colleagues, the right
considering how
the views of the
regulators and
markets around
solvency and
risk appetite and
keeping our focus
on our strategy of
maintaining our
financial strength
– Taking into
account investor
expectations over
the longer-term
at all levels can
commit to the
business and share
in its success
– Visiting our
colleagues on site
to understand
their roles and
drive our strategy
of business
simplification
– Thinking about
wider duties to Retail
clients and how we
can put in place the
right governance to
champion these
– Colleague well-
being and safety
are key to our culture
at M&G
– Ensuring timely and
clear disclosures
for our investors as
well as meeting all
requirements set by
our regulators
– Hearing the
employee voice at
regular intervals
through the year to
understand what
our employees need
and how they feel
about our strategy
and culture
– Keeping decision-
making clear
and controlled
to give comfort
to our investors
and regulators
and ensure we
have frameworks
supporting a
simplified business
– Received regulatory
– Announced
– Announced full-
– Approved Solvency
– Welcomed
– Board
.
II Group reporting
Kathryn McLeland
Strategy meeting
– Approved M&G’s
Sustainability
Report for
publication
Strategy, governance, risk and opportunity management
approval for
acquisition of
Sandringham
Financial Partners
– Announced digital
acquisition of
TCF Investment,
becoming a
provider of model
portfolio services
wealth partnership
– Approved Modern
with Moneyfarm
Slavery statement
year results and
declared dividend
to shareholders
– Approved share
buy-back
– Welcomed Edward
Braham to the Board
– Approved acquisition
– Launched Future+/
as Chair
of responsAbility
PruFund in Europe
Investments
AG, a leading
impact investor
– Considered Board
evaluation, with
suggested actions
– Approved updated
Culture Dashboard
– Approved
acquisition of
Continuum,
the financial
advisory firm
– Approved
Conflicts of
interest framework
Understanding the views of stakeholders, the interests of colleagues and the fostering of business relationships
– Meeting the
– Keeping the Board
– Taking time to
requirements of our
skills robust and
– Considering the
– Commitment to our
long-term prospects
suppliers and other
for all stakeholders
in light of the
stakeholders to help
end modern slavery,
opportunity to meet
human trafficking,
rising demand for
investment advice
and wealth solutions
across an expanding
UK retail market
child labour and
any other abuse
of human rights
– Oversight of
products that
will align with our
purpose to help
people manage and
grow their savings,
responsibly
performance and
effectiveness on
an ongoing basis
to bring the best to
all stakeholders
– Considering our
colleagues as we
integrate new parts
into our business
– Thinking about
the needs of clients
and enabling clients
– Supporting our
strategies to deploy
a full savings and
advice offering in
the UK and to grow
external flows in
asset management
regulators on an
ongoing basis
– Maintaining
oversight of our
culture and thinking
about the best
ways to receive
information to
allow the Board to
monitor culture
– Considering our
stakeholders in the
about conflicts,
and particularly
focussing on
protecting clients
through good
conflict awareness
and management
– Considering
the views of the
regulator and
markets around
solvency and
risk appetite and
keeping our focus
on our strategy of
maintaining our
financial strength
– Taking into account
investor relations
over the longer-term
– Ensuring all our
stakeholders are
served by bringing
the right skills on
to the Board and
ensuring all our
Board members
can then support
and challenge the
business effectively
better understanding
– Evaluating our
round when we think
– Considering the
look across the
business at our
strategy ambitions,
and in particular
thinking about our
shareholders and
colleagues over the
longer term
– Taking into
account our wider
communities and
environments as
well as serving
investor client
needs by publishing
clear updates on
our Sustainability
ambitions
and achievements
as Chief
Financial Officer
– Welcomed Dev
Sanyal as Non-
Executive Director
– M&G’s AGM
takes place
– Completed
acquisition of
responsAbility
Investments AG
– PwC replaces
KPMG as
M&G’s auditor
– Reviewed employee
engagement plan
up to date, in order
that they can serve
all stakeholders
in changing
environments
– Hearing from our
shareholders,
particularly our
retail shareholder
community, about
what matters
to them
requirements
of our investors
and regulators
that our business
have thorough
external assurance
– Thinking through
meaningful
employee
engagement by
planning who the
Board will meet
and what they will
talk about
January
February
March
April
May
June
July
August
September
October
November
December
– Undertook deep
dives on
change,
transformation,
and greenwashing
– Approved M&G
Wealth - Growth
Plan for
financial advice
– Announced half-
year results and
interim dividend
– Launched
2022 Sharesave
– Official opening of
Kildean office
– Reviewed
Consumer Duty
project structure
and actions
– Reviewed
progress on Board
evaluation actions
– Appointed Andrea
– Considered M&G’s
– Approved 2023-
Rossi as Group CEO,
replacing John Foley
strategy and
Business Plan
– Reviewed Consumer
Duty high-level
implementation plan
– Received
annual Health &
Safety report
– Received
Sustainability
programme update
2025 Business Plan
– Considered
feedback from
firmwide employee
opinion survey
– Released IFRS
17 market update
– Approved Delegated
Authorities
– Thinking about what
we can offer both
our current and
future clients and
investors as we build
a Business Plan and
considering how
we can support
our strategy to
deliver profitable
growth and maintain
financial strength
– Continuous review
– Considering
– Ensuring colleagues
– Ensuring our
of challenging
topics to test our
knowledge and
ensure we are
well informed as a
Board to support
all stakeholders
– Considering our
duties to Wealth
clients and the
long term success
of our business
for investors
and colleagues
in reviewing
our Wealth
business unit
the views of the
regulators and
markets around
solvency and
risk appetite and
keeping our focus
on our strategy of
maintaining our
financial strength
– Taking into
account investor
expectations over
the longer-term
at all levels can
commit to the
business and share
in its success
– Visiting our
colleagues on site
to understand
their roles and
drive our strategy
of business
simplification
– Thinking about
wider duties to Retail
clients and how we
can put in place the
right governance to
champion these
business leadership
is strong and
effective to create
the right working
environment for
colleagues, the right
offerings for our
clients and the right
long term outcomes
for investors
– Colleague well-
being and safety
are key to our culture
at M&G
– Ensuring timely and
clear disclosures
for our investors as
well as meeting all
requirements set by
our regulators
– Hearing the
employee voice at
regular intervals
through the year to
understand what
our employees need
and how they feel
about our strategy
and culture
– Keeping decision-
making clear
and controlled
to give comfort
to our investors
and regulators
and ensure we
have frameworks
supporting a
simplified business
M&G plc Annual Report and Accounts 2022 | 99
GovernanceStrategic ReportFinancial informationOther information Board activities continued
Board and Committee attendance
Total meetings
Clive Adamson
Edward Braham
Clare Chapman
Fiona Clutterbuck
John Foley
Kathryn McLeland
Andrea Rossi
Dev Sanyal
Clare Thompson
Massimo Tosato
Board
Board
11
11/11
9/9
11/11
11/11
9/9
7/7
2/2
7/7
10/11
11/11
Audit
Committee
8
Risk
Committee
6
Remuneration
Committee
12
Nomination
Committee
3
7/8
–
–
8/8
–
–
–
5/5
8/8
–
6/6
–
3/3
6/6
–
–
–
3/3
6/6
–
–
–
12/12
12/12
–
–
–
–
11/12
11/12
3/3
2/2
3/3
3/3
–
–
–
–
3/3
–
Of the 11 Board meetings held, two were joint with the Audit Committee to consider our full-year and half-year results.
Edward Braham joined the Board as Chair on 14 March 2022. Kathryn McLeland joined the Board as Chief Financial Officer on
3 May 2022. Dev Sanyal joined the Board on 16 May 2022. Andrea Rossi joined the Board as Group Chief Executive Officer on
10 October 2022 when John Foley stepped down.
Audit Committee
Eight meetings were held. There were also two joint meetings held with the Board, two joint meetings held with the Risk
Committee and one ad-hoc meeting. Dev Sanyal joined the Committee on 25 May 2022.
Risk Committee
Six meetings were held. There were also two joint meetings held with the Audit Committee. Dev Sanyal joined and Clare Chapman
stepped down from the Committee on 25 May 2022.
Nomination Committee
Three meetings were held. There were also six meetings of a sub-committee of the Nomination Committee during the year, focused
on the appointment of the Group Chief Executive Officer. Edward Braham joined the Committee as Chair on 14 March 2022.
Remuneration Committee
12 meetings were held. There were no changes to the Committee membership during the year.
Group Governance Framework
Forums and documents
The Group Governance Framework (GGF) is comprised of three parts: (i) the forums we use to govern;
(ii) how we make decisions and (iii) how we conduct ourselves. The forums and documents comprising the GGF are set out below:
Theme
Key Documents
The forums we use to govern
– The M&G Board and its Committees
– Listing Rules and Disclosure Guidance and
Transparency Rules
– UK Corporate Governance Code
– Terms of Reference
– Division of Responsibilities
– Material Subsidiaries (PAC and MGG)
– FCA Handbook
and their Committees
– Supervisory Statement 5/16
– Other regulated and
non-regulated subsidiaries
– Material Subsidiary Corporate Governance Manual
– Terms of Reference
– FCA Handbook (as applicable)
– Subsidiary Corporate Governance Manual
– Terms of Reference
– Executive Committee and Management
– Executive Governance Manual
Committee structure
– Terms of Reference
How we make decisions
– Approvals and decision-making framework – Delegated Authorities
How we conduct ourselves
– Code of Conduct, policies and
– Code of Conduct
ways of working
– Policies (MetricStream)
100 | M&G plc Annual Report and Accounts 2022
Division of responsibilities and Boardroom practice
Governance Structure
This part of the report sets out the Board’s
corporate governance structures
Committee terms of reference
www.mandgplc.com/investors/
shareholder-information/
corporate-governance
Roles and responsibilities
of the Board
Our governance structure is designed
to support delivery of our strategy.
The Board has responsibility for the
oversight, governance, direction, long-
term sustainability and success of the
business and affairs of M&G, and is
responsible to shareholders for creating
and delivering sustainable shareholder
value. The Board is specifically
responsible for:
– approving our strategic aims,
objectives and purpose, proposed by
management, setting our standards
and culture, and ensuring that these
are aligned
– oversight of effective risk
management and internal control
processes, including macroeconomic,
financial environment and
emerging risks
– taking strategic decisions and the
approval of any changes relating
to M&G’s capital, corporate and/or
listed structure
– setting our ESG strategy, values
and principles
In discharging its responsibilities, the
Board is supported by management
and ensures a clear division of
responsibilities between the Chair,
the Group Chief Executive Officer, the
Senior Independent Director and the
Non-Executive Directors.
The Board delegates certain
responsibilities to its committees
and, in compliance with the Code,
has established an Audit Committee,
a Nomination Committee and a
Remuneration Committee. We have also
established a separate Risk Committee.
The Terms of Reference for each Board
Committee were reviewed and approved
by the Board in December 2022 and are
available to view on our website.
The Committee Chairs are responsible
for reporting to the Board on the
Committees’ activities and do so
following each Committee meeting.
All Non-Executive Directors have
access to Audit, Risk and Remuneration
Committee papers even if they are
not members.
The Non-Executive Directors, led by the
Chair, meet regularly without Executive
Directors present.
Board composition
The Board is comprised of nine
Directors: a Non-Executive Chair,
two Executive Directors (Group Chief
Executive Officer and Chief Financial
Officer), a Senior Independent
Non-Executive Director and five
Non-Executive Directors. The Board
considers all its Non-Executive
Directors to be independent and that
it has complied with the requirements
of the Code in relation to the balance
of executive and independent Non-
Executive Directors on the Board, and
the composition of the Company’s Audit
Committee, Remuneration Committee
and Nomination Committee.
Schedule of Matters Reserved
for the Board and delegations
Matters and decisions for Board
approval are set out in a formal Schedule
of Matters Reserved to the Board (last
reviewed and updated in December
2022). This includes approving the
Group’s strategic aims, objectives
and purpose and annual Group
financial budgets.
Other specific responsibilities are
delegated to Board Committees, which
operate within clearly defined terms of
reference approved by the Board.
Day-to-day management of M&G
is delegated to the Group Chief
Executive Officer.
Full details of the Schedule of Matters
Reserved for decision by the Board and
the responsibilities delegated to the
Board Committees is in the Corporate
Governance section of our website.
The roles of the Chair
and the Group Chief
Executive Officer
The roles of the Chair and the Group Chief
Executive Officer are clearly segregated.
The division of responsibilities is set
out in writing. This document was
considered and updated in December
2021 as part of the annual Terms of
Reference reviews, and reviewed by the
Company Secretary in December 2022,
with no changes found to be required.
A full explanation of each of these roles
is set out below.
Directors’ inductions,
training and development
All new Board members have a
structured induction programme
on appointment, which includes an
overview of all our business areas
and key functions.
At each Board meeting, we give regular
updates on market and industry
activities, and legal and regulatory
changes relevant to M&G.
The Board holds an annual Strategy
Offsite, next scheduled for June 2023.
Throughout 2022, we provided
dedicated Directors’ training
sessions on:
Dedicated Board training: M&G
Zero; SMCR; FCA Consumer Duty
and customer journeys; cyber and
technology and enterprise risk; cloud
strategy - risks and opportunities.
Audit specific training: IFRS 17;
non-financial risk; IFDR Regulatory
Regime; ESG and climate reporting and
assurance; hedging within the group.
All employee training (in which the
Board participated): financial crime;
non-financial risk; health and safety;
conduct at M&G; and information and
data security.
All Board members are invited to
participate in all sessions, regardless of
Committee duties. Where appropriate,
we open up relevant training sessions
to Non-Executive Directors on our
subsidiary boards.
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Tenure, election,
reappointment and
removal of Directors
Directors are typically appointed by the
Board and then put forward for election
by shareholders at the subsequent AGM.
All Non-Executive Directors are
appointed for initial terms of three
years and the appointment may be
terminated by either party upon six
months’ written notice or by shareholder
vote at the AGM. The Non-Executive
Directors do not have any entitlement
to compensation if their office
is terminated.
Find out more about the remuneration
of the Non-Executive Directors on
page 145.
Group Governance Framework
The Group has a Group Governance
Framework (GGF) which comprises
three parts: (i) the forums we use to
govern; (ii) how we make decisions
and (iii) how we conduct ourselves.
The forums and documents comprising
the GGF are set out on page 100.
Subsidiaries
Independent Non-Executive Directors
are appointed to the Boards of M&G’s
Material Subsidiaries: M&G Group
Limited (MGG) and The Prudential
Assurance Company Limited (PAC).
Each of these entities has a Board
of Directors led by an independent
Chair, and an Audit Committee and
Risk Committee, comprised entirely of
independent Non-Executive Directors.
The PAC Board also has a With-Profits
Committee and an Independent
Governance Committee, as required by
regulation, which are also comprised of
independent Non-Executive members.
Dialogue between the Board, Audit
and Risk Committee Chairs at Group
level occurs on an ongoing basis with
their counterparts on the Material
Subsidiaries, to ensure an effective
information flow and escalation of
issues. The Boards and Committees
of the Material Subsidiaries are also
committed to the highest standards
of governance and follow our internal
policies, set out in a dedicated manual
– the Material Subsidiary Corporate
Governance Manual, which covers
appointment of Directors, annual
evaluation, and standards and delivery
of Board materials. The governance
arrangements for the Material
Subsidiaries are overseen by the
Nomination Committee.
Our Subsidiary Corporate Governance
Manual ensures there is sufficient
oversight of the governance
arrangements of subsidiaries other
than PAC and MGG. A number of these
subsidiaries have Independent Non-
Executive Directors on their Boards,
either to comply with local regulation or
for good governance.
Executive governance
We have established an Executive
Governance framework, comprising
management committees aligned under
the members of the Group Executive
Committee. The Executive Governance
framework supports the Executive
Committee members and, as required,
subsidiary boards within M&G, with
specialist review and advice.
Executive Governance processes are
set out in a dedicated manual – the
Executive Governance Manual.
For each forthcoming year, the Board
plans its training, by collecting feedback
from Non-Executive Directors on
topics of interest and guidance from
management on key areas. The training
schedule is available at every meeting
for Board members to recommend any
changes, and remains under review
throughout the year.
To ensure the Non-Executive Directors
are aligned with all employees, Non-
Executive Directors are kept informed of
the mandatory online training required
of all colleagues.
Information to the Board
Board members receive formal
papers a week ahead of each Board
or Committee meeting, which enables
them to make informed decisions on the
issues under consideration. The Chair
and Company Secretary oversee an
ongoing programme to ensure Board
and Committee papers are of high
quality and meet internal standard
and requirements.
In addition to formal Board meetings,
the Chair maintains regular contact
throughout the year with the Group
Chief Executive Officer, Chief Financial
Officer and members of the Group
Executive Committee to discuss
specific issues.
The Company Secretary acts as
an adviser to the Board on matters
concerning governance and ensures
compliance with Board procedures.
All Directors had access to the Company
Secretary’s advice during 2022.
Directors may also take independent
professional advice at M&G’s expense,
if required. If any Director has concerns
about the running of M&G, or a proposed
action that cannot be resolved within the
Board forum, these may be reflected in
the Board minutes.
The Company Secretary circulates
minutes of each Board meeting following
the event for comment and approval to
ensure an accurate record is captured.
102 | M&G plc Annual Report and Accounts 2022
Governance structure: roles and responsibilities
The diagram below sets out the roles and responsibilities of the Board members and the Company Secretary.
Chair
Senior Independent Director
Non-Executive Directors
– leads the Board and is responsible
– works closely with the Chair,
– provide constructive challenge,
for its overall effectiveness in
oversight of the management
of M&G
– sets the Board agenda primarily
focused on delivering M&G’s
strategic objectives
– draws out knowledge and
experience from Non-
Executive Directors
– shapes the culture in
the Boardroom
– ensures that adequate time is
available for discussion of these
issues and that all Directors
contribute effectively
acting as a sounding board and
providing support
– acts as an intermediary for other
Directors as and when necessary
– is available to shareholders and
other Non-Executive Directors to
address any concerns or issues
they feel have not been adequately
dealt with through the usual
channels of communication
– with the Non-Executive Directors,
reviews the Chair’s performance
and carries out succession
planning for the Chair’s role
– attends sufficient meetings with
major shareholders to obtain a
balanced understanding of their
issues and concerns
strategic guidance and specialist
advice to hold management
to account
– scrutinise and hold to account
the performance of management
and individual Executive Directors
against performance objectives
– sit as members on various
committees to provide challenge,
guidance and direction on specific
areas, and report back to the Board
on these
– in addition see below for specific
Non-Executive Director duties
Group Chief Executive Officer
Chief Financial Officer
Company Secretary
– leads the business, proposes and
– reports directly to the Group Chief
– supports the Chair and Group
implements strategy and chairs the
Executive Committee
– responsible for all operational and
strategic management of M&G
– ensures management fulfils its
obligations to the Board to provide
information in an accurate and
timely manner
– manages M&G’s risk profile
– keeps the Chair informed of all
material issues
– sets the vision for our culture,
values and purpose
Executive Officer
– has responsibility for the Finance
Chief Executive Officer in fulfilling
their duties
function and its operations
– provides regular corporate
– supports the Group Chief Executive
Officer in all aspects of financial
reporting, investor engagement
and business planning
– champions the company’s focus
on sustainability and diversity
and inclusion
– is a member of the Group
Executive Committee
governance updates on topics
which may affect M&G or the Board
– available to all Directors for advice
and support
– manages M&G’s Secretariat
function, which provides
administrative and governance
support to the Board and
its Committees
– is a member of the Group
Executive Committee
Specific Non-Executive Director roles
– Clare Thompson acts as Whistleblowing Champion for M&G. Find out more on her work on page 114.
– All Non-Executive Directors are responsible for engagement with the workforce. The Board considers collective
responsibility for employee engagement to be the most appropriate method for our business. We believe that this approach
allows a range of perspectives in bringing the shareholder voice into the Boardroom, and allows Non-Executives to support
one another in how they engage with colleagues. Throughout 2022, the Board monitored its work in this area through
dedicated additional reporting. Find out more on page 42.
– The Board is responsible for overseeing that Non-Executives at subsidiary level take on the Consumer Duty Champion roles
required by the FCA’s Consumer Duty.
M&G plc Annual Report and Accounts 2022 | 103
GovernanceStrategic ReportFinancial informationOther information Division of responsibilities and Boardroom practice continued
Board Committees and Group Executive Committee
The Board has established an Audit Committee, a Nomination Committee, a Remuneration Committee and a Risk Committee.
These Committees form the independent oversight element of the Group Governance Framework by the Non-Executive
Directors. The terms of reference for each of the Board’s Committees are documented formally, approved by the Board and
updated as necessary. Each Committee Chair provides regular reports to the Board on the matters covered at each Committee
meeting. Full details of each Committee’s activities throughout the year are on pages 108 to 123 in the Committee Reports.
Nomination Committee
Audit Committee
Risk Committee
– overseeing the composition of
the Board and its Committees
– assisted by HR, recruitment of
new Board members
– succession planning for the Board
and its Committees
– taking an active role, together
with HR and other management,
with respect to our diversity and
inclusion strategy and associated
objectives, including monitoring of
their effectiveness
– on behalf of the Board, considering
governance arrangements around
the Group
– reviewing our financial statements,
related announcements and other
financial and ESG information
provided to shareholders and
other stakeholders
– reviewing the effectiveness of our
system of internal financial controls
and internal control systems and
whistleblowing procedures
– overseeing the assurance of
financial and ESG reporting
– advising the Board on our emerging
risks, risk strategy, risk policies, risk
appetite and current risk exposures
– overseeing the implementation
and maintenance of the overall Risk
Management Framework (including
the embedding of sustainability and
ESG into this framework)
– overseeing our procedures for
detecting fraud, preventing bribery
and non-compliance
– monitoring and reviewing internal
– reviewing our risk assessment
processes and capability to identify
and manage new risks
audit activities, reports and findings
– receiving and reviewing reports
from our external auditors
– monitoring the effectiveness
and independence of our
external auditors and making
recommendations to the Board
in respect of their remuneration,
appointment and dismissal
Remuneration Committee
Executive Committee
– establishing, approving and
The members of the Executive Committee are:
maintaining the principles and
framework of our remuneration
policies and ensuring compliance
with those policies
– determining the design,
implementation and operation of
remuneration arrangements for
the Chair, the Executive Directors,
members of senior management,
and certain other individuals
identified by relevant regulations
– Group Chief Executive Officer
– Chief Financial Officer (CFO)
– MD Asset Management and Chief Investment Officerⁱ
– Retail and Savings CEO
– Director of Corporate Affairs
– Chief Risk and Compliance Officer (CRCO)
– Chief Strategy and Transformation Officer
– General Counsel and Company Secretary
– Chief People Officer
The Chief Auditor is an invitee to all Executive Committee meetings.
This Committee is established by the Group Chief Executive Officer and has
responsibility for the operational management of the business on a day-to-
day basis.
The Committee leads on: the development and implementation of strategy,
operational plans, policies, procedures and budgets; prioritisation and allocation
of resources; and promotion of our culture and values.
The Committee reviews all material or strategic matters being proposed to
the Board and approves certain levels of expenditure under M&G’s delegated
authority framework.
i Title will become Asset Management CEO from April 2023
104 | M&G plc Annual Report and Accounts 2022
Board effectiveness and evaluation
Review and evaluation
2022 Review and 2023 Actions
Ongoing review and evaluation of our
performance as a Board means we
maintain high standards of governance
and keep the right skills in place to
oversee our business.
At the end of 2022, the Board undertook
an internal evaluation of its performance
through a questionnaire to each Board
member, including topics such as Board
dynamics, meeting conduct, Board
paper processes, decision-making,
regulatory matters, risk and capital,
culture, governance and people.
The questionnaire also contained
dedicated sections to evaluate the
Board’s Committees and the Chair.
The results of the questionnaire
were collated and analysed by the
Chair and Company Secretary, with a
report produced and considered by
all Board members in February 2023.
The report was used to create a 2023
work plan, with action points for the
year, summarised below. The Board will
review progress against these action
points throughout 2023, with a view to
completing actions by February 2024.
The Chair evaluated the performance
of each Non-Executive Director in
January 2023 through individual
meetings, including discussions of
the questionnaire results. The Senior
Independent Director evaluated the
Chair, including reviewing the Board’s
feedback on the Chair provided in the
questionnaire. The outcomes of the
Chair and non-executive evaluations
were considered at the Nomination
Committee at its February 2023 meeting
to support the proposed elections and
re-elections of the Chair and Non-
Executive Directors at the AGM.
Summary of 2022 review findings
The report identified a number of
strengths of the Board, including:
– Strong progress in 2022, in building
Board skills and experience through
its new members
– Good establishment of executive/
non-executive relationships under
new Group Chief Executive Officer
and Chief Financial Officer
– Very good Board focus on strategy
in 2022
– Robust debate in meetings
– Progress in both governance
and culture
– Ongoing improvements in
information to support business
performance monitoring
All Committees received overall
positive feedback and were found to
be operating effectively.
The Board identified areas of focus
and related actions to enhance its
performance. See summary table below:
Themes and
Summary Actions
Board Skills and Roles
– Review and refresh of Boards
Skills Matrix
– Review PLC tenure and
succession plan
– Review of international
iNED community
Board Papers and Meetings
– Ensure ‘real-time’ Board
paper feedback from
Non-Executive Directors
– Drive high quality debate
and discussion in Board and
Committee meetings
– Half year review of Board meeting
cadence and Board reporting
– Enhancing competitor and market
context in Board papers
– Growth and development in Group
Regulatory Relationships
Chief Executive Officer’s top
executive team
– An effective and successful Group
Chief Executive appointment process
– Establishing the new Group Chief
Executive Officer’s relationship
with regulators
2021 Review progress
The table below sets out the items we identified at the end of 2021 and agreed to take action on in 2022 to enhance our performance.
Themes identified end of 2021
Progress in 2022
Board Composition and diversity
– Opportunity for enhancing skills
– Dev Sanyal joined our Board in May 2022 and joined both the Audit and
on the Board
Risk Committees.
– A request for another member
– The Nomination Committee considered Committee membership requirements
of the Audit Committee
Strategy
at its April 2022 meeting and reviewed Non-Executive Director skills and updated
the Board’s list of desirable skills in October 2022.
– Further actions around succession planning have been set for 2023.
– Linkage between the firm’s purpose
– Our culture programme tested colleague understanding and connection to
and strategy
– Further time for debating strategy
our purpose, values and behaviour. Detailed updates were given at the Board’s
annual Strategy Offsite in June 2022.
Competitor/client information
– Enhance reporting and debate
on clients and competitor
Relationships with the PRA/FCA
– The Board held a number of strategy discussions at its September, October,
December 2022 and January 2023 meetings and approved our strategy,
which closely aligns with our purpose.
– Board members have been provided with a regular update email for each of
the Asset Management and Retail & Savings segments, covering market and
competitor information. The Board is receiving a new monthly performance report
including client metrics.
– Ongoing focus on strong, transparent
– The Chair, Group Chief Executive Officer, Chief Financial Officer, Chief Risk and
regulatory relationships and
effective communications.
Compliance Officer and the Non-Executive Directors have meetings with our regulators
on a frequent basis. Each Board meeting receives a full report on all regulatory affairs.
M&G plc Annual Report and Accounts 2022 | 105
GovernanceStrategic ReportFinancial informationOther information Corporate Governance Code
How we comply with the Corporate
Governance Code
Our compliance with the 2018 UK Corporate Governance Code,
and how we have applied its Principles and Provisions
The 2018 UK Corporate Governance Code can be found on the FRC website
[
The table below sets out examples of how the Board has done this for each Principle, enabling our shareholders to evaluate our
Code compliance for themselves. We have not attempted to include all details in this table, but focused on the key actions that
demonstrate our adherence to the Code. We have also signposted different parts of the Governance Report where you can find
more information.
The Company complied with the Code save that Fiona Clutterbuck held the role of Interim Chair from 11 January 2021 until
13 March 2022. Fiona also continued in her roles as a Non-Executive member of the Audit, Risk, Remuneration and Nomination
Committees. Her Senior Independent Director duties were carried out by Clare Thompson during this time period. The Company
was therefore not technically compliant with Code Provision 24 from 1 January 2022 to 13 March 2022 in this reporting period,
as the Interim Chair of the Board was also a member of the Audit Committee. Compliance with the Code was restored following
Edward’s appointment as Chair with effect from 14 March 2022.
Code Principle
Board leadership and company purpose
Read More
A The Board has been found to have operated effectively over 2022, using an internal board evaluation to
Page 105
test this. Focus on M&G’s long-term success and profitable growth continues to influence decision-making
on key decisions, including the appointment of the Group Chief Executive Officer, the strategy refresh and
the acquisition of responsAbility and Wealth entities.
B M&G’s purpose has been updated, and we are strengthening our culture and values through the
Page 42
development of the culture dashboard, which the Board reviews on a quarterly basis.
C The Board has measured performance carefully through dedicated presentations from all key parts of
the business and regular management information, including changes to the agenda where necessary.
Through the Audit Committee, the Board has reviewed the testing of and challenged M&G’s internal
controls and is satisfied with their robustness.
Page 59
D Stakeholder engagement continues to cover a range of topics, with focus on clients as M&G serves a wide
range of audiences across individual, institutional and professional investors. This supports our aim to
better understand client needs and to enable our clients.
Pages 42-45
E We were pleased that our employee opinion survey in 2022 showed that our colleagues feel comfortable
Page 48
to speak out and we have embedded this important principle within our Code of Conduct.
Division of responsibilities
F Edward Braham, as Chair, has led the Board effectively throughout 2022 and the Board has focused on
developing its working practices, the relationships between Non-Executive and Executive Directors,
and how the Board skills and experiences can be enhanced
Page 105
G The Board has maintained the required composition throughout the year save as disclosed above.
Edward Braham took the role of Chairman in March 2022 and, at the same time, Fiona Clutterbuck
resumed the Senior Independent Director (SID) duties.
H All Non-Executive Directors have committed appropriate time to their roles and made themselves available
for additional meetings as required. This has been reviewed by the Nomination Committee.
I The Company Secretary has been effective throughout the year and has continued to enhance Board
paper preparation and reporting processes. Governance manuals have been updated to support
subsidiary and executive governance.
Composition, succession and evaluation
J The composition and range of skills on the Board is reviewed by the Nomination Committee, typically
in February and October. The Nomination Committee reviews succession planning material and when
required would lead a director selection process, with weight given to gender, ethnicity and diversity
of thought.
Page 108
K The Nomination Committee considers Committee membership and length of tenure annually, typically
Pages 108-109
in February.
L The evaluation of the Board for 2022 was undertaken by means of an internal questionnaire circulated
Page 105
to each Board member. The Board was found to be operating effectively.
106 | M&G plc Annual Report and Accounts 2022
Code Principle
Audit, risk and internal control
M The Audit Committee has led on assessing auditor independence and effectiveness and has reviewed
all material narrative and financial statements in 2022. The Auditor Independence Policy was applied
to PwC from 1 December 2020, with non-audit services that are not permitted to be performed by our
auditors managed down during 2021 to ensure PwC’s independence from 1 January 2022.
N The Board is satisfied that a fair, balanced and understandable assessment of the firm’s financial position
is presented in the Annual Report and Accounts, and has fulfilled its responsibilities across information
it provides to its stakeholders to present a fair, balanced and understandable assessment of our position
and prospects.
O The Risk Committee has assessed Principal Risks and set and monitored risk appetite. The Audit
Committee has overseen the Control Framework.
Read More
Page 115
Remuneration
P The Remuneration Committee have engaged with our shareholders extensively over 2022 on proposed
changes to our Directors’ Remuneration Policy. This will be put to all shareholders for approval at our
2023 AGM.
Pages 122-123
Q The Remuneration Committee has led a formal and independent process to measure and challenge
executive remuneration. None of the Executive or Non-Executive Directors have taken any role in setting
their own remuneration.
R Remuneration outcomes for Executive Directors are ultimately determined by the Remuneration
Committee, applying independent judgement and ensuring the wider context of business success, culture
and risk appetite are taken into account alongside any applicable regulations.
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GovernanceStrategic ReportFinancial informationOther information Nomination Committee Report
Nomination
Committee
Report
Nomination Committee composition
Edward Braham (Chair)
Clive Adamson
Clare Chapman
Fiona Clutterbuck
Clare Thompson
Priorities for 2023
– Non-Executive Director development - training to help enhance the
skills base
– Executive talent and succession - ensure appropriate planning is in place
– Diversity and inclusion - progress against our diversity and inclusion targets
– Subsidiary governance - enhance and simplify our processes
Dear Shareholder
As Committee Chair, I am pleased
to report on the formal meetings
of the Committee in 2022 and in
particular on the ad-hoc decisions
throughout the year, including the CEO
succession process.
With John Foley’s decision to retire
in April, a key area of focus of the
Committee was ensuring that there
was an inclusive, thorough and exacting
recruitment process to find a successor.
We are satisfied that the process
achieved these aims, and we were
pleased to announce in September 2022
that Andrea Rossi would succeed John
Foley as Group Chief Executive Officer.
We believe that Andrea’s experience
in both global asset management and
insurance is an ideal fit for M&G. He is
an inspiring and proven leader, with
a strong track record of delivering
profitable growth and outstanding
client outcomes. Further detail on the
succession process is below.
Board composition,
succession planning and
performance
The Committee’s primary role is to
ensure that Board composition is
appropriate and to keep succession
planning of both Executive and Non-
Executive roles under ongoing review.
The Committee refreshed its Skills Map
twice during 2022 and again in early
2023. Our Skills Map enables us to
objectively identify and track the skills
required by the Board, and to plan for
emergency and longer-term succession.
Committee membership was last
reviewed in February 2023.
108 | M&G plc Annual Report and Accounts 2022
The Nomination Committee also
annually reviews Non-executive
roles and responsibilities that exist in
addition to Committee duties. This was
carried out in February 2023 and it was
determined to continue the approach
of all Non-Executives having collective
responsibility for employee engagement,
with a specific time allocation given.
This allows for the broadest set of
perspectives when bringing employee
feedback for discussion at Board level.
We also consider the performance of
each Director annually to ensure their
contribution continues to be strong.
Executive Directors – skills
mapping and succession
The Committee reviews the skills of the
Executive Directors and succession
plans for these positions on an ongoing
basis. This process helps to ensure that
a diverse group of potential candidates is
available for succession.
On 27 April 2022, M&G announced John
Foley’s retirement and a search for
successor commenced. We engaged
external consultants MWM Consulting to
support the Chair and Committee in the
search for a new Group Chief Executive
Officer. This included providing external
mapping work on the Group Chief
Executive Officer role. MWM Consulting
has no connection with M&G or our
individual directors.
We formed a sub-committee to consider
in depth the skills and experience of the
candidate pool. During May, June and
July, we spent time reviewing feedback
from our advisers, development
plans, skills gaps and strength of
management succession.
This process developed a shortlist
of candidates that went through our
final interview and selection process.
We then held interviews with shortlisted
candidates to ensure a correct fit for the
Board, following which the Committee
unanimously agreed to recommend
Andrea Rossi as our new Group Chief
Executive Officer and Executive Director
of M&G, with effect from October 2022.
We have been pleased with the
collaboration between Non-Executive
Directors and senior team members
throughout this process. While the
result of this process was an external
appointment, we seek to develop
talent and promote internally as well
as ensuring the market for all key roles
is well understood.
Areas of focus in 2022
CEO recruitment process
Appointment of Andrea Rossi as
Group Chief Executive Officer
Induction of new
Non-Executive Directors
Overseeing the induction of
Edward Braham and Dev Sanyal
Skills mapping and
succession planning
Reviewing the skills of the Board
and ensuring that robust succession
planning is in place
Diversity and inclusion
Reviewing progress against our
diversity and inclusion targets
Appointment process
The Committee has a duty to consider,
and recommend to the Board the
appointment of any M&G Director.
The appointment of a new Director
begins with the identification of a
vacancy or skills gap. The Committee
assesses any skills required, arising
either through vacancy or the evolving
needs of the Board. We then work with
HR to produce a clear role specification
to focus recruitment activities.
Using the role specification, HR arranges
external searches for Non-Executive
roles and internal and external searches
for Executive roles. The next stage
is interviews, at which Committee
members (among others) test the
candidates’ skills, including fit with
culture -both essential criteria when
we consider the selection of Board
members. We aim to set the right tone
from the top in how we go about our
work and how our candidates represent
and support M&G’s culture.
Induction process
Structured and tailored induction
programmes were prepared for me
and Dev Sanyal. These covered, among
other matters, meeting key members of
the management team and the external
and internal auditors; an overview of the
financial and business plan; stakeholder
engagement; organisation structure
and all relevant policies, procedures and
other governance material. Following the
induction process, Dev and I gave
feedback to continue to improve the
induction process.
Board independence
and conflicts
We take into account the independence
criteria set out in the Code as part
of the selection process for Non-
Executive Directors.
The Committee then, at least annually,
assesses the independence of each
Non-Executive Director to ensure
that they can continue to properly
fulfil their roles on the Board and
provide independent challenge to
the Executive Directors. In February
2023, the Committee reviewed each
Non-Executive, taking into account
tenure, external roles and relationships.
The Committee determined that all
Non-Executive Directors were free from
any relationship or circumstances that
could affect, or appear to affect, their
independent judgement and therefore
all Non-Executives could properly
be recommended for re-election
at our 2023 AGM as independent
Board members.
In line with the Code, over half of our
Board members, excluding the Chair, are
independent Non-Executive Directors.
Given the role was for a temporary
period, with a planned successor, Fiona
Clutterbuck continued to serve as an
independent Non-Executive at the same
time that she held the Interim Chair
role (1 January to 13 March 2022 in this
reporting period). In February 2022,
just prior to Fiona transitioning back
to the SID role, her independence was
reconfirmed (using the annual process
outlined above) alongside all other Non-
executives.
The Committee reviews conflicts on
appointment and then on an as-needed
basis as the external positions of non-
executives change. The Committee
is supported in this by the Risk and
Compliance team.
Time commitment
The Committee maintains oversight
of Non-Executive Directors’ time
commitments, to ensure that each has
sufficient time to dedicate to their role in
order to discharge their responsibilities
effectively. In February 2023, the
Committee assessed the number and
nature of the Non-Executive Directors’
external commitments and how this
impacts the time required for their
Board and Committee appointments.
The Committee also reviewed and
updated the time required to carry
out the various non-executive roles
at M&G. We concluded that all Non-
Executive Directors had demonstrated
sufficient time to devote to M&G,
including during any potential periods
of corporate stress.
Diversity and inclusion and
gender balance
The Committee received updates on
the progress made during 2022 on our
diversity and inclusion (D&I) strategy,
including a focus on well-being, internal
communication and engagement, and
the external market. We have expanded
the scale of our well-being agenda
including: Well-being Wednesdays, Well-
being OnDemand channel and Diversity
Network events. Overall we continue
to see positive progress against our
2022 plan with tangible examples of
embedding our D&I strategy more firmly
across the business.
Some current examples include the
Menopause and Social Mobility Task
forces, the expansion of the Investments
D&I Forum to include active participation
in the administration of the Aspire
Career Exploration programme and
the continued adoption of European
Diversity and Inclusion charters by our
EU offices. Our members particularly
took time to consider M&G’s D&I
statistics, given recent changes at
Board level.
Find out more on M&G’s approach to
D&I and progress against targets in the
Sustainability section of the Strategic
Report on pages 32-39. M&G’s D&I
Policy is on our website. Details of
the gender balance of the Board and
senior management is on page 97 of the
Governance Report. M&G has one D&I
Policy, which applies to all colleagues
and to the Board.
In 2023, the oversight of D&I at M&G will
be undertaken by the Board.
Subsidiary governance
The Committee is responsible for the
governance arrangements of its material
subsidiaries: PAC and MGG. During the
year, we reviewed the composition of
the Material Subsidiary Boards and
changes to them, ensuring that these
continued to comply with regulatory
requirements and had succession plans.
The Committee assesses performance
and approves ongoing appointment of
all Material Subsidiary Non-Executive
Directors in a process designed to
mirror the annual election of Directors by
shareholders at an AGM.
Edward Braham
Committee Chair
Role and responsibilities of
the Nomination Committee
The Committee is responsible for
the composition of the Board and its
Committees, together with succession
planning. This ensures that the right
skills are in place to support our
strategic priorities and the long-term
success and future viability of M&G.
The Committee is also responsible
for elements of diversity and
inclusion leadership.
The Nomination Committee’s
terms of reference
www.mandg.com
Membership and
meeting attendance
page 100
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Audit
Committee
Report
Audit Committee composition
Clare Thompson (Chair)
Clive Adamson
Fiona Clutterbuck
Dev Sanyal
Priorities for 2023
– Continue to oversee management’s progress on the implementation of
IFRS 17, the new insurance accounting standard
– Consider ESG reporting and assurance requirements in an evolving
regulatory environment
– Continued oversight of the Group-wide Integrated Control Framework
– Maintain focus on the internal control environment, in particular first
line ownership
In relation to the internal control
environment, the Committee welcomes
increasing co-operation between the
Risk and Internal Audit functions, which
has achieved greater consistency in
terms of the assessment approach.
The Committee continues to work
closely with the Risk Committee, and
the cross-membership principles
that we follow ensure that members
of both committees have information
provided in the most efficient way.
Maintaining regular communication with
the subsidiary company audit committee
chairs ensures efficient governance.
Finally, I’d like to welcome Dev Sanyal,
who joined the Committee on 25 May
2022. I would also like to take this
opportunity to thank my fellow
Committee members for their efforts
and dedication over the year.
Clare Thompson
Committee Chair
Areas of focus in 2022
– Monitoring the Finance Change
agenda including readiness for
the adoption of IFRS 17
– Considering findings reported by
the external auditor, overseeing
the transition to our new external
auditor and reviewing the external
audit strategy and plan
– Considering and challenging the
impact of economic uncertainty
on key economic assumptions
and valuations
– Reviewing and recommending to
the Board the full-year and half-
year 2022 results, and approving
the associated key accounting
and actuarial assumptions
and methodology
– Reviewing and recommending
to the Board the Solvency II
Pillar III reporting, and approving
the associated balance
sheet valuation methods
and assumptions
– Reviewing and approving our
Annual Report and Accounts, our
annual Sustainability Report and
other ESG reporting
– Oversight of non-financial
assurance, including ESG
– Monitoring the effectiveness
of the Internal Audit function,
including the recruitment of a
new Chief Auditor and oversight
during transition
– Transition to new Chief
Financial Officer
Dear Shareholder
I am pleased to present the Audit
Committee Report, which provides an
overview of the work of the Committee
and its activities during the year.
On 3 May 2022, we welcomed Kathryn
McLeland as our new CFO, and we
have seen significant progress in the
Finance function under her leadership
since joining.
We have had a smooth transition in our
change of external auditor from KPMG
to PwC. We have quickly developed
a collaborative relationship with the
PwC team and have welcomed their
constructive challenge.
The adoption of IFRS 17 and the
consequent improvements to our
finance systems was a recurring
item on the agenda during the year.
We will continue to be involved in
overseeing management’s progress
during and following its implementation
throughout 2023.
ESG reporting continues to develop
and the Committee is particularly
focused on the assurance, both internal
and external, to support reporting in
the evolving regulatory environment.
The Committee received training
during the year on ESG assurance, and
we are mindful of greenwashing risk.
Other training sessions received during
the year are on page 111.
110 | M&G plc Annual Report and Accounts 2022
Find out more in the Board Evaluation
section of the Governance Report on
page 105.
Financial Reporting 2022
The Audit Committee reviewed the full
year 2022 consolidated and Company
financial statements.
The review included:
Fair, balanced and understandable
In assessing whether the 2022 Annual
Report and Accounts are fair, balanced
and understandable and provide the
information necessary for shareholders
to assess M&G’s position, the Audit
Committee gave regard to whether:
– Information contained within the
Strategic Report, in particular the
Business and Financial Review,
represents a fair reflection of
performance during the year,
and is consistent with the
information contained within
the financial statements.
– Significant issues identified in this
report, including the key areas of
judgement and estimation, as well
as any other significant issues
disclosed within the narrative
reporting, are consistent with the
financial statements.
– Alternative performance measures
(APMs), which have been reviewed,
updated and approved by the
Committee, have been given
equal prominence to the statutory
measures, there is a clear description
of their calculation and an explanation
of their use and relevance.
– Clarification and treatment of certain
items within the APMs, particularly
the allocation of items to adjusted
operating profit before tax and
operating capital generation, is in line
with the defined methodology, and
was appropriately disclosed.
– Identified key performance measures
reflect those used by management
to manage, monitor and assess the
results of the business, linking to
the strategy.
– Key messages are clear, consistent,
and easily understood without the
use of excessive jargon.
Composition
The Board considers all members of the
Committee to be independent and that
Clare Thompson has recent and relevant
experience of working with financial
reporting and accounting matters.
Find out more about details of the
Committee members’ relevant skills and
experience on pages 94 to 96.
2022 Meeting Schedule
In 2022, there were eight regular
scheduled Audit Committee meetings
and one ad-hoc meeting. In addition, two
joint meetings were held with the Risk
Committee, and two joint meetings were
held with the Board to consider our full-
year and half-year results.
The Committee met separately for
training sessions on:
– IFRS 17
– Non-financial risks
– Investment Firm Prudential Regime
– ESG/climate reporting and assurance
– Hedging strategy
In addition, the Committee met
individually with the heads of the
Internal Audit function and the Risk and
Compliance function, and the lead audit
partners from our outgoing auditors,
KPMG, and our new auditors, PwC,
without the presence of management.
These private sessions are on a rolling
programme, with the internal and
external auditors each holding at least
two of these private sessions a year.
Annual evaluation of Audit
Committee performance
An evaluation of the Committee’s
effectiveness was carried out using
an internal questionnaire which was
circulated to the Committee members.
The Chair and Company Secretary
collated and analysed the results of the
questionnaire, and produced a report
which was considered by all Committee
members in February 2023.
The Committee also receives:
– Regular reports from The
Prudential Assurance Company
Limited (PAC) and M&G Group
Limited (MGG) Audit Committees
– Updates on regulatory
developments in financial and
sustainability reporting
– Updates on approval of audit
and non-audit work
Going concern and viability statements
In early 2023, the Committee reviewed
the going concern assessment
undertaken by management for the
purposes of the 2022 consolidated
financial statements.
This included assessing M&G plc’s
solvency, including its sensitivity to
various economic stresses and its
projections in a reasonable worst case
scenario, being the pessimistic scenario
(which reflects reduced demand from
higher spreads and worsening economic
conditions); liquidity projections,
including the impact of applying specific
liquidity stresses; and the ability to
access funding sources.
Based on the review, we concluded
that the going concern assumption
remains appropriate.
In addition, the Committee considered
the associated assessment of longer-
term viability to support the Viability
Statement. We considered the strategic
and financial planning process to
support the Viability Statement in
conjunction with an assessment of M&G
plc’s key strategic priorities, business
model and forecasting undertaken as
part of the business plan.
We challenged the assumptions
underpinning the assessments,
including the impact of various severe,
but plausible stresses and scenarios
on the ability to deliver the Business
Plan, and concluded that the positions
were both reasonable and supportable.
In making this determination, we
concluded that three years was the
most appropriate period for longer-term
viability in line with the business plan.
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Critical estimates and areas of judgement and how they were addressed
We have assessed whether suitable accounting policies have been adopted in the preparation of the consolidated financial
statements. We have also considered all critical estimates and key judgements that are material to the preparation of the
consolidated financial statements. In this regard, we receive regular updates from management and review and challenge
estimates and judgements accordingly. Due to the significant increase in the balance of the deferred tax asset recognised in
respect of carried forward trading losses, we have concluded that for the year ended 31 December 2022, recognition of the
deferred tax asset should be disclosed as a significant judgement.
This section outlines the critical estimates and key judgements that have been applied in the preparation of the consolidated
financial statements and how each of them have been considered and addressed by the Committee.
Critical estimate/Key judgement
How the Committee addressed the issue
Valuation of insurance contracts and
defined benefit pension liabilities
Valuation of complex and illiquid
financial assets
Recoverable amount of goodwill
Valuation of intangibles acquired
at acquisition
We reviewed the key assumptions and judgements presented by management in the
estimation and valuation of the Group’s insurance contracts and defined benefit pension
liabilities. The key assumptions reviewed were:
– Policyholder mortality, maintenance expenses and valuation rate of interest (including
related credit risk assumptions) used in the estimation of insurance contract liabilities
for annuities.
– Allowance for maintenance expenses, persistency and other assumptions used
in the estimation of insurance contract liabilities for policyholder liabilities other
than annuities.
– Mortality, inflation rates and discount rates used in the estimation of the Group’s
defined benefit pension liabilities.
We considered the rationale provided by management for the assumptions used and
reviewed any benchmarking provided. As part of the review, we continued to consider
the reasonableness of these assumptions in light of the ongoing impact of COVID-19
on mortality experience. The Committee also challenged the appropriateness of
management’s credit assumptions given current market conditions.
We were satisfied that the assumptions adopted by management were appropriate.
Further information on key assumptions can be found in Notes 26 and 33 of the
consolidated financial statements in respect of the insurance contract liabilities and
in Note 17 of the consolidated financial statements in respect of the defined benefit
pension liabilities.
We received information on the carrying value of investments held on the consolidated
statement of financial position, and particularly focused on those investments where the
determination of their fair value required more subjective estimation (classified as Level
3 under the fair value hierarchy). These assets include investment properties, lifetime
mortgages, private credit and investments in private equity vehicles.
In addition, we considered the governance arrangements put in place by management
to review the valuation of these assets (including those held by the defined benefit
pension schemes) to ensure that it remains appropriate. While reviewing the valuation,
we also considered the potential impact of the current macroeconomic environment and
climate-related risk on relevant asset classes.
Following review and challenge of the assumptions made, as well as the wider
assessment of the remainder of the Group’s assets, we are satisfied that the basis of
valuation for these assets was appropriate. Further information on key assumptions can
be found in Note 32 of the consolidated financial statements.
We reviewed the results of annual impairment testing carried out in respect of goodwill
associated with the Group’s cash-generating units. This involved reviewing the key
inputs used in the assessment, including the discount rate and future cash flow
projections used to determine value in use. Appropriate challenge was provided to
management, particularly around growth rates and terminal profit margins.
We considered the results of the work performed and confirmed the conclusion
that no impairment was required in respect of Asset Management. We agreed with
management’s assessment that the M&G Wealth Platform cash-generating unit was
impaired by £25 million.
Further information on key assumptions can be found in Note 12 of the consolidated
financial statements.
We reviewed the value of the customer relationship intangible recorded as a result
of the acquisitions of Sandringham Financial Partners Limited, TCF Fund Managers
LLP and responsAbility Investments AG. We considered the key assumptions used to
determine the value at initial recognition, including discount rate and future cash flow
projections.
Based on the review, we were satisfied that the value of the intangible recorded at the
acquisition date is appropriate. Further information on intangible assets can be found in
Note 12 of the consolidated financial statements.
112 | M&G plc Annual Report and Accounts 2022
Critical estimate/Key judgement
How the Committee addressed the issue
Deferred tax asset
Other significant judgements
We have reviewed the judgement exercised to determine the extent to which future
taxable profits are expected to emerge and the corresponding period over which
unused tax credits and unused tax losses will be utilised, in assessing the value of the
deferred tax asset that should be recognised.
Based on the review, we are satisfied that the value of the deferred tax asset recognised
is appropriate.
We reviewed and considered the other significant judgements as disclosed within Note
1.3 of the consolidated financial statements:
– Consideration over M&G plc’s interest in structured entities and whether control
exists which would require their consolidation.
– The judgement with respect to whether contracts issued by M&G plc contain significant
insurance risk and whether they contain discretionary participation features.
Following review of the basis of the above judgements we were satisfied that these
were appropriate.
We also considered the following critical estimates and key judgements in respect of the Company financial statements.
Critical estimate/Key judgement
How the Committee addressed the issue
Recoverable amount of M&G Group
Regulated Entity Holding Company
Limited (M&G REH) in the financial
statements
Management performed an impairment assessment at the year end in relation to the
Company’s investment in M&G REH, which in turn is the holding company for M&G
plc’s main regulated entities, including MGG and PAC. As a result, the recoverable
amount of M&G REH has been determined by reference to the recoverable amount
of these main operating subsidiaries. We considered management’s assessment of
the recoverable amounts based on a discounted cash flow assessment, which was
derived from management’s expectations of profits in respect of MGG and application
of a discounted dividend model in respect of PAC. Where possible, management also
considered alternative valuation techniques consistent with established valuation
principles to determine the recoverable amount. Based on the review, we concluded
that there was sufficient evidence to support the view that no impairment was required.
IFRS 17
IFRS 17: Insurance Contracts is a
new accounting standard, effective
from 1 January 2023, which will have
a significant impact on the financial
reporting of our insurance contracts.
M&G plc has an ongoing project to
implement IFRS 17 and the Committee
have received regular updates
throughout the year on the progress of
the project, including achievements to
date, priorities for the remainder of the
year, and key milestones into 2023.
Find out more on page 116.
Sustainability reporting
The Committee has a responsibility to
review, and challenge as appropriate,
any ESG or climate-related reporting in
any material public documents in relation
to compliance with relevant regulations,
legislation and standards. This includes,
but is not limited to, the climate-related
financial disclosures required by the UK
Listing Rules.
The Committee has received
regular updates during 2022 on our
planned ESG disclosures, and has
challenged, reviewed and approved
these accordingly.
In particular:
– the Communication of Progress (COP)
on the United Nations Global Compact
(UNGC) submission
– the Sustainability Accounting
Standards Board (SASB) reporting
document for publication on
our website
– the Taskforce on Climate-related
Financial Disclosures (TCFD) within
the Annual Report and Accounts
– the Sustainability Report, published at
the end of June 2022
– the Carbon Disclosure Group (CDP)
questionnaire.
The Committee applies the same level
of rigour to its review and challenge
of these disclosures as in its review
of external financial reporting.
The Committee also recognises that
there remains work to do in sustainability
reporting as data improves and
requirements change, and will continue
to work with management to develop
our reporting in this area.
The Committee has reviewed our
plans for sustainability reporting in
2023, and our planned approach for
assurance over ESG metrics during this
reporting cycle.
During the year, the Committee
also received training on upcoming
ESG disclosure requirements
and developments.
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Audit and Corporate
Governance Reform
The former Department of Business,
Enterprise and Industrial Strategy
launched a consultation in 2021 on
audit and corporate governance
reform, seeking views on proposals to
strengthen the UK’s framework for major
companies and the way they are audited.
In June 2022, the Committee received
an update on the UK Government’s
response to the consultation, which was
published in May 2022.
These reforms are expected to have an
impact on M&G’s corporate governance
and audit arrangements. However,
the response makes clear that the
implementation of some measures is
expected to take several years due to the
changes to legislation.
The FRC published a position paper in
July 2022, setting out how it expects
the next stage of reform to proceed,
in particular any elements that can be
progressed ahead of legislation.
This was followed by a consultation
launched by the FRC in November
2022, on a proposed minimum standard
for Audit Committees in relation to
the appointment and oversight of
external auditors.
The Committee will continue to
engage with management on any
changes required to our processes and
procedures in light of these proposals.
Internal controls
The Committee has a responsibility, in
conjunction with the Risk Committee, to
review the adequacy and effectiveness
of our risk management framework and
internal control systems prior to review
by the Board.
Our approach to risk culture is centred
around the enterprise-wide programme
of ‘I Am Managing Risk’, which
requires colleagues to take personal
responsibility and accountability for
identifying, assessing, managing and
reporting risk and working together to
do the right thing for our clients, other
stakeholders and our business in line
with our Code of Conduct.
This approach to risk culture is
supported by the Operational Risk
Policy, Framework, Standards and
associated training which articulates
how the business expects colleagues to
positively manage risk.
114 | M&G plc Annual Report and Accounts 2022
All colleagues have risk management
accountabilities as part of their
core objectives.
We receive regular reports regarding
the status of the control environment,
including reviews of the effectiveness
of the Risk Management Framework,
the status and assessment of any
outstanding control deficiencies and
results of internal testing of controls over
financial reporting. This helps ensure
the Group complies with the FRC’s
guidance on risk management, internal
controls and related financial and
business reporting.
Find out more about the annual
assessment of risk management and
internal controls on page 59.
Whistleblowing policy
and framework
We are committed to a safe and inclusive
workplace where all colleagues can
speak out and report inappropriate
behaviour. We recognise the need for
our people to be able to raise concerns
on any issue in complete confidence,
without fear of retaliation.
The Whistleblowers’ Champion, who is
also Chair of the Committee, provides
governance and oversight of the Speak
Out programme, which supports our
Whistleblowing policy.
Formal reporting to the Committee
on the effectiveness of the
Whistleblowing policy occurs twice
a year. Regular meetings are also
held between management and the
Whistleblowers’ Champion to discuss
and review cases and the programme.
Individual cases are not discussed with
the Committee. We are satisfied that the
whistleblowing policies and procedures
remain robust and adequate.
Internal Audit
The primary objective of Internal Audit
(IA) is to provide independent and
objective assurance to the Board and
Executive Management regarding
the adequacy of the design and
effectiveness of the systems of internal
control, including risk management,
governance and operational processes.
This helps them protect the assets,
reputation and future sustainability
of M&G.
The effectiveness of the Internal Audit
function is measured by the Committee
using several key performance
metrics, including appraisal of
the ongoing Quality Assurance
Improvement Programme.
For 2022, this included the
commissioning of an independent
external quality assessment of Internal
Audit, rated ‘Generally Conforms, with
no areas of non-conformance noted’
– the highest attainable rating under
relevant IA professional standards.
The Committee approved the Internal
Audit Charter in October 2022
following an annual review to assess its
continued validity in light of business
developments, IA professional standards
and regulatory expectations.
Internal Audit adopts a risk-based audit
cycle of work based on an assessment
of the inherent risk, prior coverage,
control environment and a review of
external factors such as emerging
industry themes, strategy and Executive
Management priorities.
The 2023 internal audit plan was
approved by the Committee in
December 2022, and will be updated as
required to reflect evolving assurance
requirements and priorities.
The Chair of the Committee is
responsible for setting the objectives
and reviewing the performance of
the Chief Auditor, who is directly
accountable to the Committee with
unfettered access to both the Chairs of
the Committee and the Board, as well as
Executive Management.
A new Chief Auditor was appointed in
2022, commencing role in April 2023,
with the Committee overseeing both the
recruitment process and arrangements
for providing effective cover during the
transition period.
We receive regular briefings from
Internal Audit throughout the year,
and ask business owners to attend
the Committee to explain actions
being taken.
External Audit
Transition to new external auditor
The Audit Committee is responsible
for conducting the process to select
the external auditor and recommends
their appointment, reappointment or
removal to the Board for approval by our
shareholders at each AGM.
Following a tender process in 2020,
the Committee recommended,
and the Board agreed, that
PricewaterhouseCoopers (PwC) be
appointed as the external auditor for the
period commencing 1 January 2022.
Fees paid to the auditor
During the year ended 31 December
2022, the total fees paid to PwC
amounted to £16.7 million, of which
£2.5 million related to non-audit
services. This compares to £12.2 million
paid to KPMG in 2021, of which
£3.3 million related to non-audit
services. The total fee paid to KPMG in
2021 also included £0.3 million of fees
incurred in relation to the audit of M&G’s
defined benefit pension schemes.
These schemes continue to be audited
by KPMG, therefore no fees were paid to
the Group’s auditor for these schemes
for the year ended 31 December 2022.
The year-on-year increase in fees
reflects the additional costs of a first
year audit, fees relating to IFRS 17,
inflation and increased scope due to a
revised audit standard.
A breakdown of fees paid to PwC is
given in Note 8 of the consolidated
financial statements.
In line with the Auditor Independence
Policy described above, all non-
audit services were approved by
the Committee. We were satisfied
that, considering the fees paid and
services provided under the policy, the
objectivity and independence of PwC
was safeguarded.
This proposal was approved by
shareholders at M&G’s AGM on 25 May
2022. In line with the agreed transition
process, PwC shadowed KPMG during
its audit of M&G’s 2021 Annual Report
and Accounts, including attending some
meetings alongside KPMG.
As with any first year audit, PwC has
provided a fresh challenge of our
accounting policies and methodology.
As a result, we have reallocated
certain tax balances within the primary
statements to different line items.
There is no impact on IFRS profit
after tax or equity as a result of these
reallocations. Further details are
provided in Note 1.1 to the consolidated
financial statements.
There were no other significant areas
where our interpretation of IFRS differed
from PwC.
The Auditor Independence Policy
was applied to PwC from 1 December
2020, with non-audit services that are
not permitted to be performed by our
auditors managed down during 2021
to ensure PwC’s independence from
1 January 2022.
M&G has complied with the Statutory
Audit Services for Large Companies
Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014
for the year ended 31 December 2022.
Oversight and engagement of
external auditor
The PwC audit is being led by audit
partner Mark Pugh.
The Committee provides clear guidance
to PwC on their expectations and
holds meetings with PwC, without the
presence of management, to allow the
audit team to raise any concerns and
remain independent and objective.
The Committee reviewed the external
audit plan before the start of the 2022
year end process.
Auditor independence policy
Our Auditor Independence Policy
(including the provision of non-
audit services) was reviewed by
the Committee in December 2022
and will continue to be reviewed at
least annually.
The main purpose of the policy is to
ensure that:
– we don’t engage the external auditor
in any non-audit services that are
not permitted
– we comply with all other relevant
regulation and ethical guidance
relating to relationships with the
external auditor
– we maintain a sufficient choice of
appropriately qualified audit firms.
Certain services need to be approved
by the Committee in advance of
any engagement.
External auditor effectiveness
The Committee, together with senior
management, annually assesses the
performance of the external auditor,
monitors their independence and
objectivity and the effectiveness of the
audit process.
This assessment is generally carried
out in April each year after the approval
of full-year results. However, as PwC
were appointed as our new auditors
at the AGM in May 2022, we amended
the process this year to reflect
this transition.
An abridged assessment of auditor
effectiveness was carried out in
September 2022, based on PwC’s
review of the 2022 half-year results.
The assessment considered topics
including the quality of the resource,
the overall approach and plan, the
execution of the half year review
and the quality of communications
received. We also considered whether
the external auditor had appropriately
challenged management’s methodology
and assumptions, key accounting
policy judgements and exercised
professional scepticism.
The Financial Reporting Council’s Audit
Quality Report on PwC, published in July
2022, was also considered in assessing
their effectiveness.
Based on the findings of the review
performed, it was concluded that we
expect PwC to deliver an effective audit
service for M&G and its subsidiaries.
A further review will be carried
out in April 2023, and on an annual
basis thereafter.
M&G plc Annual Report and Accounts 2022 | 115
GovernanceStrategic ReportFinancial informationOther information Audit Committee Report continued
Role and responsibilities
of the Audit Committee
The Committee’s responsibilities
include, but are not limited to:
– Financial reporting: monitoring
the integrity of the consolidated
financial statements,
related announcements and
other financial information
provided to shareholders and
other stakeholders.
– Framework of internal control
and risk management systems:
reviewing and monitoring the
adequacy and effectiveness
of the Risk Management
Framework and internal control
systems, in conjunction with the
Risk Committee.
– Internal and external audit
processes: assessing the
effectiveness of the internal and
external audit process.
– Whistleblowing procedures:
overseeing the effectiveness of the
whistleblowing programme.
– ESG reporting oversight and the
development of assurance in
relation to this reporting.
The Audit Committee’s
terms of reference
www.mandg.com
Membership and
meeting attendance
page 100
116 | M&G plc Annual Report and Accounts 2022
In Focus
Getting ready to report
under IFRS 17
IFRS 17 is the new accounting
standard for insurance contracts,
replacing IFRS 4, with an effective
date of 1 January 2023. Although the
2022 Annual Report is not produced
on an IFRS 17 basis, we have operated
an ongoing project to prepare for the
implementation of this new standard.
Training
Committee members have benefited
from a number of training sessions to
ensure that they have an appropriate
level of knowledge about IFRS 17.
Methodology
IFRS 17 is a principles-based
accounting standard. It includes
features that are not present in our
financial reporting metrics, which
results in significant differences in the
valuation of the liabilities, and hence
shareholder equity, compared with
IFRS 4.
As such, IFRS 17 requires a significant
number of methodology decisions
and implementation judgements.
In 2022, the Committee discussed
and approved a number of key
methodology decisions including:
– Approving judgements that have
a material impact on the IFRS 17
balance sheet. These include the
methodologies for determining the
contractual service margin at the
date of transition; the treatment
of the With-Profits Fund estate;
and the treatment of non-profit
business in the With-Profits Fund.
– Approving methodologies at
the discretion of management.
These include the use of a ‘top-
down’ or ‘bottom-up’ approach
to setting discount rates; the
definition of directly attributable
costs; and the definition of the
‘coverage units’ that measure the
insurance services provided.
These decisions were also reviewed
by PwC as they were finalised.
Insight and assurance
In April 2022, our external auditors,
PwC, provided the Committee
with a report on the readiness and
preparation of our peers on their
implementation of IFRS 17.
This provided some insight into the
progress other insurers had made in
terms of understanding the impact
of IFRS 17 on their 31 December
2021 balance sheets, and how they
planned to use dry runs during 2022
to migrate the process to business as
usual within the required timescales.
PwC also set out its audit plan
for IFRS 17, explaining the key
milestones for its audit across the
following workstreams:
– Transition (1 January 2022 opening
balance sheet)
– Methodology
– Actuarial models
– Accounting systems
– Data and assumptions
– Results and disclosures
Monitoring implementation process
The Committee received regular
updates throughout the year on
progress towards the implementation
of IFRS 17.
These updates included progress
tracking against key milestones
in relation to methodology and
assumptions, critical system
deliveries and reporting deliverables.
A key implementation risk highlighted
to the Committee early in 2022 was
the availability of skilled resource.
In order to address this, and ensure
we have sufficient skilled resource
to support the implementation and
achieve the required milestones, we
entered into a strategic partnership
with EY. This helped provide comfort
that we have access to skills in short
supply with IFRS 17 knowledge,
while also receiving a good spread
of industry information, insights and
best practice.
Implementation remains challenging.
The focus in 2023 is on the finalisation
of methodologies and judgements,
and ensuring that the business is
prepared to deliver the requirements
of the new standard.
External Disclosures
The Committee reviewed and
approved the IFRS 17 market update
which was published by M&G in
December 2022.
Find out more about the impact of
IFRS 17 on our financial statements in
Note 1.2.2.2 on pages 189 to 194.
Risk Committee Report
Risk
Committee
Report
Risk Committee composition
Clive Adamson (Chair)
Fiona Clutterbuck
Dev Sanyal
Clare Thompson
Dear Shareholder
I am pleased to present the Risk
Committee Report, which provides an
overview of the work of the Committee
and its activities during the year.
As you would expect, the geopolitical
and market events we have witnessed
this year required our close attention.
In particular, we examined risks arising
from the rising inflation and the cost
of living crisis, as well as the ongoing
conflict in Ukraine.
In March 2022, we welcomed Louise
Gelling as Chief Risk Officer (Non-
Financial Risk) reporting to Peter Grewal,
our Chief Risk & Compliance Officer.
Louise brings over 20 years of Financial
Services experience and insights,
and will be focusing on our approach
to non-financial risk management
and continuing to enhance the Risk
Management framework.
We continue to concentrate efforts
to further embed sustainability and
environment, social and governance
(ESG) risks into our Risk Management
framework, while monitoring
greenwashing risk. One of our deep
dive sessions during 2022 explored this
subject in detail.
Priorities for 2023
– Monitor the ongoing impact of geopolitical events on our risk profile
– Support the continued embedding of M&G’s Risk Management framework,
in particular business ownership and monitoring of risk appetite
– Oversee the completion of Compliance Review actions
– Maintain our focus on an appropriate open and constructive relationship
with all our regulators
Other deep dive sessions in 2022
included third-party risk management,
change and transformation, reputational
risk and investment performance.
We value these sessions as they provide
detailed insight into very topical matters.
They also provide the opportunity to
meet relevant members of management
to understand and challenge those areas
in more detail.
The Committee has overseen delivery
of the Risk Review which is now
materially complete providing a further
step change in risk understanding,
awareness and accountability across the
organisation aligned to a more mature
three lines of defence model to deliver a
stronger risk culture.
The Committee continues to work
closely with the Audit and Remuneration
Committees. The cross-membership
principles that we follow ensure conflicts
are managed and all Non-Executive
Directors have the right information
provided in the most efficient way.
I have continued my role as Chair of the
Risk Committee of PAC, which allows
me a wider oversight of risk issues in
the Group.
Finally, I’d like to thank Clare
Chapman, who stepped down from
the Committee on 25 May 2022, and
welcome Dev Sanyal who joined the
Committee on the same date.
Clive Adamson
Committee Chair
Areas of focus in 2022
– Monitoring and reviewing the
risk profile. Key risks and issues,
and emerging risks facing
M&G, particularly in light of the
geopolitical and market events
of 2022
– Monitoring sustainability and
ESG risk
– Regularly reviewing and advising
the Board on how the assessment
and analysis of the top financial
and non-financial risks facing
M&G were being managed
– Reviewing and recommending
updates to the Risk
Management framework
– Overseeing the embedding of the
Integrated Control framework
– Reviewing and approving
methodology and key
assumptions for the Solvency
II valuation and the results
of the Solvency II Internal
Model validation
– Reviewing the M&G ORSA and
recommending its approval to
the Board
– Reviewing and approving
compliance and fraud policies
– Advising the Remuneration
Committee on risk management
considerations to be applied
to the Remuneration Policy
and performance measures,
including risk adjustments to
the incentive pool and individual
incentive packages
M&G plc Annual Report and Accounts 2022 | 117
GovernanceStrategic ReportFinancial informationOther information Risk Committee Report continued
Composition and Schedule
Details of Committee members’ relevant
skills and experience are on pages 94
to 96.
The Risk Committee held eight meetings
during 2022: six regular scheduled
meetings and two held jointly with the
Audit Committee.
Chief Risk &
Compliance Officer
The Chief Risk & Compliance Officer
(CRCO) has responsibility for the risk
function and all compliance matters, and
is a standing attendee at all meetings.
Our CRCO provides written reports
to the Committee covering key risk
matters and compliance reporting,
and is available to the Committee for
consultation regarding any agenda item.
Review of current
and emerging risks
The Committee is responsible for
reviewing the Risk Management
Framework, detailed on page 58,
together with a list of M&G’s principal
risks and how those risks are identified,
managed and mitigated. We’re satisfied
that our review, and subsequent
reporting to the Board, enabled the
Board to carry out a robust assessment
of M&G’s emerging and principal risks.
Risk appetite, tolerance,
profile and strategy
We reviewed regular reports from the
CRCO including updates on the risk
profile, key risks and issues facing M&G,
emerging risks, our capital and liquidity
position against appetite, the control
environment, and non-financial risks.
We also received regular reports from
subsidiary Board Risk Committees.
Geopolitical and market events were a
key focus area during 2022. We closely
monitored M&G’s response to the
conflict in Ukraine, the impact of inflation
and the market response to the UK
mini-budget. This included reviewing
and recommending to the Board a range
of economic scenarios for business
planning purposes.
Sustainability and ESG risk has
also remained a key area of focus.
During 2022, we reviewed a subset of
the required scenarios on a full balance
sheet basis as part of the Own Risk and
Solvency Assessment (ORSA).
We regularly reviewed and provided
advice to the Board on how the
assessment and analysis of the top
118 | M&G plc Annual Report and Accounts 2022
financial and non-financial risks facing
M&G were being managed. We were
also provided with ‘deep-dive’ reviews
and presentations from executives
on key risks under their management,
including investment performance,
reputational risk, operational resilience,
and cyber and ransomware attacks.
We also received regular updates on
business change activities and key
programmes including the enhancement
of operational resilience capabilities.
Risk Management Framework
and internal control changes
We approved changes to the Risk
Management Framework and the risk
policies as part of our annual review, as
well as a revised risk taxonomy. We also
recommended updates to M&G’s
financial risk appetite and individual risk
limits to the Board for approval.
We received regular updates on
progress from the Risk Management
framework and Function review, which
was initiated by the CRCO in 2021.
We also oversaw the embedding of
the Integrated Control Framework in
conjunction with the Audit Committee.
Risk models and measures
We approved the overall methodology
and key assumptions for the Solvency II
valuation in conjunction with the Audit
Committee, and reviewed the overall
effectiveness of M&G’s Internal Model
by reviewing and approving the results
of the annual programme of Solvency
II Internal Model validation. We also
approved the Internal Model validation
plan for the forthcoming year.
Regulatory matters
We reviewed M&G’s ORSA and
recommended its approval to the
Board. In conjunction with the Audit
Committee, we also reviewed regulatory
and public Solvency II disclosures
and recommended them to the Board
for approval. In addition, we received
updates on emerging regulations,
regulatory risks and other regulatory
matters arising during the year.
Compliance and fraud
We reviewed and approved updates
to a number of policies including those
relating to regulatory compliance risk.
In conjunction with the Audit Committee,
we also oversaw the Financial Crime
Compliance Transformation Programme
with an objective to enhance the mitigation
and management of Financial Crime risk.
Annual evaluation of Risk
Committee performance
An evaluation of the Committee’s
effectiveness was carried out using
an internal questionnaire which was
circulated to the Committee members.
The Chair and Company Secretary
collated and analysed the results of the
questionnaire, and produced a report
which was considered by all Committee
members in February 2023. Find out
more in the Board Evaluation section of
the Governance Report on page 105.
Role and responsibilities
of the Risk Committee
The Committee is responsible for
assisting the Board in its oversight of
risk, including but not limited to:
– Advising the Board on M&G’s
overall risk appetite, risk tolerances
and risk strategy.
– Reviewing the Risk Management
framework and advising the Board
on its overall effectiveness.
– Approving M&G’s risk policies and
recommending such approval to
the Board.
– Providing input to the Audit
Committee’s review of
effectiveness of the Integrated
Control framework.
– Reviewing the effectiveness of
the Internal Model, including
stress testing.
– Reviewing the Own Risk and
Solvency Assessment (ORSA) and
overseeing the Internal Capital
Adequacy Assessment Process
(ICAAP) and ORSA processes in
our subsidiaries.
– In conjunction with the Audit
Committee, ensuring compliance
with regulatory requirements.
– Advising the Remuneration
Committee on risk and control
issues that may impact
remuneration strategy in any
given year, including adjustments
to individual incentives.
The Risk Committee’s
terms of reference
www.mandg.com
Membership and
meeting attendance
page 100
Directors’ Remuneration Report
In this section
Remuneration at a glance
Single figure remuneration
Directors’ share interests and other payments
Remuneration arrangements throughout the Company
Statement of implementation of the Remuneration Policy in 2023
Other related disclosures
Directors’
Remuneration
Report
Remuneration Committee
Clare Chapman (Chair)
Fiona Clutterbuck
Clare Thompson
Massimo Tosato
Priorities for 2023
– Maintaining alignment of executive remuneration with wider
stakeholder experience
– Further development of ESG linkage to executive remuneration
– Assessing the effectiveness of incentives to reward executives for
demonstrating our expected behaviours in delivering business outcomes
– Maintaining support for our wider workforce through cost of living challenges
Changes to Executive Directors
During the year we approved both the
retirement terms for John Foley and
remuneration terms for Andrea Rossi
as the new Group Chief Executive
Officer. Kathryn McLeland joined as
our new Chief Financial Officer in May
2023 on remuneration terms disclosed
in the 2021 report.
Supporting our colleagues
We placed increased focus on
supporting our colleagues given the
current inflationary environment and
cost-of-living challenges, including
through a one-off payment to
lower earning employees in the UK
and Europe.
Dear Shareholder
On behalf of the Board and its
Remuneration Committee, I am pleased
to present the Directors’ Remuneration
Report for the year ended 31 December
2022, covering our decisions in respect
of remuneration outcomes for the 2022
financial year, the triennial review of
the Directors’ Remuneration Policy
and implementation of the new Policy
in 2023.
Performance delivered in 2022
Overall, our results for 2022
demonstrate the resilience of our
business model in what has been
a challenging macroeconomic
environment. In Asset Management
our Wholesale business has returned
to net client inflows for the first time
since 2018, with improved investment
performance when compared to peers.
Our Institutional business had marginal
net client outflows impacted by the UK
mini budget crisis in the second half of
the year.
In Retail and Savings there was a strong
performance from our with-profits
business and continued growth in M&G
Wealth. Adjusted operating profit for
M&G Wealth more than doubled when
compared to 2021 following increased
Areas of focus in 2022
Directors’ Remuneration Policy
We reviewed the policy for shareholder
vote and implementation in 2023.
We concluded that the policy remains
appropriate with only minor changes
related to regulation, removing
unnecessary upward discretion and
ensuring appropriate levels of flexibility.
Incentive scorecards for 2023
We reviewed our incentive scorecards
with the primary objectives of
simplification and further alignment with
our purpose and strategy. The 2023
scorecards use fewer measures that are
critical for delivery of our strategic goals.
Incentive outcomes and
windfall gains
We considered the incentive
outcomes aligning with our
performance, including a robust
and detailed assessment of windfall
gains on the vesting of the 2020
LTIP awards, taking consideration
of consultation feedback from
shareholders in reaching our
conclusion to make a 10% downward
adjustment to the number of shares
vesting after applying the outcome of
the performance scorecard.
M&G plc Annual Report and Accounts 2022 | 119
GovernanceStrategic ReportFinancial informationOther information Directors’ Remuneration Report continued
Remuneration Chair statement
Our asset management Trust Ranking,
based on an independent study of
clients’ trust in asset management
brands, maintained its position of 5th
in 2022, which resulted in an outcome
between the threshold and target of the
performance range.
Our annual OneVoice survey helps
us to understand and drive action to
improve colleague engagement at
M&G plc. During the year we changed
the provider for our OneVoice survey
with an accompanying change in
methodology. The engagement result
shown elsewhere in the report is on the
new basis, however we also assessed
the score on the old methodology for
the purpose of the scorecard. The result
of 76 represented a small improvement
on the 2021 outcome and was above
the threshold performance level,
scoring highly in awareness of culture
and purpose.
The annual assessment of risk
management and internal control
effectiveness identified that positive
progress had been made across the
business in 2022, building on the
foundations previously put in place, but
also acknowledged that implementation
work will continue into 2023 to reach
target maturity in this area. The positive
trend of reducing the number of overdue
high and very high assurance issues
continued in 2022, although the outcome
of 14% was still below the threshold
performance requirement. At 65%, the
proportion of self-identified high and
very high issues was above target.
As a result of this performance, the 2022
STI delivered an outcome of 50.6% of
maximum opportunity for all Executive
Directors (compared to an outcome of
70.15% in 2021):
shareholder transfers from PruFund.
Our Heritage business was impacted
by the rising yields in the period which
impacted the adjusted operating profit
result from our annuity business.
Our capital position remains strong
despite being impacted heavily by
markets in the period and we are on
track to deliver our cumulative operating
capital generation target of £2.5 billion
by the end of 2024, linked to the 2021
LTIP target.
Clients are at the core of our purpose,
which is to help people manage and
grow their savings and investments
responsibly and it is pleasing that our
main client metric, the net promoter
score for Retail and Savings, has seen a
strong improvement in the year.
2022 Short-term
Incentive Plan
The performance indicators driving
the outcome of the 2022 Short-Term
Incentive (STI) are summarised below.
Financial performance in 2022
Adjusted operating profit before tax
(including restructuring costs) is below
threshold, impacted by the significant
increase in interest rates over the
year which resulted in a lower than
expected adjusted operating profit
from our annuity business. Our adjusted
operating profit target was also
impacted by large foreign exchange
losses on our USD denominated
subordinated debt.
Total Capital Generation (excluding
market movements) is above the
maximum performance level,
demonstrating strong underlying capital
generation which benefited from higher
than expected shareholder capital
generated by the with-profits business.
Total Capital Generation (excluding
market movements) also benefited
from the recognition of deferred tax
assets due to mark-to market losses on
our assets.
With-Profits Fund investment
performance significantly outperformed
the benchmark demonstrating the
benefit to policyholders of the strength
and diversification of the Fund’s
investment approach.
The with-profits renewal expense per
policy was above target reflecting
lower than expected expenditure on
restructuring projects. With-profits
new business expense as a percentage
of net client inflows was also short
of target despite above expected
PruFund inflows.
63% of institutional funds outperformed
their investment benchmark/
objective to deliver an above
target outcome. Whilst there was
continued improvement in wholesale
investment performance, 50% of
funds outperformed their investment
benchmark/objective on a rolling
average basis over one and three
years, which was at the threshold of
the performance range. In comparison
to peers, wholesale investment
performance has improved with 68% of
funds now in the upper two performance
quartiles over one year (2021: 45%).
Non-financial performance in 2022
Non-financial measures focus on the
experience of clients and colleagues
and ensuring we operate within an
effective risk and controls environment.
Although we did not achieve all of the
stretching targets established at the
beginning of the year, which is reflected
in the below-target outcome of the non-
financial section overall, the Committee
was pleased to observe positive year-
on-year trends across many areas of
client outcomes, colleague engagement
and culture and the control environment.
Better understanding the needs of
our clients is a key element of our
purpose. In 2022, we have focused
on simplification, stabilisation and
delivering excellent service to make
doing business with us easier, while
laying foundations for growth and
ongoing improvement. In Retail and
Savings our net promoter score was 14,
up significantly from prior year and at
maximum performance.
120 | M&G plc Annual Report and Accounts 2022
Measure
Performance
Vesting (Max)
Financial
Measures
– Adjusted operating profit, including restructuring costs
£382m – below threshold
– Total capital generation, excluding market movements
£827.6m – above maximum
– With-Profits renewal expense per policy
£67.6 – above target
– With-Profits new business expense as % of flows
2.0% – above threshold
Investment
Performance
– With-Profits Fund (versus benchmark)
– Wholesale (% of funds above benchmark)
– Institutional (% of funds above benchmark)
– Retail and Savings – Net Promoter Score
– Investment Management – Trust Ranking
– Sustainable engagement index score
Client
Outcomes
Colleague
Measures
Risk &
Controls
7.0% – above maximum
50% – at threshold
63% – above target
14 – above maximum
5th – above threshold
76 – above threshold
– % high/very high assurance issues overdue
– Proportion self-identified high/very high issues of total
14% – below threshold
65% – above target
34.75% (60%)
5.5% (10%)
6.3% (10%)
1.0% (10%)
3.1% (10%)
2020 Long-Term Incentive Plan
The 2020 LTIP award was the first to be granted under the M&G plc Directors’ Remuneration Policy following our demerger from
Prudential plc and listing in October 2019, covering the period 2020 to 2022.
Measure
Financial
Measures
– Total capital generation
– Relative total shareholder return
Performance
£2,420m – above target
73rd percentile – above target
Vesting (Max)
57% (60%)
38% (40%)
The primary measure was total capital
generation which was very strong in
the first two years of the award period,
resulting in an above target performance
level despite delivering a negative total
capital generation in 2022 as a result of
adverse market movements.
The remainder of the scorecard
was based on the Company’s total
shareholder return relative to a peer
group of FTSE 100 financial services
companies (excluding investment trusts),
with threshold performance set at the
median of the peer group and maximum
performance at the upper quartile.
The performance outcome was just
below the upper quartile of the peer
group, driven by the continuation of our
dividend policy throughout the three
year performance period which was at
the top end of FTSE 100 levels.
Assessment of windfall gains from
the 2020 LTIP
The 2020 LTIP was granted during
the initial COVID outbreak in early
April 2020. At the time of the grant we
disclosed our intention to review the final
vesting level of the awards to determine
whether there had been an element of
windfall gain. The Committee recognised
the need to undertake a robust
approach, including both an analytical
assessment and the application of
judgement, and to be transparent in
sharing the details of the methodology
and conclusions.
This issue was of considerable interest
to shareholders, who welcomed the
early and transparent engagement
on this issue through consultation.
The majority of discussion focused
on the methodology and basis for the
approach taken.
Taking consideration of the feedback
received, evolving market practice and
the prevailing market conditions in Q1
2023, we have concluded to make a 10%
downward adjustment to the number
of shares vesting after applying the
outcome of the performance scorecard.
This adjustment is reflected in the single
figure remuneration disclosure for John
Foley, former Chief Executive.
We believe the process followed was
robust, with a fair and balanced outcome
taking into account the interests of all
of our stakeholders. Full details of the
methodology have been provided on
page 143 in the footnotes to the single
figure table.
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Consideration of pay and
conditions across the wider
workforce
The Committee takes careful
consideration of pay and conditions
for the wider workforce in the normal
course of its duties. This is also a
key input when determining salary
reviews and incentive outcomes for
the Executive Directors. The key
indicators considered by the Committee
as part of its 2022 year-end decision
making included:
– The salary increase budget of 5.1%
for 2023 across the UK workforce,
which was targeted at lower
earning colleagues to recognise
the inflationary environment and
cost-of-living challenges, with no
increase applied to executives or
senior managers.
– The one-off payments made to
colleagues earning below certain pay
thresholds in the UK and in Europe
to provide targeted and meaningful
support in difficult economic times;
– The downward year-on-year
percentage change in STI outcome for
2022 for the former Chief Executive,
John Foley, relative to a modest
positive increase for the average
employee; and
– The Chief Executive Total
Remuneration Ratio, which was 77:1
in 2022 at median (compared to 52:1
in 2021).
The Committee noted that the increase
in the remuneration ratio was primarily
driven by the vesting outcome of the
2020 LTIP awarded to the former
Chief Executive and that the year-on-
year change in all other components
of his remuneration (salary, benefits
and STI) had all trended below the
wider workforce. The Committee was
therefore assured that the decisions
taken in respect of remuneration
outcomes, including a downward
adjustment to the 2020 LTIP, were fair
and reasonable when compared to
the wider workforce experience over
the period. The Committee noted that
outputs such as the Chief Executive pay
ratio would continue to be subject to
some volatility over a period where there
are changes to the Executive Directors
and restructuring activity impacts the
demographics of our wider workforce.
Diversity and inclusion is one of our
two strategic ESG priorities, along with
climate change. In July 2021, we were
proud to become the first business in our
sector to publish pay gap data inclusive
of ethnicity for both 2020 and 2021, and
our 2022 pay gap data is presented on
page 153. Our commitment to achieving
year-on-year improvement in the
representation of gender and ethnicity
in senior leadership roles is underpinned
by our 2023 LTIP scorecard, with targets
aligned to our stretching public goals of
40% women and 20% ethnicity by the
end of 2025. For more information on
diversity and inclusion please refer to
the Our colleagues section of the report
from page 48.
Changes in Executive
Director positions
We announced John Foley’s intention
to retire on 27 April 2022, with his
12 month notice period commencing
from that date. John stepped down from
the Board on 10 October 2022 and his
remuneration is pro-rated to this date
in this report. He continued to work
until 31 December 2022 and remains
an employee of the Company until his
retirement date in April 2023. The full
terms of John’s retirement are provided
in the Payments for loss of office section
on page 148, which are in alignment with
the Directors’ Remuneration Policy.
We subsequently announced the
appointment of Andrea Rossi as Group
Chief Executive Officer and Andrea
joined the Board on 10 October 2022.
Andrea is receiving a base salary of
£875,000 (13% lower than the package
that applied to John Foley in 2022),
standard pension in line with the wider
workforce and maximum incentive
opportunity in line with his predecessor,
250% of base salary for both the STI
and LTIP awards. There are no other
awards or payments connected with
Andrea’s appointment.
Kathryn McLeland was appointed
to the Board in May 2022 as Chief
Financial Officer. Kathryn’s package
was determined in line with our
Directors’ Remuneration Policy.
Full details of remuneration received
in 2022 is provided in the single figure
table on page 141 and approach to
implementation in 2023 is provided from
page 154.
Both Andrea and Kathryn’s 2022 STI
awards have been pro-rated from
their respective start dates and their
single figure remuneration reflects
the amounts received since they
commenced employment in 2022.
Triennial Policy review and
implementation in 2023
The Policy was introduced and approved
by shareholders in May 2020 following
our listing in October 2019. It is therefore
due for its triennial review in 2023.
We have also taken the opportunity to
review the implementation of the Policy,
with particular focus on the design of the
incentive scorecards.
Throughout the review we have paid
careful consideration to alignment
with our purpose, culture, strategy
and the interests of our full range of
stakeholders, evolving market practice,
corporate governance and regulatory
requirements. We have also taken the
opportunity to make our remuneration
design simpler and more transparent,
with fewer and more focused
performance measures across our
incentive scorecards.
We consulted with major shareholders
and they were generally comfortable
with the terms of the Policy. There was
also broad support for seeking to
simplify the incentive scorecards.
The Committee welcomed the feedback
received and carefully considered this in
finalising its approach, in particular for
scorecard measures to be underpinned
with robust, transparent and quantifiable
targets, and clearly aligned with our
strategy. This is reflected in the final
design for 2023.
Policy review - outcome
The Committee reflected on how the
Company had evolved over the past
three years and concluded that the
current framework remains appropriate,
with some minor amendments to take
effect from 2023. The changes are
explained in the Policy section of this
report and primarily relate to necessary
updates to ensure we can maintain
continued regulatory compliance,
removing unnecessary upward
discretion/exceptional provisions
and introducing some additional
modest flexibility.
122 | M&G plc Annual Report and Accounts 2022
We reviewed shareholding requirements
and have increased the requirement
for the Chief Financial Officer to 250%
(from 200%), which we believe is more
consistent with market practice and
creates a more appropriate margin to
the Group Chief Executive requirement
of 300%. It is also consistent with our
principle of creating strong long-term
alignment with shareholders.
The Committee considered alternative
models for delivering long-term
incentives during the review, in the
interest of simplification and strategy
alignment, and concluded that the
current approach remained effective for
aligning our executives to our business
strategy and stretching financial and
strategic objectives.
Certain aspects of the Policy will be
kept under review and may be revisited
during the 3-year cycle, including further
consideration of long-term incentive
plan simplification. In this event a
revised Policy would be presented to
shareholders for approval.
Implementation in 2023
No increases have been applied to base
salaries or maximum incentive eligibility
for the Executive Directors in 2023.
Incentive plan measures for 2023
We have reviewed the scorecards
for implementation in 2023, with the
primary objective of simplification and
further reinforcing alignment with our
purpose and strategy. The STI and
LTIP scorecards were last subject
to a comprehensive review in 2021.
The primary focus of that review
was to ensure that we set clear and
measurable objectives across a broader
range of key non-financial priorities.
The Committee remains mindful that
having an appropriate balance between
what performance is delivered and
how that performance is delivered is
critical for the long-term success of the
company and sustainable shareholder
value creation, with key aspects of
non-financial performance including the
effectiveness of risk management, client
experience and outcomes, conduct,
culture and ESG.
We believe that the overall balance
of measures is still appropriate, but
that the number of measures that
has evolved over time has resulted in
undue complexity, diluting strategically
important measures and compromising
a simple/transparent link between
performance and reward. We have
therefore focused on a simplification of
the scorecards, utilising fewer measures
that are considered critical for alignment
to our strategy, culture, values and
operational priorities.
The 2023 STI scorecard will have a 60%
weighting to financial measures (capital
and profit), 20% to client (including
investment performance) and 20% to
colleague and risk culture.
The 2023 LTIP scorecard will continue
to have 75% weighting to financial
measures (capital and TSR), with the
remaining 25% weighting to ESG
measures, which includes both gender
and, for the first time, ethnicity targets
aligned to our disclosed 2025 diversity
objectives, and an own-emissions target
aligned to progressing towards our
disclosed 2030 sustainability objective.
Further details of the scorecards,
including the LTIP performance targets
and ranges, are provided in the Link
to strategy on page 140 and 2023
Implementation on pages 154-156.
Conclusion
Through our review of the Policy,
simplification of the 2023 incentive
scorecards and determination of 2022
remuneration outcomes, the Committee
has sought to follow robust processes
and provide a clear and transparent
explanation of the conclusions reached.
The Policy will be subject to a
binding vote and our conclusions on
the 2022 remuneration outcomes
and 2023 implementation of the
new policy (including the revised
incentive scorecards) will be subject
to an advisory vote at the upcoming
AGM in May. I look forward to your
continued support.
As we look forward to 2023, the
Committee will be focused on:
– maintaining alignment of executive
remuneration with wider stakeholder
experience, including shareholders
and colleagues;
– further development of ESG
linkage to executive remuneration,
strengthening the linkage with value
creation and enhanced disclosure;
– assessing the effectiveness of
incentives to reward executives
for demonstrating our expected
behaviours in delivering business
outcomes. This will have particular
focus on client outcomes, risk
management and first line
accountability; and
– supporting the wider workforce
through the cost-of-living challenges.
Clare Chapman
Remuneration Committee Chair
Role and responsibilities
of the Remuneration
Committee
Deciding the framework of the
remuneration policies: establishing,
approving and maintaining the
principles and framework of
the remuneration policies and
arrangements for the Group.
Determining the design,
implementation and operation of
remuneration arrangements for the
Chair of the Board, the Executive
Directors, Group Executive
Committee and identified staff for
all remuneration regulations that
apply to the Group and overseeing
remuneration for individuals
whose total remuneration exceeds
an amount determined by the
Committee from time to time.
The Remuneration Committee’s
terms of reference
www.mandg.com
Membership and
meeting attendance
page 100
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GovernanceStrategic ReportFinancial informationOther information Directors ̓ Remuneration Policy
Directors’ Remuneration Policy
Remuneration Policy for Executive Directors
Key principles of the Remuneration Policy for Executive Directors
The Remuneration Policy, which will take effect from the 24 May 2023 AGM, subject to shareholder approval, has been
designed to align with and support our strategic priorities to create long-term sustainable performance, resulting in the
creation of shareholder value and positive client outcomes within an inclusive and engaging culture for our colleagues.
In determining this policy the Remuneration Committee (the Committee) has followed a fully-informed and independent
decision making process, receiving input from the Company’s independent remuneration advisers and ensuring that conflicts
of interest were managed by ensuring that no individuals participated in the consideration of decisions impacting their own
remuneration. The Committee is wholly made up of independent Non-Executive Directors who do not participate in the
Company’s incentive plans.
Key principles underpinning the Policy are:
Sustainable, long term
success of the Group and
robust risk framework
Clear alignment with the long-term interests of the Company through a significant proportion of
executive packages being delivered in shares for three to five years and through the shareholding
and two-year post-employment shareholding requirement policies.
Remuneration appropriately balanced between recognising short and long term performance.
Financial and non-financial incentive measures that are focused on indicators of sustainable
performance that position the company strongly for continued success.
A robust and rigorous risk review of remuneration outcomes to ensure that these properly
reflect overall company performance from a financial, key stakeholder, conduct and reputational
perspective, and within an effective risk management framework and culture.
High performing talent Clarity of our remuneration packages which are appropriately positioned relative to the scope
Positive, safe
and collaborative
environment aligned
to our purpose, values
and culture
and complexity of the roles and relevant market benchmarks, and designed to reflect and
recognise performance.
Key focus on positive client outcomes and quality of client engagement.
Strong alignment with our ambitious diversity targets and objectives to maintain a positive and
engaging culture that provides equality of opportunity for all current and prospective employees.
Promoting a positive culture in which the ‘how’ as well as the ‘what’ is recognised and valued,
with a focus on employees and clients and demonstrable alignment between behaviours and
remuneration outcomes.
Predictability and
alignment with
stakeholders
Strong alignment for our executives with the experience of shareholders through the delivery of a
significant proportion of remuneration in shares, with vesting and holding periods over 5 years and
a robust shareholding requirement policy.
Incentive plan measures aligned to client outcomes and long term diversity and sustainability
measures that reflect and recognise the company’s wider role and impact.
Simple and transparent Remuneration plans and programmes that are simple to understand and provide clear linkage
to performance set in line with business strategy.
Compliant and focused
on best practice
Arrangements are fully compliant with all applicable regulatory and legal requirements and
reviewed on a continuous basis to align with best practice as this continues to evolve.
124 | M&G plc Annual Report and Accounts 2022
Summary of proposed changes since last policy
The Committee reflected on how the Company had evolved over the past three years and has concluded that the Policy has
generally proved well aligned to our strategy and the interests of key stakeholders, with strong alignment with governance
and regulatory requirements and our values and culture. Changes have therefore consisted of a relatively small number of
amendments, including minor drafting changes to improve clarity, to introduce some modest flexibility and to ensure the Policy
allows for continued regulatory compliance; the removal of unnecessary upward discretion and exceptional provisions where
these are no longer required; and a review of the shareholding requirement for the Chief Financial Officer in alignment with the
above principles and with a view to evolving market practice across our peer group and investor expectations.
We have also reviewed the incentive scorecards for 2023 with a key focus on simplification and alignment to our strategy and
purpose. More details on the scorecards is provided in the link to strategy and the 2023 implementation sections of the report on
page 140 and 154-156 respectively.
The Committee did consider alternative models for delivering long-term incentives during the review, in the interest of
simplification and strategic alignment. It was concluded that the current approach remained effective for aligning our executives
to our current business strategy, with stretching financial and strategic objectives. This will be kept under review through the
3-year cycle of the Policy and if our conclusions change we will once again engage with shareholders.
These changes can be summarised as follows:
– Shareholding requirement for the Chief Financial Officer increased from 200% to 250% of salary to provide for more
consistent market positioning and appropriate relativity to the Group Chief Executive Officer requirement, which remains
at 300%;
– Removal of the legacy benefits provisions that applied to John Foley, the former Chief Executive, as these are no longer
required, and the removal of the ability to provide a legacy defined benefit arrangement to executives;
– Removal of the exceptional limit for LTIP awards of up to 400% of salary in the year of hire, as the Committee does not consider
this to be a necessary upward discretion given the level of the standard maximum entitlement (250% of salary) and the ability
to buy-out forfeited awards for new appointments, where required; and
– Amendments extending the current criteria for applying malus and clawback.
Drafting has also been updated to improve clarity and to provide confirmation of applicable treatment on specific points,
including;
– The addition of wording on the discretion that can be exercised by the Committee to apply an adjustment to formulaic
outcomes where these are not aligned with shareholder and/or wider stakeholder experience, and confirming that any use of
discretion will be disclosable;
– Clarification that buy-out awards will be subject to malus and clawback provisions; and
– Additionally, the Committee is mindful that it may become subject to the “extended” remuneration requirements under the
Investment Firm Prudential Regime during the life of this Policy. We have drafted the Policy sufficiently flexibly to ensure
compliance with the extended remuneration requirements if and when they apply to us. It is worth noting that there is also
discretion to amend the Policy if any further changes are required to maintain compliance with updates to regulation.
M&G plc Annual Report and Accounts 2022 | 125
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Remuneration
element
Base
salary
Benefit
Pension
Strategic alignment and operation
Maximum opportunity
Performance measures
There are no prescribed
maximum salary levels, but
any increase will normally be
below or in line with increases
for the general workforce in
an ordinary year.
The Remuneration Committee
will retain the discretion to
award increases at a level
greater than that applied to
the general workforce if the
Remuneration Committee
deems it appropriate to do so.
The Remuneration Committee
will consider the impact of
increasing base salary on other
elements of remuneration to
ensure total remuneration
remains appropriate.
Cover levels are defined within
the terms of each benefit
with maximum opportunity
dependent on the terms of
the insurer and individual
circumstances.
Both individual and Company
performance will be taken into
consideration when determining
base salary increases.
There are no performance
measures for benefits.
13% of base salary per annum
There are no performance
measures for pension
contributions.
Base salaries are appropriately positioned
to attract and retain executives with the
required skills and experience to deliver our
strategic objectives.
Base salaries are paid in monthly instalments
and are normally reviewed annually with
increases normally effective from 1 April
each year.
In reviewing base salaries, the Remuneration
Committee takes into account a number of
factors, including but not limited to:
– Company and individual performance;
– the scope/size of the roles and the skills
and experience of the Executive Directors;
– increases amongst the general workforce
and affordability; and
– benchmarking information for other firms
of a similar size and scope to M&G plc.
Benefits are provided to ensure our
remuneration packages are appropriate
to attract and retain executives with
the required skills and experience to deliver
our strategic objectives.
Benefits are provided to Executive Directors
at a market competitive level, taking into
account benefits offered to other employees
within M&G.
Benefits currently provided to Executive
Directors include but are not limited to:
– Life assurance;
– Disability insurance and Critical Illness
insurance;
– Private health insurance (including
eligibility for his or her spouse or civil
partner and dependent children); and
– Annual health screening.
The Executive Directors are able to
participate in self-funded voluntary benefits
and discounted M&G products in line with
other employees.
Executive Directors are eligible to participate
in UK all-employee share plans, which
currently comprises HMRC-approved
Sharesave and SIP plans, on the same terms
as other employees.
The Company may cover reasonable legal
costs and certain relocation expenses
in accordance with the Company’s
relocation policy.
Pension contributions as a percentage
of salary are aligned with the general
workforce at a level sufficient to ensure our
remuneration packages are appropriate
to attract and retain executives with the
required skills and experience to deliver our
strategic objectives.
Executive Directors are eligible for employer
contributions in respect of the Company’s
defined contribution pension scheme which
may be received in part or in full in cash.
The approach to pension arrangements for
the Executive Directors is in line with the
wider workforce.
126 | M&G plc Annual Report and Accounts 2022
Remuneration
element
Short-Term
Incentives
(STI)
Strategic alignment and operation
Maximum opportunity
Performance measures
STI awards are subject to
an annual limit of 250%
of base salary for the
Executive Directors.
The scorecard of performance
measures will comprise a
combination of financial and non-
financial measures, with financial
measures normally comprising at
least 50% of the scorecard.
Performance measures and
weightings are determined
annually to ensure alignment with
the Business Plan and strategy.
The Remuneration Committee
has discretion to adjust formulaic
outcomes if they are not
considered to be representative
of the overall performance of the
Company. Any adjustments applied
will be explained in the relevant
annual remuneration report.
Performance targets and
ranges will be disclosed with
the performance outcomes
of STI awards in the annual
remuneration report published
at the end of the performance
period for the STI awards.
STI awards are designed to provide clear
alignment of objectives and performance
with the delivery of our financial and
non- financial strategic objectives annually.
The deferred share component of STI
provides longer-term alignment with the
interests of the Company and shareholder
value creation.
Executive Directors are eligible to participate
in an annual STI plan at the discretion of the
Committee. Performance measures, targets
and weightings are determined annually
and may vary to ensure alignment with the
Business Plan and strategy.
A threshold, target and maximum
performance level is set for each measure,
with an outcome of 0% for threshold
performance or below and 50% of maximum
for on-target performance.
Performance outcomes may be subject to
a discretionary downward risk adjustment
taking consideration of an annual report
from the Risk Committee, including
factors such as an assessment of risk and
compliance events and the effectiveness
of risk management relative to M&G’s risk
appetite during the performance period.
Any adjustments applied will be explained in
the relevant annual remuneration report.
50% of any STI payable to an Executive
Director will normally be deferred for three
years into an award of M&G shares under the
Deferred Incentive Plan. The rate of deferral
may be adjusted upwards and a post-vesting
holding period may be applied to meet
remuneration regulatory requirements
where required.
Dividend equivalents may accrue on
deferred share awards, based on dividends
paid to shareholders during the vesting
period. In line with the plan rules, dividend
equivalents may also accrue during any
applicable post-vesting holding period.
These may accrue either in cash or shares on
a reinvestment basis and are subject to the
same terms, including vesting date, as the
deferred share award.
Adjustments may be made to deferred share
awards in certain circumstances including
rights issues, corporate restructuring and
special dividends, if the Remuneration
Committee deems it appropriate to do so.
Malus and/or clawback provisions apply to
both cash and deferred STI awards - see
“Malus and Clawback” for further details.
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Remuneration
element
Long-Term
Incentive
Plan
(LTIP)
Strategic alignment and operation
Maximum opportunity
Performance measures
LTIP awards are subject to a
limit of 250% of base salary in
respect of any financial year.
The performance conditions
may comprise a combination of
financial (including TSR) and
non-financial measures, with
financial measures normally
comprising at least 75% of
the scorecard. Performance
measures and weightings for
the grant of new awards are
determined annually to ensure
alignment with the Business
Plan and strategy.
The Remuneration Committee
has discretion to adjust
formulaic outcomes if they
are not considered to be
representative of the overall
performance of the Company.
Any adjustments applied will be
explained in the relevant annual
remuneration report.
The Remuneration Committee
has discretion to amend
or replace performance
measures and/or targets where
it reasonably considers it
appropriate to do so, provided
that the amended conditions are
not materially less challenging.
Performance measures, targets
and ranges will be disclosed in
the implementation section of
the annual remuneration report
for the year prior to the grant of
LTIP awards.
LTIP awards are designed to provide long
term alignment of executive remuneration
to sustained business performance relative
to long-term strategic objectives and
shareholder value creation.
Executive Directors are eligible to
participate in the LTIP at the discretion
of the Committee. Awards are normally
granted annually over M&G plc shares.
Awards are subject to performance
conditions which are measured over a
three-year vesting period from 1 January
of the year of grant with vesting occurring
on the third anniversary of the grant date.
Vested awards are subject to an additional
holding period of two years.
A threshold and maximum performance
level is set for each measure, with straight-
line interpolation for performance between
these levels. At threshold performance, 0%
will vest for all metrics with the exception
of TSR, for which 25% will vest. There is
zero vesting for performance below the
threshold. Maximum performance will result
in 100% vesting.
Performance outcomes may be subject to
a discretionary downward risk adjustment
taking consideration of a report from the
Risk Committee, including factors such as an
assessment of risk and compliance events
and the effectiveness of risk management
relative to M&G’s risk appetite during the
performance period. Any adjustments
applied will be explained in the relevant
annual remuneration report.
Dividend equivalents may accrue on
LTIP awards, based on dividends paid to
shareholders during the vesting period. In
line with the plan rules, dividend equivalents
may also accrue during any applicable post-
vesting holding period. These may accrue
either in cash or shares on a reinvestment
basis and are subject to the same terms,
including vesting date, performance
conditions and holding period, as the LTIP
share award.
Adjustments may be made to deferred share
awards in certain circumstances including
rights issues, corporate restructuring and
special dividends, if the Remuneration
Committee deems it appropriate to do so.
Malus and clawback provisions apply to
LTIP awards during the vesting and holding
periods - see “Malus and Clawback” for
further details.
128 | M&G plc Annual Report and Accounts 2022
Malus and clawback
All STI and LTIPs operated by M&G are subject to malus and clawback provisions in the following circumstances:
Application to STI
– Cash STI
– Clawback for 3 years from the payment date
Application to LTIP
– Deferred STI (in shares)
– Malus for the 3-year vesting period
– 3-year vesting period
– 2-year holding period
– Malus for the 3-year vesting period
– Clawback for the 2-year holding period
The circumstances in which the Remuneration Committee may consider the application of malus and/or clawback are defined in
the plan rules and can be summarised as follows:
– a material misstatement of published accounts;
– an error in the calculation of performance outcomes or such calculation being based on inaccurate information;
– material risk management failures;
– reasonable evidence of individual misconduct or material error;
– breach of an applicable law, regulation or code of practice and/or failure by the individual to meet standards of fitness
and propriety;
– actions or responsibility for conduct leading to significant loss(es) and/or reputational harm to the company or any
Group Member;
– material downturn in financial performance; or
– corporate failure.
Malus can be applied to an alternative unvested award to satisfy a clawback event on a vested/released award. The periods that
malus and clawback apply may be extended if required to meet regulatory requirements.
Legacy arrangements
The Committee reserves the right to make any remuneration payments and/or payments for loss of office, including the exercise
of any discretions available to it in connection with such payments (notwithstanding that they are not in line with this policy),
where the terms of payment:
– came into effect before this policy was approved and implemented (including where such payments are in line with a previously
approved policy); and
– were agreed at a time when the individual was not a Director of the Company and, in the opinion of the Committee, the
payment is not in consideration for the individual becoming a Director.
Details of any such payments will be set out in the applicable Annual Report on remuneration as they arise.
Remuneration Committee discretion
The Remuneration Committee retains discretion in the operation and administration of the Directors’ Remuneration Policy, noting
that no material changes will be made to the advantage of the Executive Directors without obtaining shareholder approval.
Any use of discretion and how it was exercised will be disclosed, where relevant, in the Annual report on remuneration.
This includes (but is not limited to) the following:
– the Executives’ participation in the Company’s incentive plans;
– the timing of awards including grant, vesting and release dates;
– the size of awards and vesting levels within the limits set out in this policy;
– the performance measures and weighting for STI and LTIP awards within the terms set out in this policy;
– the adjustment of formulaic outcomes of incentive awards for risk management issues or where the outcomes are not
reflective of overall Company performance or aligned with shareholder and/or wider stakeholder experience;
– the settlement of any share awards in cash in exceptional circumstances;
– the determination of good leaver status and treatment of unvested awards in line with this policy and incentive plan rules;
– the extent to which malus and clawback should apply to any award;
– the adjustment of awards in certain circumstances including rights issue, corporate restructuring, change of control and
special dividends;
– the amendment or replacement of performance measures and targets where it reasonably considers it appropriate to do so,
provided that the amended conditions are not materially less challenging; and
– to amend the policy to ensure continued compliance with any applicable remuneration regulations.
M&G plc Annual Report and Accounts 2022 | 129
GovernanceStrategic ReportFinancial informationOther information Directors ̓ Remuneration Policy continued
Performance measures
Performance measures and targets for the STI and LTIP will include a balance of financial and non-financial measures aligned
with the Company’s key short and long-term strategic priorities:
– stretching financial targets to deliver growth and create financial flexibility for investment opportunities to build capabilities
in high value-added areas and expand our proposition in the UK and internationally. Financial targets are approved by the
Board through a rigorous process taking consideration of market conditions, competitor practices and forecasts;
– balancing the interest of policyholders and shareholders;
– creating and maintaining positive experience and outcomes for our clients;
– ensuring alignment with the Company’s strategy, purpose and values;
– creating an inclusive and engaging culture that supports the Company’s diversity and inclusion objectives to provide equality
of opportunity for all who apply for and perform work for the Company;
– adhering to a robust risk management policy and risk appetite limits;
– aligning with the long-term sustainable success of the Company and value creation for shareholders; and
– ensuring alignment with our objectives relating to Environmental, Social and Governance factors.
Shareholding requirement
Executive Director
Group Chief Executive Officer
Chief Financial Officer
Shareholding requirement
300% of base salary
250% of base salary
The purpose of the shareholding requirement is to align executives with the long-term interests of the Company, clients
and shareholders through a requirement to hold shares both during and post-employment.
Executive Directors must normally attain the shareholding requirement and maintain this level of holding within five years of
becoming an Executive Director.
In addition to personally owned shares, unvested shares not subject to performance conditions (deferred STI awards and LTIP
share awards subject to a holding period) will count towards the requirement on a net-of-tax value basis. Executive Directors
must hold vested shares until the requirement is met except in exceptional circumstances with the approval of the Chair.
Shareholding levels will be tested annually following completion of the annual grant and vesting of awards, which will be
disclosed in the annual remuneration report.
A post-employment shareholding requirement will be operated for the Executive Directors requiring them to maintain their
shareholding requirement or actual shareholding, if lower, at the point of departure in full for two years post-employment
(following the same methodology as set out above).
External appointments
The Executive Directors may take up external directorships and retain the fees for such appointments with the approval
of the Board. All external appointments and fees will be disclosed in the annual remuneration report.
Remuneration regulations
This Policy has been designed to ensure compliance with all remuneration regulations applicable to the Company.
The Remuneration Committee reserves discretion to amend the policy if it is required to do so in order to maintain compliance
with any new or amended regulations.
Scenario charts
This policy is designed to ensure that executive remuneration is directly aligned with the delivery of key financial and
non-financial performance objectives and the creation of shareholder value, achieved in accordance with the Company’s policies
and values for risk management, conduct, client and culture. The majority of the remuneration packages are in the form of
incentive awards with the maximum values only achievable with significant outperformance of business plans and objectives.
The LTIP and 50% of the STI award are delivered in shares to maintain close alignment with shareholders. The table to the right
illustrates the potential earnings of each Executive Director in four performance scenarios:
130 | M&G plc Annual Report and Accounts 2022
Group Chief Executive Officer
Below threshold
100%
Target
Maximum
Maximum with 50%
share price growth
34%
32%
34%
19%
15%
41%
34%
41%
51%
’000s
£997
£3,253
£5,372
£6,466
0
£2,000,000
£4,000,000
£6,000,000
£7,000,000
Fixed
STI
LTIP
Chief Financial Officer
Below threshold
100%
Target
Maximum
Maximum with 50%
share price growth
33%
33%
35%
20%
17%
40%
33%
40%
50%
’000s
£661
£2,007
£3,271
£3,924
0
£2,000,000
£4,000,000
£6,000,000
£7,000,000
Fixed
STI
LTIP
The performance scenarios incorporate the following assumptions:
Fixed remuneration
Target remuneration
Comprising the 2023 base salary, benefits (based on the annualised 2022 single figure for the
Group Chief Executive Officer and Chief Financial Officer) and a 13% pension contribution.
Fixed remuneration plus the value that would arise from the incentives for achieving
on-target performance:
STI with a 50% outcome for on-target performance.
LTIP with a 53% outcome for on-target performance (financial/non-financial measures
with a 50% outcome and TSR with a performance scale mid-point of 62.5%).
Maximum remuneration
Fixed remuneration plus the value that would arise from the incentives for achieving
maximum performance.
Maximum remuneration with
50% share price growth
Maximum remuneration increased for the assumption that the shares granted under the LTIP
increase in value by 50% from the share price at grant.
Remuneration Policy for new appointments
Remuneration packages for new Executive Directors (including those promoted internally) will be in line with the requirements
of this Policy, including maximum incentive levels, and will be determined on the principle of delivering remuneration that is
proportionate and not more than what is necessary to recruit and secure talented individuals with the requisite levels of skills
and experience, ensuring that the cost to secure the right candidate is appropriate. If required, awards may be granted to replace
awards or amounts forfeited by a previous employer (buyout awards). Any buyout awards would be limited to what is considered
to be a fair estimate of the value of remuneration forfeited and with equivalent terms (including vesting dates, performance
conditions and malus/claw back provisions) to ensure that the cost to secure the right candidate is appropriate. As buyout
awards may cover multiple years of awards from a previous employer, the grant value is not subject to the maximum limits
described in this policy.
The Company may cover reasonable legal costs and certain relocation expenses in accordance with the Company’s relocation
policy for new appointments.
The fees and benefits to be paid to a new Non-Executive Director will be determined in accordance with the terms described
in the “Remuneration Policy for Non-Executive Directors”.
Service agreements
All Executive Directors have service agreements of an indefinite duration that can be terminated by either party by serving
12 months’ notice. Under this policy this is the maximum notice period that may be applied to Executive Directors. The terms
of the service agreements are considered to be in line with current best practice for Executive Directors. The service contracts
are available for inspection on request from the Company’s offices.
M&G plc Annual Report and Accounts 2022 | 131
GovernanceStrategic ReportFinancial informationOther information Directors ̓ Remuneration Policy continued
Loss of Office
In the event of the termination of an Executive Director, the terms of the termination will be determined by reference to the
service agreement, this policy, the rules of the relevant incentive plans, relevant regulatory requirements and the signing of
a settlement agreement, as detailed in the table below:
Element
Notice period
Policy
– 12 months from either party.
– The Company may require that all or an element of the notice period be taken as
gardening leave.
– The Company may elect to pay in lieu of notice for all or a portion of the contractual notice
period. In this instance payment would be restricted to salary only and may be delivered
monthly to mitigate loss.
– Any holiday entitlement will be pro-rated to reflect the proportion of the year employed.
Any outstanding holiday entitlement must be used during the notice period.
– If an executive is dismissed for cause, there will be no notice period or payment made
for loss of office.
Consistent with other employees, Executive Directors may receive payments to compensate
them for the loss of employment rights on termination, subject to entering into a satisfactory
settlement agreement. Payments may include a nominal amount for agreeing to non-solicitation
and confidentiality clauses, insurance cover for a specified period following the termination date,
outplacement services, legal fees or repatriation assistance.
In the event of redundancy, a payment may be made in accordance with the Company
redundancy policy in effect at that time.
A good leaveri will be entitled to a pro-rated STI award for the period worked (excluding garden
leave) during the year, determined and paid through the normal process and subject to normal
terms, including deferral.
There is no entitlement to an STI award in the year of termination for a bad leaver.
Termination payments
STI awards
Treatment of
incentive awards
Unvested deferred STI awards for good leavers continue to their normal vesting date.
Unvested awards for bad leavers will lapse.
Change of control
Unvested LTIP awards for good leavers will continue to their normal vesting date, pro-rated for
the time worked during the performance period. The Remuneration Committee has discretion to
waive the pro-ration of LTIP awards, should they deem this to be appropriate. Unvested awards
for bad leavers will lapse.
Vested LTIP awards subject to a holding period will remain subject to the holding period until
the original release date.
All awards continue to be subject to their original terms, including malus, clawback and
holding periods.
The Remuneration Committee has discretion to accelerate the vesting and release of awards
for good leavers in exceptional circumstances.
In the event of a change of control of the Company, the Remuneration Committee may
determine that:
– STI awards for the year during which the change of control occurred may either continue to
be determined on the basis of the whole year or may be pro-rated to the date of the change
of control.
– Unvested deferred STI awards are exchanged or replaced with equivalent awards over shares
in another company, continuing to their normal vesting date, or that the vesting of the awards
is accelerated to the date of the change of control.
– Unvested LTIP awards are exchanged or replaced with equivalent awards in another company,
continuing to their normal vesting date and subject to the same or equivalent performance
conditions, or that the vesting of awards is accelerated to the date of the change of control.
If the awards are accelerated, they will be subject to pro-ration and an assessment of the extent
to which the performance conditions have been achieved. The Remuneration Committee has
discretion to waive the pro-ration of LTIP awards if this is deemed appropriate.
i Good leaver applies in the event of death, disability, redundancy and sale of the company/business in which an individual works.
Other leavers may be granted good leaver status at the discretion of the Remuneration Committee (which may include retirement).
132 | M&G plc Annual Report and Accounts 2022
Remuneration Policy for Non-Executive Directors
Element
Fees
Policy
Fees take account of the time commitment and responsibilities of the roles and market reference
points for comparable FTSE organisations.
The Chair receives a base fee which is reviewed annually by the Remuneration Committee.
Non-Executive Directors receive a base fee and additional fees for other Board roles such
as Chairship or membership of a Committee, acting as the Senior Independent Director or
subsidiary Board roles. Fees are reviewed annually by non-conflicted members of the Board.
Benefits
The Chair is eligible to receive private medical insurance.
– The Chair and Non-Executive Directors are not eligible to participate in the Company’s
pension or incentive arrangements.
– Benefits may be provided in specific circumstances to the Non-Executive Directors that are
immaterial in nature and value, up to a maximum value of £1,000.
– Reasonable expenses may be reimbursed by the Company. The Company may pay any tax
due on reimbursed expenses.
Fees for a new Non-Executive Director will normally be aligned with the fee structure applicable
to other Non-Executive Directors at the time of appointment.
– Chair: six months by either party without liability for compensation.
– Non-Executive Director: six months by either party without liability for compensation.
Recruitment
Notice period
Key terms of appointment
The Chair and Non-Executive Directors are subject to annual re-election at the AGM.
Remuneration arrangements throughout the Company
The Committee has taken careful consideration of remuneration arrangements for employees across the Company
in determining the Remuneration Policy and its implementation, and considers carefully the impact of Board or management
decisions on pay on the wider employee population. Formal consultation with employees has not taken place on the development
of the Policy, but insight into arrangements and conditions for the wider workforce is achieved through a combination of
management and employee feedback and an engagement plan of formal and informal activities.
A Remuneration Policy is in place for establishing standards for the design and operation of remuneration across the Company,
which has consistent principles to the Directors’ Remuneration Policy. Pension and benefit programmes are in place for all
employees. Pension entitlement is aligned with that for the Executive Directors. The majority of benefits are also aligned.
All employees are eligible for STI annually, determined through a combination of Company and personal performance and subject
to risk adjustment. LTIP awards are used for senior management roles across the Company. Employees are eligible to participate
in all-employee share schemes and discounted products on the same terms as the Executive Directors. The Remuneration
Committee will receive information on remuneration across the Company, including average salary increases, the design and
outcomes of incentive plans and the Group Chief Executive Officer pay ratio, when determining the implementation of the
Remuneration Policy for Executive Directors.
Consideration of shareholder views
When setting the Remuneration Policy and determining remuneration, best practice guidelines issued by institutional
shareholder bodies are taken into account. The Remuneration Committee has engaged with the largest shareholders and
institutional shareholder bodies to understand their views on this Remuneration Policy. During this process we engaged with 21
of the Company’s most significant investors, representing c.60% of the shareholder base. We received limited feedback on the
Policy with shareholders generally comfortable with the terms and proposed amendments. There was general support for our
approach to simplification of the incentive scorecards, with a smaller number of more focused measures. In the final proposals
we have taken into account feedback received that measures should only be introduced if they can be underpinned with robust,
transparent and quantifiable performance criteria. There was particular interest in the approach taken in considering windfall
gains on the vesting of the 2020 LTIP, and on the rationale for the extent of the downward adjustment to the formulaic outcome.
We believe that shareholders have welcomed the early and transparent engagement on this issue. We have endeavoured to
respond to all feedback received and the Committee has been very mindful of this in finalising its decisions.
The Remuneration Committee will continue to monitor trends and changes in corporate governance to ensure remuneration at
M&G plc remains appropriate and continue to engage with shareholders on the effectiveness of the Remuneration Policy.
M&G plc Annual Report and Accounts 2022 | 133
GovernanceStrategic ReportFinancial informationOther information Remuneration at a glance
Remuneration at a glance
Overview of the Directors’ Remuneration Policy
The following chart shows the operation of the key elements of our Directors’ Remuneration Policy. Summary details of the Policy
are provided in the next section (all amounts in £’000). The charts detail the remuneration arrangements proposed for our Group
Chief Executive Officer, Andrea Rossi, and our Chief Financial Officer, Kathryn McLeland.
Andrea Rossi
Group Chief Executive Officer
Total target
£3,253
Total maximum
£5,372
Total fixed
£997
LTIP
250%
STI
250%
Pension
13%
Benefits
Salary
£875,000
LTIP
132.8%
STI
125%
Pension
13%
Benefits
Salary
£875,000
1-year
performance
period
Pension
13%
Benefits
Salary
£875,000
3-year
performance
period
2-year
holding
period
Shares
vest
Shares
released
50%
awarded
in cash
50%
awarded
in shares
3-year
deferral
period
Shares
vest
Target
Maximum
Performance year
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Kathryn McLeland
Chief Financial Officer
Total target
£2,007
Total maximum
£3,271
Total fixed
£661
LTIP
225%
STI
225%
Pension
13%
Benefits
Salary
£580,000
3-year
performance
period
50%
awarded
in cash
50%
awarded
in shares
1-year
performance
period
Pension
13%
Benefits
Salary
£580,000
LTIP
119.5%
STI
112.5%
Pension
13%
Benefits
Salary
£580,000
2-year
holding
period
Shares
vest
Shares
released
3-year
deferral
period
Shares
vest
Target
Maximum
Performance year
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
134 | M&G plc Annual Report and Accounts 2022
Summary of the Directors’ Remuneration Policy and 2023 implementation
References to the Policy in this section and the detailed implementation section of the report align with the proposed Policy to
take effect from the 2023 AGM.
Remuneration element
and time horizon
Policy summary
Base Pay
Operation
Normally reviewed annually with any increases
usually taking effect from 1 April each year.
’23 ’24 ’25
’26
’27
Opportunity
There are no prescribed maximum salary
levels. The Committee considers a range of
internal and external factors to ensure that
base salaries are appropriate.
Performance
Individual and Company performance will
be taken into consideration.
2023
Implementation
Effective
1 April
2023
£
Salary on
appointment
2022
£
Andrea Rossi
875,000
875,000
Kathryn
McLeland
580,000
580,000
Wider workforce
2023 (UK budget)
%
increase
0%
0%
5%
(8% to 3.5%
depending on salary,
with no increases at
senior levels)
Benefits
Operation
Reviewed periodically against market practice
taking consideration of benefits offered to
colleagues across the Company.
– Life, disability and critical illness insurance
– Private health insurance (including spouse and
dependants) and annual health assessment
’23 ’24 ’25
’26
’27
– Eligibility to participate in the Company
Sharesave and Share Incentive Plan (SIP)
Opportunity
Cover levels are defined within the terms
of each benefit with maximum opportunity
dependent on the terms of the insurer and
individual circumstances.
Performance
There are no performance measures that apply
to the provision of benefits.
Pension
Operation
Defined contribution pension participation
or cash in lieu.
’23 ’24 ’25
’26
’27
Opportunity
Andrea Rossi
Kathryn McLeland
Contribution
2023
Contribution
2022
13%
13%
13%
13%
13% of base salary per annum, aligned with
the wider workforce.
Performance
There are no performance measures.
M&G plc Annual Report and Accounts 2022 | 135
GovernanceStrategic ReportFinancial informationOther information Remuneration at a glance continued
Remuneration element
and time horizon
Policy summary
2023
Implementation
Short-term
incentives (STI)
Deferral period
’23 ’24 ’25
’26
’27
Long-term incentives
(LTIP)
Holding
period
’23 ’24 ’25
’26
’27
Operation
An annual incentive award subject to
performance conditions assessed at the end
of the calendar year. Performance outcomes
are subject to a discretionary downward
risk adjustment. 50% of any STI payable will
normally be deferred into shares with a three-
year vesting period. Malus and/or clawback
provisions apply to cash and deferred STI.
Opportunity
Up to a maximum of 250% of base salary,
subject to performance. Threshold, target and
maximum performance levels are established
for each award.
Performance
Performance scorecards comprise a
combination of financial and non-financial
measures aligned to the Company’s
strategic objectives and financial goals.
Financial measures will normally comprise
at least 50% of the scorecard.
Operation
LTIP awards over M&G plc shares are normally
granted annually subject to performance
conditions assessed at the end of a three-
year performance period. Vested shares are
subject to an additional holding period of two
years. Performance outcomes may be subject
to a discretionary downward risk adjustment.
Malus and clawback provisions apply to the
award during the vesting and holding periods.
Opportunity
Up to a maximum of 250% of base salary,
subject to performance. Threshold, target and
maximum performance levels are established
for each award.
Performance
Performance scorecards may comprise a
combination of financial and non-financial
measures aligned to the Company’s
strategic objectives and financial goals.
Financial measures (including TSR) will normally
comprise a minimum of 75% of the scorecard.
Financial measures comprise 60% and
non-financial measures 40% of the 2023
STI scorecard. Find out more on page 155.
There were no changes to target and maximum
STI opportunity as a % of base salary for 2023:
Andrea Rossi
Target
STI %
2023
125%
Kathryn McLeland
112.5%
Maximum
STI %
2023
250%
225%
In 2023 financial measures consist of 50%
cumulative operating capital generation and
25% relative TSR. Non-financial measures
constitute 25% of the 2023 LTIP scorecard and
are equally weighted across Gender, Ethnicity and
Sustainability targets. Find out more on page 156.
There were no changes to maximum LTIP
opportunity as a % of base salary for 2023:
Andrea Rossi
Kathryn McLeland
Maximum
LTIP %
2023
250%
225%
The term ‘LTIP’ refers to awards granted under the
M&G Performance Share Plan.
136 | M&G plc Annual Report and Accounts 2022
Shareholding requirements
The Group Chief Executive Officer and Chief Financial Officer must attain a shareholding requirement of 300% and 250% of
base salary respectively within five years. Vested shares, after the sale of shares to fund tax liabilities, must be held until the
requirement is met (unless there are exceptional circumstances). Unvested shares not subject to performance conditions count
towards the requirement on a net-of-tax basis. In addition, shares subject to the shareholding requirement must be held in full
for two years post-employment.
The shareholdings for Andrea Rossi and Kathryn McLeland are shown in the table below as at 31 December 2022, and that
for John Foley as at 10 October 2022, the date upon which he stepped down from the Board.
Name
Andrea Rossi
Kathryn McLeland
John Foley
Guidelines
300% of base salary
250% of base salary
300% of base salary (as at 10 October 2022)
Shares as a % of salary
36.4%
55.4%
496.4%
2022 Performance outcomes
The performance scorecard for the 2022 STI was the same for all Executive Directors. Outcomes are included for John Foley
in consideration of his role as Chief Executive up to 10 October 2022.
Taking into account a range of factors, the Committee was satisfied that no adjustments be applied to the formulaic STI
outcomes for the Executive Directors.
With respect to the vesting of the 2020 LTIP, the Committee determined that a 10% downward adjustment to the formulaic
outcome for the Executive Directors would be appropriate , taking account of the share price at which the award was granted
(£1.135). Find out more about the rationale and the methodology applied in reaching this decision on page 143-144.
As Andrea Rossi and Kathryn McLeland commenced employment with the company in 2022, only John Foley, the former
Chief Executive, is due to receive shares vesting under the 2020 LTIP.
The component and total outcomes of the scorecards were as follows, including comparison to prior year.
Financial
Measures
Non-Financial
Measures
Overall STI
Outcome
2022 STI – % of maximum opportunity
Andrea Rossi
Kathryn McLeland
John Foley
2022
2021
2022
2021
2022
2021
2020 LTIP – % of maximum opportunity
John Foley
2022 (2020 LTIP) – Formulaic outcome
95%
Discretionary downward adjustment
Actual % shares vesting
John Foley
2021 (2019 LTIP)
Balanced scorecard of capital,
conduct and people measures
100%
57.5%
n/a
57.5%
n/a
57.5%
82.5%
Cumulative total
capital generation
34.6%
n/a
34.6%
n/a
34.6%
41.4%
TSR
95%
TSR
36.8%
50.6%
n/a
50.6%
n/a
50.6%
70.15%
Overall LTIP
outcome
95%
10%
85.5%
Overall LTIP
outcome
52.6%
M&G plc Annual Report and Accounts 2022 | 137
GovernanceStrategic ReportFinancial informationOther information Remuneration at a glance continued
Remuneration outcomes
The Executive Directors’ 2022 single figure earnings are summarised below (with prior year for comparison included for
John Foley):
2022
2022
2022
2021
Andrea Rossi
Kathryn McLeland
John Foley
John Foley
Fixed Remuneration
£’000
229
438
972
1,325
STI
£’000
255
438
989
1,719
LTIP
£’000
Total (incl. “Other”)
£’000
–
–
4,282
1,553
484
876
6,243
4,597
– Fixed remuneration includes salary, benefits and pension.
– STI includes both the cash and deferred elements of the STI awarded.
– LTIP denotes the estimated vesting proceeds from awards granted in 2020 for the performance period ending 31 December
2022 (and granted in 2019 for the 2021 value, which has been updated to reflect the actual share price at vesting).
– 2022 single figure earnings for the Group Chief Executive Officer and the Chief Financial Officer reflect respective dates of
joining the Board (10 October 2022 for Andrea Rossi and 3 May 2022 for Kathryn McLeland).
– John Foley stepped down from the Board and from his role as Chief Executive with effect from 10 October 2022. The single
figure reflects earnings in respect of service up until this date. Fixed pay and STI represent values earned for 2022 up until
10 October 2022. The 2020 LTIP shows the value of the proportion of awards vesting with respect to the period 1 January 2020
to 10 October 2022. Further details on the remuneration arrangements for John Foley are outlined in the loss of office section
on page 148.
– Additional details of the single figure methodology and incentive plan scorecards can be found in the Annual Report
on remuneration from page 141.
Rationale for measures and link to strategy
During the triennial review of the Policy, the Committee considered alternative models for delivering long-term incentives, in the
interest of simplification and strategic alignment. It was concluded that the current approach of a Short-Term Incentive (STI) and
Performance-based LTIP remained effective for collectively aligning our executives to delivering our stretching financial targets
and strategic transformation and ESG objectives. M&G is still a relatively new company, so a continuation of the plans will enable
them to be further embedded with these objectives and our purpose, culture and values.
The incentive scorecards were subject to a comprehensive review in 2021. The primary focus was to ensure that they contained
clear and measurable objectives across a broader range of key non-financial priorities. The Committee remains mindful that
having an appropriate balance between what performance is delivered and how that performance is delivered is critical for the
long-term success of the company and sustainable shareholder value creation, with key aspects of non-financial performance
including the effectiveness of risk management, client experience and outcomes, conduct, culture, diversity and sustainability.
We concluded that the overall balance of measures is still appropriate, but became concerned that the number of measures that
had evolved over time had resulted in undue complexity, diluting strategically important measures and compromising a simple/
transparent link between performance and reward. We therefore focused on a simplification of the scorecards, utilising fewer
measures that are considered critical for alignment to our strategy, culture, values and operational priorities, with a strong and
consistent emphasis on the interests of our full range of stakeholders:
Clients
Colleagues
Client outcome measures embedded in the STI scorecard
Colleague engagement is an established measure within the STI scorecard and Diversity
in our LTIP scorecard
Communities
Sustainability and Diversity measures embedded in the LTIP scorecard
Shareholders
Alignment to the shareholder experience via:
– The relative TSR component within the LTIP scorecard
– Focus on Capital generation which underpins our ability to pay a dividend
– Deferral into shares of a significant proportion of annual STI awards with vesting over 3 years
– Post-vesting holding and share ownership requirements for our senior executives
Performance measures
The 2023 incentive scorecards have fewer measures, with strong alignment to our financial, strategic and operational objectives,
purpose and values. All measures have transparent, quantifiable targets and performance ranges. In accordance with the Policy,
the performance conditions may comprise a combination of financial and non-financial measures, with financial measures
comprising at least 50% for STI and at least 75% (including TSR) for the LTIP.
138 | M&G plc Annual Report and Accounts 2022
The 2023 STI scorecard will have:
– 60% financial weighting with measures aligned to profit and capital generation; and
– 40% non-financial weighting with measures aligned to client outcomes, colleagues and risk and controls.
With-Profit expense measures were removed for 2023 in order to rationalise and simplify the scorecard. The Committee was
satisfied that there was still an appropriate focus on cost management and that policyholder experience was reflected through
a With-Profit Fund investment performance measure.
The 2023 LTIP scorecard will have:
– 75% financial weighting (including TSR) comprising Operating Capital Generation (50%) and TSR ranking within a peer
group (25%); and
– 25% non-financial weighting with ESG measures aligned to Diversity and Sustainability.
The Risk & Conduct measure has been removed for 2023 in order to simplify the scorecard and give more emphasis to ESG
measures. The Committee has complete discretion to adjust incentive awards for risk and conduct issues at both plan and
individual levels, so was satisfied that this did not compromise their ability to reflect such events and issues in award outcomes.
The performance conditions and weighting for 2023 are illustrated in the following table:
STI
LTIP
Financial
60%
Operating capital generation 40%
Adjusted operating
profit before tax
Non-financial
Clients
Colleagues
Risk and controls
20%
40%
20%
10%
10%
Financial
75%
Cumulative
operating capital generation 50%
Relative total
shareholder return
Non-financial
Diversity (Gender)
Diversity (Ethnicity)
Sustainability
25%
25%
8.33%
8.33%
8.33%
2023 Financial measures
The financial measures in the scorecards are Key Performance Measures, aligned with the long-term performance of the
business, external financial targets and shareholder experience. The Committee determined to keep the profit measure weighted
at 20% for the 2023 STI and review the relative weighting of profit and capital in the scorecard in 2024 once the impacts from the
adoption of IFRS 17 are embedded in our performance reporting.
Operating Capital Generation (short and long term incentive)
Operating capital generation (defined on page 157) is a key performance measure which demonstrates the longer-term view of
the movements in our capital surplus. The Committee concluded to align both the STI and LTIP scorecards to operating capital
generation as it provides continuity of target setting, aligns with our external targets and is reflective of performance that is
within management’s control to deliver.
Adjusted operating profit before tax (short-term incentive)
Adjusted operating profit before tax is the Group’s non-GAAP alternative performance measure used to demonstrate the
longer-term performance of the Group as it is less affected by short-term market volatility and non-recurring items than IFRS
profit before tax. Adjusted operating profit before tax is IFRS profit before tax excluding short-term fluctuations from investment
returns, profit/(loss) on disposal of businesses and corporate transactions, restructuring and other costs, and amortisation and
impairment of intangible assets acquired in business combinations.
Relative total shareholder return (long-term incentive)
A long-term measure that ensures direct alignment of remuneration outcomes to shareholder experience relative to a peer
group. The peer group has been updated from a generic group of FTSE 100 financial services companies (which included
companies not closely aligned to M&G, such as banks) to a selection of FTSE 350 sectoral peers selected based on objective
criteria in terms of comparable size, business scope and geography. This revised peer group more closely aligns to M&G‘s
core business activities (asset management, wealth management and/or life insurance) and geographic coverage. In addition,
extending the peer group to include certain FTSE 350 companies reflects M&G’s market cap position towards the lower end of
the FTSE 100. The peer group from 2023 is as follows:
– 3i Group – Abrdn – Ashmore – AVIVA – Hargreaves Lansdown – ICG – Jupiter – Just Group – Legal & General – Liontrust
– Man Group – Ninety One – Phoenix Group – Quilter – Rathbone – Schroders – St James’s Place
M&G plc Annual Report and Accounts 2022 | 139
GovernanceStrategic ReportFinancial informationOther information
Remuneration at a glance continued
2023 Non-financial measures
Across the short and long-term incentive plans we have non-financial measures aligned to key strategic priorities and the
purpose, culture and values of the business. These measures ensure that there is an appropriate balance between what
performance has been delivered and how that performance has been delivered.
Client measures (short-term incentives)
Client measures that are key to the successful execution of our strategy, and understanding and delivering good client outcomes.
The following measures are included:
– Retail and Savings clients: (a) a measure aligned to addressing and improving our client net promoter score; and (b) With-
Profits Fund investment performance relative to benchmark.
– Investment management clients: (a) investment performance of wholesale funds; and (b) investment performance
of institutional funds, relative to benchmarks and objectives.
Colleague and Risk measures (short-term incentives)
– Colleague measure: aligned to the sustainable engagement index outcome from the colleague engagement survey, aligned
with embedding our culture and supporting a safe, respectful and inclusive environment for colleagues.
– Risk and control environment measures: aligned with our commitment to operate within an embedded risk culture and
strong risk governance framework.
ESG measures (long-term incentives)
ESG measures aligned to our strategy and external commitments for diversity and own-emissions reduction. The introduction
of an interim net zero asset manager measure is being kept under review by the Committee.
– Diversity (Gender) – target aligned to our external commitment to achieve 40% gender representation by the end of 2025;
– Diversity (Ethnicity) – target aligned to our external commitment to achieve 20% ethnicity representation by the end of 2025;
– Sustainability – an interim target aligned with progressing towards our external commitment to achieve a near term carbon
emissions reduction of 46% by 2030.
Find out more about the 2023 scorecard measures in the implementation section of the report from page 154.
Link to strategy and purpose
The financial Key Performance Measures of adjusted operating profit and operating capital generation are primary indicators
of the long-term performance of the business and delivering on our strategic priorities is integral to achieving our financial
targets. Total shareholder return aligns with our performance in delivering value to shareholders through improvements in our
financial performance and outlook, driven by the execution of our strategic priorities and how we serve our clients. Non-financial
measures ensure there is appropriate balance with how we deliver performance and underpin our purpose to better understand
and enable our clients, deliver high-value outcomes and act responsibly:
Strategic priorities
Maintain our
financial strength
Simplify
our business
Deliver
profitable growth
Purpose
Metric
Operating capital generation
Adjusted operating profit before tax
Relative total shareholder return
Client measures
Colleague & Risk measures
ESG measures
Find out more about our strategy on
pages 10-13
140 | M&G plc Annual Report and Accounts 2022
Annual Report on Remuneration
Annual Report on Remuneration
Single figure remuneration
In this section
Single figure total remuneration table (Audited)
Single figure remuneration – Base salary (Audited)
Single figure remuneration – Benefits (Audited)
Single figure remuneration – Pension (Audited)
Single figure remuneration – Short Term Incentives (STI) (Audited)
Single figure remuneration – Long Term Incentive Plan (LTIP) vesting in year (Audited)
Single figure remuneration – Other (Audited)
Total shareholder return performance graph and Group Chief Executive Officer pay
Non-Executive Director single figure total remuneration table (Audited)
Single figure total remuneration table (Audited)
The following table provides the 2022 single figure remuneration for the Executive Directors, with prior year for comparison
where applicable.
Year
Executive Director
2022
2022
2022
2021
Andrea Rossi
Kathryn McLeland
John Foley
John Foley
Notes to the single figure table
Base Salary
£’000
Benefits
£’000
Pension
£’000
Total fixed
remuneration
£’000
STI
£’000
LTIP
£’000
Total variable
remuneration
£’000
201
384
774
980
2
4
97
218
26
50
101
127
229
438
972
255
438
989
1,325
1,719
–
–
4, 282
1,553
255
438
5,271
3,272
Total
£’000
484
876
6,243
4,597
– Andrea Rossi was appointed as Group Chief Executive Officer on 10 October 2022 and Kathryn McLeland was appointed
as Chief Financial Officer on 3 May 2022.
– Remuneration for Andrea Rossi and Kathryn McLeland includes fixed pay and an STI award based on their respective service
periods in 2022.
– The 2022 single figure for John Foley reflects the period for which he served on the Board and as Chief Executive up until
10 October 2022. Fixed pay and STI represent values earned for 2022 up until 10 October 2022. The 2020 LTIP included in the
2022 single figure for John Foley shows the value of the proportion of the award vesting with respect to the period 1 January
2020 to 10 October 2022. Further details on the remuneration arrangements for John Foley are provided in the loss of office
section on page 148.
– The price used to calculate the value of the M&G plc shares for the 2020 LTIP is £1.820 using an average of the closing price
for the final three months of 2022. The actual share price and vesting value will be determined upon vesting.
– The 2019 LTIP vesting figures reported in the 2021 single figure now reflect the actual vesting price of the shares, which vested
over two tranches on 4 April 2022 at £2.167 per share and on 27 June 2022 at £1.99 per share. The values previously included
in the 2021 report were calculated using an average of the closing price for the final three months of 2021 (£1.9707).
Single figure remuneration – Base salary (Audited)
In 2022 the Committee approved a salary increase of 3% for John Foley. This was the first increase to apply since the package
was reviewed in 2019 in anticipation of demerger from Prudential plc. The Committee considered the external market and the
experience of the wider workforce, for which a 4% budget was applied in 2022. The spend was split between a 4.25% budget
for the majority of the colleague population and 3% for those in senior management positions (with some variation in our
international markets, where applicable).
The annual salaries of £875,000 for Andrea Rossi and £580,000 for Kathryn McLeland reflect the packages approved
upon appointment.
Single figure remuneration – Benefits (Audited)
Benefits include the total value of all benefits provided in respect of the year ended 31 December 2022. For all Executive
Directors these comprise life, disability and critical illness insurance, private medical cover and eligibility for health assessments.
In addition, and in accordance with the Remuneration Policy approved in 2020, John Foley retained a number of legacy taxable
benefits offered as a Director of Prudential plc, comprising international healthcare, home security support and use of a car
service, with values inclusive of tax paid by the Company.
M&G plc Annual Report and Accounts 2022 | 141
GovernanceStrategic ReportFinancial informationOther information Annual Report on Remuneration continued
With effect from 1 July 2021 the previous in house car service for John Foley was replaced with a fully outsourced arrangement,
leading to the reduction in the cost of this benefit between 2021 and 2022. The Benefits costs for Andrea Rossi and Kathryn
McLeland reflect their respective periods of employment over 2022, and for John Foley are pro-rated to reflect the period he
served on the Board up until 10 October 2022.
Healthcare and insurances
Car service
Security costs
Total
Andrea Rossi
Kathryn McLeland
John Foley
2022
£’000
2022
£’000
2022
£’000
2021
£’000
2
–
–
2
4
–
–
4
64
31
2
97
62
154
2
218
Single figure remuneration – Pension (Audited)
Executive Directors receive a 13% employer pension contribution which they may receive in part or in full in cash.
The contribution rate and delivery options are in line with other employees who participate in the Company’s defined
contribution pension plan. Executive Directors do not accrue benefits under any Company legacy defined benefit pension plans.
Single figure remuneration – Short-Term Incentive (Audited)
For the purposes of determining the 2022 STI outcome, the Remuneration Committee assessed the performance of the
Company and the individuals by reference to the 2022 STI scorecard, which included a combination of financial and non-financial
measures, as follows:
2022 Executive Director STI scorecard outcome
2022 STI Scorecard
Weighting
Threshold
0%
Target
50%
Maximum
100%
Actual
Outcome to
maximum
Weighted
Outcome
Adjusted operating profit before tax including
restructuring costs (£m)
Total capital generation excluding market
movements (£m)
With-profits renewal expense per policy (£)
With-profits new business expense as
% of flows
With-Profits Fund investment performance
(three-year)
Investment performance of Wholesale Funds
relative to benchmark (one and three-year)
Investment performance of Institutional Funds
relative to benchmark (one and three-year)
20%
383
451
518
382
0.0%
0.0%
30%
5.0%
387
76.3
456
69.4
524
62.5
828
67.6
100% 30.0%
63%
3.15%
5.0%
2.12%
1.93%
1.74%
2.0%
32%
1.60%
3.33%
0%
1%
3%
7.0%
100%
3.33%
3.33%
50%
60%
70%
50%
0.0%
0.0%
3.33%
50%
60%
70%
63%
65%
2.17%
Client NPS Score - Retail and Savings
Client Trust Ranking - Asset Management
5.0%
5.0%
Colleague – sustainable engagement index
10.0%
9
6
75
11
4
80
13
2
82
14
5
76
100%
5.0%
25%
10%
1.25%
1.0%
Risk and Controls – % high/very high
assurance issues overdue at year-end
Risk and Controls – % self-identified of total
assurance issues raised
5.0%
10%
5%
0%
14%
0.0%
0.0%
5.0%
50%
60%
80%
65%
63%
3.1%
50.6%
l
i
a
c
n
a
n
F
i
l
i
a
c
n
a
n
fi
-
n
o
N
Total
Definitions
Find out more about definitions and further details of the above measures on page 157.
Consideration of individual performance
The Committee considered performance assessments for the Executive Directors and concluded that the formulaic outcome
of the STI was appropriate in the context of their personal contribution over the performance period.
142 | M&G plc Annual Report and Accounts 2022
Deferral policy
50% of any STI amount awarded is deferred for three years in M&G plc shares, subject to continued employment, good leaver
and malus provisions. Dividend equivalents accrue on a reinvestment basis during the vesting period.
STI opportunity and outcome
The maximum STI opportunity for the Group Chief Executive Officer and Chief Financial Officer roles remained unchanged at
250% of base salary and 225% of base salary respectively for 2022. The STI amounts in the single figure table reflect awards to
be delivered in 2023 in respect of 2022 performance, inclusive of both cash and deferred elements as follows:
Executive Director
Andrea Rossi
Kathryn McLeland
John Foley
Maximum STI Opportunityⁱ
£’000
Total STI Outcome
£’000
503
865
1,954
254.8
437.7
988.6
Cash STI
£’000
127.4
218.9
494.3
Deferred STI
£’000
127.4
218.9
494.3
i The maximum opportunity values and outcomes reflect respective periods of service for each of the above Executive Directors over 2022.
Single figure remuneration – LTIP vesting in year (Audited)
The LTIP awards granted to John Foley in 2020 under the M&G Performance Share Plan will vest on the basis of performance
measured at the end of 2022. Neither Andrea Rossi nor Kathryn McLeland had LTIP awards vesting in 2022.
2020 LTIP Scorecards
Weighting
Measure
Period
Threshold
Target Maximum
Actual
Vesting
Weighted
Outcome
60%
Cumulative total capital
generation (£m)
1/1/20–
31/12/22
0%
1,850
50%
2,150
100%
2,450
2,420
95%
57%
Vesting
Capital
Vesting
Relative TSR
40%
Percentile ranking
relative to peer group
1/1/20-
31/12/22
Total (formulaic outcome)
Downwards adjustment to the formulaic outcome
Final outcome
Notes to the LTIP scorecards
Cumulative total capital generation
25%
50th
p’cile
100%
75th
p’cile
73rd
p’cile
95%
38%
95%
10%
85.5%
Cumulative total capital generation is the total change in Solvency II surplus capital before dividends and capital movements over
the period 1 January 2020 to 31 December 2022. See also the definitions table on page 157.
Relative Total Shareholder Return (TSR) outcome
For the 2020 LTIP M&G plc TSR was measured against a peer group constituted of the FTSE 100 Financial Services companies
excluding investment trusts. The starting point for TSR was based on a 30-calendar day average of M&G plc and peer group
companies preceding the performance period. The end point was based on an average of the last 30-calendar days of the
performance period.
Exercise of Committee discretion to apply a downwards adjustment
The Committee recognised the need to undertake a thorough and robust assessment in considering the potential for windfall
gains on the 2020 LTIP awards as a result of the £1.135 grant price in order to reach a decision that was fair and balanced,
including both a formulaic/analytical assessment and the application of judgement. Careful consideration was given to evolving
market practice, financial markets and business performance. In light of all of these relevant factors the Committee concluded
that a downward adjustment of 10% be applied to the number of shares vesting after applying the outcome of the performance
scorecard to the 2020 award.
This issue was of considerable interest to our shareholders and in consultation the majority of feedback focused on seeking
clarification of the rationale for the methodology and decisions reached. The questions and feedback received through this
shareholder engagement was a further important consideration for the Committee.
The key steps and reference points in reaching this adjustment were as follows:
Step 1: Baseline share price depression:
– As M&G had only listed in October 2019 the shareholder base was still going through transition from the original holders of
Prudential plc shares during the first six months of listing. It was therefore not possible to reference meaningful historic trading
data or a prior-year grant price to calculate the share price fall (which would have been a clear data point for consideration
under common market practice).
M&G plc Annual Report and Accounts 2022 | 143
GovernanceStrategic ReportFinancial informationOther information Annual Report on Remuneration continued
– The Committee considered instead a range of alternative data points, including initial trading levels upon listing, contemporaneous
forward analyst views and an independent valuation of the business (the latter two data points both received in Q1 2020,
shortly before the grant). From this analysis it was determined that £1.90–£2.00 constituted a reasonable baseline share price.
– The extent of the initial recovery in the M&G share price from mid-2020 and subsequent trading levels gave the Committee
additional assurance that this constituted a reasonable starting point.
– Based on this the Committee concluded a 40% share price fall to be a reasonable proxy, when compared to the grant price of £1.135.
Step 2: Independent advice/market intelligence
– The Committee considered external market practice in instances of a sharp pre-grant fall in share price. Although there was
a range of practice it was found that companies had generally adjusted awards at grant by 30%-40% of the identified share price
depression. Considering the level of subjectivity in determining the correct baseline for calculating the extent of the depression, this
approach was considered to be an appropriate starting point before applying business performance considerations.
– Applying this 30%-40% factor to the initial share price depression led to a potential downward adjustment of 12%-16%.
Step 3: Business performance and judgement
– The Committee then considered business performance and value delivered to shareholders over the period as a result of
management actions.
– The business had strong financial delivery during the three year performance period, delivering dividends in line with policy
throughout, at the very top end of FTSE 100 levels. This contributed towards the creation of shareholder value of 10% relative
to a pre-pandemic baseline (end-2019), above the FTSE 100 median (6% over the same period) and the median of FTSE 100
Financial Services peers (-2% over the same period).
– The business continued to deliver on its operational commitments, achieving its 3-year cost saving and capital generation
targets one year ahead of schedule, as announced in the full-year 2021 results in March 2022. This was very positively received
by the markets, with a c.15% increase in share price (versus the prior day close) on that day compared to a 0.2% share price fall
across the FTSE 100.
– As a result, the Committee decided that it would be appropriate to exercise judgement to take this performance into
consideration by applying a lower adjustment factor of 25% of the initial share price depression, resulting in a final
recommended adjustment of 10%.
The Committee was satisfied that this represented a fair and balanced outcome when taking all relevant inputs into consideration.
Vesting of 2020 LTIP award shares
The table below shows the following information for the 2020 awards granted under the M&G Performance Share Plan that
are due to vest in 2023, inclusive of the downward adjustment applied by the Committee:
– the original grant value of the awards and performance outcome;
– the number of shares under award at the vesting date including dividend equivalents that have accrued during the
performance period and the number of shares vesting based on the performance outcome;
– the estimated value of the vesting shares using the average closing price for the final three months of 2022, £1.82; and
– the vesting value attributable to the accrual of dividend equivalents and share price growth over the performance period. This has
been calculated as the difference between the grant value adjusted for performance outcome and the estimated vesting value.
Grant value
£’000
Formulaic
performance
outcome
Discretionary
downward
adjustment
to formulaic
outcome
% of
shares
vesting
Shares
under
award at
vesting
Estimated
value of
shares
vesting
£
Value
attributable
to share price
movement
£
Value
attributable
to dividend
equivalents
£
Shares
vesting
John Foley – April 2020
grant (full value)
John Foley – April 2020
grant (pro-rated)
2,450
95%
10% 85.5% 2,975,812 2,544,319 4,630,661
1,264,232
1,271,679
As above
2,751,286
2,352,811
4,282,117
1,169,075
1,175,961
The number of vesting shares and values are shown on both an actual and a pro-rated basis (1 January 2020 up to 10 October
2022, pro-rated over the 36 month performance period, reflecting the date John Foley stepped down from the Board).
The pro-rated value of vesting shares (£4,282,117) is that shown in the single figure table on page 141.
The number of shares under award at vesting (full value) includes 817,222 dividend equivalents.
Consideration of risk
The Committee received an independent review of the control environment and risk issues by the Chief Risk and Compliance
Officer, as well as input from the Risk Committee and the subsidiary boards for PAC and MGG. The Committee noted the
significant progress and the initiatives delivered in improving the risk and control environment, with the focus for 2023 on
continued improvement on risk and control self-assessment and issue management. Taking the above into consideration, the
Committee considered it appropriate to make no adjustments to the formulaic outcome of the 2022 STI, or any risk-related
adjustments to the vesting of the 2020 LTIP (the rationale for the 10% adjustment relating to windfall gains is as noted in the
section above) for the Executive Directors.
144 | M&G plc Annual Report and Accounts 2022
Total shareholder return performance graph and Group Chief Executive Officer pay
The performance graph shows the Total Shareholder Return of M&G plc compared to the FTSE 100 and FTSE 100 financial
services (excluding investment trusts) index constituents for the period beginning October 2019 and ending in December 2022.
These comparators have been chosen as M&G plc is a member of the FTSE 100 index and the FTSE 100 financial services sector
(excluding investment trusts) is used to measure relative TSR performance in the 2022 LTIP.
140
120
100
80
60
40
20
0
21/10/2019
31/12/2019
31/03/2020
30/06/2020
30/09/2020
31/12/2020
31/03/2021
30/06/2021
30/09/2021
31/12/2021
31/03/2022 30/06/2022 30/09/2022 31/12/2022
M&G
FTSE 100
FTSE 100 FS (excluding investment trusts)
The following table sets out a breakdown of the Chief Executive’s remuneration for the performance years 2019 to 2022 inclusive.
For 2022 the figure is based on earnings as set out in the single figure table on page 141 for John Foley up to 10 October 2022 and
for Andrea Rossi from that date. In respect of 2022 the LTIP as a % of maximum is applicable only to John Foley.
Total remuneration (£’000)
STI as % of maximum
LTIP as % of maximum
2019
John Foley
3,281
64.3%
63.5%
2020
John Foley
4,036
59.4%
59.6%
2021
John Foley
4,597
70.15%
52.6%
2022
John Foley/
Andrea Rossi
6,727
50.6%
85.5%
Non-Executive Director single figure total remuneration table (Audited)
The total remuneration for the full year ended 31 December 2022 for the Chair and each Non-Executive Director is detailed below:
Edward Braham
Clive Adamson
Clare Chapman
Fiona Clutterbuck
Dev Sanyal
Clare Thompson
Massimo Tosato
Notes to the table:
Fees for 2022
£’000
2022 Total
£’000
Fees for 2021
£’000
2021 Total
£’000
422.5
250.0
120.9
216.6
65.4
185.9
290.0
424.5
250.0
120.9
216.6
65.4
185.9
290.0
n/a
250.0
104.1
451.6
n/a
201.1
271.3
n/a
250.0
104.1
451.6
n/a
201.1
271.3
– Edward Braham assumed the role of Chair with effect 14 March 2022 and the above figure represents fees paid from that date.
In his role as Chair Edward Braham is eligible for private medical insurance but did not take up this benefit during 2022.
– Clive Adamson’s fees include £110,000 for his roles on the PAC Board during 2022 (2021: £110,000).
– Clare Chapman stepped down from membership of the Risk Committee with effect 25 May 2022. Fees for 2021 reflect the
15 March 2021 date of joining the Board.
– Fiona Clutterbuck stepped down from the role of Interim Chair on 13 March 2022 and resumed the position of Senior
Independent Director with effect 14 March 2022.
– Dev Sanyal joined the Board on 16 May 2022 and the table reflects fees from this date.
– Clare Thompson held the role of Senior Independent Director up until 13 March 2023. Her 2022 and 2021 fees also take account
of her position as Chair of the IFDL Board, which she has held since 26 March 2021.
– Massimo Tosato’s fees include £200,000 for his role of Chair of the MGG Board during 2022, (2021: £175,000).
M&G plc Annual Report and Accounts 2022 | 145
GovernanceStrategic ReportFinancial informationOther information
Annual Report on Remuneration continued
Directors’ share interests and other payments (Audited)
In this section
Awards granted in 2022 (Audited)
Directors’ share interests (Audited)
Payments to past Directors (Audited)
Payments for loss of office (Audited)
Awards granted in 2022 (Audited)
The following table provides the details of scheme interests awarded to the Executive Directors during 2022:
Plan
Performance
Share Plan
Deferred
Incentive Plan
Performance
Share Plan
Participant
Kathryn
McLeland
Type
of award
Basis
of award
Grant Date
Vesting Date
Face Value
at Grant
£’000
Number
of shares
awarded
% payable
for threshold
performance
Nil-cost options % of
16-June-22 16-June-25
1,305.0
643,808
6.25%
John Foley Conditional
awards
Salary: 225%
Deferred
STI: 50%
01-Apr-22
01-Apr-25
859.3
385,186
n/a
John Foley Nil-cost options % of
01-Apr-22
01-Apr-25
2,523.5
1,131,107
6.25%
Salary: 250%
Notes on the scheme interests table:
Due to his employment start date of 10 October 2022, Andrea Rossi did not receive a share award in 2022.
Kathryn McLeland was granted an LTIP award at 225% of salary under the M&G Performance Share Plan on 16 June 2022,
subject to the performance conditions set out in the table below. The award has a vesting date of 16 June 2025 and is subject
to a further two-year holding period. Kathryn McLeland was not eligible to receive an STI award in respect of 2021 and did not
therefore receive a related deferred award.
The former Chief Executive John Foley received a deferred STI award of M&G plc shares on 1 April 2022 in respect of his 2021
STI. The face value of the award was based on a deferral rate of 50%, in accordance with the Directors’ Remuneration Policy.
John Foley also received an LTIP award under the M&G plc Performance Share Plan on 1 April 2022, subject to performance
conditions (as described in the table below), with a vesting date of 1 April 2025 and subject to a further two-year holding period.
At grant the award was 250% of base salary.
The number of shares granted under deferred STI and LTIP awards was calculated using the average middle-market closing
share price for the three business days immediately preceding the award date, being £2.231 for the awards granted in April 2022
and £2.027 for the award granted in June 2022.
Performance conditions for LTIP awards granted in 2022
Weighting
Threshold
Cumulative operating capital generation (£m)
Risk and Conduct
Diversity
Sustainability – own emissions reduction
(from 2019 baseline)
Vesting
Vesting
50%
10%
7.5%
7.5%
Relative TSR
Definitions
Definitions for the above measures are provided on page 157.
Measurement and vesting
25%
50th p’cile
0%
2,108
Target
50%
2,480
Maximum
100%
2,852
See definitions table on page 157
36.0%
38.0%
40.0%
18.4%
25%
21.0%
23.6%
100%
75th p’cile
All performance conditions have straight-line vesting between points and are measured over the three-year period 1 January 2022
to 31 December 2024.
For all performance conditions other than TSR there is 0% vesting for performance at or below threshold, 50% at target and 100%
at maximum with straight-line interpolation between these points.
The starting point for TSR is based on a 30-calendar day average of M&G plc and peer group companies preceding the
performance period. The end point will be based on an average of the last 30-calendar days of the performance period. For this
metric there is 0% vesting for performance below threshold, 25% for achieving the median and 100% vesting for achieving upper
quartile or above with straight-line interpolation between these points. The peer group consists of FTSE 100 financial services
companies (excluding investment trusts).
146 | M&G plc Annual Report and Accounts 2022
Directors’ share interests (Audited)
The following table shows the interests that each Director and their connected persons had in M&G plc shares at 31 December
2022. This comprises personally/legally owned shares, shares purchased and held within the Company’s Share Incentive Plan
(SIP) and unvested shares under deferred STI and LTIP awards.
Upon vesting shares awarded under the LTIP are subject to a two year holding period. Where granted in the form of conditional
awards (as applies to the legacy Prudential LTIP) these are held after the sale of sufficient shares to cover the tax due upon
vesting. Both fully owned shares and vested conditional awards subject to the holding period are included in the ‘Shares owned
outright’ column in the table below. The value of the shares has been calculated using the average closing M&G plc share price
for the final three months of 2022, which was £1.820.
Shares owned
outright
(Includes vested
conditional awards
subject to 2-year
holding)
Unvested
LTIP awards
subject to
performance
conditions
Deferred
STI shares
Subject
to SIP
(Conditional
awards)
(Nil -cost
options)
Total
Value
175,000
176,620
–
–
–
–
–
175,000
£318,500
666,243
842,863
£1,534,011
Multiple
of salary
(all interests)
36%
264%
Name
Andrea Rossi
Kathryn McLeland
John Foley (as at 10 October 2022)
1,995,123
1,261
1,427,599 5,479,047 8,903,030 £16,203,515
1,605%
Edward Braham
Clive Adamson
Clare Chapman
Fiona Clutterbuck
Dev Sanyal
Clare Thompson
Massimo Tosato
135,150
9,100
–
15,920
–
22,100
274,900
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
135,150
£245,973
9,100
£16,562
–
–
15,920
£28,974
–
–
22,100
£40,222
274,900
£500,318
n/a
n/a
n/a
n/a
n/a
n/a
n/a
There were no changes to the Directors’ interests in ordinary shares between 31 December 2022 and 3 March 2023.
Shareholding guidelines
The Executive Directors are required to build up and maintain a shareholding in the Company under the Directors’ Remuneration
Policy. The holding requirement must be achieved within five years of the introduction of the policy in 2020 (or recruitment date
for new Executive Directors).
Name
Andrea Rossi
Kathryn McLeland
John Foley
Guidelines
Shares as a % of salary
300% of base salary
250% of base salary
300% of base salary
36%
55%
496%
Holdings as a percentage of salary are shown for Andrea Rossi and Kathryn McLeland as at 31 December 2022, and for John
Foley as at 10 October 2022, the date upon which he stepped down from the Board. Shares counting towards the holding
requirement are shares owned outright, vested conditional awards subject to a holding period and unvested awards (deferred
STI) that do not have performance conditions on a net-of-tax basis.
M&G plc Annual Report and Accounts 2022 | 147
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Payments to past directors (Audited)
No payments have been made to past directors.
Payments for loss of office (Audited)
The Company announced John Foley’s intention to retire on 27 April 2022. He stepped down from the Board on 10 October 2022,
but will remain employed until the end of his notice period on 27 April 2023. Salary, pension and benefits continue until the end of
his notice period.
John Foley’s remuneration for the period he was an Executive Director up to 10 October 2022 is shown in the Single figure table
on page 141.
John Foley continued to work up to 31 December 2022 to provide support and ensure an orderly transition of his Board,
management and regulatory responsibilities to Andrea Rossi. He retained entitlement to an STI award for this period. The total
remuneration received for the period 10 October – 31 December 2022 was salary of £227.9k, benefits and pension of £52k and
an STI Award of £288k. The STI outcome was calculated in line with the 2022 framework for Executive Directors. In making its
determination, the Committee was satisfied that John Foley had completed all transition objectives in line with expectations and
that the formulaic outcome of the STI award at 50.6% of the maximum opportunity was appropriate. 50% of the award will be
deferred in shares for 3 years. The pro-rated value of the 2020 LTIP award vesting in April 2023 ascribed to the period 10 October
to 31 December 2022 is £348.5k, calculated on an assumed share price of £1.82 as described in the notes to the single figure.
For the remaining period of employment from 1 January 2023, John Foley will be entitled to salary, pension and benefits only.
He will not receive an LTIP award in 2023.
The Committee has determined that John Foley be accorded good leaver treatment in respect of his outstanding awards in light
of his confirmation of his intention to retire. His outstanding deferred Short-Term Incentive (STI) awards will be released on the
original timetable, subject to malus and clawback provisions. Outstanding long-term incentive awards will be pro-rated to the
end of his employment and will vest in line with the original vesting dates, subject to satisfaction of the performance conditions.
All awards will remain subject to malus and clawback provisions. A summary of unvested share awards at the date he stepped
down from the Board is provided in the Directors’ share interest table on page 147 and his shareholding will be subject to the
share ownership guideline (300% of his current salary) for a period of two years post-employment. He will not receive any
payments for loss of office other than a capped contribution towards legal fees.
148 | M&G plc Annual Report and Accounts 2022
Remuneration arrangements throughout the Company
In this section
Workforce remuneration
Group Chief Executive Officer pay ratio
Directors vs average employee pay
Gender/Ethnicity pay gap
Relative importance of spend on pay
Workforce remuneration
A Remuneration Policy is in place for establishing standards for the design and operation of remuneration across the Company,
and is based on principles consistent with the Directors’ Remuneration Policy. The core components of remuneration and how
they are operated for colleagues across the Company are explained in the table below.
The Board has an established approach to how it engages with colleagues, including both formal and informal meetings, and
takes careful consideration of conditions across the wider workforce in reaching its decisions. Over the course of the year the
Board and Group Executive Committee discussed employee survey results to identify areas for improvement and received
feedback on Employee Voice sessions. The Board held an interactive session with the Colleague Forum; executive remuneration
was not specifically discussed, but a wide number of topics were covered, including the impact of the current cost of living
challenges on colleagues. In addition seven Employee Voice sessions were held between M&G colleagues and members of the
Board, allowing the Chair and other Board members to better understand some of the issues and challenges that colleagues face
in respective parts of the business, as well as to hear what is working well and what could be improved.
The Board and senior management have been very mindful of the external environment and management held extensive and
in depth conversations with our Colleague Forum and UNITE union representatives in the UK to obtain their views on the most
effective and impactful response. In addition to targeting the April 2023 salary budget towards junior and mid-level roles, as
described below, a one-off payment of £1,200 was made to colleagues in the UK in October 2022 earning under £50,000,
and €1,200 to colleagues in the rest of Europe with salaries lower than €60,000. A further one-time payment will be made in
May 2023 to UK colleagues earning less than the full-time equivalent of £75,000, in recognition of the continuing high-inflation
environment and its impact on household budgets.
Remuneration element Details
Base salary
Base salaries are set at a competitive level taking into account a range of factors including:
– The individual’s skills, performance and experience;
– Internal relativities and wider workforce salary levels;
– External benchmark data; and
– The size, responsibility and geographical scope of the role.
The Company is an accredited Living Wage Employer in the UK.
Salaries are reviewed annually. In 2022 a 4% budget was applied, with 3% available for senior colleagues
and 4.25% for the wider UK workforce. For 2023 the overall UK budget of 5.1% was heavily weighted to
recognise the prevailing specific cost of living challenges. A graduated approach was applied, beginning
with a budget of 8% for colleagues earning under £75,000 and with no increases for those at more senior
levels. Budgets across our international locations are determined on the basis of local market conditions
and the same principle of targeting spend towards junior and mid-level roles has been applied.
Pension
Across the Company all colleagues are eligible to participate in a pension scheme, which is designed to be
competitive, but not excessive, in each of the markets in which we operate.
Our standard defined contribution scheme in the UK offers a core contribution of 8% of salary with
additional matching to a maximum company contribution of 13%, aligned with the Executive Directors.
Certain UK colleagues have retained the right to accrue benefits under defined benefit schemes, which are
closed to new entrants (the Executive Directors are not accruing benefits under a defined benefit scheme).
M&G plc Annual Report and Accounts 2022 | 149
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Remuneration element Details
Benefits
Short-Term
Incentive
Plans (STI)
Benefit packages are designed to be competitive, but not excessive, aligning with local market practice for
businesses with which we compete for talent, and with the culture and values of the Group. Benefits are
benchmarked periodically to ensure they remain consistent with these principles.
A consistent core and flexible benefit offering operates across our UK businesses. Standard benefits
include life, ill-health and critical illness insurances and private medical cover. Colleagues may supplement
core benefits with additional cover for both themselves and family members on a self-funded basis and
have access to a range of other voluntary programmes including cycle-to-work and payroll giving. Certain
colleagues have entitlement to higher levels of core benefits retained from their employment prior to 2020.
In addition health and well-being offerings are kept under continual review and in 2023 colleagues in the
UK and India, the two largest markets in terms of headcount, will be provided with access to the Nudge
financial wellbeing platform.
All colleagues are eligible to participate in an STI plan with outcomes closely aligned with Group
performance, client outcomes and individual objectives, including the effectiveness of risk management,
conduct, culture and behaviours. Bespoke schemes are operated for Investment Management and
Distribution colleagues consistent with these principles. Colleagues working within a control function
participate in a separate STI plan assessed predominantly on own function performance and overseen by
the Risk and Audit Committee Chairs to ensure independence.
The company operates a Group-wide deferral policy under which a proportion of STI over a threshold is
deferred for three years, typically in M&G plc shares, unless regulation requires a higher level of deferral or
an alternative deferral mechanism.
Long-Term
Incentive
Plans (LTIP)
Participation in an LTIP is reserved for senior management colleagues with the highest influence over
the determination and execution of strategic goals, delivery of business performance and creation of
shareholder value.
The majority of the Group Executive Committee participate in the performance-based share plan aligned
with that disclosed for the Executive Directors, with other senior management and executives engaged
in a control function participating in a non-performance based share award. Eligibility to participate is
assessed annually.
All-colleague
share plans
All colleagues have an opportunity to participate in one or more of our all-colleague share plans to drive
alignment and share in the overall long-term success of the Company.
In the UK all colleagues are eligible to participate in the Company Sharesave (SAYE) and Share Incentive
Plan (SIP) on the same terms as those applicable to the Executive Directors. Both schemes are HMRC
tax-advantaged. In addition an International Sharesave is offered in all other locations.
150 | M&G plc Annual Report and Accounts 2022
Group Chief Executive Officer pay ratio
The table below sets out the M&G plc Group Chief Executive Officer pay ratio when compared to pay levels at the 25th, 50th
and 75th percentile of M&G’s UK workforce for both base salary and total remuneration. We have used Option B as our method
for calculating the pay ratio for this report, as this is consistent with our approach and methodology for other publicly reported
information on the gender pay gap. Individuals are identified using the gender pay gap methodology, with 2022 full year
remuneration then calculated on a basis consistent with the single figure methodology.
For the 2022 report we are, as per the reporting requirements, showing the ratio calculated against the combined salaries and
total compensation for Andrea Rossi, the incoming Group Chief Executive Officer, and the previous incumbent John Foley, as
provided in the single figure table on page 141.
Salary
Salary
Salary
Salary
Single figure total remuneration
Single figure total remuneration
Single figure total remuneration
Single figure total remuneration
Year
2022
2021
2020
2019
2022
2021
2020
2019
Method
25th percentile
Median
75th percentile
B
B
B
B
B
B
B
B
23:1
23:1
22:1
23:1
125:1
80:1
67:1
80:1
15:1
16:1
15:1
16:1
77:1
52:1
45:1
58:1
10:1
11:1
11:1
12:1
50:1
36:1
31:1
35:1
The company finalised the identification and calculations for the applicable colleagues at the 25th, 50th and 75th percentiles
effective 31 December 2022, subject to confirmation on 23 February 2023 of the final respective 2022 STI outcomes following the
close of the compensation review. The Remuneration Committee is satisfied that using this population and methodology delivers
a representative Group Chief Executive Officer pay ratio relative to the general employee workforce. The changes in the ratio
from 2021 are a factor of:
– The salaries at the representative quartiles each show some increase since the 2021 figures and are factors of increases
applied over the year and the on-going change in the population mix in light of restructuring and acquisitions. The Group Chief
Executive Officer salary figure over 2022 has decreased slightly with the new incumbent, Andrea Rossi, joining the company on
a lower salary than that of John Foley. There has therefore been a slight decrease in the median salary pay ratio.
– The total remuneration pay gap at median has increased from 52:1 to 77:1. Notwithstanding that the overall compensation
opportunity for Andrea Rossi is lower than that of John Foley, and that the STI award is vesting at a lower level (50.6% versus
70.15% for 2021), the main driver for the increase in pay gap is the value of the 2020 LTIP for John Foley. The LTIP applies to only
a small senior proportion of the population, and is vesting at 85.5% compared to 52.6% in the 2021 single figure, with values
also impacted by strong dividend and share price performance since grant.
For the purpose of comparing annual changes in pay levels and determining the pay ratio at each percentile, the single figure
methodology was used for total remuneration, as disclosed earlier in this report for the Executive Directors. The salary and total
remuneration of the representative individuals at each quartile were as follows in the table below. These were identified using the
gender pay gap data that is based on a rigorous and detailed analysis of the entire UK population as at April 2022.
A number of checks were then run to ensure that the individuals identified remained representative of the UK workforce as at the
end of the year, and additional separate analyses were run on aggregate employee compensation data to check that outcomes
were broadly in line with those in the table below. Salary and total remuneration figures for the individuals concerned are based
on actual remuneration with no estimates or assumptions made. Based on this the company is satisfied that the quartile positions
below are reasonably representative of the overall workforce position.
25th percentile
£
50th percentile
£
75th percentile
£
Salary 2022
Salary 2021
Salary 2020
Salary 2019
Total remuneration 2022
Total remuneration 2021
Total remuneration 2020
Total remuneration 2019
42,500
42,314
44,187
39,484
53,722
55,716
57,490
46,854
66,818
63,047
64,500
55,750
87,789
86,789
85,410
64,707
97,580
92,000
90,245
77,750
135,844
124,704
124,603
105,542
M&G plc Annual Report and Accounts 2022 | 151
GovernanceStrategic ReportFinancial informationOther information Annual Report on Remuneration continued
Directors vs average employee pay
2022
2021
2020
Change
to base
salary/fee
Change to
benefits
Change
to STI
outcome
Change
to base
salary/fee
Change to
benefits
Change
to STI
outcome
Change
to base
salary/fee
Change to
benefits
Change
to STI
outcome
John Foley
(20.8%)
(55.6%)
(42.5%)
0.0% (32.0%)
18.1%
Clive Adamson
Clare Chapman
0%
16.2%
Fiona Clutterbuck
(52.4%)
Clare Thompson
Massimo Tosato
UK workforce
(7.6%)
6.9%
7.85%
_
_
_
_
_
_
_
_
_
_
6.8%
9.4%
1.6%
–
1037.5%
32.3%
36.5%
5.8%
Notes to the 2022 to 2021 figures
–
–
–
–
–
–
–
–
–
–
8.4%
38.6%
–
–
12.6%
–
3.5%
11.7%
–
–
–
–
–
–
–
–
–
–
3.4%
36.2%
3.3%
13.4%
70.4%
– The percentage changes for the Directors between 2022 and 2021 have been based on the single figure tables on pages 141
and 145.
– John Foley received a 3% increase to base salary in April 2022; however as his salary reflects service up to 10 October 2022 the
table above shows a decrease versus the value for the prior year. John Foley’s benefits and STI outcome reduced on a full year
annualised basis as well as on the pro-rated period used for the above calculations as a result both of the removal of the in-house
car service during 2021 and of the lower STI vesting outcome for 2022 compared to 2021 (50.6% as compared to 70.15%).
– Andrea Rossi, Kathryn McLeland, Edward Braham and Dev Sanyal joined the Board over the course of 2022 and are therefore
not included in the above table as comparative remuneration data is not available.
– The 2021 percentage change rate has been restated for Fiona Clutterbuck and Massimo Tosato to reflect updated
methodology - the previous year table was based on annualised fees, taking into account respective start dates over 2020
(9 October 2020 for Fiona Clutterbuck and 1 April 2020 for Massimo Tosato), whereas for this year rates of change for all
Directors are calculated on actual fees received over the year without any annualisation, providing a clearer link to the value of
fees received as set out on page 145.
– Clare Chapman joined the Board on 15 March 2021 and the increase largely reflects full year versus partial year fees, noting
in addition that she stepped down from the Risk Committee with effect 25 May 2022.
– Fiona Clutterbuck stepped down from her role as Interim Chair on 13 March 2022 and resumed the position of Senior
Independent Director on 14 March 2022, which had been covered by Clare Thompson on an interim basis.
– The increase for Massimo Tosato reflects the uplift as disclosed in the 2021 report for his role as Chair of the MGG Board,
effective 1 October 2021.
– Only the Executive Directors are employees of M&G plc and therefore the UK workforce is considered the most appropriate
employee population for the basis of comparison, consistent with that used for calculation of the Group Chief Executive Officer
pay ratio.
– The 2022 salary review for the UK was managed to an overall budget of 4%, with 3% for senior employees and 4.25% for
those at middle and junior levels. The full-year overall percentage change of 7.85% reflects the impact both of the annual
salary review and of specific adjustments for individual employees over the course of the year to align to market or to
recognise changes in role scope and responsibilities. Salary increases were calculated on a full time equivalent basis to
ensure like for like comparison.
– There have been no material changes to benefits provision or rates and the annual workforce change percentage is therefore
reflective of salary movement and employee selection choices on medical and pension benefits.
– Although the 2022 STI scorecard outcome was lower than that of 2021, on an individual level the average outcome shows an
increase of 9.4% across the population, reflecting the impact of salary increases and targeted remuneration reviews over the
year, and of outcomes across other incentive plans that apply to the broader population.
152 | M&G plc Annual Report and Accounts 2022
Gender/Ethnicity pay gap
The Group will disclose its gender pay gap reports for 2022 for each UK employing entity where there are more than 250 people.
M&G plc has five separate employing entities that meet this criteria. However, as shown below, we have calculated a
combined set of figures for the Group that we believe provides a more meaningful view of our organisation’s gender pay gap.
Individual entity gender pay gap data will be available from our website later in 2023. The 2021 gender pay gap data is also
shown for comparison.
Year
2022
2021
Mean pay gap
Median pay gap
Mean bonus gap
Median bonus gap
29.2%
29.3%
23.8%
26.1%
67.5%
69.3%
50.1%
49.0%
While our mean pay gap showed a slight decrease from 29.3% to 29.2%, our mean bonus gap continues a year on year
improvement from 69.3% to 67.5% in 2022. These pay gaps are larger than we would like them to be and are primarily driven by
the shape of our organisation with a higher proportion of men in senior roles compared to women.
Ethnicity pay gap
M&G plc will also voluntarily disclose its ethnicity pay gap data for the third consecutive year in support of our position to improve
not only gender representation but also ethnic diversity in senior leadership roles. We are, as shown below, reporting ethnicity
data for the Group in alignment with our gender pay gap reporting methodology. The complete M&G plc ethnicity pay gap report
will be available from our website later in 2023.
Year
2022
2021
Mean pay gap
Median pay gap
Mean bonus gap
Median bonus gap
5.5%
5.7%
(7%)
(11.2%)
36.1%
34.0%
(0.9%)
2.6%
Find out more on diversity and inclusion in the Our colleagues section of the report from page 48.
How we calculate our pay gaps
The mean gender pay gap is a calculation of the average hourly pay or bonus of a man versus the average hourly pay or bonus
of a woman and includes all relevant payments and allowances indicated in the gender pay regulations. The median gap is
determined by ranking the pay for each man from lowest to highest to determine the mid-point and comparing this to the
equivalent mid-point for a woman. Pay quartiles are calculated by ranking the pay for each employee from lowest to highest.
This list is then divided into four equally sized segments and the proportion of men and women in these segments are reported
(pay quartiles are also calculated and reported within our publicly disclosed gender pay gap reports). The M&G plc ethnicity
pay gap report follows the methodology described in the gender pay gap legislation for our Caucasian population versus our
combined Black, Asian and minority ethnic population within the UK.
M&G plc is committed to achieving year-on-year improvement in the representation of gender and ethnicity in senior leadership
roles with goals of 40% women and 20% ethnicity by 2025. These goals, which define our commitments to the Hampton
Alexander Review, HM Treasury Women in Finance Charter, 30% Club and the Race at Work Charter, will be underpinned by
a range of initiatives that will fundamentally shift the way M&G plc recruits, retains and progresses colleagues through their
careers. We recognise that it will take some time to reduce our gender pay gap and, as with greater gender balance in senior
leadership, improving the gender balance in senior investment professional roles is key to our goal of positive year-on-year
improvement in the pay gap.
Relative importance of spend on pay
The following table shows the relative importance of spend on pay in 2022 compared to shareholder dividends, adjusted
operating profit before tax and total capital generation. These measures have been chosen as they are key performance
measures for the business which are linked to the financial measures in the Executive Directors’ STI performance scorecard
as defined on page 142. Also shown is the total consideration, including transaction costs and stamp duty, in relation to the share
buy-back programme which ran over 2022.
£m
Spend on pay
Shareholder dividends
Share buy-backs
Adjusted operating profit before tax
Total capital generation
2022
955
465
503
529
(397)
2021
872
466
n/a
721
1,822
% change
9.5%
(0.2%)
n/a
(26.6%)
(121.8%)
M&G plc Annual Report and Accounts 2022 | 153
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Statement of implementation of Remuneration Policy in 2023
In this section
Appointment of the Group Chief Executive Officer
2023 Salary review
Incentive measure changes in 2023
2023 Short-term incentive
2023 Long-term incentive
2023 Non-Executive Director remuneration
Appointment of the Group Chief Executive Officer
Andrea Rossi joined the M&G Board on 10 October 2022 as Group Chief Executive Officer. In determining the remuneration
arrangements the Committee took into consideration Andrea’s experience and expertise, the external market and our
Remuneration Policy.
The remuneration package comprises:
– Base salary of £875,000;
– Pension contribution of 13% of salary, in line with the maximum pension rate applicable to the wider workforce, receivable in
part or in full in cash;
– Benefits in line with policy;
– STI target of 125% and maximum of 250% of salary, with 50% delivered in cash and 50% deferred into shares for three years.
Eligibility has been pro-rated to the appointment date for the 2022 performance year; and
– Eligibility to participate in the Company Long-Term Incentive Plan with a maximum annual share award of 250% of base salary,
with three-year vesting subject to applicable performance conditions and a further two-year holding period for vested shares.
The first award will be granted in 2023.
There are no other awards or payments connected with Andrea’s appointment.
2023 Salary review
In line with the annual salary review budget guidelines for 2023 no increase has been applied to either the Group Chief Executive
Officer or the Chief Financial Officer salaries.
Year
Andrea Rossi
Kathryn McLeland
Salary
875,000
580,000
Salary Increase
0%
0%
Benefits
The Policy provides flexibility to ensure that benefit packages are competitive in order to attract and retain executives of the
appropriate calibre. Through recent executive recruitment processes, it has become apparent that a proportionate international
healthcare option would align with attracting executives with the necessary skills and experience to drive our international
growth ambitions. The Committee has determined that international cover would only be provided where there is a genuine
business need and the executive will be liable for the tax due on the provision of the benefit. Although there will be some benefit
cost increase when international cover is provided, it will remain within a reasonable market range.
Incentive measure changes 2023
The 2023 incentive scorecards have fewer measures, with strong alignment to our financial, strategic and operational objectives,
purpose and values. All measures have transparent, quantifiable targets and performance ranges. In accordance with the Policy,
the performance conditions may comprise a combination of financial and non-financial measures, with financial measures
comprising at least 50% for STI and at least 75% (including TSR) for the LTIP.
The 2023 STI scorecard will have:
– 60% financial weighting with measures aligned to profit and capital generation; and
– 40% non-financial weighting with measures aligned to client outcomes, colleagues and risk/controls.
With-Profit expense measures were removed for 2023 in order to rationalise and simplify the scorecard. The Committee was
satisfied that there was still an appropriate focus on cost management and that policyholder experience was reflected through
a With-Profit Fund investment performance measure.
154 | M&G plc Annual Report and Accounts 2022
The 2023 LTIP scorecard will have:
– 75% financial weighting (including TSR) comprising Operating Capital Generation (50%) and TSR ranking within a peer group
(25%); and
– 25% non-financial weighting with ESG measures aligned to Diversity and Sustainability.
The Risk & Conduct measure has been removed for 2023 in order to simplify the scorecard and give more emphasis to ESG
measures. The Committee has complete discretion to adjust incentive awards for risk and conduct issues at both plan and
individual levels, so was satisfied that this did not compromise their ability to reflect such events and issues in award outcomes.
2023 Short-term incentive
– The maximum STI opportunity for our Executive Directors in 2023 is unchanged from 2022.
– Group Chief Executive Officer – 250%
– Chief Financial Officer – 225%
The following table sets out the 2023 STI scorecard of performance measures and weightings that will apply to both Executive
Directors. As these measures and targets are reflective of the Company’s annual Business Plan for the year ahead, full details will
be disclosed retrospectively, along with the performance outcomes, in the 2023 Annual Report on Remuneration, reflecting the
associated commercial sensitivity. All measures have quantifiable targets and processes in place to enable accurate assessment.
Financial metrics
Adjusted operating profit before tax
Metrics
Non-financial metrics
Operating capital generation
Client
Colleague
Risk and controls
Definitions
Measure
Additional information
Adjusted operating profit
See the definitions section on page 157
Operating capital generation
See the definitions section on page 157
Weighting
20%
40%
20%
10%
10%
Clients
Colleagues
Risk and Controls
Retail and Savings clients (10%). Two measures, equally weighted:
– Net Promoter Score; and
– With-Profits Fund investment performance relative to its benchmark.
Asset Management clients (10%). Two measures, equally weighted:
– Wholesale funds investment performance relative to benchmark/target; and
– Institutional funds investment performance relative to benchmark/target.
For 2023 the investment performance measures have been re-categorised from the Financial to
the Non-Financial section of the scorecard, as they represent the most over-arching indicator of
client outcome and experience, and are not a headline company financial measure in the same
way as profit or capital generation.
The sustainable engagement index outcome from the colleague engagement survey, relative to
a target and performance range.
Represents two measures, equally weighted, aligned to assessing the effectiveness of risk
management culture across the Company. Both measures have quantitative targets and
performance ranges.
M&G plc Annual Report and Accounts 2022 | 155
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2023 Long-term incentive
– The maximum LTIP awards for our Executive Directors in 2023 are unchanged from 2022.
– Group Chief Executive Officer – 250%
– Chief Financial Officer – 225%
The table below shows the 2023 LTIP scorecard of performance measures, weightings, targets and performance ranges that will
apply to both Executive Directors.
Operating capital generation (£m)
Diversity - Gender
Diversity - Ethnicity
Sustainability – own operations emissions
reduction (from 2019 baseline)
Weighting
Threshold
Vesting
Vesting
50%
8.33%
8.33%
8.33%
0%
2,327
38.0%
16.0%
22.1%
25%
Target
50%
2,738
40.0%
20.0%
25.2%
Maximum
100%
3,149
42.0%
22.0%
28.4%
100%
Relative TSR ranking
25%
50th p’cile
75th p’cile
Definitions for the above measures are provided on page 157. Performance conditions have straight-line vesting between points
and are measured over the three-year period 1 January 2022 to 31 December 2024.
Relative TSR ranking:
The peer group has been updated from a generic group of FTSE 100 financial services companies (which included companies
not closely aligned to M&G, such as banks) to a selection of FTSE 350 sectoral peers selected based on objective criteria in terms
of comparable size, business scope and geography. This revised peer group more closely aligns to M&G‘s core business activities
(asset management, wealth management and/or life insurance) and geographic coverage. In addition, extending the peer group
to include certain FTSE 350 companies reflects M&G’s market cap position towards the lower end of the FTSE 100. The peer
group from 2023 is as follows:
– 3i Group – Abrdn – Ashmore – AVIVA – Hargreaves Lansdown – ICG – Jupiter – Just Group – Legal & General – Liontrust
– Man Group – Ninety One – Phoenix Group – Quilter – Rathbone – Schroders – St James’s Place
Non-Executive Director remuneration
The fee structure applicable to the Non-Executive Directors in 2023 is detailed in the table below.
£’000
Chair
Non-Executive Director basic annual fee
Senior Independent Director
Chair of the Risk Committee
Chairs of the Audit and Remuneration Committees
Members of the Audit, Remuneration and Risk Committees
Members of the Nominations Committee
2023 fees
2022 fees
525
75
30
40
30
17.5
10
525
75
30
40
30
15
10
The Chair fee of £525,000 relates to the appointment of Edward Braham, the fee having previously been £450,000. The fees for
membership of the Audit, Remuneration and Risk Committees were increased with effect from 1 January 2023 from £15,000 to
£17,500 in recognition of the requirements of the role, market benchmarking and external independent advice. No other changes
were applied to the Non-Executive Director fee structure.
Directors’ service contracts and letters of appointment
As detailed in the Directors’ Remuneration Policy all Executive Directors have service agreements of an indefinite duration
that can be terminated by either party by serving 12 months’ notice and each of the Non-Executive Directors has a letter of
appointment with a mutual notice period of six months.
156 | M&G plc Annual Report and Accounts 2022
Definitions table
Category
Measure
Definition
Financial
Profit
Adjusted operating
profit before tax
Capital
Generation
Total capital
generation
Operating capital
generation
Shareholder
Return
Relative Total
Shareholder
Return (TSR)
Adjusted operating profit before tax is the Group’s non-GAAP alternative
performance measure used to demonstrate the longer-term performance of the
Group as it is less affected by short-term market volatility and non-recurring items
than IFRS profit before tax. Adjusted operating profit before tax is IFRS profit
before tax excluding short-term fluctuations from investment returns, profit/
(loss) on disposal of businesses and corporate transactions, restructuring and
other costs, and amortisation and impairment of intangible assets acquired in
business combinations.
The adjusted operating profit methodology is described in Note 3.2 on page 215.
Surplus capital is the amount by which own funds exceed the Solvency Capital
Requirement (SCR) under Solvency II. Total capital generation is the total change
in Solvency II surplus capital before dividends and capital movements, and capital
generated from discontinued operations.
Operating capital generation is the total capital generation adjusted to exclude tax
and market movements relative to those expected under long-term assumptions,
and to remove other non-operating items, including shareholder, restructuring and
other costs.
TSR represents the growth in the value of a share plus the value of dividends
paid, assuming that the dividends are reinvested in the Company’s shares on the
ex-dividend date. Relative TSR compares the performance of the Company with
the relevant peer group.
With-Profits
Fund expense
management
Non-Financial
Client
With-profits renewal
expense per policy
Represents the renewal expenses, including associated restructuring costs, incurred
by the With-Profits Fund on a per-policy basis.
With-profits new
business expense
as % of flows
Represents new business expenses, including associated restructuring costs,
incurred by the With-Profits Fund as a proportion of new business flows and
restructuring costs.
With-Profits Fund
investment performance
Performance of the With-Profits Fund, relative to its benchmark, the ABI Mixed
Investment 20-60% Shares fund.
Investment
performance of
Wholesale and
Institutional Funds
UK Net
Promoter Score
Trust Ranking
Colleague
Engagement
Diversity
Gender and Ethnicity
Sustainability Own emissions
reduction
The investment performance of wholesale and institutional funds on an asset
weighted basis over one and three years, measured against relevant benchmarks/
targets, as appropriate.
Applies to the Retail and Savings business: 6-month rolling average relative to a
target and performance range.
Applies to the Asset Management business: Client trust ranking relative to
competitors.
The sustainable engagement index score outcome from colleague opinion surveys
relative to a target and performance range.
Percentage of the senior leadership team, defined as the Executive Committee
and their direct reports, that is female/Black, Asian, or minority ethnic at the end of
the defined performance period compared to progress against publicly disclosed
targets.
The percentage reduction in the Company’s Scope 1, 2 and 3 emissions from the
disclosed baseline position for 31 December 2019 in the 2019 Annual Report. Targets
are aligned to our objective to achieve a near term carbon emissions reduction of
46% by 2030, and are assessed against the 2019 base year.
Risk, Controls
and Conduct
STI: Measures aligned to assessing the effectiveness of risk management culture across the Company.
All measures have quantitative targets and performance ranges, and relate to % high/very high issues
outstanding at year end and % self identified of total high/very high issues raised (assurance issues for the
2022 STI and all issues for the 2023 STI).
2020 and 2021 LTIP scorecards: Determined on a qualitative basis by reference to an independent report from
the Chief Risk and Compliance Officer, approved by the Risk Committee, taking consideration of adherence to
risk appetite policy and limits, and to conduct/culture/governance policies and standards.
M&G plc Annual Report and Accounts 2022 | 157
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Other related disclosures
In this section
Remuneration Committee
External advisers to the Committee
Consideration of risk
Consideration of shareholder views
Voting outcomes and share dilution
Remuneration Committee
The Remuneration Committee’s terms of reference can be found on the Company’s website.
The Committee’s principal areas of focus are:
– Framework of the remuneration policies: establishing, approving and maintaining the principles and framework of the
remuneration policies and practices for the Group.
– Remuneration: determining the design, implementation and operation of remuneration arrangements for the Chair of the
Board, the Executive Directors, members of Senior Management, ”identified staff” for all remuneration regulations that apply
to the Group and overseeing remuneration for individuals whose total remuneration exceeds an amount determined by the
Committee from time to time.
The Remuneration Committee comprises Clare Chapman (Chair), Fiona Clutterbuck, Clare Thompson and Massimo Tosato.
The Committee met twelve times during 2022 and full details of Committee member attendance can be found on page 100
of the Governance Report. Other attendees during 2022 comprised: Edward Braham, Chair, Clive Adamson, Board member,
Louise Fowler, Non-Executive Board member of PAC and Dev Sanyal, Board member. Where appropriate the Group Chief
Executive Officer, Chief Financial Officer, Chief People Officer, General Counsel, Chief Risk and Compliance Officer, Reward
Director and Deputy Reward Director also attended meetings. No individual was in attendance for decisions in respect of their
own remuneration.
A summary of the activities undertaken by the Committee is presented below:
Q1 2022
Q2 2022
– Salary review and incentive outcomes for the executives
– Annual share grants for STI deferrals and LTIP awards
and broader workforce
– AGM
– Performance outcomes of 2021 STI and 2019 LTIP awards
– Review of 2023 Directors’ Remuneration Policy
– Performance measures and targets for 2022 incentive plans
– Completion and disclosure of the 2021 Annual
Remuneration Report
– Remuneration arrangements for executive appointments
– Review and approval of retirement terms for John Foley
– 2022 individual performance objectives for the executives
Q3 2022
Q4 2022
– Review of 2023 Directors’ Remuneration Policy
– Review of 2023 Directors’ Remuneration Policy
– Incentive plan forecasts and planning
– Engagement with shareholders and regulatory authorities
– Remuneration arrangements for executive appointments
on the proposed 2023 Directors’ Remuneration Policy, on the
vesting of the 2020 LTIP and incentive arrangements for 2023
– Incentive plan forecasts and performance measures and
targets for 2023 incentive plans
– Annual review of remuneration governance, including
regulatory compliance
– Updates to the Committee Terms of Reference
– Board Chair and Material Subsidiary Board fees
External advisers to the Committee
Deloitte were appointed as advisers to the Remuneration Committee in December 2020 following a formal tender process to
provide guidance and advice to the Committee. Deloitte are founding members of the Remuneration Consultants Group and
provide advice in line with its Code of Conduct. The Committee is satisfied that the advice received from Deloitte is objective
and independent. The Committee is comfortable that Deloitte do not have any current connections with any individual M&G plc
Directors that may impair their independence and objectivity. In addition to advice regarding remuneration, separate teams from
Deloitte also provided other unrelated professional services to the Group during the year including technology consulting, tax
advisory services, finance and accounting and cyber strategy.
158 | M&G plc Annual Report and Accounts 2022
Key areas of advice provided to the Committee by Deloitte were the 2023 Directors’ Remuneration Policy review, the 2022
Directors Remuneration Report, 2023 incentive structures and measures, remuneration arrangements for Executive Directors
and the Executive Committee and regulatory advice.
The total fees for 2022 charged by Deloitte were £164,475.
Consideration of risk
The design and operation of all remuneration policies and incentive schemes must be aligned with the Company’s risk
management principles and policies through the appropriate use of performance measures and targets and the discretion to
adjust outcomes to reflect risk, compliance and conduct events.
The Risk Committee provides independent input to the Remuneration Committee to help with the assessment of scheme
design and outcomes to ensure that they are consistent with these principles and policies. A formal risk and compliance report,
compiled by the Chief Risk and Compliance Officer (CRCO) and approved by the Risk Committee, is submitted to the Committee
annually to provide an assessment of:
– The effectiveness of the risk and control environment, material events and specific conduct and compliance issues over the
one and three-year performance periods of awards to enable the Remuneration Committee to determine if the outcome of
schemes are appropriate or if any adjustments should be applied at scheme or individual level, and the appropriateness of
scheme design for the coming year.
Input from the report is also used to assess whether there have been any events that warrant the consideration of malus and/
or clawback on previously determined awards. Any adjustments applied to scheme outcomes for the Executive Directors will be
explained in the relevant Remuneration Report.
Sustainability risk
As a responsible investor we consider the sustainability risks of all our investments and advice by taking into consideration
ESG factors that have the potential to have a material financial impact and seek to incorporate them into our general risk
management framework. The effectiveness of sustainability risk management in investment decisions and advice is a
consideration in the CRCO Risk and Compliance report and adherence to relevant principles and policies is monitored and
reported to the Remuneration Committee as part of this report. In accordance with the M&G Remuneration Policy, any
failings to meet the required standards of these principles and policies will be transparently reflected in the determination of
remuneration outcomes.
Voting outcomes at the Annual General Meeting (AGM) 2022
The following table provides the voting outcomes at the May 2022 AGM for the 2021 Annual Remuneration Report and the
Directors’ Remuneration Policy approved by shareholders at the 2020 AGM.
Voting Item
Remuneration Policy
For
94.86%
Against
5.14%
Abstaini
1,778,648,117 votes
96,342,690 votes
28,544,261 votes
2021 Remuneration Report
93.94%
6.06%
1,739,580,756 votes
112,132,368 votes
3,250,913 votes
i Votes withheld are not votes in law and therefore have not been counted in the calculation of the proportion of the votes for and against a resolution.
Share dilution
All share plans operated by M&G plc which permit awards to be satisfied by issuing new shares contain dilution limits that comply
with the guidelines produced by the Investment Association on 31 December 2018. As at 31 December 2022 M&G plc’s standing
against these dilution limits was:
– 2.02% (2021: 1.13%) where the guideline is no more than 5% in any 10 years under all discretionary share plans.
– 2.90% (2021: 2.01%) where the guideline is no more than 10% in any 10 years under all share plans.
Statement on external directorships
Details of external directorships held by the Executive Directors can be found on pages 94-96 of the Annual Report.
The Directors’ Remuneration report was approved by the Board on 8 March 2023.
Clare Chapman
Remuneration Committee Chair
9 March 2023
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GovernanceStrategic ReportFinancial informationOther information Directors’ Report
Directors’ Report
The Directors present their Report for the financial year ended 31 December 2022. The Strategic Report and the Governance
Report are incorporated by reference into the Directors’ Report as noted in the index on page 163. In addition, the risk factors set
out on pages 60 to 67, the additional unaudited financial information set out on pages 318 to 329 and the Shareholder Information
section on page 331 are incorporated by reference in the Directors’ Report. In accordance with the UK Financial Conduct
Authority’s Listing Rules (LR 9.8.4C), the information to be included in the Annual Report and Accounts, where applicable,
under LR 9.8.4, is set out in this Directors’ Report.
Directors
The names and details of the current Directors, along with their biographical details as at the date of this Report, are set out on
pages 94 to 96. The Directors who served during 2022 are set out below:
Director
Clive Adamson
Edward Braham
Clare Chapman
Fiona Clutterbuck
John Foley
Kathryn McLeland
Andrea Rossi
Dev Sanyal
Clare Thompson
Massimo Tosato
Appointment
22 March 2019
14 March 2022
15 March 2021
9 October 2020
2 July 2018
3 May 2022
10 October 2022
16 May 2022
7 May 2019
1 April 2020
Resignation
10 October 2022
Strategic Report
The Strategic Report on pages 2 to
91 is incorporated by reference and
shall be deemed to form part of this
Directors’ Report.
Powers of the Board
The Board may exercise all powers
conferred on it by the Company’s
Articles and the Companies Act
2006. This includes the powers of the
Company to borrow money and to
mortgage or charge any of its assets
(subject to the limitations set out in
the Companies Act 2006 and the
Company’s Articles which can be found
on our website) and to give a guarantee,
security or indemnity in respect of a debt
or other obligation of the Company.
Share capital
Issued share capital
The issued share capital as at 31 December
2022 consisted of 2,374,712,121 ordinary
shares of 5 pence each, all fully paid up and
listed on the London Stock Exchange.
At 31 December 2022, the Company held
26,867,908 ordinary shares in Treasury.
Accordingly, at 31 December 2022,
the total number of voting rights in the
Company was 2,347,844,213.
Rights and obligations
The rights and obligations attaching
to the Company’s shares are set out in
full in the Articles. There are currently
no voting restrictions on the ordinary
shares, all of which are fully paid, and
each share carries one vote on a poll.
If votes are cast on a show of hands,
each shareholder present in person or
160 | M&G plc Annual Report and Accounts 2022
by proxy, or in the case of a corporation,
each of its duly authorised corporate
representatives, has one vote except
that if a proxy is appointed by more than
one member, the proxy has one vote
for and one vote against if instructed by
one or more members to vote for the
resolution and by one or more members
to vote against the resolution. Where,
under an employee share scheme,
participants are the beneficial owners
of the shares but not the registered
owners, the voting rights are normally
exercisable by Apex Group Fiduciary
Services Limited and Equiniti Share
Plan Trustees Limited (The Trustees) in
accordance with the relevant plan rules.
The Trustees would not usually vote any
unallocated shares held in trust, but they
may do so at their discretion provided it
would be considered to be in the best
interests of the beneficiaries of the trust
and permitted under the relevant trust
deed. As at 3 March 2023, Trustees
held 2.44% of the issued share capital
under the various plans in operation.
Rights to dividends under the various
schemes are set out in the Directors’
Remuneration Report.
Restrictions on transfer
In accordance with English company
law, shares may be transferred by an
instrument of transfer or through an
electronic system (currently CREST)
and any transfer is not restricted
except that the Directors may, in certain
circumstances, refuse to register
transfers of shares but only if such
refusal does not prevent dealings in the
shares from taking place on an open
and proper basis. If the Directors make
use of that power, they must send the
transferee notice of the refusal within
two months. Certain restrictions may be
imposed from time to time by applicable
laws and regulations (for example,
insider trading laws) and pursuant to
the Listing Rules of both the Financial
Conduct Authority as well as under the
rules of some of the Group’s employee
share plans. All Executive Directors are
required to hold a minimum number of
shares under guidelines approved by
the Board, described on page 137 of the
Directors’ Remuneration Report.
Authority to issue shares
The Directors require authority from
shareholders in relation to the issue of
shares. Whenever shares are issued,
these must be offered to existing
shareholders pro-rata to their holdings
unless the Directors have been given
authority by shareholders to issue
shares without offering them first to
existing shareholders. M&G plc will
seek authority from its shareholders on
an annual basis to issue shares up to a
maximum amount, of which a defined
number may be issued without pre-
emption. Disapplication of statutory
pre-emption procedures is also sought
for rights issues. Relevant resolutions to
authorise share capital issuances will be
put to shareholders at the 2023 AGM.
Authority to purchase own shares
The Directors require authority
from shareholders in relation to the
purchase of the Company’s own
shares. M&G plc will seek authority by
special resolution on an annual basis
for the buy-back of its own shares in
accordance with the relevant provisions
of the Companies Act 2006 and other
related guidance. A special resolution
will be put to shareholders at the 2023
AGM. The Company announced on
24 March 2022 a £500m share buy-
back programme in order to reduce
the share capital of the Company,
which completed in October 2022.
Under the share buy-back programme,
the Company repurchased 252,062,653
ordinary shares of £0.05 each.
Major shareholders
The table below shows the holdings of
major shareholders in the Company’s
issued ordinary share capital, as at
31 December 2022, as notified and
disclosed to the Company in accordance
with the Disclosure Guidance and
Transparency Rules. The Company is
not aware of any agreements between
holders of securities which may result in
restrictions on the transfer of securities
or on voting rights.
Shareholder
BlackRock, Inc.
Kingdom Holding Company
Norges Bank
Schroders plc
Silchester International
Investors LLP
% of total
voting rights
6.61%
4.16%
4.01%
4.95%
5.05%
Between 31 December 2022 and
3 March 2023 (the latest practicable
date for inclusion in this report) there
have been no changes to the table of
major shareholders.
Dividend information
2022 dividend
Ex-dividend date
Record date
Payment date
Shareholders
registered on the
UK register
16 March 2023
17 March 2023
27 April 2023
A number of dividend waivers are in
place and these relate to shares issued
but not allocated under the Group’s
employee share plans. These shares
are held by the Trustees and will, in due
course, be used to satisfy requirements
under the Group’s employee share plans.
As at 3 March 2023 (the latest
practicable date for inclusion in this
report), the Company held 14,606,810
shares in Treasury. Treasury shares are
not taken into consideration in relation to
the payment of dividends.
Cash dividend alternative
The Company operates a Dividend Re-
investment Plan (DRIP). Shareholders who
have elected for the DRIP will automatically
receive shares for all future dividends
in respect of which a DRIP alternative is
offered. The election may be cancelled at
any time by the shareholder. Further details
of the DRIP can be found on our website.
The ability to receive dividend payments
by cheque was withdrawn during
2021. Dividends will be paid directly
via bank mandate or shareholders
can join the DRIP to use their dividend
to purchase further M&G plc shares.
Receiving dividends in this way, rather
than by cheque, means shareholders
can receive funds more quickly, more
securely and in a more environmentally
friendly way.
Political donations
The Group does not make political
donations.
Equal opportunities
and employment of
disabled persons
M&G plc’s Global Diversity and Inclusion
Policy ensures that equal opportunities
are afforded to all colleagues, candidates
and suppliers in an environment in
which each is treated with dignity and
respect. Clearly documented processes
are in place to ensure diversity and
inclusion is embedded in the culture of
the workplace and that we comply with
statutory and regulatory requirements in
the local labour market; provide equality
of opportunity for all who apply for and
perform work for M&G plc irrespective of
sex, race, age, ethnic origin, educational,
social and cultural background, marital
or civil partnership status, religion or
belief, sexual orientation or disability;
and allow for reasonable adjustments
to support those with special
requirements. Moreover, we encourage
the same standards of our recruitment
and consultant suppliers.
The Company’s goals around women in
senior executive positions can be found
on page 50 and the proportion of women
on the Board and in senior executive
positions can be found on page 97.
The Company’s ethnicity targets can be
found on page 50.
We make reasonable adjustments
for colleagues with a temporary or
permanent disability to ensure that
both their individual role and M&G
more broadly as a workplace remains
accessible to them. Where reasonable
adjustments alone do not enable a
colleague to continue in their role we
aim to provide support to colleagues in
identifying alternative roles.
Change of control
There are a number of agreements
that take effect, alter or terminate upon
a change of control of the Company,
such as commercial contracts, bank
loan agreements, property lease
arrangements and employee share
plans. In the context of the Group as
a whole, none of these are deemed to
be significant in terms of their potential
impact except for those listed below.
Credit facilities
Under a £1,286 million multi-currency
revolving credit facility between the
Company and the banks and financial
institutions named therein as lenders
(Lenders) dated 27 March 2019 (the
Facility), in the event that any person
or group of persons acting in concert
directly or indirectly gains control of the
Company and its subsidiaries, then any
Lender may elect within a prescribed
time frame to be replaced by a new
lender, or to cancel its commitment,
under the Facility whereupon the
Company shall be required to repay
each loan made to it on the last day of
the interest period for that loan, and
any loan repaid may be reborrowed
from a new lender, subject to the terms
of the Facility. Under a £107 million
and two £53.6 million revolving loan
facilities between the Company and the
bank named therein as lender (Lender)
dated 27 March 2019 (the Facility), in
the event that any person or group of
persons acting in concert directly or
indirectly gains control of the Company
and its subsidiaries, then the Lender
may elect within a prescribed time
frame to be replaced by a new lender,
or to cancel its commitment, under the
Facility whereupon the Company shall
be required to repay each loan made
to it, together with accrued interest
and all other amounts accrued under
the Facility, which shall in each case be
immediately due and payable, on the last
day of the interest period for that loan.
Risk management objectives
and policies
Details of the framework which allows
M&G to manage risk within agreed
appetite levels are set out on page
58. In this section is information on
risk culture and governance, systems
of internal control, how risks are
categorised and how risk appetites
and levels are set. Specific information
around risk management objectives,
policies (e.g. hedging) and exposure (e.g.
price, credit, liquidity, cash flow risk) is
contained in the financial statements on
pages 272 to 288.
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Environmental, employee
and social policies
Policies relating to environmental
matters, the Company’s employees and
social, community and human rights
issues can be found on pages 32-57
of this Report.
Transactions with
related parties
The Company and its related parties
comprise members of the M&G plc
Group, as well as the Group’s joint
ventures and associates and any entities
controlled by those parties. Note 36 to
the consolidated financial statements
on page 290 sets out details of related
party transactions.
Directors’ and executives’
beneficial interests
Details of Directors’ and executives’
beneficial interests can be found in the
Directors’ Remuneration Report on
page 147.
Directors’ indemnities
and insurance
The Company maintains Directors
and Officers Liability insurance cover
in respect of legal actions brought
against its Directors and Officers.
Pension Trustee Liability insurance
is also in place to cover legal actions
brought against pension trustees of
the Group’s three pension schemes
managed for staff pensions. The policies
include coverage for M&G plc and its
subsidiaries. Qualifying third-party
indemnity provisions are also available
for the benefit of the Directors of
the Company and certain other such
persons, including certain Directors of
the other companies within the Group.
Qualifying pension scheme indemnity
provisions are also in place for the
benefit of certain pension trustee
Directors within the Group. No amounts
were paid under these insurance or
indemnity provisions both of which
remained in force throughout 2022.
Statement of disclosure of
information to the auditor
Each Director of the Company confirms
that, as far as each is aware, there is
no relevant audit information of which
the Company’s auditor is unaware and
that each of the Directors has taken
all reasonable steps to ascertain any
relevant audit information and to ensure
the Company’s auditor is aware of
that information.
162 | M&G plc Annual Report and Accounts 2022
Going concern
The Group’s business activities,
together with the factors that may
affect its future development and
performance are stated in the Strategic
Report. The Strategic Report also
describes the Group’s business model
and key components of our strategy.
The principal risks and uncertainties that
the Group is exposed to and how the
Group manages and mitigates them is
set out on pages 60-67.
The Board undertook a comprehensive
going concern assessment to satisfy
themselves of the appropriateness of the
use of the going concern assumptions in
relation to these consolidated financial
statements. As part of the assessment,
the Board considered the liquidity
projections of the Group, including the
impact of applying specific liquidity
stresses. The Board also considered the
ability of the Group to access external
funding sources and the management
actions that could be used to
manage liquidity.
As part of the assessment, the Board
also gave particular attention to the
solvency projections of the Group
under various stressed scenarios
which consider various assumptions
around inflation and actions by central
banks resulting from the current
macroeconomic environment and
uncertain geopolitical situation which
affect supply chains and consumer
behaviours. These included various
scenarios reflecting the possibility of a
persistent high inflation environment
and stagflation.
Based on the assessment undertaken,
the Directors have a reasonable
expectation that the Group and the
Company have adequate resources
to continue in operational existence
for the foreseeable future. For this
reason, they continue to adopt the
going concern basis in preparing the
financial statements.
The Directors have acknowledged
their responsibilities in the Statement
of Directors’ Responsibilities in relation
to the financial statements for the year
ended 31 December 2022.
Greenhouse gas emissions
Details of our approach to the
environment, including information in
relation to greenhouse gas emissions,
can be found on pages 76. This forms
part of our climate-related disclosures
on pages 68-89.
Branch registrations
The Group has registered branches in
Belgium, France, Germany, Italy, Malta,
The Netherlands, Poland, Spain, Sweden
and the UK.
Research and development
The Group undertakes research and
development activities in relation to
longevity research and risk modelling
as well as the impact of climate change
on various asset classes.
Change of auditor
KPMG LLP resigned as the Group’s
statutory auditor at the conclusion of
the 2021 audit and the Board resolved
to appoint PricewaterhouseCoopers LLP
(PwC) to fill the vacancy. A resolution to
appoint PwC as auditor was approved
by the Company’s shareholders at the
Annual General Meeting which took place
on 25 May 2022. The Audit Committee
oversaw the onboarding of PwC and their
completion of the 2022 audit, as referred
to in the Audit Committee Report on pages
110-116. PwC will be available at the
2023 Annual General Meeting to answer
any questions.
Corporate
governance statement
The Corporate Governance Statement
on pages 106-107 forms part of
the Directors’ Report. It sets out
relevant information on the corporate
governance practices of M&G plc, and
how it has applied the UK Corporate
Governance Code issued by the
Financial Reporting Council (FRC) in
July 2018. It also includes details of
internal control and risk management
systems and diversity policies as well as
the discussion of issues raised, topics
considered and feedback received
during engagement with employees and
how Directors have had regard to the
need to foster our business relationships
with suppliers and clients.
Assessing and
monitoring culture
Information on actions the Board has
taken in relation to culture in 2022 can be
found in the Strategic Report on pages
2-91 and in the Governance Report on
pages 93-164.
Conflicts of interest
The Company has a Conflicts of Interest
Policy and maintains a Conflicts of
Interest Register. Mandatory training
on conflicts for all M&G plc employees
took place over 2022 and the Chief Risk
& Compliance Officer reports to the
Board and its Committees on conflicts
as required.
Requirements of Listing Rule 9.8.4
Information to be included in the Annual Report and Accounts under Listing Rule 9.8.4, where applicable, can be found as follows:
Listing Rule
Description
Interest capitalised
Location
Not applicable
9.8.4(1)R
9.8.4(2)R
9.8.4(4)R
9.8.4(5)R
9.8.4(6)R
9.8.4(7)R
9.8.4(8)R
9.8.4(9)R
9.8.4(10)R
9.8.4(11)R
9.8.4(12)R
9.8.4(13)R
9.8.4(14)R
Publication of unaudited financial information
Supplementary Information page 318
Details of long-term incentive schemes required by Listing Rule 9.4.3 Directors’ Remuneration Report page 119
Waiver of emoluments by a Director
Waiver of future emoluments by a Director
Non pre-emptive issues of equity for cash
Non pre-emptive issues of equity for cash in relation to major
subsidiary undertakings
Parent participation in a placing by a listed subsidiary
Contracts of significance involving a Director
Provision of services by a controlling shareholder
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Shareholder waivers of dividends
Shareholder waivers of future dividends
Agreements with controlling shareholders
Dividend Information page 161
Dividend Information page 161
Not applicable
Index to principal Directors’ Report disclosures
Information required to be disclosed in the Directors’ Report may be found in the following sections:
Information
Disclosure of information to auditor
Directors in office during the year
Credit Facilities
Corporate responsibility governance
Employment practices and engagement
Greenhouse gas emissions
Charitable donations
Assessing and monitoring culture
Political donations and expenditure
Remuneration Committee Report
Directors’ interests in shares
Agreements for compensation for loss of office or
employment on takeover
Section in Annual Report
Directors’ Report
Directors’ Report
Directors’ Report
Strategic Report
Strategic Report
Climate-related disclosures
Strategic Report
Strategic Report
Directors’ Report
Governance Report
Directors’ Remuneration Report
Directors’ Remuneration Report
Details of qualifying third-party indemnity provisions
Directors’ Report
Internal control and risk management objectives and policies Strategic Report
Rules governing appointment and removal of Directors
Governance Report
Significant agreements impacted by a change of control
Directors’ Report
Business Review and future developments of the business
Strategic Report
Post-balance sheet events
Note 39 of the financial statements
Rules governing changes to the Articles of Association
Shareholder Information
Structure of share capital, including changes during the
year and restrictions on the transfer of securities, voting
rights and significant shareholders
Directors’ Report and
Shareholder Information
Other Stakeholder Engagement
Strategic Report
Changes in borrowings
Dividend details
Financial instruments
Note 27 of the financial statements
Strategic Report
Note 19 of the financial statements
Page
162
160
161
55
42
76
55
48
161
119
147
132
162
59, 272-288
102
161
10-13, 20-31
295
331
160, 331
42
256
16
243
In addition, the principal risks set out on pages 60-67, the additional unaudited financial information set out on pages 318-329
and the Shareholder Information section on page 331 are incorporated by reference into the Directors’ Report.
Signed on behalf of the Board of Directors
Alan F Porter
General Counsel and Company Secretary
9 March 2023
M&G plc Annual Report and Accounts 2022 | 163
GovernanceStrategic ReportFinancial informationOther information Statement of Directors’ Responsibilities and Financial information
The Directors are responsible for
safeguarding the assets of the
Group and Company and hence
for taking reasonable steps for the
prevention and detection of fraud
and other irregularities.
The Directors are also responsible for
keeping adequate accounting records
that are sufficient to show and explain
the Group’s and Company’s transactions
and disclose with reasonable accuracy
at any time the financial position of the
Group and Company and enable them
to ensure that the financial statements
and the Directors’ Remuneration Report
comply with the Companies Act 2006.
The Directors are responsible for
the maintenance and integrity
of the company’s website.
Legislation in the United Kingdom
governing the preparation and
dissemination of financial statements
may differ from legislation in
other jurisdictions.
Directors’ confirmations
The Directors consider that the Annual
Report and Accounts, taken as a whole,
is fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Group’s and
Company’s position and performance,
business model and strategy.
Each of the Directors, whose names
and functions are listed in Directors’
Report confirm that, to the best of
their knowledge:
– the Group financial statements,
which have been prepared in
accordance with UK-adopted
international accounting standards,
give a true and fair view of the assets,
liabilities, financial position and profit
of the Group;
– the Company financial statements,
which have been prepared in
accordance with United Kingdom
Accounting Standards, comprising
FRS 101, give a true and fair view of the
assets, liabilities and financial position
of the Company; and
– the Strategic Report includes a
fair review of the development and
performance of the business and the
position of the Group and Company,
together with a description of the
principal risks and uncertainties that
it faces.
Signed on behalf of the Board
of Directors
Andrea Rossi
Group Chief Executive Officer
9 March 2023
The Directors are responsible for
preparing the Annual Report and
Accounts and the financial statements
in accordance with applicable law
and regulation.
Company law requires the Directors
to prepare financial statements for
each financial year. Under that law the
Directors have prepared the Group
financial statements in accordance with
UK-adopted international accounting
standards and the Company financial
statements in accordance with
United Kingdom Generally Accepted
Accounting Practice (United Kingdom
Accounting Standards, comprising FRS
101 “Reduced Disclosure Framework”,
and applicable law).
Under company law, Directors must not
approve the financial statements unless
they are satisfied that they give a true
and fair view of the state of affairs of the
Group and Company and of the profit
or loss of the Group for that period.
In preparing the financial statements, the
Directors are required to:
– select suitable accounting policies and
then apply them consistently;
– state whether applicable UK-adopted
international accounting standards
have been followed for the Group
financial statements and United
Kingdom Accounting Standards,
comprising FRS 101 have been
followed for the Company financial
statements, subject to any material
departures disclosed and explained
in the financial statements;
– make judgements and accounting
estimates that are reasonable and
prudent; and
– prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and Company will continue
in business.
164 | M&G plc Annual Report and Accounts 2022
Financial
information
166 Independent auditors’ report
Consolidated financial statements
180 Consolidated income statement
181 Consolidated statement of comprehensive income
182 Consolidated statement of financial position
183 Consolidated statement of changes in equity
184 Consolidated statement of cash flows
309 Company financial statements
318 Supplementary financial information
Notes to the consolidated financial statements
185 Note 1: Basis of preparation and
245 Note 22: Issued share capital and
significant accounting policies
share premium
210 Note 2: Group structure
245 Note 23: Shares held by employee
and products
214 Note 3: Segmental analysis
220 Note 4: Investment return
221 Note 5: Fee income
221 Note 6: Administrative and
other expenses
222 Note 7: Staff and employment costs
222 Note 8: Fees payable to the auditor
223 Note 9: Tax
229 Note 10: Earnings per share
229 Note 11: Dividends
230 Note 12: Goodwill and
intangible assets
233 Note 13: Deferred acquisition costs
233 Note 14: Investments in joint
ventures and associates
234 Note 15: Property, plant
and equipment
235 Note 16: Investment property
236 Note 17: Defined benefit
pension schemes
243 Note 18: Loans
243 Note 19: Classification of
financial instruments
244 Note 20: Accrued investment
income and other debtors
245 Note 21: Cash and cash equivalents
benefit trusts and other
treasury shares
246 Note 24: Retained earnings
246 Note 25: Other reserves
247 Note 26: Policyholder liabilities and
unallocated surplus
256 Note 27: Subordinated liabilities and
other borrowings
258 Note 28: Lease liabilities
259 Note 29: Provisions
259 Note 30: Accruals, deferred income
and other liabilities
260 Note 31: Structured entities
260 Note 32: Fair value methodology
272 Note 33: Risk management and
sensitivity analysis
288 Note 34: Contingencies and
related obligations
290 Note 35: Commitments
290 Note 36: Related party transactions
291 Note 37: Capital management
293 Note 38: Share-based payments
295 Note 39: Post balance sheet events
295 Note 40: Related undertakings
M&G plc Annual Report and Accounts 2022 | 165
Financial informationStrategic ReportGovernanceOther information Independent auditors’ report
to the members of M&G plc
Report on the audit of the financial statements
Opinion
In our opinion:
– M&G plc’s Group financial statements and Parent Company financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2022 and of the Group’s loss and the
Group’s cash flows for the year then ended;
– the Group financial statements have been properly prepared in accordance with UK-adopted international accounting
standards as applied in accordance with the provisions of the Companies Act 2006;
– the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”,
and applicable law); and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts 2022 (the “Annual Report”), which
comprise: the Consolidated and Company statements of financial position as at 31 December 2022; the Consolidated income
statement, Consolidated statement of comprehensive income, Consolidated statement of cash flows, the Consolidated and
Company statements of changes in equity for the year then ended; the notes to the consolidated financial statements, which
include a description of the Group significant accounting policies; the Company accounting policies and the notes to the
Company financial statements.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were
not provided.
Other than those disclosed in Note 8 we have provided no non-audit services to the Parent Company or its controlled
undertakings in the period under audit.
Our audit approach
Context
The Group is an international asset manager and insurer, its operations primarily consist of the legal entity operations in the
United Kingdom, Europe and Asia.
The year ended 31 December 2022 is our first year as the external auditors of the Group. Following the external audit tender in
2020, we undertook certain transition activities, including attending key governance meetings during the 2021 financial reporting
process. In planning for our first year audit, we met with the Audit Committee and members of management across the Group
to understand the businesses and any significant changes during the year, and to understand their perspectives on associated
business risks. We used this insight, in addition to our reviewing the previous auditors’ audit work papers, when forming our own
views regarding the audit risks and as part of developing our planned audit approach to address those risks. Given the activities
of the Group, we have built teams with the relevant industry experience in all significant locations in which the Group operates.
In addition to forming this opinion, in this report we have also provided information on key audit matters we discussed with the
Audit Committee, setting out a description of the matter, how we approached the audit in these areas, and our conclusion.
In designing our audit, we have considered the impacts that climate change could have on the Group, including physical or
transitional risks which could arise. In particular, we have assessed the impacts on financial statements of the commitments
related to climate change which the Group has made.
166 | M&G plc Annual Report and Accounts 2022
Overview
Audit scope
– Our audit scope has been determined to provide coverage of all material financial statement line items, and as part of designing
our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
– The Group has three reportable segments, Retail and Savings, Asset Management, and Corporate Centre. Each reportable
segment includes a number of reporting businesses across different locations and legal entities.
– We tailored our in scope components based on our assessment of inherent risk and their financial significance to the
consolidated financial results. In particular, we considered where Management made subjective judgements; for example,
in respect of significant accounting estimates that involved making assumptions and considering future events that are
inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including
consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
– Four components were subject to an audit of their complete financial information. Ten other components were subject to an
audit on certain balances and transactions.
– Our audit scope provided coverage of 88% of IFRS Loss before tax and 93% of Total equity.
Key audit matters
– Valuation of hard to value financial investments (level 3) (Group)
– Valuation of hard to value plan assets (level 3) and valuation of defined benefit obligation (Group)
– Valuation of insurance contract liabilities: Longevity (Group)
– Valuation of insurance contract liabilities: Credit default allowance (Group)
– Valuation of insurance contract liabilities: Renewal expenses (Group)
– IAS 8 disclosure on the adoption of IFRS 17 (Group)
– Recoverability of investment in subsidiaries (Parent Company)
Materiality
– Overall Group materiality: £55 million is equivalent to 8% of the 3-year average of the Adjusted operating profit before tax.
– Overall Parent Company materiality: £115 million based on 1% of total assets.
– Performance materiality: £35 million (Group) and £79 million (Parent Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
M&G plc Annual Report and Accounts 2022 | 167
Financial informationStrategic ReportGovernanceOther information Independent auditors’ report to the members of M&G plc continued
Key audit matter
How our audit addressed the key audit matter
Valuation of hard to value financial investments (level 3) (Group)
Refer to notes 1.5.4, 32.3.1 & 34.2 to the consolidated financial statements for disclosures of related accounting policies, valuation
methodologies and balances.
The Group’s financial investments are held to back the Group
insurance contract liabilities, investment contracts within its
Retail and Savings business, and to meet regulatory capital
requirements, as well as providing returns on shareholder
assets.
Most of the Group’s financial investments are valued by
reference to prices on active markets. However, some are
priced by reference to market data and/or valuation models.
The models vary in complexity depending on the nature of the
investments. Investments that are complex to value, require
the use of significant judgement and inputs that are not market
observable. These complex investments are classified as Level
3 in the fair value hierarchy and include:
– Equity release mortgage loans;
– Unlisted equity investments;
– Private debt securities; and
– Investment property.
We focused on these complex investments because they
are significant in size, the valuation is inherently uncertain
and changes in estimates could result in material changes in
their valuation.
Equity Release Mortgages (ERMs)
The valuation of the Group’s ERM portfolio is inherently
subjective due to unobservable inputs relating to the No
Negative Equity Guarantee and the future property value.
The valuation uses an internal discounted cash flow model
with assumptions on the current property value, net
property growth rate and the discount rate (including spread
assumptions to estimate an illiquidity premium above the risk
free discount rate).
Unlisted Equity
Private equity investments are through funds managed by
internal and external fund managers. The investments are
valued in line with the requirements of The International Private
Equity and Venture Capital Valuation (IPEV) Guidelines.
For externally managed funds, valuations are performed by the
external fund managers and included in quarterly statements
provided to the Group. Management holds these investments
at the most recent Net Asset Value provided by the external
fund manager.
Unquoted Debt securities
The valuation of investments in Private Placement loans
and unquoted corporate bonds are predominately valued
internally using discounted cash flow models with an internally
developed discount rate.
Management adopts a two stage approach to the valuation of
these instruments. The first stage is to set a credit rating and
the second is to translate those credit ratings into discount
rates that reflect the credit rating of the security and an
individual instrument level spread at each period end.
Where there are no credit ratings from external credit rating
agencies, internal credit ratings are set by internal credit
analysts and used as an input in the asset valuation models.
168 | M&G plc Annual Report and Accounts 2022
We understood the nature of the investments, Management’s
approach to valuation, and made inquiries on the models
and the source of the data used in the valuation to split the
investments into categories by type.
For each category, we:
– Understood and assessed Management’s process and
controls over the valuations;
– We assessed both the methodology and assumptions used
by Management in the calculation of the year end values
as well as understanding the governance controls that the
Group has in place to monitor these processes.
For equity release mortgages, we:
– Applied our industry knowledge and experience (using
our actuarial specialists) to assess the appropriateness of
the methodology, models and assumptions used against
recognised actuarial practices;
– Tested data inputs used in the valuation models to
underlying documentation on a sample basis;
– Evaluated the appropriateness of significant economic
assumptions used within the valuation process, with reference
to market data and industry benchmarks where available;
– Assessed the appropriateness of discount rate adjustments
including the spread applied above risk free rate. We also
considered observable market inputs, such as external
market transactions to the extent relevant;
– Evaluated the appropriateness of the mortality, morbidity
and voluntary redemptions assumptions used in the
valuation, based on available experience data and industry
data on expectations of future mortality improvements; and
– Performed detailed audit testing of the model calculations
or ‘model baselining’ as part of our first year audit. We used
our own modelling tools to replicate the asset cash flows
for a sample of policies in order to validate that the model
calculations are operating as intended.
For unlisted equity investments, we:
– Considered the methodology adopted by Management
for investments in private equity funds and assessed its
appropriateness in the context of the International Private
Equity and Venture Capital Valuation (‘IPEV’) guidelines;
– Agreed the valuations applied to the most recent NAV
statements, and sample tested any adjustments made for
subsequent capital movements; and
– Performed look back testing on the NAV statements
provided by each fund manager against the equivalent
audited financial statements to ensure materially consistent.
For unquoted debt securities, we:
– Engaged our valuation experts to assess the
appropriateness of Management’s valuation methodology
and internal credit rating methodology;
– For a sample of internally credit rated investments,
challenged the assumptions used in setting the internal
credit rating and came up with an internal credit rating;
– Independently assessed the valuation of a sample of
investments, through the consideration of Management’s
methodology;
– For the sample selected, recalculated the valuations using
our independently selected internal credit ratings and our
valuation assumptions;
– Assessed the impact of our findings on credit ratings and
valuation on the portfolio of private placement loans; and
– Tested a sample of significant inputs to Management’s
valuation calculations, specifically spread data, as well as
contractual information about the securities.
Key audit matter
How our audit addressed the key audit matter
Valuation of hard to value financial investments (level 3) (Group) continued
Refer to notes 1.5.4, 32.3.1 & 34.2 to the consolidated financial statements for disclosures of related accounting policies, valuation
methodologies and balances.
Investment Property
The Group holds property (directly and indirectly) within the
UK, Europe and Asia. The valuation of the Group’s portfolio
is inherently subjective due to, among other factors, the
individual nature of each property, its location and the
expected future rentals for that particular property. The
wider challenges currently facing the real estate sector as
a result of rising inflation and the impact of climate change
further contributed to the subjectivity at 31 December 2022.
Valuations are carried out by third party valuers engaged by
the Group, who perform their work in accordance with the
Royal Institution of Chartered Surveyors (‘RICS’) Valuation
– Professional Standards or equivalent local standards.
The valuations take into account the property-specific
information including the current tenancy agreements and
rental income, condition and location of the property, and
future rental prospects, as well as prevailing market yields
and market transactions.
For Investment property in the UK, Europe, and Asia, we:
– Engaged our valuation experts (who are qualified chartered
surveyors) to assist us in our audit of the property valuations;
– Assessed the expertise and objectivity of the third party
valuers engaged by the Group;
– We obtained and read the external valuation reports and
held separate meetings with the third party valuers to
discuss the key assumptions;
– To verify that the valuation approach was suitable for use in
determining the carrying value for investment properties in
the financial statements, we:
i.
Confirmed that the valuation approach was in
accordance with RICS standards;
ii.
Obtained valuation details of properties held by the
Group and set an expected range for yield and capital
value movement, determined by reference to published
benchmarks and using our experience and knowledge of
the market;
iii. Compared the investment yields used by the third
party valuers with our expected range of yields and the
year on year capital movement to our expected range.
Where assumptions were outside the expected range
or otherwise appeared unusual, and/or valuations
showed unexpected movements, we undertook further
investigations;
iv. Assessed the reasonableness of other assumptions
that are not so readily comparable with published
benchmarks;
v.
Challenged the third party valuers on the extent to which
the valuations have taken into account the impact of
climate change and related ESG considerations;
vi. We also performed testing on the standing data in the
Group’s information systems concerning the valuation
process. We carried out procedures, on a sample basis,
to satisfy ourselves of the accuracy of the property
information supplied to the third party valuers by
Management; and
vii. For properties under developments valued using the
residual valuation method, we obtained the development
appraisal and assessed the reasonableness of the
Valuers’ key assumptions. This included comparing the
yield to comparable market benchmarks, comparing the
costs to complete estimates to development plans and
contracts, and considering the reasonableness of other
assumptions that are not so readily comparable with
published benchmarks, such as estimated rental value
and developers’ profit.
For all asset classes we assessed the adequacy of the
disclosures in the financial statements.
Based on the work performed and the evidence obtained,
we consider the valuations for hard to value assets to
be appropriate.
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Key audit matter
How our audit addressed the key audit matter
Valuation of hard to value plan assets (level 3) and Valuation of defined benefit obligation (Group)
Refer to notes 1.5.15 and 17 to the consolidated financial statements for disclosures of related accounting policies and balances.
The Group has three key defined benefit schemes which are
closed to new entrants. The schemes are run by Trustees on
behalf of the beneficiaries. The defined benefit surplus or
deficit presented is the net of the defined benefit obligation
and the scheme plan assets. This is a key area of focus as the
valuation of the defined benefit obligations and certain hard to
value plan assets is complex and judgemental.
Valuation of the defined benefit obligations
The valuation of the defined benefit obligations (“DBO”) for
the Group is performed by third party administrators with key
assumptions initially set through the triennial valuation process
and reassessed annually by the Group.
The estimate of the DBO is dependent on a number of
assumptions, including the discount rate, inflation rate and
mortality rates. Small changes in these assumptions can have
a material impact on the valuation due to the size and the
duration of the pension obligations. Management performs a
review of the valuation methodology and assumptions each
year with the assistance of external experts. During the year
there were no changes to mortality base tables. The financial
methodologies were updated and longevity improvements
updated based on annuity book data.
Valuation of hard to value plan assets
The selection of the plan assets is the responsibility of the
Trustee. The assets are predominantly assets which can
be valued using quoted prices or with reference to market
observable inputs. However we note that there are also
assets that are hard to value, such as, the longevity swaps
and the underlying investments in some of the pooled
investment vehicles. The valuation of these assets require
the use of significant judgement and inputs that are not
market observable.
We have focused on the hard to value plan assets and the key
assumptions that are used to estimate the DBO because of the
significant size, the inherent uncertainty and judgement in the
valuation. Also a focus on those changes in estimate that could
result in a material change to the valuation.
We have performed the following procedures:
Valuation of the defined benefit obligations
– We understood and, evaluated the design effectiveness
of key controls in place in respect of the DBO;
– We engaged our actuarial specialists to evaluate the
judgements made by Management in determining the key
financial and mortality assumptions used in the calculation
of the liability;
– We assessed the reasonableness of the methodologies
and assumptions adopted using our knowledge of market
practice and industry developments, including use of
benchmarks and external market data. We also used
sensitivity analysis to determine the impact of alternative
assumptions;
– We considered the objectivity and competence of
Management’s actuarial expert; and
– We reviewed management expert’s IAS 19 report and
challenged the methods adopted to determine the valuation
of the obligations. We performed calculations of pension
liabilities and compared these with the expert’s calculations.
Valuation of hard to value plan assets
– We understood and assessed Management’s process and
controls over the valuations;
– We assessed both the methodology and assumptions used
by Management in the calculation of the year end values;
– For the longevity swap, we engaged our actuarial specialists
to evaluate the appropriateness of Management’s valuation
methodology and have assessed the magnitude of the
change in value of the longevity swap since the year end;
and
– For pooled investment vehicles we agreed the valuations
to third party confirmations received from the investment
managers. We also considered whether there was
additional evidence available to corroborate (or contradict)
the confirmed value. This included a review of pricing
of transactions close to the year end, performing a look
back test on the unaudited statements provided by each
investment manager (against the equivalent audited financial
statements) to ensure materially consistent, and a review of
control reports of the service organisation responsible for
pricing the asset.
We read and assessed the disclosures made in the financial
statements, including disclosure of the assumptions.
Based on the evidence obtained, we found the valuation of the
Scheme’s defined benefit obligations and hard to value plan
assets to be appropriate.
170 | M&G plc Annual Report and Accounts 2022
Key audit matter
How our audit addressed the key audit matter
Valuation of insurance contract liabilities: Annuitant mortality (Longevity)
Refer to note 1.5.2, 26 and 33.2 to the consolidated financial statements for disclosures of related accounting policies and balances.
Annuitant mortality assumptions are an area of significant
Management judgement, due to the inherent uncertainty
involved. We consider these assumptions underpinning gross
insurance contract liabilities to be a key audit matter given the
Group’s exposure to a large volume of annuity business. The
annuitant mortality assumption has two main components
as set out below and a margin for prudence is then applied to
these components.
– Base mortality assumptions: This component of the
assumption is mainly driven by internal experience analyses.
It requires expert judgement that includes determining
the most appropriate granularity at which to carry out the
analysis; the period used for historic experience (considering
COVID-19 in recent periods); the choice of base table/rates;
and adjustments made within the process of fitting rates to
past experience using management’s Prudential Retirement
Mortality (PRM) model.
– Rate of future mortality improvements: This component
of the assumption is more subjective given the lack of data
and the uncertainty over how life expectancy will change in
the future. The allowance for future mortality improvements
is inherently subjective, as improvements develop over long
timescales and cannot be captured by analysis of internal
experience data, with additional uncertainty around the
longer term impact of COVID-19 on future mortality rates.
The areas of judgement also include the selection of the
mortality projection model and its calibration as well as
re-expressing this in terms of the Continuous Mortality
Investigation (CMI) Bureau industry standard model.
We have performed the following procedures:
– Understood and evaluated the design effectiveness of key
controls in place in respect of the longevity assumptions to
value the insurance contract liabilities;
– Assessed the appropriateness of the methodology for
analysing experience and setting assumptions for longevity
with reference to relevant rules, actuarial guidance and by
applying our industry knowledge and experience;
– Tested the tools used by Management in carrying out the
experience analysis, including testing the accuracy of the
PRM model;
– Examined the results of Management’s experience analysis
and the resulting base mortality rates;
– Assessed the appropriateness of areas of expert judgement
used in the future mortality improvements and the
consistency of them with observed experience from the
Group’s portfolio and market data;
– Tested and challenged significant judgements in
determining the longevity assumptions, including assessing
the implications of COVID 19;
– Examined Management’s internal governance papers
setting out the financial impacts of assumption changes and
compared them to our own expectations;
– Assessed the margin for prudence including benchmarking
to peer companies, consistency over time and checking that
this has been correctly applied to the assumptions;
– Tested the re-expression of the projection basis in terms of
CMI models and their parameterisation;
– Compared the longevity assumptions selected by
Management against those used by peers using our annual
benchmarking survey of the market; and
– Assessed the disclosure of the longevity assumptions and
the commentary to support the impact from any changes for
2022 reporting in the financial statements.
Based on the work performed and the evidence obtained,
we consider the assumptions used for annuitant mortality to
be appropriate.
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Key audit matter
How our audit addressed the key audit matter
Valuation of insurance contract liabilities: Credit default allowance (Group)
Refer to 1.5.2, 26, 33.2 to the consolidated financial statements for disclosures of related accounting policies and balances.
The Group’s portfolio consists of annuities in payment and
deferment. The valuation interest rate is the discount rate
derived from the yield on the assets backing the annuity
insurance contract liabilities and is used in calculating the
present value of annuity benefit and other payments. The
discount rate includes an explicit credit default allowance on
the asset portfolio. The credit default assumptions involve
complex and subjective judgements about future default and
downgrade events which have a significant impact on the
insurance contract liabilities, with small changes having a large
financial impact, and hence this is a key audit matter.
The credit default risk assumptions are set based on the credit
rating of the assets backing the liabilities and consist of various
components. The components include:
– A relatively mechanical long-term allowances for expected
defaults and downgrades (based on historical data);
– A credit risk premium (or margin for prudence); and
– A short-term overlay reflecting a prospective outlook on
future potential experience.
Significant management judgement is required, in particular,
to set the internal credit ratings for illiquid level 3 assets (such
as Ground Rents and Lifetime Mortgages); and in selecting the
short-term overlay to allow for risks not captured in the long-
term credit default allowance.
We have performed the following procedures:
– Understood and evaluated the design effectiveness of key
controls in place in respect of the credit default assumptions
to value the insurance contract liabilities;
– Obtained an understanding and challenged Management
over the analysis performed to assess internal credit ratings
for illiquid assets. Tested the approach, the ratings ascribed
and the resulting default allowances;
– Assessed the methodology used to derive the credit default
assumptions (including margin for prudence) with reference
to relevant rules and actuarial guidance and by applying our
industry knowledge and experience;
– Tested to ensure that the inputs and calculations were in line
with intended methodology and are appropriate;
– Tested and challenged key Management judgements
including the short-term overlay, referencing industry data
and our industry knowledge. In particular, consideration
has been given to the appropriateness of Management’s
proposals in the context of the current economic climate;
– Assessed the appropriateness of the margin for prudence
and its consistency over time;
– Examined Management’s calculation of the financial impact
of changes to the credit default assumptions, to ensure that
these are in line with our expectations;
– Assessed the disclosure of the credit default risk
assumptions and the commentary to support the
impact from any changes for 2022 reporting in the
financial statements.
Based on the work performed and the evidence obtained,
we consider the assumptions used for credit default risk to
be appropriate.
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Key audit matter
How our audit addressed the key audit matter
Valuation of insurance contract liabilities: Renewal expenses (Group)
Refer to note 1.5.2, 26 and 33.2 to the consolidated financial statements for disclosures of related accounting policies and balances.
Future maintenance expenses and expense inflation
assumptions (or collectively the renewal expenses
assumptions) are used in the measurement of the insurance
contract liabilities and investment contract liabilities with
discretionary participation features. The assumptions reflect
the expected future expenses that will be required to maintain
the in-force policies at the balance sheet date, including an
allowance for unavoidable project costs and a margin for
prudence.
Significant judgement is required to estimate the maintenance
expenses through the allocation of costs to cost centres within
the allocation model; identification of non-attributable costs;
removal of one-off costs; the allocation between fixed and
variable costs; identification of any future costs and short term
provisioning; and the allocation to products. Unit costs are
then set by product, based on the maintenance expenses and
the current number of policies in force.
In addition, when calculating the liabilities, an assumption is
also needed for how the expenses will inflate in future. This is
set with reference to industry and market data; Management’s
view of how their cost base will inflate in future; and includes
a margin for prudence.
This is a key input into the insurance contract liabilities and
investment contract liabilities with discretionary participation
features. Due to the projection of these costs forward over the
duration of the policies, small changes in unit costs can lead to
significant changes in the estimated liabilities. Due to this, and
the management judgement involved, we have noted this as
a key audit matter.
We have performed the following procedures:
– Understood and evaluated the design effectiveness of
key controls in place in respect of the renewal expense
assumptions in the valuation of insurance contract liabilities
and investment contract liabilities with discretionary
participation features;
– Tested the input data used in the cost allocation model,
including the completeness and accuracy of the total cost
base and allocation of expenses to the appropriate cost
centres;
– Assessed the methodology used by Management to derive
the assumptions with reference to relevant rules and
actuarial guidance and by applying our industry knowledge
and experience;
– Assessed the appropriateness of significant judgements in
application of the methodology, including excluded costs
(for example, due to costs either not relating to the insurance
business or being non-recurring in nature), the split of
expenses between acquisition and maintenance expenses
and the allocation of costs to products;
– Performed substantive testing to check that the calculation
of the final expense assumptions is correct and in line with
our expectation;
– Assessed the appropriateness of the IFRS prudence margin
and its consistency over time;
– Tested the assumption derived for expense inflation by
assessing the use of industry data and challenged the
judgements used within the calculations to ensure that they
are reasonable; and
– Assessed the disclosure of the renewal expense
assumptions and the commentary to support the
impact from any changes for 2022 reporting in the
financial statements.
Based on the work performed and the evidence obtained,
we consider the assumptions used for renewal expenses to
be appropriate.
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Key audit matter
How our audit addressed the key audit matter
Disclosure of the expected impact of the initial application of IFRS 17 ‘Insurance Contracts’ in accordance with IAS 8
(Group)
Refer to note 1.2.2 to the consolidated financial statements for disclosures of related accounting policies and balances.
We performed the following procedures to assess the
appropriateness of the IAS 8 disclosure in respect to the
estimated impact of the initial adoption of IFRS 17:
– Understood and assessed the relevant controls and
governance process in place for the determination and
approval of key IFRS17 methodologies, judgments and
assumptions; and the valuation of the impact on the Group’s
total equity on adopting IFRS 17 at the transition date;
– Obtained an understanding of Management’s approach
to transition including the selection of fully retrospective,
modified retrospective, and fair value approaches (“the
transition approaches”), and challenged Management’s
assessment of impracticability and obtained supporting
evidence;
– Obtained an understanding of and challenged the key
methodologies, judgements and assumptions used to
develop and calculate the impact on the Group’s total equity
on adopting IFRS 17. We involved PwC actuarial specialists
to evaluate the key actuarial judgements and assumptions
in applying the transition approaches for each Group of
products; and the application of IFRS 17 to with-profit
contracts;
– Performed substantive testing, including the involvement of
PwC actuarial specialists, over the calculations, processes
and tools developed to determine the impacts on the
Group’s total equity on adopting IFRS 17 at the transition
date; and
– Reviewed the quantitative and qualitative disclosures to
ensure they comply with the requirements of IAS 8 and
the quantitative elements appropriately reflect the level of
certainty in the outcome of the remaining transition work
and judgements to be performed by the Group.
Based on the audit procedures performed and evidence
obtained, we consider the disclosures related to the initial
impact of IFRS 17 to be appropriate.
International Accounting Standard 8: Accounting Policies,
Changes in Accounting Estimates and Errors (IAS 8),
requires the disclosure of reasonably estimable information
relevant to assessing the possible impact of new accounting
standards issued but not yet effective. International Financial
Reporting Standard 17, Insurance Contracts, (IFRS 17 or ‘the
standard’) became effective for periods beginning on or
after 1st January 2023. The related IAS 8 disclosures in these
financial statements are intended to provide users with an
understanding of the estimated impact of the new standard,
and as a result, are more limited than the disclosures that
will be required within the 2023 Half Year results and Annual
Report and Accounts.
We have determined the disclosure of the impact of IFRS 17
to be a key audit matter because of the significant changes
introduced under the new standard, and the judgements
required to estimate the impact at 1 January 2022 (the
‘transition date’).
IFRS 17 adoption is expected to significantly increase the
Group’s total equity as at the transition date. This is primarily
due to a proportion of the surplus in the with-profit fund being
recognised in equity where previously in IFRS 4 the amount
was part of the ‘Unallocated Surplus of the With Profit Fund’
liability. The amount is partially offset by the slower release of
profits under IFRS 17 compared to IFRS 4 for annuity contracts
through the establishment of the Contractual Service Margin
(CSM) at the transition date.
The implementation of IFRS 17 requires the Group to interpret
the requirements of the new standard and make significant
judgments and assumptions to develop its accounting policies.
Key judgements made include:
– The determination of the date before which it is
impracticable to apply the fully retrospective approach;
– The selection of data and assumptions in applying the
modified retrospective approach to calculate the CSM on
transition (for applicable with-profit contracts);
– The approach for how the fair value has been determined to
calculate the CSM on transition (for applicable contracts);
and
– The application of IFRS 17 to with-profit contracts.
New processes and tools are required to calculate the CSM
on transition. Due to the one-off nature of the transition
calculations these processes and tools are often not the end
state architecture and consideration is required as to whether
these adequately implement the intended methodology and
have been validated and through the appropriate governance.
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Key audit matter
How our audit addressed the key audit matter
Recoverability of the carrying value of investment in subsidiaries (Parent company)
Refer to note A to the Parent Company financial statements for disclosures of related accounting policies and balances.
In the Parent Company’s financial statements, investments in
subsidiaries are reported at cost less impairment.
This balance is material to the Parent Company being the
largest asset on the Parent Company’s statement of financial
position. During the year impairment indicators have been
noted for the largest investment in subsidiaries and full
impairment assessment has been undertaken.
Our procedures in relation to Management’s assessment of
the carrying value of investments in subsidiary undertakings as
at 31 December 2022 included the following:
– We obtained and assessed the completeness of impairment
indicators noted by Management;
– Assessed investment in subsidiaries for any indication of
impairment based on our understanding of the business and
current market environment; and
– Where an impairment assessment was necessary, we:
– Engaged our valuation experts to assist us in our audit;
Obtained the value in use and fair value less costs of
–
disposal assessments completed by management;
Challenged the methodology and assumptions
used, including the discount rate, the cash flows, the
long term growth rate, and selection of appropriate
peer companies;
–
– Tested the inputs back to source documents;
–
Recalculated the mathematical accuracy of the Value In
Use and Fair Value Less Cost of Disposal calculations.
– Assessed the disclosures in the financial statements.
Based on the work performed and evidence obtained,
we consider the carrying value of investments in subsidiaries
to be appropriate.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the Group and the Parent Company, the accounting processes and
controls, and the industry in which they operate.
The Group is a global investment manager and insurer, and its operations primarily consist of the legal entity operations in the
United Kingdom, Europe and Asia. We performed full scope audit over the following four components:
i)
the Parent Company, M&G plc;
ii) Prudential Assurance Company (the key contributor to the “Retail and Savings” segment);
iii) M&G Group (the key contributor to the “Asset Management” segment);
iv) M&G Corporate Services Limited (the key contributor to the “Corporate Centre” segment).
For certain other components, we identified account balances which were considered to be significant in size or audit risk at
the financial statement line item level in relation to the consolidated financial statements, and performed financial statement
line item audit procedures over these specified balances. Analytical procedures over the remaining components that
were not inconsequential were performed by the Group engagement team. We also performed audit procedures over the
consolidation process.
As the Group audit team, we determined the level of involvement required at those components to be able to conclude whether
sufficient and appropriate audit evidence had been obtained as a basis for our opinion on the consolidated financial statements
as a whole. In our role as Group auditors, we exercised oversight of the work performed by auditors of the components including
performing the following procedures:
– Issued Group instructions outlining areas requiring additional audit focus, including the key audit matters included above;
– Maintained an active dialogue with reporting component audit teams throughout the year;
– Attended meetings with local Management in person or via video conference;
– Attended Audit Committee meetings for certain in-scope components;
– Reviewed reporting requested from component teams, including those areas determined to be of heightened audit risk; and
– Reviewed selected working papers on component audit files, where considered relevant.
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The impact of climate risk on our audit
As part of our audit we have made enquiries of Management (both within and outside of the Group’s finance functions) to
understand the governance and process adopted to assess the extent of the potential impact of climate risk on the Group’s
financial statements and support for the disclosures made within the Annual Report and Accounts.
In addition to enquiries with Management, we also read the Group’s climate risk assessment documentation, reviewed Board
minutes and considered disclosures in the Annual Report and Accounts in relation to climate change (including the Task Force on
Climate-related Financial Disclosures “TCFD”) in order to assess the completeness of Management’s climate risk assessment.
We have also made enquiries to understand the commitments made by the Group and how these may affect the financial
statements and the audit procedures that we perform.
Our procedures did not identify any material impact in the context of our audit of the financial statements as a whole, or our key
audit matters for the year ended 31 December 2022.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements - Group
Financial statements - Parent Company
Overall materiality
£55 million.
Materiality
benchmark
How we
determined it
The materiality amount was selected judgmentally and
is equivalent to 8% of the 3-year average of the Adjusted
operating profit before tax.
In determining our materiality we have considered financial
metrics and benchmarks which we believe to be relevant to
the primary users of the consolidated financial statements.
Due to the disparate size of the Income Statement and
Statement of Financial Position, the materiality amount
was selected judgmentally by the Group audit team having
considered a range of relevant benchmarks including
Adjusted Operating Profit, Profit before tax, Operational
Capital Generation, Total assets, and Solvency II own funds.
£115 million.
1% of total assets.
As the entity is the parent entity and its
balance sheet is focused with limited
income statement activity, we consider that
total assets is an appropriate benchmark.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
The range of materiality allocated across components was between £15 million and £52.25 million. Certain components were
audited to a local statutory audit materiality that was also less than our overall Group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope
of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example
in determining sample sizes. Our performance materiality was 65% of overall materiality, amounting to £35 million for the Group
financial statements and £79 million for the Parent Company financial statements.
In determining the performance materiality, we considered a number of factors - it being our first year of audit of the Group and
the Parent Company, the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and
concluded that an amount in the middle of our normal range was appropriate.
We agreed with the M&G plc Group Audit Committee that we would report to them misstatements identified during our audit
above £2.5 million (Group audit) and £5.7 million (Parent Company audit) as well as misstatements below those amounts that, in
our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Parent Company’s ability to continue to adopt the going
concern basis of accounting included:
– Obtained the Directors’ going concern assessment and challenged the rationale for the downside scenarios adopted and
material assumptions made using our knowledge of the Group’s business performance, review of regulatory correspondence
and obtaining further corroborating evidence;
– Considered Management’s assessment of the regulatory solvency coverage and liquidity position in the forward looking
scenarios which have been driven from the Group’s Own Risk and Solvency Assessment (ORSA);
– Agreed the Group Solvency II information to the draft unaudited Group Solvency II schedules prepared by Management;
– Considered information obtained during the course of the audit and publicly available market information to identity any
evidence that would contradict Management’s assessment of going concern; and
– Reviewed the disclosures included in the financial statements in relation to going concern, including the Basis of Preparation.
176 | M&G plc Annual Report and Accounts 2022
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s and the Parent Company’s ability to continue as a going
concern for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and
the Parent Company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered
it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information, which includes reporting based on the TCFD
recommendations. Our opinion on the financial statements does not cover the other information and, accordingly, we do not
express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on
these responsibilities.
With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and
matters as described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and
Directors’ report for the year ended 31 December 2022 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and Parent Company and their environment obtained in the course of
the audit, we did not identify any material misstatements in the Strategic report and Directors’ report.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part
of the corporate governance statement relating to the Parent Company’s compliance with the provisions of the UK Corporate
Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as
other information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement, included within the Governance - “How we comply with the Corporate Governance Code” section is
materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to
add or draw attention to in relation to:
– The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
– The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or mitigated;
– The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the Group’s and
Parent Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the
financial statements;
– The directors’ explanation as to their assessment of the Group’s and Parent Company’s prospects, the period this assessment
covers and why the period is appropriate; and
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– The directors’ statement as to whether they have a reasonable expectation that the Parent Company will be able to continue
in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the Group and Parent Company was substantially
less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their
statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and
considering whether the statement is consistent with the financial statements and our knowledge and understanding of the
Group and Parent Company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the financial statements and our knowledge obtained during
the audit:
– The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess the Group’s and Parent Company’s position, performance,
business model and strategy;
– The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems;
and
– The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Parent
Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified
under the Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities and Financial information, the directors are responsible
for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they
give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and
regulations related to UK and European regulatory principles, such as those governed by the Prudential Regulation Authority
(PRA) and the Financial Conduct Authority (FCA), and we considered the extent to which non-compliance might have a material
effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial
statements such as the Companies Act 2006. We evaluated Management’s incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were
related to management bias in accounting estimates and judgmental areas of the financial statements as shown in our ‘Key audit
matters’. The Group engagement team shared this risk assessment with the component auditors so that they could include
appropriate audit procedures in response to such risks in their work. Audit procedures performed by the Group engagement
team and/or component auditors included:
– Discussions with the Board, Senior Management, Internal Audit, senior management involved in the Risk and Compliance
functions and Group and Parent Company’s legal function, including consideration of known or suspected instances of non-
compliance with laws and regulation and fraud;
– Evaluation and testing of the operating effectiveness of Management’s controls designed to prevent and detect irregularities;
– Assessment of matters reported on the Group and Parent Company’s whistleblowing helpline and fraud register and the
results of Management’s investigation of such matters;
– Meeting with the PRA periodically and reading key correspondence with the PRA and the FCA, including those in relation to
compliance with laws and regulations;
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– Reviewing relevant meeting minutes including those of the Board of Directors, Audit, Risk, Remuneration and
Disclosure Committees;
– Identifying and testing journal entries based on risk criteria;
– Testing of judgements and assumptions in subjective areas as set out in the key audit matters;
– Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing;
– Testing transactions entered into outside of the normal course of the Group and Parent Company’s business, including notably
acquisitions of businesses in the period;
– Reviewing the Group’s register of litigation and claims, Internal Audit reports, and compliance reports in so far as they related
to non-compliance with laws and regulations and fraud; and
– Attendance at Audit Committee and Joint Audit and Risk Committee meetings.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or
through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data
auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete
populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we
will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Parent Company’s members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– we have not obtained all the information and explanations we require for our audit; or
– adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the M&G plc Group Audit Committee, we were appointed by the members on 25 May 2022 to
audit the financial statements for the year ended 31 December 2022 and subsequent financial periods. This is therefore our first
year of uninterrupted engagement.
Other matter
As required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements
form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct
Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance
over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS.
Mark Pugh (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
9 March 2023
M&G plc Annual Report and Accounts 2022 | 179
Financial informationStrategic ReportGovernanceOther information Consolidated financial statements
Consolidated income statement
For the year ended 31 December
Gross premiums earned
Outward reinsurance premiums
Earned premiums, net of reinsurance
Investment return
Fee income
Other income
Total revenue, net of reinsurance
Benefits and claims
Outward reinsurers’ share of benefit and claims
Movement in unallocated surplus of the With-Profits Fund
Benefits and claims and movement in unallocated surplus of the With-Profits Fund,
net of reinsurance
Administrative and other expenses
Movements in third party interest in consolidated funds
Finance costs
Total charges, net of reinsurance
Share of profit from joint ventures and associates
(Loss)/profit before taxii
Tax credit/(charge) attributable to policyholders’ returns
(Loss)/profit before tax attributable to equity holders
Total tax credit/(charge)
Less tax (credit)/charge attributable to policyholders’ returns
Tax credit attributable to equity holders
(Loss)/profit for the year
Attributable to equity holders of M&G plc
Attributable to non-controlling interests
(Loss)/profit for the year
Earnings per share:
Basic (pence per share)
Diluted (pence per share)
Note
4
5
26
26
26
6
6
14
9
9
9
2022
£m
6,507
(479)
6,028
Restatedi
2021
£m
4,784
(1,019)
3,765
(15,656)
12,909
1,037
46
(8,545)
6,987
983
115
17,772
(3,551)
(241)
(8,480)
1,689
(1,052)
8,435
(13,083)
(2,810)
(2,803)
547
(162)
(1,019)
(160)
6,010
(17,065)
38
(2,497)
379
(2,118)
878
(379)
499
(1,619)
(1,632)
13
(1,619)
10
10
(66.0)
(66.0)
81
788
(707)
81
(696)
707
11
92
83
9
92
3.3
3.2
i Following a review of the Group’s presentation of tax positions within consolidated investment funds, comparative amounts have been restated from
those previously reported. The restatement has had no impact on profit for the year or net assets. See Note 1.1 for further information.
ii This measure is the profit before tax measure under UK-adopted IAS but it is not the result attributable to equity holders. This is principally because
the corporate taxes of the Group include those 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 of the Company under UK-adopted IAS. Consequently, profit
before tax is not representative of pre-tax profits attributable to equity holders. Profit before tax is determined after deducting the cost of policyholder
benefits and movements in the liability for unallocated surplus of the With-Profits Fund after adjusting for taxes borne by policyholders.
The Notes on pages 185 to 308 are an integral part of these consolidated financial statements.
180 | M&G plc Annual Report and Accounts 2022
Consolidated statement of comprehensive income
For the year ended 31 December
(Loss)/profit for the year
Items that may be reclassified subsequently to profit or loss:
Exchange movements arising on foreign operations
Other comprehensive income/(loss) on items that may be reclassified subsequently to profit
or loss
Items that will not be reclassified to profit or loss:
Gain on remeasurement of defined benefit pension schemes
Tax on remeasurement of defined benefit pension schemes
Add amount transferred to Unallocated surplus of the With-Profits Fund, net of related tax
Other comprehensive income on items that will not be reclassified to profit or loss
Other comprehensive income for the year, net of related tax
Total comprehensive (loss)/income for the year
Attributable to equity holders of M&G plc
Attributable to non-controlling interests
Total comprehensive (loss)/income for the year
The Notes on pages 185 to 308 are an integral part of these consolidated financial statements.
Note
2022
£m
(1,619)
2021
£m
92
25
17
9
20
20
29
(7)
22
2
24
44
(13)
(13)
71
(19)
52
(2)
50
37
(1,575)
129
(1,588)
13
(1,575)
120
9
129
M&G plc Annual Report and Accounts 2022 | 181
Financial informationStrategic ReportGovernanceOther information
Consolidated financial statements continued
Consolidated statement of financial position
As at 31 December
Assets
Goodwill and intangible assets
Deferred acquisition costs
Defined benefit pension asset
Investment in joint ventures and associates accounted for using the equity method
Property, plant and equipment
Investment property
Deferred tax assets
Reinsurance assets
Equity securities and pooled investment funds
Loans
Debt securities
Derivative assets
Deposits
Current tax and other tax assets
Accrued investment income and other debtors
Assets held for saleii
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium reserve
Shares held by employee benefit trust
Treasury shares
Retained earnings
Other reserves
Equity attributable to equity holders of M&G plc
Non-controlling interests
Total equity
Liabilities
Insurance contract liabilities
Investment contract liabilities with discretionary participation features
Investment contract liabilities without discretionary participation features
Unallocated surplus of the With-Profits Fund
Third party interest in consolidated funds
Subordinated liabilities and other borrowings
Defined benefit pension liability
Deferred tax liabilities
Lease liabilities
Current tax and other tax liabilities
Derivative liabilities
Other financial liabilities
Provisions
Accruals, deferred income and other liabilities
Liabilities held for saleii
Total liabilities
Total equity and liabilities
2022
£m
Restatedi
2021
£m
Note
12
13
17
14
15
16
9
26
18
9
20
21
22
22
23
23
24
25
26
26
26
26
27
17
9
28
9
29
30
1,877
94
155
413
1,953
16,505
651
1,186
70,127
3,330
62,821
2,850
21,401
289
2,340
684
4,884
191,560
119
370
(70)
(47)
14,023
(11,613)
2,782
48
2,830
49,805
78,594
11,937
15,130
10,389
7,537
—
780
420
113
4,185
2,172
90
7,406
172
188,730
191,560
1,615
94
38
469
2,536
19,698
119
1,669
74,069
5,809
81,059
3,373
17,633
375
2,647
1,023
6,908
219,134
130
370
(93)
(1)
16,550
(11,660)
5,296
49
5,345
63,223
82,743
14,884
16,723
12,636
8,930
84
1,419
413
359
2,689
2,882
138
6,666
—
213,789
219,134
i Following a review of the Group’s presentation of tax positions within consolidated investment funds, comparative amounts have been restated from
those previously reported. The restatement has had no impact on the profit for the year or net assets. See Note 1.1 for further information.
ii Assets held for sale on the consolidated statement of financial position as at 31 December 2022 includes £158m (2021: £127m) of seed capital and
£333m of investment property (2021: £896m) that are expected to be divested within 12 months. £398m of property assets held for sale as at
31 December 2021 were transferred back to investment property during the year ended 31 December 2022. Additionally, as at 31 December 2022
£193m of assets (year ended 31 December 2021: £nil) and £172m of liabilities (year ended 31 December 2021: £nil) held for sale are in relation to the
Group’s consolidated infrastructure capital private equity vehicles.
The Notes on pages 185 to 308 are an integral part of these consolidated financial statements.
The consolidated financial statements on pages 180 to 308 were approved by the Board and signed on its behalf by the following
Directors on 9 March 2023:
Andrea Rossi Group Chief Executive Officer
Kathryn McLeland Chief Financial Officer
182 | M&G plc Annual Report and Accounts 2022
Consolidated statement of changes in equity
Share
capital
£m
Share
premium
£m
Note
Shares
held by
employee
benefit
trust
£m
Treasury
shares
£m
Retained
earnings
£m
Other
reserves
£m
Total equity
attributable
to equity
holders of
M&G plc
£m
Non-
controlling
interests
£m
Total
equity
£m
130
370
(93)
(1) 16,550 (11,660)
5,296
49 5,345
(1,632)
—
(1,632)
13 (1,619)
As at 1 January 2022
(Loss)/profit for the year
Other comprehensive income for the
year
24, 25
Total comprehensive (loss)/income
for the year
Shares purchased in buy-backi
Dividends paid to equity holders of
M&G plc
Dividends paid to non-controlling
interests
Shares distributed by trusts
Vested employee share-based
payments
Expense recognised in respect of
share-based payments
Tax effect of items recognised
directly in equity
Other movements
22
11
24
24, 25
25
24, 25
—
—
—
(11)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
370
—
—
—
—
—
—
23
—
—
—
—
23
(70)
—
—
—
—
—
—
—
—
—
1
24
(1,608)
(47)
(456)
20
20
11
—
—
—
34
5
—
47
44
—
44
(1,588)
(503)
(465)
—
1
—
34
6
1
13 (1,575)
—
—
(503)
(465)
(14)
(14)
—
—
—
—
—
1
—
34
6
1
(2,514)
(1) (2,515)
(465)
—
(22)
—
1
—
23
(23)
Net (decrease)/increase in equity
As at 31 December 2022
(11)
119
(46)
(2,527)
(47) 14,023 (11,613)
2,782
48 2,830
i On 24 March 2022, the Group announced that it would commence a share buy-back programme to purchase ordinary shares of 5 pence each up
to a maximum consideration of £500m and the programme completed on 27 October 2022 for a total consideration, including expenses and stamp
duty, of £503m. Shares with a nominal value of £11m were cancelled, leading to a capital redemption reserve for the same amount, disclosed within
other reserves.
As at 1 January 2021
Profit for the year
Other comprehensive income for the
year
24, 25
Total comprehensive income for the
year
Non-controlling interest arising
through business combinations
Dividends paid to equity holders of
M&G plc
Dividends paid to non-controlling
interests
Shares distributed by trusts
Vested employee share-based
payments
Expense recognised in respect of
share-based payments
Tax effect of items recognised
directly in equity
Net increase/(decrease) in equity
11
24
24, 25
25
24, 25
Share
capital
£m
Share
premium
£m
Note
Shares
held by
employee
benefit
trust
£m
Treasury
shares
£m
Retained
earnings
£m
Other
reserves
£m
Total equity
attributable
to equity
holders of
M&G plc
£m
Non-
controlling
interests
£m
130
370
(117)
(1)
16,853
(11,658)
5,577
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
24
—
—
—
24
(93)
—
—
—
—
—
—
—
—
—
—
—
83
50
133
—
(466)
—
(24)
33
—
21
(303)
—
(13)
(13)
—
—
—
—
(33)
40
4
(2)
83
37
120
—
—
—
40
25
(281)
—
38
38
(466)
—
(466)
Total
equity
£m
5,585
92
37
129
8
9
—
9
(6)
(6)
—
—
—
—
—
—
40
25
41
49
(240)
5,345
As at 31 December 2021
130
370
(1)
16,550 (11,660)
5,296
The Notes on pages 185 to 308 are an integral part of these consolidated financial statements.
M&G plc Annual Report and Accounts 2022 | 183
Financial informationStrategic ReportGovernanceOther information Consolidated financial statements continued
Consolidated statement of cash flows
For the year ended 31 December
Cash flows from operating activities:
(Loss)/profit before tax
Non-cash and other movements in operating assets and liabilities included in profit before tax:
Investments
Other non-investment and non-cash assetsii
Policyholder liabilities (including unallocated surplus)ii
Other liabilities (including operational borrowings)
Interest income, interest expense and dividend income
Other non-cash itemsiii
Operating cash items:
Interest receipts
Interest paymentsi
Dividend receipts
Tax paidiv
Net cash flows from operating activitiesv
Cash flows from investing activities:
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Net cash (paid)/acquired on acquisition of subsidiariesvi
Divestment in subsidiaries by consolidated private equity vehiclesvii
Investment in subsidiaries by consolidated private equity vehiclesvii
Net cash flows from investing activities
Cash flows from financing activities:
Interest paid
Lease capital repaymentsi
Shares purchased in buy-back
Dividends paid to equity holders of M&G Plc
Dividends paid to non-controlling interestsiii
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at 31 December
2022
£m
Restatedi
2021
£m
Note
(2,497)
788
26,477
(804)
1,761
10,524
(22,179)
(9,846)
(4,210)
(4,491)
242
1,213
(4,028)
(456)
2,529
(88)
2,220
(268)
(504)
2,321
(144)
2,066
(332)
1,302
(573)
(770)
1
(210)
429
(15)
(368)
(190)
(30)
(503)
(465)
(14)
(1,202)
(2,074)
6,908
50
41
13
250
—
(466)
(186)
(23)
—
(466)
(6)
(681)
155
6,776
(23)
4,884
6,908
22
11
21
21
i Following a review of the Group’s presentation of tax positions within consolidated investment funds, comparative amounts have been restated from
those previously reported. The restatement has had no impact on profit for the year or net assets. See Note 1.1 for further information. Additionally,
interest payments on leases have been reallocated to Interest payments, these were previously reported within Lease capital repayments.
ii Other non-investment and non-cash assets and Policyholder liabilities (including unallocated surplus) for the year ended 31 December 2021 includes
the impact of the £9.6bn Part VII transfer of annuities business to Rothesay Life PLC.
iii Dividends paid to non-controlling interests of £6m for the year ended 31 December 2021 have been reallocated from operating activities to
financing activities.
iv Tax paid for the year ended 31 December 2022 includes £68m (2021: £173m) paid on profits taxable at policyholder rather than shareholder rates.
v Cash flows in respect of other borrowings of the With-Profits Fund, which principally relate to consolidated investment funds, are included within cash
flows from operating activities.
vi Net cash (paid)/acquired on acquisition of subsidiaries consists of £227m (2021: £0.2m) of cash paid, net of £17m (2021: £13m) cash acquired. Refer to
Note 2.2 for further information on shareholder acquisitions made in the year.
vii Divestment/investment in subsidiaries by consolidated private equity vehicles represents the amount paid or received in relation to the purchase or
sale of underlying investee companies held by the Group’s consolidated private equity vehicles.
The Notes on pages 185 to 308 are an integral part of these consolidated financial statements.
184 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements
1 Basis of preparation and significant accounting policies
1.1 Basis of preparation
The consolidated financial statements for the year ended 31 December 2022 comprising the financial statements of M&G plc
(‘the Company’) and its subsidiaries (together referred to as ‘the Group’), have been prepared in accordance with UK-adopted
International Accounting Standards (IAS) and the legal requirements of the Companies Act 2006. The consolidated financial
statements have been prepared under the historical cost basis except for investment property measured at fair value, certain
financial assets and financial liabilities (including derivative instruments) that are measured at fair value through profit or loss
(FVTPL), insurance contract liabilities that are measured in accordance with the requirements of IFRS 4: Insurance Contracts,
and defined benefit assets and liabilities, measured at the fair value of plan assets less the present value of the defined benefit
obligations. Assets and disposal groups held for sale are stated at the lower of the previous carrying amount and fair value less
costs to sell.
Restatement of prior period information
The comparative consolidated statement of financial position as at 31 December 2021 has been restated following a
presentational change in tax-related balances arising in certain consolidated property funds which were disclosed incorrectly
in the prior period. The tax balances have been reallocated from Accruals, deferred income and other liabilities to Current tax
liabilities and other taxes and Deferred tax liabilities.
The comparative consolidated income statement for the year ended 31 December 2021 has also been restated to reallocate
tax expense from Administrative and other expenses to Tax charge attributable to policyholders’ returns, to reflect this
presentational change. As a result, Profit before tax for the year ended 31 December 2021 has been restated.
The restatement has had no impact on profit for the year ended 31 December 2021 or total equity attributable to shareholders as
at 31 December 2021.
The impact of the restatement on the consolidated statement of financial position and consolidated income statement is set out
in the tables below:
Consolidated income statement:
Administrative and other expenses
Total charges, net of reinsurance
Profit before tax
Tax charge attributable to policyholders’ returns
Total tax charge
Less tax charge attributable to policyholders’ returns
For the year
ended 31
December
2021
as
previously
reported
£m
For the year
ended 31
December
2021
restated
£m
Adjustments
£m
(2,884)
(17,146)
707
(626)
(615)
(626)
81
81
81
(81)
(81)
(81)
(2,803)
(17,065)
788
(707)
(696)
(707)
Note
6
9
9
Consolidated statement of financial position:
Liabilities:
Deferred tax liabilities
Current tax liabilities and other taxes
Accruals, deferred income and other liabilities
Other
Total liabilities
As at 31
December
2021
as
previously
reported
£m
1,157
323
6,964
205,345
213,789
Note
9
9
30
As at 31
December
2021
restated
£m
1 January
2021
as
previously
reported
£m
Adjustments
£m
1 January
2021
restated
£m
Adjustments
£m
262
36
1,419
359
916
276
210
21
1,126
297
(298)
6,666
6,964
(231)
6,733
—
—
205,345
214,985
213,789
223,141
—
—
214,985
223,141
In the consolidated statement of cash flows, £81m has been reallocated from Profit before tax and split between Other liabilities
of £67m, Other non-cash items of £3m and Tax paid of £17m, to reflect the change in presentation. The reallocation from Profit
before tax relates to policyholder tax and does not impact Profit before tax attributable to equity holders. Comparatives in the
impacted notes to the consolidated financial statements have also been restated.
M&G plc Annual Report and Accounts 2022 | 185
Financial informationStrategic ReportGovernanceOther information 1 Basis of preparation and significant accounting policies continued
Going concern
The Directors have reasonable expectation that the Group as a whole has adequate resources to continue in operational
existence over a period of at least 12 months from the date of approval of the consolidated financial statements.
To satisfy themselves of the appropriateness of the use of the going concern assumption in relation to the consolidated financial
statements, the Directors have considered the liquidity projections of the Group, including the impact of applying specific
liquidity stresses. The Directors also considered the ability of the Group to access external funding sources, including access to
the £1.5bn revolving credit facility (as explained in the Directors’ Report and disclosed at note 27.2.1) and the management actions
that could be used to manage liquidity.
In addition, the Directors also gave particular attention to the solvency and liquidity projections of the Group under various
stressed scenarios which consider various assumptions around inflation and actions by central banks resulting from the current
macroeconomic environment and uncertain geo-political situation which affect supply chains and consumer behaviours.
The impact of the following individual stresses on solvency were considered as part of the assessment:
– 20% fall in equity prices
– 20% fall in property prices
– (50bps) parallel shift in nominal yields
– 20% of the credit portfolio downgrading by one full letter
– +100bps spread widening (A-rated assets)
We also assessed the resilience of our financial position in a high inflationary environment scenario and the economic
implications resulting from it.
The results of the assessment demonstrated the ability of the Group to meet all obligations, including payments to shareholders
and debt holders, and future business requirements for the foreseeable future, considering relevant management actions are
taken as necessary. In addition, the assessment demonstrated that the Group was able to remain above its regulatory solvency
requirements in a stressed scenario.
For this reason, the Directors continue to adopt the going concern basis in preparing the consolidated and Company
financial statements.
1.2 New accounting pronouncements
1.2.1 New accounting pronouncements adopted by the Group
In preparing these consolidated financial statements, the Group has adopted the following standards, interpretations and
amendments that became effective during the year:
– Reference to the Conceptual Framework (Amendments to IFRS 3), issued in May 2020 and effective from 1 January 2022
– Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16), issued in May 2020 and effective from
1 January 2022
– Onerous Contracts – Costs of Fulfilling a Contract (Amendments to IAS 37), issued in March 2018 and effective from
1 January 2022
None of the above interpretations and amendments to standards are considered to have a material effect on these consolidated
financial statements.
1.2.2 New accounting pronouncements not yet effective
The following standards, interpretations and amendments have been issued but are not yet effective for the Group. This is not
intended to be a complete list, as only those standards, interpretations and amendments that could have an impact upon the
consolidated financial statements are discussed.
186 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 1 Basis of preparation and significant accounting policies continued
1.2.2.1 IFRS 9: Financial Instruments
In July 2014, the International Accounting Standards Board (IASB) published IFRS 9: Financial Instruments (IFRS 9) which is
effective for annual periods beginning on or after 1 January 2018, except as described below, with early application permitted.
IFRS 9 replaces the existing standard, IAS 39: Financial Instruments – Recognition and Measurement. The standard provides
new principles for determining classification and measurement of financial instruments, introduces a new forward-looking
impairment model based on expected losses (replacing the existing incurred loss model) and provides new guidance on
application of hedge accounting.
In September 2016, the IASB published amendments to IFRS 4, “Applying IFRS 9: Financial Instruments with IFRS 4: Insurance
Contracts” to address the temporary consequences of the different effective dates of IFRS 9 and IFRS 17: Insurance Contracts.
The amendments include an optional temporary exemption from applying IFRS 9 and the associated amendments until IFRS
17 comes into effect. This temporary exemption is available to companies whose predominant activity is to issue insurance
contracts based on meeting the eligibility criteria as at 31 December 2015, as set out in the amendments. In June 2020, the IASB
amended IFRS 17 so that the revised effective date of the standard is for periods beginning on or after 1 January 2023. The IASB
also confirmed through this amendment that IFRS 9 could be delayed for insurers to keep the effective dates of IFRS 9 and IFRS
17 aligned.
As the Group met the required eligibility criteria for temporary exemption, the adoption of IFRS 9 has been deferred to coincide
with the adoption of IFRS 17 on 1 January 2023. The comparative period will be restated for IFRS 9 and the Group will apply
the classification overlay in IFRS 17 to financial assets derecognised in 2022 and present these assets as if classification and
measurement of IFRS 9 have been applied.
Classification and measurement
Under IFRS 9, financial assets are classified into three categories: fair value through profit or loss, fair value through other
comprehensive income or amortised cost. The classification is based on the business model on which the financial assets are
managed and the contractual cash flows of these assets. IFRS 9 largely retains the requirements of IAS 39 in respect of the
classification and measurement of financial liabilities.
IFRS 9 will affect the classification and measurement of financial instruments held at 1 January 2023 as follows:
Financial assets:
Loans
Derivative assets
Classification under IAS 39
Classification under IFRS 9
Loans and receivables/FVTPL designated FVTPL mandatory
FVTPL held for trading
Equity securities and pooled investment funds
FVTPL designated
Deposits
Debt securities
Loans and receivables
FVTPL designated
Accrued investment income and other debtors
Loans and receivables
Cash and cash equivalents
Financial liabilities:
Loans and receivables
Classification under IAS 39
Investment contract liabilities without DPF
FVTPL designated
Third party interests in consolidated funds
FVTPL designated
Subordinated liabilities and other borrowings
Amortised cost
Derivative liabilities
FVTPL held for trading
Other financial liabilities
Accruals, deferred income and other liabilitiesi
Amortised cost
Amortised cost
FVTPL mandatory
FVTPL mandatory
Amortised cost
FVTPL mandatory
Amortised cost
Amortised cost
Classification under IFRS 9
FVTPL designated
FVTPL designated
Amortised cost
FVTPL mandatory
Amortised cost
Amortised cost
i Except Deferred consideration which is classified as FVTPL designated under IAS 39 and IFRS 9.
The majority of the Group’s financial instruments are measured at fair value both before and after transition to IFRS 9. The impact
to Group total equity from reclassifying loans from amortised cost to fair value is a decrease of £0.1bn at 1 January 2023 and an
increase of £0.1bn at 1 January 2022.
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Impairment
A new impairment model will apply to the Group’s financial assets measured at amortised cost. The Group estimate that due
to the size and nature of the assets that will be held at amortised cost following the application of the IFRS 9, there will be no
material change to the impairment recognised.
Hedge accounting
The Group does not currently apply hedge accounting.
The assessment above is preliminary and is subject to change as the Group continues to refine the new accounting policies,
assumptions, judgements and estimates in respect of IFRS 9.
Presented below are disclosures required by the amendments to IFRS 4 for entities deferring the adoption of IFRS 9. These are
provided to enable users to compare results with those entities that have adopted IFRS 9. As required by the amendment, the
table shows the fair value of the Group’s directly held financial assets at 31 December 2022, distinguishing those financial assets
which have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest
(SPPI) as defined by IFRS 9.
Financial assets on the consolidated statement of financial position
Equity securities and pooled investment funds
Loans
Debt securities
Derivative assets – net of derivative liabilities
Deposits
Accrued investment income and other debtors
Cash and cash equivalents
Total financial assets, net of derivative liabilities
Financial assets on the consolidated statement of financial position
Equity securities and pooled investment funds
Loansi
Debt securities
Derivative assets – net of derivative liabilities
Deposits
Accrued investment income and other debtors
Cash and cash equivalents
Total financial assets, net of derivative liabilities
Financial assets that
pass the SPPI test
All other financial assets,
net of derivative liabilities
31 December 2022
£m
Movement
in fair value
during the year
£m
31 December 2022
£m
Movement
in fair value
during the year
£m
—
—
—
—
21,401
2,340
4,884
28,625
—
—
—
—
—
—
—
—
70,127
3,233
62,821
(1,335)
—
—
—
(2,876)
(933)
(12,637)
(3,983)
—
—
—
134,846
(20,429)
Financial assets that
pass the SPPI test
All other financial assets,
net of derivative liabilities
31 December 2021
£m
Movement
in fair value
during the year
£m
31 December 2021
£m
Movement
in fair value
during the year
£m
—
—
—
—
17,633
2,647
6,908
27,188
—
—
—
—
—
—
—
—
74,069
5,876
81,059
684
—
—
—
9,298
(172)
(2,732)
(56)
—
—
—
161,688
6,338
i
Loans have been restated for 31 December 2021 from Financial assets that pass the SPPI test to All other financial assets net of derivative liabilities
following a business model assessment carried out in 2022.
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1.2.2.2 IFRS 17: Insurance Contracts
IFRS 17: Insurance Contracts (IFRS 17), effective from 1 January 2023, has been published by the IASB, and endorsed without
amendment for application by UK listed groups by the UK Endorsement Board. IFRS 17 replaces the existing interim standard,
IFRS 4: Insurance Contracts. The Group intends to adopt the new standard on its mandatory effective date, alongside the
adoption of IFRS 9: Financial Instruments.
A key principle of IFRS 17 is that the profit from insurance contracts (and investment contracts with discretionary participation
features) is recognised over the period over which service is provided to policyholders. In addition, while expected profits are
deferred, expected losses are recognised immediately and, as a consequence, the accounting result depends on the level of
aggregation at which the contracts are measured. Given this, IFRS 17 specifies how the insurance contracts should be divided
into groups for the purpose of recognition and measurement.
Status of implementation project
The implementation of IFRS 17 continues to be a key priority for the Group and involves significant change to systems and
processes. Key components of the programme include a large number of methodology and implementation judgements, delivery
of new systems and controls and the production of comparative results. To deliver a programme of this size, a large number of
resources, incorporating a wide range of skills and expertise, are required.
Project progress is tracked against key milestones and reported through internal governance, including to the Group Audit
Committee, on an ongoing basis. Due to the complexity of the with-profits business and scale of change involved, delivery
remains challenging but the programme has met key milestones and is preparing to report in accordance with the new standard
in 2023. The focus over 2023 is the completion of the production of restated comparatives and ensuring the business is ready to
migrate to the new systems, processes and internal controls in the timescales available.
Overview of IFRS 17
Contracts within the scope of IFRS 17
An entity must apply IFRS 17 to determine the requirements for recognition, measurement, presentation and disclosure of:
– Insurance contracts (including reinsurance contracts issued);
– Reinsurance contracts held; and
– Investment contracts with discretionary participation features (DPF) issued, provided the entity also issues
insurance contracts.
The definitions of insurance risk and discretionary participation features under IFRS 17 are unchanged from IFRS 4. Therefore the
Group’s judgements as to what constitutes significant insurance risk and significant discretionary participation features when
determining whether contracts are within the scope of IFRS 17 are unchanged from the judgements that the Group made for
IFRS 4.
Identifying contracts
The requirements for identifying contracts within the scope of IFRS 17 is not limited to determining only whether a contract
falls into one of the three categories above but also requires the entity to assess whether contracts within the scope of IFRS
17 contain embedded derivatives, distinct investment components or obligations to provide distinct goods or services other
than insurance contract services that must be separated out and accounted for under a different standard (with the remaining
components accounted for under IFRS 17).
Level of aggregation
IFRS 17 requires contracts to be aggregated together into groups for measurement purposes. Contracts are grouped together:
– If they are subject to similar risks and managed together;
– If they were issued in the same calendar year; and
– According to whether at initial recognition they are expected to be loss making, profitable with no significant possibility of
becoming loss making subsequently, or neither of these.
There are similar grouping requirements applied to reinsurance contracts held although, rather than being assessed by
profitability, reinsurance contracts held are assessed according to whether at initial recognition their value to the Group is a net
gain, a net loss with no significant possibility that the value becomes a net gain subsequently, or neither of these.
Upon transition the Group expects to aggregate the in-force contracts into about 70 groups.
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Measurement – Overview
The carrying amount of a group of insurance contracts is the sum of the liability for incurred claims and the liability for remaining
coverage. The liability for incurred claims contains fulfilment cash flows for incurred claims that have not yet been paid to
policyholders and other relevant cash flows.
The liability for remaining coverage is the sum of:
– The present value of the probability-weighted expected future cash flows that are expected to arise from fulfilling the
contracts. Cash flows are discounted using risk-free yield curves adjusted to reflect the liquidity characteristics of
the contracts;
– An explicit risk adjustment that reflects the entity’s own view of the additional amount it requires for bearing the uncertainty
about the timing and amount of the cash flows that arises from non-financial risk; and
– A contractual service margin (CSM), which represents the unearned profit that will be recognised as the entity provides
services under the contracts.
Measurement – future cash flows
Underlying items
IFRS 17 includes the concept of “underlying items”, which are assets that determine some of the amounts payable to
policyholders. Underlying items form part of the assessment of “direct participation features”, which determines which CSM
measurement model must be used and how the CSM is re-measured under the Variable Fee Approach (see section on CSM
measurement below). Underlying items are also included in the assessment of whether there is mutualisation (see below)
between groups of contracts.
Underlying items of the with-profits groups of insurance contracts
The underlying items are the assets backing the asset shares (which are the accumulated value of all items of income and outgo
for with-profits policies) plus, where applicable, the assets backing enhancements that are expected to be added to asset shares
in the future, such as profit from some of the non-profit business written in the With-Profits Fund.
Other underlying items in the With-Profits Fund
The With-Profits Fund includes assets that are expected to be utilised to pay amounts to current or future policyholders in
addition to the provisions held in the groups of insurance contracts. The underlying items for these additional amounts are
defined as:
– The entirety of the assets in the With-Profits Fund;
– Less: the underlying items of the with-profits groups of insurance contracts; and
– Less: the assets held to meet other liabilities of the With-Profits Fund, for example for non-profit contracts.
Mutualisation
In general, IFRS 17 only requires a liability to be held for the current policyholders at each valuation. However, in addition, IFRS
17 acknowledges the “mutualisation” feature of with-profits funds whereby the cash flows of some contracts may affect or
be affected by the cash flows of other contracts. In recognition of this feature, IFRS 17 also permits a liability to be held that
represents the share of the surplus assets in the With-Profits Fund attributable to current or future policyholders.
Future cash flows of the with-profits groups of insurance contracts – impact of mutualisation
Surpluses may arise from some with-profits contracts, for example if the amounts charged to policies exceed the costs they
are intended to cover. These surpluses accrue to the With-Profits Fund and may be utilised to meet deficits arising on other
with-profits contracts or to enhance the benefits payable to current or future policyholders. In order to recognise this feature of
the With-Profits Fund, the liabilities for each with-profits group of insurance contracts includes the policyholders’ share of the
expected future surpluses/deficits, where the expected future surpluses/deficits are given by:
– The discounted value of the amounts that will be charged to policies;
– Less: the discounted value of future shareholder transfers, gross of tax; and
– Less: the discounted value of other costs directly attributable to the group of insurance contracts.
Future cash flows – additional amounts payable to current or future policyholders
The liability for the additional amounts payable to current or future policyholders will be a key judgement and is expected to be
equal to around 90% of the fair value of the other underlying items in the With-Profits Fund. The fair value of these underlying
items includes the fair value of the non-profit contracts in the With-Profits Fund.
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Discount rates
The Group will determine the adjustment for illiquidity using either a top-down or a bottom-up approach. Under the top-down
approach a yield curve that reflects the current market rates of return implicit in a fair value measurement of a reference portfolio
of assets is adjusted to eliminate any factors that are not relevant to the insurance contracts, such as cash flow mismatching
and credit risk. However, it is not required to adjust the yield curve for differences in the liquidity characteristics of the insurance
contracts and the reference portfolio.
Judgement is required to choose an appropriate reference portfolio and to determine the element of the yield on the portfolio
that is attributable to factors not relevant to the insurance contracts.
Under the bottom-up approach a liquid risk-free yield curve is increased to reflect the differences between the liquidity
characteristics of the financial instruments that underlie the risk-free rates observed in the market and the liquidity
characteristics of the insurance contracts. Judgement is required to determine the illiquidity premium.
The Group intends to apply the top-down approach for annuities contracts and the bottom-up approach for all other contracts,
including with-profits.
Measurement – risk adjustment for non-financial risk
Different approaches are expected to be used within the industry to estimate the risk adjustment for non-financial risk, including
a confidence level technique or a cost of capital technique.
For all lines of business, the Group will use a confidence level technique under which a probability distribution of the expected
present value of future cash flows from the contracts is estimated and the risk adjustment for non-financial risk is calculated as
the excess of the value at risk at the target confidence level over the expected present value of the future cash flows.
The Group has set the compensation it requires for uncertainty arising from non-financial risk over the period of coverage
equivalent to the 75th percentile over a 1-year time horizon. This is a key judgement.
The risk adjustment will reflect the impact of diversification of non-financial risks within each entity in the Group but not
diversification of risks between entities.
Measurement – CSM
The CSM is subject to different measurement requirements depending on whether it relates to groups of contracts that are
classified as being with or without direct participation features. Insurance and investment contracts with direct participation
features are contracts for which the entity expects to pay the policyholder a substantial share of the returns on the
underlying items.
For the Group’s business all contracts that are in the scope of IFRS 17 and that are without direct participation features will
apply the General Measurement Model (GMM). These primarily consist of the non-profit annuity and non-profit protection lines
of business.
The contracts with direct participation features will use the Variable Fee Approach (VFA). These are expected to comprise the
with-profits business, including PruFund, and unit-linked business.
A key difference between the GMM and VFA measurement models is that adjustments to the VFA CSM reflect prevailing market
conditions, giving some alignment between the movements in asset and liability values. In contrast, adjustments to the GMM
CSM are determined using prospective financial assumptions and discount rates that are fixed (“locked-in”) at initial recognition.
Under the General Measurement Model the carrying amount of CSM is adjusted to reflect the following changes:
– Effect of new contracts added to the group of contracts;
– Interest accreted on the carrying amount of CSM, measured at the locked-in rate;
– Changes in cash flows arising from non-financial risk that relate to future service;
– Effect of any currency exchange differences on the CSM; and
– Recognition of insurance revenue for services provided in the year.
Under the Variable Fee Approach the CSM is adjusted to reflect the following changes:
– Effect of new contracts added to the group of contracts;
– Change in the entity’s share of the fair value of underlying items;
– Changes in cash flows that relate to future service, including the effect of the time value of money and financial risk not arising
from the underlying items;
– Effect of any currency exchange differences on the CSM; and
– Recognition of insurance revenue for services provided in the year.
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Some of the adjustments to the CSM for the Variable Fee Approach listed above are determined by reference to changes in the
“variable fee”, which represents the value of the entity’s interest in the contracts. For with-profits business, the variable fee is
determined as the discounted value of future shareholder transfers, gross of tax, plus the shareholders’ share of the expected
future surpluses/deficits, where the expected future surpluses/deficits are given by:
– The discounted value of the amounts that will be charged to policies;
– Less: the discounted value of future shareholder transfers, gross of tax; and
– Less: the discounted value of other costs directly attributable to the group of insurance contracts.
The shareholders’ share is expected to be around 10%, mirroring the key judgement that the policyholders’ share is expected to
be around 90%.
Insurance revenue for services provided in the year is recognised by reference to “coverage units”, which represent the
quantity of services provided. For non-profit annuities that are already in payment the coverage units are determined as the
annual annuity benefit payable. This is consistent with the conclusion published on this topic by the IASB’s Interpretation
Committee (IFRIC) in 2022. For the majority of the with-profits contracts the coverage units are defined as the maximum of the
benefit payable on death and the asset share, as this best represents the insurance and investment service being provided.
The exception is with-profits annuity contracts in payment, for which the coverage units are defined as the annual annuity
benefit payable.
For a profitable group of contracts the value of the CSM at inception equals the present value of the expected net inflow.
This results in no income or expenses being recognised for the group of contracts at their initial recognition. Conversely, for
a group of contracts that is loss making (or “onerous”) at inception, the CSM is set to zero and the expected net outflow is
immediately recognised as a loss. A loss component is established with value equal to the net outflow.
Transition to IFRS 17
IFRS 17 requires that the changes in accounting policies arising from adopting the new standard, at 1 January 2022, must be
applied using a fully retrospective approach unless it is not practicable to do so. Under the fully retrospective approach the
Group will:
– Identify, recognise and measure each group of insurance contracts, investment with DPF contracts and reinsurance contracts
held as if IFRS 17 had always applied;
– Derecognise previously reported balances that would not have existed if IFRS 17 had always applied (including IFRS 4-related
deferred acquisition costs, and the unallocated surplus of the With-Profits Fund); and
– Recognise any resulting net difference in equity, after allowing for any deferred tax adjustment.
Where it is impracticable to apply a fully retrospective approach to a group of contracts, then the Group will, as permitted under
IFRS 17, use either the modified retrospective approach or the fair value approach.
The Group expects to apply the following approaches to valuing the CSM on transition to IFRS 17i:
Transition approach
Applied for
Fully Retrospective Approach
With-profits business written 2020-2021
Non-Profit protection in Poland written 2020-2021
Rothesay annuity reinsurance treatyii
Modified Retrospective Approach
90:10 with-profits business written 2004-2019
Fair Value Approach
With-profits business written before 2004
All other contracts written up to 2021
All other reinsurance treaties incepted up to 2021
i The approach to be used for PruProtect business is still to be confirmed. As this business is fully reinsured, the impact of PruProtect contracts on
shareholder equity at transition to IFRS 17 is not significant.
ii The Rothesay Part VII transfer in December 2021 and consequential update to the reinsurance treaty for the retained annuity business is deemed
to constitute a derecognition event. Therefore, for IFRS 17 purposes, the inception date of the reinsurance contract is 15 December 2021 and so is
transitioned under the Fully Retrospective Approach.
The reasons why the Group considers the fully retrospective approach to be impracticable for some contracts include:
– The effects of retrospective application are not determinable because the information required has not been collected, or has
not been collected with sufficient granularity, or is unavailable because of system migrations or other reasons.
– The fully retrospective approach requires assumptions about what the Group management’s intentions would have been in
previous periods that cannot be made without the use of hindsight. These include judgements about the compensation the
Group requires for bearing non-financial risk in order to determine the risk adjustment. As the Group was established as a
separate entity in 2019, the Group’s current business management and assumptions are not appropriate prior to 2020 and
choosing to use these or other assumptions would require the application of hindsight.
– Where the fully retrospective approach is impracticable for the valuation of a portfolio of insurance contracts written then it will
also be impracticable for the valuation of associated reinsurance portfolio as measurement requires similar considerations.
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Modified retrospective approach
The objective of the modified retrospective approach is to achieve the closest outcome to retrospective application possible
using reasonable and supportable information available without undue cost or effort. The Group will apply each of the following
modifications only to the extent that it does not have reasonable and supportable information to apply IFRS 17 retrospectively.
Assessments at inception or on initial recognition
The Group will determine the identification of groups of contracts and classification of contracts using information available at
contract inception where reasonable and supportable information is available. Where the Group does not have reasonable and
supportable information this will be assessed based on information at 1 January 2022.
Groups of contracts valued under the modified retrospective approach will contain contracts issued more than one year apart.
90:10 with-profits business written 2004-2019
For groups of with-profits contracts issued between 2004 and 2019 transitioning under the modified retrospective approach,
the Group will determine the CSM at 1 January 2022 by calculating a proxy (as permitted in IFRS 17) for the total CSM for all
services to be provided from inception as the fair value of the underlying items at 1 January 2022 minus the fulfilment cash flows
at 1 January 2022, adjusted for:
– Amounts charged to policyholders (including charges deducted from the underlying items) before 1 January 2022.
– Amounts paid before 1 January 2022 that did not vary based on the underlying items.
– The change in the risk adjustment for non-financial risk caused by the release from risk before 1 January 2022, which will be
estimated by reference to the release of risk for similar contracts that the Group issues at 1 January 2022.
If the calculation results in a CSM, the Group will measure the CSM at 1 January 2022 by deducting the CSM related to services
provided before 1 January 2022. The CSM related to services provided before 1 January 2022 will be determined by comparing
the remaining coverage units at 1 January 2022 with coverage units prior to 1 January 2022.
If the calculation results in a loss component then the Group will adjust the loss component to nil and increase the liability for
remaining coverage excluding the loss component by the same amount.
Fair value approach
Under the fair value approach, the CSM (or the loss component) at 1 January 2022 will be determined as the difference between
the fair value of a group of contracts at that date and the fulfilment cash flows at that date. The Group will measure the fair value
of the contracts as the sum of:
– The best estimate of the liability, determined using a discounted cash flow technique; and
– The compensation a market participant would require for taking on the obligation, over and above the best estimate
liability, determined using a cost of capital approach, and an amount to reflect the risk around the quantum of future
shareholder transfers.
The key judgements are in the assumptions used to set the best estimate of the liability, such as longevity assumptions, assumed
asset mix for annuities, and discount rates, and the compensation a market participant would require for taking on the obligation,
in particular the level of capital assumed to be held, the assumed cost of holding the capital, and the level of compensation
required to reflect the risk in relation to future shareholder transfers.
The fair value will be calibrated based on analysis of the Group’s own data and market data including public information on recent
transactions (to the extent relevant and available).
The Group will determine the identification of groups of contracts and classification of contracts using information available at
1 January 2022. Groups of policies valued under the fair value approach will contain contracts issued more than one year apart.
For GMM under the fair value approach, locked-in discount rates and financial assumptions, as applied after transition, will be
determined at 1 January 2022.
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Comparison with IFRS 4
The timing of profit recognition will change significantly under IFRS 17. Under IFRS 4 profits are recognised as follows:
– For with-profits contracts that share in the profit arising in the main With-Profits fund, profits are recognised when bonuses
are added to policies. As a substantial proportion of the total bonus is determined when claims are paid to policyholders, a
considerable part of the profit is recognised when policies terminate.
– For non-profit contracts (notably annuities) a substantial proportion of the lifetime expected profit is recognised at policy
inception reflecting the difference between the premiums received less costs incurred and the prudent liability established for
the expected future cash flows.
In contrast, IFRS 17 does not allow upfront profit recognition for profitable contracts but rather requires that profit is recognised
as services are provided to the policyholders.
Other differences in the measurement of the liabilities include:
– IFRS 17 requires that the discount rates include an illiquidity premium. The IFRS 4 discount rates for with-profits contracts in
particular do not include an illiquidity premium. For annuity contracts, the IFRS 4 discount rates are similar to IFRS 17.
– IFRS 4 liabilities for non-profit contracts are determined using implicit prudence margins in the demographic and expense
assumptions. In contrast IFRS 17 requires a separate risk adjustment for non-financial risks which may differ from the value of
the IFRS 4 margins.
– Under IFRS 4, the unallocated surplus of the With-Profits Fund represents the excess of the fund’s assets over policyholder
liabilities that are yet to be appropriated between policyholders and shareholders with no allocation to equity. There is no
unallocated surplus under IFRS 17 although IFRS 17 does allow a liability to be held for the policyholders’ share of the surplus
assets in the With-Profits Fund. Under IFRS 17 there will be equity for the first time relating to the With-Profits Fund.
Overall quantitative impact on the Group
The Group will apply IFRS 17 for the first time at 1 January 2023. As a result of the requirement to restate comparative information
presented, the date of transition to IFRS 17 for the Group is 1 January 2022. The standard will, as detailed above, bring significant
changes to the accounting for insurance and reinsurance contracts and is expected to have a material impact on the Group’s
consolidated financial statements in the period of initial application.
The Group has estimated the impact that the initial application of IFRS 17 will have on the consolidated financial statements at
31 December 2021/1 January 2022. The quantitative assessment is preliminary as not all of the IFRS 17 transition work is finalised,
and the application of some elements of IFRS 17 to the Group’s open with-profits business is complex. The final impact of
adopting IFRS 17 may change as:
– the Group is continuing to refine the new accounting processes, methodology and internal controls in applying IFRS 17; and
– the new accounting policies, assumptions, judgements and estimation techniques employed are subject to change until the
Group finalises its adoption of IFRS 17.
Although the quantitative assessment is preliminary, it may be reasonably estimated that on transition to IFRS 17 equity will
increase by at least £1.5bn at 1 January 2022, from £5.3bn to £6.8bn.
Shareholder equity is expected to increase as the reduction in equity driven by the CSM established to defer previously
recognised profits on the annuity portfolio is more than offset by the recognition as equity of part of the surplus assets in the
With-Profits Fund. The equity in the With-Profits Fund represents the shareholders’ assumed share of the surplus assets
in the fund in accordance with the requirements of IFRS 17 and is not immediately available for distribution to shareholders.
Transfers from the With-Profits Fund to shareholders will continue to be derived from the cost of bonuses (or equivalent) added
to with-profits contracts.
The Group is currently unable to set an upper limit for the impact on equity at 1 January 2022 as there is insufficient certainty in
the outcome of the judgements that remain, for with-profits business in particular.
Adjusted operating profit will continue to be the Group’s non-GAAP alternative performance measure. The definition of adjusted
operating profit is currently being refined for IFRS 17, to ensure that it continues to provide an accurate reflection of the Group’s
underlying business performance.
The Group will publish restated comparative information on adoption of IFRS 17 in the 2023 interim financial statements.
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1.2.2.3 Other
In addition to the above, the following new accounting pronouncements have also been issued but are not yet effective or have
not yet been adopted for use in the UK:
– Classification of Liabilities as Current or Non-current (Amendments to IFRS 1), issued in January 2020 and effective from
1 January 2023, although it is anticipated that the effective date will be pushed back to no earlier than 1 January 2024
– Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – (Amendments to IFRS 10 and IAS 28),
issued in December 2015 and effective date pending completion of the research project on equity method accounting
– The Disclosure Initiative: Accounting Policy Requirements (Amendments to IAS 1), issued in February 2021 and effective from
1 January 2023
– Definition of Accounting Estimates (Amendments to IAS 8), issued in February 2021 and effective from 1 January 2023
– Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12), issued in May 2021
and effective from 1 January 2023
– Lease Liability in a Sale and Leaseback (Amendments to IFRS 16), issued in September 2022 and effective from 1 January 2024.
The Group has assessed the impact of these pronouncements on the consolidated financial statements, none of which are
expected to have a material impact on the Group.
1.3 Key judgements in applying accounting policies
A full list of the Group’s significant accounting policies is provided in Section 1.5 of this Note. In applying these accounting
policies, the Group has made a number of key judgements which have a significant effect on the amounts recognised in the
consolidated financial statements. The following table sets out the basis of these judgements, and references the associated
accounting policy and related Note, which both give further detail on the specific application.
Financial statement area
Key judgement
Consolidation of
structured entities
Classification of
insurance and
investment contracts
Recognition of deferred
tax asset
IFRS 10 requires entities that the Group controls to be consolidated in the
consolidated financial statements. Structured entities are entities that have been
designed so that voting or similar rights are not the dominant factor in deciding who
controls the entity. Due to the nature of structured entities, judgement is required
to determine whether the Group controls and therefore consolidates the structured
entities. Judgement is also required where certain seed capital investments in
structured entities are classified as held for sale investments, and therefore not
consolidated on a line by line basis.
IFRS 4 requires contracts that transfer significant insurance risk to be accounted
for as insurance contracts. Judgement is required to determine whether contracts
written by the Group transfer significant insurance risk. Judgement is also required
in the case of certain contracts, both investment and insurance, which provide an
additional benefit in addition to guaranteed benefits to determine whether they
meet the criteria to be considered as discretionary participation features.
IAS 12 requires deferred tax to be recognised to the extent that it is probable that
sufficient taxable profit will be available against which the deductible temporary
differences and the carry forward unused tax credits and unused tax losses can
be utilised. Judgement is required to determine the extent to which future taxable
profits emerge and the corresponding period over which unused tax credits and
unused tax losses will be utilised.
Accounting
policy
1.5.1
Note
31
1.5.2
26
1.5.16
9
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1.4 Sources of estimation uncertainty
The preparation of these consolidated financial statements requires the Group to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities.
The following table sets out the assets and liabilities measured using assumptions and estimates which have a significant risk
of resulting in a material adjustment to their carrying value within the next financial year. Details of the nature of the estimate is
provided in the related accounting policy and details of the assumptions applied at the statement of financial position date are
provided in the related Note.
Financial statement
asset or liability
Insurance contract
liabilities
Key estimate and assumptions
When measuring insurance contract liabilities, a number of assumptions are
applied to estimate future amounts due to the policyholder. The areas where the
assumptions could have a material impact are the assumed rates of policyholder
mortality, maintenance expenses and the valuation rate of interest used when
establishing policyholder liabilities for annuities and also the assumptions used in
determining the allowance for persistency and maintenance expenses within the
policyholder liabilities other than annuities.
Accounting
policy
Note
1.5.2
26, 33
Assets classified as
level 3 under the fair
value hierarchy
Determination of fair value of financial assets classified as level 3 in the fair value
hierarchy involves the use of inputs which are not observable in the market and
hence require a high degree of estimation which could result in a significant change
in the valuation.
Determination of the
recoverable amount of
goodwill
Defined benefit pension
liability
Goodwill is assessed for impairment at least on an annual basis by comparing the
recoverable amount of each cash-generating unit or group of cash-generating
units to which goodwill has been allocated with its carrying value. Recoverable
amount is defined as the higher of fair value less costs to sell and the value in use
where the value in use is based on the present value of future cash flows. The
determination of the value in use requires the use of various assumptions around
future cash flows, future growth rates and appropriate discount rates based on the
risks associated with the cash-generating unit or group of cash-generating units
which can have a material impact on the calculation.
The defined benefit pension scheme liability is calculated using actuarial valuations
which incorporate a number of assumptions including discount rates, inflation
rates, and expected future mortality. Due to the long-term nature of the schemes,
the value of the pension scheme obligation is sensitive to these assumptions.
Valuation of intangibles
acquired at acquisition
Valuation of intangibles acquired as part of a business combination are based on
various assumptions around future business growth and appropriate discount rates
which can have a material impact on the valuation.
19, 32
1.5.4,
1.5.14
1.5.17
12
1.5.15
17
1.5.18
12
The impact of climate change has been considered when preparing these consolidated financial statements, particularly in the
context of our TCFD disclosures included on pages 68 to 89. Key areas of focus are: goodwill impairment assessment (see Note
12.1), and the valuation approach for level 3 assets and liabilities (see Note 32.3.1).
1.5 Accounting policies
1.5.1 Basis of consolidation
The Group has control over an investee if all three of the following conditions are met: (i) it has power over an investee; (ii) it is
exposed to, or has rights to, variable returns from its involvement with the investee; and (iii) it has the ability to use its power over
the investee to affect its own returns.
i Subsidiaries
Subsidiaries are those investees that the Group controls. Where the Group is deemed to control an entity, the entity is treated
as a subsidiary and its results, assets and liabilities are consolidated. Where the Group holds a minority share in an entity but
does not have control, joint control or significant influence over the entity, the investments are carried at FVTPL within financial
investments in the consolidated statement of financial position.
The Group performs a reassessment of consolidation whenever there is a change in the substance of the relationship between
the Group and an investee.
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ii Joint ventures and associates
Joint ventures are joint arrangements arising from a contractual agreement whereby the Group and other investors have joint
control of the net assets of the arrangement. In these arrangements, the Group’s share of the underlying net assets may be lower
or higher than 50% but the terms of the relevant agreement make it clear that control is jointly exercised between the Group
and the third party, for example, where significant decisions required unanimous approval of all parties, or where all parties have
equal voting rights.
Associates are entities over which the Group has significant influence, but which it does not control. Generally, it is presumed that
the Group has significant influence if it holds between 20% and 50% of the voting rights of the entity.
Investments in associates and joint ventures held by the With-Profits Fund through investments, including venture capital
business, mutual funds and unit trusts, are accounted for at FVTPL.
All other investments in joint ventures and associates are accounted for using the equity method of accounting. Under the equity
method, the Group’s share of profit or loss of its joint ventures and associates is recognised in the income statement and its share
of movements in other comprehensive income is recognised in other comprehensive income.
iii Structured entities
Structured entities are those that have been designed so that voting or similar rights are not the dominant factor in deciding
who controls the entity. Voting rights relate to administrative tasks. Relevant activities are directed by means of contractual
arrangements. The Group invests in structured entities such as:
– collective investment vehicles including open-ended investment companies (OEICs), Authorised Contractual Schemes (ACSs)
and Luxembourg-domiciled Sociétés d’Investissement à Capital Variable (SICAVs)
– limited partnerships
– collateralised debt obligations
– mortgage-backed securities
– similar asset-backed securities
Collective investment vehicles
The Group invests in OEICs, ACSs, SICAVs and unit trusts, which invest mainly in equities, bonds, cash and cash equivalents,
and properties.
The assessment of control over OEICs, ACSs, SICAVs and unit trusts requires judgement. In assessing control, the Group
determines whether it is acting as principal or agent. This includes an assessment of the scope of its decision-making authority,
including rights held by third parties, which may provide these parties substantive removal rights that may affect the Group’s
ability to direct the relevant activities and indicate that the Group does not have power.
In addition, the assessment considers the aggregate economic interest of the Group, which includes both direct holding and
expected management fee if the fund manager is a Group company, however, the management fee in most cases forms an
immaterial part of the aggregate economic interest of the Group.
Holdings in such investments can fluctuate on a daily basis according to the participation of the Group and other investors
in them. As a result, in determining control, the Group looks at the trend of ownership over a longer period (rather than at
a point in time) to mitigate the impact of daily fluctuations which do not reflect the wider facts and circumstances of the
Group’s involvement.
Consolidation assessment is performed in line with the following principles:
– where the Group manages the assets of the entity, and the aggregate of the Group’s ownership holding in the entity exceeds
50%, the Group is judged to have control over the entity;
– where the Group manages the assets of the entity, and the aggregate of the Group’s ownership holding in the entity is between
20% and 50%, the facts and circumstances of the Group’s involvement in the entity are considered, including the rights to any
fees earned by the asset manager from the entity, in forming a judgement as to whether the Group has control over the entity;
– where the Group manages the assets of the entity, and the aggregate of the Group’s ownership holding in the entity is less than
20%, the Group is judged to not have control over the entity; and
– where the assets of the entity are managed externally, an assessment is made of whether the Group has existing rights that
give it the ability to direct the current activities of the entity and therefore control the entity. In assessing the Group’s ability to
direct an entity, the Group considers its ability relative to other investors. The Group has a limited number of OEICs and unit
trusts where it considers it has such ability.
Where the Group is deemed to control these entities, they are treated as subsidiaries and are consolidated, with the
interests of investors other than entities within the Group being classified as liabilities, presented as Third party interest in
consolidated funds.
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Where the Group does not control these entities (as it is deemed to be acting as an agent) and they do not meet the definition
of associates, they are carried at FVTPL within Equity securities and pooled investment funds in the Consolidated statement of
financial position.
Where the Group initially sets up OEICs, ACSs, SICAVs and unit trusts as part of its operations through its investment
management business, and invests the initial seed capital which results in a significant holding resulting in control of the fund,
the Group assesses whether there is a formal plan in place to divest its holding to below the threshold triggering control within
12 months. In this situation, the vehicle is not consolidated, but classified as held for sale and carried at FVTPL.
Limited partnerships
The Group invests in a number of limited partnerships, either directly or through unit trusts, through a mix of capital and loans.
These limited partnerships are managed by general partners, in which the Group holds equity.
Such interests in general partners and limited partnerships provide the Group with voting and similar rights to participate in the
governance framework of the relevant activities which limited partnerships are engaged in.
Accounting for the limited partnerships (including underlying investees) as subsidiaries, joint ventures, associates or other
financial investments depends on the terms of each partnership agreement and the level of shareholdings in the general partners
focusing on aspects such as scope of discretion that can be applied by general partners in making investment decisions,
substantive removal rights held by limited partners and relative concentration of holding between the limited partners.
Other structured entities
The Group holds investments in mortgage-backed securities, collateralised debt obligations and similar asset-backed securities.
The Group consolidates the vehicles that hold the investments where the Group is deemed to control the vehicles.
When assessing control over the vehicles, the factors considered include the purpose and design of the vehicle, the Group’s
exposure to the variability of returns and the scope of the Group’s ability to direct the relevant activities of the vehicle, including
any kick-out or removal rights that are held by third parties. The outcome of the control assessment is dependent on the terms
and conditions of the respective individual arrangements, taking into account aggregate economic interest where relevant.
iv Third party interests
Interests of parties other than the Group in entities which the Group controls are assessed to determine whether they should be
classified as financial liabilities or as non-controlling interests in equity on the statement of financial position. Puttable third party
interests such as units held by external investors in unit trusts are classified as financial liabilities. Third party interests in private
equity vehicles set up with finite lives are also classified as financial liabilities.
1.5.2 Insurance and investment contracts
i Classification
Contracts written by the Group’s insurance operations are classified as either insurance contracts or investment contracts.
Contracts that transfer significant insurance risk to the Group are classified as insurance contracts. Judgement is applied in
assessing whether the features of a contract give rise to the transfer of significant insurance risk. This assessment is based on a
readily identifiable scenario which is used to determine if there would be a significant difference in the contract’s cash outflows if
the insured event occurs. This judgement is made at inception and is not revisited.
Contracts that transfer financial risk to the Group but not significant insurance risk are classified as investment contracts.
Some contracts, both insurance and investment, contain discretionary participation features (DPF) representing the contractual
right to receive additional benefits as a supplement to guaranteed benefits that: (i) are likely to be a significant portion of the total
contract benefits; (ii) have amount or timing contractually at the discretion of the insurer; and (iii) are contractually based on asset
or fund performance. These contracts are classified as insurance or investment contracts with DPF.
Some contracts written by the Group allow policyholders to invest in both with-profits and unit-linked funds. The Group accounts
for the components of these hybrid contracts as if they are separate contracts on the basis that the underlying investment
options give different outcomes to the policyholder and place different obligations on the Group.
The measurement of contracts depends on their classification. Those classified as either insurance contracts or investment
contracts with DPF are accounted for as insurance contracts under IFRS 4. Investment contracts without DPF are accounted
for as financial instruments under IAS 39. The classification of the Group’s insurance operations’ main contract types is
shown below:
Type of contract
With-profits
Classification
Insurance contract/Investment contract with DPF
Unit-linked with significant insurance risk
Unit-linked without significant insurance risk
Annuities
Insurance contract
Investment contract
Insurance contract
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ii Measurement: Insurance contracts and investment contracts with discretionary participation features
Insurance contracts and investment contracts with DPF are accounted for under IFRS 4: Insurance Contracts, which permits
the continued usage of previously applied Generally Accepted Accounting Practice (GAAP) that has been grandfathered by the
Group. In particular, the Group uses a modified statutory basis, which is based on grandfathered regulatory requirements prior
to the adoption of Solvency II, adjusted in accordance with the Statement of Recommended Practice issued by the Association
of British Insurers (ABI SORP, issued in December 2005 (amended in December 2006 and withdrawn with effect for accounting
periods beginning on or after 1 January 2015)). The Group’s With-Profits Fund is measured on a realistic basis in accordance with
FRS 27: Life Assurance. The measurement of the liabilities arising from the main types of contracts in scope of IFRS 4 is described
further below.
Valuation of the With-Profits Fund’s liabilities
The policyholder liabilities for the Group’s With-Profits Fund are measured under FRS 27: Life Assurance, which requires the use
of the realistic value of liabilities. In aggregate, this has the effect of placing a market-consistent value on the liabilities of with-
profits contracts, which reflects the amounts expected to be paid based on the current value of investments held by the With-
Profits Fund and current circumstances.
The realistic basis requires the value of with-profits policyholder liabilities to be calculated as the sum of:
(i) a with-profits benefits reserve (WPBR); and
(ii) future policy-related liabilities (FPRL).
The WPBR is primarily based on the retrospective calculation of accumulated asset shares with adjustments to reflect future
policyholder benefits and other charges and expenses. Asset shares broadly reflect the policyholders’ share of the With-Profits
Fund assets attributable to their policies. For certain classes of business, the WPBR is instead calculated using a prospective
bonus reserve valuation, valuing future claims and expenses using the expected future bonus rates.
The FPRL must include a market-consistent valuation of costs of guarantees, options and smoothing, less any related charges,
and this amount is determined using a stochastic approach.
In line with FRS 27 requirements, the non-profit annuities business within the With-Profits Fund is valued on the statutory basis,
i.e. including margins for adverse deviations (as set out in “Valuation of annuity contracts”). The with-profits liabilities are valued
on a realistic basis and therefore allow for future enhancements to the policyholders. Following this approach unadjusted would
lead to an inconsistency in the net assets, as such, the present value of future profits from the relevant non-profit annuities is
applied as an adjustment to the with-profits liabilities. Annually, when the enhancements to asset shares are committed to, the
value of the enhancements is transferred from the Unallocated surplus of the With-Profits Fund to with-profits liabilities.
The shareholders’ share of future costs of bonuses is included within the liabilities for unallocated surplus. The shareholders’
share of profit is recognised in line with the distribution of bonuses to policyholders.
Unallocated surplus of the With-Profits Fund
The unallocated surplus of the With-Profits Fund represents the excess of assets over policyholder liabilities that have yet to be
appropriated between policyholders and shareholders. The unallocated surplus is recorded wholly as a liability with no allocation
to equity. The annual excess/(shortfall) of income over expenditure of the With-Profits Fund, after declaration and attribution
of the cost of bonuses to policyholders and shareholders, is transferred to/(from) the unallocated surplus each year through a
charge/(credit) to the income statement. The balance retained in the unallocated surplus represents cumulative income arising
on the with-profits business that has not been allocated to policyholders or shareholders.
Valuation of unit-linked contracts
For unit-linked contracts, the attaching liability reflects the unit value obligation (using actuarial funding where relevant) and, in
the case of contracts with significant insurance risk which are therefore classified as insurance contracts, allowance for expense,
persistency and mortality risk. The latter component, calculated using a discounted cash flow approach, is determined by
applying mortality assumptions on a basis that is appropriate for the policyholder profile and including a margin for prudence in
the mortality, persistency and expense assumptions.
Valuation of annuity contracts
The annuity liabilities are calculated as the expected value of future annuity payments and expenses, discounted by a valuation
interest rate, having prudent regard to the assumptions used. The primary assumptions required are in respect of policyholder
mortality, credit assumptions within the valuation interest rate and future expense levels.
Liability adequacy test
The Group performs adequacy testing on its liabilities in respect of insurance contracts and investment contracts with DPF to
ensure that the carrying amounts (net of related deferred acquisition costs) are sufficient to cover current estimates of future
cash flows. Any deficiency is immediately charged to the income statement.
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iii Investment contracts without discretionary participation features
Investment contracts without DPF, such as unit-linked savings and similar contracts, are accounted for as financial instruments.
This treatment reflects the deposit nature of the arrangement, with premiums and claims reflected as deposits and withdrawals
and recognised directly on the statement of financial position as movements in the financial liability. These investment
contracts are classified as financial instruments and designated as FVTPL because the resulting liabilities are managed, and
their performance is evaluated on a fair value basis. For unit-linked contracts, the fair value of the liability is equal to the unit
value obligation.
The Group incurs various incremental, directly attributable acquisition costs relating to the investment management element of
these contracts which are capitalised and amortised in line with the related revenue. If the contracts involve upfront charges, this
income is also deferred and amortised through the income statement, as the service is provided in accordance with IFRS 15.
1.5.3 Business acquisitions
Business acquisitions are accounted for by applying the acquisition method of accounting, where the identifiable assets and
liabilities of the acquired business are recorded at fair value on the date of acquisition. The excess of the fair value of acquisition
consideration over the recorded value of the assets and liabilities of the acquired entity is recorded on the statement of financial
position as goodwill. Expenses related to acquiring a new business are charged to the income statement in the year in which they
are incurred. Where there is deferred consideration payable to former shareholders of a business acquired, those individuals
become employees, and payment is dependent on those individuals remaining in service from the date of acquisition; this
deferred consideration does not form part of the purchase consideration and is accounted for as employment costs over the
service period. Income and expenses of acquired entities are included in the income statement from the date of acquisition.
Acquisitions of entities under common control are accounted for under merger accounting principles. Under merger accounting,
the results and statement of financial position for entities acquired are presented as if they had always been combined.
Assets and liabilities of the entities acquired are recorded at their carrying values, and a fair value measurement is not
undertaken. No new goodwill is recognised, and the differences between the cost of investment, which is its fair value, and the
carrying value of assets and liabilities acquired is recorded within equity.
1.5.4 Financial assets and liabilities
i Classification and measurement
The classification of financial assets and liabilities is determined at initial recognition. The Group classifies derivative financial
assets and financial liabilities as held for trading.
Financial assets which are managed and whose performance is evaluated on a fair value basis are designated at FVTPL.
The vast majority of the Group’s financial assets fall into this category, as the assets are held to back policyholder liabilities.
Managing assets on a fair value basis maximises returns to policyholders and avoids accounting mismatches in the
income statement.
The Group accounts for the equity release outstanding mortgage loans as financial assets designated at FVTPL on the statement
of financial position and the value of the no negative equity guarantee (NNEG) is included in determining the overall fair value of
the loans. The existence of the NNEG is not sufficient for the equity release mortgage loans to transfer significant insurance risk
to the Group, and therefore the lifetime mortgages are not considered an insurance contract.
Financial assets classified as held for trading or at FVTPL, and financial liabilities classified as held for trading, are measured at
fair value with all changes thereon being recognised in investment return in the income statement.
The Group’s financial assets which are not derivatives or designated at FVTPL are classified as loans or receivables.
These instruments comprise non-quoted investments that have fixed or determinable payments and include loans collateralised
by mortgages, deposits, loans to policyholders and other unsecured loans and receivables. These investments are initially
recognised at fair value plus transaction costs. Subsequently, these instruments are carried at amortised cost using the effective
interest method and are subject to impairment reviews. Where there is objective evidence that a loss event has occurred, the
Group measures the amount of the impairment loss by comparing the amortised cost with the present value of its estimated
future cash flows discounted at the original effective interest rate.
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The Group uses the trade date method to account for regular purchases and sales of financial assets. Transaction costs are
expensed as incurred.
Financial liabilities other than derivatives are classified according to the substance of the contractual arrangements. The Group
designates financial liabilities at FVTPL if these instruments are managed and their performance evaluated on a fair value basis.
Investment contract liabilities without discretionary participation features are designated at FVTPL, with changes in fair value
recognised within benefits and claims in the consolidated income statement. The fair value liability is equal to the total value of
units allocated to the policyholders, based on the bid price of the underlying assets.
Third party interest in consolidated funds which are classified as financial liabilities are designated as FVTPL to match the
treatment of the underlying assets in the funds. Changes in fair value are recognised in movements in third party interest in
consolidated funds in the consolidated income statement.
Financial liabilities which are not designated at FVTPL are measured at amortised cost using the effective interest method.
ii Determination of fair value
The Group uses current bid prices to value its investments with quoted prices. Actively traded investments without quoted prices
are valued using prices provided by third parties. Financial assets measured at fair value are classified into a three-level hierarchy,
as described in Note 32.
If the market for a financial investment of the Group is not active, the fair value is determined using valuation techniques.
The Group establishes fair value for these financial investments by using quotations from independent third parties, such as
brokers or pricing services, or by using internally developed pricing models. Priority is given to publicly available prices from
independent sources when available, but overall the source of pricing and/or the valuation technique is chosen with the objective
of arriving at a fair value measurement, which reflects the price at which an orderly transaction would take place between market
participants on the measurement date.
The valuation techniques include the use of recent arm’s length transactions, reference to other instruments that are
substantially the same, discounted cash flow analysis, option-adjusted spread models and, if applicable, enterprise valuation,
and may include a number of assumptions relating to variables such as credit risk and interest rates. Changes in assumptions
relating to these variables could positively or negatively impact the reported fair value of these financial investments. Details of
the financial investments classified as “level 3” to which valuation techniques are applied, and the sensitivity of profit before tax
to a change in these items’ valuation, are presented in Note 32.
1.5.5 Earned premiums, policy fees and claims paid
Premiums and annuity considerations for conventional with-profits policies and other protection-type life insurance and annuity
policies are accounted for when due. For unit-linked business and unitised with-profits policies, premiums are accounted for
when the liabilities arising from the premiums are recognised. These amounts exclude premium taxes and similar duties where
the Group collects and settles taxes borne by the client.
Policy fees charged on linked and unitised with-profits policies for mortality, asset management and policy administration are
recognised as revenue as related services are provided.
Claims paid include maturities, annuities, surrenders and deaths. Maturity claims are recorded as charges on the policy maturity
date. Annuity claims are recorded when each annuity instalment becomes due for payment. Surrenders are charged to the
income statement when paid and death claims are recorded when notified.
1.5.6 Reinsurance
The business seeks to reduce loss exposure by reinsuring certain levels of risk in various areas of exposure with other insurance
companies or reinsurers. Where the reinsurance contracts transfer significant insurance risk to the reinsurer, the asset arising
from the contract is classified as Reinsurance assets. Reinsurance also includes the impact of longevity swaps.
The measurement of reinsurance assets is consistent with the measurement of the underlying direct insurance contracts.
Reinsurance premiums paid and reinsurance recoveries on claims paid are recognised when the corresponding insurance
premium is received from the policyholder and when the reinsured claims are incurred, respectively.
These items are disclosed separately on the face of the consolidated income statement. Any gains or losses arising on the
purchase of reinsurance contracts are immediately recognised in the consolidated income statement.
If a reinsurance asset is impaired, the Group reduces the carrying amount accordingly and recognises that impairment loss in the
income statement. A reinsurance asset is impaired if there is objective evidence, as a result of an event that occurred after initial
recognition of the reinsurance asset, that the Group may not receive all amounts due to it under the terms of the contract, and the
event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer.
Where the reinsurance contract does not transfer significant insurance risk to the reinsurer, the contract is classified as a
financial instrument and is measured at FVTPL.
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1.5.7 Fee income
Revenue arising from contracts with clients consists of investment management and performance fee income from the Group’s
asset management business, investment contracts without DPF, platform fee and other fees and commissions.
Management fee income is based on investment assets under management and is only recognised when the Group satisfies its
performance obligation to provide the asset management services. It is recognised in the year in which the services are rendered
and is recognised net of rebates. Since the asset management service the Group provides is a continuous service, it satisfies its
performance obligation over time. Therefore, the Group meets the criteria for its revenue to be recognised over time, as the client
benefits from the asset management services received from the Group.
Performance fee income is based on the achievement of prescribed performance hurdles. It is only recognised when the
performance obligations are satisfied or upon the crystallisation event occurring and when it is highly probable that a significant
reversal will not occur.
Fees from investment contracts without DPF are recognised over time as the services are provided. Other fees and commissions
such as from the provision of financial advice to clients are recognised when performance obligations are satisfied or upon the
crystallisation of an event. The price is determined based on the agreed initial or ongoing adviser charge.
Platform fees are recognised as the related services are provided to the client.
No significant judgements are applied on the timing or transaction price or the determination of the costs incurred to obtain or
fulfil a contract.
1.5.8 Investment return
Investment return included in the consolidated income statement comprises interest income, rental income, dividends, foreign
exchange gains and losses, realised and unrealised gains and losses on investments designated as FVTPL, and realised gains
and losses (including impairment) on items held at amortised cost. Interest income is recognised as it accrues on an effective
interest basis for instruments held at amortised cost. Dividends on equity securities are recognised on the ex-dividend date and
rental income is recognised on an accruals basis.
1.5.9 Deferred acquisition costs
The Group incurs various costs in acquiring new contracts. For investment contracts without DPF, incremental, directly
attributable acquisition costs are capitalised and amortised in line with the related revenue as required by IFRS 15. For certain
insurance contracts, acquisition costs which include both incremental acquisition costs and other costs of acquiring and
processing new business are also capitalised and amortised in line with the emergence of projected margins. These costs
(deferred acquisition costs) are recognised as an asset in the statement of financial position.
The recoverability of any deferred acquisition costs is reviewed at each reporting date, and to the extent that these are no longer
deemed recoverable from future revenue or projected margins, the carrying value is written down to the recoverable amount
and the related impairment charge recorded in the consolidated income statement. For insurance contracts written within the
UK regulated With-Profits Fund, in accordance with FRS 27 there is no deferral of acquisition costs and these costs are expensed
as incurred. Similarly, for insurance contracts where all of the acquisition costs are recovered upfront, such as annuities, no
acquisition costs are deferred.
1.5.10 Derivatives and hedge accounting
The primary areas of the Group’s operations where derivative instruments are held are in the With-Profits Fund and annuity
business. Management designates derivatives on inception, and those that are not designated as hedging instruments are
classified as “held for trading” and are measured at FVTPL. Movements in fair value are recorded within investment return in the
consolidated income statement.
The Group does not regularly seek to apply fair value or cash flow hedging treatment under IAS 39 and has had no fair value or
cash flow hedges for the years ended 31 December 2022 and 31 December 2021.
1.5.11 Derecognition of financial assets and liabilities
The Group’s policy is to derecognise financial assets when it is deemed that substantially all the risks and rewards of ownership
have been transferred. Gains and losses on disposal are determined as the difference between the net disposal proceeds and
the carrying amount of the asset, and are recognised in the consolidated income statement.
The Group derecognises financial liabilities only when the obligation specified in the contract is discharged or cancelled, or
has expired.
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1.5.12 Securities lending and reverse repurchase agreements
The Group is party to various securities lending agreements and repurchase agreements under which securities are transferred
to third parties on a short-term basis. The transferred securities are not derecognised; rather, they continue to be recognised
within the appropriate investment classification.
The Group’s policy is that collateral in excess of 100% of the fair value of securities loaned is required from all securities
borrowers and typically consists of cash, debt securities, equity securities or letters of credit.
In cases where the Group takes possession of the collateral under its securities lending programme, including cash collateral
which is not legally separated from the Group, the collateral and corresponding obligation to return such collateral is recognised
as a financial liability on the consolidated statement of financial position.
The Group is also party to various reverse repurchase agreements under which securities are purchased from third parties with
an obligation to resell the securities. The securities are not recognised as investments on the statement of financial position.
The right to receive the return of any cash paid as purchase consideration plus interest is recognised as a financial asset on the
statement of financial position.
1.5.13 Subordinated liabilities and other borrowings
Subordinated liabilities include loan notes issued by the Group which are classified as financial liabilities as they have a fixed
repayment date and do not represent a residual interest in the net assets of the Company on liquidation. The notes rank junior to
all other liabilities of the Group in the event of liquidation, but above share capital.
Borrowings include operational borrowings attributable to shareholder-financed operations and other borrowings attributable to
the With-Profits Fund.
Subordinated liabilities and other borrowings are initially recognised at fair value, net of transaction costs. Borrowings, excluding
those backing buy-to-let mortgages, which are managed on a fair value basis and designated at FVTPL, are subsequently
accounted for on an amortised cost basis using the effective interest method. Under the effective interest method, the difference
between the redemption value of the borrowing and the initial proceeds (net of related issue costs) is amortised through the
income statement to the date of maturity, or for hybrid debt, over the expected life of the instrument.
Borrowings backing buy-to-let mortgages are designated at FVTPL in line with the underlying loan assets.
1.5.14 Investment property
Investments in leasehold and freehold properties not for occupation by the Group, including properties under development
for future use as investment property, are carried at fair value, with changes in fair value included in the income statement.
Properties are valued annually either by the Group’s qualified surveyors or by taking into consideration the advice of professional
external valuers using the valuation standards of the Royal Institution of Chartered Surveyors (RICS). Each property is externally
valued at least once every three years. On disposal of an investment property, the difference between the net proceeds received
and the carrying amount is recognised in the income statement.
1.5.15 Defined benefit pension schemes
For the Group’s defined benefit schemes, if the present value of the defined benefit obligation for the relevant scheme exceeds
the fair value of the scheme assets, then a liability is recorded in the Group’s statement of financial position in respect of that
scheme. By contrast, if the fair value of the assets of the relevant scheme exceeds the present value of the defined benefit
obligation, then the surplus in respect of that scheme will only be recognised if the nature of the arrangements under the
trust deed, and funding arrangements between the Trustee and the employing entity, support the availability of refunds or
recoverability through agreed reductions in future contributions. In addition, if there is a constructive obligation for the employing
entity to pay deficit funding in respect of schemes where there is no unconditional right to a refund to any surplus, this is also
recognised such that the financial position recorded for the scheme reflects the higher of any underlying IAS 19 Employee
Benefits deficit and the obligation for deficit funding.
The Group utilises the projected unit credit method to calculate the defined benefit obligation. This method sees each year of
service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.
Estimated future cash flows are then discounted at a high-quality corporate bond rate, adjusted to allow for the difference in
duration between the bond index and the pension liabilities where appropriate, to determine its present value. These calculations
are performed by independent actuaries.
The plan assets of the Group’s pension schemes include several insurance contracts that have been issued by the Group.
These assets are excluded from plan assets in determining the pension surplus or deficit recognised on the consolidated
statement of financial position. The aggregate of the actuarially determined service costs of the currently employed personnel,
and the net interest on the net defined benefit obligation at the start of the year, is charged to the consolidated income
statement. Actuarial and other gains and losses as a result of changes in assumptions or experience variances are recognised as
other comprehensive income.
Contributions to the Group’s defined contribution pension schemes are expensed when due.
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Financial informationStrategic ReportGovernanceOther information 1 Basis of preparation and significant accounting policies continued
1.5.16 Tax
The Group applies IAS 12 Income Taxes in accounting for taxes on income. Income tax comprises current tax and deferred tax.
Income tax is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive
income or directly in equity, in which case the tax is recognised in the same statement as the related item appears.
Current tax expense is charged or credited based upon amounts estimated to be payable or recoverable as a result of taxable
amounts for the current year and adjustments made in relation to prior years.
Income tax recoverable on tax allowable losses is recognised as a current tax asset only to the extent that it is regarded as
recoverable by offsetting against taxable profits arising in the current or prior periods. Current tax is measured using tax rates
and tax laws that have been enacted or substantively enacted at the balance sheet date.
Deferred taxes are provided under the liability method for all relevant temporary differences. IAS 12 Income Taxes does not
require all temporary differences to be provided for, in particular, the Group does not provide for deferred tax on undistributed
earnings of subsidiaries where the Group is able to control the timing of the distribution and the temporary difference created is
not expected to reverse in the foreseeable future. Deferred tax is also not recognised on temporary differences that arise from
initial recognition of an asset or a liability in a transaction (other than a business combination) that at the time of the transaction
affects neither accounting nor taxable profit or loss. Deferred tax assets are recognised to the extent that it is probable that
sufficient taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax
credits and unused tax losses can be utilised.
Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the liability
settled, based on tax rates (and laws) that have been enacted or are substantively enacted at the end of the reporting period.
Deferred tax assets and liabilities are only offset when there is both a legal right to set-off and an intention to settle on a net basis.
The total tax recorded in the consolidated income statement includes tax attributable to both policyholders and shareholders.
The tax attributable to policyholders comprises the tax on the income of the consolidated with-profits and unit-linked funds.
In certain jurisdictions, such as the UK, life insurance companies are taxed on both their shareholders’ profits and on their
policyholders’ investment returns on certain insurance and investment products. Although both types of tax are included in
the total tax charge in the Group’s consolidated income statement, they are presented separately in the consolidated income
statement to provide the most relevant information about tax that the Group pays on its profits.
The Group is subject to tax in numerous jurisdictions and the calculation of the total tax charge inherently involves a degree of
estimation and judgement. The positions taken in tax returns, where applicable tax regulation is subject to interpretation, are
recognised in full in the determination of the tax charge in the financial statements if the Group considers that it is probable
that the taxation authority will accept those positions. Otherwise, the Group considers an uncertain tax position to exist
and a provision is recognised to reflect that a taxation authority, upon review of the positions, could alter the tax returns.
From recognition, the provision is measured based on management’s judgement and estimate of the likely amount of the liability,
or recovery by providing for the single best estimate of the most likely outcome or the weighted average expected value where
there are multiple possible outcomes, taking into account external advice where appropriate. Each uncertain tax treatment is
considered separately or together as a group, depending on management’s judgement as to which approach better predicts
the resolution of the uncertainty. It is assumed that tax authorities will examine the uncertain tax treatments and they have full
knowledge of all related information.
The judgements and estimates made to recognise and measure the effect of uncertain tax positions are reassessed whenever
circumstances change or when there is new information that affects those judgements.
1.5.17 Goodwill
Goodwill arises when the Group acquires a business and the fair value consideration paid exceeds the fair value of the net
assets acquired. Goodwill arising on acquisitions of subsidiaries and businesses is capitalised and carried on the consolidated
statement of financial position at initial value less any accumulated impairment losses. Goodwill impairment testing is conducted
annually and when there is an indication of impairment. For the purposes of impairment testing, goodwill is allocated to a cash-
generating unit or group of cash-generating units. Goodwill is allocated to a group of cash-generating units when it cannot be
allocated on a non-arbitrary basis to individual cash-generating units. Goodwill impairment charges are recognised immediately
in the income statement.
204 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 1 Basis of preparation and significant accounting policies continued
1.5.18 Intangible assets
Intangible assets acquired through business combinations are measured at fair value on acquisition. Separately acquired
intangible assets such as licences and software, are recognised at the price paid to acquire them. Intangibles arising from
development costs are capitalised when it has been established that the project is technically and financially feasible and the
Group has both the intention and ability to use the completed asset.
Intangible assets are subsequently carried at cost less amortisation and any accumulated impairment losses.
Intangibles 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 unless the pattern cannot be determined reliably, in which case a straight-
line method is applied. Impairment testing is conducted when there is an indication of impairment. If an impairment has
occurred, an impairment charge is recognised for the difference between the carrying value and recoverable amount of the
asset. The recoverable amount is the greater of fair value less costs to sell and value in use. Value in use is calculated as the
present value of future expected cash flows from the asset, cash-generating unit or group of cash-generating units to which it
is allocated.
Amortisation and impairment of intangible assets is charged to the income statement.
1.5.19 Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand, deposits held at call with banks, money market funds and debt
securities with less than 90 days’ maturity from the date of acquisition.
1.5.20 Dividends
Dividends are recognised when the obligation becomes certain, i.e. when the dividend is no longer at the discretion of the
Company. In the case of interim dividends, this occurs when the dividends are paid. For final dividends, this occurs when they are
recommended by the Board and approved by shareholders.
1.5.21 Share capital and share premium
An equity instrument is any contract that evidences a residual interest in the assets of the Group, after deducting all of its
liabilities. Shares are classified as equity when their terms do not create an obligation to transfer assets. The nominal value of
shares issued is recorded in share capital.
Where the consideration received from the issue or sale of existing shares exceeds the nominal value recorded in share capital,
the difference is recorded in share premium. Share premium is recorded net of share issue costs.
1.5.22 Treasury shares
Where any of the Group entities purchase the Company’s share capital, the consideration paid, including any attributable
transaction costs, is shown as a deduction from total shareholders’ equity.
1.5.23 Merger reserve
The merger reserve arises from the application of merger accounting principles to acquisitions of entities under common control.
It represents the difference between the aggregate capital reserves and value of the entities acquired, which is recognised
directly in equity. On disposal of the relevant entity, the related merger reserve is released directly to retained earnings.
1.5.24 Capital redemption reserve
The capital redemption reserve arises from the cancellation of shares following the share buy-back programme.
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Financial informationStrategic ReportGovernanceOther information 1 Basis of preparation and significant accounting policies continued
1.5.25 Share-based payments
All share-based payments made to employees for services rendered are measured based on the fair value of the equity
instrument granted. The fair value takes into account the impact of market-based vesting conditions and non-vesting conditions,
but excludes any impact of non-market-based vesting conditions. The related share-based payment expense is recognised over
the vesting period. The fair value may be determined using an option pricing model such as Black-Scholes simulation where
appropriate, taking into account the terms and conditions of the award.
For equity-settled share-based payments, the fair value of service rendered is based on the fair value of the equity instrument at
grant date, which is not remeasured subsequently. The share-based payment expense is recognised over the vesting period and
is based on the number of equity instruments expected to vest, with the corresponding entry to equity.
For cash-settled share-based payments, the fair value of service rendered is based on the fair value of the liability related to
the equity instrument granted. The fair value equity instrument granted is remeasured at each reporting date with any changes
recognised in the share-based payment expense for the period.
A cancellation of an award without the grant of a replacement equity instrument is accounted for as an acceleration of
vesting. Accordingly, any share-based expense that would have been recognised over the remaining vesting period is
recognised immediately.
Where replacement equity instruments are granted to employees in place of the cancelled equity instruments, the replacement
award is treated as a modification of the original award. At the point of replacement, the awards are remeasured to the fair value
at the date of replacement, which forms the basis of recognising the expense over the remaining vesting period.
On vesting or exercise, the difference between the expense charged to the income statement and the actual cost to the Group is
transferred to retained earnings.
1.5.26 Discontinued operations
The Group classifies an entity (or a component of an entity) within the Group as a discontinued operation if it has either been
disposed of, or is classified as held for sale, and
– represents a separate major line of business or geographical area of operations;
– is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
– is a subsidiary acquired exclusively with a view to resale.
The analysis of the comprehensive income and cash flows relating to discontinued operations is disclosed separately in the
consolidated financial statements.
1.5.27 Earnings per share (EPS)
Basic EPS is calculated by dividing the profit or loss for the year attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding, excluding treasury shares.
Diluted EPS is calculated by dividing the profit or loss for the year attributable to ordinary shareholders by the weighted average
number of ordinary shares, excluding treasury shares, adjusted to take into account the effect of any dilutive potential ordinary
shares. The Group’s only class of potentially dilutive ordinary shares are share options and awards granted to employees.
Potential ordinary shares are treated as dilutive when their conversion to ordinary shares results in a decrease in EPS.
206 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 1 Basis of preparation and significant accounting policies continued
1.5.28 Foreign exchange
The Group’s consolidated financial statements are presented in million pounds sterling, the Group’s presentation currency.
Accordingly, the results and financial position of foreign subsidiaries are translated into the presentation currency of the Group
from their functional currencies. All assets and liabilities of foreign subsidiaries are converted at year end exchange rates while all
income and expenses are converted at average exchange rates where this is a reasonable approximation of the rates prevailing
on transaction dates.
Foreign currency monetary assets and liabilities are translated at the spot exchange rate for the functional currency at the
reporting date. Changes resulting from exchange rates are recognised in the income statement.
Foreign currency transactions are translated into functional currencies at the spot rate prevailing on the date of transactions.
Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional
currency at the spot exchange rate at the date on which the fair value is determined.
Non-monetary items that are measured based on historical cost in a foreign currency are translated using the spot exchange rate
at the date of the transaction.
Exchange differences arising on the translation of foreign subsidiaries are recognised in other comprehensive income and taken
to other reserves within equity. On disposal of the foreign subsidiary, the related exchange differences are transferred out of this
reserve and are recognised in the income statement as part of the gain or loss on disposal.
The income statements and cash flows, and statements of financial position of Group entities that have a different functional
currency from the Group’s presentation currency, have been translated using the following principal exchange rates.
Euro (EUR)
Indian Rupee (INR)
Polish Złoty (PLN)
South African Rand (ZAR)
Swiss Franc (CHF)
US Dollar (USD)
2022
2021
Income statement and
cash flows (average rate)
Statement of financial
position (closing rate)
Income statement and
cash flows (average rate)
Statement of financial
position (closing rate)
1.17
97.05
5.49
20.17
1.18
1.24
1.13
99.53
5.29
20.59
1.12
1.21
1.16
101.70
5.31
20.34
1.26
1.38
1.19
100.68
5.46
21.62
1.23
1.35
M&G plc Annual Report and Accounts 2022 | 207
Financial informationStrategic ReportGovernanceOther information 1 Basis of preparation and significant accounting policies continued
1.5.29 Leases
The Group leases office property to conduct its business. At the inception of a contract, the Group assesses whether a contract
is, or contains, a lease. In simple terms this applies if the contract conveys the right to control the use of an identified asset for
a period of time in exchange for consideration. At inception, the Group allocates the consideration in a contract to each lease
component. However, for the leases of land and buildings, in which the Group acts as lessee, the Group has elected to account
for the lease and non-lease components as a single lease component.
Where the Group acts as a lessee, it recognises a “right of use” asset and a corresponding lease liability, representing the
obligation to make lease payments at the lease commencement date. The Group applies the cost model to the right of use assets,
except for those that meet the definition of an investment property, to which the fair value model is applied.
The asset is initially measured at cost which comprises the amount of the lease liability, and lease payments made at or before
the commencement date, any initial direct costs incurred and an estimate of the costs related to the dilapidation of the asset that
would be incurred, less any lease incentives received. Subsequently, the asset is depreciated using the straight-line method from
the commencement date to the earlier of (i) the end of the right of use asset’s useful life and (ii) the end of the lease term.
The lease liability is initially measured at the present value of lease payments that are not yet paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s own incremental
borrowing rate. Subsequently, the lease liability is measured at amortised cost, using the effective interest method. From time
to time, the lease liability may be re-measured where there is a change in future lease payments for example, where the
Group reassesses whether it will exercise a purchase, extension or termination option. Where this happens, a corresponding
adjustment is made to the carrying amount of the right of use asset or an amount is recognised in the consolidated income
statement if the carrying amount of the right of use asset has been reduced to zero.
The Group presents the right of use assets that do not meet the definition of investment property in “Property, plant
and equipment” on the consolidated statement of financial position. The corresponding lease liabilities are presented in
“Lease liabilities”.
Where the Group acts as lessor, it classifies and accounts for its leases as operating or finance leases. Where the Group acts as
an intermediate lessor, as it does with some of its property leases, it accounts for its interests in the head lease and the sub-lease
separately. The Group assesses the lease classification of a sub-lease with reference to the right of use asset arising from the
head lease, not with reference to the underlying asset. The Group recognises lease payments received under operating leases as
income on a straight-line basis over the lease term as part of “Investment return”.
1.5.30 Property, plant and equipment (PPE)
PPE includes Group occupied properties and other tangible assets, such as computer equipment, motor vehicles, leasehold
improvements and fixtures and fittings. PPE including owner-occupied property is measured at cost, which represents the
original purchase price less any expenses incurred in bringing it to its working conditions, and subsequently measured using the
cost model.
Depreciation is charged to the consolidated income statement on a straight-line basis over the assets estimated useful lives
as follows:
Type of asset
Group occupied property
Right of use asset
Other tangible assets
Estimated useful lifei
20 – 50 years
2 – 50 years
2 – 40 years
i Useful lives stated are inclusive of PPE held by consolidated infrastructure private equity vehicles which typically have longer useful lives than other
assets of the Group.
Management determines useful lives and residual values for assets when they are acquired. The Group assesses the useful life,
residual value and depreciation method for PPE on an annual basis and any adjustments are made where required.
An impairment review of PPE is carried out whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. Management assesses impairment at the lowest level for which there are separately identifiable cash flows.
Where the carrying amount of an asset is greater than its estimated recoverable amount, which is the higher of the assets fair
value less costs of disposal and value in use, it is written down immediately to its recoverable amount and an impairment loss is
recognised in the consolidated income statement.
208 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 1 Basis of preparation and significant accounting policies continued
1.5.31 Assets and liabilities held for sale
The Group classifies assets and liabilities as held for sale when the carrying amount is expected to be recovered through a sale
transaction, usually within one year, and management is committed to the sale.
Assets and liabilities held for sale are shown separately on the consolidated statement of financial position and are measured at
the lower of their carrying amount and their fair value less costs to sell. No depreciation or amortisation is charged on an asset
which is classified as held for sale.
When the Group is committed to a sale of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for
sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former
subsidiary after the sale.
Income and expenses of subsidiaries sold during the year are included in the income statement up to the date of disposal.
The gain or loss on disposal is calculated as the difference between sale proceeds net of selling costs, less the net assets of
the entity at the date of disposal, adjusted for foreign exchange movements attaching to the sold entity that are required to be
recycled to the income statement under IAS 21: The Effects of Changes in Foreign Exchange Rates.
1.5.32 Provisions and contingent assets and liabilities
Provisions are recognised in the statement of financial position when the Group has a present legal or constructive obligation
resulting from a past event, it is more probable than not that a loss will be made in settling the obligation and the amounts can be
estimated reliably.
Provisions are measured based on management’s best estimate of the expenditure required to settle the obligation at the
reporting date. Provisions are discounted and represent the present value of the expected expenditure where the effect of the
time value of money is material.
Contingent liabilities are possible obligations of the Group where the timing and amount are subject to significant uncertainty.
Contingent liabilities are not recognised in the consolidated statement of financial position, unless they are assumed by the
Group as part of a business combination. Contingent liabilities are however disclosed, unless they are considered to be remote.
If a contingent liability becomes probable and the amount can be reliably measured, it is no longer treated as contingent and
recognised as a liability.
Contingent assets which are possible benefits to the Group are only disclosed if it is probable that the Group will receive the
benefit. Mirroring the treatment of contingent liabilities, if such a benefit becomes virtually certain, it is no longer considered
contingent and is recognised on the consolidated statement of financial position as an asset.
M&G plc Annual Report and Accounts 2022 | 209
Financial informationStrategic ReportGovernanceOther information 2 Group structure and products
2.1 Group composition
The following diagram is an extract of the Group structure at 31 December 2022 and gives an overview of the composition of the
Group. M&G plc is the holding company of the Group.
M&G plc
M&G Group
Regulated
Entity Holding
Company
Limited
Prudential
Property
Services
Limited
M&G
Corporate
Holdings
Limited
Prudential
Financial
Services
Limited
Prudential
Capital
Holding
Company
Limited
Prudential
Capital Public
Limited
Company
M&G Group
Limited
M&G FA
Limited
The
Prudential
Assurance
Company
Limited
Prudential
International
Assurance
Public Limited
Company
Ireland
Wrap IFA
Services
Limited
Clear View
Assured
Limited
M&G Wealth
Solutions
Limited
Other
Subsidiaries
Prudential
Portfolio
Management
Group Limited
M&G
Wealth
Advice
Limited
Prudential
Capital
(Singapore)
Pte. Limited In
Liquidation
Investment
Funds Direct
Group
Limited
Sandringham
Financial
Partners
Limited
M&G Wealth
Investments
LLP
M&G
Corporate
Services
Limited
Prudential
Distribution
Limited
M&G
Securities
Limited
Prudential
Lifetime
Mortgages
Limited
Investment
Funds Direct
Limited
Investment
Funds Direct
Holdings
Limited
Other
Subsidiaries
Prudential
UK Services
Limited
Prudential
Pensions
Limited
Other
Subsidiaries
Other
Subsidiaries
M&G
Alternative
Investment
Management
Limited
M&G
Financial
Services
Limited
M&G Real
Estate
Limited
M&G
Investment
Management
Limited
MandG
Investments
Southern
Africa
(Pty) Ltd
responsAbility
investments
AG
Other
Subsidiaries
(including
regulated
subsidiaries)
Other
Subsidiaries
Key: Regulated
subsidiaries
A complete list of the Group’s related undertakings comprising subsidiaries, joint ventures, associates and other significant
holdings is contained within Note 40.
210 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 2 Group structure and products continued
2.2 Corporate transactions
2.2.1 Sandringham Financial Partners acquisition
On 6 January 2022, the Group, via M&G Group Regulated Entity Holding Company Limited, (M&G REH), acquired a 100% holding
in Clear View Assured Limited, the holding company for Sandringham Financial Partners Limited (Sandringham) for a purchase
consideration of £73m.
Sandringham is part of M&G Wealth within our Retail and Savings segment and at acquisition brought to M&G a well-established
national financial services advisory business with around 180 advisory partners working on behalf of over 10,000 clients and
more than £2.4bn of assets under advice to complement our existing advisory business, The Advice Partnership.
There is a further deferred amount payable to former shareholders who are in the employment of Sandringham of £8.6m
over 2 years from the date of acquisition provided the shareholders remain in service. This does not form part of the purchase
consideration and will be accounted for as employment costs over the service period.
As at the acquisition date the consideration, net assets and intangible assets acquired and resulting goodwill were as follows:
Total cash consideration
Fair value of net assets acquired:
Accrued investment income and other debtors
Cash and cash equivalents
Total assets
Accruals, deferred income and other liabilities
Total liabilities
Acquired intangible assets:
Trade name
Customer-related
Deferred tax on assets not on balance sheet
Goodwill
£m
73
1
4
5
(3)
(3)
7
15
(6)
55
The goodwill of £55m represents the synergies to be achieved through the creation of a fully integrated M&G Wealth business to
complement the Group’s well established asset management offering.
The Sandringham trade name was recognised on acquisition at fair value of £6.7m. The valuation was based on the relief from
royalty rates method and the key assumptions used in measuring the fair value were discount rate and royalty rate.
A customer-related intangible was also recognised at fair value of £14.6m. The valuation was based on the multi-period excess
earning method and the key assumptions used in measuring the fair value were discount rate and net attrition.
Sandringham was acquired at the start of the reporting period. The revenue and loss before tax included in the consolidated
income statement in respect of Sandringham were £26.7m and £9.9m respectively. The loss before tax includes the impact of
deferred consideration accounted for as employment costs.
2.2.2 responsAbility acquisition
On 3 May 2022, the Group, via M&G FA Limited, acquired a 94.8% holding in responsAbility Investments AG (responsAbility).
responsAbility is a Swiss private asset manager which is a leader in impact investing focused on private debt and private equity
across emerging markets, with £2.9bn of assets under management. Following completion of the acquisition responsAbility’s
200 employees joined M&G, the business will remain headquartered in Zurich creating a new investment hub for M&G
Investments. responsAbility will sit within the Asset Management segment of the business.
The purchase consideration was subject to an adjustment for net assets between the date of the Share Purchase Agreement
and the acquisition date. The Group retained call options and the seller retained put options over the remaining holding where
the exercise price was fixed at inception. For accounting purposes, at the balance sheet date, the Group has accounted for the
transaction on the basis it controls 100% of responsAbility. A liability has been recognised in respect of the Group’s obligation
under the call option arrangement and included within Note 29. The Group acquired the remaining shares on 21 February 2023.
M&G plc Annual Report and Accounts 2022 | 211
Financial informationStrategic ReportGovernanceOther information
2 Group structure and products continued
As at the acquisition date the consideration, net assets and intangible assets acquired and resulting goodwill were as follows:
Total cash consideration
Fair value of net assets acquired:
Accrued investment income and other debtors
Cash and cash equivalents
Total assets
Accruals, deferred income and other liabilities
Total liabilities
Acquired intangible assets:
Trade name
Customer-related
Deferred tax on assets not on balance sheet
Goodwill
£m
148
41
13
54
(22)
(22)
9
36
(8)
79
The goodwill of £79m represents the benefits of the acquisition which introduces various revenue synergies including leveraging
from the Group’s capabilities to grow responsAbility’s UK institutional presence and the EU bank distribution relationships
outside Switzerland. Additionally, the acquisition includes revenue benefits from launching new thematic products from an
ESG perspective.
The responsAbility trade name was recognised on acquisition at fair value of £9.3m. The valuation was based on the relief from
royalty rates method and the key assumptions used in measuring the fair value were discount rate and royalty rate.
A customer-related intangible was also recognised at fair value of £36.3m. The valuation was based on the multi-period excess
earning method and the key assumptions used in measuring the fair value were discount rate and net attrition.
The revenue and profit before tax included in the consolidated statement of comprehensive income since the date of acquisition
were £22.7m and £0.4m respectively. The revenue and profit before tax for the year ended 31 December 2022 for responsAbility
was £35.6m and £2.3m respectively.
2.2.3 TCF Fund Managers LLP acquisition
On 17 February 2022, the Group acquired the total membership interest of TCF Fund Managers LLP (TCF), a provider of model
portfolio services for a purchase consideration of £17m. The acquisition of TCF, has enabled us to launch an M&G Wealth branded
range of model portfolios in April 2022. From 5 September 2022 TCF has been renamed M&G Wealth Investments LLP.
The acquisition was structured as follows:
– 99.9999% of the membership interest was acquired by M&G Wealth Solutions Limited (M&G WSL), formerly called M&G
Wealth Investments Limited, which is a wholly owned subsidiary of M&G REH;
– 0.0001% of the membership interest was acquired by Pru Limited, a wholly owned subsidiary of M&G Corporate Holding
Limited (M&G CHL).
The purchase consideration comprised of £15m of cash consideration paid at completion and a deferred consideration of
£2m paid on 7 November 2022 on the satisfactory completion of various activities linked to transition by the previous owners.
The purpose of the deferred consideration was to ensure a smooth transition to M&G operations and not to retain services of the
existing members over a longer duration.
The acquisition has been accounted for using the acquisition method. On acquisition goodwill of £16m and a customer-related
intangible asset of £1m were recognised.
Sensitivities in regard to valuation of intangibles from the acquisitions completed in the year are provided in Note 12.2.
2.3 Insurance and investment products written by the Group’s insurance entities
A description of the main insurance and investment contracts written by the Group’s insurance entities is provided below.
The Group’s with-profits contracts are written in the With-Profits Fund in which policyholders share in the profit of the
fund. Up until 1 April 2021 there were three with-profits sub-funds: the With-Profits Sub-Fund (WPSF), the Defined Charge
Participating Sub-Fund (DCPSF) and the Scottish Amicable Insurance Fund (SAIF). On 1 April 2021 SAIF merged with WPSF and
the assets and liabilities of SAIF were combined with those of the WPSF.
Shareholder-backed business represents all insurance and investment contracts in the Group other than contracts written in the
With-Profits Fund. The profit on these contracts accrues directly to the Group’s shareholders.
212 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
2 Group structure and products continued
2.3.1 With-profits contracts
With-profits contracts provide returns to policyholders through bonuses that are smoothed to reduce the impact of volatility of
the investment performance of the assets in the fund.
2.3.1.1 Conventional and accumulating with-profits contracts written in WPSF and DCPSF
Conventional and accumulating with-profits policyholders receive their share of profit by way of regular and final bonuses.
Regular bonus rates are determined for each type of policy primarily by targeting the bonus level at a prudent proportion of the
long-term expected future investment return on underlying assets, reduced as appropriate for each type of policy to allow for
items such as expenses, charges, tax and shareholder transfers.
In normal investment conditions, the Group expects changes in regular bonus rates to be gradual over time. However, the Group
retains the discretion whether or not to declare a regular bonus each year, and there is no limit on the amount by which regular
bonus rates can change.
A final bonus which is normally declared annually, may be added when a claim is paid. The rates of final bonus usually vary by type
of policy and by reference to the period, usually a year, in which the policy commences or each premium is paid. These rates are
determined by reference to the asset shares of representative sample policies and are subject to smoothing.
Regular bonuses are typically declared once a year, and once credited are guaranteed in accordance with the terms of the
particular product. Final bonus rates are guaranteed only until the next bonus declaration.
Contracts are predominantly written in the WPSF, where the shareholders are entitled to an amount up to one-ninth of the bonus
declared, which is payable as a cash transfer from the With-Profits Fund.
For the business written in the DCPSF, the charges accrue to shareholders who also meet the corresponding expenses.
Profits arising in the DCPSF are attributed wholly to DCPSF policyholders. The shareholders’ profit arises as the difference
between charges and expenses.
2.3.1.2 With-profits contracts with a PruFund investment option (“PruFund contracts”)
These are a range of with-profits contracts offering policyholders a choice of investment profiles (“PruFund funds”). Unlike the
with-profits contracts described above, no regular or final bonuses are declared. Instead, policyholders participate in profits
by means of an increase in their investment, which grows in line with an Expected Growth Rate (EGR). The EGR is adjusted for
significant market movements.
The EGR may be applied for each of the different PruFund funds within the range, varying depending on the individual asset mix
of that fund. The applicable EGR, net of the relevant charges, is applied to calculate the “smoothed unit value” of policyholder
funds. The EGRs are reviewed and updated quarterly, with the smoothed unit value calculated daily. In normal investment
conditions, the EGR is expected to reflect PAC’s view of how the funds will perform over the longer term.
Policyholders are protected from some of the short-term ups and downs of direct investments by using an established smoothing
process. Prescribed adjustments are made to the smoothed unit value if it moves outside a specified range relative to the value of
the underlying assets.
PruFund contracts are predominantly written in the WPSF, where the shareholder is entitled to an amount up to one-ninth of
the difference between the smoothed unit value on withdrawal and the initial investment. The DCPSF also contains PruFund
contracts, and for these contracts the shareholders receive profits or losses arising from the difference between the charges and
expenses on this business.
2.3.1.3 SAIF with-profits contracts
SAIF was a ring-fenced with-profits sub-fund which merged with WPSF on 1 April 2021. As SAIF was a closed sub-fund, no new
business was written in SAIF, although regular premiums and top-ups were still being collected on in-force policies. The fund was
solely for the benefit of policyholders of SAIF, and at the date of the merger, surplus assets of the SAIF fund were allocated to the
SAIF policyholders, with the enhancement due to be paid through a terminal bonus at the point of claim. Shareholders have no
entitlement to the profits of this fund.
The Group’s main exposure to guaranteed annuity options arises through with-profits contracts originally written in SAIF.
More detail on the provisions held in respect of guaranteed annuity options is provided in Note 26.1.1.
2.3.2 Unit-linked contracts
Unit-linked contracts are contracts where the value of the policy is linked to the value of underlying investments (such as
collective investment schemes, internal investment pools or other property) or fluctuations in the value of underlying investments
or indices. Investment risk associated with the product is primarily borne by the policyholder. Some unit-linked contracts provide
an element of insurance coverage, such as a benefit payable on death in excess of the value of the units, and these contracts are
classified as insurance contracts and accounted for under IFRS 4 (see Note 26).
Charges are deducted from the unit-linked funds for investment and administration services, and for certain contracts, insurance
coverage. Benefits payable will depend on the price of the units prevailing at the time of surrender, death or the maturity of
the product.
M&G plc Annual Report and Accounts 2022 | 213
Financial informationStrategic ReportGovernanceOther information 2 Group structure and products continued
2.3.3 Annuities
Annuities are contracts which offer policyholders a regular income over the policyholder’s life, in exchange for an upfront
premium, and may be immediate or deferred. For immediate annuities, the regular income starts immediately after the premium
payment, but for deferred annuities, the regular income is delayed until a specified date in the future. There are various types
of annuity contracts written across the Group: level, fixed increase, inflation-linked (referred to as “non-profit annuities”) and
with-profits annuities. Some non-profit annuities have been written in the With-Profits Fund, and profits relating to this business
accrue to the With-Profits Fund.
– Level annuities: provide a regular (for example, monthly) fixed annuity payment over the policyholder’s life.
– Fixed increase annuities: provide a regular annuity payment which incorporates automatic increases in annuity payments by
fixed amounts over the policyholder’s life.
– Inflation-linked annuities: provide for a regular annuity payment to which an additional amount is added periodically based on
the increase in an inflation index.
– With-profits annuities: are written in the With-Profits Fund. These combine the income features of annuity contracts with the
investment smoothing features of with-profits products and enable policyholders to obtain exposure to investment return on
the With-Profits Fund.
2.4 Changes in consolidation of collective investment and other vehicles
As part of the normal course of business the Group, primarily via the With-Profits Fund, invests and disinvests in a number
of collective investment and other investment vehicles. The Group continually assess whether these investments meet the
requirements of IFRS10 – Consolidated Financial Statements and apply the accounting policy explained in 1.5.1 in those
assessments. In any given year the investment vehicles moving in and out of the scope of consolidation have a limited impact on
the Group’s financial statements. However, during the year ended 31 December 2022 a number of investment vehicles have been
deconsolidated which have had more significant impacts.
There were four vehicles which were deconsolidated – M&G European Property Fund (MEP), Sky Fund I LP, Sky Fund V Onshore
LP and Harben 2017-1 plc. Sky Fund I LP was disposed of by PAC and the other three entities were re-assessed for control
following a dilution of their holdings and deconsolidated. In the case of MEP and Sky Fund V LP, the Group holdings are now
treated as investments in associates at FVTPL and disclosed in Note 14 – Investments in joint ventures and associates. The main
impacts of the deconsolidation of these entities are shown in the impacted notes which include – Note 15 – Property, plant and
equipment, Note 16 – Investment property, Note 18 – Loans, Note 27 – Subordinated liabilities and other borrowings.
3 Segmental analysis
The Group’s operating segments are defined and presented in accordance with IFRS 8: Operating Segments on the basis of the
Group’s management reporting structure and its financial management information. The Group’s primary reporting format is by
client type, with supplementary information being given by product type. The Chief Operating Decision Maker for the Group is
the Group Executive Committee.
3.1 Operating segments
The Group’s operating segments are:
Asset Management
The Group’s investment management capability is offered to both wholesale and institutional clients. The Group’s wholesale
clients invest through either UK domiciled Open Ended Investment Companies (OEICs) or Luxembourg domiciled Sociétés
d’Investissement à Capital Variable (SICAVs) and have access to a broad range of actively managed investment products,
including Equities, Fixed Income, Multi-Asset and Real Estate. The Group serves these clients through its many business-to-
business relationships both in the UK and overseas, which include independent financial advisers, high-street banks and wealth
managers. The Group’s institutional investors, include pension funds, insurance companies and banks from around the world,
who invest through segregated mandates and pooled funds into a diverse range of Fixed Income and Real Estate investment
products and services.
The Asset Management segment generates revenues by charging fees which are typically based on the level of assets under
management. The Asset Management segment also earns investment management revenues from the significant proportion of
Retail and Savings assets it manages.
214 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 3 Segmental analysis continued
Retail and Savings
Our Retail and Savings operating segment includes M&G Wealth, our Heritage business and Other Retail and Savings business
which primarily relates to our international savings business.
Wealth
M&G Wealth provides a range of retirement, savings and investment management solutions to its clients. These products are
distributed to clients through the wrap platform, intermediaries and advisers, and include the Retirement Account (a combined
individual pension and income drawdown product), individual pensions, ISAs, collective investments and a range of on-shore and
off-shore bonds.
All of the Group’s products that give access to the UK PruFund investment proposition are included in M&G Wealth. The UK
PruFund investment proposition gives clients access to savings contracts with smoothed investment returns and a wide choice
of investment profiles. Unlike the conventional and accumulating with-profits contracts in the Heritage business, no regular or
final bonuses are declared. Instead, policyholders participate in profits by means of an increase in their investment, which grows
in line with an EGR.
Heritage
The Heritage business includes individual and corporate pensions, annuities, life, savings and investment products. The majority
of the products in the Heritage business are closed to new clients but may accept further contributions from existing
policyholders1. The annuity contracts include: level annuities, which provide a fixed annuity payment; fixed increase annuities,
which incorporate a periodic automatic fixed increase in annuity payments; and inflation-linked annuities, which incorporate a
periodic increase based on a defined inflation index. Some inflation-linked annuities have minimum and/or maximum increases
relative to the corresponding inflation index.
The life products in Heritage are primarily whole of life assurance, endowment assurances, term assurance contracts, lifetime
mortgages, income protection, and critical illness products. Investment products include unit-linked contracts and the Prudential
bond offering, which mainly consists of single-premium-invested whole of life policies, where the client has the option of taking
ad-hoc withdrawals, regular income or the option of fully surrendering their bond.
Some of the Group’s Heritage products written through conventional and accumulating with-profits contracts, in the with-profits
sub-fund, provide returns to policyholders through “regular” and “final” bonuses that reflect a smoothed investment return.
The Heritage business includes the closed SAIF business which participates in profits on a 100:0 basis with no shareholder profit
transfers. Shareholders are entitled to asset management fees. This business is now included in PAC’s main with-profits sub fund
following the merger with the SAIF with-profits sub fund on 1 April 2021 as discussed in Note 2.3.1.3.
Other Retail and Savings
Our savings businesses based in Ireland (Prudential International Assurance plc) and Poland are included within Other Retail
and Savings.
The Group’s other reportable segment is:
Corporate Centre
Corporate Centre includes central corporate costs and debt costs.
3.2 Adjusted operating profit before tax methodology
Adjusted operating profit before tax is the Group’s non-GAAP alternative performance measure, which complements IFRS GAAP
measures and is key to decision-making and the internal performance management of operating segments.
For the Group’s fee-based business, adjusted operating profit before tax includes fees received from clients and operating costs
for the business including overheads, expenses required to meet regulatory requirements and regular business development/
restructuring and other costs. Costs associated with fundamental Group-wide restructuring and transformation are not included
in adjusted operating profit before tax.
For the Group’s business written in the With-Profits Fund, adjusted operating profit before tax includes the statutory transfer
to shareholders gross of attributable shareholder tax. Derivative instruments are held to mitigate the risk to the shareholder of
lower future shareholder transfers, and can be separated into two types:
(i) Cash flow hedges2: those instruments that are held to mitigate volatility in the Group’s IFRS results by being explicitly matched
to the expected future shareholder transfers.
(ii) Capital hedges: instruments that hedge the economic present value of shareholder transfers on a Solvency II basis, to
optimise the capital position.
1 The Group accepts new members to existing Corporate Pension schemes and writes a small number of new annuity policies with clients who have a
pension issued by PAC.
2 These cash flow hedges do not constitute hedge accounting arrangements under IAS 39.
M&G plc Annual Report and Accounts 2022 | 215
Financial informationStrategic ReportGovernanceOther information 3 Segmental analysis continued
The realised gains or losses on the cash flow hedges are allocated to adjusted operating profit before tax in line with emergence
of the corresponding shareholder transfer within IFRS profit. Any short-term temporary movements in the fair value of these
instruments, not relating to the current year’s shareholder transfer are excluded from adjusted operating profit before tax. As the
capital hedges do not explicitly hedge future IFRS profits, all movements in the fair value of these instruments are excluded from
adjusted operating profit before tax.
For the Group’s shareholder annuity products written by the Retail and Savings segment, adjusted operating profit before tax
excludes the impact of short-term components of credit risk provisioning, the impact of credit risk experience variances over
the period, and total fair value movement on surplus assets backing the shareholder annuity capital, that are not reflective of the
longer-term performance of the business.
Certain adjustments that are considered to be non-recurring or strategic, or due to short-term movements not reflective of
longer-term performance are made to IFRS profit before tax. Adjustments are in respect of short-term fluctuations in investment
returns, costs associated with fundamental Group-wide restructuring and transformation, profits or losses arising on corporate
transactions and profit/(loss) before tax from any discontinued operations, and impairment and amortisation in respect of
acquired intangibles.
The key adjusting items between IFRS profit before tax and adjusted operating profit before tax are:
Short-term fluctuations in investment returns
The adjustment for short-term fluctuations in investment returns represents:
(i) Short-term temporary movements in the fair value of instruments held to mitigate equity risk in the with-profits shareholder
transfer, including both cash flow and capital hedges.
(ii) Total fair value movements on other capital hedges, which are solely held to optimise the Solvency II capital position.
(iii) Total fair value movements on surplus assets backing the shareholder annuity capital, and the impact of short-term credit risk
provisioning and experience variances over the period which are not reflective of the longer-term performance of the business,
specifically:
– The impact of credit risk provisioning for short-term adverse credit risk experience;
– The impact of credit risk provisioning for actual upgrades and downgrades relative to best estimate assumptions. This is
calculated by reference to current interest rates;
– Credit experience reflecting the impact of defaults and other similar experience, such as asset exchanges arising from
debt restructuring;
– The impact of market movements on bond portfolio weightings and the subsequent impact on credit provisions.
Items relating to investment returns which are included in adjusted operating profit before tax are:
– The net impact of movements in the value of policyholder liabilities and fair value of the assets backing these liabilities,
excluding the items included in short-term fluctuations above. The fair value movements of the assets backing the liabilities are
closely correlated with the related change in liabilities;
– The unwind of the credit risk premium, which is the opening value of the assets multiplied by the credit risk premium
assumption, with an adjustment for claims paid over the year. The credit risk premium assumption is the difference between
the total longer-term credit allowance and a best estimate credit allowance (both of which allow for the combination of defaults
and downgrades);
– Actual income received in the year, such as coupon payments, redemption payments and rental income, on surplus assets
backing the shareholder annuity capital, less an allowance for expenses;
– The net effect of changes to the valuation rate of interest due to asset trading and portfolio rebalancing;
– The impact of changes in the long-term component of credit provisioning.
Profit/(loss) on disposal of businesses and corporate transactions
Certain additional items are excluded from adjusted operating profit before tax where those items are considered to be non-
recurring or strategic, or considered to be one-off, due to their size or nature, and therefore not indicative of the long term
operating performance of the Group, including profits or losses arising on corporate transactions and profits or losses on
discontinued operations.
Restructuring and other costs
Restructuring and other costs primarily reflect the shareholder allocation of costs associated with the transformation of our
business. These costs represent fundamental Group-wide restructuring and transformation and are therefore excluded from
adjusted operating profit before tax.
Amortisation and impairment of intangible assets acquired in business combinations
Amortisation and impairment of intangible assets (including Goodwill) acquired in business combinations are excluded from
adjusted operating profit before tax.
216 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 3 Segmental analysis continued
3.3 Analysis of Group adjusted operating profit before tax by segment
For the year ended 31 December
Fee based revenuesi
Annuity margin
With-profits shareholder transfer net of hedging and other gains/(losses)ii
Adjusted operating income
Adjusted operating expenses
Other shareholder loss
Share of profit from joint ventures and associatesiii
Adjusted operating profit attributable to non-controlling interests
Adjusted operating profit/(loss) before tax
Short-term fluctuations in investment returnsiv
Amortisation and impairment of intangible assets acquired in business
combinations
Restructuring and other costsv
IFRS profit/(loss) before tax and non-controlling interests attributable to equity
holders before tax
IFRS profit before tax attributable to non-controlling interestsvi
Profit/(loss) before tax attributable to equity holders
2022
Asset
Management
£m
Retail and
Savings
£m
Corporate
Centre
£m
1,051
—
—
1,051
(763)
(5)
—
(19)
264
295
227
354
876
(295)
(9)
—
—
—
—
—
—
(107)
(200)
—
—
572
(307)
—
(2,484)
—
—
4
(27)
(77)
Total
£m
1,346
227
354
1,927
(1,165)
(214)
—
(19)
529
(2,484)
(35)
(147)
(2,016)
(303)
(2,137)
—
—
19
(2,016)
(303)
(2,118)
(8)
(74)
182
19
201
i Of the fee-based revenues, £306m (2021: £303m) relates to revenues that Asset Management earned from the Retail and Savings segment.
Other presentational differences when compared to the fee income in Note 5 include the netting of certain items that have a nil profit impact in adjusted
operating profit, and the inclusion of certain revenue presented elsewhere within the IFRS income statement.
ii The with-profits shareholder transfer is paid to the shareholder net of tax. The shareholder transfer amount is grossed up for tax purposes with regard
to adjusted operating profit.
iii Excludes adjusted operating profit from joint ventures in the With-Profits Fund.
iv Market conditions have led to significant losses from short-term fluctuations in investment returns for the year ended 31 December 2022. These losses
primarily comprise a £1,301m loss (2021: £99m loss) from fair value movements on surplus assets in the annuity portfolio and a £989m loss
(2021: £103m loss) on interest rate swaps purchased to protect PAC’s Solvency II capital position against falls in interest rates, both due to significant
rising yields in the period. Additionally losses of £223m (2021: £39m) arose on gilts pledged as collateral. These losses were partly offset by a positive
movement on the hedging instruments held to protect the future shareholder transfers from falling equity markets which moved to a £104m gain
(2021: £248m loss) as a result of falls in the US and European equity markets.
v Restructuring and other costs excluded from adjusted operating profit includes costs that relate to the transformation of our business which are
allocated to the shareholder. These differ to Restructuring costs included in the analysis of administrative and other expenses in Note 6 which include
costs allocated to the Policyholder. In the year to 31 December 2022, restructuring and other costs includes £17m (2021: £48m) in respect of our future
ways of working and associated changes to our office space, and £32m (2021: £45m) of costs in relation to the integration of M&G Wealth platform
business. Included in the Corporate Centre is a reversal of impairment recognised in respect of our future ways of working of £6m (2021: £29m
recognition of impairment) which is presented in impairment of property, plant and equipment in the analysis of administrative and other expenses in
Note 6.
vi Excludes non-controlling interests in relation to amortisation of intangible assets acquired in business combinations which is presented net within the
non-operating line item.
M&G plc Annual Report and Accounts 2022 | 217
Financial informationStrategic ReportGovernanceOther information
3 Segmental analysis continued
For the year ended 31 December
Fee based revenuesi
Annuity margin
With-profits shareholder transfer net of hedging and other gains/(losses)ii
Adjusted operating income
Adjusted operating expenses
Other shareholder profit/(loss)
Share of profit from joint ventures and associatesiii
Adjusted operating profit attributable to non-controlling interests
Adjusted operating profit/(loss) before tax
Short-term fluctuations in investment returnsiv
Profit on disposal of businesses and corporate transactions
Amortisation and impairment of intangible assets acquired in business
combinations
Restructuring and other costsv
IFRS profit/(loss) before tax and non-controlling interests attributable to equity
holders before tax
IFRS profit attributable to non-controlling interestsvi
Profit/(loss) before tax attributable to equity holders
2021
Asset
Management
£m
Retail and
Savings
£m
Corporate
Centre
£m
976
—
—
976
(672)
17
6
(12)
315
5
51
(4)
(51)
316
12
328
278
369
268
915
(296)
41
—
660
(542)
(16)
—
(67)
35
—
35
—
—
—
—
(95)
(159)
—
—
(254)
—
—
—
(28)
(282)
—
(282)
Total
£m
1,254
369
268
1,891
(1,063)
(101)
6
(12)
721
(537)
35
(4)
(146)
69
12
81
The Group has a widely diversified client base. There are no clients whose revenue represents greater than 10% of fee-
based revenues.
Each reportable segment reports adjusted operating income as its measure of revenue. Fee-based revenues represents asset
management charges, transactional charges and annual management charges on unit-linked business. The annuity margin
reflects the margin earned on annuity business and includes net earned premiums, claims and benefits paid, net investment
return for assets backing the liabilities, net investment income for surplus assets backing the annuity capital, actuarial reserving
changes, investment management expenses and administrative expenses. The with-profits shareholder transfer reflects the
statutory transfer gross of attributable tax net of hedging gains or losses on cash flow hedges held to match those transfers.
Adjusted operating expenses includes shareholders operating expenses incurred outside of the annuity and with-profits
portfolios. Other shareholder profit/(loss) includes non-recurring costs, movements in provisions that are an expense to the
shareholder and shareholder investment return earned outside of the annuity portfolio.
3.4 Reconciliation of adjusted operating income and adjusted operating expenses to total revenues and expenses as
presented in the consolidated income statement
Adjusted operating income and adjusted operating expenses are component parts of the Group’s key alternative performance
measures (APM) of adjusted operating profit before tax and as a result they are also considered APMs. They differ significantly
from IFRS total income and total expenses as they exclude policyholder items which have an equal and opposite effect on
IFRS revenue and charges included within the consolidated income statement, such as premiums, policyholder investment
returns, benefits and claims, movement in unallocated surplus of the With-Profits Fund and movements in third party interest in
consolidated funds. The most significant difference between adjusted operating income and adjusted operating expenses and
IFRS total income and total expenses, relates to the impact that market movements have on insurance and investment contract
liabilities including the unallocated surplus of the With-Profits Fund which has no overall impact on IFRS profit but is included in
determining both IFRS total income and IFRS total expenses.
Other differences include presentational differences between reporting requirements and the determination of adjusted
operating income and adjusted operating expenses, as set out in the definitions in section 1.1 of the supplementary information,
including:
– Administrative expenses in the annuity and with-profits portfolio, which are netted against adjusted operating income in the
analysis of Group adjusted operating profit before tax by segment;
– Revenues which are required to meet the tax charge or credit attributable to policyholder returns, which are not included in the
analysis of Group adjusted operating profit before tax by segment.
As a result of these differences we do not use IFRS total income and IFRS total expenses to explain our results and we do not
consider them to be comparable to adjusted operating income and adjusted operating expenses which are components of the
adjusted operating profit measure.
218 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
3 Segmental analysis continued
The following table is provided to reconcile adjusted operating income and adjusted operating expenses, presented in the
tables above, to total IFRS revenue net of reinsurance and total IFRS charges net of reinsurance respectively, as presented in the
consolidated income statement:
For the year ended 31 December
Adjusted operating income and operating expenses
Items presented as other shareholder profit/(loss)
2022
Restatedi
2021
Income
£m
Expense
£m
Income
£m
Expense
£m
1,927
(1,165)
1,891
(1,063)
(46)
(168)
89
(190)
Benefits and claims and movement in unallocated surplus of the With-Profits Fund,
net of reinsurance
Movements in third party interests in consolidated funds
(8,435)
8,435
13,083
(13,083)
(547)
547
1,019
(1,019)
Annuities and With-Profits Fund administration expenses
1,056
(1,056)
Renewal commission
Share of profit from joint ventures and associates
Tax (credit)/charge attributable to policyholder returns
Short-term fluctuations in investment returns
Profit on disposal of business and corporate transactions
Restructuring and other costs
Amortisation and impairment of intangible assets acquired in business
combinations
Other presentational items
IFRS total income and (total expenses)
152
—
(379)
(2,484)
—
—
—
211
(152)
—
—
—
—
(147)
(35)
(249)
617
163
6
707
(537)
35
—
—
699
(617)
(163)
—
—
—
—
(146)
(4)
(780)
(8,545)
6,010
17,772
(17,065)
i Following a review of the Group’s presentation of tax positions within consolidated investment funds, comparative amounts have been restated from
those previously reported. The restatement has had no impact on profit for the year or net assets. See Note 1.1 for further information.
3.5 Total external revenue by geography
The following table provides a geographical segmentation of total earned premiums, net of reinsurance and other income
(includes Fee income and Other income), as presented in the consolidated income statement:
For the year ended 31 December
United Kingdom:
Earned premiums, net of reinsurance
Other income
Total United Kingdom
Rest of the world:
Earned premiums, net of reinsurance
Other income
Total Rest of the world
Total:
Earned premiums, net of reinsurance
Other income
Total
2022
£m
2021
£m
5,199
504
5,703
829
579
3,213
571
3,784
552
527
1,408
1,079
6,028
1,083
7,111
3,765
1,098
4,863
The geographical analyses of revenues from long-term business are based on the territory of the operating unit assuming the
risk. Other income from external customers and clients in the Asset Management business has been updated in the year to
reflect the domicile of where revenues are generated rather than the domicile of the client.
M&G plc Annual Report and Accounts 2022 | 219
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3 Segmental analysis continued
Total non-current, non-financial assets by geographical location
The following table provides a geographical segmentation of non-current, non-financial assets as presented in the consolidated
statement of financial position:
For the year ended 31 December
UK
Rest of the world
Total
2022
£m
14,460
6,382
20,842
2021
£m
15,435
8,977
24,412
Non-current, non-financial assets for this purpose consist of goodwill and intangible assets, deferred acquisition costs,
property, plant and equipment, investment property, and investment in joint ventures and associates accounted for using the
equity method.
4 Investment return
For the year ended 31 December
Interest income arising from:
Cash and cash equivalents
Deposits with credit institutions
Loansi
Debt securities
Dividend income
Income from investment property:
Rental income
Net (losses)/gains on investment property
(Losses)/gains on financial instruments at fair value through profit and loss arising from:
Equity securities and pooled investment funds
Loans
Debt securities
Derivatives
Net (impairment)/reversal of impairment on loans held at amortised cost
Foreign exchange gains/(losses)
Total investment return
Note
2022
£m
25
192
193
2,010
2,420
2,234
16
16
884
(1,477)
(593)
2021
£m
4
5
208
1,967
2,184
2,072
973
1,258
2,231
(2,876)
9,298
(771)
10
(12,637)
(2,732)
(3,983)
(56)
(20,267)
6,520
(12)
562
22
(120)
(15,656)
12,909
i Total interest arising on loans of £193m for the year ended 31 December 2022 (2021: £208m) comprises £91m (2021: £109m) arising on loans held at fair
value through profit or loss and £102m (2021: £99m) arising on loans held at amortised cost.
220 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 5 Fee income
The following table disaggregates fee revenue by segment:
For the year ended 31 December
Management fees
Rebates
Performance fees and carried interest
Total Asset Management fee income
Investment contracts without discretionary participation features
Platform fees
Advice fees
Total Retail and Savings fee income
Total fee income
6 Administrative and other expenses
For the year ended 31 December
Staff and employment costs
Acquisition costs incurred:
Insurance contracts and investment contracts with DPF
Other contracts
Acquisition costs deferred:
Insurance contracts and investment contracts with DPF
Other contracts
Amortisation of deferred acquisition costs:
Insurance contracts and investment contracts with DPF
Other contracts
Impairment of deferred acquisition costs
Depreciation of property, plant and equipment
Impairment of property, plant and equipmentii
Amortisation of intangible assets
Impairment of goodwill and intangible assets
Restructuring costs
Interest expense
Commission expense
Investment management fees
Property-related costs
Other expenses
2022
£m
870
(24)
41
887
42
31
77
150
1,037
2022
£m
791
132
15
(10)
(6)
6
10
1
142
3
34
25
228
136
190
134
165
814
2021
£m
860
(28)
18
850
50
34
49
133
983
Restatedi
2021
£m
731
119
23
(8)
(6)
6
7
4
123
102
25
—
193
161
200
165
192
766
Note
13
13
13
13
13
15
15
12
12
Total administrative and other expenses
2,810
2,803
i Following a review of the Group’s presentation of tax positions within consolidated investment funds, comparative amounts have been restated from
those previously reported. The restatement has had no impact on profit for the year or net assets. See Note 1.1 for further information.
ii
Includes impairment of certain property, plant and equipment held by the Group’s infrastructure capital private equity vehicles of £11m (2021: £73m).
Includes reversal of impairment recognised in respect of our future ways of working of £6m (2021: £29m recognition of impairment) included in
‘restructuring and other costs’ within the Segmental Analysis in Note 3.
In addition to the interest expense shown above of £136m (2021: £161m), the interest expense incurred in respect of subordinated
liabilities for the year ended 31 December 2022 was £162m (2021: £160m). This is shown as finance costs in the consolidated
income statement.
M&G plc Annual Report and Accounts 2022 | 221
Financial informationStrategic ReportGovernanceOther information 7 Staff and employment costs
The average number of staff employed by the Group during the year was:
For the year ended 31 December
Average staff headcount
2022
7,637
2021
6,993
The following table shows the staff costs and other employee-related costs:
For the year ended 31 December
Wages and salaries
Social security costs
Share-based payments
Pension costs:
Defined benefit schemes
Defined contribution schemes
Total staff and employment costs
Note
38
17
2022
£m
746
91
34
25
59
955
Information in respect of Directors’ remuneration is provided in the Directors’ remuneration report on pages 119 to 159.
The table below provides a breakdown of staff and employment costs charged within administrative and other expenses:
For the year ended 31 December
Staff and employment costs
Acquisition costs
Restructuring costs
Other expenses
Total staff and employment costs
2022
£m
791
65
82
17
955
2021
£m
665
79
40
36
52
872
2021
£m
731
77
59
5
872
8 Fees payable to the auditor
The following table shows the auditor remuneration, excluding VAT. For the year ended 31 December 2022 total fees payable are
in relation to those payable to PwC with the comparative period information relating to fees payable to KPMG.
For the year ended 31 December
Fees payable to the Company’s auditor and its associates for audit and assurance services:
Fees payable to the Company’s auditors for the audit of the Company’s individual and consolidated
financial statements
Audit of subsidiaries pursuant to legislation
Audit-related assurance services
Other assurance services
Total fees payable to the auditor
2022
£m
2021
£m
4.1
10.1
2.0
0.5
16.7
2.1
6.5
2.7
0.6
11.9
The increase in fees payable to the auditor is primarily driven by audit fees relating to IFRS 17 and the change in scope as a result
of change in auditors for the audit of subsidiaries.
For more information on non-audit services, refer to the Audit Committee Report and page 115.
Additional fees payable to the auditor
Fees payable to the auditor disclosed above exclude audit and non-audit fees payable to the Group’s principal auditor by funds
managed by the Group, but which are not controlled by the Group, and therefore are not consolidated in the consolidated
financial statements.
For the year ended 31 December 2021, fees of £0.3m were paid to KPMG in relation to their audit of the Group’s defined benefit
pension schemes. For the year ended 31 December 2022 these schemes were not audited by the Group’s auditor.
222 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 9 Tax
9.1 Tax (credited)/charged to the consolidated income statement
Following a review of the Group’s presentation of tax positions within consolidated investment funds, comparative amounts have
been restated from those previously reported throughout this tax note. The restatement has had no impact on profit for the year
or net assets. See Note 1.1 for further information.
For the year ended 31 December
The total tax (credit)/charge comprises:
Current tax:
Current year
Adjustments in respect of prior years
Total current tax
Deferred tax:
Origination and reversal of temporary differences in the year
Adjustments in respect of prior years
Total deferred tax
Total tax (credit)/charge
The tax (credit)/charge above, comprising current and deferred tax, can be analysed as follows:
For the year ended 31 December
UK tax
Overseas tax
Total tax (credit)/charge
2022
£m
Restated
2021
£m
158
(19)
139
(1,017)
—
(1,017)
(878)
427
4
431
288
(23)
265
696
2022
£m
(1,062)
184
(878)
Restated
2021
£m
528
168
696
9.1.1 Allocation of (loss)/profit before tax and tax charge between equity holders and policyholders
The loss before tax reflected in the consolidated income statement for the year ended 31 December 2022 of £(2,497)m
(2021: profit before tax of £788m (restated)) comprises profit attributable to equity holders and pre-tax profit attributable to
policyholders of unit-linked and with-profits funds and unallocated surplus of With-Profits Fund. This is the formal measure of
profit before tax under IFRS but it is not the result attributable to equity holders.
This is principally because the corporate taxes of the Group include those 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 of the Company under IAS 12. Consequently, this measure of profit before all taxes is not representative of pre-tax
profits of the Group attributable to equity holders.
The tax charge attributable to policyholder returns is removed from the Group’s total profit before tax in arriving at the Group’s
profit before tax attributable to equity holders. As the net of tax profits attributable to policyholders is zero, the Group’s pre-tax
profit attributable to policyholders is an amount equal and opposite to the tax charge attributable to policyholders included in the
total tax (credit)/charge.
For the year ended 31 December
(Loss)/profit before tax
Tax credit/(charge)
(Loss)/profit after tax for the year
2022
Equity
holders
£m
(2,118)
499
(1,619)
Policyholders
£m
Total
£m
(379)
(2,497)
379
878
—
(1,619)
Restated
2021
Equity
holders
£m
Policyholders
£m
81
11
92
707
(707)
—
Total
£m
788
(696)
92
M&G plc Annual Report and Accounts 2022 | 223
Financial informationStrategic ReportGovernanceOther information
9 Tax continued
9.1.2 Tax reconciliation
For the year ended 31 December
(Loss)/profit before tax
Tax (credit)/charge based on the standard UK
corporation tax rate of 19% (2021: 19%)
Impact of profits earned in jurisdictions with different
statutory rates to the UK
(weighted average rate for equity holders is 19% (2021: 19%))
Recurring items
Different basis of taxation – policyholders
Deductions not allowable for tax purposesi
Income and gains not taxable or taxable at
concessionary ratesii
Effects of results of joint ventures and associatesiii
Changes in recognition of deferred tax and effect of
unrecognised tax lossesiv
Other
Non recurring items
Adjustments in relation to prior periodsv
Changes in local statutory tax rates or lawsvi
Impairment of goodwill
Impact of deferred tax recognised at 25% on current
year movementsvii
Non-taxable income – MGSA acquisitionviii
Tax (credit)/charge
2022
Equity
holders
£m
(2,118)
Policyholders
£m
Total
£m
(379)
(2,497)
(403)
(72)
(475)
3
—
3
—
30
(8)
—
(7)
1
5
—
5
(125)
—
(499)
(283)
(283)
—
—
—
—
—
30
(8)
—
(7)
1
(24)
(19)
—
—
—
—
—
5
(125)
—
(379)
(878)
Restated
2021
Equity
holders
£m
Policyholders
£m
81
15
2
—
15
(10)
(1)
(16)
3
(6)
(3)
—
—
(10)
(11)
707
134
—
586
—
—
—
—
—
(13)
—
—
—
—
707
Total
£m
788
149
2
586
15
(10)
(1)
(16)
3
(19)
(3)
—
—
(10)
696
i Of the £30m, £22m (2021: £3m) relates to the non-taxable adjustment in relation to a historic joint venture agreement in respect of long term assurance
business. The remaining amount relates to expenses that are not deductible for tax purposes, primarily in the UK.
ii Of the 2022 amount of (£8m), (£7m) relates to non-taxable dividend income in the UK (2021: £nil). For 2021, the balance primarily relates to a non-taxable
income arising on the reversal of provision that was not tax deductible in previous periods.
iii Profit before tax includes the Group’s share of profits 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.
iv The total amount of £(7)m related to the remeasurement of DTA on capital losses carried forward (2021: £(3)m). The remaining tax benefit in 2021 of
(£13m) related to the utilisation of capital losses on which no deferred tax asset was recognised.
v The equity holders impact of £5m (2021: (£6m)) relates to changes in estimates of prior year positions. The policyholder benefit of (£24m) primarily
relates to an agreement reached with HMRC to amend the application of income allocation methodology within the life insurance business (2021:
(£13m) primarily due to changes in estimates to deferred tax assets).
vi
In June 2021, the standard rate of Corporation Tax in the UK was changed from 19% to 25% with effect from 1 April 2023. Accordingly, the UK deferred
tax balances were revalued to reflect the change in rate.
vii Benefit arising on deferred tax movements in the period booked at the future rate of corporation tax in the UK of 25% compared to the current period
rate of 19%.
viii Non-taxable income relates to the £51m income recognised on the acquisition of the additional 0.13% shareholding in MGSA.
The Group’s profits are taxed at different rates depending on the country or territory in which the profits arise. The key applicable
tax rate for 2022 is the UK Corporation tax rate of 19% as the majority of the Group’s profits are earned and taxed in the UK.
9.1.3 Factors that may impact the future tax rate
Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future.
On 10 June 2021, the UK Government’s proposal to increase the rate of UK corporation tax from 19% to 25% with effect from
1 April 2023 was enacted into UK law. In line with the rate increase, there will be an increase to our effective tax rate for periods
from 2023 onwards. The majority of the Group’s profits are generated in the UK. Taking into account recurring tax adjusting
items, the underlying effective tax rate for equity holders’ portion of profits is expected to be marginally higher than the statutory
rate in the UK.
224 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 9 Tax continued
The Group has unused tax losses carried forward of £481m, primarily UK capital losses, on which no deferred tax is recognised.
Should appropriate capital gains arise in future periods it will result in tax benefits thereby reducing the future effective tax rate in
the relevant periods.
During late 2021, the Organisation for Economic Co-operation and Development (OECD) announced agreement had been
reached on a sweeping overhaul of the international tax system and the G-20 leaders endorsed the plan during the Leaders’
Summit. The plan follows a Two-Pillar framework which sets out the principles of a solution to tackle the tax challenges arising
from an increasingly globalised and digital global economy. Pillar One addresses taxing rights and distribution of profits, and Pillar
Two the imposition of a global minimum tax rate of 15% on large companies. For Pillar One purposes, the Group is not expected
to be within the scope of the rules due to the exclusion for regulated financial services and/or beneath the scoping thresholds.
For Pillar Two, there is no financial services exemption and the Group is above the size threshold (€750m of revenue) and will
be in scope. It was originally announced the Pillar Two rules to be effective for 2023, however, this has been deferred until 2024.
The Group generates its profits predominantly in the UK and the remainder mainly in jurisdictions with a tax rate higher than
15%. Whilst the Two-pillar framework is not expected to have a significant impact on the future effective tax rate, much will
depend upon the framework to be finalised by the OECD, the enacted legislation, and the impact on the insurance and asset
management industries, in particular, treatment of investment in fund structures and policyholder attributes. During the period,
the Group were heavily engaged in the consultations with the UK Government through Industry bodies and this work is expected
to continue in 2023. The Group is reviewing the current set of OECD rules, draft UK legislation, updates to the framework
and awaiting the OECD’s anticipated release of the final framework, as well as new legislation expected to be released by
governments implementing this new tax regime and will assess the potential impact of new legislation during 2023.
9.1.4 Use of accounting estimates and judgements
The calculation of the Group’s tax charge involves a degree of estimation and judgement. The recognition of a deferred tax asset
is a key judgement in applying the Group’s accounting policies and relies on an assessment of the probability of future taxable
profits, future reversals of existing taxable temporary differences and ongoing tax planning strategies.
Deferred tax assets are reviewed at each reporting date. In considering their recoverability, the Group assesses the likelihood of
their being recovered within the expiry of losses and/or while operating as a going concern. This takes into account the future
expected profit profile and business model of each relevant company or country, and any potential legislative restrictions on
use. Short-term timing differences are generally recognised ahead of losses and other tax attributes as being likely to reverse
more quickly.
There is also judgement involved in the level of provisioning for uncertain tax positions. These provisions cover a wide range of
issues, only a fraction of which are expected to be subject to challenge by a tax authority at any point in time. The Group engages
constructively and transparently with tax authorities with a view to early resolution of uncertain tax matters. Estimated positions
are based on the probability of potential challenge within certain jurisdictions and the possible outcome based on relevant facts
and circumstances. The judgements and estimates made to recognise and measure the effect of uncertain tax positions are
reassessed whenever circumstances change or when there is new information that affects those judgements.
Not withstanding any origination and reversal of temporary differences in the year, the Group does not consider there to be a
significant risk of a material adjustment in the next financial year to the deferred and current tax balances from either recognition
and measurement of deferred tax assets or the level of provisioning for uncertain tax positions.
9.1.5 Tax charged to other comprehensive income
For the year ended 31 December
The tax charge booked to other comprehensive income, current and deferred tax, comprises:
Actuarial gains on defined benefit pension schemes
Total tax charge to other comprehensive income
9.1.6 Tax credited to equity
For the year ended 31 December
The tax credit booked to shareholders’ equity, current and deferred tax, comprises:
Subordinated liabilities
Share-based payments
Total tax credit to equity
2022
£m
2021
£m
7
7
19
19
2022
£m
2021
£m
—
(6)
(6)
(21)
(4)
(25)
M&G plc Annual Report and Accounts 2022 | 225
Financial informationStrategic ReportGovernanceOther information 9 Tax continued
9.2 Deferred tax
Deferred tax assets and liabilities
Under IAS12, deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the
liability settled, based on tax rates (and laws) that have been enacted or are substantively enacted at the end of the reporting
period. Deferred tax assets are recognised as recoverable to the extent that, on the basis of all available evidence, it is regarded
as probable there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be
deducted or tax losses utilised. Deferred tax assets and liabilities are only offset when there is both a legal right to set-off and an
intention to settle on a net basis.
Deferred tax in the statement of financial position
The table below shows movements on deferred tax assets and liabilities during the year. The amounts are different from those
disclosed on the consolidated statement of financial position as the below amounts are presented before offsetting asset and
liability balances where there is a legal right to set-off and an intention to settle on a net basis.
Changes in tax laws and rates may affect recorded deferred tax assets and liabilities. On 10 June 2021, the UK Government’s
proposal to increase the rate of UK corporation tax from 19% to 25% with effect from 1 April 2023 was enacted into UK law. In line
with the changes to the UK rate of corporation tax, the carrying values of our deferred tax assets and liabilities were revalued.
The impact of which was limited primarily due to the majority of the UK deferred tax balances being measured at a policyholder
rate of tax which remains unaffected.
Unrealised
gains/
(losses) on
investmentsi
£m
Life tax
transitional
adjustmentsii
£m
Other
short-term
timing
differencesiii
£m
Deferred
acquisition
costsiv
£m
Defined
benefit
pensions
£m
Capital
allowances
£m
Tax losses
carried
forwardv
£m
Share-based
payments
and deferred
compensation
£m
2022
3
(1,410)
(1,407)
414
—
173
(820)
5
(825)
(820)
—
(26)
(26)
26
—
—
—
—
—
—
162
(49)
113
27
—
(14)
126
163
(37)
126
42
(3)
39
(2)
—
—
37
38
(1)
37
8
(48)
(40)
8
(7)
—
(39)
—
(39)
(39)
25
(37)
(12)
28
—
(3)
13
28
(15)
13
13
—
13
515
—
—
528
528
—
528
20
—
20
1
5
—
26
26
—
26
Total
£m
273
(1,573)
(1,300)
1,017
(2)
156
(129)
788
(917)
(129)
For the year ended 31 December
Assets
Liabilities
As at 1 January 2022
Income statement
Equity and other
comprehensive income
Other movements/foreign
exchangevi
As at 31 December 2022
Assets
Liabilities
As at 31 December 2022
i Deferred tax on unrealised gains/losses on investments primarily arise on two key components. The largest component relates to gains/(losses)
on certain investments which are only taxed when realised, i.e. when an asset is sold. The second component relates to gains/(losses) on certain
investments held by life insurance companies, which for UK corporation tax purposes are deemed to have been disposed of and immediately
reacquired at market value at the end of each accounting period. Any gain/(loss) arising on the deemed disposal is required to be spread over a seven-
year period.
ii The UK Government made substantial changes to the rules relating to the taxation of life insurance companies which applied from 1 January 2013. A net
deferred tax liability was recognised for the temporary difference that arose on the transition to the new regime. The deferred tax balances are now fully
reversed at 31 December 2022.
iii The closing balance at 31 December 2022 primarily comprises £83m (2021: £88m) of deferred tax assets on subordinated debt together with a £33m
(2021: £22m: MGSA) deferred tax liability on customer-related intangible assets arising on the acquisitions of MGSA, Sandringham & responsAbility.
The remaining balance primarily relates to deferred tax assets on employee related compensation.
iv The Group incurs various incremental, directly attributable acquisition costs in obtaining new contracts. For UK corporation tax purposes, acquisition
expenses incurred until 31 December 2022 in respect of certain life insurance business were required to be spread over a seven-year period. A deferred
tax asset was recognised for the expected future tax deductions.
v The tax losses carried forward at 31 December 2022 relate to £82m (2021: £66m) of UK capital losses and £2,024m (2021: £nil) of trading losses.
Under UK law, both trading capital losses can be carried forward indefinitely. A deferred tax asset has been recognised in full on the trading losses
and a proportion of these carried forward losses as the Group considers it is probable that sufficient future UK taxable profit and capital gains will be
available against which these losses can be utilised.
vi Other movements of £173m included within Unrealised gains/losses on investments, £187m is associated with the deconsolidation of the M&G
European Property Fund in the period and £14m relates to foreign exchange movements. Short-term timing differences of £14m relates to deferred
tax liabilities on intangible assets recognised as part of the acquisition of Sandringham Financial Partners Limited and responsAbility Investments AG;
(2021: £22m – acquisition of MGSA).
226 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
9 Tax continued
For the year ended 31 December
Assets
Liabilities
As at 1 January 2021
Income statement
Equity and other
comprehensive income
Other movements/foreign
exchange
7
(1,093)
(1,086)
(321)
—
—
As at 31 December 2021
(1,407)
Assets
Liabilities
As at 31 December 2021
3
(1,410)
(1,407)
Restated
2021
Unrealised
gains/
(losses) on
investmentsi
£m
Life tax
transitional
adjustmentsii
£m
Other
short-term
timing
differences
£m
Deferred
acquisition
costsiv
£m
Defined
benefit
pensions
£m
Capital
allowances
£m
Tax losses
carried
forwardv
£m
Share-based
payments
and deferred
compensation
£m
2
(70)
(68)
42
—
—
(26)
—
(26)
(26)
115
(11)
104
11
20
(22)
113
162
(49)
113
51
(6)
45
(6)
—
—
39
42
(3)
39
13
(30)
(17)
(4)
(19)
—
(40)
8
(48)
(40)
13
(34)
(21)
9
—
—
(12)
25
(37)
(12)
10
—
10
3
—
—
13
13
—
13
15
—
15
1
4
—
20
20
—
20
Total
£m
226
(1,244)
(1,018)
(265)
5
(22)
(1,300)
273
(1,573)
(1,300)
The Group’s net deferred tax liability at 31 December 2022 of £129m changed significantly from the deferred tax liability at
31 December 2021 of £1,300m, representing an overall net movement of £1,171m. The significant movement is predominantly due
to a decrease of deferred tax liability (DTL) arising on unrealised losses in the period together with an increase in the recognition
of deferred tax assets (DTA) on carry forward UK tax losses of £515m, of which £508m relates UK income tax losses arising in the
period of £2,024m.
The recognition of a DTA relies on an assessment of the probability of future taxable profits. The Group’s expectations of future
UK taxable profits require management judgement, and take into account the Group’s long-term financial and strategic plans and
projected future shareholder transfers.
The DTA on tax losses carried forward at 31 December 2022 of £528m (2021: £13m) comprises of £508m in relation to UK
income tax losses (2021: £nil) and £20m in respect of UK capital losses (2021: £13m). The DTA on UK income tax losses has been
recognised in full based upon sufficient future taxable profits arising from shareholder transfers. These transfers are considered
a reliable source of profit and are a consistent measure used in the Group’s Business Plans and Solvency II calculations. The DTA
on UK capital losses has been partially recognised and is based upon expected reversal of the taxable temporary differences
recognised on unrealised gains on investments, only a proportion of which are expected to be available for offset against the UK
capital losses.
Modelling was undertaken to review the recovery period of the DTA on both the income and capital losses. Under current UK tax
legislation, there is no time limit on utilisation of both the income and capital losses, however, these tax losses can only be used
against 50% of taxable income profits and capital gains in future periods. These restrictions in utilisation mean that the value of
the DTA in respect of income tax losses is only expected to be fully recovered by 2035 in the base case forecast. An impaired
scenario was also modelled which reflected a 10% reduction of forecast shareholder transfer in each period, this extended the
recovery to 2037. The income tax losses arising in 2022 are not expected to be recurring in future periods, and given the forecast
of future profitability and the Group’s commitment to the UK market, in management’s judgement it is probable that the value of
the DTA on losses will be recovered by the Group while still operating as a going concern. The modelling of future capital gains
arising on investments show that the recognised DTA on capital losses is expected to be recovered by 2028.
It is possible that future tax law changes could materially affect the timing of recovery and the value of these losses ultimately
realised by the Group.
The deferred tax balances, after netting, arise in the following parts of the Group:
UK
Overseas
As at 31 December
Deferred tax assets
Deferred tax liabilities
2022
£m
594
57
651
2021
£m
68
51
119
2022
£m
(465)
(315)
(780)
Restated
2021
£m
(960)
(459)
(1,419)
M&G plc Annual Report and Accounts 2022 | 227
Financial informationStrategic ReportGovernanceOther information
9 Tax continued
9.2.1 Unrecognised deferred tax
Tax losses and temporary differences
At the end of the reporting period, the Group have unused tax losses of £481m (2021: £512m) and temporary differences of £nil
(2021: £2m) for which no deferred tax asset is being recognised. The Group’s unused tax losses primarily relate to capital losses
in the UK of £472m (2021: £502m). No deferred tax asset is recognised on the unused tax losses of £481m as it is not considered
probable that future taxable UK capital gains or other appropriate profits will be available against which they can be utilised.
Under UK law, capital losses can be carried forward indefinitely.
Group investments in subsidiaries, branches and investments
Retained earnings of overseas subsidiaries are expected to be reinvested indefinitely or remitted to the UK free from
further taxation by virtue of parent company exemptions on dividends from subsidiaries and on capital gains on disposal.
Consequentially, the Group does not consider there to be any significant taxable temporary differences associated with
investments in subsidiaries, branches, associates and joint arrangements.
9.3 Current tax and other tax assets and liabilities
Corporation tax
Other taxes
As at 31 December
Movements on corporation tax current tax assets and liabilities were as follows:
Current tax assets
Current tax liabilities
2022
£m
254
35
289
2021
£m
347
28
375
2022
£m
(58)
(55)
(113)
Restated
2021
£m
(300)
(59)
(359)
For the year ended 31 December
Net corporation tax asset as at 1 January
Income statement
Reserves movement for the period
Corporation tax paid
Other movements
Foreign exchange
Net corporation tax asset as at 31 December
Corporation tax assets
UK
Overseas
Corporation tax liabilities
UK
Overseas
Net corporation tax asset as at 31 December
2022
£m
47
(139)
1
268
19
—
196
254
213
41
(58)
(24)
(34)
196
Restated
2021
£m
146
(431)
1
332
(1)
—
47
347
316
31
(300)
(251)
(49)
47
All corporation tax assets and liabilities are expected to be settled within 12 months.
One of the Group’s subsidiaries, The Prudential Assurance Company Limited, is the lead litigant in a combined group action
against HM Revenue and Customs (HMRC) concerning the correct historical tax treatment applying to dividends received from
overseas portfolio investments of its With-Profits Fund.
In February 2018, the Supreme Court heard HMRC’s appeal against the earlier Court of Appeal decision in PAC’s favour.
The decision of the Supreme Court, released in July 2018, upheld the main point of dispute in PAC’s favour but reversed the
decisions of the lower courts on some practical points of how to apply that principle. The Supreme Court issued its order giving
effect to its decision in October 2019, stating any remaining issues of computation be remitted back to the High Court. PAC and
HMRC are working through the mechanics of implementing the Supreme Court decisions. To date, this work has led to a
reduction in the estimate for policyholder tax credit recoverable, and the associated estimate of interest receivable.
As at 31 December 2022, PAC has recognised a total policyholder tax credit of £114m (2021: £114m) in respect of its claim against
HMRC. Of this amount, £40m (2021: £40m) has been paid by HMRC leaving a tax recoverable balance of £74m (2021: £74m)
recorded as an amount of tax due from HMRC. PAC will be entitled to interest on the tax repaid. As a result of the COVID
pandemic the timing to finalise the issue has been further delayed. It is now expected to be finalised during 2023 at which point
PAC should receive full and final payment.
228 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
9 Tax continued
9.4 Change in corporation tax rate
On 10 June 2021, the UK Government’s proposal to increase the rate of UK corporation tax from 19% to 25% with effect from
1 April 2023 was enacted into UK law. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities
and our effective tax rate in the future. We expect that, in line with the rate increase, proposed, there will be an increase to our
effective tax rate for periods from 2023 onwards.
10 Earnings per share
Basic earnings per share for the year ended 31 December 2022 was (66.0)p (2021: 3.3p) and diluted earnings per share was
(66.0)p (2021: 3.2p). Basic earnings per share is based on the weighted average ordinary shares in issue after deducting treasury
shares and shares held by the employee benefit trust. Diluted EPS is based on the potential future shares in issue resulting from
exercise of options under the various share-based payment schemes in addition to the weighted average ordinary shares in
issue. The weighted average ordinary shares in issue reflects the impact of the share buy-back during the year.
The following table shows details of basic and diluted earnings per share:
For the year ended 31 December
(Loss)/profit attributable to equity holders of the Company
For the year ended 31 December
Weighted average number of ordinary shares outstanding
Dilutive effect of share options and awards
Weighted average number of diluted ordinary shares outstanding
For the year ended 31 December
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
2022
£m
(1,632)
2022
Millions
2,474
—
2021
£m
83
2021
Millions
2,542
33
2,474
2,575
2022
Pence
per share
2021
Pence
per share
(66.0)
(66.0)
3.3
3.2
As the Group has made a loss attributable to equity holders of the Company for the year ended 31 December 2022, the diluted
earnings per share is the same as the basic earnings per share as it is not permissible for the diluted earnings per share to be
greater than the basic earnings per share.
11 Dividends
For the year ended 31 December
Dividends relating to reporting period:
First interim dividend – Ordinary
Second interim dividend – Ordinary
Total
Dividends paid in reporting period:
Prior year’s second interim dividend – Ordinary
First interim dividend – Ordinary
Total
2022
Pence
per share
6.2
13.4
19.6
12.2
6.2
£m
154
310
464
311
154
465
2021
Pence
per share
6.1
12.2
18.3
12.2
6.1
£m
156
311
467
310
156
466
Subsequent to 31 December 2022, the Board has declared a second interim dividend for 2022 of 13.4 pence per ordinary share
and, an estimated £310m in total. The dividend is expected to be paid on 27 April 2023 and will be recorded as an appropriation of
retained earnings in the financial statements at the time that it is paid. The final dividend amount per ordinary share is impacted
by the share buy-back programme, see Note 22 for further details.
M&G plc Annual Report and Accounts 2022 | 229
Financial informationStrategic ReportGovernanceOther information
12 Goodwill and intangible assets
For the year ended 31 December
Cost
At 1 January
Additions:
Arising on acquisitions
Internally generated
Other purchases
Disposals and transfers
Foreign exchange differences
At 31 December
Accumulated amortisation and impairment
At 1 January
Amortisation
Impairment
Disposals and transfers
Foreign exchange differences
At 31 December
Net book amount
For the year ended 31 December
Goodwill is allocated to the following cash-generating units:
Asset Management
M&G Wealth Platform
Other
Subsidiaries held by the With-Profits Fund
2022
Other
Intangibles
£m
Goodwill
£m
Total
£m
Goodwill
£m
2021
Other
Intangibles
£m
Total
£m
1,411
338
1,749
1,375
255
1,630
166
—
—
(4)
7
69
7
76
(4)
4
235
7
76
(8)
11
1,580
490
2,070
(20)
—
(25)
—
—
(45)
1,535
(114)
(34)
—
4
(4)
(148)
342
(134)
(34)
(25)
4
(4)
(193)
1,877
38
—
—
—
(2)
1,411
(20)
—
—
—
—
(20)
1,391
87
7
47
(54)
(4)
338
(115)
(25)
—
26
—
(114)
224
125
7
47
(54)
(6)
1,749
(135)
(25)
—
26
—
(134)
1,615
Note
2022
£m
2021
£m
1,287
1,191
13
42
193
1,535
21
—
179
1,391
12.1 Impairment assessment
Goodwill does not generate cash flows independently of other groups of assets and thus is assigned to a group of cash-
generating units for the purposes of impairment testing.
The group of cash-generating units are based upon how management monitors the business and represent the lowest level to
which goodwill can be allocated on a reasonable basis.
Goodwill is tested annually for impairment, and where there is an indication of impairment, by comparing the carrying amount of
the group of cash-generating units, including any goodwill, with its recoverable amount.
None of the goodwill recognised is expected to be deductible for income tax purposes.
230 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
12 Goodwill and intangible assets continued
Asset Management
The carrying value of Asset Management goodwill predominantly relates to that arising on the acquisition of M&G Group Limited
and is split between the Wholesale Asset Management, Institutional Asset Management and Internal Asset Management cash-
generating units. An impairment assessment was undertaken as at 31 December 2022 which resulted in no impairment charge
being recognised.
The recoverable amount of the group of cash-generating units was determined by calculating the value in use. The value in use
represents the present value of future cash flows based on the business plan to 2025 approved by management, and relevant
assumptions for cash flows for later years.
The future cash flows used in the value in use calculation are based on a set of economic, market and business assumptions.
These include the direct and secondary effects of recent developments, such as changes in global equity markets and trends in
fund flows, which are considered by management in arriving at the expectations for the final projections for the business plan.
The business plan considers the growth in client preference for sustainability and impact-focused products, including those
aimed at managing and addressing climate risk, and its impact on projected AUMA flows based on our strategy. M&G Group
Limited being an asset manager does not hold material investments on its balance sheet which would directly be impacted by
climate risk. Given this is an emerging area, and given the current available data and the sophistication of the models, forecast
cash flows may not fully reflect the potential impact of climate risk.
Based on the assessment, the value in use of the group of cash-generating units was higher than the carrying value and no
impairment has been recognised as at 31 December 2022 in respect of goodwill arising on the Asset Management group of cash-
generating units.
The value in use is particularly sensitive to a number of key assumptions as follows:
– The cash flow forecast has been extrapolated beyond the business plan period to incorporate a five-year value in use
assessment, estimating growth rates for 2026 and 2027, tapering the growth expected in 2025 down over the two-year period,
to the long-term growth rate (based on long-term inflation and nominal gross domestic product rates for the UK).
– The pre-tax discount rate as at 31 December 2022 was 11% (2021: 14%) and is based on the cost of equity for the Asset
Management business derived using the capital asset pricing model. A 50bps increase in the discount rate would result in the
value in use decreasing by £187m. This would not result in any impairment charge being recorded for goodwill.
– The terminal value was calculated using a standard growth model, using a discount rate of 11% as stated above and a long-
term growth rate of 2%. A 50bps decrease in the long-term growth rate would result in the value in use decreasing by £122m.
This would not result in any impairment charge being recorded for goodwill.
In the previous year, a terminal multiplier of 13x was applied to the cashflows forecasted for the final year of the business plan
to determine the cashflows beyond the projection period, based on expected price/earnings ratio in the sector.
– That asset management contracts continue on similar terms.
No reasonable change in assumptions stated above would result in any impairment being recorded. Furthermore, there would
be no impairment recorded even if the individual stresses to assumptions stated above were to apply concurrently which
demonstrates the significant headroom available on the carrying value.
M&G Wealth Platform
During the year to 31 December 2022 an impairment of £25m has been recognised in respect of the M&G Wealth Platform
cash-generating unit to bring the carrying value down to its recoverable amount which is its value in use of £106m. The M&G
Wealth platform cash generating unit consists of the net assets and goodwill and other intangibles arising from the acquisition
of Wrap IFA Services Limited, as well as an allocation of £16m of goodwill following the acquisition of Sandringham Financial
Partners Limited, discussed in Note 2. All of the impairment has been allocated against goodwill with the expense recorded in
administrative expenses in the consolidated income statement. The key assumptions in determining the value in use were a
discount rate of 11%, a long-term growth rate of 2% and a terminal value EBITDA margin of 33%.
M&G plc Annual Report and Accounts 2022 | 231
Financial informationStrategic ReportGovernanceOther information 12 Goodwill and intangible assets continued
Other
Note 2.2 Corporate transactions provides detail on goodwill arising on subsidiaries acquired during 2022. None of the goodwill
allocated to remaining cash-generating units is significant in comparison to the Group’s total carrying amount of goodwill.
Subsidiaries held by the With-Profits Fund
Goodwill arising on acquisition of subsidiaries held relates to acquisitions made within consolidated infrastructure private equity
vehicles which are held by the With-Profits Fund. Management have undertaken an impairment assessment by comparing the
fair value of the subsidiaries with their carrying value. As a result of the assessment, no impairment was recognised for the year
ended 31 December 2022 (2021: £nil).
12.2 Intangible assets
Intangible assets comprise insurance contracts and client relationships acquired through business combinations, software,
service concessions, royalties and licences.
Customer relationships and trade name arising on acquisitions during the year
During the year, customer relationships which have been recognised by the Group as part of the acquisition of Sandringham
Financial Partners Limited, M&G Wealth Investments LLP (formerly TCF Fund Managers LLP) and responsAbility Investments AG.
In addition, two trade names have been recognised by the Group as part of the acquisition of Sandringham Financial Partners
Limited and responsAbility Investments AG.
The description of the separate intangible assets acquired, including their estimated useful life, is as follows:
Customer related intangible
Intangible asset type
Sandringham Financial Partners Limited
M&G Wealth Investments LLP (Formerly
TCF Fund Managers LLP)
responsAbility Investments AG
Trade name
Customer
relationships
Customer
relationships
Trade name
Customer
relationships
All intangibles will be amortised on a straight line basis.
Average useful life
at acquisition date
Acquisition date
10 years
6 January 2022
13 years
6 January 2022
18 years 17 February 2022
10 years
3 May 2022
10 years
3 May 2022
Fair value on
acquisition date
£m
Carrying value
£m
7
15
1
9
36
6
14
1
9
37
In arriving at the fair value of intangible assets acquired in business combinations, a number of assumptions and judgements are
applied. The details in respect of material acquisitions during the financial year, with regard to assumptions and sensitivities to
those assumptions, are presented below.
responsAbility
Sandringham
Intangible
Input
Assumption
Trade name
Customer
relationships
Discount rate
Royalty rate
Discount rate
Customer
attrition
Client and market
growth
12%
3%
11%
12.5% wholesale /
8.5% institutions
Sensitivity
+100bps
-50bps
+100bps
+100bps
Impact on
valuation (£m)
Assumption
Sensitivity
Impact on
valuation (£m)
—
(2)
(3)
—
(1)
10%
2%
10%
2%
+100bps
-50bps
+100bps
+70bps
15%
-100bps
–
(2)
(2)
(2)
(1)
2%
-100bps
232 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 13 Deferred acquisition costs
2022
2021
For the year ended 31 December
At 1 January
Additions
Amortisation to the income statement
Impairment
Foreign exchange differences
At 31 December
Insurance
contracts
and
investment
contracts
with DPF
£m
Other
contracts
£m
58
10
(6)
—
—
62
36
6
(10)
(1)
1
32
Total
£m
94
16
(16)
(1)
1
94
Insurance
contracts
and
investment
contracts
with DPF
£m
Other
contracts
£m
59
8
(6)
(2)
(1)
58
14 Investments in joint ventures and associates
14.1 Investments in joint ventures and associates accounted for using the equity method
As at 31 December
Investment in joint ventures
Investment in associates
Investments in join ventures and associates accounted for using the equity method
For the year ended 31 December
Share of profit from joint ventures
Share of profit from associatesi
Share of profit from joint ventures and associates accounted for using the equity method
i
Included within the year ended 31 December 2021 share of profit from associates is £6m from MGSA up to the acquisition date.
There is no share of other comprehensive income from joint ventures or associates.
14.1.1 Investment in joint ventures accounted for using the equity method
Total
£m
98
14
(13)
(4)
(1)
94
2021
£m
469
—
469
2021
£m
75
6
81
39
6
(7)
(2)
—
36
2022
£m
413
—
413
2022
£m
38
—
38
All of the Group’s investments in joint ventures which are accounted for using the equity method are property vehicles held in
the With-Profits Fund. The results of the Group’s joint ventures are reflected in the movement in the unallocated surplus of the
With-Profits Fund and therefore do not affect shareholders’ results.
Joint ventures are not considered to be material individually or in aggregate to the Group for the years ended 31 December 2022
and 31 December 2021. None of the Group’s joint ventures are listed and financial information of these investments covering the
same reporting period as that of the Group has been used for accounting for these investments using the equity method.
14.1.2 Investment in associates accounted for using the equity method
On 4 July 2021, the Group acquired a controlling stake in MGSA. Until this date MGSA was recognised as an associate accounted
for using the equity method.
14.2 Interests in associates accounted for at fair value through profit or loss (FVTPL)
The Group has investments in OEICs, unit trusts, property unit trusts and venture capital investments of the With-Profits Fund
where the Group has significant influence or joint control. These investments are accounted for on a FVTPL basis and are
included within equity securities and pooled investment funds in the consolidated statement of financial position.
14.2.1 Associates accounted for at FVTPL
During the year ended 31 December 2022, M&G European Property Fund (MEP) was deconsolidated from the Group and is
now accounted for as an associate on a FVTPL basis. As at 31 December 2022, the Group held 29.8% of MEP with a fair value
of £1,143m. No other associates accounted for at FVTPL are considered individually material to the Group for the years ended
31 December 2022 and 31 December 2021.
The aggregate fair value of associates accounted for at FVTPL, including MEP, at 31 December 2022 was £1,850m (2021: £358m).
14.2.2 Joint ventures accounted for at FVTPL
The aggregate fair value of joint ventures accounted for at FVTPL at 31 December 2022 was £190m (2021: £77m). None of the
joint ventures accounted for at FVTPL are considered individually material to the Group for the years ended 31 December 2022
and 31 December 2021.
M&G plc Annual Report and Accounts 2022 | 233
Financial informationStrategic ReportGovernanceOther information
15 Property, plant and equipment
Property, plant and equipment comprises right of use assets, properties and land occupied by the Group and other tangible
assets. A reconciliation of the carrying amount of these items from the beginning to the end of the year is as follows:
For the year ended 31 December
Cost
At 1 January
Transfer to held for sale
Additions
Arising on acquisition of subsidiaries
Disposals and other
Foreign exchange differences
2022
Right of use
assets
£m
Group
occupied
property
£m
Other
tangible
assets
£m
Total
£m
Right of use
assets
£m
2021
Group
occupied
property
£m
Other
tangible
assets
£m
Total
£m
306
106
2,695
292
159
1,968
2,419
(7)
32
16
(4)
3
(1)
—
—
(1)
2
3,107
(204)
605
21
(196)
573
5
(1,088)
(1,093)
151
156
—
22
5
(12)
(1)
At 31 December
346
106
2,140
2,592
306
Accumulated depreciation and
impairment
At 1 January
Transfer to held for sale
Depreciation charge for the year
Arising on acquisition of subsidiaries
Reversal of impairment/(impairment)
Disposals and other
Foreign exchange differences
At 31 December
Net book amount
15.1 Right of use assets
(88)
1
(24)
—
6
1
(1)
(105)
241
(19)
—
(3)
—
—
—
(1)
(23)
83
(464)
39
(115)
(2)
(9)
52
(12)
(571)
40
(142)
(2)
(3)
53
(14)
(511)
1,629
(639)
1,953
(52)
—
(26)
—
(13)
2
1
(88)
218
—
—
—
(47)
(6)
106
—
770
2
(7)
(38)
—
792
7
(66)
(45)
2,695
3,107
(19)
(282)
(353)
—
(3)
—
(2)
4
1
(19)
87
—
(94)
(2)
(87)
2
(1)
—
(123)
(2)
(102)
8
1
(464)
2,231
(571)
2,536
The Group recognises right of use assets for leases of land and buildings which are used as office space across various locations.
Some leases include lease break options that are exercisable at the option of the Group.
As at 31 December 2022, £29m (2021: £33m) of right of use assets were held by the With-Profits Fund. During the year, the Group
received £4m (2021: £4m) of income from subleasing right of use assets.
15.2 Other tangible assets
As at 31 December 2022, £1,513m (2021: £2,119m) of other tangible assets were held by the With-Profits Fund, of which £217m
(2021: £563m) are assets under construction. The main movements in the year on assets under construction relate to additions
of £70m less £412m of disposals. The other tangible assets within the With-Profits Fund relate primarily to infrastructure
projects funded by the Group’s consolidated private equity vehicles. During the year, two funds, Sky Fund I and Sky Fund V were
deconsolidated following a sale of the fund and a change in control respectively. The deconsolidation of these entities is included
within Disposals and other lines in the table above.
During the year £11m (2021: £73m) of impairment was recognised in respect of tangible assets held by the Group’s infrastructure
capital private equity vehicles.
234 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
16 Investment property
Investment property is primarily held by the With-Profits Fund and is carried at fair value. A reconciliation of the carrying amount
of investment property from the beginning of the year to the end of the year is set out below:
For the year ended 31 December
At 1 January
Transfer from/(to) held for sale
Additions:
Resulting from property acquisitions
Resulting from expenditure capitalised
Disposals and otheri
Net fair value (losses)/gains
Foreign exchange differences
At 31 December
2022
£m
2021
£m
19,698
19,106
24
(947)
2,279
420
(4,643)
(1,477)
204
1,809
193
(1,310)
1,258
(411)
16,505
19,698
i
Included within disposals and other of £4,643m for the year ended 31 December 2022 is £3,955m associated with the deconsolidation of the M&G
European Property Fund in the period.
For the year ended 31 December 2022, rental income from investment property was £884m (2021: £973m). Direct operating
expenses, including repairs and maintenance arising from these properties for the year ended 31 December 2022 were £154m
(2021: £190m). Direct operating expenses on investment property not generating rental income for the year ended 31 December
2022 was £13m (2021: £16m).
The Group’s policy is to let investment property to tenants through operating leases. The leases typically include clauses to
enable periodic rent reviews according to prevailing market conditions. In some agreements, the rents might be variable and
linked to an index. Certain leases contain options to break before the end of the lease term by either party.
Minimum future rental income to be received on non-cancellable leases of the Group’s freehold and leasehold investment
property are receivable in the following periods:
For the year ended 31 December
Less than 1 year
1 to 5 years
Over 5 years
Total minimum future rental income
2022
£m
468
1,477
2,085
4,030
2021
£m
477
1,474
2,391
4,342
M&G plc Annual Report and Accounts 2022 | 235
Financial informationStrategic ReportGovernanceOther information 17 Defined benefit pension schemes
17.1 Background and summary economic and IAS 19 financial positions
The Group operates three defined benefit pension schemes. The largest defined benefit scheme as at 31 December 2022 is
the Prudential Staff Pension Scheme (PSPS), which accounts for 82% (2021: 80%) of the present value of the defined benefit
pension obligation.
The Group also operates two smaller defined benefit pension schemes that were originally established by the M&G Group
Limited (M&GGPS) and Scottish Amicable (SASPS) businesses.
Under IAS 19: Employee Benefits and IFRIC 14: IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction, the Group can only recognise a surplus to the extent that it is able to access the surplus either through an
unconditional right of refund or through reduced future contributions relating to ongoing service of active members. The Group
has no unconditional right of refund to any surplus in PSPS. Accordingly, PSPS’s net economic pension surplus is restricted up
to the present value of the Group’s economic benefit, which is calculated as the difference between the estimated future cost
of service for active members and the estimated future ongoing contributions. The level of the restriction is set out in the table
below. The net economic pension surplus is attributed 70% to the With-Profits Fund and 30% to the Group’s shareholders.
In contrast, the Group is able to access the surplus of SASPS and M&GGPS through an unconditional right of refund. Therefore,
the surplus resulting from these schemes is recognised in full. As at 31 December 2022 the SASPS and M&GGPS schemes are in
surplus based on the IAS 19 valuation. Under IAS 19, non-transferable insurance policies issued by a related party do not qualify
as plan assets. Therefore, as at 31 December 2021, investments in insurance policies issued by Prudential Pensions Limited, (a
subsidiary of the Group, through which it invested in certain pooled funds), were deducted from the M&GGPS surplus, on an IAS
19 basis. However all holdings were divested during 2022 and this deduction is no longer required.
The SASPS net economic pension surplus is attributed 40% to the With-Profits Fund and 60% to the Group’s shareholders.
The pension assets and liabilities for the defined benefit pension schemes are as follows:
As at 31 December
Fair value of plan assets
Present value of defined benefit obligation
Effect of restriction on surplus
Net economic pension surplusi
Eliminate group issued insurance policies
Net pension surplus
As at 31 December
Attributable to:
Shareholder-backed business
With-Profits Fund
Net pension surplus
PSPS
£m
4,641
(4,050)
(581)
10
—
10
2022
SASPS
£m
M&GGPS
£m
Total
£m
582
(566)
442
5,665
(313)
(4,929)
—
129
—
129
(581)
155
—
155
—
16
—
16
2022
PSPS
£m
SASPS
£m
M&GGPS
£m
Total
£m
3
7
10
10
6
16
129
—
129
142
13
155
i The economic basis reflects the position of the defined benefit schemes from the perspective of the pension schemes, adjusted for the effect of IFRIC
14 for the derecognition of PSPS’s unrecognisable surplus and before adjusting for any non-qualifying assets.
As at 31 December
Fair value of plan assets
Present value of defined benefit obligation
Effect of restriction on surplus
Net economic pension surplus/(deficit)i
Eliminate group issued insurance policies
Net pension surplus/(deficit) attributable to the Group
2021
PSPS
£m
7,394
SASPS
£m
M&GGPS
£m
993
754
Total
£m
9,141
(6,460)
(1,043)
(581)
(8,084)
(896)
38
—
38
—
(50)
—
(50)
—
173
(207)
(34)
(896)
161
(207)
(46)
236 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
17 Defined benefit pension schemes continued
As at 31 December
Attributable to:
Shareholder-backed business
With-Profits Fund
Net pension surplus/(deficit)
17.1.1 Triennial actuarial valuations
2021
PSPS
£m
SASPS
£m
M&GGPS
£m
Total
£m
11
27
38
(30)
(20)
(50)
(34)
—
(34)
(53)
7
(46)
A full actuarial valuation is required for defined benefit pension schemes every three years in order to assess the appropriate
level of funding for schemes in relation to their commitments. These valuations include assessments of the likely rate of return on
the assets held within the separate trustee administered funds. The actuarial valuation differs from the IAS 19 accounting basis
valuation in a number of respects, including the discount rate assumption where IAS 19 prescribes a rate based on high-quality
corporate bonds while a more prudent assumption is typically used for the actuarial valuation.
Summary information on the latest completed actuarial valuation for each of the schemes, as at 31 December 2022, is shown in
the table below.
Last completed actuarial
valuation date
Funding level at the last
valuation
Deficit funding arrangement
agreed with the Trustees based
on the last completed valuation
No deficit funding required
PSPS
5 April 2020
108%
SASPS
M&GGPS
31 March 2020
31 December 2020
85%
116%
Deficit funding of £26m per
annum from 1 April 2020 until
31 December 2025, or earlier
if the scheme’s funding level
reaches 100% before date. The
deficit funding will be reviewed
every three years at subsequent
valuations
Approximately £4.5m per
annum
No deficit funding required
Approximately £4m per annum
Approximately £1.8m per
annum
Approximately £1.5m per
annum
Current level of employer
contributions for active
members
Contributions to cover ongoing
administration and other
expenses
Are at the minimum level
required under the scheme
rules (approximately £2.5m
per annum)
Approximately £7m per
annum until April 2023, then
falling to approximately
£6.25m per annum
The contributions detailed above broadly represent the Group’s current expectation of amounts that will be paid to each
respective plan in the next annual reporting period.
17.1.2 Risks to which the defined benefit schemes expose the Group
The plans are subject to the statutory funding objective requirements of the Pensions Act 2004, which require that plans be
funded to at least the level of their technical provisions (an actuarial estimate of the assets needed to provide for the benefits
already built up under the plan). Where there is a deficit, the employers of the schemes would agree a deficit recovery plan.
Accordingly, the pension schemes expose the Group to a number of risks, the most significant of which are interest rate risk,
equity risk, inflation risk, credit risk and mortality risk.
M&G plc Annual Report and Accounts 2022 | 237
Financial informationStrategic ReportGovernanceOther information
17 Defined benefit pension schemes continued
17.1.3 Corporate governance
The Group’s pension schemes are established under trust and are subject to UK legal requirements; this includes being subject
to regulation by the Pensions Regulator in accordance with the Pensions Act 2021. Each scheme has a corporate trustee to which
some directors are appointed by Group employers with the remaining directors nominated by members in accordance with UK
legal requirements. The Trustees have the ultimate responsibility to ensure that each scheme is managed in accordance with
its Trust Deed and Rules. The Trustees act in the best interests of the schemes’ beneficiaries; this includes taking appropriate
account of each employer’s legal obligation and financial ability to support the schemes when setting investment strategy and
when agreeing funding with the employers. The employers’ contribution commitments are formally updated at each triennial
valuation; between valuations funding levels and employer strength continue to be monitored, with the Trustees being able to
bring forward the next triennial valuation if they consider it appropriate to do so.
All of the Group’s defined benefit pension schemes are final salary schemes, which are closed to new entrants. The pensionable
salaries for most members are capped at the levels as at 30 September 2019. The Trustee of each scheme sets the general
investment policy and specifies any restrictions on types of investment and the degrees of divergence permitted from the
benchmark, but delegates the responsibility for selection and realisation of specific investments to the investment managers.
The Trustees consult with the principal employer for each scheme on the investment principles, but the ultimate responsibility for
the investment of the assets of the schemes lies with the trustees.
The Trustees of each of the schemes manage the investment strategy of the scheme to achieve an acceptable balance between
investing in the assets that most closely match the expected benefit payments and assets that are expected to achieve a greater
return in the hope of reducing the contributions required or providing additional benefits to members. For all three schemes, and
especially PSPS and SASPS, a significant portion of the scheme assets are invested in liability matching assets such as bonds
and gilts, including index-linked gilts, to partially hedge against inflation. In addition, the schemes maintain portfolios of interest
rate and inflation swaps to match more closely the duration and inflation profiles of their assets to their liabilities.
All three schemes have invested in a mix of both return-seeking assets, such as equities and property, and matching assets,
including leveraged liability-driven investment portfolios to reflect the liability profile of the scheme. They manage the risks of the
return-seeking exposure by investing in a diversified mix of investments.
During 2020 PSPS entered into a longevity swap transaction with Pacific Life Re Limited. This arrangement provides long-term
protection for PSPS against costs that could result from unexpected increases in life expectancy relating to the pensions that
were in payment on 6 April 2019, excluding any future discretionary increases. As at 31 December 2022, the longevity swap
covered £2.0bn (2021: £2.8bn) of current pensioner scheme liabilities, on an IAS 19 basis.
17.2 Assumptions
17.2.1 Demographic assumptions
Post-retirement mortality
The calculation of the defined benefit obligation for the Group’s schemes requires assumptions to be set for both current
mortality and the allowance for future mortality improvements. The table below sets out the mortality tables and mortality
improvement model used for the Group’s schemes, along with the associated life expectancies.
As at
Scheme
31 December 2022
PSPS
SASPS
Mortality tables (with scaling
factors applied to reflect
experience, and allowances for
future improvement)
S3PMA/S3PFA for males/
females
S3PMA/S3PFA for males/
females
Expectation of life from retirement at aged 60i
Mortality improvements
model
Male
currently
aged 60
Male
currently
aged 40
Female
currently
aged 60
Female
currently
aged 40
CMI 2020
26.7
29.1
28.4
30.6
CMI 2020
27.5
29.7
30.0
32.1
M&GGPS S3PMA/S3PFA Light for
males/females
CMI 2020
28.4
30.5
30.2
32.3
31 December 2021
PSPS
SASPS
S3PMA/S3PFA for males/
females
S3PMA/S3PFA for males/
females
M&GGPS S3PMA/S3PFA Light for
males/females
CMI 2019
CMI 2019
CMI 2019
26.9
29.1
28.4
30.3
27.9
30.0
30.1
31.9
29.1
31.1
30.6
32.3
i The mortality assumptions are adjusted to make allowance for future improvements in longevity. As at 31 December 2022, this allowance was based on
the CMI 2020 mortality improvements model with improvement factors of 1.60% for males (Sk = 7.25, A parameter varies by age) and 1.60% for females
(Sk = 7.75, A parameter varies by age) (2021: this allowance was based on the CMI 2019 model with improvement factors of 1.75% for males (Sk = 7.50, A
=0.45%) and 1.50% for females (Sk = 8.00, A= 0.45%)).
238 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 17 Defined benefit pension schemes continued
17.2.2 Economic assumptions
The actuarial assumptions used in determining defined benefit obligations and the net periodic benefit costs for each of the
Group’s defined benefit pension schemes are as follows:
2022
2021
For the year ended 31 December
PSPS
SASPS M&GGPS
Discount ratei
Salary inflationii
Retail prices index (RPI)
Consumer prices index (CPI)
Rate of increase of pensions in payment for inflationiii
Guaranteed (maximum 5%)
Guaranteed (maximum 2.5%)
Discretionary
RPI (maximum 5%)
RPI (maximum 2.5%)
4.9%
4.0%
3.3%
3.0%
3.0%
2.5%
2.5%
n/a
n/a
4.8%
3.2%
3.2%
3.0%
n/a
n/a
n/a
3.2%
2.5%
4.8%
3.2%
3.2%
3.0%
n/a
n/a
n/a
2.9%
2.5%
PSPS
1.8%
3.6%
3.6%
3.1%
3.1%
2.5%
2.5%
n/a
n/a
SASPS M&GGPS
1.8%
3.4%
3.4%
3.1%
n/a
n/a
n/a
3.4%
2.5%
1.8%
3.3%
3.3%
2.9%
n/a
n/a
n/a
3.3%
2.5%
i The discount rate has been determined using a cashflow matching approach based on an “AA” corporate bond index. The single equivalent rates in the
table above are illustrative as the full yield curve is used in the calculation of the liability.
ii Due to the scheme changes during 2019, a cap to future pensionable salary increase came into effect and, as a result, salary growth inflation is only
applied for certain levels of pensionable salary which represent a very small proportion of the total liability.
iii The long-term margin between RPI and CPI reflects expected changes in RPI from 2030 as a result of the UK Statistics Authority stated intention to
align RPI with CPI including owner occupiers’ housing costs (CPIH). The rate of inflation used reflects the long-term assumption for UK RPI or CPI,
depending on the particular tranche of scheme benefits, with caps and floors applied in accordance with the scheme rules. Certain tranches of scheme
benefits within PSPS have statutory pension increases in line with the higher of CPI up to a maximum level, or a discretionary level determined by the
employer. Other tranches are not guaranteed and determined by the employer on a discretionary basis. The single equivalent rates in the table above
are illustrative as the full yield curve is used in the calculation of the liability.
17.2.3 Other assumptions
In October 2018, the High Court ruled that pension schemes are required to equalise benefits for the effect of guaranteed
minimum pensions (GMPs). GMPs are a minimum benefit that schemes that were contracted-out on a salary-related basis
between 1978 and 1997 are required to provide. There was a further Court ruling in November 2020 which required benefits
in respect of past transfers out of the schemes to also be equalised. In light of these Court rulings, at 31 December 2022 and
31 December 2021, the Group has recognised an estimated allowance for GMP equalisation within the IAS 19 valuation for all the
UK schemes – comprising £31m for PSPS, £11m for SASPS, and £3m for M&GGPS as at 31 December 2022 (2021: £43m for PSPS,
£20m for SASPS and £6m for M&GGPS).
17.2.4 Sensitivity of the pension scheme liabilities to key variables
The sensitivity information below is based on the core scheme liabilities and assumptions at the balance sheet date.
The sensitivities are calculated based on a change in one assumption with all other assumptions being held constant. As such,
interdependencies between the assumptions are excluded. The impact of the rate of inflation assumption sensitivity includes the
impact of inflation on the rate of increase in salaries, where applicable, and on the rate of increase of pensions in payment and
in deferment.
The sensitivities of the underlying pension scheme liabilities as shown below do not directly equate to the impact on the
Group’s other comprehensive income due to the effect of the restriction on surplus for PSPS and the allocation of a share of the
interest in the financial position of PSPS and SASPS to the With-Profits Fund as described above. In addition, the sensitivities
shown do not include the impact on assets, which for all schemes would significantly offset the impact of the discount rate and
inflation sensitivities on the IAS 19 surplus or deficit. For the PSPS scheme, the mortality rate sensitivity impact would also be
partially mitigated by the longevity swap asset held.
M&G plc Annual Report and Accounts 2022 | 239
Financial informationStrategic ReportGovernanceOther information
Base position
Discount rate
Rate of inflation
Mortality rate
17.3 Plan assets of the schemes
As at 31 December
Equities
UK
Overseas
Bondsi
Government
Corporate
Asset-backed securities
Derivativesii
Properties
Other assets
Total value of assetsiii
17 Defined benefit pension schemes continued
As at 31 December 2022
Sensitivity of the change in assumptions
Base position
Discount rate
Rate of inflation
Mortality rate
n/a
Decrease by 0.2%
Increase by 0.2%
Decrease by 0.2% (with consequent
reduction in salary increases)
Increase in life expectancy by 1 year
As at 31 December 2021
Sensitivity of the change in assumptions
n/a
Decrease by 0.2%
Increase by 0.2%
Decrease by 0.2% (with consequent
reduction in salary increases)
Increase in life expectancy by 1 year
Increase/(decrease) in the present value of the
scheme’s defined benefit obligation
PSPS
£m
4,050
98
(94)
(34)
142
SASPS
£m
M&GGPS
£m
Total
£m
566
20
(19)
(13)
16
313
4,929
12
(11)
(6)
8
130
(124)
(53)
166
Increase/(decrease) in the present value of the
scheme’s defined benefit obligation
PSPS
£m
SASPS
£m
M&GGPS
£m
6,460
1,043
212
(201)
(78)
210
49
(46)
(33)
39
581
28
(27)
(17)
22
Total
£m
8,084
289
(274)
(128)
271
2022
2021
PSPS
£m
Other
schemes
Total
£m
47
8
3,188
1,165
346
(552)
263
176
1
70
848
4
66
(168)
138
65
48
78
4,036
1,169
412
(720)
401
241
%
1
1
71
21
7
(12)
7
4
PSPS
£m
Other
schemes
Total
£m
48
28
4,538
1,909
392
43
215
221
7
39
969
480
25
29
115
83
55
67
5,507
2,389
417
72
330
304
%
1
1
60
26
4
1
4
3
4,641
1,024
5,665
100
7,394
1,747
9,141
100
i As at 31 December 2022, 88% of the bonds were investment grade (2021: 91%).
ii
Included within derivatives is a £10m liability in respect of the longevity swap transaction with Pacific Life Re Limited (2021: £11m), valued at fair value as
per IAS19 and based on the principles of IFRS13.
iii As at 31 December 2022, 84% of the total value of the scheme assets were derived from quoted prices in an active market (2021: 92%), while the value
of the remaining assets is derived from the use of various observable and unobservable inputs. None of the scheme assets included property occupied
by the Group. Due to the disinvestment in Group insurance policies by M&GGPS during the year the economic basis plan assets is the same as the IAS
19 basis plan assets. The IAS 19 basis plan assets as at 31 December 2021 of £8,934m differs to the economic basis plan assets of £9,141m as shown
above due to the investment in Group insurance policies by M&GGPS during 2021.
240 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
17 Defined benefit pension schemes continued
17.4 Reconciliation in movement of schemes’ surplus/deficit
Net defined benefit pension asset/(liability) at 1
January 2022
Total expense recognised in income statement:
Current service cost
Past service costs
Net interest income/(expense)
Administration expenses
Total expense recognised in consolidated income
statementi
Remeasurements:
Actuarial gains and losses:
Gains on changes in demographic assumptions
Gains on changes in financial assumptions
Experience losses on scheme liabilitiesiii
Unrecognisable surplus
Remeasurements gains and (losses)ii
Benefit payments
Employers’ contributions
Disinvestment in the Group’s insurance policies
Net defined benefit pension asset/(liability) at 31
December 2022
Return on the scheme assets less amount included in
interest income
(3,348)
Economic basis
Fair value of
plan assets
£m
Present value
of benefit
obligation
£m
Effect of
asset ceiling
£m
Net
economic
pension
surplus/
(deficit)
£m
Other
adjustments
£m
Net pension
surplus/
(deficit)
£m
9,141
(8,084)
(896)
161
(207)
(46)
—
—
164
(9)
155
—
—
—
—
(3,348)
(328)
45
—
(16)
—
(145)
—
(161)
—
262
2,848
(122)
—
2,988
328
—
—
—
—
(16)
—
(16)
—
—
—
—
331
331
—
—
—
(16)
—
3
(9)
(22)
(3,348)
262
2,848
(122)
331
(29)
—
45
—
5,665
(4,929)
(581)
155
—
—
(3)
—
(3)
(16)
—
—
(9)
(25)
58
(3,290)
—
—
—
—
58
—
—
152
—
262
2,848
(122)
331
29
—
45
152
155
i An expense of £13m is included in the total amount recognised in the income statement for the year ended 31 December 2022 relating to the With-
Profits Fund (2021: £12m).
ii
Included in the share of remeasurement gains and losses for the year ended 31 December 2022 are gains relating to shareholders totalling £31m
(2021: gains of £68m) which are recognised in other comprehensive income. The amounts attributable to the With-Profits Fund for the year ended
31 December 2022 amount to losses of £(2)m (2021:gains of £3m) are recognised in other comprehensive income and transferred to unallocated
surplus of the With-Profits Fund.
iii The rise in interest rates and widening of credit spreads over the year has reduced both the defined benefit obligation and the value of assets for all
schemes. High inflation over 2022 has increased the defined benefit obligation, particularly in respect of the valuation in deferment; however, the
existence of inflation caps on pension increases for most tranches dampens the impact of high inflation on the liability.
M&G plc Annual Report and Accounts 2022 | 241
Financial informationStrategic ReportGovernanceOther information
17 Defined benefit pension schemes continued
Economic basis
Fair value of
plan assets
£m
Present value
of benefit
obligation
£m
Effect of
asset ceiling
£m
Net
economic
pension
surplus/
(deficit)
£m
Other
adjustments
£m
Net pension
surplus/
(deficit)
£m
9,593
(8,787)
(717)
89
(201)
(112)
—
—
117
(9)
108
(224)
—
—
—
—
(224)
(383)
47
—
(24)
—
(108)
—
(132)
—
129
366
(43)
—
452
383
—
—
—
—
(9)
—
(9)
—
—
—
—
(170)
(170)
—
—
—
(24)
—
—
(9)
(33)
(224)
129
366
(43)
(170)
58
—
47
—
—
—
(3)
—
(3)
13
—
—
—
—
13
—
—
(16)
(24)
—
(3)
(9)
(36)
(211)
129
366
(43)
(170)
71
—
47
(16)
9,141
(8,084)
(896)
161
(207)
(46)
Net defined benefit pension asset/(liability) at 1 January
2021
Total expense recognised in income statement:
Current service cost
Past service costs
Net interest income/(expense)
Administration expenses
Total expense recognised in income statementi
Remeasurements:
Actuarial gains and losses:
Return on the scheme assets less amount included in
interest income
Gains on changes in demographic assumptions
Gains on changes in financial assumptions
Experience losses on scheme liabilities
Unrecognisable surplus
Remeasurements gains and (losses)ii
Benefit payments
Employers’ contributions
Transfer in to investment in Group insurance policies
Net defined benefit pension asset/(liability) at 31
December 2021
17.5 Maturity analysis of benefit obligations
The following table provides an expected maturity analysis of the undiscounted defined benefit obligations:
As at 31 December 2022
As at 31 December 2021
All schemes
1 year
or less
£m
269
266
After 1
year to
5 years
£m
1,154
1,123
After 5
years to
10 years
£m
1,529
1,534
After 10
years to
15 years
£m
1,515
1,525
After 15
years to
20 years
£m
1,493
1,466
Over
20 years
£m
4,838
5,510
Total
£m
10,798
11,424
The weighted average duration of each scheme’s defined benefit obligations (in years) are as follows:
As at 31 December 2022
As at 31 December 2021
PSPS
SASPS M&GGPS
12
16
17
23
18
25
242 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
18 Loans
The amounts included in the consolidated statement of financial position in relation to loan assets are analysed as follows:
As at 31 December
Mortgage loans
Policy loans
Other loans
Total loans
2022
£m
1,977
2
1,351
3,330
2021
£m
4,219
2
1,588
5,809
As at 31 December 2021, mortgage loans included £1,245m of buy-to-let mortgages held by a securitisation vehicle, Harben
2017-1 plc, that the Group consolidated. As at 31 December 2022, the securitisation vehicle has been deconsolidated following a
change in control. Additionally, £285m of other loans were previously included as a result of consolidating Sky Fund I LP and Sky
Fund V Onshore, however these funds are also no longer consolidated by the Group following disposal of the investment and a
change in control respectively. Refer to Note 2.4 for further details.
As at 31 December 2022, 69% of the £1,351m (2021: 79% of £2,180m) of mortgage loans held by the shareholder-backed
business related to lifetime (equity release) mortgage business which had an average loan to property value of 35% (2021: 36%).
The equity release mortgages are carried at fair value through profit or loss. Sensitivities in relation to the valuation of the equity
release mortgages are provided in Note 32.9.
Other loans mainly comprise syndicated and commercial bridge loans.
19 Classification of financial instruments
19.1 Financial assets
As at 31 December 2022
Equity securities and pooled investment funds
Loansi
Debt securities
Derivative assets
Deposits
Accrued investment income and other debtors
Cash and cash equivalents
Total financial assets
Fair value through
profit or loss
Note
32
32
32
33
20
21
Designated
£m
70,127
1,216
62,821
—
—
—
—
Held for
trading
£m
Loans and
receivables
£m
—
—
—
2,850
—
2,114
—
—
Total
£m
70,127
3,330
62,821
2,850
—
—
—
21,401
21,401
2,340
4,884
2,340
4,884
134,164
2,850
30,739
167,753
i The carrying value of loans held at amortised cost are reported net of allowance for loan losses of £30m as at 31 December 2022 (2021: £18m).
As at 31 December 2021
Equity securities and pooled investment funds
Loans
Debt securities
Derivative assets
Deposits
Accrued investment income and other debtors
Cash and cash equivalents
Total financial assets
Fair value through
profit or loss
Note
32
32
32
33
20
21
Designated
£m
74,069
3,275
81,059
—
—
—
—
Held for
trading
£m
Loans and
receivables
£m
Total
£m
—
—
—
3,373
—
—
—
—
74,069
2,534
—
—
17,633
2,647
6,908
5,809
81,059
3,373
17,633
2,647
6,908
158,403
3,373
29,722
191,498
Financial assets expected to be recovered after more than one year as at 31 December 2022 are £62,140m (2021: £82,141m).
M&G plc Annual Report and Accounts 2022 | 243
Financial informationStrategic ReportGovernanceOther information
19 Classification of financial instruments continued
19.2 Financial liabilities
As at 31 December 2022
Investment contract liabilities without discretionary participation features
Third party interest in consolidated funds
Subordinated liabilities and other borrowings
Derivative liabilities
Other financial liabilitiesi
Accruals, deferred income and other liabilitiesii
Total financial liabilities
Fair value through
profit or loss
Designated
£m
Note
Held for
trading
£m
Amortised
cost
£m
Total
£m
26
32
27
32
11,937
10,389
—
—
—
246
—
—
—
4,185
—
—
—
—
11,937
10,389
7,537
—
2,172
6,499
7,537
4,185
2,172
6,745
22,572
4,185
16,208
42,965
i Other financial liabilities relate to obligations under funding, securities lending, and sale and repurchase agreements.
ii Accruals, deferred income and other liabilities exclude items which do not meet the definition of a financial liability.
As at 31 December 2021
Investment contract liabilities without discretionary participation features
Third party interest in consolidated funds
Subordinated liabilities and other borrowings
Derivative liabilities
Other financial liabilitiesi
Accruals, deferred income and other liabilitiesii
Total financial liabilities
Fair value through
profit or loss
Designated
£m
Note
Held for
trading
£m
Amortised
cost
£m
26
32
27
32
14,884
12,636
1,159
—
—
403
—
—
—
2,689
—
—
—
—
7,771
—
2,882
5,670
Total
£m
14,884
12,636
8,930
2,689
2,882
6,073
29,082
2,689
16,323
48,094
Financial liabilities which are expected to be settled after more than one year as at 31 December 2022 were £10,048m
(2021: £10,490m).
20 Accrued investment income and other debtors
As at 31 December
Interest receivable
Other accrued investment income
Total accrued investment income
Other debtors:
Outstanding sales of investment securities
Investment management fees debtors
Property related debtors
Cancellation of units awaiting settlement
Other
Total accrued investment income and other debtors
Analysed as:
Expected to be settled within one year
Expected to be settled after one year
Total accrued investment income and other debtors
244 | M&G plc Annual Report and Accounts 2022
2022
£m
810
605
2021
£m
603
786
1,415
1,389
149
148
127
25
476
103
168
190
35
762
2,340
2,647
2,084
256
2,340
2,344
303
2,647
Notes to the consolidated financial statements continued
21 Cash and cash equivalents
As at 31 December
Cash
Cash equivalents
Total cash and cash equivalents
2022
£m
4,148
736
4,884
2021
£m
4,739
2,169
6,908
Cash equivalents consist of short-term, highly liquid investments that are readily convertible into known amounts of cash subject
to insignificant risk of changes in value.
22 Issued share capital and share premium
Issued shares of 5p fully paid
At 1 January
Shares cancelled following buy-back
At 31 December
2022
2021
Number of
ordinary share
Share capital
£m
Number of
ordinary share
Share capital
£m
2,599,906,866
(225,194,745)
2,374,712,121
130
(11)
119
2,599,906,866
—
2,599,906,866
130
—
130
Amounts recorded in share capital represent the nominal value of shares issued with any difference between proceeds received
on issue of shares, net of issue costs, and the nominal value of shares issued being credited to the share premium account.
The share premium reserve at 31 December 2022 was £370m (2021: £370m).
In March 2022, the Group commenced a share buy-back programme to purchase ordinary shares of 5 pence each up to a
maximum consideration of £500m, and the programme concluded on 27 October 2022 for a total consideration, including
expenses and stamp duty, of £503m. Shares with a nominal value of £11m were cancelled, with recognition of an £11m capital
redemption reserve. As at 31 December 2022, ordinary shares with a nominal value of £47m were bought back but not cancelled
with these shares being accounted for as a deduction to Shareholders equity within the Treasury shares reserve.
23 Shares held by employee benefit trusts and other treasury shares
The Group buys and sells its own shares either in relation to its employee share schemes, via transactions undertaken by
authorised investment funds that the Group is deemed to control and through the share buy-back programme. These authorised
investment funds may undertake transactions in the Group’s shares as part of their investment decisions. The cost of own shares
as at 31 December 2022 of £117m (2021: £94m) is deducted from equity.
23.1 Shares held by employee benefit trusts
The M&G Employee Share Trust (“the Trust”) was created on 20 September 2019 to facilitate the procurement, holding and
distribution of M&G plc shares under the various employee incentive schemes in operation. The Trust is funded via a loan from
M&G plc. In addition, there is a separate trust that holds shares in respect of SIP schemes.
The movement in the M&G plc shares held in employee benefit trusts are detailed below:
At 1 January
Shares acquired during the year
Shares awarded during the year
At 31 December
2022
Number of shares
2021
Number of shares
53,991,256
68,182,585
531,829
(13,720,063)
40,803,022
171,417
(14,362,746)
53,991,256
The Trust holds 38,480,430 (2021: 51,180,656) shares whilst a further 2,322,592 (2021: 2,810,600) shares are held by the trustee
of the SIP scheme at 31 December 2022.
The cost of shares held in the employee benefit trusts of £70m as at 31 December 2022 (2021: £93m) is deducted from equity.
23.2 Other treasury shares
The Group has consolidated a number of authorised investment funds where it is deemed to control these funds under IFRS, and
some of these funds may hold shares in M&G plc. As at 31 December 2021, the total number of shares held by these funds was
562,297 with a carrying value of £1m. No shares of this nature were held as at 31 December 2022.
In March 2022, the Group commenced a share buy-back programme to purchase ordinary shares of 5 pence each up to a
maximum consideration of £500m. As at 31 December 2022, ordinary shares bought back but not cancelled were 26,867,908
with a carrying value of £47m. These shares are a deduction to Shareholders equity within the Treasury shares reserve.
All share transactions were made on an exchange.
M&G plc Annual Report and Accounts 2022 | 245
Financial informationStrategic ReportGovernanceOther information
24 Retained earnings
At 1 January
Recognised in comprehensive income:
(Loss)/profit for the year
Other comprehensive income for the year
Total items recognised in comprehensive income
Recognised directly in equity:
Transactions with equity holders:
Dividends
Shares distributed by employee trusts
Vested employee share-based payments
Tax effect of items recognised directly in equity
Shares purchased in buy-back
Total items recognised directly in equity
Net decrease in equity
At 31 December
25 Other reserves
Note
2022
£m
2021
£m
16,550
16,853
(1,632)
24
(1,608)
(465)
(22)
23
1
(456)
(919)
(2,527)
11
25
22
83
50
133
(466)
(24)
33
21
—
(436)
(303)
14,023
16,550
Equity-
settled
share-
based
payment
reserve
£m
Note
Foreign
currency
translation
reserve
£m
Capital
redemption
reserve
£m
Merger
reserve
£m
As at 1 January 2022
85
(11,732)
Exchange movements arising on foreign operations
Total items recognised in comprehensive income
Vested employee share-based payments
Expense recognised in respect of share-based payments
Tax effect of items recognised directly in equity
Shares purchased in buy-back
Net increase in equity
As at 31 December 2022
—
—
(23)
34
5
—
16
101
—
—
—
—
—
—
—
(11,732)
22
(13)
20
20
—
—
—
—
20
7
—
—
—
—
—
—
11
11
11
As at 1 January 2021
Exchange movements arising on foreign operations
Total items recognised in comprehensive income
Vested employee share-based payments
Expense recognised in respect of share-based payments
Tax effect of items recognised directly in equity
Net increase/(decrease) in equity
As at 31 December 2021
Equity-
settled
share-
based
payment
reserve
£m
Note
Foreign
currency
translation
reserve
£m
Capital
redemption
reserve
£m
Merger
reserve
£m
74
(11,732)
—
—
(33)
40
4
11
85
—
—
—
—
—
—
(11,732)
—
(13)
(13)
—
—
—
(13)
(13)
—
—
—
—
—
—
—
—
Total
other
reserves
£m
(11,660)
20
20
(23)
34
5
11
47
(11,613)
Total
other
reserves
£m
(11,658)
(13)
(13)
(33)
40
4
(2)
(11,660)
The merger reserve arises from the application of merger accounting principles to the acquisition of entities under common
control. It represents the difference between the aggregate capital reserves and the value of the entities acquired. On disposal of
the relevant entity, the related merger reserve is released directly to retained earnings.
246 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 26 Policyholder liabilities, unallocated surplus and reinsurance
26.1 Determination of insurance and investment contract liabilities for different components of business
Note 2.3 describes the different types of insurance and investment contracts across the business. A description relating to the
determination of the policyholder liabilities and the key assumptions for each component of business is set out below:
26.1.1 With-profits business
The With-Profits Fund mainly contains with-profits contracts but also contains some non-profit business (annuities, unit-
linked, and term assurances). The liabilities of the With-Profits Fund are accounted for on a realistic basis in accordance with
the requirements of FRS 27 Life Assurance. The basis is consistent with the rules for the determination of reserves on the
realistic basis under the Solvency I capital regime. Though no longer in force for regulatory purposes, these rules continue
to be applied to determine with-profits contract liabilities in accordance with IFRS 4 Insurance Contracts. In aggregate, the
regime has the effect of placing a market-consistent value on the liabilities of with-profits contracts, which reflects the amounts
expected to be paid based on the current value of investments held by the With-Profits Fund and current circumstances. In line
with FRS 27 requirements, the non-profit annuities business within the With-Profits Fund is valued on the statutory basis, i.e.
including margins for adverse deviations (as set out in ‘Valuation of annuity contracts’). The with-profits liabilities are valued on a
realistic basis and therefore allow for the future enhancements to the policyholders. Following this approach unadjusted would
lead to an inconsistency in the net assets, as such, the present value of future profits from the relevant non-profit annuities is
applied as an adjustment to the with-profit liabilities. Annually when the enhancements to asset shares are committed to, the
value of the enhancements is transferred from the Unallocated surplus of the With-Profits Fund to with-profit liabilities.
The with-profits contracts are a combination of insurance and investment contracts with DPF, as defined by IFRS 4. The realistic
basis requires the value of with-profits policyholder liabilities to be calculated as the sum of:
(i) A with-profits benefits reserve (WPBR)
(ii) Future policy-related liabilities (FPRL)
The WPBR is primarily based on the retrospective calculation of accumulated asset shares with adjustments to reflect future
policyholder benefits and other charges and expenses. Asset shares broadly reflect the policyholders’ share of the With-Profits
Fund assets attributable to their policies. For certain classes of business, the WPBR is instead calculated using a prospective
bonus reserve valuation, valuing future claims and expenses using the expected future bonus rates.
The FPRL is comprised of other components of the liability including a market-consistent valuation of costs of guarantees,
options and smoothing, less any related charges, and this amount is determined using stochastic modelling techniques.
Assumptions used for the realistic, market-consistent valuation of with-profits business typically do not contain margins,
whereas those used for the valuation of other classes of business, for example, annuities, contain margins of prudence within the
assumptions. The main assumptions used in the prospective elements of the with-profits policyholder liabilities are listed below:
– Assumptions relating to persistency and the take-up of options offered under certain with-profits contracts are set based on
the results of the most recent experience analysis looking at the experience over recent years of the relevant business, and
supplemented by expert judgement of the appropriate SMEs across the business;
– Management actions under which the fund is managed in different scenarios;
– Maintenance and, for some classes of business, termination expense assumptions are expressed as per policy amounts.
They are set based on forecast expense levels, including an allowance for ongoing investment management expenses, and are
allocated between entities and product groups in accordance with the Group’s internal cost allocation model;
– Expense inflation assumptions are set consistent with the economic basis and based on the inflation swap spot curve;
– The contract liabilities for with-profits business also require assumptions for mortality. These are set based on the results
of recent experience analysis. However, mortality experience over 2020 and 2021 was significantly higher than previous
years’ as a result of the COVID-19 pandemic. Therefore, no weight has been given to 2020 or 2021 experience in calibrating
mortality assumptions.
– Future investment return assumptions are set at a risk-free rate equal to the spot yield on UK swaps. The volatility of
investment returns are set with reference to implied volatility data on traded market instruments, where available, or on a best
estimate basis where not.
Unallocated surplus
The unallocated surplus of the With-Profits Fund represents the excess of the fund’s assets over policyholder liabilities on an
IFRS basis that have yet to be appropriated between policyholders and shareholders. The unallocated surplus is recorded wholly
as a liability with no allocation to equity. The annual excess/(shortfall) of income over expenditure of the With-Profits Fund, after
declaration and attribution of the cost of bonuses to policyholders and shareholders, is transferred to/(from) the unallocated
surplus each year through a charge/(credit) to the consolidated income statement. The balance retained in the unallocated
surplus represents cumulative income arising on the with-profits business that has not been allocated to policyholders
or shareholders.
M&G plc Annual Report and Accounts 2022 | 247
Financial informationStrategic ReportGovernanceOther information 26 Policyholder liabilities, unallocated surplus and reinsurance continued
With-profits options and guarantees
Certain policies written in the Group’s With-Profits Fund give potentially valuable guarantees to policyholders, or options to
change policy benefits which can be exercised at the policyholders’ discretion. Most with-profits contracts give a guaranteed
minimum payment on a specified date or range of dates or on death if before that date or dates. For pensions products,
the specified date is the policyholder’s chosen retirement date or a range of dates around that date. For endowment
contracts, guarantees apply at the maturity date of the contract. For with-profits bonds it is often a specified anniversary of
commencement, in some cases with further dates thereafter.
The main types of options and guarantees offered for with-profits contracts are as follows:
– For conventional with-profits contracts, including endowment assurance contracts and whole of-life assurance contracts,
payouts are guaranteed at the sum assured together with any declared regular bonus;
– Conventional with-profits deferred annuity contracts have a basic annuity per annum to which bonuses are added. At maturity,
the cash claim value will reflect the current cost of providing the deferred annuity. Regular bonuses when added to with-profits
contracts usually increase the guaranteed amount;
– For unitised with-profits contracts and cash accumulation contracts the guaranteed payout is the initial investment (adjusted
for any withdrawals, where appropriate), less charges, plus any regular bonuses declared. If benefits are taken at a date other
than when the guarantee applies, a market value reduction may be applied to reflect the difference between the accumulated
value of the units and the market value of the underlying assets;
– For certain unitised with-profits contracts and cash accumulation contracts, policyholders have the option to defer their
retirement date when they reach maturity, and the terminal bonus granted at that point is guaranteed;
– For with-profits annuity contracts, there is a guaranteed minimum annuity payment below which benefit payments cannot fall
over the lifetime of the policies;
– Certain pensions products have guaranteed annuity options at retirement, where the policyholder has the option to take the
benefit in the form of an annuity at a guaranteed conversion rate.
Determination of bonuses
Profit recognition for traditional with-profits business written in the WPSF is in line with the declaration of bonuses.
Determining discretionary bonuses for traditional types of with-profits business requires the PAC Board to apply significant
judgement, including in particular the following:
– Determining what constitutes fair treatment of clients;
– Determining the process for the smoothing of investment returns;
– Determining at what level to set bonuses to ensure that they are competitive.
The overall rate of return on investments and the expectation of future investment returns are the most important influences
in bonus rates, subject to the smoothing described below. The Group determines the assumptions to apply in respect of these
factors, including the effects of reasonably likely changes in key assumptions, in the context of the overarching discretionary and
smoothing framework that applies to its with-profits business.
The Group’s approach, in applying significant judgement and discretion in relation to determining bonus rates, is consistent with
the Principles and Practices of Financial Management (PPFM) that explains how the With-Profits Fund is managed. In accordance
with industry-wide regulatory requirements, the PAC Board has appointed:
– A Chief Actuary who provides the PAC Board with all actuarial advice.
– A With-Profits Actuary whose specific duty is to advise the PAC Board on the reasonableness and proportionality of the
manner in which its discretion has been exercised in applying the PPFM and the manner in which any conflicting interests have
been addressed.
– A With-Profits Committee of independent individuals, which assesses the degree of compliance with the PPFM and the
manner in which conflicting interests and rights have been addressed.
In determining bonus rates for the with-profits policies, smoothing is applied to the allocation of the overall earnings of the
With-Profits Fund, of which the investment return is a significant element. The degree of smoothing is illustrated numerically
in the following table, which allows comparison of the relatively “smoothed” level of policyholder bonuses declared as part of
the surplus for distribution with the more volatile movement in investment return and other items of income and expenditure of
the WPSF.
248 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 26 Policyholder liabilities, unallocated surplus and reinsurance continued
For the year ended 31 December
Net income of the WPSF:
Investment return
Claims incurred
Movement in policyholder liabilities
Add back policyholder bonus for the year (as shown below)
Claims incurred and movement in policyholder liabilities (including change for provision for asset
shares and excluding policyholder bonuses)
Earned premiums, net of reinsurance
Other income
Acquisition costs and other expenditure
Share of profits from investment joint ventures
Tax credit/(charge)
Net income of the fund before movement in unallocated surplus of the With-Profits Fund
Movement in unallocated surplus of the With-Profits Fund
Surplus for distribution for the year
Surplus for distribution for the year allocated as follows:
Policyholders’ bonus (as shown above)
Shareholders’ transfersi
Surplus for distribution for the year
2022
£m
2021
£m
(7,239)
11,875
(10,225)
(10,728)
10,758
3,494
4,027
6,270
2
(1,321)
2,906
(9,143)
4,503
26
(1,164)
(2,436)
38
232
2,166
1,689
3,855
3,494
361
3,855
76
(645)
4,256
(1,052)
3,204
2,906
298
3,204
i Shareholder transfers for most business in the WPSF are one ninth of the cost of bonus declared to policyholders. In 2021, the SAIF with-profits sub-
fund was merged with the WPSF. Shareholders have no entitlement to profits from the bonus relating to ex-SAIF policyholders of £220m for the year
ended 31 December 2022 (2021: £226m), the value of which is included in the total Policyholders’ bonus shown in the table above. Refer to Note 2.3 for
further details.
26.1.2 Unit-linked business
For unit-linked contracts, the attaching liability reflects the unit value obligation (using actuarial funding where relevant) and, in
the case of contracts with significant insurance risk which are therefore classified as insurance contracts, allowance for expense,
persistency, and mortality risk. The latter component, calculated using a discounted cashflow approach (non-unit reserves), is
determined by applying mortality assumptions on a basis that is appropriate for the policyholder profile and including a margin
for prudence in the mortality, persistency, and expense assumptions. To calculate the non-unit reserves for unit-linked insurance
contracts, assumptions are also set for the unit growth rate and the valuation interest rate. The valuation interest rate is derived
from the yields of assets representative of the returns that will be earned on the assets backing these liabilities.
For those contracts where the level of insurance risk is insignificant, the assets and liabilities arising under the contracts are
distinguished between those that relate to the financial instrument liability, and the deferred acquisition costs and deferred
income that relate to the component of the contract that relates to investment management. The fair value of the liability is equal
to the unit value obligation.
Deferred acquisition costs and deferred income are recognised in line with the level of service provision.
Certain parts of the unit-linked business are reinsured externally by way of fund reinsurance. Where this is the case, the
reinsurance liabilities in respect of these reinsurance arrangements is valued in a manner consistent with the valuation of
the underlying assets. Certain parts of the unit-linked business are reinsured externally by reinsuring specific risk benefits.
Where this is the case, the reinsurance asset in respect of these reinsurance arrangements is valued in a manner consistent with
the valuation of the underlying liabilities.
M&G plc Annual Report and Accounts 2022 | 249
Financial informationStrategic ReportGovernanceOther information 26 Policyholder liabilities, unallocated surplus and reinsurance continued
26.1.3 Annuities and other long-term business
The majority of the policyholder liabilities in the “annuities and other long-term business” component relate to annuity contracts.
The annuity liabilities are calculated as the expected value of future annuity payments and expenses, discounted by a valuation
interest rate, having prudent regard to the assumptions used. The valuation methodology for the reinsurance is based on a
deterministic cashflow model, in line with the underlying portfolio.
The key assumptions used to calculate the policyholder liability in respect of annuity business are as follows:
Mortality
Mortality assumptions for annuity business are set in light of recent population and internal experience, with an allowance
for expected future mortality improvements. Given the long-term nature of annuity business, annuitant mortality remains a
significant assumption in determining policyholder liabilities.
The assumptions used reference recent England & Wales population mortality data consistent with the CMI mortality
improvements model, with specific risk factors applied on a per policy basis to reflect the features of the Group’s portfolio.
An increase in mortality rates was observed over 2020 and 2021 due to the COVID-19 pandemic. Higher mortality experience
may be expected to continue to some extent over the short-term, with significant excess deaths observed in the population
over 2022. However, there is significant uncertainty and the longer-term implications for mortality rates amongst the annuitant
population are unknown at this stage. In line with broader industry approach, zero weight has been given to pandemic
experience. This is an area that will continue to be monitored by the Group.
For current mortality, while no weight has been given to the most recent years of experience, the Group’s longevity assumptions
have been updated to reflect enhancements made to aspects of the underlying data and the corresponding modelling approach.
This has resulted in a small weakening.
The mortality improvements observed in recent population data have been considered as part of the judgement exercised
in setting the mortality basis for 2022. New mortality projection models are released annually by the Continuous Mortality
Investigation (CMI). The CMI tables used are adjusted as appropriate each year to reflect anticipated mortality improvements,
including an appropriate margin on an IFRS basis relative to the best estimate assumption used for Solvency II.
An external panel process with a range of experts from different disciplines (such as Public Health & Social Policy, General
Practice and Oncology) was undertaken in 2022 which formed part of a review of the drivers of future mortality improvements.
Enhancements were also made to the approach to determining how the Group’s own portfolio experience could differ from the
population as whole. Combining these resulted in more pessimism (i.e. lower levels of future improvements) than the previous
year and resulted in a release of reserves. The 2022 basis is expressed in terms of CMI 2020 in comparison to the 2021 basis,
which was expressed relative to CMI 2019. The mortality improvement assumptions used are summarised in the table below, with
other assumptions reflecting the core CMI projection.
Period ended
Model versioni, iv
Long-term improvement rateii
Smoothing parameter (Sk)iii
31 December 2022
CMI 2020
31 December 2021
CMI 2019
For males: 2.10% pa
For females: 2.10% pa
For males: 2.25% pa
For females: 2.00% pa
For males: 7.25
For females: 7.75
For males: 7.50
For females: 8.00
i An ‘A’ parameter in the model to reflect socio-economic differences between the portfolio and population experience is also used. This adjusts initial
mortality improvement rates and was 0.45% at 31 December 2021. Under the revised methodology, this parameter varies by age and gender and is
reduced at all ages relative to 31 December 2021.
ii As at 31 December 2022 and 31 December 2021, the long-term improvement rates shown reflected a 0.5% increase to all future improvement rates
relative to the best estimate used under Solvency II as a margin for prudence.
iii The smoothing parameter controls the amount of smoothing by calendar year when determining the level of initial mortality improvements.
iv The tapering of improvements to zero is set to occur between ages 90–110 at 31 December 2022, which is a change from 85–110 at 31 December 2021.
The mortality assumptions for in-force vested annuities also cover annuities in deferment.
The sensitivity of IFRS profit before tax and of with-profits liabilities to changes in assumed mortality rates is shown in Note 33.2.
250 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 26 Policyholder liabilities, unallocated surplus and reinsurance continued
Valuation interest rates
Valuation interest rates used to discount the liabilities are based on the yields as at the valuation date on the assets backing
the policyholder liabilities. For fixed interest securities, the internal rate of return of the assets backing the liabilities is used.
Investment properties are valued using the redemption yield. An adjustment is made to the yield on non risk-free fixed interest
securities and property to reflect credit risk. The credit risk allowance comprises an amount for long-term best estimate
defaults and downgrades, a provision for credit risk premium, and where appropriate an additional short-term overlay to reflect
prospective outlook in respect of experience over the coming period, including any uncertainty in outlook. Following adverse
downgrade experience over the latter half of 2022, and deteriorating future outlook for the UK economy, the short-term
allowance has been increased for reporting as at 31 December 2022. The table below shows the credit allowance relative to the
overall spread over swaps.
Period ended 31 December 2022
Credit default allowance
Overall valuation interest rate
Credit allowance as proportion of spreadover swaps
Net of reinsurance credit reserve (£m)
Period ended 31 December 2021
Credit default allowance
Overall valuation interest rate
Credit allowance as proportion of spread over swaps
Net of reinsurance credit reserve (£m)
Shareholder-backed annuities Annuities in With-Profits Fund
47 bps
5.48%
20.3%
434
46 bps
5.32%
21.5%
198
Shareholder-backed annuities Annuities in With-Profits Fund
44 bps
2.23%
25.0%
727
40 bps
2.03%
27.7%
312
The decrease in net of reinsurance reserve is primarily due to the increase in yields since 31 December 2021. The allowance
for credit risk within the valuation interest rate is of particular importance when determining policyholder liabilities, and the
sensitivity of IFRS profit after tax to changes in this assumption is shown in Note 33.2.
Expenses
Maintenance expense assumptions are expressed as per policy amounts. They are set based on forecast expense levels,
including an allowance for ongoing investment management expenses and are allocated between entities and product groups
in accordance with the Group’s internal cost allocation model. A margin for prudence is added to this amount. Expense inflation
assumptions are set consistent with the economic basis and based on the inflation swap spot curve. These assumptions
therefore take recent increases in inflation into account, and allow for the market-driven long-term view of future inflation.
The sensitivity of IFRS profit after tax to changes in maintenance expense levels is shown in Note 33.2.
26.2 Analysis of movements in policyholder liabilities and unallocated surplus of the With-Profits Fund
The following tables show the movement in policyholder liabilities and unallocated surplus of the With-Profits Fund by business
component. The analysis includes the impact of premiums, claims and investment movements on policyholder liabilities.
The impact does not represent premiums, claims, and investment movements as reported in the consolidated income statement.
For example, the premiums shown below exclude any deductions for fees/charges, as the table only shows the impact on the
insurance and investment contract liabilities and unallocated surplus of the With-Profits Fund. Claims (surrenders, maturities and
deaths) represent the liability released rather than the claim amount paid to the policyholder.
M&G plc Annual Report and Accounts 2022 | 251
Financial informationStrategic ReportGovernanceOther information 26 Policyholder liabilities, unallocated surplus and reinsurance continued
As at 1 January 2021
Comprising:
Insurance contract liabilities
Investment contract liabilities with DPF
Investment contract liabilities without DPF
Unallocated surplus of the With-Profits Fund
Net Flows:
Premiums
Surrenders
Maturities/deaths
Net flows
Corporate transactionsiii
Shareholders’ transfers post-tax
Switches
Assumption changesiv
Investment-related items and other movements
Foreign exchange differences
As at 31 December 2021/As at 1 January 2022
Comprising:
Insurance contract liabilities
Investment contract liabilities with DPF
Investment contract liabilities without DPF
Unallocated surplus of the With-Profits Fund
Net Flows:
Premiums
Surrenders
Maturities/deaths
Net flows
Corporate transactionsiii
Shareholders’ transfers post-tax
Switches
Assumption changesiv
Investment-related items and other movementsv
Foreign exchange differences
As at 31 December 2022
Comprising:
Insurance contract liabilities
Investment contract liabilities with DPF
Investment contract liabilities without DPF
Unallocated surplus of the With-Profits Fund
Shareholder-backed
funds and subsidiaries
With-profits
sub-fundsi
£m
Unit-linked
liabilities
£m
Annuity
and other
long-term
business
£m
Total
£m
Reinsuranceii, vi
£m
Net total
£m
136,387
20,455
30,599
187,441
(11,761)
175,680
41,172
79,592
2
15,621
4,505
(6,480)
(4,334)
(6,309)
—
(298)
(31)
—
8,960
(80)
138,629
4,987
—
15,468
—
1,471
(3,231)
(628)
(2,388)
598
—
31
—
1,173
(56)
19,813
30,491
31
77
—
76,650
79,623
15,547
15,621
157
(91)
(1,979)
(1,913)
(9,558)
—
—
(347)
350
—
19,131
6,133
(9,802)
(6,941)
(10,610)
(8,960)
(298)
—
(347)
10,483
(136)
177,573
39,203
82,700
3
16,723
4,978
—
14,835
—
19,042
43
46
—
63,223
82,743
14,884
16,723
6,270
(6,256)
(4,237)
(4,223)
—
(361)
(44)
—
(8,116)
86
125,971
877
(2,273)
(517)
(1,913)
—
—
44
—
(1,856)
26
16,114
148
(91)
(1,221)
(1,164)
—
—
—
(275)
(4,312)
1
13,381
7,295
(8,620)
(5,975)
(7,300)
—
(361)
—
(275)
(14,284)
113
155,466
32,299
78,539
3
15,130
4,214
—
11,900
—
13,292
55
34
—
49,805
78,594
11,937
15,130
(1,669) 175,904
(944) 154,522
i
Includes the WPSF, the DCPSF and the SAIF, including the non-profit business written within these funds. On 1 April 2021 the closed SAIF fund merged
with PAC’s main WPSF and the assets and liabilities of SAIF combined with those of the WPSF.
ii Reinsurance at 31 December 2022 includes Reinsurance assets of £1,186m net of longevity swap liabilities of £242m (31 December 2021: £174m)
included in Accruals, deferred income and other liabilities on the consolidated statement of financial position and in Note 30, but previously presented
in Reinsurance assets. For the comparative periods all reinsurance is presented in Reinsurance assets.
iii Corporate transactions in 2021 relates to the impact of the Part VII transfer of annuity business to Rothesay Life PLC which decreased annuity and other
long-term business by £9,558m and reduced the reinsurance asset by £9,558m, and the acquisition of MGSA which increased unit-linked liabilities by
£598m.
iv Refer to breakdown of assumption changes below.
v Reduction over 2022 primarily reflects the impact of adverse market movements over the year, in particular the significant rise in interest rates.
vi The reduction over 2022 is driven by the same factors as the underlying liabilities, namely the rise in interest rates and weakening of the annuitant
mortality basis.
252 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
26 Policyholder liabilities, unallocated surplus and reinsurance continued
The tables below set out the impact of assumption changes on gross policyholder liabilities over the current and previous
reporting period. The impact on the With-Profits Fund liabilities is offset by a corresponding reduction in the unallocated surplus
of the With-Profits Fund and is therefore reported as £nil in the table above.
Assumption changes impact on shareholder-backed business
Longevityi
Expenses (including investment management expenses)
Otherii
Total
Assumption changes impact on With-Profits Fund (offset by opposite movement in unallocated surplus)
Longevityi
Persistency
Expenses (including investment management expenses)
Otherii
Total
2022
£m
(292)
17
—
2021
£m
(320)
(8)
(19)
(275)
(347)
2022
£m
(278)
99
210
17
48
2021
£m
(92)
116
(66)
(8)
(50)
i The net of reinsurance impacts of longevity assumption changes, as set out in the Business and Financial review, are £(193)m in 2022 and £(125)m
in 2021.
ii
‘Other’ category includes non-annuitant mortality, morbidity, and judgemental assumption changes in respect of the long-term view of credit risk.
Any impact relating to changes in those components of the credit default allowance that are not subjective but are purely market-driven are allocated to
‘investment-related items and other movements’.
The impact of longevity assumption updates over the reporting period reflects the weakening of the basis for shareholder
and policyholder backed annuity business, including in respect of lower future improvements in mortality, as set out in
26.1.3. Persistency assumptions were also updated for the year ended 31 December 2022 for a number of with-profits product
lines in order to reflect emerging experience. The impact in respect of expense assumption changes predominately reflects the
impact of higher salary and cost inflation. The ‘other’ category includes the impact of the increase in the long-term subjective
(non-market driven) components of the credit default allowance.
Further analysis of the movement in the Group’s insurance contract liabilities, reinsurance asset, investment contract liabilities
and unallocated surplus of the With-Profits Fund is provided below. The movement in these items is predominantly allocated
to the “benefits and claims and movement in unallocated surplus of the With-Profits Fund, net of reinsurance” line in the
consolidated income statement, although certain movements such as premiums received and claims paid on investment
contracts without DPF, are not charged to the consolidated income statement.
M&G plc Annual Report and Accounts 2022 | 253
Financial informationStrategic ReportGovernanceOther information 26 Policyholder liabilities, unallocated surplus and reinsurance continued
As at 1 January 2021
Additions arising on acquisitionsiii
Income and expense included in the income statementiv
Other movements including amounts included in other comprehensive incomev
Foreign exchange translation differences
As at 31 December 2021/As at 1 January 2022
Income and expense included in the income statement
Other movements including amounts included in other comprehensive incomev
Foreign exchange translation differences
As at 31 December 2022
Insurance
contracts
£m
Investment
contractsi
£m
Unallocated
surplus of the
With-Profits
Fund
£m
Reinsurers’
Shareii
£m
76,650
95,170
15,621
(11,761)
—
(13,356)
5
(76)
63,223
(13,537)
116
3
598
3,556
(1,640)
(57)
97,627
(5,633)
(1,493)
30
—
—
1,052
10,088
2
48
16,723
(1,689)
(2)
98
6
(2)
(1,669)
735
(15)
5
49,805
90,531
15,130
(944)
i This comprises investment contracts with discretionary participation features of £78,594m as at 31 December 2022 (2021: £82,743m) and investment
contracts without discretionary participation features of £11,937m as at 31 December 2022 (2021: £14,884m).
ii
Includes reinsurers’ share of claims outstanding of £137m as at 31 December 2022 (2021: £143m). Reinsurance at 31 December 2022 includes
Reinsurance Assets of £1,186m net of longevity swap liabilities of £242m included in Accruals, deferred income and other liabilities on the consolidated
statement of financial position and in Note 30. For the comparative periods all reinsurance is presented in Reinsurance Assets.
iii Additions arising on acquisitions for the year to 31 December 2021 relate to the acquisition of MGSA which increased unit-linked liabilities by £598m.
iv Income and expense included in the income statement in 2021 includes the impact of the Part VII transfer of annuity business to Rothesay Life PLC.
v Other movements including amounts included in other comprehensive income include premiums received and claims paid on investment contracts
without discretionary participating features, which are taken directly to the consolidated statement of financial position in accordance with IAS 39;
changes in the unallocated surplus of the With-Profits Fund resulting from actuarial gains and losses on the Group’s defined benefit pension schemes,
which are recognised directly in other comprehensive income and balance sheet reallocations. In 2022, this also reflects the divestment of insurance
policies in PPL previously held by the M&G Group Pension scheme. Refer to Note 17 for further details.
The below tables show the “Benefits and claims and movement in unallocated surplus of the With-Profits Fund, net of
reinsurance” as shown in the consolidated income statement. “Benefits and claims and movement in unallocated surplus of the
With-Profits Fund, net of reinsurance” comprises of the movement charged to the consolidated income statement presented in
the table above, and the benefits and claims paid over the period, net of amounts attributable to reinsurers.
For the year ended 31 December
Movement in policyholder liabilities and unallocated surplus of the With-Profits Fund
included in consolidated income statement
Movement in reinsurance asset included in consolidated income statement
Benefits and claims paid
Benefits and claims attributable to external reinsurers
Benefits and claims and movement in unallocated surplus of the With-Profits Fund,
net of reinsurance, as shown in consolidated income statement
i Policyholder liabilities consist of insurance contract liabilities and investment contract liabilities.
For the year ended 31 December
Movement in policyholder liabilities and unallocated surplus of the With-Profits Fund
included in consolidated income statement
Movement in reinsurance asset included in consolidated income statement
Benefits and claims paid
Benefits and claims attributable to external reinsurers
Benefits and claims and movement in unallocated surplus of the With-Profits Fund,
net of reinsurance as shown in consolidated income statement
254 | M&G plc Annual Report and Accounts 2022
2022
Unallocated
surplus of the
With-Profits
Fund
£m
Policyholder
liabilitiesi
£m
Reinsurance
asset
£m
19,170
1,689
—
(12,183)
—
—
—
—
—
(735)
–
494
6,987
1,689
(241)
2021
Unallocated
surplus of the
With-Profits
Fund
£m
Policyholder
liabilitiesi
£m
Reinsurance
asset
£m
9,807
(1,052)
—
—
(13,358)
—
—
—
—
(10,088)
—
1,608
(3,551)
(1,052)
(8,480)
Notes to the consolidated financial statements continued
26 Policyholder liabilities, unallocated surplus and reinsurance continued
26.3 Duration of liabilities
The tables below show the expected timing of the cash flows which make up the policyholder liabilities, including liabilities
accounted for under IFRS 4 and those accounted for as financial liabilities under IAS 39. The expected timing of the cash flows
will depend on the contract term and also expectations of assumptions such as future mortality and persistency, depending
on the type of contract. For with-profits and unit-linked contracts, actual amounts payable will vary with future investment
performance of the funds. The following tables show the carrying value of the policyholder liabilities and the expected timing of
the cash flows, on a discounted basis:
With-profits business
Annuity business (insurance contracts)
Other business and unit-linked
Total
As at
31 December
Insurance
contracts
Investment
contracts
Total
Non-profit
annuities
within With-
Profits Fund
Shareholder-
backed
annuities
Total
Insurance
contracts
Investment
contracts
Total
Carrying value
(£m)
25,321
78,528 103,849
6,684
12,328 19,012
5,473
12,002
17,475
140,336
2022
Expected cash flow timing:
0 to 5 years
5 to 10 years
10 to 15 years
15 to 20 years
20 to 25 years
over 25 years
36%
25%
17%
10%
6%
6%
37%
25%
16%
10%
6%
6%
37%
25%
16%
10%
6%
6%
49%
27%
15%
6%
2%
1%
41%
25%
16%
9%
5%
4%
39%
25%
16%
10%
5%
5%
2021
44%
27%
15%
7%
4%
3%
36%
26%
18%
11%
5%
4%
38%
26%
17%
10%
5%
4%
38%
25%
16%
10%
6%
5%
With-profits business
Annuity business (insurance contracts)
Other business and unit-linked
Total
As at
31 December
Insurance
contracts
Investment
contracts
Total
Non-profit
annuities
within With-
Profits Fund
Shareholder-
backed
annuities
Total
Insurance
contracts
Investment
contracts
Total
Carrying value
(£m)
29,507
82,702 112,209
9,311
17,646 26,957
6,760
14,924
21,684
160,850
Expected cash flow timing:
0 to 5 years
5 to 10 years
10 to 15 years
15 to 20 years
20 to 25 years
over 25 years
34%
24%
17%
11%
7%
7%
36%
25%
16%
10%
6%
7%
35%
25%
17%
10%
6%
7%
36%
26%
17%
10%
5%
6%
29%
24%
19%
14%
8%
6%
32%
25%
18%
12%
7%
6%
43%
25%
16%
8%
4%
4%
33%
25%
18%
11%
7%
6%
36%
25%
17%
10%
6%
6%
35%
25%
17%
11%
6%
6%
The cash flow projections of expected liability payments used in the expected cash flow timing table above are from the value
of in-force business and exclude the value of future new business, including future vesting of pension contracts. The expected
cashflow timing for reinsurance (excluding longevity swaps) should be materially in line with the underlying liabilities.
Liability payments do not reflect the pattern of bonuses and shareholder transfers in respect of the with-profits business.
The amounts shown in the table exclude the unallocated surplus of the With-Profits Fund, as its allocation has not yet
been defined.
M&G plc Annual Report and Accounts 2022 | 255
Financial informationStrategic ReportGovernanceOther information
27 Subordinated liabilities and other borrowings
As at 31 December
Subordinated liabilities
Operational borrowings
Borrowings attributable to With-Profits Fund
Total subordinated liabilities and other borrowings
27.1 Subordinated liabilities
2022
£m
3,729
50
3,758
7,537
2021
£m
3,706
107
5,117
8,930
The Group’s subordinated liabilities consist of subordinated notes which were transferred from Prudential plc on 18 October 2019
and were recorded at fair value on initial recognition. The transfer of the subordinated liabilities was achieved by substituting
the Company in place of Prudential plc as issuer of the debt, as permitted under the terms and conditions of each applicable
instrument. All costs related to the transaction were borne by Prudential plc.
As at 31 December
5.625% sterling fixed rate due 20 October 2051
6.25% sterling fixed rate due 20 October 2068
6.50% US dollar fixed rate due 20 October 2048
6.34% sterling fixed rate due 19 December 2063
5.56% sterling fixed rate due 20 July 2055
3.875% sterling fixed rate due 20 July 2049
Total subordinated liabilities
2022
2021
Principal
amount
£750m
£500m
$500m
£700m
£600m
£300m
Carrying
value
£m
839
604
466
845
672
303
3,729
Principal
amount
£750m
£500m
$500m
£700m
£600m
£300m
Carrying
value
£m
848
606
423
849
676
304
3,706
Subordinated notes issued by the Company rank below its senior obligations and ahead of its ordinary share capital.
A description of the key features of each of the Group’s subordinated notes as at 31 December 2022 is as follows:
5.625% sterling
fixed rate
6.25% sterling
fixed rate
6.50% US dollar
fixed rate
6.34% sterling
fixed rate
5.56% sterling
fixed rate
3.875% sterling
fixed rate
Principal amount
Issue datei
£750m
3 October
2018
£500m
3 October
2018
$500m
3 October
2018
£700m
£600m
£300m
16 December
2013
(amended 10
June 2019)
9 June 2015
(amended 10
June 2019)
10 July 2019
Maturity date
20 October
2051
20 October
2068
20 October
2048
19 December
2063
20 July 2055
20 July 2049
Callable at par at the option
of the Company from
Solvency II own funds
treatment
20 October
2031 (and
each semi-
annual interest
payment date
thereafter)
20 October
2048 (and
each semi-
annual interest
payment date
thereafter)
20 October
2028 (and
each semi-
annual interest
payment date
thereafter)
19 December
2043 (and
each semi-
annual interest
payment date
thereafter)
20 July 2035
(and each
semi-annual
interest
payment date
thereafter)
20 July 2024,
20 July 2029
(and each
semi-annual
interest
payment date
thereafter)
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
i The subordinated notes were issued by Prudential plc rather than by the Company.
As at 31 December 2022, the principal amount of all subordinated liabilities is expected to be settled after more than 12 months
and accrued interest of £43m (2021: £42m) is expected to be settled within 12 months.
256 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
27 Subordinated liabilities and other borrowings continued
27.1.1 Movement in subordinated liabilities
The following table reconciles the movement in subordinated liabilities in the year:
At 1 January
Amortisation
Foreign exchange movements
At 31 December
2022
£m
2021
£m
3,706
3,729
(28)
51
(27)
4
3,729
3,706
There were no repayments of principal on these loans during the year. The amortisation of premium on the loans based on an
effective interest rate and the foreign exchange movement on the translation of the subordinated liabilities denominated in US
dollar are both non-cash items.
27.2 Other borrowings
27.2.1 Operational borrowings
As at 31 December 2021, operational borrowings of £107m included amounts for which repayment to the lender is contingent
upon future surplus emerging from certain contracts specified under the arrangement. During 2022 these contingent loans have
been repaid and no such amounts remain outstanding as at 31 December 2022.
In March 2019, the Group entered into revolving credit facilities of £1.5bn with several banks and financial institutions, and these
are due to mature in 2026. As at 31 December 2022, these remain undrawn.
27.2.2 Borrowings attributable to the With-Profits Fund
As at 31 December
Non-recourse borrowings of consolidated investment fundsi
Bank loans and overdrafts
Total
2022
£m
3,608
150
3,758
2021
£m
5,083
34
5,117
i
In all instances, the holders of the debt instruments issued by these subsidiaries and funds do not have recourse beyond the assets of these
subsidiaries and funds. As at 31 December 2021, the non-recourse borrowings of consolidated investment funds includes £1,159m of debt instruments
issued by a consolidated securitisation vehicle, Harben 2017-1 plc, which were backed by a portfolio of mortgage loans . These borrowings were carried
at fair value through profit or loss, consistent with the underlying mortgage portfolio. As at 31 December 2022, the securitisation vehicle has been
deconsolidated following a change in control. Additionally, £842m of borrowings were previously included as a result of consolidating Sky Fund I LP and
Sky Fund V Onshore, however these funds are also no longer consolidated by the Group following disposal of the investment and a change in control
respectively. Refer to Note 2.4 for further details.
27.3 Maturity analysis
The following table sets out the remaining contractual maturity analysis of the Group’s other borrowings as recognised in the
consolidated statement of financial position:
As at 31 December 2022
At as 31 December 2021i
Less than
1 year
49
5
Less than
1 year
Operational borrowings (£m)
1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years
Over
5 years
No Stated
Maturity
1
5
—
—
—
—
—
—
—
—
—
97
Borrowings attributable to the With-Profits Fund (£m)
1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years
Over
5 years
No Stated
Maturity
As at 31 December 2022
At as 31 December 2021
401
593
1,117
616
285
559
163
373
268
333
1,524
2,643
—
—
Total
50
107
Total
3,758
5,117
i For the year ended 31 December 2021, other borrowings which relate to obligations under finance leases have been reallocated to lease liabilities on the
Consolidated statement of financial position.
M&G plc Annual Report and Accounts 2022 | 257
Financial informationStrategic ReportGovernanceOther information
28 Lease liabilities
The Group leases various land and buildings to utilise as office space. Information about leases for which the Group is a lessee is
presented below.
As at 31 December
At 1 January
Transfersi
Additions
Disposals
Interest expense
Lease repayments
At 31 December
2022
£m
413
(7)
53
(9)
14
(44)
420
2021
£m
354
92
13
(23)
12
(35)
413
i For the year ended 31 December 2022, transfers out of £7m relates to lease liabilities held for sale in relation to the Group’s consolidated infrastructure
capital private equity vehicles. For the year ended 31 December 2021 transfers in relates to £88m of leases previously reported within Subordinated
liabilities and other borrowings on the Consolidated statement of financial position, and £4m following the acquisition of MGSA.
As at 31 December
Expected to be settled within one year
Expected to be settled after one year
Total lease liabilities
2022
£m
35
385
420
As at 31 December 2022, £31m (2021: £34m) of the lease liabilities are attributable to the With-Profits Fund.
The table below presents a maturity analysis of lease payments showing the undiscounted lease payments to be paid on an
annual basis on these leases:
As at 31 December
Future minimum lease payments falling due in:
Less than 1 year
1 to 5 years
Over 5 years
2022
£m
41
136
346
2021
£m
25
388
413
2021
£m
34
122
331
For the year ended 31 December 2021, some of the leases of office buildings contained lease break options exercisable by the
Group. The Group assessed at the point of lease commencement whether it was reasonably certain to exercise the option.
This assertion was revisited if there was a material change in circumstances. For the year ended 31 December 2022 there were
no lease break options exercisable by the Group.
The undiscounted value of lease payments beyond the break period which were not recognised in lease liabilities as at
31 December 2021 was £1m.
258 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 29 Provisions
As at 31 December
Regulatory
Staff benefits
Restructuring
Other
Total provisions
For the year ended 31 December
At 1 January
Charged to consolidated income statement:
Additions during the year
Unused amounts released
Used during the year
Foreign exchange differences
At 31 December
2022
£m
1
48
11
30
90
2022
£m
138
20
(8)
(58)
(2)
90
2021
£m
1
83
37
17
138
2021
£m
235
24
(38)
(83)
—
138
Regulatory provisions in relation to annuity sales practices
PAC had agreed with the Financial Conduct Authority (FCA) to review annuities sold without advice after 1 July 2008 to its
contract-based defined contribution pension clients, and this review is now complete. In addition, PAC had been conducting
a review of other similar but separate groups of annuities sold after 1 July 2008 which were outside the scope of the original
review. The review was examining whether clients were given sufficient information about their potential eligibility to purchase an
enhanced annuity, either from PAC or another pension provider. At 31 December 2022 only a minimal number of potential cases
remain in scope and all provisions set up in relation to the redress exercise were released by 31 December 2021.
Staff benefits
Staff benefits primarily relate to performance related bonuses estimated for the current year to be paid out in future years.
Restructuring
Included in restructuring provisions is £10m as at 31 December 2022 (2021: £36m) related to change in control costs arising from
the Demerger in 2019. The remaining £1m (2021: £1m) restructuring provisions are in relation to redundancy costs.
Other
Included within other provisions is the Group’s obligation under the call option arrangement to purchase the remaining
shareholding of responsAbility as outlined in Note 2.2.2.
30 Accruals, deferred income and other liabilities
As at 31 December
Outstanding purchases of investment securities
Accruals and deferred income
Deferred consideration
Deposits received from reinsurers
Creditors arising from insurance operations
Interest payable
Creation of units awaiting settlement
Property related creditors
Reinsurance liabilitiesii
Other
Total accruals, deferred income and other liabilities
Analysed as:
Expected to be settled within one year
Expected to be settled after one year
Total accruals, deferred income and other liabilities
2022
£m
4,607
1,338
246
146
189
80
32
17
242
509
7,406
6,920
486
7,406
Restatedi
2021
£m
3,836
1,469
403
299
156
60
52
15
—
376
6,666
6,116
550
6,666
i Following a review of the Group’s presentation of tax positions within consolidated investment funds, comparative amounts have been restated from
those previously reported. The restatement has had no impact on profit for the year or net assets. See Note 1.1 for further information.
ii Reinsurance liabilities at 31 December 2022 relate to longevity swap liabilities of £242m (31 December 2021: £174m) previously held in
Reinsurance assets on the consolidated statement of financial position and in Note 26. For the comparative periods all reinsurance is presented in
Reinsurance assets.
M&G plc Annual Report and Accounts 2022 | 259
Financial informationStrategic ReportGovernanceOther information 31 Structured entities
Structured entities are those that have been designed so that voting or similar rights are not the dominant factor in deciding who
controls the entity. The Group invests in structured entities such as:
– Pooled investment vehicles, including OEICs, unit trusts, SICAVs and limited partnerships.
– Debt securitisation vehicles, including collateralised debt obligations, mortgage-backed securities and other similar asset-
backed securities.
Structured entities which the Group is deemed to control are consolidated in the consolidated financial statements. As at
31 December 2022 and 31 December 2021, the Group has not provided, and has no intention to provide, non-contractual financial
or other support to consolidated or unconsolidated structured entities that could expose the Group to a loss.
31.1 Investments in unconsolidated structured entities
The table below shows aggregate carrying amounts of the investments in unconsolidated structured entities reported in the
consolidated statement of financial position:
As at 31 December
Statement of financial position line item:
Equity securities and pooled investment funds
Debt securities
Total
2022
£m
2021
£m
13,497
2,134
15,631
12,282
2,338
14,620
The Group generates returns and retains the ownership risks in these investments commensurate to its participation and does
not have any further exposure to the residual risks or losses of the investments or the vehicles in which it holds investments.
Further details on risks associated with financial assets and how they are managed are provided in Note 33.
Included in equity securities and pooled investment funds as at 31 December 2022 were £6,858m (2021: £4,610m) of investments
in structured entities managed by the Group. Investment management fees for the year ended 31 December 2022 of £416m
(2021: £444m) were recognised from managing these entities.
The maximum exposure to loss for unconsolidated structured entities in which the Group holds an investment is the carrying
value of the Group’s investment and the loss of future fees.
The Group also has interests in structured entities managed by the Group in which it holds no investment through the collection
of investment management fees. The maximum exposure to loss for these interests is loss of future fees.
Investment management fees recognised for the year ended 31 December 2022 from managing these entities were £300m
(2021: £260m).
32 Fair value methodology
32.1 Determination of fair value hierarchy
The fair values of assets and liabilities for which fair valuation is required under IFRS are determined by the use of current market
bid prices for exchange-quoted investments, by using quotations from independent third parties such as brokers and pricing
services, or by using appropriate valuation techniques. Fair value is the amount for which an asset could be exchanged or a
liability settled in an arm’s length transaction.
To provide further information on the approach used to determine and measure the fair value of certain assets and liabilities, the
following fair value hierarchy categorisation has been used. This hierarchy is based on the inputs to the fair value measurement
and reflects the lowest level input that is significant to that measurement.
Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities
Level 1 principally includes exchange-listed equities, mutual funds with quoted prices, exchange-traded derivatives such as
futures and options, and national government bonds, unless there is evidence that trading in a given instrument is so infrequent
that the market could not be considered active. It also includes other financial instruments where there is clear evidence that the
valuation is based on a traded price in an active market.
Level 2 – inputs other than quoted prices included within level 1 that are observable either directly (i.e. as prices) or indirectly (i.e.
derived from prices)
Level 2 principally includes corporate bonds and other national and non-national government debt securities which are valued
using observable inputs, together with over-the-counter derivatives such as forward exchange contracts and non-quoted
investment funds valued with observable inputs. It also includes investment contract liabilities without DPF that are valued using
observable inputs.
260 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 32 Fair value methodology continued
Level 3 – significant inputs for the asset or liability are not based on observable market data (unobservable inputs)
Level 3 principally includes investments in private equity funds, directly held investment properties and investments in property
funds which are exposed to bespoke properties or risks and investments which are internally valued or subject to a significant
number of unobservable assumptions. It also includes debt securities which are rarely traded or traded only in privately
negotiated transactions and hence where it is difficult to assert that their valuations have been based on observable market data.
32.2 Valuation approach for level 2 assets and liabilities
A significant proportion of the Group’s level 2 assets are corporate bonds, structured securities and other national and non-
national government debt securities. These assets, in line with market practice, are generally valued using independent pricing
services or quotes from third party brokers. These valuations are subject to a number of monitoring controls, such as monthly
price variances, stale price reviews and variance analysis on prices achieved on subsequent trades.
Pricing services, where available, are used to obtain third party broker quotes. When prices are not available from pricing
services, quotes are sourced directly from brokers. The Group seeks to obtain a number of quotes from different brokers so as to
obtain the most comprehensive information available on their executability.
Where quotes are sourced directly from brokers, the price used in the valuation is normally selected from one of the quotes
based on a number of factors, including the timeliness and regularity of the quotes and the accuracy of the quotes considering
the spreads provided. The selected quote is the one which best represents an executable quote for the security at the
measurement date.
32.3 Level 3 assets and liabilities
32.3.1 Valuation approach for level 3
Investments valued using valuation techniques include financial investments which by 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
e.g. market illiquidity. The valuation techniques used include comparison to recent arm’s length transactions, reference to other
instruments that are substantially the same, discounted cash flow analysis, option-adjusted spread models and, if applicable,
enterprise valuation. These techniques may include a number of assumptions relating to variables such as credit risk and interest
rates. Changes in assumptions relating to these variables could positively or negatively impact the reported fair value of these
instruments. When determining the inputs into the valuation techniques used priority is given to publicly available prices from
independent sources when available, but overall the source of pricing is chosen with the objective of arriving at a fair value
measurement that reflects the price at which an orderly transaction would take place between market participants on the
measurement date.
Where certain debt securities are valued using broker quotes, adjustments may be required in limited circumstances. This is
generally where it is determined that the third party valuations obtained do not reflect fair value (e.g. either because the value is
stale and/or the values are extremely diverse in range). These are usually securities which are distressed or that could be subject
to a debt restructure or where reliable market prices are no longer available due to an inactive market or market dislocation.
In these instances, prices are derived using internal valuation techniques including those described below with the objective
of arriving at a fair value measurement that reflects the price at which an orderly transaction would take place between market
participants on the measurement date. The techniques used require a number of assumptions relating to variables such as credit
risk and interest rates. Examples of such variables include an average credit spread based on the corporate bond universe and
the relevant duration of the asset being valued. The input assumptions are determined based on the best available information at
the measurement dates. Securities valued in such manner are classified as level 3 where these significant inputs are not based
on observable market data.
Certain debt securities were valued using matrix pricing, which is based on assessing the credit quality of the underlying
borrower and allocating an internal credit rating which is unobservable. The internal credit rating implicitly incorporates
environmental, social and governance (ESG) considerations through the analysts views of the industry and issuer. Under matrix
pricing, these debt securities are priced by taking the credit spreads on comparable quoted public debt securities and applying
these to the equivalent debt securities, factoring in a specified liquidity premium. The selection of comparable quoted public debt
securities used to determine the credit spread is based on a credit spread matrix that takes into account the internal credit rating,
maturity and currency of the debt security.
The fair value estimates are made at a specific point in time, based upon any available market information and judgements about
the financial instruments, including estimates of the timing and amount of expected future cash flows and the credit standing
of counterparties. Such estimates do not reflect any premium or discount that could result from offering for sale at one time
a significant volume of a particular financial instrument, nor do they consider the tax impact of the realisation of unrealised
gains or losses from selling the financial instrument being fair valued. In some cases, the disclosed value cannot be realised in
immediate settlement of the financial instrument. In accordance with the Group Risk Framework, the estimated fair value of
derivative financial instruments valued internally using standard market practices are subject to assessment against external
counterparties’ valuations.
M&G plc Annual Report and Accounts 2022 | 261
Financial informationStrategic ReportGovernanceOther information 32 Fair value methodology continued
The investment properties of the Group are externally valued by professionally qualified external valuers using the RICS valuation
standards. The Group’s investment properties are predominantly valued using an income capitalisation technique. This technique
calculates the value through the yield and rental value depending on factors such as the lease length, building quality, covenants
and location. Typically these variables used are compared to recent transactions with similar features to those being valued.
The valuation of investment property inherently captures the impact of climate change if it were located in an area subject
to climate change events. The key inputs of yield and rental value are proxies for a range of factors which will include climate
change. The trend is towards greener buildings achieving better rents and yields than comparable buildings, all other factors
being equal.
As the comparisons are not with properties that are virtually identical to the Group’s investment properties, adjustments are
made by the valuers where appropriate to the variables used.
The way that climate-related factors may influence key inputs for level 3 instruments can be nuanced and complex to identify.
The inclusion of other climate-related factors into fair value is expected to evolve over the coming years as valuation toolsets
progress to allow more accurate measurement of climate impact.
32.3.2 Analysis of internally valued level 3 financial instruments
Level 3 financial assets, net of financial liabilities, which were internally valued as at 31 December 2022 were £7,115m
(2021: £11,933m), representing 5.6% of the total fair-valued financial assets net of financial liabilities (2021: 8.0%).
Internal valuations are inherently more subjective than external valuations. These internally valued assets and liabilities primarily
consist of the following items:
– Debt securities of £7,083m as at 31 December 2022 (2021: £10,917m), of which £5,885m (2021: £9,167m) were valued using
discounted cash flow models with an internally developed discount rate. The remaining debt securities were valued using other
valuation methodologies such as enterprise valuation and estimated recovery (such as liquidators’ reports).
– Infrastructure fund investments in both debt and equity securities of £497m as at 31 December 2022 (2021: £380m) were
valued internally using a discounted cash flow model. The most significant inputs to the valuation are the forecast cash flows of
the underlying business, discount rate, and terminal value assumption, all of which involve significant judgement. The valuation
is performed in accordance with International Private Equity and Venture Capital Association valuation guidelines.
These investments are held by the Group’s consolidated private equity infrastructure funds.
– Equity release mortgage loans of £934m as at 31 December 2022 (2021: £1,723m) and a corresponding liability of £246m
(2021: £403m), which were valued internally using discounted cash flow models. The inputs that are most significant to
the valuation of these loans are the discount rate (consisting of an observable risk free rate and an unobservable illiquidity
premium), the current property value, the assumed future property growth and the assumed future annual property
rental yields.
– Liabilities of £1,688m as at 31 December 2022 (2021: £1,241m), for the third party interest in consolidated funds in respect of
the consolidated investment funds, which are non-recourse to the Group. These liabilities were valued by reference to the
underlying assets.
32.3.3 Governance of level 3 valuations
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 undertaking these
activities, the Group makes use of the extensive expertise of its Asset Management business. 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.
262 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 32 Fair value methodology continued
32.4 Fair value hierarchy for assets measured at fair value in the consolidated statement of financial position
The tables below present the Group’s assets measured at fair value by level of the fair value hierarchy for each component of
business as set out in Note 33.
As at 31 December
With-profits:
Investment property
Equity securities and pooled investment funds
Loans
Debt securities
Derivative assets
Total with-profits
Unit-linked:
Investment property
Equity securities and pooled investment funds
Debt securities
Derivative assets
Total unit-linked
Annuity and other long-term business:
Investment property
Equity securities and pooled investment funds
Loans
Debt securities
Derivative assets
Total annuity and other long-term business
Other:
Equity securities and pooled investment funds
Debt securities
Derivative assets
Total other
Group:
Investment property
Equity securities and pooled investment funds
Loans
Debt securities
Derivative assets
Total assets at fair value
2022
Note
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
—
—
15,132
15,132
40,155
5,322
13,087
58,564
—
137
145
282
13,685
26,380
4,725
44,790
52
2,350
1
2,403
53,892
34,189
33,090
121,171
—
10,788
—
515
1,378
3,069
5
2
497
33
19
—
497
11,336
4,466
7
12,171
3,586
549
16,306
—
5
—
—
—
—
876
2
934
876
7
934
1,617
—
6,616
265
4,166
12,399
25
290
1,622
6,881
6,003
14,506
162
686
—
848
—
440
150
590
58
40
—
98
220
1,166
150
1,536
—
—
16,505
16,505
33
33
33
51,110
5,837
13,180
70,127
—
137
17,366
36,505
57
2,767
1,079
8,950
26
1,216
62,821
2,850
68,533
45,246
39,740 153,519
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32 Fair value methodology continued
As at 31 December
With-profits:
Investment property
Equity securities and pooled investment funds
Loans
Debt securities
Derivative assets
Total with-profits
Unit-linked:
Investment property
Equity securities and pooled investment funds
Debt securities
Derivative assets
Total unit-linked
Annuity and other long-term business:
Investment property
Equity securities and pooled investment funds
Loans
Debt securities
Derivative assets
Total annuity and other long-term business
Other:
Equity securities and pooled investment funds
Debt securities
Derivative assets
Total other
Group:
Investment property
Equity securities and pooled investment funds
Loans
Debt securities
Derivative assets
Total assets at fair value
2021
Note
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
—
—
17,707
17,707
45,599
4,162
10,884
60,645
—
141
1,411
1,552
28,014
65
73,678
—
12,733
3,949
3
21,275
2,553
28,131
5,675
54,964
—
2,618
35,677
137,486
—
425
2,528
2
931
74
22
—
931
13,232
6,499
5
16,685
2,955
1,027
20,667
—
3
—
—
—
—
5,036
6,557
—
5,039
179
731
—
910
561
7,118
—
599
131
730
1,060
1,060
2
1,723
6,673
58
5
1,723
18,266
619
9,516
21,673
8
—
—
8
187
1,330
131
1,648
—
—
33
58,514
4,587
—
141
19,698
10,968
3,134
19,698
74,069
3,275
33
33
37,730
30,959
12,370
81,059
68
3,247
58
3,373
96,312
38,934
46,228
181,474
32.5 Fair value hierarchy for liabilities measured at fair value in the consolidated statement of financial position
The tables below present the Group’s liabilities measured at fair value by level of the fair value hierarchy:
As at 31 December
2022
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Investment contract liabilities without discretionary participation features
—
11,937
—
11,937
Third party interest in consolidated funds
Subordinated liabilities and other borrowings
Derivative liabilities
Accruals, deferred income and other liabilities
Total liabilities at fair value
7,372
1,329
1,688
10,389
—
95
—
—
4,081
—
9
—
246
—
4,185
246
7,467
17,347
1,943
26,757
264 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
32 Fair value methodology continued
As at 31 December
Investment contract liabilities without discretionary participation features
Third party interest in consolidated funds
Subordinated liabilities and other borrowings
Derivative liabilities
Accruals, deferred income and other liabilities
Total liabilities at fair value
32.6 Transfers between levels
2021
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
—
14,884
7,170
4,225
—
37
—
—
2,648
—
7,207
21,757
—
1,241
1,159
4
403
2,807
14,884
12,636
1,159
2,689
403
31,771
The Group’s policy is to recognise transfers into and transfers out of levels as at the end of each half-year reporting period, except
for material transfers, which are recognised as of the date of the event or change in circumstances that caused the transfer.
Transfers are deemed to have occurred when there is a material change in the observed valuation inputs or a change in the level
of trading activities of the securities.
For the year ended 31 December
From level 1 to level 2i
From level 1 to level 3
From level 2 to level 1
From level 2 to level 3
From level 3 to level 1
From level 3 to level 2
2022
Transfers between levels
Equity
securities
and pooled
investment
funds
£m
7
1
17
—
9
137
Debt
securities
£m
14,099
4
220
582
—
555
Derivatives
£m
—
—
—
—
—
—
i Movements arising from refinements made to the Group’s levelling policy during the year ended 31 December 2022.
For the year ended 31 December
From level 1 to level 2
From level 1 to level 3
From level 2 to level 1i
From level 2 to level 3ii
From level 3 to level 1
From level 3 to level 2
2021
Transfers between levels
Equity
securities
and pooled
investment
funds
£m
Debt
securities
£m
Derivatives
£m
1
5
—
451
1
35
1,372
—
10,921
364
—
172
—
—
—
54
—
—
i Movements arsing from refinements made to the Group’s levelling policy during the year ended 31 December 2021.
ii The transfer of £54m of derivatives from level 2 to level 3 consists of £58m of assets and £4m of liabilities.
Total
£m
14,106
5
237
582
9
692
Total
£m
1,373
5
10,921
869
1
207
M&G plc Annual Report and Accounts 2022 | 265
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32 Fair value methodology continued
32.7 Reconciliation of movements in level 3 assets and liabilities
The movements during the year of level 3 assets and liabilities held at fair value, excluding assets and liabilities held for sale, are
analysed in the tables below:
For the year ended 31 December 2022
Total gains/
(losses)
recorded
in income
statement
£m
At 1 Jan
£m
Foreign
exchange
£m
Purchases
and otheri
£m
Sales and
otherii
£m
Transfer
to held
for sale
£m
Settlediii
£m
Issued
£m
Transfers
into
level 3
£m
Transfers
out of
level 3
£m
At 31 Dec
£m
Level 3 assets:
Investment
property
19,698
(1,477)
204
2,699
(4,643)
24
Equity securities
and pooled
investment funds 10,968
Loans
3,134
419
(781)
Debt securities
12,370
(3,401)
Derivative assets
58
(31)
128
3,683
(1,873)
2
8
—
109
760
2
(30)
(818)
(3)
—
—
—
—
—
—
(1,355)
—
—
46,228
(5,271)
342
7,253
(7,367)
24
(1,355)
—
—
—
—
—
—
—
1
—
—
16,505
(146)
13,180
—
1,079
586
(555)
8,950
—
—
26
587
(701) 39,740
Total level 3
assets
Level 3
liabilities:
Third party
interest in
consolidated
funds
Borrowings and
subordinated
liabilities
Derivative
liabilities
Other liabilities
Total level 3
liabilities
1,241
(22)
16
1,159
4
403
—
—
(148)
—
—
—
2,807
(170)
16
—
—
5
—
5
—
—
—
—
—
—
—
—
—
—
(89)
542
(1,159)
—
(9)
—
—
—
(1,257)
542
—
—
—
—
—
—
—
—
—
—
1,688
—
9
246
1,943
i
ii
iii
Included within purchases and other of £3,683m for Equity securities and pooled investment funds for the year ended 31 December 2022 is £1,216m
associated with the deconsolidation of the M&G European Property Fund in the period.
Included within sales and other of £4,643m for Investment property for the year ended 31 December 2022 is £3,955m associated with the
deconsolidation of the M&G European Property Fund in the period.
Included within settled for Loans and Borrowings and subordinated liabilities for the year ended 31 December 2022 is the impact from the
deconsolidation of the buy-to-let mortgages held by a securitisation vehicle as a result of the change in control during the period.
266 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
Level 3 assets:
Investment
property
Equity securities
and pooled
investment funds
Loans
Total level 3
assets
Level 3
liabilities:
Third party
interest in
consolidated
funds
Borrowings and
subordinated
liabilities
Derivative
liabilities
Other liabilities
Total level 3
liabilities
32 Fair value methodology continued
For the year ended 31 December 2021
Total gains/
(losses)
recorded in
income
statement
£m
At 1 Jan
£m
Foreign
exchange
£m
Purchases
and other
£m
Sales and
other
£m
Transfer
to held
for sale
£m
Settled
£m
Issued
£m
Transfers
into
level 3
£m
Transfers
out of
level 3
£m
At 31 Dec
£m
19,106
1,258
(411)
2,002
(1,310)
(947)
8,458
3,220
2,147
1
Debt securities
12,584
(393)
Derivative assets
—
—
(1)
(1)
—
—
1,830
(1,886)
99
(20)
1,329
(1,342)
—
—
—
—
—
—
43,368
3,013
(413)
5,260
(4,558)
(947)
(165)
—
—
(165)
—
—
—
—
—
—
—
—
—
—
19,698
456
—
364
58
(36)
10,968
—
3,134
(172)
12,370
—
58
878
(208) 46,228
1,407
91
1,301
—
409
—
—
1
3,117
92
2
—
—
—
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(711)
452
(142)
—
(7)
—
—
—
(860)
452
—
—
4
—
4
—
—
—
—
—
1,241
1,159
4
403
2,807
32.8 Unrealised gains and losses in respect of level 3 assets and liabilities
Unrealised gains and losses recognised in the consolidated income statement in respect of assets and liabilities classified as
level 3 that are held at the end of the year are analysed as follows:
For the year ended 31 December
Investment property
Equity securities and pooled investment funds
Loans
Debt securities
Derivatives
Third party interest in consolidated funds
Other financial liabilities
Total
2022
£m
(1,538)
452
(781)
2021
£m
918
2,407
1
(3,350)
(332)
(33)
(9)
(148)
—
(51)
1
(5,407)
2,944
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32 Fair value methodology continued
32.9 Fair value level 3 inputs and sensitivities
32.9.1 Level 3 asset inputs
Where possible, the Group assesses the sensitivity of the fair value of level 3 assets to reasonably possible changes in the most
significant unobservable inputs.
The most significant unobservable inputs in determining the fair value of level 3 assets are presented within the tables below.
Real estate:
As at 31 December
Property type Geographical location
Investment property
Industrial
Office
UK
Europeii
Asia/Pacific
UK
Europeii
Asia/Pacific
North America
UK
Residential
Europe
Retail
Asia/Pacific
UK
Europeii
Asia/Pacific
UK
Other
Europe
Asia/Pacific
Average estimated rental valuei
Average equivalent yield
2022
£9
n/a
$96
£39
n/a
$442
$45
£37
€330
$258
£27
n/a
$295
£38
€110
$195
2021
£9
€55
$98
£34
€304
$509
$46
£31
€244
$275
£28
€537
$310
£27
€132
$213
2022
6.31%
n/a
6.31%
6.18%
n/a
5.48%
5.75%
3.96%
3.62%
5.32%
6.51%
n/a
6.92%
5.77%
6.45%
8.50%
2021
4.98%
4.43%
5.11%
5.42%
4.26%
5.26%
5.25%
3.77%
3.72%
4.97%
6.34%
4.29%
6.75%
6.40%
5.38%
8.00%
i The average estimated rental value for the UK and North America is quoted per square foot, whilst the average estimated rental value for Europe and
Asia/Pacific is quoted per square metre in line with local practice.
ii For the year ended 31 December 2022 there are no equivalent inputs due to the deconsolidation of the M&G European Property Fund.
Other assets:
As at 31 December
Retail income strips
Equity release mortgages
Private placement loans
Infrastructure fund investments
32.9.2 Level 3 asset sensitivities
Unobservable input
Discount rate
Illiquidity premium
Total portfolio property value
Assumed property growth rate
Property rental yield
Credit risk premium:
AAA to A
BBB to BB
Discount rate
2022
2021
1.06% to 5.00%
(1.86%) to 3.03%
2.07%
c. £3.4bn
2.65%
2.00%
1.10%
c.£3.3bn
3.05%
2.00%
0.60% to 1.81%
0.33% to 1.08%
1.45% to 5.86%
0.48% to 3.59%
7.75% to 12%
7.75% to 12%
The table below provides a breakdown of assets within the level 3 fair value hierarchy by investment type, the sensitivity of the
most significant unobservable inputs on their fair value, and the impact on IFRS profit after tax and shareholders’ equity for those
held within the shareholder backed-funds.
268 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 32 Fair value methodology continued
2022
Held in
shareholder-
backed fund
£m
Valuation
technique
Fair value
£m
Most significant
unobservable input Sensitivity
As at 31 December
Investment property
Property in use
15,371
1,368
Equivalent yield
Income
capitalisation
Estimated rental
value
Property under
development
Loans
1,134
5
Development
cost
Decrease by 50bps
Increase by 50bps
Decrease by 10%
Increase by 10%
Increase by 10%
Decrease by 10%
Equity-release
mortgagesi
934
934
Discounted cash
flowii
Illiquidity
premium
Increase by 50bps
Decrease by 50bps
Current property
value
Increase by 10%
Decrease by 10%
Assumed annual
property growth
rate
Assumed annual
property rental
yield
Increase by 100bps
Decrease by 100bps
Increase by 100bps
Decrease by 100bps
Other mortgage and
retail loans
Equity securities and
pooled investment
fundsiv
Infrastructure fund
investmentsiv
Debt securitiesiv
Private placement
loans
145
— Broker quotesiii
Broker quotes
12,967
497
93
Net asset
statements
Net asset value
—
Discounted cash
flowiv
Discount rate
5,649
3,225
Discounted cash
flowvi
Discount rate
Retail income strips
236
199
Discounted cash
flowvi
Discount rate
Unquoted corporate
bonds
2,781
800
Broker quotes,
enterprise
valuation,
estimated
recovery
Increase by 10%
Decrease by 10%
Increase by 10%
Decrease by 10%
Increase by 10%
Decrease by 10%
Increase by 40bps
Decrease by 40bps
Increase by 50bps
Decrease by 50bps
Increase by 10%
Impact on
IFRS profit
after tax and
shareholders’
equityvi
£m
Change in
fair value
£m
1,715
(1,419)
(1,260)
1,316
113
(113)
(67)
73
44
(53)
127
(177)
(81)
77
15
(15)
1,297
(1,297)
(75)
88
(278)
268
(15)
17
278
125
(102)
(69)
70
—
—
(83)
90
54
(65)
157
(219)
(100)
96
—
—
7
(7)
—
—
(223)
184
(16)
18
97
Broker quotes
Decrease by 10%
(278)
(97)
Derivative assets
26
26
Discounted cash
flowv
Discount rate
Increase by 50bps
Decrease by 50bps
(1)
1
(1)
1
Total level 3
39,740
6,650
i The equity-release mortgages have a no-negative equity guarantee (NNEG) that caps the loan repayment in the event of death, or entry into long-term
care, to be no greater than the proceeds from the sale of the property that the loans are secured against.
ii Future cashflows are estimated based on assumptions, including prepayment, death and entry into long-term care, and discounted using an
appropriate discount rate. The NNEG is based on a Black-Scholes option pricing valuation utilising a real world approach and using assumptions
including the current property value, future property growth and property rental yields, and is recognised as a deduction to the value of the loan.
iii Quotes received from an external pricing service.
iv
Infrastructure fund investments comprises £213m (31 December 2021: £88m) of equity securities and pooled investment funds and £284m
(31 December 2021: £292m) of debt securities. These investments are valued in accordance with the International Private Equity and Venture
Association valuation guidelines (latest edition December 2022). Valuations are also benchmarked against comparable infrastructure transactions.
The discount rate is made up of cash flows from dividends due in respect of the equity investments and principal and interest from loan notes in respect
of debt investments.
v The discount rate is made up of a risk-free rate and a credit spread. The risk-free rate is taken from an appropriate gilt of comparable duration and the
spread is taken from a basket of comparable securities.
vi Of the £6,650m (31 December 2021: £10,529m) of level 3 assets held in shareholder-backed funds, £549m (2021: £1,027m) is held by unit-linked
business. These assets are included in the analysis presented however, as the investment risk is borne by the unit-linked policyholders, there is no
impact on IFRS profit after tax and shareholders’ equity.
M&G plc Annual Report and Accounts 2022 | 269
Financial informationStrategic ReportGovernanceOther information
32 Fair value methodology continued
2021
Held in
shareholder-
backed fund
£m
Valuation
technique
Fair value
£m
Most significant
unobservable input Sensitivity
As at 31 December
Investment property
Property in use
18,934
1,965
Equivalent yield
Income
capitalisation
Estimated rental
value
Property under
development
Loans
764
26
Development
cost
Decrease by 50bps
Increase by 50bps
Decrease by 10%
Increase by 10%
Increase by 10%
Decrease by 10%
Equity-release
mortgagesi
1,723
1,723
Discounted cash
flowii
Illiquidity
premium
Increase by 50bps
Decrease by 50bps
Current property
value
Increase by 10%
Decrease by 10%
Assumed annual
property growth
rate
Assumed annual
property rental
yield
Increase by 100bps
Decrease by 100bps
Increase by 100bps
Decrease by 100bps
Other mortgage and
retail loans
Equity securities and
pooled investment
fundsiv
Infrastructure fund
investmentsiv
Debt securitiesiv
Private placement
loans
1,411
— Broker quotesiii
Broker quotes
10,880
380
84
Net asset
statements
Net asset value
—
Discounted cash
flowiv
Discount rate
8,776
5,225
Discounted cash
flowvi
Discount rate
Retail income strips
391
331
Discounted cash
flowvi
Discount rate
Unquoted corporate
bonds
2,911
1,117
Broker quotes,
enterprise
valuation,
estimated
recovery
Broker quotes
Increase by 10%
Decrease by 10%
Increase by 10%
Decrease by 10%
Increase by 10%
Decrease by 10%
Increase by 40bps
Decrease by 40bps
Increase by 50bps
Decrease by 50bps
Increase by 10%
Decrease by 10%
Derivative assets
58
58
Discounted cash
flowv
Discount rate
Increase by 50bps
Decrease by 50bps
Total level 3
46,228
10,529
Impact on
IFRS profit
after tax and
shareholders’
equityvi
£m
Change in
fair value
£m
2,326
(1,882)
(1,621)
1,710
76
(76)
(140)
155
44
(53)
127
(178)
(83)
79
141
(141)
1,088
(1,088)
(34)
34
(649)
728
(41)
52
291
(291)
(2)
2
163
(129)
(80)
80
—
—
(158)
174
50
(60)
143
(201)
(93)
89
—
—
1
(1)
—
—
(487)
548
(41)
52
126
(126)
(2)
2
270 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
32 Fair value methodology continued
32.10 Fair value of assets and liabilities at amortised cost
The tables below show the assets and liabilities carried at amortised cost on the statement of financial position for which fair
value is disclosed. The assets and liabilities that are carried at amortised cost, where the carrying value approximates the fair
value, are excluded from the analysis below:
As at 31 December
Assets:
Loans
Liabilities:
Subordinated liabilities and other borrowings
As at 31 December
Assets:
Loans
Liabilities:
Subordinated liabilities and other borrowings
2022
Level 1
£m
Level 2
£m
Level 3
£m
Total
fair value
£m
Total
carrying
value
£m
—
—
369
1,648
2,017
2,114
6,416
6
6,422
7,537
2021
Level 1
£m
Level 2
£m
Level 3
£m
Total
fair value
£m
Total
carrying
value
£m
—
—
512
2,089
2,601
2,534
7,682
201
7,883
7,771
The estimated fair value of subordinated liabilities are based on the quoted market offer price. The fair value of the other
assets and liabilities in the tables above have been estimated from the discounted cash flows expected to be received or paid.
Where appropriate, an observable market interest rate has been used and the assets and liabilities are classified within level 2.
Otherwise, they are included as level 3 assets or liabilities.
M&G plc Annual Report and Accounts 2022 | 271
Financial informationStrategic ReportGovernanceOther information
33 Risk management and sensitivity analysis
33.1 Risk overview
The Group’s business involves the acceptance and management of risk. The Group’s risk management process is governed by
the Risk Management Framework (RMF). The RMF has been designed to identify, assess, measure, manage, monitor and report
on the principal risks of the Group. Risk management is designed to increase the Group’s understanding of the risks inherent in
the business, improve decision-making and prevent the Group from failing to achieve its business objectives, including delivery of
fair client outcomes.
The RMF is codified through risk policies and business standards which set out the management framework for key risk types,
including risk appetite, and minimum standards for the Group’s operations. To ensure completeness and consistency when
comparing risk information across the Group, a common methodology for categorising risk has been adopted.
Risk appetite is the amount and type of risk that is acceptable to the Group, as determined by the Board, and is a function of the
Group’s strategic and business objectives and its capital resources. Risk appetite therefore refers to the Group’s attitude towards
risk-taking and whether it is willing and able to tolerate either a high or a low level, or none of specific risks or risk groups. As a
result, risk appetite has a central role in informing decision-making across the Group and assisting in the optimisation of return on
capital invested.
A number of risk factors affect the Group’s results and financial position. The financial risk categories affecting the Group’s
financial instruments and insurance assets and liabilities are set out below:
Risk type
Definition
Market risk
Credit risk
The risk of loss or adverse change in the financial situation of the business or that of the Group’s clients
resulting, directly or indirectly, from fluctuations in the level or volatility of market prices of assets and
liabilities.
The risk of loss or adverse change in the financial situation of the business, or that of the Group’s clients,
resulting from fluctuations in the credit standing of issuers of securities, counterparties and any debtors in
the form of default or other significant credit event, such as downgrade or spread widening.
Demographic risk The risk of loss for the Group, or of adverse change in the financial situation of the business, resulting from
changes in the level, trend or volatility of a number of demographic risk drivers. These include:
– Mortality/longevity risk: the risk of loss, the inability to meet contractual or other liabilities, and/or profit
volatility resulting from adverse mortality and/or longevity experience compared to that estimated within
pricing, underwriting and valuation.
– Morbidity risk: the risk of loss, the inability to meet contractual or other liabilities, and/or profit volatility
resulting from adverse morbidity experience compared to that estimated within pricing, underwriting
and valuation.
– Persistency risk: the risk of loss, the inability to meet contractual or other liabilities, and/or profit volatility
resulting from an adverse persistency experience compared to that estimated within pricing and valuation.
Expense and
margin pricing risk
The risk of loss, the inability to meet contractual or other liabilities, and/or profit volatility resulting from
adverse experience in expenses other than those estimated within pricing and valuation when considering
insurance contracts or funds under management.
Liquidity risk
Treasury liquidity risk is the risk of loss for the Group’s business, or of adverse changes in its financial
situation, resulting from the Group’s inability to generate sufficient cash resources to meet financial
obligations (for example, claims, creditors and planned dividends) as they fall due.
Fund liquidity risk is the risk of being unable to meet liabilities arising from a mismatch in liquidity of the
underlying assets and the frequency of liability requirements of the fund.
The Group’s exposure to risks arising from financial instruments and insurance assets and liabilities is different for each
component of the Group’s business. The Group’s consolidated statement of financial position is presented below for the different
components of business.
272 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 33 Risk management and sensitivity analysis continued
Analysis of consolidated statement of financial position by component of business
Shareholder-backed funds
Equity securities and pooled investment funds
58,564
11,336
As at 31 December 2022
Assets:
Goodwill and intangible assets
Deferred acquisition costs
Defined benefit pension asset
Investment in joint ventures and associates accounted for using the
equity method
Property, plant and equipment
Investment property
Deferred tax assets
Reinsurance assets
Loans
Debt securities
Derivative assets
Deposits
Current tax and other tax assets
Accrued investment income and other debtors
Assets held for sale
Cash and cash equivalents
Total assets
Liabilities:
Insurance contract liabilities
Investment contract liabilities with discretionary participation features
Unallocated surplus of the With-Profits Fund
Third party interest in consolidated funds
Subordinated liabilities and other borrowings
Defined benefit pension liability
Deferred tax liabilities
Lease liabilities
Current tax and other tax liabilities
Derivative liabilities
Other financial liabilities
Provisions
Accruals, deferred income and other liabilities
Liabilities held for sale
Total liabilities
Total equity
Total equity and liabilities
Investment contract liabilities without discretionary participation features
3
11,900
With-
profits
£m
Unit-linked
£m
Annuity
and other
long-term
business
£m
364
—
13
413
1,630
15,132
27
23
—
—
—
—
—
497
—
85
25
77
10
—
26
876
499
1,078
7
Other
£m
Total
£m
1,488
1,877
17
132
—
297
94
155
413
1,953
—
16,505
125
—
220
—
651
1,186
70,127
3,330
1,929
—
1,401
44,790
4,466
12,399
1,166
62,821
2,403
17,757
133
1,454
447
2,857
7
1,567
29
329
79
563
290
2,077
114
261
—
604
150
—
13
296
158
860
2,850
21,401
289
2,340
684
4,884
147,936
18,958
19,744
4,922
191,560
32,299
78,539
15,130
8,244
3,757
—
777
85
9
2,213
1,928
—
4,780
172
4,214
13,292
—
—
2,086
45
—
—
—
16
9
—
—
55
34
—
5
6
—
2
15
74
1,748
89
19
688
1,663
—
—
—
—
—
—
49,805
78,594
11,937
15,130
54
10,389
3,729
7,537
—
1
320
14
215
155
71
275
—
—
780
420
113
4,185
2,172
90
7,406
172
147,936
18,958
17,002
4,834 188,730
2,830
191,560
M&G plc Annual Report and Accounts 2022 | 273
Financial informationStrategic ReportGovernanceOther information
33 Risk management and sensitivity analysis continued
Shareholder-backed funds
Equity securities and pooled investment funds
60,645
13,232
3,578
—
2,231
—
5,809
54,964
6,499
18,266
1,330
81,059
As at 31 December 2021
Assets:
Goodwill and intangible assets
Deferred acquisition costs
Defined benefit pension asset
Investment in joint ventures and associates accounted for using the
equity method
Property, plant and equipment
Investment property
Deferred tax assets
Reinsurance assets
Loans
Debt securities
Derivative assets
Deposits
Current tax and other tax assets
Accrued investment income and other debtors
Assets held for sale
Cash and cash equivalents
Total assets
Liabilities:
Insurance contract liabilities
Investment contract liabilities with discretionary participation features
Unallocated surplus of the With-Profits Fund
Third party interest in consolidated funds
Subordinated liabilities and other borrowings
Defined benefit pension liability
Deferred tax liabilities
Lease liabilities
Current tax and other tax liabilities
Derivative liabilities
Other financial liabilities
Provisions
Accruals, deferred income and other liabilities
Liabilities held for sale
Total liabilities
Total equity
Total equity and liabilities
Restatedi
With-
profits
£m
Unit-linked
£m
Annuity
and other
long-term
business
£m
286
—
27
469
2,239
17,707
49
20
—
—
—
—
—
931
—
101
27
78
—
—
27
1,060
1
1,548
5
2,618
14,066
281
1,559
646
3,773
5
1,852
1
380
249
460
162,927
23,710
619
1,715
88
443
—
1,012
27,120
39,203
82,700
4,978
19,042
—
16,723
9,835
5,117
20
1,391
95
178
1,227
2,690
—
—
2,767
—
—
—
3
46
3
—
—
43
46
—
9
107
30
28
18
113
1,127
79
26
Other
£m
Total
£m
1,302
1,615
16
11
—
270
—
69
—
94
38
469
2,536
19,698
119
1,669
187
74,069
131
—
5
265
128
1,663
5,377
—
—
—
—
25
3,706
34
—
297
22
332
113
112
33
—
3,373
17,633
375
2,647
1,023
6,908
219,134
63,223
82,743
14,884
16,723
12,636
8,930
84
1,419
413
359
2,689
2,882
138
6,666
—
3,745
1,078
1,810
—
—
—
162,927
23,710
22,478
4,674
213,789
5,345
219,134
Investment contract liabilities without discretionary participation features
3
14,835
i Following a review of the Group’s presentation of tax positions within consolidated investment funds, comparative amounts have been restated from
those previously reported. The restatement has had no impact on profit for the year or net assets. See Note 1.1 for further information.
The financial assets and liabilities attaching to the Group’s business are, to varying degrees, subject to the risks described
previously and these risks may have a material effect on profit or loss and shareholders’ equity. This is discussed below by
component of business.
274 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
33 Risk management and sensitivity analysis continued
33.1.1 With-profits business
The With-Profits Fund mainly contains with-profits business but it also contains some non-profit business (unit-linked, term
assurances and annuities). As at 31 December 2022, the With-Profits Fund included £6,693m (2021: £9,321m) of non-profit
annuity liabilities.
WPSF
The shareholder exposure to the WPSF business (including non-profit annuity business of the WPSF) is sensitive to market and
credit risk through the indirect effect of investment performance on declared policyholder bonuses. The investment assets of
the WPSF are subject to market and credit risk. Changes in their carrying value, net of related changes to asset-share liabilities of
with-profits contracts, affect the level of unallocated surplus of the fund. Therefore, the level of unallocated surplus is particularly
sensitive to the level of investment returns on the portion of the assets that represents the surplus. However, as unallocated
surplus is accounted for as a liability under IFRS 4, movements in its value do not affect shareholders’ profit and equity, so the
shareholder is not directly exposed to changes in the assets and liabilities within the WPSF.
The shareholder result for most business in the WPSF is one-ninth of the cost of bonuses declared to with-profits policyholders.
For certain with-profits contracts, such as those invested in the PruFund range of funds, the bonuses represent the
policyholders’ net return based on the smoothed unit price of the selected investment fund. Investment performance is a key
driver of bonuses declared, and hence the shareholder results. Due to the “smoothed” basis of bonus declaration, the sensitivity
to short-term investment performance and other insurance risks is relatively low. However, long-term investment performance
and persistency trends may affect future shareholder transfers.
The equity risk relating to the future shareholder transfers from the WPSF is partially hedged, and this is described in Note 33.7.1.
DCPSF
The DCPSF is shown as part of the with-profits consolidated statement of financial position. For similar reasons to those
described in relation to the WPSF, shareholders are not directly exposed to the movements in the assets and liabilities of
the DCPSF. Instead, the shareholders’ exposure is through the charges arising on the business less the expenses incurred.
The charges incurred on the business are dependent on the value of the funds under management and are therefore indirectly
exposed to market risk, credit risk and persistency risk.
SAIF
Up until 1 April 2021 SAIF was a ring-fenced fund, shown as part of the with-profits consolidated statement of financial position,
in which, apart from asset management fees, shareholders have no entitlement to the profits of the fund. On 1 April 2021 SAIF
merged with PAC’s WPSF and the assets and liabilities of SAIF were combined with those of the WPSF. Shareholders will
continue to have no entitlement to profit transfers and will continue to receive asset management fees. Accordingly, the Group’s
profit and shareholders’ funds are not sensitive to the direct effects of risk attaching to SAIF’s assets and liabilities.
33.1.2 Unit-linked business
Unit-linked business represents a comparatively small proportion of the in-force business of the Group’s insurance operations.
Due to policyholder liabilities moving in line with attaching asset value movements, the shareholders’ exposure to the unit-linked
business is not directly affected by market or credit risk. Profits from unit-linked contracts primarily arise from the excess of
charges to policyholders for management of assets over expenses incurred. The charges received are sensitive to the movement
in funds under management due to investment performance, as well as persistency experience. The accounting impact of the
expenses incurred is dependent upon the amortisation of acquisition costs in line with the emergence of margins (for insurance
contracts) and amortisation in line with service provision (for the investment management component of investment contracts).
By virtue of the design features of most of the contracts which provide low levels of mortality cover, the profit is relatively
insensitive to changes in mortality experience. Amounts under unit-linked contracts are generally repayable on demand and
the Group is responsible for ensuring there is sufficient liquidity within the asset portfolio to enable liabilities to unit-linked
policyholders to be met as they fall due.
In the consolidated statement of financial position by component of business, the unit-linked business is shown as having no
contribution to shareholders’ equity. This is because the surplus assets of the unit-linked business have been allocated to the
“annuity and other long-term business” component for presentation purposes as they are pooled with the surplus assets of this
business. Despite this presentation, shareholders are exposed to the risks arising from unit-linked business as described above.
M&G plc Annual Report and Accounts 2022 | 275
Financial informationStrategic ReportGovernanceOther information 33 Risk management and sensitivity analysis continued
33.1.3 Annuity and other long-term business
The Group’s shareholder-backed annuity liabilities are exposed to market movements, but these are closely matched with assets
of an appropriate duration. The level of matching from year to year can vary depending on management actions and economic
factors and therefore it is possible for a degree of mismatching exposure to arise. Aside from the extent of any asset/liability
duration mismatch, the sensitivity to market risk arising from movements in the value of annuity liabilities net of covering assets is
broadly neutral. However, the assets held in excess of the liabilities, which back the capital requirements of the annuity business,
result in exposure to market risk. These assets are primarily debt securities.
Shareholders are directly exposed to credit risk (asset default, downgrade and spread widening) arising on the assets held within
the shareholder-backed funds, and the corresponding impact on the measurement of the liabilities. The shareholder-backed
annuity results are particularly sensitive to changes in assumptions about future mortality improvements which impact the
measurement of the liabilities, and also to the variance between actual and expected mortality experience each year. The results
are also sensitive to changes in expense levels over the longer term.
Also included within this component of business are the Group’s lifetime mortgage assets, whose value can vary in line with
market and demographic factors. Further detail on the valuation of these assets is provided in Note 33.3.2.
The assets and liabilities of the other long-term business, which includes legacy protection business, are not significant in the
context of the Group’s financial assets and liabilities and therefore do not contribute significantly to the Group’s risk exposure.
33.1.4 Other
This includes the financial assets and liabilities of the Group’s asset management, platform business and other Group-level
functions, including, central and treasury operations. The Group is exposed to market and credit risk in respect of financial assets
held by the “other” component of business, although this direct exposure to market and credit risk is not significant to the results
of the Group.
The ongoing profit arising from the asset management business is exposed to the risk that changes in market prices, such
as foreign exchange rates, interest rates, equity prices and property will affect income earned from investment management
activities. The profit arising from this business is also sensitive to the level of net client flows and to the level of expenses.
33.2 IFRS profit after tax and With-Profits Fund liability sensitivity analysis
33.2.1 IFRS profit after tax sensitivity analysis
The impacts on IFRS profit after tax and shareholders’ equity to the key economic and non-economic risks which may impact
profit are summarised below. These risks are described in further detail throughout this note, including the disclosure of
additional market risk sensitivities.
As at 31 December
Economic sensitivities
100bp increase in interest rates
100bp decrease in interest rates
10% fall in equity and property markets (excluding hedges)
10% fall in equity and property markets
5bps increase in credit default/downgrade allowance
Non-economic sensitivities
1% decrease in base annuitant mortality assumptions
5% increase in maintenance expense assumptions
0.25% increase in annuitant mortality improvements
Note
33.3.1
33.3.1
33.3.2
33.3.2
33.4
33.5
33.5
33.5
2022
£m
2021
£m
(261)
289
(78)
28
(35)
(22)
(10)
(22)
(890)
1,074
(95)
28
(64)
(30)
(13)
(46)
The sensitivities capture the immediate effects of an event occurring, as opposed to the longer-term or second-order effects
which may impact future profits, and do not reflect management actions which could be taken to mitigate the impacts of these
events occurring.
The interest rate stresses reflect a parallel shift in the nominal rate of interest at all durations. As described in Note 33.3.1, the
impact on IFRS profit after tax predominantly arises from assets held in excess of the liabilities.
The equity and property sensitivities are presented both excluding and including the equity hedges relating to future shareholder
transfers. As the majority of the hedges are in respect of shareholder transfers expected to arise in future years, which do not
impact IFRS profit after tax until these emerge, the fair value movement in these hedges creates a temporary mismatch within
IFRS profit after tax. For this reason the presentation of this sensitivity, excluding the impact of these hedges, gives the most
appropriate representation of the Group’s exposure to equity and property risk.
The credit default/downgrade sensitivity represents a 5bp increase in the assumed level of defaults and downgrades allowed for
within the valuation interest rate when valuing policyholder liabilities in respect of non-profit annuity business.
276 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 33 Risk management and sensitivity analysis continued
The annuitant mortality sensitivity is a 1% reduction in the mortality rates for immediate and deferred annuitants with no change
to mortality improvement rates, for the Group’s non-profit annuity business. The 0.25% per annum mortality improvements
sensitivity increases the rate at which mortality rates are expected to decline relative to the best estimate assumption.
The maintenance expense sensitivity is a 5% increase in future maintenance expense assumptions across all lines of business.
The credit default/downgrade allowance, annuitant mortality and maintenance expense sensitivities show the impact on IFRS
profit after tax of changes in the Group’s key estimates and assumptions when valuing policyholder liabilities as described in Note
1.4 and Note 26.1. The impact of this sensitivity on IFRS profit after tax is directly through a change in the policyholder liabilities.
33.2.2 With-Profits Fund liability sensitivity analysis
For business written in the Group’s With-Profits Fund, the change in the policyholder liabilities is directly offset by a
corresponding change in unallocated surplus of the With-Profits Fund and therefore has no impact on IFRS profit after tax.
Persistency assumptions and mortality assumptions in respect of the annuities in the With-Profits fund are key judgements in
determining the With-Profits Fund policyholder liability valuations but have no impact on IFRS profit after tax. The impact from
those sensitivities on the policyholder liabilities within the With-Profits Fund are shown in the table below:
As at 31 December
Non-economic sensitivities
10% increase in persistency assumptions
10% decrease in persistency assumptions
1% decrease in base mortality assumptions
0.25% increase in mortality improvements
Note
2022
£m
2021
£m
84
(58)
42
38
(53)
57
64
100
A reduction in lapse rates increases the liability for traditional with-profits products as a result of the associated high cost of
guarantees, but reduces the liability for PruFund products (which have a low cost of guarantees) by reducing charge income
received. During the year ended 31 December 2021, the increase in the cost of guarantees on traditional with-profits products
outweighed the increase in charge income received on PruFund products following a decrease in lapse rates, resulting in a net
increase in liability. However, the cost of guarantees is sensitive to interest rates, and following the large increase in interest
rates during the year ended 31 December 2022, the increase in the cost of guarantees following a reduction in lapse rates is
outweighed by the increase in charge income received on PruFund products.
33.3 Market risk
Market risk is the risk of loss or adverse change in the financial situation of the Group’s business or that of the Group’s clients
resulting, directly or indirectly, from fluctuations in the level or volatility of market prices of assets and liabilities.
Market risk comprises six types of risk, namely:
– Interest rate risk: fluctuations in the level and volatility of interest rates or the shape or curvature of the yield curve or
spread relationships
– Inflation risk: fluctuations in actual or implied inflation rates
– Equity risk: fluctuations in the level or volatility of equity investments
– Property risk: fluctuations in the level or volatility of property investments
– Currency risk: fluctuations, including translation risk, in the level or volatility of currency exposures
– Alternative investments risk: fluctuations in the level or volatility of alternative investment exposures (other than those
detailed above)
The primary market risks that the Group faces are equity risk, property risk and interest rate risk. Most assets the Group holds
are investments that are either equity or property-type investments and subject to equity or property price risk, or bonds,
mortgages and cash deposits, the values of which are subject to interest rate risk. Alternative investments may exhibit some or all
of these risks depending on the type of investment. The amount of risk borne by the Group’s shareholders depends on the extent
to which its clients share the investment risk through the structure of the Group’s products. In particular, the shareholder is only
directly exposed to market risk on the assets held within the “annuities and other long-term business” and “other” components of
business, which are predominantly debt securities and investment properties in respect of the annuity funds.
The split of the Group’s investments between equity investments and interest-sensitive instruments depends principally on the
type of liabilities supported by those investments and the amount of capital the Group has available. This mix of liabilities allows
the Group to invest a substantial portion of its investment funds in equity and property investments that the Group believes
produce greater returns over the long-term.
Market risk is managed through a robust market risk framework which includes: policies, risk appetite statements and risk limits
and triggers covering key market risk exposures; asset and liability management programmes; a quality of capital framework;
strategic asset allocations; investment and hedging strategies; and investment constraints.
M&G plc Annual Report and Accounts 2022 | 277
Financial informationStrategic ReportGovernanceOther information 33 Risk management and sensitivity analysis continued
33.3.1 Interest rate risk and inflation risk
The majority of the Group’s interest rate exposure arises from shareholder-backed annuities. The liabilities are exposed to
interest rate movements, but these are closely matched with assets of an appropriate duration. The matching of assets of
appropriate duration to the annuity liabilities is based on management of regulatory capital reporting requirements. The assets
held in excess of the liabilities, which back the capital requirements of the annuity business, result in an exposure to interest
rate risk.
The assets and liabilities for the with-profits and unit-linked components of business are sensitive to interest rates, but the
shareholder is not directly exposed to changes in the value of these assets and liabilities. The shareholder is indirectly exposed
to interest rate risk through the value of future shareholder transfers from with-profits business and charges levied on unit-linked
and asset management business.
The estimated sensitivity of profit to a movement in interest rates downwards of 1% and upwards of 1% and 2% is noted in the
tables below:
As at 31 December
Carrying value of debt securities and derivatives
Policyholder liabilities
Related deferred tax effects
Net sensitivity of profit after tax and shareholders’ equity
As at 31 December
Carrying value of debt securities and derivatives
Policyholder liabilities
Related deferred tax effects
Net sensitivity of profit after tax and shareholders’ equity
Decrease
of 1%
£m
2022
Increase
of 1%
£m
Increase
of 2%
£m
1,408
(1,234)
(2,329)
(1,023)
(96)
289
886
87
(261)
1,658
168
(503)
Decrease
of 1%
£m
2021
Increase
of 1%
£m
Increase
of 2%
£m
3,319
(2,773)
(5,189)
(1,887)
1,586
(358)
1,074
297
(890)
2,931
557
(1,701)
The impact of the carrying value of assets, policyholder liabilities and deferred tax effects are in respect of the shareholder-
backed business only, with the majority of the impact arising from the shareholder-backed annuities.
Inflation risk primarily arises from certain annuity contracts that have benefit escalation linked to a price index. The Group
manages this exposure by matching inflation-linked annuity liabilities with corresponding inflation-linked assets.
33.3.2 Equity and property risk
While the Group holds significant amounts of equity and property assets on its consolidated statement of financial position,
the shareholders’ exposure to equity and property risk for the with-profits and unit-linked business is limited as the risk is
predominantly borne by the policyholder. Instead, the Group’s direct exposure to this risk arises from the “annuities and
other long-term business” component’s holdings in equity securities and property, which are not hedged or matched by
corresponding liabilities.
Excluding any longer-term, indirect effects on profit due to the future value of shareholder transfers from with-profits business
and charges levied on unit-linked and asset management business, a fall in the fair value of these investments would have given
rise to the following effects on pre-tax profit, profit after tax, and shareholders’ equity. The majority of the sensitivity arises in
respect of investment property assets held in the annuity funds.
278 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
33 Risk management and sensitivity analysis continued
The impact of the sensitivities excluding equity hedges is shown below.
For the year ended 31 December
Pre-tax profit
Related deferred tax effects
Net sensitivity of profit after tax and shareholders’ equity
2022
2021
Decrease
of 20%
£m
Decrease
of 10%
£m
Decrease
of 20%
£m
Decrease
of 10%
£m
(208)
52
(156)
(104)
26
(78)
(252)
64
(188)
(125)
30
(95)
A 10% or 20% increase in their value would have an approximately equal and opposite effect on profit and shareholders’ equity to
the sensitivities shown above. The market risk sensitivities shown above reflect the impact of temporary market movements.
In the equity risk sensitivity analysis shown above, the Group has considered the impact of an instantaneous 10% or 20% fall in
equity markets. If equity markets were to fall by more than 20%, the Group believes that this would not be an instantaneous fall
but rather would be expected to occur over a period of time, during which the Group would be able to put in place mitigating
management actions.
As noted above, the analysis excludes the indirect exposure of ongoing profit to equity and property risk through the impact on
policyholder bonuses on with-profits business and charges levied on unit-linked and asset management business. For with-
profits business, the impact of market risk is reduced due to the “smoothed” basis of bonus declaration, so the sensitivity to
short-term investment performance is relatively low. However, long-term investment performance may affect future shareholder
transfers. The Group has entered into a partial equity hedge of the shareholder transfers expected to emerge from the WPSF in
order to mitigate this risk. Due to the mismatch that results from a difference in the timing of fair value movements on the hedges
and the emergence of the underlying shareholder transfers, the above sensitivities do not include the impact of these hedges as
this gives the most appropriate representation of the Group’s exposure to equity and property risk.
The impact of the sensitivities allowing for the equity hedges is shown below.
For the year ended 31 December
Pre-tax profit
Related deferred tax effects
Net sensitivity of profit after tax and shareholders’ equity
33.3.3 Currency risk
2022
2021
Decrease
of 20%
£m
Decrease
of 10%
£m
Decrease
of 20%
£m
Decrease
of 10%
£m
62
(15)
47
37
(9)
28
71
(18)
53
38
(10)
28
The Group invests significant amounts of policyholder funds in overseas assets as part of its investment strategy. The direct
currency risk exposure to the shareholder from the with-profits and unit-linked components of business is minimal, although
the shareholder is indirectly exposed to currency risk in relation to the future value of shareholder transfers from with-profits
business and charges levied on unit-linked and asset management business. Currency risk exposure arising from overseas
assets held by the shareholder-backed annuity and other long-term business is mitigated through the use of derivatives.
As at 31 December 2022, the Group held 50% (2021: 44%) and 13% (2021: 9%) of its financial assets and financial liabilities
respectively, in currencies, mainly US dollar and euro, other than pounds sterling, the functional currency of the Group.
Of these financial assets, as at 31 December 2022, 74% (2021: 71%) are held by the With-Profits Fund, allowing the fund to
obtain exposure to foreign equity markets. Of these financial liabilities, as at 31 December 2022, 96% (2021: 86%) are held by the
With-Profits Fund, mainly relating to foreign currency borrowings. The exchange risks inherent in these exposures are mitigated
through the use of derivatives, mainly forward currency contracts.
For the year ended 31 December 2022, exchange gains of £562m (2021: losses of £120m) were recognised in the income
statement; mainly arising on assets held by the With-Profits Fund, the majority of which are offset by changes in with-profits
and unit-linked liabilities. This excludes exchange gains and losses arising on foreign currency investments measured at FVTPL,
which are included as part of gains and losses included in investment return, which is shown in Note 4.
The Group is also exposed to structural currency translation risk as a result of overseas operations which contribute to equity.
The assets and liabilities of foreign operations are translated into the Group’s presentational currency, pounds sterling.
Foreign exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive
income and accumulated in the translation reserve.
M&G plc Annual Report and Accounts 2022 | 279
Financial informationStrategic ReportGovernanceOther information
33 Risk management and sensitivity analysis continued
33.4 Credit risk
The Group’s exposure to credit risk primarily arises from the annuity funds, which hold substantial volumes of public and private
fixed income investments on which a certain level of defaults and downgrades are expected. The sensitivity of IFRS profit after
tax and IFRS shareholders’ equity to a change in the credit default and downgrade allowance within the valuation rate of interest
of shareholder-backed non-profit annuities is shown in Note 33.2.
While the with-profits and unit-linked funds have large holdings of assets subject to credit risk, the shareholder results of the
Group are not directly exposed to credit defaults on assets held in these components of business. However, the shareholder is
indirectly exposed to credit risk from these components of business in relation to the future value of shareholder transfers from
with-profits business and charges levied on unit-linked and asset management business. The direct exposure of the Group’s
shareholders’ equity to credit default risk in the “Other” component is small in the context of the Group.
Credit risk is managed through a robust credit and counterparty framework which includes: policies, standards, appetite
statements, limits and triggers (including relevant governance and controls); investment constraints and limits on the asset
portfolios, in relation to credit rating, seniority, sector and issuer, and counterparties in particular for derivatives, reinsurance and
cash; and a robust credit rating process.
33.4.1 Financial assets
The following tables provide an analysis of the quality of financial assets which are exposed to credit risk. The financial assets
below are analysed according to external credit ratings issued, with equivalent ratings issued by different ratings agencies
grouped together.
As at 31 December 2022
Accrued investment income and other debtors
Cash and cash equivalents
Debt securities
Deposits
Loans held at fair value
Loans held at amortised cost
Reinsurance assets
Total financial assets
As at 31 December 2021
Accrued investment income and other debtors
Cash and cash equivalents
Debt securities
Deposits
Loans held at fair value
Loans held at amortised cost
Reinsurance assets
Total financial assets
AAA
£m
AA+ to AA-
£m
A+ to A-
£m
38
224
82
1,060
6,651
12,632
140
3,342
11,774
—
—
—
—
2,011
14,952
—
—
247
934
105
666
BBB+ to
BBB-
£m
155
144
16,147
3,594
5
169
1
Below BBB-
£m
64
18
Other
£m
1,861
96
Total
£m
2,340
4,884
4,377
11,240
62,821
—
143
540
—
844
134
1,300
272
21,401
1,216
2,114
1,186
6,913
16,032
31,913
20,215
5,142
15,747
95,962
AAA
£m
AA+ to AA-
£m
A+ to A-
£m
BBB+ to
BBB-
£m
Below BBB-
£m
72
—
89
840
7,857
18,093
—
789
—
—
4,376
1,956
—
750
138
5,396
14,103
7,857
60
69
197
562
19,058
4,278
18
175
(43)
1,053
Other
£m
2,087
101
64
9
6,589
15,359
—
50
285
—
1,122
402
2,005
(91)
Total
£m
2,647
6,908
81,059
17,633
3,275
2,534
1,669
8,718
26,104
27,580
25,341
6,997
20,985
115,725
The credit ratings, information or data contained in this report which are attributed and specifically provided by Standard &
Poor’s, Moody’s and Fitch and their respective affiliates and suppliers (“Content Providers”) is referred to here as the “Content”.
Reproduction of any content in any form is prohibited except with the prior written permission of the relevant party. The Content
Providers do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not
responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the
use of such Content. The Content Providers expressly disclaim liability for any damages, costs, expenses, legal fees, or losses
(including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular
investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation
to buy, sell or hold any such investment or security, nor does it address the suitability of an investment or security and should not
be relied on as investment advice.
280 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 33 Risk management and sensitivity analysis continued
In the table above, 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- and are non-investment grade.
The Group is exposed to the risk of counterparty default on its reinsurance assets. The Group evaluates the financial condition
of its reinsurers and monitors concentration of credit risk to minimise its exposure from reinsurer insolvencies. The split of the
reinsurance asset by credit rating is shown above.
Of the total loans and accrued investment income & other debtors held as at 31 December 2022, £31m (2021: £64m) were past
their due date but were not impaired. Of the total past due but not impaired, all were less than one year past their due date.
The Group expects full recovery of these loans and accrued investment income & other debtors.
Loans that were impaired are not significant to the Group. Further information on the loans portfolio is provided in Note 18.
Debt securities with no external credit rating are classified as “other”. The following table shows the majority of debt securities
shown as “other” are allocated an internal rating and are considered to be of investment grade quality:
As at 31 December
AAA
AA+ to AA-
A+ to A-
BBB+ to BBB-
Below BBB-
Unrated
Total
33.4.2 Debt securities
2022
£m
43
1,548
3,844
1,845
786
3,174
11,240
2021
£m
53
3,326
5,301
2,215
859
3,605
15,359
The table below presents the Group’s debt securities by asset category and external credit rating issued for each component of
business as set out in Note 33.1.
As at 31 December 2022
Government sovereign debt
With-profits
Unit-linked
Annuity and other long-term business
Other
Quasi-sovereign and public sector debt
With-profits
Unit-linked
Annuity and other long-term business
Corporate debt
With-profits
Unit-linked
Annuity and other long-term business
Other
Asset-backed securities
With-profits
Unit-linked
Annuity and other long-term business
Other
Total debt securities
With-profits
Unit-linked
Annuity and other long-term business
Other
AAA
£m
AA+ to AA-
£m
A+ to A-
£m
4,325
3,382
211
671
61
329
257
34
38
1,368
760
87
326
195
629
398
30
95
106
6,651
4,797
362
1,130
362
7,641
4,633
923
1,497
588
1,800
942
83
775
2,952
1,812
180
870
90
239
158
21
60
—
12,632
7,545
1,207
3,202
678
1,379
1,297
81
—
1
328
250
15
63
9,623
7,251
772
1,542
58
444
208
18
218
—
11,774
9,006
886
1,823
59
BBB+ to
BBB-
£m
2,194
2,106
Below BBB-
£m
1,062
1,058
58
26
4
175
172
3
—
13,527
10,333
1,473
1,687
34
251
144
31
76
—
16,147
12,755
1,565
1,789
38
—
—
4
21
21
—
—
3,250
2,695
382
148
25
44
44
—
—
—
4,377
3,818
382
148
29
Otheri
£m
187
187
—
—
—
305
261
2
42
9,235
5,032
53
4,150
—
1,513
1,389
9
115
—
Total
£m
16,788
12,663
1,273
2,194
658
2,958
1,903
137
918
39,955
27,883
2,947
8,723
402
3,120
2,341
109
564
106
11,240
62,821
6,869
44,790
64
4,466
4,307
12,399
—
1,166
i Debt securities with no external credit rating are classified as “Other”
M&G plc Annual Report and Accounts 2022 | 281
Financial informationStrategic ReportGovernanceOther information 33 Risk management and sensitivity analysis continued
As at 31 December 2021
Government sovereign debt
With-profits
Unit-linked
Annuity and other long-term business
Other
Quasi-sovereign and public sector debt
With-profits
Unit-linked
Annuity and other long-term business
Corporate debt
With-profits
Unit-linked
Annuity and other long-term business
Other
Asset-backed securities
With-profits
Unit-linked
Annuity and other long-term business
Other
Total debt securities
With-profits
Unit-linked
Annuity and other long-term business
Other
AAA
£m
AA+ to AA-
£m
A+ to A-
£m
4,098
2,709
245
1,105
39
509
297
45
167
1,938
1,296
157
317
168
1,312
972
38
114
188
7,857
5,274
485
1,703
395
11,299
6,651
1,858
2,093
697
2,605
1,197
156
1,252
3,842
2,208
233
1,307
94
347
228
22
97
—
18,093
10,284
2,269
4,749
791
1,382
1,197
164
21
—
358
328
21
9
11,751
8,543
1,017
2,087
104
612
299
18
295
—
14,103
10,367
1,220
2,412
104
BBB+ to
BBB-
£m
1,226
1,110
76
38
2
112
110
2
—
17,450
13,376
1,788
2,279
7
270
142
38
90
—
19,058
14,738
1,904
2,407
9
Below BBB-
£m
Otheri
£m
1,135
1,105
26
—
4
47
41
6
—
340
201
3
136
—
518
464
4
50
Total
£m
19,480
12,973
2,372
3,393
742
4,149
2,437
234
1,478
5,353
4,651
13,314
53,648
6,747
36,821
519
157
26
54
53
1
—
—
51
3,765
6,515
12,662
1
1,187
1,039
11
137
—
400
3,782
2,733
128
733
188
6,589
5,850
15,359
81,059
8,451
54,964
552
157
30
69
6,499
6,838
18,266
1
1,330
As at 31 December 2022 corporate debt exposure to banks amounted to £8,273m (2021: £9,666m).
The Group has holdings in asset-backed securities (ABS) which are presented within debt securities on the consolidated
statement of financial position. The Group’s holdings in ABS, which comprise residential mortgage-backed securities (RMBS),
commercial mortgage-backed securities (CMBS), collateralised debt obligations (CDO) funds and other asset-backed securities
are shown within the table above.
The Group’s exposure to sovereign debt are analysed by issuer as follows:
With-profits
£m
Unit-linked
£m
2022
Annuity and
other long-
term business
£m
Other
£m
Total
£m
1,239
578
5,054
2,290
503
1,223
4,016
1,990
891
566
760
947
39
57
201
586
1,043
2,026
6
12
8
12
—
—
—
—
—
4
582
23
—
—
—
743
1,870
7,667
2,019
903
574
772
4,440
12,663
192
1,273
168
2,194
53
658
4,853
16,788
As at 31 December
Sovereign debt securities by country:
United Kingdom
Germany
Other European Countries
Total Europe
United States
Indonesia
Malaysia
South Korea
Other
Total
282 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
33 Risk management and sensitivity analysis continued
As at 31 December
Sovereign debt securities by country:
United Kingdom
Germany
Other European Countries
Total Europe
United States
Indonesia
Malaysia
South Korea
Other
Total
With-profits
£m
Unit-linked
£m
2021
Annuity and
other long-
term business
£m
1,860
31
93
1,984
137
11
8
11
1,988
150
984
3,122
1
—
—
—
4,552
178
1,188
5,918
1,763
843
541
734
3,174
12,973
Other
£m
Total
£m
688
9,088
—
17
705
10
—
—
—
359
2,282
11,729
1,911
854
549
745
221
2,372
270
3,393
27
742
3,692
19,480
As at 31 December 2022 Other European Countries included £1,403m (2021: £1,913m) and Other included £1,226m
(2021: £1,000m) of Supranational Government bonds.
33.4.3 De-recognition, collateral and offsetting
Securities lending and repurchase agreements
The Group has entered into securities lending and repurchase agreements whereby blocks of securities are transferred to third
parties, primarily major brokerage firms, in exchange for collateral. Typically, the value of collateral assets pledged to the Group
in these transactions is in excess of the value of securities transferred, with the excess determined by the quality of the collateral
assets granted. Collateral requirements are calculated on a daily basis. The securities lent and securities subject to repurchase
agreements are not derecognised from the Group’s consolidated statement of financial position. Collateral typically consists of
cash, debt securities, equity securities and letters of credit. Cash collateral received is recognised on the consolidated statement
of financial position and a financial liability for the obligation for the Group to repay the cash is also recognised. Non-cash
collateral received is not recognised on the consolidated statement of financial position. Collateral pledged by the Group under
reverse repurchase arrangements, aside from cash, is not derecognised from the consolidated statement of financial position as
the risks and rewards are still retained by the Group. Cash collateral pledged is derecognised as it is pledged under right to use
by the counterparty and a financial asset is recognised for the obligation for the counterparty to re-pay the cash to the Group.
As at 31 December 2022, the Group had £3,638m (2021: £5,643m) of collateral pledged to the Group under securities lending and
repurchase agreements, primarily relating to the With-Profits Fund. The cash and securities collateral accepted under securities
lending agreements was £5,471m (2021: £5,021m). As at 31 December 2022, the Group had entered into reverse repurchase
transactions under which it purchased securities and had taken on the obligation to resell the securities. The fair value of the
collateral held in respect of these transactions was £15,316m (2021: £14,348m).
Collateral and pledges under derivative transactions
At 31 December 2022, the Group had pledged £2,818m (2021: £1,653m) for liabilities and held collateral of £1,318m
(2021: £1,775m) in respect of over-the-counter derivative transactions.
These transactions are conducted under terms that are usual and customary to collateralised transactions including, where
relevant, standard securities lending and repurchase agreements.
Other collateral
At 31 December 2022, the Group had pledged collateral of £552m (2021: £1,468m) in respect of other transactions. This primarily
arises from collateral pledged in relation to deferred purchase consideration on lifetime (equity release) mortgages of £287m
(2021: £420m), in addition to collateral on reinsurance exposures of £214m (2021: £206m).
M&G plc Annual Report and Accounts 2022 | 283
Financial informationStrategic ReportGovernanceOther information
33 Risk management and sensitivity analysis continued
Offsetting assets and liabilities
The Group’s derivative instruments, repurchase agreements and securities lending agreements are subject to master netting
arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of offset for
amounts due to and due from that same counterparty that is enforceable in the event of a default or bankruptcy. The Group
recognises amounts subject to master netting arrangements on a gross basis on the consolidated statement of financial position.
The following tables present the gross and net information about the Group’s financial instruments subject to master
netting arrangements:
As at 31 December 2022
Financial assets:
Derivative assets
Reverse repurchase agreements
Total financial assets
Financial liabilities:
Derivative liabilities
Securities lending and repurchase
agreements
Total financial liabilities
As at 31 December 2021
Financial assets:
Derivative assets
Reverse repurchase agreements
Total financial assets
Financial liabilities:
Derivative liabilities
Securities lending and repurchase
agreements
Total financial liabilities
Related amounts not offset in the
consolidated statement of financial position
Gross amount
included in the
consolidated
statement of
financial position
£m
Financial
instruments
£m
Cash collateral
£m
Securities
collateral
£m
Net amount
£m
2,560
18,892
21,452
(1,293)
(1,309)
—
—
(1,293)
(1,309)
3,705
(1,293)
939
4,644
—
(1,293)
(18)
—
(18)
277
(15,295)
(15,018)
(2,317)
(938)
(3,255)
235
3,597
3,832
77
1
78
Related amounts not offset in the
consolidated statement of financial position
Gross amount
included in the
consolidated
statement of
financial position
£m
3,151
17,458
20,609
2,290
884
3,174
Financial
instruments
£m
Cash collateral
£m
Securities
collateral
£m
Net amount
£m
(1,186)
—
(1,186)
(1,186)
—
(1,186)
(1,735)
—
(1,735)
(112)
—
(112)
(14)
(14,324)
(14,338)
(933)
(884)
(1,817)
216
3,134
3,350
59
—
59
In the tables above, the amounts of assets or liabilities included on the consolidated statement of financial position would be
offset first by financial instruments that have the right of offset under master netting or similar arrangements, with any remaining
amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than the
amounts presented in the tables. Reverse repurchase agreements shown in the tables above are included within deposits on the
consolidated statement of financial position.
284 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
33 Risk management and sensitivity analysis continued
33.5 Demographic and expense risk
The Group is exposed to significant levels of demographic risk. This arises mainly from the annuity business in the form
of longevity risk, which is the risk of unexpected changes in the life expectancy (longevity) of policyholders. If mortality
improvement rates significantly exceed the level assumed, the Group’s results could be adversely affected. Further to this, any
major medical breakthrough (for example, in the treatment of cancer or other life-threatening diseases) that would require the
Group to strengthen its longevity assumptions would have an impact on the Group’s results.
Longevity risk for both shareholder-backed business and policyholder-backed business has been predominantly
managed through:
– regular reviews of best estimate assumptions, supported by detailed assessments of actual mortality experience versus the
best estimate assumptions;
– longevity research; and
– longevity reinsurance arrangements.
Other demographic risks such as persistency risk and non-annuitant mortality risk, as well as expense risk, are subject to regular
reviews and actions, with frequency and intensity proportionate to the materiality of the risk. Further details of the sensitivity of
profit and shareholders’ equity to demographic risks are described below by the components of business. The sensitivity of IFRS
profit after tax and IFRS shareholders’ equity to annuitant mortality and expense risk is provided in Note 33.2.
33.5.1 With-profits business
Mortality and other demographic risks are relatively minor factors in the determination of the policyholder bonus rates.
Adverse persistency experience can affect the level of profitability from with-profits contracts, but in any given year the
shareholders’ share of cost of bonus may only be marginally affected. However, altered persistency trends may affect future
expected shareholder transfers.
33.5.2 Unit-linked business
By virtue of the design features of most of the contracts which provide low levels of mortality cover, profit is relatively insensitive
to changes in mortality experience. Persistency experience variances can affect the level of profit in the year. The shareholder is
also exposed to variances in expenses relative to the charges levied on these products.
33.5.3 Annuity and other long-term business
Profits from shareholder-backed annuity business are most sensitive to the following demographic and expense risks:
– The extent to which changes to the assumed rate of improvements in mortality give rise to changes in the measurement
of liabilities;
– The variance between actual and expected mortality experience, and its impact on current mortality assumptions; and
– Changes in maintenance expense levels.
The risk arising from the other long-term business is not significant in the context of the Group’s overall liabilities.
33.6 Liquidity risk
The Group is exposed to two types of liquidity risk:
– Treasury liquidity risk is the risk of loss for the Group’s business, or of adverse changes in the financial situation, resulting from
the Group’s inability to generate sufficient cash resources to meet financial obligations (for example, claims, creditors and
planned dividends) as they fall due;
– Fund liquidity risk is the risk of being unable to meet liabilities arising from a mismatch in liquidity of the underlying assets and
the frequency of liability requirements of the fund.
The Group’s IFRS results are indirectly exposed to fund liquidity risk, for example, through reputational damage leading to lower
funds under management and lower revenue through charges collected. However, as the effect on the Group’s IFRS results is
indirect, this risk is not discussed further and the remainder of this section refers to treasury liquidity risk.
Liquidity management in the Group seeks to ensure that, even under adverse conditions, the Group has access to the funds
necessary to cover surrenders, withdrawals and maturing liabilities.
Liquidity risk is carefully managed, in particular in relation to: bank balances, cashflow forecasting, appropriate fund management
(to ensure that assets are not unduly concentrated in less liquid investments) and detailed cash-flow matching for the annuity
business. Specific arrangements are also in place to manage liquidity in the unit-linked funds, particularly property funds where
the underlying assets are relatively illiquid.
M&G plc Annual Report and Accounts 2022 | 285
Financial informationStrategic ReportGovernanceOther information 33 Risk management and sensitivity analysis continued
33.6.1 Contractual maturities of financial liabilities on an undiscounted cash flow basis
The following table sets out the contractual maturities of financial liabilities, excluding derivative liabilities that are separately
presented in Section 33.6.2. The financial liabilities are included in the column relating to the contractual maturities at the
undiscounted cash flows (including contractual interest payments and expected benefit payments) due to be paid, assuming
conditions are consistent with those at the year end. The numbers within the comparative table have been re-presented to
include all classes of financial liabilities and additionally the subordinated liabilities and other borrowings have been adjusted to
reflect fully the correct contractual undiscounted cash flow maturity profile.
As at 31 December 2022
Financial liabilities:
Investment contracts without
DPF
Third party interest in
consolidated funds
Subordinated liabilities and
other borrowings
Other financial liabilities
Accruals, deferred income
and other liabilities
Total
carrying
value
£m
1 year or
less
£m
After 1 year
to 5 years
£m
After 5
years to 10
years
£m
After 10
years to 15
years
£m
After 15
years to 20
years
£m
Over 20
years
£m
No stated
maturity
£m
Total undis-
counted
value
£m
11,937
11,937
—
—
10,389
116
395
108
7,537
2,172
995
939
2,993
1,585
—
6,745
6,438
110
—
87
—
—
965
—
—
—
—
—
11,937
784
8,986
10,389
1,281
6,080
—
13,899
—
—
1,233
2,172
114
109
191
—
7,049
Total
38,780
20,425
3,498
1,780
1,079
1,390
7,055
10,219
45,446
As at 31 December 2021
Financial liabilities:
Investment contracts without
DPF
Third party interest in
consolidated funds
Subordinated liabilities and
other borrowings
Other financial liabilities
Accruals, deferred income
and other liabilities
Total
carrying
value
£m
1 year or
less
£m
After 1 year
to 5 years
£m
After 5
years to 10
years
£m
After 10
years to 15
years
£m
After 15
years to 20
years
£m
Over 20
years
£m
No stated
maturity
£m
Total undis-
counted
value
£m
14,884
14,884
—
—
12,636
109
282
232
—
—
—
—
—
—
14,884
507
11,506
12,636
8,930
2,882
696
884
6,073
5,664
—
57
—
81
2,515
1,694
1,184
1,188
8,677
97
—
—
—
1,998
16,051
2,882
103
1,287
110
1,298
211
—
6,226
9,395
13,601
52,679
Total
45,405
22,237
2,854
2,007
Investment contracts without DPF are mainly the Group’s unit linked policyholder liabilities. Unit linked policyholders usually have
the option to surrender, in part or in full, their contract at any time and as a result the contracts have been designated as payable
within one year in the table. A large proportion of the unit linked policyholder liabilities contain discretionary surrender values or
surrender charges, meaning that many of the Group’s liabilities are expected to be held for the long-term. Such surrenders would
be matched in practice, if necessary, by sales of underlying assets.
286 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 33 Risk management and sensitivity analysis continued
Many of the Group’s investment portfolios are in marketable securities, which can therefore be converted quickly to liquid assets.
As a result an analysis of the Group’s assets by contractual maturity is not considered appropriate to evaluate the nature and
extent of the Group’s liquidity risk.
33.6.2 Maturity analysis of derivatives
The following table shows the gross and net derivative positions together with the maturity profile of the contractual
undiscounted cashflows:
As at 31 December 2022
Derivative assets
Derivative liabilities
Total
carrying
value
£m
2,850
4,185
1 year or
less
£m
After 1 year
to 5 years
£m
After 5
years to 10
years
£m
After 10
years to 15
years
£m
After 15
years to 20
years
£m
Over 20
years
£m
No stated
maturity
£m
Total undis-
counted
value
£m
384
772
816
1,066
(250)
722
821
(99)
526
1,164
554
934
1,258
1,662
(638)
(380)
(404)
—
—
—
4,260
6,419
(2,159)
Net derivative position
(1,335)
(388)
Total
carrying
value
£m
3,373
2,689
684
1 year or
less
£m
After 1 year
to 5 years
£m
After 5
years to 10
years
£m
After 10
years to 15
years
£m
After 15
years to 20
years
£m
354
611
(257)
674
652
22
731
641
90
674
657
17
886
538
348
Over 20
years
£m
2,005
1,313
692
No stated
maturity
£m
Total undis-
counted
value
£m
—
—
—
5,324
4,412
912
As at 31 December 2021
Derivative assets
Derivative liabilities
Net derivative position
33.7 Derivatives and hedging
The Group uses derivatives for the purpose of efficient portfolio management or the reduction in investment risk. In doing so, the
Group obtains cost-effective and efficient exposure to various markets and manages exposure to equity, interest rate, currency,
credit and other business risks. The Group has opted not to apply hedge accounting to derivatives.
The Group uses various interest rate derivative instruments such as interest rate swaps and swaptions to reduce exposure
to interest rate volatility. The Group also uses various currency derivatives in order to limit volatility due to foreign currency
exchange rate fluctuations arising on securities denominated in currencies other than pounds sterling.
All over-the-counter derivative transactions are conducted under standardised ISDA (International Swaps and Derivatives
Association Inc) master agreements and CSA (Credit Support Annexes). The Group has collateral agreements between the
individual entities in the Group, of which the Company is one, and relevant counterparties in place under each of these market
master agreements. The Group also has the ability to enter into cleared derivative positions under EMIR (European Market
Infrastructure Regulation).
The total fair value balances of derivative assets and liabilities are shown in Note 19.
There are hedging arrangements in place for the with-profits liabilities. In addition to some product-specific arrangements, the
main objective of the hedging arrangements is to broadly match a subset of the market-consistent liabilities and hence protect
the capital position of the with-profits business against adverse market movements. The actual and required hedging positions
are monitored at least monthly and rebalanced if required.
Under Article 11 of the UK European Market Infrastructure Regulation on derivatives, central counterparties and trade
repositories (EMIR) and the Technical Standards onshoring Commission Delegated Regulation (EU) 2016/2251 supplementing
EMIR, market participants transacting in non-cleared OTC derivatives are required to exchange collateral to cover variation and
initial margin. However, trades between counterparties belonging to the same group are exempt from these margin requirements
subject to certain criteria.
Prudential Capital Plc (Legal Entity Identifier reference (LEI) CHW8NHK268SFPTV63Z64) has entered into such derivative
agreements with the following group entities. These counterparty pairings meet the criteria to be eligible for intra-group
exemptions to the margin requirements:
M&G plc Annual Report and Accounts 2022 | 287
Financial informationStrategic ReportGovernanceOther information 33 Risk management and sensitivity analysis continued
Counterparty
Legal Entity Identifier
Relationship between parties
Prudential Lifetime
Mortgages Limited
5493001GSK4HF84IOB02
M&G FA Limited
213800TFNC2ZYHSGTN11
M&G plc is the ultimate Parent
Company for both parties
M&G plc is the ultimate Parent
Company for both parties
As at 31
December
2022
Aggregate
notional
of OTC
derivatives
contract
£m
As at 31
December
2021
Aggregate
notional
of OTC
derivatives
contract
£m
37
255
37
204
Type of
exemption
Full
Full
33.7.1 Hedges in respect of shareholder transfers arising from the with-profits business
The shareholders’ exposure to market risk from with-profits business arises from the shareholder transfers which depend on
investment return of the funds. These shareholder transfers, while smoothed, are particularly exposed to equity risk.
The Group has entered into a partial equity hedge of the shareholder transfers expected to emerge from the WPSF in order
to mitigate this risk. The effect for the year ended 31 December 2022 was an unrealised gain of £121m (2021: unrealised loss of
£227m) and a realised loss of £119m (2021: realised loss of £81m).
PAC’s shareholder fund has also entered into a risk management arrangement with the WPSF in relation to the shareholder
transfers expected to emerge from the WPSF, specifically with regard to the PruFund new business written during 2018 to 2020.
This arrangement was designed to protect the shareholders against extremely weak market returns. This arrangement resulted
in a £8m unrealised loss for the year ended 31 December 2022 (2021: unrealised loss of £36m).
33.7.2 Other shareholder hedging arrangements
The Group’s shareholder fund has purchased interest rate swap instruments to protect the capital position against interest rate
movements. For the year ended 31 December 2022, these instruments resulted in an unrealised loss of £803m (2021: unrealised
loss of £86m) and a realised loss of £186m (2021: realised loss of £17m).
34 Contingencies and related obligations
34.1 Litigation, tax and regulatory matters
In addition to the matters set out in Note 29 regarding regulatory provisions in relation to annuity sales practices, and in Note 9.3
regarding the portfolio dividend tax litigation, the Group is involved in various litigation and regulatory issues. While the outcome
of such litigation and regulatory issues cannot be predicted with certainty, the Directors believe that their ultimate outcome will
not have a material adverse effect on the Group’s financial condition, results of operations, or cash flows.
34.2 Guarantees
Guarantee funds provide for payments to be made to policyholders on behalf of insolvent life insurance companies and
are financed by payments assessed on solvent insurance companies based on location, volume and types of business.
The estimated reserve for future guarantee fund assessments is not significant, and adequate reserves are available for all
anticipated payments for known insolvencies.
M&G plc acts as guarantor for certain property leases where a group company is a lessee. The most material of these is the
guarantee provided in respect of the 10 Fenchurch Avenue lease between Saxon Land B.V. and M&G Corporate Services Limited.
On acquisition of a controlling interest in MGSA, M&G Group Limited provided a guarantee in respect of an existing loan facility
between Thesele, the seller of MGSA, and Nedbank, a third party bank amounting to ZAR 220m. The guarantee is secured on 7%
of the shares that Thesele retains in MGSA.
M&G Group Regulated Entity Holding Company Limited is a guarantor for the obligations of M&G Corporate Services Limited to
make payments under the Scottish Amicable Staff Pension Scheme.
The Group has also provided other guarantees and commitments to third parties entered into in the normal course of business,
but the Group does not consider that these would result in a significant unprovisioned loss.
34.3 Support for the With-Profits Fund by shareholders
PAC is liable to meet its obligations to with-profits policyholders even if the assets of the with-profits sub-funds are insufficient
to do so. The assets, represented by the unallocated surplus of the With-Profits Fund, in excess of amounts expected to be
paid for future terminal bonuses and related shareholder transfers (‘the excess assets’) in the with-profits sub-funds could be
materially depleted over time by, for example, a significant or sustained equity market downturn. In the unlikely circumstance that
the depletion of the excess assets within the with-profits sub-funds was such that the Group’s ability to satisfy policyholders’
reasonable expectations was adversely affected, it might become necessary to restrict the annual distribution to shareholders or
to contribute shareholders’ funds to the with-profits sub-funds to provide financial support.
288 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
34 Contingencies and related obligations continued
There are a number of additional arrangements between the shareholder and the With-Profits Fund as follows:
– The With-Profits Fund contributed to the costs of establishing the Polish branch of PAC, and receives repayment through
income from charges levied on the business. There is an obligation on the shareholders to ensure that the With-Profits Fund
will be repaid in full with interest, and an amount is recognised for the estimated cost to the shareholder of any shortfall at the
end of the term of the agreement. The impact is included in the unallocated surplus of the with-profits fund with changes in
value recognised in movement in unallocated surplus of the with-profits fund in the consolidated income statement.
– Part of the acquisition costs incurred in the early years of M&G Wealth Advice Limited (formerly Prudential Financial Planning
Ltd) were funded by the With-Profits Fund. In return, M&G Wealth Advice Limited is required to deliver cost savings to the
With-Profits Fund. In the event of closure of M&G Wealth Advice or, the cost savings not being delivered and M&G Wealth
Advice stops writing new business, the shareholder will reimburse the With-Profits Fund for any remaining shortfall. The time
period for repayment is not defined.
– Transformation costs associated with with-profits new business will be recovered in the pricing of future new business
(subject to a shareholder underpin whereby the shareholder will compensate the With-Profits Fund if any of these costs are
not fully recovered at the end of the term of the agreement).
– PAC has undertaken a project to rationalise fund structures (The Target Investment Model programme) achieved by combining
existing, smaller funds with the main With-Profits asset share fund in a fund umbrella structure, and is expected to yield
various benefits for the business over time. If expected benefits do not materialise to the With-Profits Fund, the shareholder is
committed to compensate the fund for any implementation costs borne which were not fully recouped. The assessment period
for the underpin arrangement is 5 years, running to the end of 2025.
– PAC has priced new with-profits business on a basis that is expected to be financially self-supporting or, where this has
not been the case, the shareholder is required to cover the cost (known as the New Business Supportability Test, ‘NBST’).
The impact is included in the unallocated surplus of the with-profits fund with changes in value recognised in movement in
unallocated surplus of the with-profits fund in the consolidated income statement.
The following matters are of relevance with respect to the With-Profits Fund:
34.3.1 Pension mis-selling review
The Pensions mis-selling review covers clients who were sold personal pensions between 29 April 1988 and 30 June 1994, and
who were advised to transfer out, not join, or opt out of their employer’s Defined Benefit Pension Scheme. Currently a provision
amounting to £226m (2021: £296m) as at 31 December 2022 is being held in relation to this within insurance contract liabilities.
During the initial review, some clients were issued with guarantees that redress will be calculated on retirement or transfer of
their policies. The provision continues to cover these clients.
Whilst PAC believed it met the requirements of the FSA (the UK insurance regulator at that time) to issue offers of redress to all
impacted clients by 30 June 2002, there is a population of clients who, whilst an attempt was made at the time to invite them to
participate in the review, may not have received their invitation. These clients have been re-engaged, to ensure they have the
opportunity to take part in the review. The provision also covers this population.
The key assumptions underlying the provisions are:
– average cost of redress per client.
– proportion of provision (reserve rate) held for soft close cases (where all reasonable steps have been taken to contact the client
but the client has not engaged with the review).
Sensitivities of the value of the provision to change in assumptions are as follows:
Assumption
Average cost of redress
Reserve rate for soft closed cases
Change in assumption
increase/decrease by 10%
increase/decrease by 10%
As at 31 December
2022
£m
+/- 10
+/- 30
2021
£m
+/- 10
+/- 30
M&G plc Annual Report and Accounts 2022 | 289
Financial informationStrategic ReportGovernanceOther information
Costs arising from this review are met by the excess assets of the with-profits sub-fund and hence have not been charged to
the asset shares used in the determination of policyholder bonus rates. An assurance was given that these deductions from
excess assets would not impact PAC’s bonus or investment policy for policies within the with-profits sub-funds that were in
force at 31 December 2003. This assurance does not apply to new business since 1 January 2004. In the unlikely event that such
deductions would affect the bonus or investment policy for the relevant policies, the assurance provides that support would
be made available to the sub-fund from PAC’s shareholder resources for as long as the situation continued, so as to ensure
that PAC’s policyholders were not disadvantaged. PAC’s comfort in its ability to make such support available was supported by
related intra-group arrangements between Prudential plc and PAC, which formalised the circumstances in which capital support
would be made available to PAC by Prudential plc. These intra-group arrangements terminated on 21 October 2019, following
the demerger of M&G plc from Prudential plc, at which time intra-group arrangements formalising the circumstances in which
M&G plc would make capital support available to PAC became effective.
34.3.2 With-profits options and guarantees
Certain policies within the With-Profits Fund give potentially valuable guarantees to policyholders, or options to change policy
benefits which can be exercised at the policyholders’ discretion. These options and guarantees are valued as part of the
policyholder liabilities. Please refer to Note 26.1 for further details on these options and guarantees.
35 Commitments
The Group leases various offices to conduct its business. In line with the requirements of IFRS 16, the Group has recognised a
lease liability in respect of these leases representing the obligation to make future lease payments. For further information on the
lease liability see Note 28.
In addition, the Group has provided, from time to time, certain guarantees and commitments to third parties including funding
the purchase or development of land and buildings and other related matters. The contractual obligations to purchase or
develop investment property as at 31 December 2022 were £805m (2021: £813m). Commitments also arise in relation to the
refurbishment of investment properties, however these would not be material to the financial statements, either individually or
in aggregate.
As at 31 December 2022, the Group had undrawn commitments of £4,027m to third parties (2021: £3,246m) of which £2,566m
(2021: £1,676m) was committed by its private equity and infrastructure funds. These commitments were entered into in the
normal course of business and no material adverse impact on the operations is expected to arise.
36 Related party transactions
The Group and its related parties comprise members of the M&G plc Group, as well as the Group’s joint ventures and associates,
and any entity controlled by those parties.
36.1 Transactions with the Group’s joint ventures and associates
The Group received dividends and interest of £91m for the year ended 31 December 2022 (2021: £21m) from joint ventures or
associates accounted for using the equity method. In addition, the Group had balances due from joint ventures or associates
accounted for using the equity method of £88m as at 31 December 2022 (2021: £105m) and balances due to joint ventures or
associates accounted for using the equity method of £nil as at 31 December 2022 (2021: £nil).
Furthermore, in the normal course of business a number of investments into and divestments from investment vehicles managed
by the Group were made. This includes investment vehicles which are classified as investments in associates and joint ventures
measured at FVTPL. The Group entities paid amounts for the issue of shares or units and received amounts for the cancellation of
shares or units. These transactions are not considered to be material to the Group.
36.2 Compensation of key management personnel
The members of the Board and the Group Executive Committee are deemed to have power to influence the direction, planning
and control the activities of the Group, and hence are also considered to be key management personnel.
Key management personnel of the Company may from time to time purchase insurance, asset management or annuity products
marketed by the Group companies in the ordinary course of business on substantially the same terms as those prevailing at the
time for comparable transactions with other persons.
290 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued Other transactions with key management personnel are not deemed to be significant either by virtue of their size or in the context
of the key management personnel’s respective financial positions. All of these transactions are on terms broadly equivalent to
those that prevail in arm’s length transactions.
The summary of compensation of key management personnel is as follows:
For the year ended 31 December
Salaries and short-term benefits
Post-employment benefits
Share-based payments
Total
2022
£m
11.4
0.5
4.8
16.7
2021
£m
12.2
0.6
7.2
20.0
Information concerning individual Directors’ emoluments, interests and transactions are provided in the single figure tables in the
Annual Report on Remuneration on pages 141 and 145.
37 Capital management
37.1 Capital regulations of entities within the Group
The Group is regulated under Solvency II and supervised as an insurance group by the Prudential Regulation Authority.
The Group manages Solvency II own funds as its measure of capital. As at 31 December 2022 estimated and unaudited Group
Solvency II own funds are £11.8bn (2021: £15.3bn).
The Solvency II surplus represents the aggregated capital (own funds) held by the Group less the solvency capital requirement
(SCR). Own funds is the Solvency II measure of capital available to meet losses, and is based on the assets less liabilities of the
Group, subject to certain restrictions and adjustments. The SCR is calculated using the Group’s Internal Model, which calculates
the SCR as the 99.5th percentile (or 1-in-200) worst outcome over the coming year, out of 100,000 equally likely scenarios,
allowing for the dependency between the risks the business is exposed to.
The regulated entities within the Group are also subject to local capital regulations. Capital is actively managed to ensure that
local regulatory requirements are met. The main regulated entities in the Group and the regulatory framework to which they must
adhere are listed below:
Entity
M&G plc
The Prudential Assurance Company Limited
Prudential International Assurance plc
Prudential Pensions Limited
M&G Group Limited (including subsidiaries)
Investment Funds Direct Limited
Main activity
Insurance
Insurance
Insurance
Insurance
Investment management
Investment services
Regulatory framework
Solvency II
Solvency II
Solvency II
Solvency II
IFPRi
IFPRi
i
Investment Firms Prudential Regime under MIFIDPRU – Prudential Sourcebook for MiFID Investment Firms
All Group entities that were subject to externally imposed regulatory capital requirements complied with them throughout
the year.
37.2 Group capital position
37.2.1 Regulatory capital position
The regulatory capital position of the Group takes into account all Group exposures, including that of the With-Profits Fund.
This view of capital recognises the ring-fenced nature of the With-Profits Fund, and on consolidation surplus in the fund can
only be recognised to the level of associated SCR with any excess surplus being eliminated as a ring-fenced fund restriction,
effectively restricting the solvency coverage ratio of the With-Profits Fund to 100%. As such, the regulatory solvency coverage
ratio is highly resilient to movements in the With-Profits Fund’s own funds.
The estimated and unaudited Solvency II capital position for the Group as at 31 December 2022 and the position as at
31 December 2021 is shown below:
M&G plc Annual Report and Accounts 2022 | 291
Financial informationStrategic ReportGovernanceOther information 37 Capital management continued
As at 31 December
Solvency II eligible own funds
Solvency II SCR
Solvency II surplus
Solvency II coverage ratioi
2022
£bn
11.8
(7.2)
4.6
2021
£bn
15.3
(9.1)
6.2
164%
168%
i Solvency II coverage ratio has been calculated using unrounded figures. On a regulatory approved transition measures on technical provisions basis,
the surplus is £4.8bn (2021: £6.2bn) and the solvency coverage ratio is 168% (2021: 168%)
The results include transitional measures, which are presented assuming a recalculation as at the valuation date, using
management’s estimate of the impact of operating and market conditions. As at 31 December 2022, the recalculated transitional
measures do not align to the latest approved regulatory position and therefore the estimated and unaudited Solvency II capital
position differs from the position disclosed in the formal regulatory Quantitative Reporting Templates and Group Solvency and
Financial Condition Report of the same date. As at 31 December 2021, the recalculation was approved for the reporting date and
the positions were aligned.
37.2.2 Shareholder capital position
The Group focuses on a shareholder view of the Solvency II capital position, which is considered to provide a more relevant
reflection of the capital strength of the Group. The Group’s shareholder Solvency II capital position excludes the contribution
to own funds and SCR from the ring-fenced With-Profits Fund. Further information on the ring-fenced With-Profits Fund’s
capital position is provided in Section 1.4.5 of Supplementary Financial Information. Shareholder Solvency II own funds also
assume transitional measures on technical provisions which have been recalculated using management’s estimate of the impact
of operating and market conditions at the reporting date (regardless as to whether the recalculation was approved for the
reporting date).
The estimated and unaudited shareholder Solvency II capital position for the Group as at 31 December 2022 and the position as
at 31 December 2021 is shown below.
As at 31 December
Shareholder Solvency II eligible own funds
Shareholder Solvency II SCR
Solvency II surplus
Shareholder Solvency II coverage ratioi
2022
£bn
9.3
(4.7)
4.6
2021
£bn
11.4
(5.2)
6.2
199%
218%
i Shareholder Solvency II coverage ratio has been calculated using unrounded figures.
37.3 Meeting of capital management objectives
The Group manages its capital on a Solvency II basis to ensure that sufficient own funds are available on an ongoing basis to
meet regulatory capital requirements. This is achieved by targeting a capital buffer significantly in excess of regulatory capital
requirements. This buffer is intended to absorb the impact of stressed market conditions and thus make the Solvency II balance
sheet under the regulatory view resilient to stresses that affect the Group’s business.
292 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued A range of stress and scenario testing is carried out across the business, including certain scenarios mandated by the regulator.
The sensitivity of liabilities and other components of total capital vary, depending upon the type of business concerned, and this
influences the approach to asset/liability management.
In addition, projections are performed to understand how the own funds and capital position is expected to develop and how
this might be affected by adverse events taking place. Informed by the results of these projections there are a number of actions
available to management to strengthen the own funds position.
As well as holding sufficient capital to meet regulatory requirements, the Group also closely manages the cash it holds so that
it can:
– maintain flexibility, fund new opportunities and absorb shock events;
– meet liabilities to policyholders and other obligations;
– fund dividends; and
– cover central costs and debt payments.
38 Share-based payments
The Group operates various share-based payment schemes that award M&G plc shares to participants upon meeting the
required vesting conditions. Details of those schemes are stated below:
38.1 Description of the plans
Discretionary schemes initiated prior to demerger:
Scheme
Description
Long-term
Incentive Plan
(LTIP)
The LTIP is a conditional share plan: the shares awarded will ordinarily be released to participants after
three years of service to the extent that performance conditions have been met. If performance conditions
are not achieved in full, the unvested portion of any award lapses. The performance conditions attached
to LTIP awards include market performance conditions; Relative Total Shareholder Return (TSR); and other
non-market conditions, including measures linked to profit. The performance conditions attached to each
award are dependent on the role of the participants. Threshold and maximum achievement levels will be set
at the beginning of the performance periods in line with the business plan. The last of these awards vested
in 2022.
Annual Incentive
Plan (AIP)
Certain senior executives participate in the AIP where a portion of the individual’s bonus is delivered in
the form of shares that are released after three years of service. There are no performance conditions
associated with the plan. The last of these awards vested in 2022.
Group Deferred
Bonus Plan (GDBP)
Under these plans, part of the participant’s annual bonus is paid in the form of a share award that vests
after three years of service. Other than the service condition, there are no other performance conditions
associated with this plan. The last of these awards vested in 2022.
Restricted Share
Plan (RSP)
Awards under this plan are discretionary and ad-hoc, and the vesting of awards are subject to a service
condition and may be subject to performance conditions. These awards may be retention awards, new
joiner awards and promotion related awards. The last of these awards will vest in 2023.
Prior to demerger, all discretionary schemes mentioned above were based on Prudential plc awards. At the point of demerger
and subsequent listing of M&G plc, all outstanding discretionary awards were replaced with equivalent awards based on M&G plc
shares. The scheme rules for the awards remain the same in principle, except for the LTIP awards, for which the relevant metrics
are based on M&G plc as opposed to Prudential plc performance.
In accordance with IFRS 2, the replacement awards were accounted for as a modification of the previous scheme and the
expense in relation to the scheme has continued to be recorded over the remaining vesting period.
Discretionary schemes initiated post demerger:
Scheme
Description
Performance Share
Plan (PSP)
The PSP is a conditional share plan: the shares awarded will ordinarily be released to participants after a
predetermined period of service, usually three years, to the extent that performance conditions have been
met. If performance conditions are not achieved in full, the unvested portion of any award lapses. The
performance conditions attached to PSP awards include market performance conditions; Relative Total
Shareholder Return (TSR); and other non-market conditions, including capital generation measures. The
performance conditions attached to each award are dependent on the role of the participants. Threshold
and maximum achievement levels will be set at the beginning of the performance periods in line with the
business plan.
Deferred Incentive
Plan (DIP)
Under these plans, part of the participant’s Annual Bonus is paid in the form of a share award that vests
after three or four years. Other than the service condition, there are no other performance conditions
associated with this plan.
M&G plc Annual Report and Accounts 2022 | 293
Financial informationStrategic ReportGovernanceOther information 38 Share-based payments continued
Approved schemes:
Share scheme
Description
Save As You Earn
(SAYE) plans
The Group operates SAYE plans, which allow eligible employees the opportunity to save a monthly amount
from their salaries, over either a three or five-year period, which can be used to purchase shares in M&G plc
at a predetermined price subject to the employee remaining in employment for three years after the grant
date of the options and satisfying the monthly savings requirement.
Share Incentive Plan
(SIP): free shares
In addition, to celebrate the demerger, all eligible employees were provided with 920 M&G plc shares with a
value of £2,000 at the date of grant subject to a two-year service condition. The awards fully vested during
2021 for employees who met the relevant vesting conditions.
All approved schemes are accounted for as equity-settled as the awards are settled in M&G plc shares.
38.2 Outstanding options and awards
Movements in outstanding options and awards under the Group’s share-based compensation are as follows:
Outstanding as at 1 January
Granted
Exercised
Forfeited/Expired
Outstanding at 31 December
Options immediately exercisable at 31 December
Outstanding as at 1 January
Granted
Exercised
Forfeited/Expired
Outstanding at 31 December
Options immediately exercisable at 31 December
2022
Outstanding options under
SAYE schemes
Awards outstanding under
incentive plans
23,299,399
3,085,857
(568,529)
(2,551,400)
23,265,327
99,162
2021
82,892,380
25,900,361
(11,523,658)
(9,703,765)
87,565,318
96,498
Outstanding options under
SAYE schemes
Awards outstanding under
incentive plans
23,673,199
3,147,134
(480,465)
(3,040,469)
23,299,399
137,047
77,011,381
24,749,795
(13,589,785)
(5,279,011)
82,892,380
21,831
The following tables provide a summary of the range of exercise prices for the SAYE options. The awards under the other
schemes do not have an exercise price:
Between £1 and £2
Number outstanding
23,265,327
2022
Weighted average
remaining contractual life
(years)
Weighted average exercise
price (£)
Number exercisable
1.63
2021
1.45
99,162
Number outstanding
23,299,399
Weighted average
remaining contractual life
(years)
Weighted average exercise
price (£)
Number exercisable
2.33
1.43
137,047
Between £1 and £2
38.3 Fair value of options and awards
The fair value of all awards is based on the M&G plc share price at the date of grant, except for the following:
– Awards with market performance conditions based on Total Shareholder Returns (“TSR awards”): these include the LTIP TSR
awards granted in 2019 and certain PSP awards granted from 2020 onwards;
– SAYE options.
The determination of the fair value of these awards requires the use of various assumptions which are disclosed below:
294 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued
38 Share-based payments continued
Dividend yield (%)
Expected pay-off (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected option life (years)
Weighted average exercise price (£)
Weighted average share price at grant date (£)
Weighted average fair value at grant date (£)
Awards granted in
2022
Awards granted in
2021
PSP TSR
award
SAYE
options
PSP TSR
award
SAYE
options
n/a
100.00
n/a
n/a
n/a
n/a
2.17
2.17
11.37
n/a
48.51
4.37
3.45
1.61
1.67
0.33
n/a
41.67
n/a
n/a
n/a
n/a
2.09
1.11
9.08
n/a
30.17
0.88
3.66
1.64
2.04
0.30
The Group uses the Black-Scholes model to value the SAYE options. In determining the fair value of options granted, the historic
volatility of the share price of suitable peers and a risk-free rate determined by reference to swap rates was also considered.
38.4 Share-based payment expense charged to the consolidated income statement
Total expenses recognised in the year in the consolidated financial statements relating to equity-settled share-based
compensation as at 31 December 2022 was £34m (2021: £40m). The Group has no outstanding liabilities at the year end relating
to awards which are settled in cash.
39 Post balance sheet events
On 3 August 2022, M&G Wealth Advice Limited, a wholly owned subsidiary of the Group, agreed to acquire a 49.9% holding in
My Continuum Financial Limited (MCFL). MCFL is the holding company of Continuum (Financial Services) LLP (CFSL) and My
Continuum Wealth (MCW). CFSL is a regulated entity engaged in providing wealth management services to retail clients through
a network of independent financial advisors whereas MCW provides in-house portfolio management services through provision
of model portfolios.
The transaction required regulatory approval, which was granted on 3 February 2023, and acquisition of the initial stake
completed on 8 March 2023 and from this date the investment was recognised as an investment in associate accounted for under
the equity method on the consolidated statement of financial position.
The agreement provides the Group the call option and the sellers the put option to allow acquisition of the remaining holding in
MCFL over 2 years from the completion date.
In addition, as referenced in Note 2.2.2, the Group retained call options and the seller retained put options over the remaining
shareholding in responsAbility that the Group did not purchase at the acquisition date. The Group has subsequently acquired the
remaining shares on 21 February 2023.
40 Related undertakings
In accordance with Section 409 of the Companies Act 2006, a list of the Group’s subsidiaries, joint ventures, associates and
significant holdings (being holdings of more than 20%), along with the classes of shares held, the registered office address and
the country of incorporation and the effective percentage of equity owned at 31 December 2022 is disclosed below.
The definitions of a subsidiary undertaking, joint venture and associate in accordance with the Companies Act 2006 are different
from the definition under IFRS. As a result, the related undertakings included within the list below may not be the same as the
undertakings consolidated in the Group IFRS statements. The Group’s consolidation policy is described in Note 1.5.
Direct subsidiary undertakings of the Parent Company, M&G plc (shares held directly or via nominees)
Key to classes of shares held: Limited by guarantee (LBG), Limited partnership interest (LPI), Ordinary shares (OS), Preference
shares (PS), Units (U) or equivalent subdivision of open ended collective investment vehicle.
Name of entity
Classes of
shares held
Proportion
held
Registered office address and country of incorporation
M&G Group Regulated Entity Holding Company
Limited
M&G Corporate Holdings Limited
Prudential Capital Holding Company Limited
Prudential Capital Public Limited Company
Prudential Financial Services Limited
Prudential Property Services Limited
OS
OS
OS
OS
OS
OS
100%
100%
100%
100%
100%
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
M&G plc Annual Report and Accounts 2022 | 295
Financial informationStrategic ReportGovernanceOther information 40 Related undertakings continued
Other subsidiaries, joint ventures, associates and significant holdings of the Group (no shares held directly by the Parent
Company, M&G plc or its nominees)
Classes of
shares held
Proportion
held
Name of entity
Aldwych LP
ANRP II (AIV VI FC), L.P.
BWAT Retail Nominee (1) Limited
BWAT Retail Nominee (2) Limited
Caisson (Jersey) Limited
Canada Property (Trustee) No 1 Limited
Canada Property Holdings Limited
Carraway Guildford (Nominee A) Limited
Carraway Guildford (Nominee B) Limited
Carraway Guildford General Partner Limited
Carraway Guildford Investments Unit Trust
Carraway Guildford Limited Partnership
Centaurus Retail LLP
Centre Capital Non-Qualified Investors IV AIV-
ELS, L.P.
LPI
LPI
OS
OS
OS
OS
OS
OS
OS
OS
OS
LPI
LPI
LPI
Centre Capital Non-Qualified Investors IV, L.P.
LPI
Centre Capital Non-Qualified Investors V AIV-
ELS LP
Centre Capital Non-Qualified Investors V LP
CJPT Real Estate Inc.
CJPT Real Estate No. 1 Trust
CJPT Real Estate No. 2 Trust
Clear View Assured Limited
Cribbs Causeway JV Limited
LPI
LPI
OS
U
U
OS
OS
Cribbs Causeway Merchants Association Limited LBG
Cribbs Mall Nominee (1) Limited
Debt Investments Opportunities IV
OS
U
Digital Infrastructure Investment Partners GP LLPLPI
Digital Infrastructure Investment Partners GP1
Limited
Digital Infrastructure Investment Partners SLP
GP LLP
Digital Infrastructure Investment Partners SLP
GP1 Limited
Digital Infrastructure Investment Partners SLP
GP2 Limited
Eastspring Investments – Asian Bond Fund
Eastspring Investments – Asian High Yield Bond
Fund
OS
LPI
OS
OS
U
U
Eastspring Investments – Asian Local Bond Fund U
Eastspring Investments – Asian Total Return
Bond Fund
Eastspring Investments – China Bond Fund
Eastspring Investments SICAV-FIS Africa Equity
Fund
U
U
U
296 | M&G plc Annual Report and Accounts 2022
100%
43%
50%
50%
100%
100%
100%
100%
100%
100%
100%
50%
50%
88%
63%
58%
61%
100%
100%
100%
100%
50%
20%
100%
26%
65%
100%
100%
Registered office address and country of incorporation
1209 Orange Street, Wilmington, DE 19801, USA
Cayman Corporate Centre, 27 Hospital Road, George
Town, KY 9008, Cayman Islands
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
IFC 5, St Helier, JE1 1ST, Jersey
180 Dundas Street West, Toronto, M5G 1Z8, Canada
10 Fenchurch Avenue, London, EC3M 5AG, UK
IFC 5, St Helier, JE1 1ST, Jersey
IFC 5, St Helier, JE1 1ST, Jersey
10 Fenchurch Avenue, London, EC3M 5AG, UK
13 Castle Street, St Helier, JE4 5UT, Jersey
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Corporation Service Company, 2711 Centerville Rd.,
Suite 400, Wilmington, DE 19808, USA
Corporation Service Company, 2711 Centerville Rd.,
Suite 400, Wilmington, DE 19808, USA
Corporation Service Company, 2711 Centerville Rd.,
Suite 400, Wilmington, DE 19808, USA
Corporation Service Company, 2711 Centerville Rd.,
Suite 400, Wilmington, DE 19808, USA
180 Dundas Street West, Toronto, M5G 1Z8, Canada
180 Dundas Street West, Toronto, M5G 1Z8, Canada
180 Dundas Street West, Toronto, M5G 1Z8, Canada
30 Market Street, Huddersfield, West Yorkshire,
England, HD1 2HG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
The Mall at Cribbs Causeway, Bristol, BS34 5DG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Fourth Floor, 76 Lower Baggot Street, Dublin 2,
Ireland
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
48%
24%
95%
99%
100%
100%
26, Boulevard Royal, L-2449, Luxembourg
26, Boulevard Royal, L-2449, Luxembourg
26, Boulevard Royal, L-2449, Luxembourg
26, Boulevard Royal, L-2449, Luxembourg
26, Boulevard Royal, L-2449, Luxembourg
26, Boulevard Royal, L-2449, Luxembourg
Notes to the consolidated financial statements continued 40 Related undertakings continued
Name of entity
Edger Investments Limited
EF IV Schoolhill GP Limited
Elle 14 S.a.r.l company
Elle S.r.l. (formerly known as MCF S.r.l.)
Embankment GP Limited
Embankment Nominee 1 Limited
Embankment Nominee 2 Limited
Episode Inc
Falan GP Limited
Fashion Square ECO LP (In liquidation)
Folios III Designated Activity Company
Folios IV Designated Activity Company
Fort Kinnaird GP Limited
Fort Kinnaird Limited Partnership
Foudry Properties Limited
Fundsdirect ISA Nominees Limited
Fundsdirect Nominees Limited
Genny GP 1 LLP
Genny GP 2 Limited
Genny GP Limited
George Digital GP 1 LLP
George Digital GP 2 Limited
George Digital GP Limited
GGE GP Limited
Green GP Limited
Greenpark (Reading) General Partner Limited
GTA W21 GP
GTA W21 LP
HCR Canary Fund
ICP (Finch) GP 1 Limited
ICP (Finch) GP 2 Limited
ICP (Finch) GP LLP
IFDL Personal Pensions Limited
Infracapital (AIRI) GP Limited
Classes of
shares held
Proportion
held
OS
OS
OS
OS
OS
OS
OS
LPI
OS
LPI
OS
OS
OS
LPI
OS
OS
OS
LPI
OS
OS
LPI
OS
OS
OS
OS
OS
OS
LPI
LPI
OS
OS
LPI
OS
OS
100%
100%
45%
45%
100%
100%
100%
93%
100%
50%
49%
66%
50%
50%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
90%
99%
100%
100%
100%
100%
100%
Registered office address and country of incorporation
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Via Alessandro Manzoni 38, Milan, 20121, Italy
Via Montenapoleone 29 CAP, 20121, Milan, Italy
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
c/o Intertrust Cayman Islands, 190 Elgin Avenue,
George Town, Grand Cayman, KY1-9005, Cayman
Islands
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
1209 Orange Street, Wilmington, DE 19801, USA
Fourth Floor, 76 Lower Baggot Street, Dublin 2,
Ireland
Fourth Floor, 76 Lower Baggot Street, Dublin 2,
Ireland
York House, 45 Seymour Street, London, W1H 7LX,
UK
York House, 45 Seymour Street, London, W1H 7LX,
UK
Clearwater Court, Vastern Road, Reading RG1 8DB,
UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
22 Adelaide Street West, Suite 2600, Toronto,
Ontario, M5H 4E3, Canada
22 Adelaide Street West, Suite 2600, Toronto,
Ontario, M5H 4E3, Canada
300 Atlantic Street, Suite 600, Stamford, CT 06901,
USA
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
M&G plc Annual Report and Accounts 2022 | 297
Financial informationStrategic ReportGovernanceOther information 40 Related undertakings continued
Name of entity
Infracapital (Belmond) GP Limited
Infracapital (Bio) GP Limited
Infracapital (Churchill) GP 1 Limited
Infracapital (Churchill) GP LLP
Infracapital (GC) GP Limited
Infracapital (Gigaclear) GP 1 Limited
Infracapital (Gigaclear) GP 2 Limited
Infracapital (Gigaclear) GP LLP
Infracapital (IT PPP) GP Limited
Infracapital (Leo) GP Limited
Infracapital (Novos) GP Limited
Infracapital (Sense) GP Limited
Infracapital (TLSB) GP Limited
Infracapital (TLSB) SLP LP
Infracapital DF II GP LLP
Infracapital DF II Limited
Infracapital Employee Feeder GP 1 LLP
Infracapital Employee Feeder GP Limited
Infracapital F1 GP2 Limited
Infracapital F2 GP Limited
Infracapital F2 GP1 Limited
Infracapital GP 1 LLP
Infracapital GP Limited
Infracapital Greenfield DF GP LLP
Infracapital Greenfield Partners 1 SLP GP1
Limited
Infracapital Greenfield Partners 1 SLP GP2
Limited
Infracapital Greenfield Partners I Employee
Feeder LP
Infracapital Greenfield Partners I GP Limited
Infracapital Greenfield Partners I LP
OS
OS
OS
LPI
OS
OS
OS
LPI
OS
OS
OS
OS
OS
LPI
LPI
OS
LPI
OS
OS
OS
OS
LPI
OS
LPI
OS
OS
LPI
OS
LPI
Classes of
shares held
Proportion
held
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
76%
100%
22%
100%
Registered office address and country of incorporation
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
Infracapital Greenfield Partners I SLP EF GP LLP LPI
Infracapital Greenfield Partners I SLP LP
LPI
36%
298 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 40 Related undertakings continued
Name of entity
Classes of
shares held
Proportion
held
Infracapital Greenfield Partners I SLP2 LP
LPI
100%
Infracapital Greenfield Partners I Subholdings GP
Limited
OS
Infracapital Greenfield Partners II GP S.à r.l
Infracapital Greenfield Partners II Subholdings
(Euro) GP LLP
Infracapital Greenfield Partners II Subholdings
(Sterling) GP LLP
Infracapital Greenfield Partners II Subholdings
GP1 Limited
Infracapital Greenfield Partners II Subholdings
GP2 Limited
Infracapital Partners II LP
OS
LPI
LPI
OS
OS
LPI
Infracapital Partners II Subholdings GP Limited OS
Infracapital Partners III GP S.à r.l
Infracapital Partners III Subholdings (Euro) GP
LLP
OS
LPI
Infracapital Partners III Subholdings (Sterling) GP
LLP
LPI
Infracapital Partners III Subholdings GP1 Limited OS
Infracapital Partners III Subholdings GP2 Limited OS
Infracapital Partners LP
Infracapital Sisu GP Limited
Infracapital SLP II LP
Infracapital SLP Limited
Innisfree M&G PPP LLP
Investment Funds Direct Group Limited
Investment Funds Direct Holdings Limited
Investment Funds Direct Limited
Kiskadee Latitude Fund Limited
LB Professional Investors Private Real Estate
Fund No. 10
Leadenhall Unit Trust
LF Prudential Risk Managed Active 2
LF Prudential Risk Managed Active 3
LF Prudential Risk Managed Active 4
LF Prudential Risk Managed Active 5
LF Prudential Risk Managed Passive Fund 1
Lion Credit Opportunity Fund Public Limited
Company – Credit Opportunity Fund XV
LPI
OS
LPI
OS
LPI
OS
OS
OS
OS
U
U
U
U
U
U
U
U
Registered office address and country of incorporation
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
6, rue Eugène Ruppert, L-2453, Luxembourg
10 Fenchurch Avenue, London, EC3M 5AG, UK
100%
100%
100%
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
26%
100%
100%
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
6, rue Eugène Ruppert, L-2453, Luxembourg
10 Fenchurch Avenue, London, EC3M 5AG, UK
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
100%
100%
33%
100%
40%
100%
35%
100%
100%
100%
95%
23%
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Boundary House, 91-93 Charterhouse Street, London,
EC1M 6HR, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
c/o Horseshoe Fund Services Ltd., Wessex House,
3rd Floor, 45 Reid Street, Hamilton, HM 12, Bermuda
20th floor, 136, Sejong-daero, Jung-gu, Seoul,
Republic of Korea
100%
IFC 5, St Helier, JE1 1ST, Jersey
22%
23%
31%
30%
41%
6th Floor, 65, Gresham Street, London EC2V 7NQ, UK
6th Floor, 65, Gresham Street, London EC2V 7NQ, UK
6th Floor, 65, Gresham Street, London EC2V 7NQ, UK
6th Floor, 65, Gresham Street, London EC2V 7NQ, UK
6th Floor, 65, Gresham Street, London EC2V 7NQ, UK
100%
5 George’s Dock, IFSC, Dublin 1, Ireland, D01 X8N7
London Green Investments II SLP GP1 Limited
OS
100%
London Green Investments II SLP GP2 Limited
OS
100%
London Green Investments II SLP1 Employee
Feeder GP LLP
LPI
100%
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
M&G plc Annual Report and Accounts 2022 | 299
Financial informationStrategic ReportGovernanceOther information 40 Related undertakings continued
Name of entity
Classes of
shares held
Proportion
held
London Green Investments II SLP2 GP Limited
OS
100%
London Stone Investments F3 Employee Feeder
GP LLP
LPI
London Stone Investments F3 I Limited
London Stone Investments F3 II Limited
London Stone Investments F3 SP GP LLP
M&G (ACS) BlackRock Japan Equity Fund
OS
OS
LPI
U
M&G (ACS) BlackRock UK All Share Equity Fund U
M&G (ACS) BlackRock US Equity Fund
M&G (ACS) China Equity Fund
M&G (ACS) China Fund
U
U
U
M&G (ACS) Earnest Partners US Small Cap Value
Fund
U
Registered office address and country of incorporation
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
100%
100%
100%
100%
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
99%
99%
97%
97%
99%
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
M&G (ACS) Granahan US Small Cap Growth FundU
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
M&G (ACS) Japan Equity Fund
M&G (ACS) Japan Smaller Companies Fund
M&G (ACS) UK Listed Equity Fund
M&G (ACS) UK Listed Mid Cap Equity Fund
U
U
U
U
99%
98%
97%
99%
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
M&G (Guernsey) Limited
OS
100%
Dorey Court, Admiral Park, St Peter Port, GY1 2HT,
Guernsey
M&G (Lux) Emerging Markets Corporate ESG
Bond Fund
M&G (Lux) Euro ex UK Index Fund
M&G (Lux) Europe ex UK Equity Fund
U
U
U
M&G (Lux) Global Enhanced Equity Premia Fund U
U
U
U
U
U
U
M&G (Lux) Global Funds
M&G (Lux) Investment Funds 1 – M&G Lux
Emerging Markets Bond Fund
M&G (Lux) Managed Cautious (Euro) Fund
M&G (Lux) Managed Growth (Euro) Fund
M&G (Lux) Pan European Smaller Comp Fund
M&G (Lux) Reserved Investment Fund (2), SCA
SICAV-RAIF
M&G (Lux) Reserved Investment Funds (2) GP
Sarl
M&G (Lux) Sterling Liquidity Fund
M&G (Lux) Sustainable Optimal Income Bond
Fund
M&G Alternatives CV SCSp
M&G Alternatives GP Sarl
M&G Alternatives Investment Management
Limited
57%
16, Boulevard Royal, L-2449, Luxembourg
99%
99%
99%
100%
60%
100%
100%
98%
100%
16, Boulevard Royal, L-2449, Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
OS
100%
16, Boulevard Royal, L-2449, Luxembourg
U
U
LPI
OS
OS
100%
98%
100%
100%
16, Boulevard Royal, L-2449, Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
8, rue Lou Hemmer, L-1748, Senningerberg,
Luxembourg
8, rue Lou Hemmer, L-1748, Senningerberg,
Luxembourg
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
M&G Alternatives, SCSp – RAIF – 2020 Asian PE
Fund
LPI
M&G Alternatives, SCSp – RAIF – 2020 European
PE Fund
LPI
100%
100%
8, rue Lou Hemmer, L-1748, Senningerberg,
Luxembourg
8, rue Lou Hemmer, L-1748, Senningerberg,
Luxembourg
300 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 40 Related undertakings continued
Name of entity
Classes of
shares held
Proportion
held
Registered office address and country of incorporation
M&G Alternatives, SCSp – RAIF – 2020 PE Co-
investment Fund
M&G Alternatives, SCSp – RAIF – 2021 North
American Fund
LPI
LPI
M&G Alternatives, SCSp – RAIF – 2021 PE Impact
Fund
LPI
M&G Alternatives, SCSp – RAIF – 2022 Global PE
Fund
LPI
100%
100%
100%
100%
M&G Alternatives, SCSp – RAIF – 2022 PE Co-
Investment Fund
LPI
100%
8, rue Lou Hemmer, L-1748, Senningerberg,
Luxembourg
8, rue Lou Hemmer, L-1748, Senningerberg,
Luxembourg
8, rue Lou Hemmer, L-1748, Senningerberg,
Luxembourg
8, rue Lou Hemmer, L-1748, Senningerberg,
Luxembourg
8, rue Lou Hemmer, L-1748, Senningerberg,
Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
10 Fenchurch Avenue, London, EC3M 5AG, UK
45%
100%
M&G Asia Property Fund
M&G BlackRock Canada Equity Fund (formerly
known as M&G ACS Canada Index Fund)
M&G BlackRock UK 200 Equity Fund (formerly
known as M&G ACS UK 200 Index Fund)
M&G Catalyst Capital Fund
M&G Catalyst Credit Fund
U
U
U
U
U
M&G Catalyst Sustainable Agriculture GP LLP
LPI
M&G Catalyst Sustainable Agriculture GP
Member No.1 Limited
M&G Catalyst Sustainable Agriculture GP
Member No.2 Limited
M&G Corporate Services Limited
M&G Credit Income Investment Trust plc
M&G Emerging Markets Monthly Income Fund
M&G European High Yield Credit Investment
Fund
M&G European Living Property Fund SCSP,
SICAV-RAIF
M&G European Property Fund SICAV-FIS
M&G FA Limited
M&G Feeder of Property Portfolio
M&G Financial Services Limited
M&G Fitzrovia GP Limited
M&G Fitzrovia Limited
M&G Fitzrovia Limited Partnership
M&G Fitzrovia Nominee 1 Limited
M&G Fitzrovia Nominee 2 Limited
M&G Founders 1 Limited
M&G Funds (1) Asia Pacific (ex Japan) Equity
Fund
M&G Funds (1) Blackrock Asia Pacific (ex Japan)
Equity Fund
M&G Funds (1) Blackrock Emerging Markets
Equity Fund
M&G Funds (1) GSAM Global Emerging Market
Equity Fund
M&G Funds (1) Invesco Global Emerging Markets
Equity Fund
M&G Funds (1) Lazard Global Emerging Markets
Equity Fund
OS
OS
OS
OS
U
U
LPI
U
OS
U
OS
OS
OS
LPI
OS
OS
OS
U
U
U
U
U
U
99%
10 Fenchurch Avenue, London, EC3M 5AG, UK
100%
100%
100%
100%
100%
100%
22%
93%
26%
16, Boulevard Royal, L-2449, Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Beaufort House, 51 New North Road, Exeter, EX4 4EP,
UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
80, route d’Esch, L-1470, Luxembourg
100%
16, Boulevard Royal, L-2449, Luxembourg
30%
100%
49%
100%
100%
100%
100%
100%
100%
100%
96%
16, Boulevard Royal, L-2449, Luxembourg
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
16, Boulevard Royal, L-2449, Luxembourg
100%
16, Boulevard Royal, L-2449, Luxembourg
100%
16, Boulevard Royal, L-2449, Luxembourg
99%
16, Boulevard Royal, L-2449, Luxembourg
99%
16, Boulevard Royal, L-2449, Luxembourg
99%
16, Boulevard Royal, L-2449, Luxembourg
M&G plc Annual Report and Accounts 2022 | 301
Financial informationStrategic ReportGovernanceOther information 40 Related undertakings continued
Name of entity
M&G Funds (1) MFS Global Emerging Markets
Equity Fund
M&G Funds (1) Sterling Investment Grade
Corporate Bond Fund
M&G Funds (1) US Corporate Bond Fund
M&G Funds (1) US Short Duration Corporate
Bond Fund
M&G Funds (1) Wellington Impact Bond Fund
M&G General Partner Inc.
M&G Global Services Private Limited
M&G Group Limited
M&G Group PCC Limited
M&G IMPPP 1 Limited
M&G International Investments Nominees
Limited
U
U
U
U
U
OS
OS
OS
OS
OS
OS
M&G International Investments Switzerland AG OS
M&G Investment Funds (10) – M&G Better Health
Solutions Fund
U
M&G Investment Funds (10) – M&G Climate
Solutions Fund
M&G Investment Funds (10) – M&G Global High
Yield ESG Bond Fund
M&G Investment Funds (10) – M&G Positive
Impact Fund
M&G Investment Funds (2) – M&G Gilt & Fixed
Interest Income Fund
M&G Investment Funds (2) – M&G Global High
Yield Bond
U
U
U
U
U
M&G Investment Funds (3) – M&G Dividend Fund U
M&G Investment Funds (4) – M&G Episode
Allocation Fund
M&G Investment Funds (4) – M&G Sustainable
Multi Asset Fund
M&G Investment Funds (7) – M&G Global
Convertibles Fund
M&G Investment Management Limited
M&G Investments (Americas) Inc.
M&G Investments (Australia) Pty Ltd
M&G Investments (Hong Kong) Limited
M&G Investments (Singapore) Pte. Ltd.
M&G Investments (USA) Inc
M&G Investments Japan Co., Ltd.
M&G Luxembourg S.A.
M&G Management Services Limited
M&G Nominees Limited
M&G PFI 2018 GP LLP
M&G PFI 2018 GP1 Limited
M&G PFI 2018 GP2 Limited
U
U
U
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
LPI
OS
OS
302 | M&G plc Annual Report and Accounts 2022
Classes of
shares held
Proportion
held
Registered office address and country of incorporation
99%
16, Boulevard Royal, L-2449, Luxembourg
77%
16, Boulevard Royal, L-2449, Luxembourg
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
94%
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
16, Boulevard Royal, L-2449, Luxembourg
190 Elgin Avenue, George Town, Grand Cayman, KYI-
9005, Cayman Islands
Prudential House, Mumbai, 400076, India
10 Fenchurch Avenue, London, EC3M 5AG, UK
PO Box 155, Mill Court, La, Charroterie, St Peter Port,
GY1 4ET, Guernsey
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Talstrasse 66, 8001 Zurich, Switzerland
10 Fenchurch Avenue, London, EC3M 5AG, UK
55%
10 Fenchurch Avenue, London, EC3M 5AG, UK
32%
10 Fenchurch Avenue, London, EC3M 5AG, UK
29%
10 Fenchurch Avenue, London, EC3M 5AG, UK
67%
10 Fenchurch Avenue, London, EC3M 5AG, UK
50%
10 Fenchurch Avenue, London, EC3M 5AG, UK
51%
24%
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
42%
10 Fenchurch Avenue, London, EC3M 5AG, UK
74%
10 Fenchurch Avenue, London, EC3M 5AG, UK
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
251 Little Falls Drive, Wilmington, DE 19801, USA
Level 6, 60 Martin Place, Sydney NSW 2000, Australia
6th Floor, Alexander House, 18 Chater Road, Central,
Hong Kong
138 Market Street, CapitaGreen #35-01, 048946,
Singapore
251 Little Falls Drive, Wilmington, DE 19801, USA
3-1, Toranomon 4-chome, Minato-ku, Tokyo, Japan
16, Boulevard Royal, L-2449, Luxembourg
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Notes to the consolidated financial statements continued 40 Related undertakings continued
Name of entity
M&G PFI Carry Partnership 2016 LP
M&G PFI Partnership 2018 LP
M&G Platform Nominees Limited
M&G Property Portfolio
M&G RE Espana, 2016, S.L.
M&G RE UKEV (GP1) LLP
M&G RE UKEV 1 Limited
M&G RE UKEV 1-A LP
LPI
LPI
OS
U
OS
LPI
OS
LPI
M&G Real Estate Asia Holding Company Pte. Ltd. OS
M&G Real Estate Asia PTE. Ltd.
M&G Real Estate France SAS
M&G Real Estate Funds Management S.à r.l.
M&G Real Estate Japan Co., Ltd.
M&G Real Estate Korea Co., Ltd.
M&G Real Estate Limited
M&G Real Estate UK Enhanced Value LP
M&G Real Estate UKEV (GP) LLP
M&G RED II Employee Feeder GP Limited
M&G RED II GP Limited
M&G RED II SLP GP Limited
M&G RED II SLP LP
M&G RED III Employee Feeder GP Limited
M&G RED III GP Limited
M&G RED III SLP GP Limited
M&G RED III SLP LP
M&G RPF GP Limited
M&G RPF Nominee 1 Limited
M&G RPF Nominee 2 Limited
M&G Securities Limited
M&G SFF (CIP GP) Sárl
M&G SFF (GP) Sárl
M&G Shared Ownership GP Limited
M&G Shared Ownership LP
OS
OS
OS
OS
OS
OS
LPI
LPI
OS
OS
OS
LPI
OS
OS
OS
LPI
OS
OS
OS
OS
OS
OS
OS
LPI
M&G SIF Management Company (Ireland) LimitedOS
M&G Specialty Finance Fund 2 GBP SCSp
M&G Sustainable Loan Fund Limited
M&G Trustee Company Limited (formerly known
as Prudential Trustee Company Limited)
LPI
OS
OS
Classes of
shares held
Proportion
held
25%
100%
100%
88%
100%
100%
100%
50%
67%
67%
100%
100%
100%
67%
100%
50%
100%
100%
100%
100%
28%
100%
100%
100%
25%
100%
100%
100%
100%
100%
100%
100%
46%
100%
80%
88%
100%
Registered office address and country of incorporation
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Calle Fortuny, 6 – 4 A, 28010, Madrid, Spain
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
138 Market Street, CapitaGreen #35-01, 048946,
Singapore
138 Market Street, CapitaGreen #35-01, 048946,
Singapore
8 Avenue Hoche, 75008, Paris, France
16, Boulevard Royal, L-2449, Luxembourg
9/F Shiroyama Trust Tower, 4-3-1 Toranomon, Minato-
ku, Tokyo 105-6009, Japan
Jongno 1-ga, Kyobo Building, Seoul, Korea
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
De Catapan House, Grange Road, St Peter Port, GY1
2QG, Guernsey
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
De Catapan House, Grange Road, St Peter Port, GY1
2QG, Guernsey
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Heienhaff 5, 1736 Senningerberg, Luxembourg
Heienhaff 5, 1736 Senningerberg, Luxembourg
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
5 George’s Dock, IFSC, Dublin 1, Ireland
5, Heienhaff, L-1736, Senningerberg, Luxembourg
5 George’s Dock, IFSC, Dublin 1, Ireland
10 Fenchurch Avenue, London, EC3M 5AG, UK
M&G plc Annual Report and Accounts 2022 | 303
Financial informationStrategic ReportGovernanceOther information 100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
Classes of
shares held
Proportion
held
40 Related undertakings continued
Name of entity
M&G UK Companies Financing Fund II LP
M&G UK Mortgage Income Fund
M&G UK Property Fund
M&G UK Property GP Limited
M&G UK Property Nominee 1 Limited
M&G UK Property Nominee 2 Limited
M&G UK Residential Property Fund
M&G UK Shared Ownership Limited
M&G UKEV (SLP) General Partner LLP
M&G UKEV (SLP) LP
M&G Wealth Advice Limited
LPI
U
U
OS
OS
OS
LPI
OS
LPI
LPI
OS
M&G Wealth Investments LLP (formerly known as
TCF Fund Managers LLP)
LPI
M&G Wealth Solutions Limited (formerly known
as M&G Wealth Investments Limited)
Manchester JV Limited
Manchester Nominee (1) Limited
MandG Investment Managers (Pty) Ltd
MandG Investments (Namibia) (Pty) Ltd
OS
OS
OS
OS
OS
48%
67%
98%
100%
100%
100%
26%
100%
100%
100%
100%
100%
50%
100%
100%
100%
MandG Investments Life South Africa (RF) Ltd
OS
100%
MandG Investments Southern Africa (Pty) Ltd
OS
50%
MandG Investments Unit Trusts (Namibia) Ltd
OS
100%
MandG Investments Unit Trusts South Africa (RF)
Ltd
OS
Minster Court Estate Management Limited
Mole GP1 Limited
Mole GP2 Limited
NAPI REIT, Inc
NB Gemini Fund LP
Oaktree Business Park Limited
Old Kingsway LP
OS
OS
OS
OS
LPI
OS
LPI
100%
56%
100%
100%
99%
99%
14%
100%
Optimus Point Management Company Limited OS
52%
Registered office address and country of incorporation
10 Fenchurch Avenue, London, EC3M 5AG, UK
16, Boulevard Royal, L-2449, Luxembourg
16, Boulevard Royal, L-2449, Luxembourg
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
34-38, avenue de la Liberté, L-1931, Luxembourg
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Protea Place, 40 Dreyer Street, Claremont, 7708,
South Africa
Unit 3, 2nd Floor, Ausspann Plaza, Dr Agostinho Neto
Road, Private Bag 12012, Ausspannplatz, Windhoek,
Namibia
Protea Place, 40 Dreyer Street, Claremont, 7708,
South Africa
Protea Place, 40 Dreyer Street, Claremont, 7708,
South Africa
Unit 3, 2nd Floor, Ausspann Plaza, Dr Agostinho Neto
Road, Private Bag 12012, Ausspannplatz, Windhoek,
Namibia
Protea Place, 40 Dreyer Street, Claremont, 7708,
South Africa
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
300 E Lombard Street, Baltimore, MD 21202, USA
Maples Corporate Services Limited, Ugland House,
P.O. Box 309, Grand Cayman, KY1-1104, Cayman
Islands
10 Fenchurch Avenue, London, EC3M 5AG, UK
2711 Centerville Road, Suite 400, Wilmington, DE
19808, USA
Barrat House, Cartwright Way, Bardon Hill, Coalville,
LE67 1UF, UK
Pacus (UK) Limited
PAP Trustee Pty Limited
Pesca GP LLP
PGDS (UK One) Limited
PGF Management Company (Ireland) Limited (in
liquidation)
OS
OS
LPI
OS
OS
100%
100%
100%
100%
50%
10 Fenchurch Avenue, London, EC3M 5AG, UK
Level 17 Tower One, International Towers,
Barangaroo, Sydney, NSW 2000, Australia
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
5 George’s Dock, Dublin 1, D01 X8N7, Ireland
304 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued 40 Related undertakings continued
Name of entity
PPM America Private Equity Fund III LP
PPM America Private Equity Fund IV LP
PPM America Private Equity Fund V LP
PPM America Private Equity Fund VI LP
PPM America Private Equity Fund VII LP
PPM Capital (Holdings) Limited
PPM Managers GP Limited
PPM Managers Partnership CI VII (A) LP
PPM Ventures (Asia) Limited (In liquidation)
PPMC First Nominees Limited
Property Partners (Two Rivers) Limited
Pru Limited
Prudence Limited
Prudential Capital (Singapore) Pte. Ltd. (in
liquidation)
LPI
LPI
LPI
LPI
LPI
OS
OS
LPI
OS
OS
OS
OS
OS
OS
Prudential Corporate Pensions Trustee Limited OS
Prudential Credit Opportunities 1 S.a.r.l.
Prudential Credit Opportunities 2 S.a.r.l
Prudential Credit Opportunities GP S.a.r.l
Prudential Credit Opportunities SCSp
Prudential Distribution Limited
Prudential Equity Release Mortgages Limited
Prudential Financial Planning Limited
Prudential GP Limited
Prudential Greenfield GP LLP
Prudential Greenfield GP1 Limited
Prudential Greenfield GP2 Limited
Prudential Greenfield LP
Prudential Holborn Life Limited
Prudential International Assurance plc
Prudential International Management Services
Limited
Prudential Investment (Luxembourg) 2 S.à.r.l.
Prudential Lifetime Mortgages Limited
Prudential Loan Investments 1 S.a.r.l
Prudential Loan Investments GP S.a.r.l
Prudential Loan Investments SCSp
Prudential Pensions Limited
Prudential Polska sp. z.o.o
OS
OS
OS
LPI
OS
OS
OS
OS
LPI
OS
OS
LPI
OS
OS
OS
OS
OS
OS
OS
LPI
OS
OS
Classes of
shares held
Proportion
held
50%
50%
50%
40%
46%
100%
100%
25%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Registered office address and country of incorporation
874 Walker Road, Suite C, City of Dover, County of
Kent, State of Delaware 19904, United States
874 Walker Road, Suite C, City of Dover, County of
Kent, State of Delaware 19904, United States
874 Walker Road, Suite C, City of Dover, County of
Kent, State of Delaware 19904, United States
874 Walker Road, Suite C, City of Dover, County of
Kent, State of Delaware 19904, United States
874 Walker Road, Suite C, City of Dover, County of
Kent, State of Delaware 19904, United States
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
13/F, One International Finance Centre, 1 Harbour
View Street, Central, Hong Kong
10 Fenchurch Avenue, London, EC3M 5AG, UK
Bow Bells House, 1 Bread Street, London, EC4M 9HH,
UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Marina Boulevard, #32-01, Marina Bay Financial
Centre, 018983, Singapore
10 Fenchurch Avenue, London, EC3M 5AG, UK
1, Rue Hildegard von Bingen, L-1282, Luxembourg
1, Rue Hildegard von Bingen, L-1282, Luxembourg
1, Rue Hildegard von Bingen, L-1282, Luxembourg
1, Rue Hildegard von Bingen, L-1282, Luxembourg
5 Central Way, Kildean Business Park, Stirling, FK8
1FT, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
5 Central Way, Kildean Business Park, Stirling, FK8
1FT, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Montague House, Adelaide Road, Dublin 2, D02 K039,
Ireland
Montague House, Adelaide Road, Dublin 2, D02 K039,
Ireland
16, Boulevard Royal, L-2449, Luxembourg
5 Central Way, Kildean Business Park, Stirling, FK8
1FT, UK
1, Rue Hildegard von Bingen, L-1282, Luxembourg
1, Rue Hildegard von Bingen, L-1282, Luxembourg
1, Rue Hildegard von Bingen, L-1282, Luxembourg
10 Fenchurch Avenue, London, EC3M 5AG, UK
02-670 Warszawa, Pulawska 182, Poland
M&G plc Annual Report and Accounts 2022 | 305
Financial informationStrategic ReportGovernanceOther information 40 Related undertakings continued
Name of entity
Classes of
shares held
Proportion
held
Prudential Portfolio Management Group Limited OS
Prudential Property Investment Managers
Limited
Prudential Real Estate Investments 1 Limited
Prudential Real Estate Investments 2 Limited
Prudential Real Estate Investments 3 Limited
Prudential Staff Pensions Limited
Prudential UK Real Estate General Partner
Limited
Prudential UK Real Estate Limited Partnership
Prudential UK Real Estate Nominee 1 Limited
Prudential UK Real Estate Nominee 2 Limited
Prudential UK Services Limited
Prudential Unit Trusts Limited
Prutec Limited
PVM Partnerships Limited
Rads Gamma Limited
Rads Omega Limited
Randolph Street LP
RD Park (Hoddesdon Phase 1) Management
Company Limited
responsAbility Agriculture Partners SLP
responsAbility Management Company S.A. (in
liquidation)
responsAbility Sustainable Food – Asia II (GP),
S.à r.l.
responsAbility Sustainable Food – Latam I (GP),
S.à r.l.
responsAbility Africa Ltd
responsAbility Agriculture (GP) Sàrl
responsAbility America Latina SAC
responsAbility BOP Sàrl
responsAbility France SAS
responsAbility Georgia LLC
OS
OS
OS
OS
OS
OS
LPI
OS
OS
OS
OS
OS
OS
OS
OS
LPI
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
responsAbility Investments AG
responsAbility Thailand Ltd
responsAbility Ventures I Services AG
Sandringham Financial Partners Limited
Sandringham Financial Partners Limited
Schoolhill Sarl
OS
OS
OS
OS
PS
OS
306 | M&G plc Annual Report and Accounts 2022
responsAbility India Business Advisors Pvt. Ltd OS
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
93%
100%
100%
61%
39%
Registered office address and country of incorporation
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
5 Central Way, Kildean Business Park, Stirling, FK8
1FT, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
50 Lothian Road, Festival Square, Edinburgh, EH3
9WJ, UK
2711 Centerville Road, Suite 400, Wilmington, DE
19808, USA
64%
10 Fenchurch Avenue, London, EC3M 5AG, UK
61%
80%
15, Boulevard F.W. Raiffeisen, L-2411, Luxembourg
c/o KPMG; 39, Avenue John F. Kennedy, L-1855,
Luxembourg
100%
15, Boulevard F.W. Raiffeisen, L-2411, Luxembourg
100%
15, Boulevard F.W. Raiffeisen, L-2411, Luxembourg
Merchant Square, Block D, 5th Floor, Riverside Drive,
Westlands, P.O. 29300623 Nairobi, Kenya
15, Boulevard F.W. Raiffeisen, L-2411, Luxembourg
Av. 28 de Julio 753, Miraflores, Provincia de Lima,
15074, Peru
5, Rue Jean Monnet, L-2180, Luxembourg
5 Rue du Helder, Paris, Département de Paris, IDF,
75009, France
4 Tamar Chovelidze Street, T’bilisi, Tbilisi, 0108,
Georgia
31 Green Acre, Union Park Road Number 5, Mumbai,
Mumbai Suburban, MH, 400052, India
Zollstrasse 17, Zürich, ZH, 8005, Switzerland
62 Thaniya BTS Building, Silom Road, Suriyawongse,
Bangrak, Bangkok, 10500, Thailand
Zollstrasse 17, Zürich, ZH, 8005, Switzerland
30 Market Street, Huddersfield, West Yorkshire,
England, HD1 2HG, UK
30 Market Street, Huddersfield, West Yorkshire,
England, HD1 2HG, UK
100%
20, rue de la Poste, Luxembourg
Notes to the consolidated financial statements continued 40 Related undertakings continued
Name of entity
Classes of
shares held
Proportion
held
ScotAm Pension Trustees Limited
OS
100%
Registered office address and country of incorporation
5 Central Way, Kildean Business Park, Stirling, FK8
1FT, UK
Scottish Amicable Life Assurance Society
No share
capital
100%
5 Central Way, Kildean Business Park, Stirling, FK8
1FT, UK
Selly Oak Shopping Park (General Partner)
Limited
Selly Oak Shopping Park (Nominee 1) Limited
Selly Oak Shopping Park (Nominee 2) Limited
Selly Oak Shopping Park Limited Partnership
Silverfleet Capital 2004 LP
Silverfleet Capital 2009 LP
Silverfleet Capital 2011/12 LP
Silverfleet Capital II WPLF LP
Sky Fund V Onshore LP
Sky I Intermediate LP
Smithfield Limited
SMLLC
SOFA Holding LP
OS
OS
OS
LPI
LPI
LPI
LPI
LPI
LPI
LPI
OS
LPI
LPI
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
100%
100%
63%
100%
100%
100%
100%
36%
28%
100%
100%
100%
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
1 Royal Plaza, St Peter Port, GY1 2HL, Guernsey
1 Royal Plaza, St Peter Port, GY1 2HL, Guernsey
1 Royal Plaza, St Peter Port, GY1 2HL, Guernsey
1 Carter Lane, London, EC4V 5ER, UK
559 Pacific Avenue, San Francisco, CA 94133, USA
Maples Corporate Services Limited, Ugland House,
P.O. Box 309, Grand Cayman, KY1-1104, Cayman
Islands
10 Fenchurch Avenue, London, EC3M 5AG, UK
1209 Orange Street, Wilmington, DE 19801, USA
2711 Centerville Road, Suite 400, Wilmington, DE
19808, USA
Specialist Investment Funds (2) ICAV – M&G Real
Impact Fund
U
100%
5 George’s Dock, IFSC, Dublin 1, Ireland
St Edward Homes Limited
St Edward Homes Partnership
St Edward Strand Partnership
Stableview Limited
OS
OS
OS
OS
StepStone Scorpio Infrastructure Opportunities
Fund, L.P.
LPI
Sustainable Multi Asset Balanced Fund
Sustainable Multi Asset Cautious Fund
Sustainable Multi Asset Growth Fund
The Car Auction Unit Trust
The First British Fixed Trust Company Limited
The Project Hoxton LP
The Prudential Assurance Company Limited
The Strand Property Unit Trust
The Two Rivers Trust
Three Snowhill Birmingham S.a.r.l.
Two Rivers LP
Two Snowhill Birmingham S.a.r.l.
Vanquish I Unit Trust
Vanquish II Unit Trust
Vanquish Properties (UK) Limited Partnership
U
U
U
U
OS
LPI
OS
U
U
OS
LPI
OS
U
OS
LPI
50%
50%
50%
100%
100%
31%
49%
67%
50%
100%
100%
100%
50%
50%
100%
50%
100%
100%
100%
100%
Berkeley House, 19 Portsmouth Road, Surrey, KT11
1JG, UK
Berkeley House, 19 Portsmouth Road, Surrey, KT11
1JG, UK
Berkeley House, 19 Portsmouth Road, Surrey, KT11
1JG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Maples Corporate Services Limited, Ugland House,
P.O. Box 309, Grand Cayman, KY1-1104, Cayman
Islands
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Dorey Court, Admiral Park, St Peter Port, GY1 2HT,
Guernsey
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
10 Fenchurch Avenue, London, EC3M 5AG, UK
Liberte House, 19-23 La Motte Street, St Helier, JE2
4SY, Jersey
Liberte House, 19-23 La Motte Street, St Helier, JE2
4SY, Jersey
5, Heienhaff, L-1736, Senningerberg, Luxembourg
Bow Bells House, 1 Bread Street, London, EC4M 9HH,
UK
5, Heienhaff, L-1736, Senningerberg, Luxembourg
IFC 5, St Helier, JE1 1ST, Jersey
IFC 5, St Helier, JE1 1ST, Jersey
10 Fenchurch Avenue, London, EC3M 5AG, UK
M&G plc Annual Report and Accounts 2022 | 307
Financial informationStrategic ReportGovernanceOther information 40 Related undertakings continued
Name of entity
Vanquish Properties GP Limited
Vanquish Properties GP Nominee 1 Limited
Vanquish Properties GP Nominee 2 Limited
Vanquish Properties GP Nominee 3 Limited
Vanquish Properties GP Nominee 4 Limited
Vanquish Properties GP Nominee A Limited
Vanquish Properties LP Limited
Wessex Gate Limited
West Station 1 SCI
West Station 2 SCI
West Station SAS
Westwacker Limited
WFH Investments LLC
Wrap IFA Services Limited
Wynnefield Private Equity Partners II, L.P.
Classes of
shares held
Proportion
held
Registered office address and country of incorporation
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
LPI
OS
LPI
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
23%
100%
99%
IFC 5, St Helier, JE1 1ST, Jersey
IFC 5, St Helier, JE1 1ST, Jersey
IFC 5, St Helier, JE1 1ST, Jersey
IFC 5, St Helier, JE1 1ST, Jersey
IFC 5, St Helier, JE1 1ST, Jersey
IFC 5, St Helier, JE1 1ST, Jersey
IFC 5, St Helier, JE1 1ST, Jersey
10 Fenchurch Avenue, London, EC3M 5AG, UK
8 Avenue Hoche, 75008, Paris, France
8 Avenue Hoche, 75008, Paris, France
8 Avenue Hoche, 75008, Paris, France
10 Fenchurch Avenue, London, EC3M 5AG, UK
2711 Centerville Road, Suite 400, Wilmington, DE
19808, USA
10 Fenchurch Avenue, London, EC3M 5AG, UK
1209 Orange Street, Wilmington, DE 19801, USA
308 | M&G plc Annual Report and Accounts 2022
Notes to the consolidated financial statements continued Company financial statements
Company statement of financial position
As at 31 December
Assets
Investments in subsidiaries
Deferred tax
Loans
Current tax recoverable
Accrued investment income and other debtors
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Capital redemption reserve
Treasury shares
Shares held by employee benefit trust
Equity-settled share-based payment reserve
Retained earnings
Brought forward retained earnings
Profit for the year
Other movements in retained earnings
Total retained earnings
Total equity
Liabilities
Subordinated liabilities and other borrowings
Current tax liabilities
Provisions
Accruals, deferred income and other liabilities
Total liabilities
Total equity and liabilities
Notes
2022
£m
2021
£m
A
B
C
B
D
E
F
F
F
G
G
H
B
I
J
10,536
10,524
141
793
8
37
23
90
1,651
—
22
58
11,538
12,345
119
370
11
(47)
(70)
91
8,013
159
(920)
7,252
7,726
130
370
—
—
(93)
80
7,247
1,201
(435)
8,013
8,500
3,729
3,706
—
2
81
5
20
114
3,812
3,845
11,538
12,345
The Notes on pages 314 to 317 are an integral part of these financial statements.
The financial statements on pages 309 to 317 were approved by the Board and signed on its behalf by the following Directors on
9 March 2023:
Andrea Rossi Group Chief Executive Officer
Kathryn McLeland Chief Financial Officer
M&G plc Annual Report and Accounts 2022 | 309
Financial informationStrategic ReportGovernanceOther information
Company financial statements continued
Company statement of changes in equity
(23)
23
—
—
—
—
—
34
—
11
91
Retained
earnings
£m
8,013
159
Total equity
£m
8,500
159
159
159
(465)
(456)
(465)
(503)
—
1
34
—
(22)
—
—
(761)
7,252
(774)
7,726
Retained
earnings
£m
7,247
1,202
1,202
(466)
33
(24)
—
21
766
8,013
Total equity
£m
7,703
1,202
1,202
(466)
—
—
40
21
797
8,500
Capital
redemption
reserve
£m
Treasury
shares
£m
Shares held
by employee
benefit trust
£m
Equity-
settled
share-based
payment
reserve
£m
(93)
80
Share
capital
£m
130
Share
premium
£m
370
As at 1 January 2022
Profit for the year
Total comprehensive income for
the year
Transactions with equity holders:
– Dividends paid
—
—
—
Shares purchased in buy-back
(11)
Vested employee share based
payments
Shares distributed by employee
trusts
Expense recognised in respect of
share-based payments
Tax effect of items recognised
directly in equity
Net (decrease)/increase in equity
As at 31 December 2022
—
—
—
—
(11)
119
—
—
—
—
—
—
—
—
—
370
—
—
—
—
11
—
—
—
—
11
11
—
—
—
—
(47)
—
—
—
—
(47)
(47)
—
—
—
—
—
23
—
—
23
(70)
As at 1 January 2021
Profit for the year
Total comprehensive income for the year
Transactions with equity holders:
– Dividends paid
Vested employee share based payments
Shares distributed by employee trusts
Expense recognised in respect of share-based
payments
Tax effect of items recognised directly in equity
Net increase in equity
As at 31 December 2021
Share capital
£m
130
Share
premium
£m
370
Shares held
by employee
benefit trust
£m
(117)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
130
370
—
—
—
—
24
—
—
24
(93)
Equity-settled
share-based
payment
reserve
£m
73
—
—
—
(33)
—
40
—
7
80
The Notes on pages 314 to 317 are an integral part of these financial statements.
310 | M&G plc Annual Report and Accounts 2022
Company accounting policies
(a) Basis of preparation
These separate financial statements for the year ended 31 December 2022 have been prepared in accordance with UK Generally
Accepted Accounting Practice, including Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”) and Part
15 of the Companies Act 2006.
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of UK-
adopted international accounting standards, but makes amendments where necessary in order to comply with Companies Act
2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
The financial statements have been prepared on a going concern basis under the historical cost basis and are presented rounded
to the nearest million pounds sterling, see Note 1 of the Group financial statements for information of the directors’ assessment of
the going concern basis .
The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements, in
accordance with FRS 101:
– Statement of compliance with IFRS
– Outstanding shares comparative
– Requirement for minimum of two primary statements, including statement of cash flows
– Additional comparative information
– Capital management disclosures
– Statement of cash flows
– Financial instruments disclosure
– Effect of IFRSs issued but not effective
– Related party transactions with wholly-owned subsidiaries
The Company adopted IFRS 9 Financial Instruments effective for the first time from 1 January 2018. This did not have a material
impact on the Company as it does not hold significant financial instruments. This differs from the Group treatment whereby
the Group has met the required eligibility criteria for temporary exemption and the adoption of IFRS 9 has been deferred until
1 January 2023 to coincide with the adoption of IFRS 17.
The Company has taken advantage of the exemption in Section 408 of the Companies Act 2006 not to present its own income
statement in these financial statements. The auditor’s remuneration for audit and other services is disclosed in Note 8 of the
Group financial statements. At 31 December 2022 the Company had three (2021: two) employees.
(b) Key judgements and critical accounting estimates
A full list of the Company’s significant accounting policies is provided in Section (c) of this Note below.
The preparation of these financial statements require management to apply judgement in relation to certain accounting policies.
In addition, management have to make estimates and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses arising during the year. Estimates are
continually evaluated and are based on historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The area which required management to apply significant estimates and assumptions which were material to the financial
statements is as follows:
Financial statement area
Key estimate and assumptions
Impairment of investment in
subsidiaries
When assessing impairment of subsidiaries where indicators of
impairment exist the carrying value is compared to the recoverable
amount, which is the higher of fair value less cost of disposal and value-in-
use. The determination of the recoverable amount, especially in relation to
the value-in-use calculation requires the use of various assumptions that
can have a material impact on the calculation.
Accounting
policy
(c) (ii)
Note
A
(c) Critical accounting policies
(i) Dividend income
Dividend income from investments is recognised when the shareholders’ right to receive payments has been established.
(ii) Investment in subsidiaries
Investment in subsidiaries is stated at cost less, where appropriate, allowances for impairment. Investments are reviewed
annually to assess whether there are indicators of impairment. Where indicators of impairment exist, the carrying value of the
investment in the subsidiary is compared against its recoverable amount, which is the higher of the fair value less cost to sell or
the value-in-use, with any resulting impairment recorded in the income statement.
M&G plc Annual Report and Accounts 2022 | 311
Financial informationStrategic ReportGovernanceOther information Company financial statements continued
Company accounting policies continued
Investment in subsidiaries under common control transactions which are acquired as part of a Group reorganisation are recorded
at fair value of the consideration received, which is deemed to be the cost at the point of initial recognition. Any gains and losses
arising on disposal of subsidiaries are recorded in profit or loss.
(iii) Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand with an original maturity date of 90 days or less. Cash and cash
equivalents are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method
and are subject to the impairment requirements of IFRS 9.
(iv) Tax
Current tax
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at
the reporting date and any adjustment to income tax payable in respect of previous years. Current tax is charged or credited to
the income statement, except when it relates to items recognised directly in equity or other comprehensive income.
Deferred tax
Deferred taxes are provided under the liability method for all relevant temporary differences. IAS 12: Income Taxes does not
require all temporary differences to be provided for, in particular, the Company does not provide for deferred tax on undistributed
earnings of subsidiaries where the Company is able to control the timing of the distribution and the temporary difference created
is not expected to reverse in the foreseeable future. Deferred tax assets are only recognised when it is more likely than not that
future taxable profits will be available against which these losses can be utilised.
Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the liability settled,
based on tax rates (and laws) that have been enacted or substantively enacted at the end of the reporting period.
(v) Share capital and share premium
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its
liabilities. Shares are classified as equity when their terms do not create an obligation to transfer assets. The nominal value of
shares issued is recorded in share capital.
Where the consideration received from the issue or sale of existing shares exceeds the nominal value recorded in share capital,
the difference is recorded in share premium. Share premium is recorded net of share issue costs.
(vi) Treasury shares
Where any of the Group entities purchase the Company’s share capital, the consideration paid, including any attributable
transaction costs, is shown as a deduction from total shareholders’ equity.
(vii) Capital redemption reserve
The capital redemption reserve arises from the cancellation of shares following the share buy-back programme.
(viii) Dividends
Dividends are recognised when the obligation becomes certain, i.e. when the dividend is no longer at the discretion of the
Company. In the case of interim dividends, this occurs when the dividends are paid. For final dividends, this occurs when they are
recommended by the Board and approved by shareholders.
(ix) Subordinated liabilities
Subordinated liabilities include loan notes issued by the Company which are classified as financial liabilities as they have a fixed
repayment date and do not represent a residual interest in the net assets of the Company on liquidation. The notes rank junior to
all other liabilities of the Company in the event of liquidation, but above share capital.
Subordinated liabilities are initially recognised at fair value, net of transaction costs.
(x) Share-based payments
All share-based payments made to employees for services rendered are measured based on the fair value of the equity
instrument granted. The fair value takes into account the impact of market-based vesting conditions and non-vesting conditions,
but excludes any impact of non-market-based vesting conditions. The related share-based payment expense is recognised over
the vesting period. The fair value may be determined using an option pricing model such as Black-Scholes, where appropriate,
taking into account the terms and conditions of the award.
For equity-settled share-based payments, the fair value of service rendered is based on the fair value of the equity instrument
at grant date which is not remeasured subsequently. The share-based payment expense is based on the number of equity
instruments expected to vest over the vesting period, with the corresponding entry to equity.
312 | M&G plc Annual Report and Accounts 2022
Company accounting policies continued
For cash-settled share-based payments, the fair value of service rendered is based on the fair value of the related liability to
the equity instrument granted. The fair value equity instrument granted is remeasured at each reporting date with any changes
recognised in the share-based payment expense for the period.
A cancellation of an award without the grant of a replacement equity instrument is accounted for as an acceleration of vesting.
Accordingly, any share-based payment expense that would have been recognised over the remaining vesting period is
recognised immediately.
Where replacement equity instruments are granted to employees in place of the cancelled equity instruments, the replacement
award is treated as a modification of the original award. At the point of replacement, the awards are remeasured to the fair value
at the date of replacement, which forms the basis of recognising the expense over the remaining vesting period.
(xi) Provisions and contingent assets and liabilities
Provisions are recognised on the statement of financial position when the Company has a present legal or constructive
obligation resulting from a past event, it is probable that a loss will be made in settling the obligation and the amounts can be
estimated reliably.
Provisions are measured based on management’s best estimate of the expenditure required to settle the obligation at the
reporting date. Provisions are discounted and represent the present value of the expected expenditure where the effect of the
time value of money is material.
Contingent liabilities are possible obligations of the Company where the timing and amount are subject to significant uncertainty.
Contingent liabilities are not recognised on the statement of financial position. Contingent liabilities are however disclosed,
unless they are considered to be remote. If a contingent liability becomes probable and the amount can be reliably measured it is
no longer treated as contingent and is recognised as a liability.
Contingent assets which are possible benefits to the Company are only disclosed if it is probable that the Company will receive
the benefit. Mirroring the treatment of contingent liabilities, if such a benefit becomes virtually certain, it is no longer considered
contingent and is recognised on the statement of financial position as an asset.
(xii) Financial instruments
Recognition and initial measurement
A financial asset is initially measured at fair value plus, for a financial asset not measured at fair value through profit or loss
(FVTPL), transaction costs that are directly attributable to its acquisition or issue.
Classification and subsequent measurement
On initial recognition, a financial asset is classified and measured at either amortised cost or FVTPL.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
– it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
– its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
All financial assets that do not meet the criteria for being measured at amortised cost, as described above, are measured at
FVTPL. This includes assets that are held for trading or are part of a portfolio that is managed on a fair value basis.
Financial assets are not reclassified subsequent to their initial recognition unless the entity changes its business model for
managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period
following the change in the business model.
Financial assets at FVTPL are subsequently measured at fair value. Net gains and losses, including any interest or dividend
income, are recognised in profit or loss.
Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest method.
The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are
recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Impairment losses on financial assets measured at amortised cost are measured using an expected credit loss impairment
model. Impairment losses representing the expected credit loss in the next 12 months are recognised unless there has been a
significant increase in credit risk from initial recognition, in which case, lifetime expected losses are recognised. Where relevant,
the Company makes use of the exemption available for financial instruments with low credit risk, for which, an assessment of a
significant increase in credit risk is not required.
M&G plc Annual Report and Accounts 2022 | 313
Financial informationStrategic ReportGovernanceOther information Notes to the Company financial statements
A. Investment in subsidiaries
As at 31 December
Cost at 1 January
Capital contribution into subsidiaries
Cost at 31 December
Impairment at 1 January
Impairment of subsidiaries
Impairment at 31 December
Investment in subsidiaries at 31 December
(i) Capital contributions
2022
£m
2021
£m
11,747
11,717
12
30
11,759
11,747
(1,223)
(1,223)
—
—
(1,223)
(1,223)
10,536
10,524
On 27 September 2022 the Company increased its investment in Prudential Financial Services Limited through the purchase of
10,500,000 ordinary shares for cash consideration of £11m. The additional £1m relates to capital contributions arising from share-
based payments to employees of subsidiaries.
(ii) Prior year capital contributions
On 20 December 2021 the Company increased its investment in M&G Corporate Holdings Limited through the purchase of
25,000,000 ordinary shares for cash consideration of £25m. The additional £5m relates to capital contributions arising from
share-based payments to employees of subsidiaries.
(iii) Direct subsidiaries
The direct subsidiaries of the Company as at 31 December 2022 are listed below:
Company name
Country of incorporation or
registration
M&G Group Regulated Entity Holding Company Limited
United Kingdom
M&G Corporate Holdings Limited
Prudential Financial Services Limited
Prudential Property Services Limited
Prudential Capital Holding Company Limited
Prudential Capital Public Limited Company
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Nature of business
Holding company
Holding company
Holding company
Service company
Holding company
Service company
% held
100%
100%
100%
100%
100%
100%
Details of the Company’s related undertakings are given in Note 40 of the Group financial statements.
(iv) Impairment
No impairment charge was recognised in relation to the Company’s investment in subsidiaries during the year ended
31 December 2022 (2021: none).
M&G Group Regulated Entity Holding Company Limited is the main subsidiary of the Company and acts as the main holding
entity for all of the Group’s regulated businesses. The continued adverse impacts of market volatility on the global economy and
its resulting implications on the Company’s market capitalisation and potential future business performance were considered
an impairment indicator by management. Therefore, an impairment assessment was undertaken in relation to the subsidiary by
comparing its recoverable amount with the carrying value. The recoverable amount of the subsidiary was based on its value in
use. As the subsidiary acts as a holding company with no operations, the value in use was determined as the sum of the values in
use of the underlying subsidiaries in which the subsidiary has investment in. At 31 December 2022, the M&G Group Limited and
The Prudential Assurance Company Limited (PAC) collectively represented 99% of the carrying value of M&G Group Regulated
Entity Holding Company Limited. The values in use of these material indirect subsidiaries were determined based on discounted
cashflows and standard growth models based on management forecasts.
314 | M&G plc Annual Report and Accounts 2022
A. Investment in subsidiaries continued
The value in use calculation is based on a set of economic, market and business assumptions used to derive the cash flow
forecasts. The calculation is particularly sensitive to a number of key assumptions as follows:
– In respect of M&G Group Limited, the value in use was calculated using a standard growth model, using a discount rate of 11%,
based on a cost of equity approach, and a long-term growth rate of 2%. A simultaneous increase of 50 bps in the discount
rate and 50bps decrease in the growth rate would result in the carrying value of M&G Group Limited reducing by £293m.
This would not result in any impairment being recorded in respect of M&G Group Regulated Entity Holding Company Limited.
– In respect of The Prudential Assurance Company Limited, the value in use was calculated using a dividend discount model,
using a discount rate of 12%, based on a cost of equity approach, and a long term growth rate of 2%. A simultaneous increase
of 50bps in the discount rate and 50bps decrease in the growth rate would result in the carrying value of The Prudential
Assurance Company Limited reducing by £570m. This would not result in any impairment being recorded in respect of M&G
Group Regulated Entity Holding Company Limited.
Based on this assessment, no impairment charge was recorded, as at 31 December 2022 (2021: none), in respect of M&G Group
Regulated Entity Holding Company Limited.
B. Tax
(i) Deferred tax assets and liabilities
Under IAS 12, deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the
liability settled, based on tax rates (and laws) that have been enacted or substantively enacted at the end of the reporting period.
Deferred tax assets are recognised to the extent that they are regarded as recoverable, that is to the extent that, on the basis of
all available evidence, it can be regarded as probable that there will be suitable taxable profits from which the future reversal of
the underlying temporary differences can be deducted or tax losses utilised. Deferred tax assets and liabilities are only offset
when there is both a legal right to set off and an intention to settle on a net basis.
Deferred tax in the statement of financial position
The table below shows movements on deferred tax assets during the year:
As at 1 January
Income statement
Equity and other comprehensive income
As at 31 December
2022
£m
90
51
—
141
2021
£m
73
(4)
21
90
Of the £141m (2021: £90m) deferred tax asset at 31 December 2022, £83m (2021: £88m) relates to short-term timing differences
arising on the subordinated notes and £55m (2021: £nil) on tax losses carried forward. The remaining £3m (2021: £2m) relates
to the deferred tax asset on share-based compensation. The prior year movement in reserves predominantly relates to the
revaluation of the deferred tax asset on the subordinated notes as a result of the increase in the UK corporation tax rate, with
effect from 1 April 2023, from 19% to 25%. The income statement movements primarily relate to £55m on unutilised tax losses
carried forward and the amortisation of the subordinated liabilities in the period.
Unrecognised deferred tax
Retained earnings of overseas subsidiaries are expected to be re-invested indefinitely or remitted to the UK free from further
taxation by virtue of Parent Company exemptions on dividends from subsidiaries and on capital gains on disposal. Consequently,
the Company does not consider there to be any significant taxable temporary differences associated with investments in
subsidiaries, branches, associates and joint arrangements.
M&G plc Annual Report and Accounts 2022 | 315
Financial informationStrategic ReportGovernanceOther information
Notes to the Company financial statements continued
B. Tax continued
(ii) Current tax
As at 31 December
Net corporation tax liability at 1 January
Income statement
Corporation tax paid
Corporation tax assets (UK)
Corporation tax liabilities (UK)
Net corporation tax asset / (liability) as at 31 December
As at 31 December
Corporation tax receivable / (payable) within 12 months
As at 31 December
2022
£m
(5)
20
(7)
8
8
—
8
2022
£m
8
8
2021
£m
(10)
63
(58)
(5)
—
(5)
(5)
2021
£m
(5)
(5)
C. Loans
As at 31 December 2022 the Company had provided loans to its subsidiary Prudential Capital plc of £793m (2021: £1,651m)
which are repayable on demand. Accrued interest as at 31 December 2022 was £1m (2021: £nil) and is presented within accrued
investment income and other debtors.
D. Accrued investment income and other debtors
As at 31 December
Amounts owed by Group undertakings
Other
Total accrued investment income and other debtors
Analysed as:
No contractual maturity
Expected to be settled within one year
Total accrued investment income and other debtors
E. Cash and cash equivalents
As at 31 December
Cash
Total cash and cash equivalents
2022
£m
2021
£m
36
1
37
36
1
37
21
1
22
22
—
22
2022
£m
23
23
2021
£m
58
58
F. Share capital and share premium
Details of the Company’s share capital and share premium are given in Note 22 of the Group financial statements, including the
impacts from the share buy-back programme.
Details of the dividends paid on the ordinary shares by the Company are provided in Note 11 of the Group financial statements.
Note 11 also includes information regarding the final dividend proposed by the Directors for the year ended 31 December 2022.
G. Shares held by employee benefit trusts and other treasury shares
Details of the Company’s shares held by trust and other treasury shares are given in Note 23 of the Group financial statements.
316 | M&G plc Annual Report and Accounts 2022
H. Subordinated liabilities and other borrowings
Details of the Company’s subordinated liabilities are given in Note 27.1 of the Group financial statements. Details of the Company’s
revolving credit facilities are given in Note 27.2 of the Group financial statements and in the Director’s report.
I. Provisions
Provisions of £2m as at 31 December 2022 (2021: £20m) related to change in control costs arising from the demerger of the
Group from the Prudential plc group in 2019, which were expected to be incurred within four years of the separation.
J. Accruals, deferred income and other liabilities
As at 31 December
Amounts owed to Group undertakings
Accrued interest on subordinated debt
Other
Total accruals, deferred income and other liabilities
Analysed as:
No contractual maturity
Expected to be settled within one year
Expected to be settled after one year
Total accruals, deferred income and other liabilities
2022
£m
2021
£m
28
43
10
81
28
45
8
81
58
42
14
114
58
48
8
114
K. Related party transactions
The Directors and key management personnel of the Company are considered to be the same as for the Group. See Note 36 of
the Group financial statements for further information.
There were no other related party transactions in the years ended 31 December 2022 and 31 December 2021 other than those
noted in Note A, Note C, Note D and Note J of the Company financial statements.
L. Contingencies and related obligations
Details of the Company’s contingencies and related obligations are given in Note 34 of the Group financial statements.
Intra-group capital support arrangements
The Company and PAC have put in place intra-group arrangements to formalise circumstances in which capital support would be
made available by the Company. While the Company considers it unlikely that such support will be required, the arrangements
are intended to provide additional comfort to PAC and its policyholders.
M. Share-based payments
Details of the Company’s share-based payments are given in Note 38 of the Group financial statements.
M&G plc Annual Report and Accounts 2022 | 317
Financial informationStrategic ReportGovernanceOther information Supplementary financial information
Supplementary financial information
1.1 Overview of the Group’s key and alternate performance measures
The Group measures its financial performance using a number of key performance measures (KPM). The Group also uses a
number of alternative performance measures (APM), which are most commonly derived from the financial statements prepared
in accordance with the IFRS financial reporting framework or the Solvency II requirements, but are not defined under IFRS or
Solvency II. The APMs are used to complement and not to substitute the disclosures prepared in accordance with IFRS and
Solvency II, and provide additional information on the long-term performance of the Group.
A list of the APMs used by the Group along with their definitions and how they can be reconciled to the nearest IFRS or Solvency
II measure, where applicable, is provided in the table below.
Key performance
measure
IFRS profit or loss
after tax
Type
Definition
KPM IFRS profit or loss after tax demonstrates to our shareholders the financial performance of the Group
during the year on an IFRS basis.
Adjusted
operating profit
before tax
APM,
KPM
Adjusted operating profit before tax is the Group’s non-GAAP alternative performance measure,
which complements IFRS GAAP measures and is useful as it allows a deeper understanding of
operating performance over time. It is therefore key to decision-making and the internal performance
management of our operating segments.
Certain adjustments that are considered to be non-recurring or strategic, or due to short-
term movements not reflective of longer-term performance are made to IFRS profit before tax
to determine Adjusted operating profit before tax. Adjustments are in respect of short-term
fluctuations in investment returns, costs associated with fundamental Group-wide restructuring
and transformation, profit/(loss) arising on corporate transactions, impairment and amortisation in
respect of acquired intangible assets, and, when relevant, profit/(loss) before tax from discontinued
operations.
The adjusted operating profit methodology is described in Section 3.2, along with a reconciliation of
adjusted operating profit before tax to IFRS profit after tax.
Adjusted
operating income
APM Adjusted operating income is a component part of the Group’s key APM of adjusted operating profit
before tax.
For the Group’s fee based business adjusted operating income represents asset management
charges, transactional charges and annual management charges on unit-linked business.
For the Group’s business written in the With-Profits Fund, adjusted operating income includes the
statutory transfer to shareholders gross of attributable shareholder tax. Derivative instruments are
held to mitigate the risk to the shareholder of lower future shareholder transfers.
For the Group’s shareholder annuity products written by the Retail and Savings segment, adjusted
operating income includes the net impact of movements in the value of policyholder liabilities and fair
value of the assets backing these liabilities, the unwind of the credit risk premium, the actual income
received in the year, such as coupon payments, redemption payments and rental income on surplus
assets backing the shareholder annuity capital, less an allowance for expenses, the net effect of
changes to the valuation rate of interest due to asset trading and portfolio rebalancing and the impact
of changes in the long-term component of credit provisioning. Specifically excluded are the impact of
short-term components of credit risk provisioning, the impact of credit risk experience variances over
the period, and total fair value movement on surplus assets backing the shareholder annuity capital,
that are not reflective of the longer-term performance of the business.
Please see section 3.4 which includes a reconciliation of adjusted operating income to total IFRS
revenue as presented in the Group’s consolidated income statement.
Adjusted
operating
expenses
APM Adjusted operating expenses is a component part of the Group’s key APM of adjusted operating
profit before tax.
Included are operating costs for the business consisting of overheads, expenses required to meet
regulatory requirements and regular business development/restructuring and other costs. Non-
recurring or strategic costs associated with fundamental Group-wide merger, transformation,
rebranding and other change in control costs are not included.
Please see section 3.4 which includes a reconciliation of adjusted operating expenses to total IFRS
expenses as presented in the Group’s consolidated income statement.
318 | M&G plc Annual Report and Accounts 2022
1.1 Overview of the Group’s key and alternate performance measures continued
Key performance
measure
Assets under
management and
administration
(AUMA)
Type
Definition
APM,
KPM
Closing AUMA represents the total market value of all assets managed, administered or advised on
behalf of clients at the end of each financial period and is a key indicator of the scale of the business.
Assets managed by the Group include those managed on behalf of our institutional and wholesale
clients.
Assets administered by the Group includes assets which we provide investment management
services for, in addition to assets we administer where the client has elected to invest in a third-party
investment manager.
Assets under advice are advisory portfolios where clients receive investment recommendations such
as Strategic Asset Allocation & model portfolios but retain discretion over executing the advice.
AUMA includes assets recognised in the Group’s consolidated statement of financial position
together with certain assets administered by the Group belonging to external clients outside of the
Group which are therefore not included within the Group’s statement of financial position and, as a
result, this measure is not directly reconcilable to the financial statements.
Please see section 1.3 of the supplementary financial information for further details on the Group’s
AUMA.
Net client flows
(excluding
Heritage)
APM,
KPM
Net client flows represent gross inflows less gross outflows and provides useful insight into the
growth of the business. Gross inflows are new funds from clients. Gross outflows are money
withdrawn by clients during the period. This measure does not include the expected net outflows in
our Heritage business, which is closed to new clients, as it runs-off.
Net client flows includes flows on assets held on the Group’s consolidated statement of financial
position for our retail clients, and external client flows on assets belonging to wholesale and
institutional clients outside of the Group which are not included in the Group’s consolidated
statement of financial position and as a result, this measure is not directly reconcilable to the financial
statements.
Please see section 1.3 of the supplementary financial information section for further analysis on net
client flows, excluding heritage.
Shareholder
Solvency II
coverage ratio
APM,
KPM
Management focuses on a shareholder view of the Solvency II coverage ratio, which is considered to
provide a more useful reflection of the capital strength of the Group. The shareholder view includes
future with-profits shareholder transfers, but excludes the shareholders’ share of the ring-fenced
with-profits estate.
The regulatory Solvency II capital position considers the Group’s overall own funds and SCR.
The shareholder Solvency II coverage ratio is the ratio of own funds to SCR, excluding the
contribution to own funds and SCR from the Group’s ring-fenced With-Profits Fund. Own Funds
assume transitional measures on technical provisions which have been recalculated using
management’s estimate of the impact of operating and market conditions at the valuation date.
The shareholder Solvency II coverage ratio is described in the “Solvency II capital position” section
in 1.4.
APM For insurance entities and their underlying subsidiaries, underlying capital generation includes the
expected Solvency II surplus capital generated from in-force business and the impact of writing new
life insurance business. For non-insurance entities, underlying capital generation is equal to adjusted
operating profit before tax, with certain adjustments made in respect of items that do not reflect the
underlying result. It also includes other items such as head office expenses and debt interest costs
that contribute to the underlying capital position of the business.
Please see section 1.5 of the supplementary financial information for further details on underlying
capital generation, including any applicable reconciliations.
Operating capital generation is the total capital generation before tax, adjusted to exclude market
movements relative to those expected under long-term assumptions and to remove other non-
operating items, including shareholder restructuring and other costs. Management use this as an
indicator on the longer-term components of the movements in the Group’s surplus capital as it is less
affected by short-term market volatility and non-recurring items as total capital generation.
Please see section 1.5 of the supplementary financial information for further details on operating
capital generation.
Underlying capital
generation
Operating capital
generation
APM,
KPM
Total capital
generation
APM,
KPM
Total capital generation measures the change in surplus capital during the period, before dividends
and capital movements. Management consider it to be integral to the running and monitoring of the
business, our decisions on capital allocation and investment, and ultimately our dividend policy.
Surplus capital is the amount by which own funds exceed SCR under Solvency II. Total capital
generation is the total change in Solvency II surplus capital before dividends and capital movements.
Please see section 1.5 of the supplementary financial information for further details on total capital
generation including the reconciliation to change in Solvency II surplus.
M&G plc Annual Report and Accounts 2022 | 319
Financial informationStrategic ReportGovernanceOther information Supplementary financial information continued
1.2 Adjusted operating profit before tax
1.2 (i) Adjusted operating profit/(loss) before tax by segment
For the year ended 31 December
Fee-based revenue
Annuity margin
With-profits shareholder transfer
net of hedging and other gains/
losses
Adjusted operating income
Adjusted operating expenses
Other shareholder (loss)/profit
Share of profit from joint ventures
and associatesi
Adjusted operating profit
attributable to non-controlling
interests
Adjusted operating profit/(loss)
before tax
Asset Management
Retail & Savings
Corporate centre
Total
2022
£m
1,051
—
—
1,051
(763)
(5)
—
2021
£m
976
—
—
976
(672)
17
6
(19)
(12)
2022
£m
295
227
354
876
(295)
(9)
—
—
2021
£m
278
369
268
915
(296)
41
—
—
2022
£m
2021
£m
—
—
—
—
—
—
—
—
2022
£m
1,346
227
2021
£m
1,254
369
354
1,927
268
1,891
(107)
(200)
(95)
(159)
(1,165)
(1,063)
(214)
(101)
—
—
—
—
—
6
(19)
(12)
264
315
572
660
(307)
(254)
529
721
i Excludes adjusted operating profit before tax from joint ventures in the With-Profits Fund.
1.2 (ii) Adjusted operating profit/(loss) before tax by segment and source
Asset Management
Retail and Savings
Corporate
Centre
Core Asset
Management
£m
Performance
feesi and
investment
income
£m
Wealth
£m
Heritage
£m
995
—
—
995
(763)
—
(763)
—
—
(14)
218
56
—
—
56
—
—
—
(5)
—
(5)
46
140
—
128
268
—
(173)
(173)
1
—
—
92
227
226
545
—
(80)
(80)
1
—
—
96
466
Other
£m
63
—
—
63
—
(42)
(42)
(11)
—
—
10
Other
£m
—
—
—
—
—
(107)
(107)
(200)
—
—
(307)
For the year ended 31 December 2022
Fee-based revenue
Annuity margin
With-profits shareholder transfer net of hedging
and other gains/losses
Adjusted operating income
Asset Management operating expenses
Other operating expenses
Adjusted operating expenses
Other shareholder (loss)/profit
Share of profit from joint ventures and
associates
Adjusted operating profit attributable to non-
controlling interests
Adjusted operating profit/(loss) before tax
i
Includes carried interest.
320 | M&G plc Annual Report and Accounts 2022
1.2 Adjusted operating profit before tax continued
Asset Management
Retail and Savings
Corporate
Centre
For the year ended 31 December 2021
Fee-based revenue
Annuity margin
With-profits shareholder transfer net of hedging
and other gains/losses
Adjusted operating income
Asset management operating expenses
Other operating expenses
Adjusted operating expenses
Other shareholder profit/(loss)
Share of profit from joint ventures and
associates
Adjusted operating profit attributable to non-
controlling interests
Adjusted operating profit/(loss) before tax
i
Includes carried interest.
Core Asset
Management
£m
Performance
feesi and
investment
income
£m
Wealth
£m
Heritage
£m
953
—
—
953
(672)
—
(672)
—
6
(10)
277
23
—
—
23
—
—
—
17
—
(2)
38
144
—
63
207
—
(168)
(168)
2
—
—
41
76
369
205
650
—
(85)
(85)
55
—
—
620
Adjusted operating profit before tax arising from annuity margin is further analysed in the table below:
For the year ended 31 December
Return on excess assets and margin release
Asset trading and other optimisation
Longevity assumption changes
Mismatching lossesi
Other assumption and model changesii
Experience variances and model improvements
Other provisions and reserves
Annuity margin
Other
£m
58
—
—
58
—
(43)
(43)
(16)
—
—
(1)
2022
£m
163
35
193
(122)
(19)
(8)
(15)
227
Other
£m
—
—
—
—
—
(95)
(95)
(159)
—
—
(254)
2021
£m
172
10
125
(6)
10
12
46
369
i Mismatching losses of £122m for the year ended 31 December 2022 (2021: £6m) relates to short-term mismatches between the value of annuity
liabilities and the long-term assets backing these liabilities due to the impact of market movements.
ii Other assumptions and model changes of £(19)m for the year ended 31 December 2022 (2021: £10m) include assumption changes other than those
relating to longevity, including the impact of expense assumption changes and the impact of improvements to models.
1.2 (iii) Reconciliation of adjusted operating profit before tax to IFRS (loss)/profit after tax
For the year ended 31 December
Adjusted operating profit before tax
Short term fluctuations in investment returns
Profit on disposal of business and corporate transactions
Restructuring and other costs
Amortisation and impairment of intangible assets acquired in business combinations
IFRS profit before tax attributable to non-controlling interests
IFRS (loss)/profit before tax attributable to equity holders
Tax credit attributable to equity holders
IFRS (loss)/profit after tax attributable to equity holders
2022
£m
529
(2,484)
—
(147)
(35)
19
(2,118)
499
(1,619)
2021
£m
721
(537)
35
(146)
(4)
12
81
11
92
M&G plc Annual Report and Accounts 2022 | 321
Financial informationStrategic ReportGovernanceOther information
Supplementary financial information continued
1.3 Assets under management and administration (AUMA) and net client flows
1.3 (i) Detailed AUMA and net client flows
For the year ended 31 December
Institutional Asset Management
Wholesale Asset Management
Other
Total Asset Management
Wealth
Of which PruFund
Heritage
Of which Shareholder annuities
Of which traditional with-profits
Other Retail and Savings
Of which PruFund
Total Retail and Savings
Corporate assets
Group Totali
As at 1
January
2022
£bn
103.1
52.7
0.9
156.7
84.2
52.4
117.8
22.2
81.4
9.1
6.0
211.1
2.2
370.0
2022
Gross
inflows
£bn
Gross
outflows
£bn
Net client
flows
£bn
Market/
Other
movements
£bn
As at 31
December
2022
£bn
13.1
16.0
—
29.1
8.0
5.4
0.2
—
0.2
0.9
0.7
9.1
—
(13.8)
(15.5)
—
(0.7)
0.5
—
(29.3)
(0.2)
(7.8)
(4.9)
(6.2)
(1.1)
(5.1)
(0.6)
(0.5)
0.2
0.5
(6.0)
(1.1)
(4.9)
0.3
0.2
(14.6)
(5.5)
—
—
(5.7)
(3.2)
0.7
0.2
(2.3)
(1.0)
(0.6)
(17.7)
(5.7)
(9.0)
(0.5)
(0.2)
(19.2)
(0.8)
(22.3)
99.2
53.9
1.1
154.2
83.4
52.3
94.1
15.4
67.5
8.9
6.0
186.4
1.4
342.0
38.2
(43.9)
i
Included in total AUMA of £342.0 billion (2021: £370.0 billion) is £12.7 billion (2021: £7.9 billion) of assets under advice.
For the year ended 31 December
Institutional Asset Management
Wholesale Asset Management
Other
Total Asset Management
Wealth
Of which PruFund
Heritage
Of which Shareholder annuities
Of which traditional with-profits
Other Retail and Savings
Of which PruFund
Total Retail and Savings
Corporate assets
Group Totali
2021
As at 1
January
2021
£bn
Gross
inflows
£bn
Gross
outflows
£bn
Net client
flows
£bn
Market/
Other
movements
£bn
As at 31
December
2021
£bn
85.5
58.1
0.8
144.4
79.5
50.0
133.7
35.3
84.3
8.4
5.5
221.6
1.2
367.2
16.2
14.9
—
31.1
7.1
3.8
0.3
—
0.3
0.6
0.4
8.0
—
(10.4)
(18.7)
—
(29.1)
(8.5)
(5.2)
(7.2)
(1.8)
(5.1)
(0.6)
(0.4)
(16.3)
—
39.1
(45.4)
5.8
(3.8)
—
2.0
(1.4)
(1.4)
(6.9)
(1.8)
(4.8)
—
—
(8.3)
—
(6.3)
11.8
(1.6)
0.1
10.3
6.1
3.8
(9.0)
(11.3)
1.9
0.7
0.5
(2.2)
1.0
9.1
103.1
52.7
0.9
156.7
84.2
52.4
117.8
22.2
81.4
9.1
6.0
211.1
2.2
370.0
322 | M&G plc Annual Report and Accounts 2022
1.3 Assets under management and administration (AUMA) and net client flows continued
1.3 (ii) AUMA by asset class
On balance sheet AUMAi
External AUMA
Total
2022
Shareholder-
backed
annuities and
other long-
term business
£bn
Corporate
assets
£bn
With-
profits
£bn
Unit-
linked
£bn
9.1
—
69.3
1.1
32.3
23.5
7.5
1.3
0.1
14.5
1.5
1.0
—
—
9.7
—
2.5
1.8
0.6
0.1
—
1.2
0.3
0.2
0.9
1.0
—
1.4
12.4
8.7
3.1
0.6
(1.5)
1.4
0.6
0.2
—
—
0.2
—
1.2
1.2
—
—
(0.1)
—
0.7
0.4
Total on
balance
sheet
AUMA
£bn
10.0
1.0
79.2
2.5
48.4
35.2
11.2
2.0
(1.5)
17.1
3.1
1.8
Wealth
£bn
Wholesale
£bn
Institutional
£bn
Total
external
AUMA
£bn
Total AUMA
£bn
—
—
3.6
—
2.1
2.1
—
—
—
—
—
—
0.8
—
28.6
—
22.7
14.4
7.1
1.2
0.3
—
1.5
—
16.0
16.8
—
—
18.1
9.4
51.6
34.8
8.7
8.1
0.3
—
3.8
—
50.3
9.4
76.4
51.3
15.8
9.3
0.6
—
5.3
—
26.8
1.0
129.5
11.9
124.8
86.5
27.0
11.3
(0.9)
17.1
8.4
1.8
21.6
128.9
13.9
16.4
2.4
161.6
5.7
53.9
99.2
158.8
342.0
As at 31 December
Investment property
Reinsurance assets
Equity securities and
pooled investment
funds
Loans
Debt securities
of which Corporate
of which
Government
of which ABS
Derivativesii
Depositsiii
Cash and cash
equivalents
Other
Other AUMA
Totaliv
i On balance sheet AUMA does not include consolidated funds included in the segmented statement of financial position by business type in Note 33.1.
ii Derivatives assets are shown net of derivative liabilities.
iii Deposits are shown net of unsettled reverse repos.
iv
Included in total AUMA of £342.0 billion (2021: £370.0 billion) is £12.7 billion (2021: £7.9 billion) of assets under advice.
On balance sheet AUMAi
External AUMA
Total
2021
Shareholder-
backed
annuities and
other long-
term business
£bn
Corporate
assets
£bn
1.1
1.5
—
2.2
18.2
12.7
4.8
0.7
(0.6)
1.0
1.0
0.1
—
—
0.3
—
1.3
1.3
—
—
—
—
1.5
—
With-
profits
£bn
9.4
—
Unit-
linked
£bn
0.1
0.2
72.4
1.4
42.6
30.8
9.7
2.1
1.4
11.9
2.5
1.4
10.7
—
3.3
2.1
1.1
0.1
—
1.3
0.2
0.3
Total on
balance
sheet
AUMA
£bn
10.6
1.7
83.4
3.6
65.4
46.9
15.6
2.9
0.8
14.2
5.2
1.8
Wealth
£bn
Wholesale
£bn
Institutional
£bn
—
—
3.9
—
2.5
2.5
—
—
—
—
—
—
0.6
—
21.3
—
29.2
17.2
10.2
1.8
0.1
(0.1)
1.6
—
14.6
—
19.5
11.2
55.4
32.0
13.2
10.3
(0.2)
—
2.6
—
Total
external
AUMA
£bn
15.2
—
44.7
11.2
87.1
51.7
23.4
12.1
(0.1)
(0.1)
4.2
—
Total AUMA
£bn
25.8
1.7
128.1
14.8
152.5
98.6
39.0
15.0
0.7
14.1
9.4
1.8
21.1
143.0
16.1
24.5
3.1
186.7
6.4
52.7
103.1
162.2
370.0
As t 31 December
Investment property
Reinsurance assets
Equity securities and
pooled investment
funds
Loans
Debt securities
of which Corporate
of which
Government
of which ABS
Derivativesii
Depositsiii
Cash and cash
equivalents
Other
Other AUMA
Totaliv
M&G plc Annual Report and Accounts 2022 | 323
Financial informationStrategic ReportGovernanceOther information
Supplementary financial information continued
1.3 Assets under management and administration (AUMA) and net client flows continued
1.3 (iii) AUMA by geography
The below table illustrates AUMA by geography based on the country of the underlying client:
As at 31 December
UK
Rest of Europe
Asia-Pacific
Middle East and Africa
Americas
Total AUMAi
2022
£bn
264.1
52.7
11.1
12.7
1.4
2021
£bn
299.9
48.3
9.5
11.0
1.3
342.0
370.0
i
Included in total AUMA of £342.0 billion (2021: £370.0 billion) is £12.7 billion (2021: £7.9 billion) of assets under advice.
1.4 Solvency II capital position
1.4.1 Solvency II overview
The Group is supervised as an insurance group by the Prudential Regulation Authority. Individual insurance undertakings within
the Group are also subject to the supervision of the Prudential Regulation Authority (or other supervisory authorities) on a solo
basis under Solvency II.
The Solvency II surplus represents the aggregated capital (own funds) held by the Group less the SCR. Own funds is the Solvency
II measure of capital available to meet losses, and is based on the assets less liabilities of the Group, subject to certain restrictions
and adjustments. The SCR is calculated using the Group’s Internal Model, which calculates the SCR as the 99.5th percentile (or
1-in-200) worst outcome over the coming year, out of 100,000 equally likely scenarios, allowing for the dependency between the
risks the business is exposed to.
1.4.2 Estimated reconciliation of IFRS shareholders’ equity to Group Solvency II own funds
As at 31 December
IFRS shareholders’ equity
Add back unallocated surplus of the With-Profits Fund
Deduct goodwill and intangible assets
Net impact of policyholder liabilities and reinsurance assets on Solvency II basis
Impact of introducing Solvency II risk margin (net of transitional measures)
Impact of measuring assets and liabilities in line with Solvency II principles
Recognise own shares
Other
Solvency II excess of assets over liabilities
Subordinated debt capital
Ring-fenced fund restrictions
Deduct own shares
Solvency II eligible own funds
2022
£bn
2.8
15.1
(1.6)
(0.7)
(1.0)
0.8
0.1
—
15.5
3.0
(6.6)
(0.1)
11.8
2021
£bn
5.3
16.7
(1.4)
(0.3)
(1.1)
0.2
0.1
—
19.5
3.7
(7.8)
(0.1)
15.3
The key items in the reconciliation are explained below:
– Unallocated surplus of the With-Profits Fund: this amount is treated as a liability under IFRS, but considered surplus assets
under Solvency II.
– Goodwill and intangible assets: these assets are not recognised under Solvency II as they are not readily available to meet
emerging losses.
– Policyholder liability and reinsurance asset valuation differences: there are significant differences in the valuation of technical
provisions between IFRS and Solvency II. The most material differences relate to the exclusion of prudent margins in longevity
assumptions under Solvency II, and also the use of different discount rates, both in relation to the valuation of annuity liabilities.
– Solvency II risk margin (net of transitional measures): the risk margin is a significant component of technical provisions required
to be held under Solvency II. These additional requirements are partially mitigated by transitional measures which allow the
impact to be gradually introduced over a period of 16 years from the introduction of Solvency II on 1 January 2016.
324 | M&G plc Annual Report and Accounts 2022
1.4 Solvency II capital position continued
– Subordinated debt capital: subordinated debt is treated as a liability in the IFRS financial statements and in determining the
excess of assets over liabilities in the Solvency II balance sheet. However, for Solvency II own funds, the debt can be treated
as capital.
– Ring-fenced fund restrictions: any excess of the own funds over the solvency capital requirements from the With-Profits Fund
is restricted as these amounts are not available to meet losses elsewhere in the Group.
1.4.3 Composition of own funds
The Group’s total estimated and unaudited own funds are analysed by Tier as follows:
As at 31 December
Tier 1 (unrestricted)
Tier 2
Tier 3
Total eligible own funds
2022
£bn
8.2
3.0
0.6
11.8
2021
£bn
11.5
3.7
0.1
15.3
The Group’s Tier 2 capital consists of subordinated debt instruments. The terms of these instruments allow them to be treated as
capital for the purposes of Solvency II. The instruments were originally issued by Prudential plc, and subsequently substituted to
the Company, as permitted under the terms and conditions of each applicable instrument, prior to demerger. The details of the
Group’s subordinated liabilities are shown in Note 27 of the consolidated financial statements. The Solvency II value of the debt
differs to the IFRS carrying value due to a different basis of measurement on the respective balance sheets.
The Group’s Tier 3 capital of £0.6bn (2021: £0.1bn) relates to deferred tax asset balances.
1.4.4 Estimated shareholder view of the Solvency II capital position
The Group focuses on a shareholder view of the Solvency II capital position, which is considered to provide a more relevant
reflection of the capital strength of the Group.
The estimated and unaudited shareholder Solvency II capital position for the Group is shown below:
As at 31 December
Shareholder Solvency II eligible own funds
Shareholder Solvency II SCR
Solvency II surplus
Shareholder Solvency II coverage ratioi
2022
£bn
9.3
(4.7)
4.6
2021
£bn
11.4
(5.2)
6.2
199%
218%
i Shareholder Solvency II coverage ratio has been calculated using unrounded figures.
The Group’s shareholder Solvency II capital position excludes the contribution to own funds and SCR from the ring-fenced With-
Profits Fund. Further information on the ring-fenced With-Profits Fund’s capital position is provided in Section 1.4.5.
In accordance with the Solvency II requirements, these results include:
– An SCR which has been calculated using the Group’s Internal Model.
– Transitional measures, which are presented assuming a recalculation as at the valuation date, using management’s estimate of
the impact of operating and market conditions.
– A matching adjustment for non-profit annuities, based on approval from the Prudential Regulation Authority.
– M&G Group Limited and other undertakings carrying out financial activities consolidated under local sectoral or notional
sectoral capital requirements.
M&G plc Annual Report and Accounts 2022 | 325
Financial informationStrategic ReportGovernanceOther information Supplementary financial information continued
1.4 Solvency II capital position continued
Breakdown of the shareholder Solvency II SCR by risk type
The shareholder undiversified capital requirement is presented by risk type below.
As at 31 December
Equity
Property
Interest rate
Credit
Currency
Longevity
Lapse
Operational & expense
Sectorali
Total undiversified
Diversification, deferred tax and other
Shareholder SCR
2022
£bn
2021
£bn
1.7
0.9
0.6
1.6
1.1
0.9
0.5
1.3
0.7
9.3
(4.6)
4.7
1.7
0.9
0.3
2.7
1.0
1.6
0.3
1.4
0.6
10.5
(5.3)
5.2
i
Includes entities included within the Group’s Solvency II capital position on a sectoral or notional sectoral basis, the most material of which is M&G
Group Limited.
Sensitivity analysis of the Group’s Solvency II surplus and shareholder Solvency II coverage ratio
The estimated sensitivity of the Group’s Solvency II surplus and shareholder Solvency II coverage ratio to significant changes in
market conditions are shown below. All sensitivities are presented after an assumed recalculation of transitional measures.
As at 31 December
Base (as reported)
20% instantaneous fall in equity markets
20% instantaneous fall in property markets
50bp reduction in interest rates
100bp widening in credit spreads
20% credit asset downgradei
2022
2021
Surplus
£bn
Shareholder
coverage ratio
%
Surplus
£bn
Shareholder
coverage ratio
%
4.6
4.0
4.2
4.4
4.3
4.4
199%
187%
190%
191%
196%
194%
6.2
5.5
5.7
6.1
5.9
5.9
218%
208%
211%
208%
218%
211%
i Average impact of one full letter downgrade across 20% of assets exposed to credit risk.
1.4.5 Estimated With-Profits Fund view of the Solvency II capital position
The With-Profits Fund view of the Solvency II capital position represents the standalone capital strength of the Group’s ring-
fenced With-Profits Fund. This view of Solvency II capital takes into account the assets, liabilities, and risk exposures within the
ring-fenced With-Profits Fund, which includes the WPSF and DCPSF.
The estimated and unaudited Solvency II capital position for the Group under the With-Profits Fund view is shown below:
As at 31 December
With-Profits Fund Solvency II own funds
With-Profits Fund Solvency II SCR
With-Profits Fund Solvency II surplus
With-Profits Fund Solvency II coverage ratioi
i With-Profits Fund Solvency II coverage ratio has been calculated using unrounded figures.
2022
£bn
9.1
(2.5)
6.6
2021
£bn
11.6
(3.8)
7.8
362%
302%
326 | M&G plc Annual Report and Accounts 2022
1.4 Solvency II capital position continued
1.4.6 Estimated regulatory view of the Solvency II capital position
The estimated and unaudited Solvency II capital position for the Group under the regulatory view as at is shown below:
As at 31 December
Solvency II own funds
Solvency II SCR
Solvency II surplus
Solvency II coverage ratioi
2022
£bn
11.8
(7.2)
4.6
2021
£bn
15.3
(9.1)
6.2
164%
168%
i Solvency II coverage ratio has been calculated using unrounded figures. On a regulatory approved transition measures on technical provisions basis,
the surplus is £4.8bn (2021: £6.2bn) and the solvency coverage ratio is 168% (2021: 168%).
The results include transitional measures, which are presented assuming a recalculation as at the valuation date, using
management’s estimate of the impact of operating and market conditions. As at 31 December 2022, the recalculated transitional
measures do not align to the latest approved regulatory position and therefore the estimated and unaudited Solvency II capital
position differs from the position disclosed in the formal regulatory Quantitative Reporting Templates and Group Solvency and
Financial Condition Report of the same date. As at 31 December 2021, the recalculation was approved for the reporting date and
the positions were aligned.
1.5 Capital generation
The level of surplus capital is an important financial consideration for the Group. Capital generation measures the change in
surplus capital during the reporting period, and is therefore considered a key measure for the Group. It is integral to the running
and monitoring of the business, capital allocation and investment decisions, and ultimately the Group’s dividend policy.
The overall change in Solvency II surplus capital over the period is analysed as follows:
Total capital generation is the total change in Solvency II surplus capital before dividends and capital movements, and capital
generated from any discontinued operations.
Operating capital generation is the total capital generation before tax, adjusted to exclude market movements relative to those
expected under long-term assumptions and to remove other non-operating items, including shareholder restructuring and other
costs as defined under adjusted operating profit before tax. It has two components:
(i) Underlying capital generation, which includes: the underlying expected surplus capital from the in-force life insurance
business; the change in surplus capital as a result of writing new life insurance business; the adjusted operating profit before
tax and associated regulatory capital movements from Asset Management; and other items, including head office expenses and
debt interest costs.
(ii) Other operating capital generation, which includes non-market related experience variances, assumption changes, modelling
changes and other movements.
Dividends and capital movements primarily represent external dividends paid to shareholders and changes to the capital
structure of the Group, such as issuing or repaying debt instruments. Also included within capital movements are the Solvency
II impact of the Group’s share-based payment awards over and above the amount expensed in respect of those awards, and the
surplus utilised or generated from transactions relating to the acquisition of business as defined by IFRS.
The expected surplus capital from the in-force life insurance business is calculated on the assumption of real-world investment
returns, which are determined by reference to the risk-free rate plus a risk premium based on the mix of assets held for the
relevant business. For with-profits business, the assumed average return over the risk-free rate was 4.10% for the year ended
31 December 2022 (2021: 4.00%). For annuity business, the assumed average return on assets backing capital was 2.19% for the
year ended 31 December 2022 (2021: 1.15%).
The Group’s capital generation results in respect of the years ended 31 December 2022 and 31 December 2021 are shown below
alongside a reconciliation of the total movement in the Group’s Solvency II surplus. The reconciliation is presented showing the
impact on the shareholder Solvency II own funds and SCR, which excludes the contribution to own funds and SCR from the
Group’s ring-fenced With-Profits Fund. The shareholder Solvency II capital position, and how this reconciles to the regulatory
capital position, is described in detail in Section 1.4.
M&G plc Annual Report and Accounts 2022 | 327
Financial informationStrategic ReportGovernanceOther information Supplementary financial information continued
1.5 Capital generation continued
The capital generation results and comparatives have adopted a basis of preparation consistent with the IFRS consolidated
financial statements.
Asset Management
Retail and Savings
Corporate Centre
Total
For the year ended 31 December
Underlying capital generation
Other operating capital generation
Operating capital generation
Market movements
Restructuring & other
Tax
Total capital generation
2022
£m
246
(33)
213
2021
£m
313
15
328
2022
£m
641
194
835
2021
£m
459
621
1,080
2022
£m
(259)
32
(227)
2021
£m
(288)
(3)
(291)
2022
£m
628
193
821
(1,225)
(166)
173
(397)
2021
£m
484
633
1,117
917
(181)
(31)
1,822
A reconciliation of the movement in Group Solvency II surplus is presented below.
For the year ended 31 December
Underlying capital generation
Asset
Management
Asset Management
Asset Management underlying
capital generation
Retail and Savings Wealth
of which with-profits
– in-force
– new business
of which Platform and advice
Heritage
of which with-profits
of which annuity and other
Other Retail and Savings
Retail and Savings underlying capital
generation
Corporate
Interest and head office costs
Underlying capital generation
Other operating capital generation
of which Asset Management
of which Retail and Savings
of which Corporate Centre
Operating capital generation
Market movements
Restructuring and other
Tax
Total capital generation
Dividends and capital movements
Total (decrease)/increase in Solvency II surplus
2022
2021
Own fundsi
£m
SCRi
£m
Surplus
£m
Own fundsi
£m
SCRi
£m
Surplus
£m
268
268
214
233
187
46
(21)
339
138
201
43
596
(267)
597
194
7
188
(1)
791
(22)
246
(22)
(59)
(53)
29
(82)
(4)
164
54
110
(60)
45
8
31
(1)
(40)
6
33
30
246
155
180
216
(36)
(25)
503
192
311
(17)
641
(259)
628
193
(33)
194
32
821
(2,259)
1,034
(1,225)
(173)
652
(989)
(1,151)
(2,140)
7
(479)
592
(15)
577
(166)
173
(397)
(1,166)
(1,563)
308
308
117
128
169
(41)
(11)
185
115
70
36
338
(280)
366
217
5
201
11
583
739
(167)
16
1,171
(410)
761
5
5
(68)
(68)
(57)
(11)
—
193
27
166
(4)
121
(8)
118
416
10
420
(14)
534
178
(14)
(47)
651
(24)
627
313
313
49
60
112
(52)
(11)
378
142
236
32
459
(288)
484
633
15
621
(3)
1,117
917
(181)
(31)
1,822
(434)
1,388
i Own funds and SCR movements shown as per the shareholder Solvency II capital position, and do not include the own funds and SCR in respect of the
ring-fenced With-Profits Fund.
328 | M&G plc Annual Report and Accounts 2022
1.6 Financial ratios
Included in this section are details of how some of the financial ratios used to help analyse the performance of the Asset
Management business are calculated.
1.6 (i) Cost/income ratio
Cost/income ratio is a measure of cost efficiency which analyses costs as a percentage of revenue.
For the year ended 31 December
Total Asset Management operating expenses
Adjustment for revaluationsi
Total Asset Management adjusted costs
Total Asset Management fee based revenue
Less: performance fees and carried interest
Total Asset Management underlying fee-based revenue
Cost/income ratio (%)
2022
£m
763
2
765
1,051
(56)
995
77%
2021
£m
672
(3)
669
976
(23)
953
70%
i Reflects the revaluation of provisions relating to performance based awards that are linked to underlying fund performance. M&G Group Limited hold
units in the underlying funds to hedge the exposure on these awards.
1.6 (ii) Average fee margin
This represents the average fee revenue yield on fee business and demonstrates the margin being earned on the assets we
manage or administer.
For the year ended 31 December
Wholesale Asset Management
Institutional Asset Management
Internal
Total Asset Management
2022
2021
Average
AUMAi
£bn
Revenueii
£m
Fee marginii
bps
Average
AUMAi
£bn
Revenueii
£m
Fee marginii
bps
52
102
157
311
299
390
306
995
58
38
19
32
53
93
157
303
316
334
303
953
59
36
19
32
i Average AUMA represents the average total market value of all financial assets managed and administered on behalf of clients during the financial
period. Average AUMA is calculated using a 13-point average of monthly closing AUMA for full-year periods.
ii Fee margin is calculated by annualising underlying fee-based revenues earned, which excludes performance fees, in the period divided by average
AUMA for the period. Fee margin relates to the total margin for internal and external revenue.
1.7 Credit risk
The Group’s exposure to credit risk primarily arises from the annuity portfolio, which holds large amounts of investments on
which a certain level of defaults and downgrades are expected.
While the with-profits and unit-linked funds have large holdings of assets subject to credit risk, the shareholder results of the
Group are not directly exposed to credit defaults on assets held in these components. The direct exposure of the Group’s
shareholders’ equity to credit default risk in the “Other” component in Note 33.1 is small in the context of the Group. However, the
shareholder is indirectly exposed to credit risk on these components through lower shareholder transfers in respect of the with-
profits business and lower charges levied in respect of the “unit-linked” and “other” components of the business. Further detail
on the Group’s exposure to credit risk on the annuity portfolio is included in Note 33.2.
Exposure of debt securities by sector
The exposure of annuities and other long-term business to debt securities is analysed below by sector:
As at 31 December
Financial
Government
Real Estate
Utilities
Consumer
Industrial
Communications
Other
Total
2022
£m
3,987
3,085
1,709
1,793
613
425
274
513
2021
£m
5,588
4,861
2,830
2,467
817
617
365
721
12,399
18,266
M&G plc Annual Report and Accounts 2022 | 329
Financial informationStrategic ReportGovernanceOther information
Other
information
331 Shareholder information
332 Glossary
337 Contact us
330 | M&G plc Annual Report and Accounts 2022
Shareholder information
M&G plc maintains a corporate website containing
a wide range of information relevant for private and
institutional investors, including the Company’s
financial calendar: www.mandg.com
Annual General Meeting
M&G plc’s Annual General Meeting
(AGM) is expected to be held at our
offices at 10 Fenchurch Avenue, London
EC3M 5AG on 24 May 2023 at 10:00.
A poll will be called on all resolutions
and the voting results, including all
proxies lodged prior to the meeting,
will be displayed at the meeting
and subsequently published on the
Company’s website. Full details will be
included in the AGM Notice.
In accordance with relevant legislation,
shareholders holding 5% or more of the
fully paid up issued share capital are able
to require the Directors to hold a general
meeting. Written shareholder requests
should be addressed to the General
Counsel and Company Secretary at the
registered office.
Documents on display
The terms and conditions of all
Directors’ appointments are available for
inspection at the Company’s registered
office during normal business hours
and at the AGM. Inspection of these
documents may also be undertaken
virtually. Please email Group Secretariat
at GroupSecretariat@mandg.com if you
wish to view any of these documents
and arrangements will be made with you.
Company constitution
M&G plc is governed by the Companies
Act 2006, other applicable legislation
and regulations, and provisions in its
Articles of Association (Articles) which
are available on the Company’s website.
The Company’s Articles state that the
Board may appoint Directors but that
those Directors are required to offer
themselves up for re-election annually
at the AGM. The Articles can only be
amended with shareholder approval.
Electronic communications
Shareholders are encouraged to elect
to receive shareholder documents
electronically by registering with
Shareview at www.shareview.co.uk.
This will save on printing and distribution
costs, and create environmental
benefits. Shareholders who have
registered will be sent an email
notification whenever shareholder
documents are available on the
Company’s website and a link will
be provided to that information.
When registering, shareholders will
need their shareholder reference
number which can be found on
their share certificate or other
correspondence from the Company.
Please contact Equiniti if you require
any assistance or further information.
Share dealing services
The Company’s registrar, Equiniti, offer
a postal dealing facility for buying and
selling M&G plc ordinary shares; please
see the Equiniti address opposite.
They also offer a telephone and internet
dealing service, Shareview, which
provides a simple and convenient way
of selling M&G plc shares. For telephone
sales, call +44 (0)345 603 7037
between 08:00 and 16:30, Monday to
Friday, and for internet sales log on to:
www.shareview.co.uk/dealing.
ShareGift
Shareholders who have only a small
number of shares, the value of which
makes them uneconomic to sell, may
wish to consider donating them to
ShareGift (Registered Charity 1052686).
The relevant share transfer form may be
obtained from Equiniti.
Further information about ShareGift may
be obtained on +44 (0)20 7930 3737 or
from www.ShareGift.org.
Shareholder enquiries
For enquiries about shareholdings,
including dividends and lost share
certificates, please contact the
Company’s registrar:
Registrar
M&G plc’s share register is managed
and administered by Equiniti.
By post
Equiniti Limited, Aspect House,
Spencer Road Lancing, West Sussex,
BN99 6DA, UK
By telephone
Tel +44 (0)371 384 2543
Lines are open from 08:30 to 17:30 (UK),
Monday to Friday.
International shareholders
Tel +44 (0)121 415 0280
M&G plc Annual Report and Accounts 2022 | 331
Other informationStrategic ReportGovernanceFinancial information Definition
Term
Definition
Glossary
Term
ABI
Adjusted operating
profit before tax
Alternative
performance
measure (APM)
Asset-backed
security (ABS)
Asset Management
cost/income ratio
The Association of British Insurers.
Adjusted operating profit before tax
is one of the Group’s key alternative
performance measures. It is defined in
the key performance measure section
on page 318.
An APM is a financial measure of historic
or future financial performance, financial
position or cash flows, other than a
financial measure defined under IFRS or
under Solvency II regulations.
A security whose value and income
payments are derived from and
collateralised (or backed) by a specified
pool of underlying assets. The pool of
assets is typically a group of small and
illiquid assets that are unable to be
sold individually.
The Asset Management cost/income
ratio represents total operating
expenses, excluding revaluation of
provisions for employee performance
awards divided by total fee-based
revenues, excluding performance fees.
Assets under
management and
administration
(AUMA)
AUMA represents the total market
value of all financial assets managed,
administered or advised on behalf
of clients.
Average
fee margin
Board
Bonuses
The average fee margin is calculated
from fee-based revenues earned in the
period, excluding performance fees,
divided by average AUMA for the period.
It demonstrates the revenue margin that
was earned on the assets we manage
and administer.
The Board of Directors of the Company.
Bonuses refer to the non-guaranteed
benefit added to participating life
insurance policies and are the way in
which policyholders receive their share
of the profits of the policies. There are
normally two types of bonus:
– Regular bonus: expected to be added
every year during the term of the
policy. It is not guaranteed that a
regular bonus will be added each
year, but once it is added, it cannot
be reversed, also known as annual
or reversionary bonus; and
– Final bonus: an additional bonus
expected to be paid when
policyholders take money from
the policies. If investment return
has been low over the lifetime of the
policy, a final bonus may not be paid.
Final bonuses may vary and are
not guaranteed.
332 | M&G plc Annual Report and Accounts 2022
Chief Operating
Decision Maker
Climate Action 100+
(CA100+)
Climate Bonds
Initiative (CBI)
Company/Parent
Company
COP
Corporate
Sustainability
Reporting Directive
(CSRD)
Demerger
Department for
Environment, Food
and Rural Affairs
(DEFRA)
The Group Executive Committee.
CA100+ is an investor-led initiative to
ensure the world’s largest corporate
greenhouse gas emitters take necessary
action on climate change.
CBI works to mobilise global capital for
climate change solutions, promoting
investment in projects and assets that
enable transition to a low-carbon,
climate-resilient economy. Its primary
activities include the definition
of standards for climate-aligned
investments, support for governments
launching climate finance policies, and
market intelligence.
M&G plc, a public limited company
incorporated in England and Wales
with registered number 11444019
whose registered office is 10 Fenchurch
Avenue, London EC3M 5AG,
United Kingdom.
United Nations (UN) climate summits
are held every year, for governments to
agree steps to limit global temperature
rises - they are referred to as COPs,
which stands for “Conference of the
Parties”. The parties are the attending
countries that signed up to the original
UN climate agreement in 1992.
The EU is bringing sustainability
reporting in line with financial reporting,
with the introduction of the CSRD.
The new framework will be rolled out
in a phased approach from 2024. It will
require companies to report on how
sustainability issues, such as climate
change, impact their business and how
their operations in turn affect people and
planet (reflecting the principle of ‘double
materiality’). The new regulation updates
previous corporate sustainability
reporting under the 2014 Non-Financial
Reporting Directive (NFRD).
The demerger from the Prudential Group
in October 2019.
Conversion factors are issued by DEFRA
which allow organisations to calculate
greenhouse gas (GHG) emissions from
a range of activities, including energy
use, water consumption, waste disposal,
recycling and transport activities.
Director
A Director of the Company.
Term
Earnings per
share (EPS)
Employee benefit
trust (EBT)
Energy Attribute
Certificates (EAC)
Enterprise Value
Including Cash
(EVIC)
ESG
Fair value through
profit or loss
(FVTPL)
Financial Conduct
Authority (FCA)
FRC Stewardship
Code
Definition
EPS is a commonly used financial metric
which can be used to measure the
profitability and strength of a company
over time. EPS is calculated by dividing
profit after tax by the number of ordinary
shares. Basic EPS uses the weighted
average number of ordinary shares
outstanding during the year. Diluted EPS
adjusts the weighted average number of
ordinary shares outstanding to assume
conversion of all dilutive potential
ordinary shares, such as share options
awarded to employees.
An EBT is a trust set up to enable its
Trustees to purchase and hold shares to
satisfy employee share-based incentive
plan awards.
EACs allow businesses to track
the origin of electricity, prove the
consumption of renewables, and meet
clean energy targets.
EVIC is the sum of market capitalisation
plus total debt. Market capitalisation is
driven by fundamentals (earnings) and
market valuations as measured by Price
Earnings (P/E ratios).
ESG stands for Environmental, Social,
and Governance. ESG is a framework
that helps stakeholders understand how
an organisation is managing risks and
opportunities related to environmental,
social, and governance criteria.
FVTPL is an IFRS measurement basis
permitted for assets and liabilities
which meet certain criteria. Gains or
losses on assets or liabilities measured
at FVTPL are recognised directly in the
income statement.
The FCA is the body responsible for
supervising the conduct of all financial
services firms and for the prudential
regulation of those financial services
firms not supervised by the Prudential
Regulation Authority (PRA), such as
asset managers and independent
financial advisers.
The UK Stewardship Code 2020 sets high
stewardship standards for those investing
money on behalf of UK savers and
pensioners, and those that support them.
Term
Group
Group Executive
Committee
Investment Funds
Direct Limited (IFDL)
Institutional
Investor Group on
Climate Change
(IIGCC)
Definition
The Company and its subsidiaries.
The Group Executive Committee
is composed of board officers and
senior-level executive management.
It is the Group’s most senior executive
decision-making forum.
Platform business purchased from
Royal London in 2020. Previously known
as Ascentric, now rebranded as M&G
Wealth Platform.
The IIGCC works with business, policy
makers and fellow investors to help
define the investment practices, policies
and corporate behaviours required to
address climate change.
International
Energy Agency
(IEA)
The IEA compiles annual emission
factors for world countries from
electricity and heat generation.
International
Financial Reporting
Standards (IFRS)
Inter-Governmental
Panel on Climate
Change (IPCC)
International
Sustainability
Standards Board
(ISSB)
Key performance
measure (KPM)
IFRS are accounting standards issued by
the International Accounting Standards
Board (IASB). Our consolidated
financial statements are prepared
in accordance with UK adopted
International Accounting Standards
(IAS). Any reference to IFRS refers to
those which have been adopted for use
in the UK unless specified otherwise.
The IPCC was created to provide
policymakers with regular scientific
assessments on climate change, its
implications and potential future risks,
as well as to put forward adaptation and
mitigation options.
The IFRS Foundation announced the
formation of the ISSB in November
2021 at COP26; the intention is for
the ISSB to deliver a comprehensive
global baseline of sustainability-related
disclosure standards that provide
investors and other capital market
participants with information about
companies’ sustainability-related risks
and opportunities to help them make
informed decisions.
The Group measures its financial
performance using the following key
performance measures: IFRS profit after
tax, adjusted operating profit before tax,
net client flows (excluding Heritage),
AUMA, shareholder Solvency II coverage
ratio, total capital generation and
operating capital generation.
M&G plc Annual Report and Accounts 2022 | 333
Other informationStrategic ReportGovernanceFinancial information Glossary continued
Term
Definition
Term
Definition
The leverage ratio is calculated as the
nominal value of debt as a percentage
of the Group’s shareholder Solvency II
own funds.
Network for
Greening the
Financial System
(NGFS)
The NGFS is a group of central
banks and supervisors committed to
sharing best practices, contributing
to the development of climate –and
environment– related risk management
in the financial sector and mobilising
mainstream finance to support the
transition toward a sustainable economy.
Convened by the UN, the NZAOA
seeks to transform member investment
portfolios to net zero GHG emissions
by 2050.
The NZIF, published in March 2021 by
the Institutional Investors Group on
Climate Change, provides a common set
of recommended actions, metrics and
methodologies through which investors
can maximise their contribution
to achieving global net zero global
emissions by 2050 or sooner.
Contracts where the policyholders
are not entitled to a share of the
company’s profits and surplus, but are
entitled to other contractual benefits.
Examples include pure risk policies
(such as fixed annuities) and unit-
linked policies.
Operating capital generation is the total
capital generation before tax, adjusted
to exclude market movements relative
to those expected under long-term
assumptions and to remove other
non-operating items, including
shareholder restructuring costs.
Net-Zero Asset
Owner Alliance
(NZAOA)
Net Zero
Investment
Framework
(NZIF)
Non-profit
business
Operating capital
generation
Operational control The Group has operational control
Own funds
over a subsidiary when it has the full
authority to introduce and implement
operating policies.
Own funds refers to the Solvency II
measure of capital available to meet
losses, and is based on the assets less
liabilities of the Group, subject to certain
restrictions and adjustments.
Leverage ratio
Long-Term
Incentive Plan
(LTIP)
M&G Alternatives
Investment
Management
Limited (MAGAIM)
M&G Group
Limited (MGG)
M&G Investment
Management
Limited (MAGIM)
MandG Investments
Southern Africa
(Pty) Ltd (MGSA)
Net client flows
The part of an executive’s remuneration
designed to incentivise long-term value
for shareholders through an award
of shares, with vesting contingent on
employment and the satisfaction of
stretching performance conditions
linked to our strategy.
MAGAIM is a private limited company
incorporated in England and Wales
with registered number 02059989
whose registered office is 10 Fenchurch
Avenue, London EC3M 5AG,
United Kingdom.
MGG is a private limited company
incorporated in England and Wales
with registered number 00633480
whose registered office is 10 Fenchurch
Avenue, London EC3M 5AG,
United Kingdom.
MGG is the holding company of the
Group’s asset management business,
M&G Investments.
MAGIM is a private limited company
incorporated in England and Wales
with registered number 00936683
whose registered office is 10 Fenchurch
Avenue, London EC3M 5AG,
United Kingdom.
On 4 July 2021, M&G FA Limited, a
wholly-owned subsidiary of M&G plc,
acquired a controlling stake in Prudential
Portfolio Managers (South Africa) (Pty)
Ltd (PPMSA). We previously accounted
for the investment as an associate using
the equity method. As we now have a
controlling interest, the acquisition has
been accounted for using the acquisition
accounting method. Rebranded as MandG
Investments Southern Africa (MGSA).
Net client flows represent gross inflows
less gross outflows. Gross inflows are
new funds from clients. Gross outflows
are withdrawals made by clients during
the period.
Net promoter score Net promoter score is a measure of the
willingness of a company’s clients to
recommend its products or services
to others.
334 | M&G plc Annual Report and Accounts 2022
Term
Definition
Term
Definition
Paris Agreement
Partnership for
Carbon Accounting
Financials (PCAF)
Powering Past Coal
Alliance (PPCA)
Prudential
Regulation
Authority (PRA)
Prudential
Assurance
Company (PAC)
PruFund
RE-DISS
Renewable Energy
Guarantees of
Origin (REGO)
The Paris Agreement is an agreement
within the United Nations Framework
Convention on climate change, dealing
with greenhouse gas emissions
mitigation, adaptation, and finance,
agreed in 2015.
The PCAF is a global partnership
of financial institutions that work
together to develop and implement a
harmonised approach to assess and
disclose the greenhouse gas emissions
(GHG) associated with their loans
and investments.
The PPCA is a coalition of national and
subnational governments, businesses
and organisations working to advance
the transition from unabated coal power
generation to clean energy.
The PRA is the body responsible for the
prudential regulation and supervision of
banks, building societies, credit unions,
insurers and major investment firms.
The Prudential Assurance Company
Limited (PAC) is a private limited
company incorporated in England
and Wales with registered number
00015454 whose registered office is 10
Fenchurch Avenue, London EC3M 5AG,
United Kingdom.
Our PruFund proposition provides
our retail customers with access to
smoothed savings contracts with a
wide choice of investment profiles.
The Reliable Disclosure Systems for
Europe project (hereafter RE-DISS)
of the EU has made calculations
for electricity tracking in European
countries since 2009 - RE-DISS aims
at improving significantly the reliability
of information given to consumers of
electricity in the EU re the origin of their
consumption mix.
The REGO scheme provides
transparency to consumers about the
proportion of electricity that suppliers
source from renewable generation.
Sustainability
Accounting
Standards Board
(SASB)
Science Based
Targets initiative
(SBTi)
The SASB is a framework that sets
standards for the disclosure of financially
material sustainability information by
companies to their investors.
The SBTi defines and promotes best
practice in science-based target setting.
Targets are considered ‘science-based’
if they are in line with what the latest
climate science deems necessary to
meet the goals of the Paris Agreement –
limiting global warming to well-below 2°C
above pre-industrial levels and pursuing
efforts to limit warming to 1.5°C. Science-
based targets show organisations how
much and how quickly they need to
reduce their greenhouse gas (GHG)
emissions to prevent the worst effects of
climate change.
Scope 1 emissions
Emissions from: fuel combustion;
company vehicles; fugitive emissions.
Scope 2 emissions Emissions from: purchased electricity,
heat and steam.
Scope 3 emissions Emissions from: purchased goods and
services; business travel; employee
commuting; waste disposal; use of sold
products; transportation and distribution
(up and downstream); investments;
leased assets; and franchises.
SAIF is a ring-fenced sub-fund of
the With-Profits Fund following the
acquisition of the mutually owned
Scottish Amicable Life Assurance
Society in 1997. The fund is solely for
the benefit of policyholders of SAIF.
On 1 April 2021 SAIF merged with PAC’s
main with-profits sub-fund and the
assets and liabilities of SAIF combined
with those of the with-profits sub-fund.
The EU’s SFDR is a regulation designed
to make it easier for investors to
distinguish and compare between
the many sustainable investment
strategies that are now available within
the European Union; the framework
classifies asset managers’ funds
as either an article 6, 8, or 9 funds
depending on their level of sustainability,
and regardless if they are promoting
their fund as an ESG investment.
Shareholder Solvency II coverage ratio
is the ratio of own funds to solvency
capital requirement (SCR), excluding the
contribution to own funds and SCR from
our ring-fenced With-Profits Fund.
Scottish Amicable
Insurance Fund
(SAIF)
Sustainable
Finance Disclosure
Regulation
(SFDR)
Shareholder
Solvency II
coverage ratio
M&G plc Annual Report and Accounts 2022 | 335
Other informationStrategic ReportGovernanceFinancial information Glossary continued
Term
SICAV
Solvency capital
requirement (SCR)
Solvency II
Definition
A SICAV (Société d’investissement
à Capital Variable) is an open-ended
investment fund offered by European
financial companies, similar to the
UK’s unit trust. SICAVs are effectively
share companies aimed at collectively
investing the assets collected through
the public offering of shares, whose
value amounts to the net worth of capital
account divided by their number.
SCR represents the 99.5th percentile
(or 1-in-200) worst outcome over the
coming year, out of 100,000 equally likely
scenarios, allowing for the dependency
between the risks the business is
exposed to. The SCR is calculated using
our Solvency II Internal Model.
A regime for the prudential regulation
of insurance companies that was
introduced by the EU on 1 January 2016.
Solvency II surplus Solvency II surplus represents the own
Taskforce on
Nature-Related
Financial
Disclosures (TNFD)
Task Force on
Climate-Related
Financial
Disclosures (TCFD)
Total capital
generation
Total Shareholder
Return (TSR)
Transition Plan
Taskforce (TPT)
funds that we hold less the solvency
capital requirement.
The TNFD is an international initiative
that builds on a model developed by
the TCFD. Its mission is to provide
a framework for how organisations
can address environmental risks
and opportunities with the ultimate
goal of channeling capital flows into
positive action.
The TCFD was created by the
Financial Stability Board to develop
consistent climate-related financial
risk disclosures. The FCA require all
premium listed companies to disclose,
on a comply or explain basis, against the
recommendations of the TCFD.
Total capital generation is the
total change in Solvency II surplus
capital before dividends and capital
movements, and capital generated
from discontinued operations.
TSR represents the growth in the value
of a share plus the value of dividends
paid, assuming that the dividends are
reinvested in the Company’s shares on
the ex-dividend date.
The TPT was launched by HM Treasury in
April 2022 to develop the gold standard
for private sector climate transition plans.
The TPT is informing and building on
international disclosure standards.
Term
Transitional
measures
UK Sustainable
Investment and
Finance Association
(UKSIF)
Unit-linked policy
UN Principles
for Responsible
Investment (UNPRI)
Verified Carbon
Standard (VCS)
With-profits
business
With-Profits Fund
Definition
Transitional measures on technical
provisions are an adjustment to Solvency
II technical provisions, to smooth the
impact of the change in the regulatory
regime on 1 January 2016. This decreases
linearly over 16 years following the
implementation of Solvency II, but may be
recalculated in certain cases, subject to
agreement with the PRA.
The UKSIF exists to bring together the
UK’s sustainable finance and investment
community and support members to
expand, enhance and promote this key
sector. UKSIF represents a diverse range
of financial services firms committed
to these aims and aims to drive growth
and new opportunities for members
as global leaders in the sustainable
finance industry.
A policy where the benefits are determined
by the investment performance of the
underlying assets in the unit-linked fund.
UNPRI is a United Nations-supported
international network of financial
institutions. It works together to
understand the investment implications
of ESG factors and support its network
of investor signatories in incorporating
these factors into their investment and
ownership decisions.
The VCS Program is the world’s most
widely used greenhouse gas (GHG)
crediting program - it drives finance
toward activities that reduce and remove
emissions, improve livelihoods, and
protect nature.
Contracts where the policyholders
have a contractual right to receive,
at the discretion of the Company,
additional benefits based on the profits
of the fund, as a supplement to any
guaranteed benefits.
The Prudential Assurance Company
Limited’s fund where policyholders
are entitled to a share of the profits
of the fund. Normally, policyholders
receive their share of the profits
through bonuses. It is also known as a
participating fund as policyholders have
a participating interest in the With-Profits
Fund and any declared bonuses.
336 | M&G plc Annual Report and Accounts 2022
Contact us
Registered office
M&G plc
10 Fenchurch Avenue
London
EC3M 5AG
United Kingdom
Website
www.mandg.com
Telephone
+44 (0)207 626 4588
Registered number
11444019
M&G plc is incorporated and registered
in England and Wales. M&G plc is a holding
company, some of whose subsidiaries
are authorised and regulated, as applicable,
by the Prudential Regulation Authority and
the Financial Conduct Authority.
Disclaimer on forward-looking statements
This document may contain certain ‘forward-looking statements’ with
respect to M&G plc (M&G) and its affiliates (the Group), its plans, its current
goals and expectations relating to future financial condition, performance,
results, operating environment, strategy and objectives. Statements that
are not historical facts, including statements about M&G’s beliefs and
expectations and including, without limitation, statements containing
the words ‘may’, ‘will’, ‘should’, ‘continue’, ‘aims’, ‘estimates’, ‘projects’,
‘believes’, ‘intends’, ‘expects’, ‘plans’, ‘seeks’, ‘outlook’ and ‘anticipates’,
and words of similar meaning, are forward-looking statements.
These statements are based on plans, estimates and projections as at the
time they are made, and therefore persons reading this announcement are
cautioned against placing undue reliance on forward-looking statements.
By their nature, forward-looking statements involve inherent assumptions,
risk and uncertainty, as they generally relate to future events and
circumstances that may be beyond our control. A number of important
factors could cause M&G’s actual future financial condition or performance
or other indicated results to differ materially from those indicated in any
forward-looking statement. Such factors include, but are not limited to, UK
domestic and global economic and business conditions; market-related
conditions and risk, including fluctuations in interest rates and exchange
rates, the potential for a sustained low-interest rate environment, corporate
liquidity risk and the future trading value of the shares of M&G; investment
portfolio-related risks, such as the performance of financial markets
generally; the policies and actions of regulatory authorities, including,
for example, new government initiatives; the impact of competition,
economic uncertainty, inflation and deflation; the effect on M&G’s business
and results from, in particular, mortality and morbidity trends, longevity
assumptions, lapse rates and policy renewal rates; the timing, impact and
other uncertainties of future acquisitions or combinations within relevant
industries; the impact of internal projects and other strategic actions,
such as transformation programmes, failing to meet their objectives; the
impact of operational risks, including risk associated with third-party
arrangements, reliance on third-party distribution channels and disruption
to the availability, confidentiality or integrity of M&G’s IT systems (or those
of its suppliers); the impact of changes in capital, solvency standards,
accounting standards or relevant regulatory frameworks, and tax and other
legislation and regulations in the jurisdictions in which the Group operates;
and the impact of legal and regulatory actions, investigations and disputes.
These and other important factors may, for example, result in changes to
assumptions used for determining results of operations or re-estimations of
reserves for future policy benefits.
Any forward-looking statements contained in this document speak only
as of the date on which they are made. M&G expressly disclaims any
obligation to update any of the forward-looking statements contained
in this document or any other forward-looking statements it may make,
whether as a result of future events, new information or otherwise except
as required pursuant to the UK Prospectus Rules, the UK Listing Rules,
the UK Disclosure and Transparency Rules, or other applicable laws
and regulations.
This report has been prepared for, and only for, the members of M&G,
as a body, and no other persons. M&G, its Directors, employees, agents
or advisers do not accept or assume responsibility to any other person
to whom this document is shown or into whose hands it may come,
and any such responsibility or liability is expressly disclaimed.
M&G plc Annual Report and Accounts 2022 | 337
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M&G plc
10 Fenchurch Avenue
London
EC3M 5AG
United Kingdom
+44 (0)207 626 4588
mandg.com